<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the year ended December 31, 1997
Commission file number 1-12496
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CHATEAU COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 38-3132038
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6430 South Quebec Street, Englewood, Colorado 80111
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 741-3707
Securities registered pursuant to section 12(b) of the Act
and listed on the New York Stock Exchange:
Common Stock, $0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 12, 1998 was approximately $668,682,652 based on the closing
price of the stock on the New York Stock Exchange on such date. For the purposes
of this response, executive officers and directors have been deemed to be
affiliates of the Registrant.
The number of shares of the Registrant's Common Stock outstanding on March
12, 1998 was 27,339,225 shares.
Portions of the Registrant's 1997 definitive Proxy Statement to be filed
for its 1998 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Report.
<PAGE> 2
CHATEAU COMMUNITIES, INC.
FORM 10-K ANNUAL REPORT
for the year ended December 31, 1997
TABLE OF CONTENTS
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Item Pages
- ---- -----
PART I
1. Business...........................................................3
2. Properties.........................................................7
3. Legal Proceedings.................................................14
4. Submission of Matters to a Vote of Security Holders...............14
PART II
5. Market for Registrant's Common Equity and
Related Security Holder Matters..........................15
6. Selected Financial Data...........................................16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................18
8. Financial Statements and Supplementary Data.......................25
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................46
PART III
10. Directors and Executive Officers of the Registrant................47
11. Executive Compensation............................................47
12. Security Ownership of Certain Beneficial Owners
and Management...........................................47
13. Certain Relationships and Related Transactions....................47
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................................48
Signatures........................................................53
FINANCIAL STATEMENT SCHEDULES
Chateau Communities, Inc. Financial Statement Schedules...........F1
<PAGE> 3
PART I
Item 1. Business
General Development of Business.
Chateau Communities, Inc. (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. The Company conducts
substantially all of its activities through CP Limited Partnership, a Maryland
limited partnership (the "Operating Partnership") in which it owns, directly and
through ROC Communities, Inc. ("ROC"), the other general partner of the
Operating Partnership, an approximate 89% general partner interest. The Company
owns and operates 153 manufactured home community properties containing 47,650
homesites and 1,350 park model/RV sites in 29 states. The company also fee
manages 32 manufactured home community properties containing 6,600 homesites.
Formation of the Company
The Company was formed in Maryland on August 25, 1993, as Chateau Properties,
Inc., to continue and expand the manufactured home operations and business
objectives of Chateau Estates ("Chateau"), a Michigan co-partnership. Chateau
had developed, owned and operated manufactured home communities and properties
since 1966.
On February 11, 1997, the Company completed a strategic merger of equals with
ROC (the "Merger"). The Merger and related transactions were accounted for using
the purchase method of accounting in accordance with generally accepted
accounting principles. Accordingly, the assets and liabilities of ROC were
adjusted to fair value for financial accounting purposes and the results of
operations of ROC were included in the results of operations of the Company
beginning in February 1997.
Industry Overview
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 variety of architectural styles
and floor plans, offering a variety of amenities, custom options and on-site
built additional 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, golf courses, marinas 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.
3
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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 owner within the manufactured home community is
responsible for the maintenance of his home and leased site. Additionally,
manufactured home communities tend to have relatively stable resident bases,
with relatively few residents moving manufactured homes out of the communities.
Management thus tends to be less intensive, and capital expenditure needs less
significant, relative to multi-family rental apartment complexes.
Operating and Investment Strategies
The Company seeks to maximize long-term growth in income and portfolio value
through active management and expansion of certain of its manufactured home
communities and the acquisition and selective development of additional
communities. The Company focuses on manufactured home communities that have
growth potential and expects to hold such properties for long-term investment
and capital appreciation. The Company's operating and investment strategies
include:
Operations
* Providing attractive and desirable manufactured home communities for
existing and prospective residents;
* Aggressively managing properties to increase operating margins
through rent and occupancy increases and expense controls;
* Maintaining and upgrading communities on a continuous basis through
a program of regular and preventive maintenance and replacement;
* Offering residents 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
desirability of each Property; and
* Offering potential community residents the convenience of purchasing
a home already in place within the community.
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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, expansion
or development;
* Acquiring properties in existing markets in order to achieve
economies of scale in operations, and in new markets where
portfolios may be acquired with regional management in place;
* Utilizing the expertise and relationships developed by the Company's
management to identify acquisition and development 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 Company 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
Company intends to maintain a debt-to-market capitalization ratio of
approximately 50% or less. The Company, however, may from time to time
re-evaluate this policy and decrease or increase such ratio accordingly in light
of then current economic conditions, relative costs to the Company of debt and
equity capital, market values of the properties and other factors.
Expansion and Improvement of Manufactured Home Community Properties
The Company will seek to increase the income generated from the manufactured
home communities and from any additional properties acquired by expanding the
number of sites available to be leased to residents if justified by local market
conditions and permitted by zoning and other applicable laws. During 1997, the
Company substantially completed the development of 509 expansion sites. As of
December 31, 1997, the Company had 43,800 total sites, of which approximately
3,500 were vacant. The Company owned at such date undeveloped land adjacent to
existing communities containing approximately 4,700 expansion sites, which are
zoned for manufactured housing. All necessary utilities are available at these
expansion sites, however, building permits would need to be obtained prior to
development. This undeveloped land will facilitate additional growth to the
extent conditions warrant. In addition, where appropriate, the Company will
consider upgrading or adding facilities and amenities to certain communities in
order to make those communities more attractive in their markets.
5
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1997 Property Acquisitions
During 1997, the Company completed the following acquisitions:
<TABLE>
<CAPTION>
Amount Fair Market
Allocated Value of
Acquisition Property Name to Assets OP Units
Date and Location Acquired Issued Cash
----------- ------------- --------- ----------- ----
<S> <C> <C> <C> <C>
February, 1997 75 communities acquired through see Note 3 to the Consolidated Financial
Merger with ROC Statements
November, 1997 Purchase of 4 communities in
Boston, Massachusetts $20,000 $ 500 $19,500
Various Investment in joint ventures $ 4,259 $ -- $ 4,259
</TABLE>
Community Sales, Inc. ("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.
The Windsor Corporation ("Windsor")
In September 1997, the Company completed the acquisition of Windsor, the general
partner of five partnerships and advisor to one REIT owning 28 manufactured home
communities (containing 5,700 homesites), all of which had been managed by ROC
on a fee basis since 1993 and by the Company since the Merger. The acquisition
was financed with the issuance of 101,239 shares of common stock and $750,000 in
cash.
Competition
Many of the Properties are located in developed areas that include other
manufactured home community properties. The number of competitive manufactured
home community properties in a particular area could have a material effect on
the Company's ability to lease sites at the Properties or at any newly acquired
properties and on the rents charged. In addition, other forms of multi-family
residential properties and single-family housing provide housing alternatives to
potential residents of the Properties.
6
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Employees
As of December 31, 1997, the Company had approximately 1,000 full and part-time
employees. The Company utilizes a resident administrator for the on-site
administration of each of the Properties. Important duties of on-site
administrators as well as the office manager include extensive contact with
residents through initial introduction to community rules and on-going
accessibility for resident assistance. Administrators notify residents who are
in violation of these rules and regulations. Typically, clerical and maintenance
workers are employed to assist these individuals in the management and care of
the Properties. Direct supervision of on-site administrators is the
responsibility of the Company's regional vice presidents and managers and
divisional senior vice presidents. These individuals have significant experience
in addressing the needs of residents and in finding or creating innovative
approaches to value maximization and increased cash flow from property
operations. Complementing this field management staff are 49 corporate employees
who assist on-site administrators in all property functions.
Commitment to resident satisfaction is demonstrated by the ongoing training that
the Company provides for on-site staff. Community administrators meet
periodically at regional seminars to review Company philosophy and policy, to
discuss relevant administration issues and solutions and to share ideas and
experiences.
Tax Status
The Company has elected to be taxed as a REIT under Section 856(c) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company generally
will not be subject to Federal income tax to the extent it distributes 95
percent of its REIT taxable income to its stockholders. REITs are subject to a
number of organizational and operational requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Even as a REIT, the Company is subject to
certain state and local taxes on its income and property and Federal income and
excise taxes to the extent of its undistributed income.
Item 2. Properties
At December 31, 1997 the Properties consisted of 131 manufactured home
communities containing 43,800 sites, in 28 states, with amenities designed for
either retirement or family living. The Company also fee managed 31 manufactured
home communities containing 6,500 sites in 13 states. The Company also owned
land adjacent to certain existing communities containing approximately 4,700
expansion sites which, although not yet developed, was zoned for manufactured
housing.
At December 31, 1997, the Properties had an average occupancy rate of
approximately 92 percent with weighted average rent for the year ended December
31, 1997 of $287 per month. Weighted average rent is calculated as 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
number of revenue producing sites at the end of each month in the period.
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The Company believes that the Properties provide amenities and common facilities
that create a safe and attractive community for the residents. All of the
Properties provide residents with attractive amenities with most offering a
clubhouse, a swimming pool and a library. Many Properties offer additional
amenities such as sauna/whirlpool spas, indoor pools, tennis courts,
shuffleboard courts, basketball courts, golf courses, day care facilities,
exercise rooms and marinas.
Since residents own their homes, it is their responsibility to maintain their
homes and the surrounding area. The communities have extensive rules and
regulations to maintain their appearance at the highest level. It is
management's role to insure that residents comply with community policies and to
provide maintenance of the common areas, facilities and amenities. The Company
continually monitors compliance by residents with its residents' regulations to
assure that the communities are maintained at the highest standards. The Company
holds periodic meetings of its property management personnel for training and
implementation of the Company's strategies, and property administrators make a
daily inspection of the Properties. The Company believes that, due in part to
this strategy, the Properties historically have had and will continue to have
low turnover and high occupancy rates. Since 1989, the Properties have averaged
an annual turnover of homes (where the home is moved out of the community) of
3-4 percent. During this period, the average annual turnover of residents in the
Properties (where the home is sold and remains within the community, typically
without interruption of rental income) has been approximately 10-12 percent.
The Operating Partnership owns a 100 percent beneficial interest in all of the
Properties, except for Emerald Lake, Fairways, Lakeland Junction, Lakes at
Leesburg, Palm Beach Colony, Winter Haven Oaks and Del Tura in which it owns a
99 percent beneficial interest and in which the Company owns the remaining 1
percent beneficial interest.
Leases
The typical lease entered into between the resident and one of the Company's
manufactured home communities for the rental of a site is month-to-month or
year-to-year, renewable upon the consent of both parties or, in some instances,
as provided by statute. In some cases, leases are for one-year terms with up to
ten renewal options exercisable by the resident, with rent adjusted according to
yearly rent reviews, or by the consumer price index. Leases or other terms of
residents' occupancy are cancelable for non-payment of rent, violation of
community rules and regulations or other specified defaults.
8
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Indebtedness
At December 31, 1997, the aggregate amount of indebtedness encumbering the
Properties was approximately $114 million. The amounts outstanding as of
December 31, 1997 for the indebtedness encumbering each of these Properties is
set forth (in thousands) in the following table. Prepayment of these debt
obligations may result in significant prepayment penalties.
<TABLE>
<CAPTION>
Weighted
Average
Amount of Interest
Property Pledged as Collateral Indebtedness Rate Maturity
- ------------------------------ ------------ ---- --------
<S> <C> <C> <C>
Del Tura $ 32,747 8.40% 2000
Macomb 15,972 9.82% 1999
Other (9 properties) 7,222 8.13% 1998-2011
Pacific Life (38 properties) 58,028 7.16% 2000
--------
Total $113,969
========
</TABLE>
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The following table sets forth certain information, as of December 31, 1997,
regarding the properties.
<TABLE>
<CAPTION>
Property
Information Weighted
Average
Core Portfolio Number Occupancy Monthly Rent
Location of Sites as of per Site
Community State (Closest Major City) 12/31/97 12/31/97 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100 Oaks AL Fultondale 230 90% $190
Bermuda Palms CA Palm Springs 185 94% 326
Eastridge CA San Jose 187 99% 597
La Quinta Ridge CA Palm Springs 152 85% 396
The Colony CA Palm Springs 220 96% 651
The Orchard CA San Francisco 233 100% 530
CV-Denver CO Denver 345 94% 339
CV-Longmont CO Longmont 310 99% 348
Friendly Village CO Greeley 226 99% 263
Pine Lakes Ranch CO Denver 762 97% 289
Redwood Estates CO Denver 753 97% 288
Audubon FL Orlando 280 94% 236
Colony Cove FL Sarasota 2207 100% 308
Conway Circle FL Orlando 111 95% 284
CV-Jacksonville FL Jacksonville 643 95% 265
Del Tura FL Fort Myers 1342 88% 422
Eldorado Estates FL Daytona Beach 126 95% 240
Emerald Lake FL Fort Myers 201 99% 278
Fairways Country Club FL Orlando 1142 98% 278
Hidden Valley FL Orlando 303 99% 268
Jade Isle FL Orlando 101 96% 287
Lakeland Harbor FL Tampa 504 100% 240
Lakeland Junction FL Tampa 191 100% 187
Lakes at Leesburg FL Orlando 640 100% 248
Land O' Lakes FL Orlando 173 99% 231
Midway Estates FL Vero Beach 204 87% 289
Mobiland-by-the-Sea FL Melbourne 217 65% 303
Orange Lake FL Orlando 244 94% 219
Palm Beach Colony FL West Palm Beach 285 96% 288
Pedaler's Pond FL Orlando 214 81% 176
Pinellas Cascades FL Clearwater 238 95% 335
Southwind Village FL Naples 338 92% 277
Starlight Ranch FL Orlando 783 94% 264
Town & Country FL Orlando 73 92% 276
Whispering Pines FL Clearwater 392 98% 329
Winter Haven Oaks FL Orlando 343 51% 198
Atlanta Meadows GA Atlanta 75 95% 214
Camden Point GA Kingsland 268 47% 167
</TABLE>
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<TABLE>
<CAPTION>
Property
Information Weighted
Average
Core Portfolio Number Occupancy Monthly Rent
Location of Sites as of per Site
Community State (Closest Major City) 12/31/97 12/31/97 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Castlewood Estates GA Atlanta 334 80% $296
Colonial Coach Estates GA Atlanta 481 74% 250
Golden Valley GA Atlanta 131 92% 222
Landmark GA Atlanta 524 96% 248
Marnelle GA Atlanta 205 96% 239
Oak Grove Estates GA Albany 174 98% 131
Paradise Village GA Albany 225 95% 132
Lakewood Estates IA Davenport 172 95% 226
Terrace Heights IA Dubuque 317 97% 231
Coach Royale ID Boise 91 100% 245
Maple Grove Estates ID Boise 270 96% 256
Shenandoah Estates ID Boise 147 99% 250
Maple Ridge IL Kankakee 201 100% 216
Maple Valley IL Kankakee 75 100% 216
Hickory Knoll IN Indianapolis 325 97% 267
Mariwood IN Indianapolis 296 90% 265
Pendleton IN Indianapolis 102 97% 192
Skyway IN Indianapolis 156 100% 259
Twin Pines IN Goshen 238 93% 207
Mosby's Point KY Cincinnati 150 99% 265
Rolling Hills KY Louisville 158 97% 179
Pinecrest Village LA Shreveport 448 66% 133
Stonegate, LA LA Shreveport 157 98% 164
Hillcrest MA Boston 83 95% 325
The Glen MA Boston 36 100% 377
Leisurewoods Rockland MA Boston 395 99% 304
Leisurewoods Taunton MA Boston 128 85% 250
Algoma Estates MI Grand Rapids 281 89% 266
Chesterfield MI Detroit 345 99% 333
Chestnut Creek MI Flint 134 100% 290
Clinton MI Detroit 1000 99% 338
Colonial Acres MI Kalamazoo 611 98% 259
Colonial Manor MI Kalamazoo 195 98% 259
Country Estates MI Grand Rapids 254 97% 249
Cranberry MI Pontiac 232 100% 317
Ferrand Estates MI Grand Rapids 420 100% 304
Forest Lake Estates MI Grand Rapids 221 72% 262
Holiday Estates MI Grand Rapids 205 100% 290
Howell MI Lansing 455 100% 342
</TABLE>
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<TABLE>
<CAPTION>
Property
Information Weighted
Average
Core Portfolio Number Occupancy Monthly Rent
Location of Sites as of per Site
Community State (Closest Major City) 12/31/97 12/31/97 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lake in the Hills MI Detroit 238 100% $345
Leonard Gardens MI Grand Rapids 168 98% 274
Norton Shores MI Grand Rapids 656 85% 231
Novi MI Detroit 725 98% 371
Oakhill MI Flint 504 93% 329
Old Orchard MI Flint 200 100% 292
Orion MI Detroit 423 98% 317
Royal Estates MI Kalamazoo 183 90% 279
Science City MI Midland 171 98% 263
Torrey Hills MI Flint 346 99% 298
Villa MI Flint 319 97% 291
Cedar Knolls MN Minneapolis 458 98% 347
Cimmaron MN St. Paul 504 97% 351
President's Park MN Grand Forks 174 71% 214
Rosemount MN Minneapolis/St. Paul 182 100% 339
Twenty-Nine Pines MN St. Paul 152 91% 280
Countryside Village MT Great Falls 222 89% 197
Foxhall Village NC Raleigh 315 97% 283
Oakwood Forest NC Greensboro 481 96% 232
Buena Vista ND Fargo 400 97% 227
Columbia Heights ND Grand Forks 302 99% 240
Meadow Park ND Fargo 118 86% 169
Casa Linda NV Las Vegas 107 99% 383
Casual Estates NY Syracuse 961 84% 308
Shadybrook NY Syracuse 89 84% 308
Meadowbrook NY Ithaca 237 73% 249
Oak Orchard Estates NY Rochester 235 97% 261
Vance OH Columbus 110 96% 196
Willo-Arms OH Cleveland 262 100% 173
Yorktowne OH Cincinnati 354 97% 302
Crestview OK Stillwater 237 88% 169
Knoll Terrace OR Salem 212 99% 303
Riverview OR Portland 133 99% 343
Homestead Ranch TX McAllen 127 91% 200
Leisure World TX Brownsville 201 90% 181
The Homestead TX McAllen 99 94% 189
Trail's End TX Brownsville 307 80% 176
Eagle Point WA Seattle 230 98% 408
Breazeale WY Laramie 116 96% 208
- ----------------------------------------------------------------------------------------------------------------
Core Portfolio
Subtotal 37,422 93.6% $289
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Property
Information
Weighted
Active Expansion Average
Portfolio Number Occupancy Monthly Rent
Location of Sites as of per Site
Community State (Closest Major City) 12/31/97 12/31/97 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Butler Creek GA Augusta 358 82% $166
Crystal Lakes FL Tampa 329 49% 144
Foxwood Farms FL Orlando 375 74% 178
Gold Tree FL Tampa 295 88% 313
Oak Springs FL Orlando 438 76% 224
Falcon Farms IL Moline 215 86% 205
Anchor Bay MI Detroit 1319 95% 304
Avon MI Detroit 617 100% 372
Grand Blanc MI Flint 415 88% 319
MaComb/Westbrook MI Detroit 1537 95% 341
Springfield Farms MO Springfield 134 65% 154
Hunter's Chase OH Lima 135 33% 151
Conway Plantation SC Myrtle Beach 299 61% 157
Eagle Creek TX Tyler 174 44% 159
Regency Lakes VA Winchester 289 87% 196
- ----------------------------------------------------------------------------------------------------------------
Active Expansion
Portfolio Subtotal 6,378 82.6% $253
- ----------------------------------------------------------------------------------------------------------------
Total 43,800 92% $287
================================================================================================================
</TABLE>
13
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Item 3. Legal Proceedings
Three separate purported class actions have been filed against the Company and
its directors in the Circuit Court of Montgomery County, Maryland alleging
breaches of fiduciary duty for agreeing to the Merger with ROC and refusing to
endorse alternative transactions proposed by Manufactured Home Communities, Inc.
or Sun Communities, Inc. The three class actions are entitled Harbor Finance
Partners v. Chateau Properties, et al. (Case No. 157467), Niles v. Chateau
Properties, et al. (Case No. 158284), and ZSA Asset Allocation Fund v. Boll, et
al. (Case No. 158652) and were filed on or about September 12, 1996, September
27, 1996 and October 4, 1996, respectively.
The Company agreed to settle the Harbor, Niles, and ZSA actions brought in 1996
for $287,000 plus expenses not to exceed $25,000, subject to court approval.
Reimbursement from the Company's directors' and officers' liability insurer,
Genesis Insurance Co., is being pursued in the amount of approximately $1.1
million, which includes the amount of the settlement plus expenses incurred in
the course of the defense and settlement of these actions.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1997.
14
<PAGE> 15
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol CPJ. The following table sets forth, for the quarterly periods
shown, the high and low sales price per share as reported on the NYSE for the
years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
Price Range
------------------- Cash Dividend
Quarter Ended High Low Declared
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $24-7/8 $22-1/8 $.405
June 30, 1996 $23-7/8 $21-5/8 $.405
September 30, 1996 $27 $22-1/8 $.405
December 31, 1996 $26-5/8 $23-7/8 $.405
</TABLE>
<TABLE>
<CAPTION>
Price Range
------------------- Cash Dividend
Quarter Ended High Low Declared
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1997 $28 $24-3/4 $.43
June 30, 1997 $28-3/4 $24-3/4 $.43
September 30, 1997 $31-1/8 $27-7/8 $.43
December 31, 1997 $31-9/16 $29-1/4 $.43
</TABLE>
The Company expects to continue to pay regular quarterly dividends to holders of
its Common Stock. Subject to the needs of the Company's acquisition and
expansion strategies and subject to the REIT qualification standards, the
Company intends to distribute annually up to 95 percent of its cash flow.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes will be taxable to
stockholders as dividend income. Distributions in excess of earnings and profits
generally will be treated as a non-taxable reduction of the stockholder's basis
in the Common Stock to the extent thereof, with the remainder as taxable gain.
At March 12, 1998, there were approximately 600 holders of record and
approximately 12,000 beneficial owners of the Company's Common Stock.
15
<PAGE> 16
Item 6. Selected Financial Data
The following table sets forth summary financial information of the Company and
its Predecessor for the periods and dates indicated.
<TABLE>
<CAPTION>
Predecessor
For the period
For the Year Ended November 23- January 1 -
December 31, December 31, November 22,
In thousands, except per share data 1997 (1) 1996 1995 1994 1993 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues:
Rental income $ 134,801 $ 67,233 $ 61,558 $ 47,318 $ 4,577 $ 38,242
Management, interest and other income 3,368 151 297 749 110 684
--------- --------- --------- --------- --------- ---------
Total revenues 138,169 67,384 61,855 48,067 4,687 38,926
Expenses:
Property operating and
administrative 56,053 26,870 24,410 19,944 1,867 16,909
Depreciation 31,510 11,452 11,014 7,230 707 5,823
Interest and related amortization 25,918 12,962 12,452 5,996 576 12,101
Reorganization costs 1,699
--------- --------- --------- --------- --------- ---------
Total expenses 113,481 51,284 47,876 33,170 4,849 34,833
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item and minority/majority interest 24,688 16,100 13,979 14,897 (162) 4,093
Extraordinary item (2) (829) (2,738)
Minority/majority interest in
income of Operating Partnership (2,986) (9,566) (7,847) (8,860) 1,717
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 21,702 $ 6,534 $ 5,303 $ 6,037 $ (1,183) $ 4,093
========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding 23,688 6,022 5,959 5,750 5,750
Weighted average common shares
and OP Units outstanding 26,947 14,837 14,779 14,189 14,081
Earnings per Share/OP Unit Data:
Income (loss) before extraordinary
item $ .92 $ 1.09 $ .95 $ 1.05 $ (.01)
Extraordinary item $ -- $ -- $ (.06) $ -- $ (.20)
Net income (loss) - basic $ .92 $ 1.09 $ .89 $ 1.05 $ (.21)
Net income (loss) - diluted $ .91 $ 1.08 $ .89 $ 1.05 $ (.21)
Dividends/distributions declared $ 1.72 $ 1.62 $ 1.525 $ 1.425 $ .15
Cash Flow Data:
Net cash provided by operating
activities $ 54,545 $ 29,755 $ 28,097 $ 22,584 $ 4,980 $ 8,659
Net cash provided by (used in)
financing activities $ 21,088 $ (595) $ (24,365) $ 7,056 $ 15,591 $ (5,983)
Net cash (used in) investing activities $ (61,309) $ (29,518) $ (6,158) $ (46,214) $ (639) $ (3,416)
Balance Sheet Data:
Rental property, before accumulated
depreciation $ 836,175 $ 300,631 $ 276,423 $ 266,833 $ 151,069
Rental property, net of accumulated
depreciation $ 723,861 $ 219,338 $ 206,555 $ 207,977 $ 97,755
Total assets $ 782,738 $ 232,066 $ 212,034 $ 215,418 $ 120,524
Total debt $ 387,015 $ 168,315 $ 132,700 $ 132,747 $ 52,831
Minority/majority interest in
Operating Partnership $ 35,272 $ 26,552 $ 36,264 $ 41,569 $ 35,441
Shareholders' equity $ 322,966 $ 16,191 $ 24,308 $ 25,542 $ 23,424
</TABLE>
16
<PAGE> 17
Item 6. Selected Financial Data, Continued
<TABLE>
<CAPTION>
Predecessor
-----------
For the period
For the Year Ended November 23- January 1 -
Other Data: December 31, December 31, November 22,
Dollars in thousands 1997 (1) 1996 1995 1994 1993 1993
------- ------- ------------ ------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total properties (at end of period) 131 47 44 43 33
Total sites (at end of period) 43,800 20,279 19,594 19,185 15,261
Weighted average occupied sites 38,053 18,889 18,051 14,913 14,025 14,025
Funds from operations(3) $55,962 $27,460 $24,898 $22,015 $ 536 $ 9,822
</TABLE>
(1) In February 1997, the Company completed the Merger with ROC. See Note 3 to
the Consolidated Financial Statements for information regarding the
merger.
(2) The extraordinary items represent prepayment penalties and certain other
related costs associated with the early extinguishment of debt.
(3) Funds from operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as consolidated net income of the
Operating Partnership without giving effect to gains (or losses) from debt
restructuring and sales of property and rental property depreciation and
amortization. Management believes that FFO is an important and widely used
measure of the operating performance of REITs, which provides a relevant
basis for comparison among REITs. For all periods presented, depreciation
of rental property and amortization of intangibles are the only non-cash
adjustments. FFO (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. FFO is calculated as follows:
<TABLE>
<CAPTION>
Predecessor
-----------
For the period
For the Year Ended November 23- January 1 -
Other Data: December 31, December 31, November 22,
In thousands 1997 (1) 1996 1995 1994 1993 1993
-------- ------- ------------ ------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary item $ 24,688 $16,100 $13,979 $14,897 $(162) $4,093
Depreciation of rental
property 30,867 11,360 10,919 7,118 698 5,729
Amortization of intangibles 407
-------- ------- ------- ------- ----- ------
Funds from Operations $ 55,962 $27,460 $24,898 $22,015 $ 536 $9,822
======== ======= ======= ======= ===== ======
</TABLE>
17
<PAGE> 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and Notes thereto included elsewhere in this Annual Report.
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company or industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
Overview
The Company 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. The Company added 89 manufactured home communities
to its portfolio over the three-year period ended December 31, 1997. At the end
of this period, the Company's portfolio was comprised of 131 manufactured home
communities containing 43,800 homesites in 28 states.
A substantial portion of the Company's growth since the beginning of 1995 can be
attributed to the Company's Merger with ROC on February 11, 1997. The historical
results of the Company in 1997 include the results of operations of ROC since
February 1, 1997. In addition, as a result of the Merger, the Company acquired
ROC's third-party property management operations and its taxable sales and
brokerage subsidiary, CSI.
Company growth since the beginning of 1995 can also be attributed to increased
operating results at existing communities, community expansions, new community
development and additional acquisition activities.
Since its organization, the Company has elected to qualify as a REIT under the
Code and thus does not generally pay federal corporate income taxes on its
earnings to the extent that such earnings are distributed to shareholders.
The Company conducts substantially all of its activities through the Operating
Partnership in which it owned a combined 90 percent general partner interest as
of December 31, 1997.
Historical Results of Operations
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
For the year ended December 31, 1997, income before minority interest was
$24,688,000, an increase of $8,588,000 from the year ended December 31, 1996.
The increase was due primarily to the Merger, as well as acquisitions that were
consummated in 1997 and 1996 by the Company or ROC, and increased net operating
income from communities owned by the Company and ROC at the beginning of the
period (the "Core 1996 Portfolio"). The increase in net operating income from
the Company's Core 1996 Portfolio was due to increased occupancy and rental
increases partially offset by general operating expense increases.
18
<PAGE> 19
Rental revenue for the year ended December 31, 1997 was $134,801,000, an
increase of $67,568,000 from 1996. Approximately 80 percent of the increase was
due to the Merger, and 9 percent was due to 1997 and 1996 acquisitions made by
the Company or ROC. The remaining 11 percent increase was due to rental
increases and occupancy gains in the Company's Core 1996 Portfolio.
Weighted average occupancy for the year ended December 31, 1997 was 38,053 sites
compared with 18,889 sites for the same period in 1996. During 1997, the Company
increased occupancy by nearly 400 sites, primarily in its active expansion
communities. The occupancy rate for the total portfolio was 92.0 percent on
approximately 43,800 sites as of December 31, 1997, compared to 94.4 percent on
approximately 20,279 sites as of December 31, 1996. The decrease in the
occupancy rate is due to the increase in available sites added through
expansions of existing communities. The occupancy rate on the stabilized
portfolio was 93.6 percent as of December 31, 1997. On a per site basis,
weighted average monthly rental revenue for the year ended December 31, 1997 was
$287, which is consistent with the same period of 1996. For the Company's Core
1996 Portfolio, on a per site basis, weighted average monthly rental revenue for
the year ended December 31, 1997 was $289 compared with $278 for the same period
in 1996, an increase of 4.1 percent.
Management fee, interest and other income primarily include management fee
income for the management of 32 manufactured home communities, equity earnings
from the Company's sales subsidiary, 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 year ended December 31, 1997
increased by $20,945,000 or 115 percent 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 Company's Core 1996
Portfolio. On a per site basis, monthly weighted average property operating and
maintenance expense increased 6.8 percent from approximately $80 in 1996 to
approximately $86 in 1997. A portion of this increase is due to the operating
expenses related to the properties managed by the Company for a management fee
beginning in 1997.
Real estate taxes for the year ended December 31, 1997 increased by $5,090,000
or 105 percent from the year ended December 31, 1996. The increase is due
primarily to the Merger, acquisitions and expansions of communities and general
increases. On a per site basis, monthly weighted average real estate taxes were
$21.78 in 1997 compared to $21.42 in 1996, an increase of 1.7 percent. 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 Company operates.
Administrative expense for the year ended December 31, 1997 increased due to the
Merger. Administrative expense in 1997 was 5.0 percent of total revenues as
compared to 5.7 percent in 1996.
Interest and related amortization costs increased for the year ended December
31, 1997 by $12,956,000, as compared with the year ended December 31, 1996. The
increase is attributable to the indebtedness incurred in connection with the
Merger and to finance the 1997 and 1996 acquisitions. Interest expense as a
percentage of average debt outstanding decreased to approximately 7.7 percent in
1997 from approximately 8.1 percent in 1996. The decrease is due primarily to
the ROC debt assumed in the Merger having a lower average interest rate as well
as much of the financing in connection with the Merger and the 1997 and 1996
acquisitions being done with the Company's lines of credit which had a lower
average interest rate. In addition, in July 1997, the Company renegotiated its
lines of credit into a new line with a lower borrowing rate of 110 basis points
over LIBOR versus 150 basis points over LIBOR on the old lines.
19
<PAGE> 20
Depreciation expense for the year ended December 31, 1997, increased $20.1
million from the same period a year ago. The increase is directly attributable
to the Merger and acquisitions. Depreciation expense as a percentage of average
depreciable rental property in 1997 remained relatively unchanged from 1996.
Comparison of year ended December 31, 1996 to year ended December 31, 1995
For the year ended December 31, 1996, income before majority interest and
extraordinary item was $16,100,000, an increase of $2,121,000 from the year
ended December 31, 1995. The increase was due primarily to increased net
operating income from communities owned by the Company on January 1, 1995 (the
"Core 1995 Portfolio") and to a lesser extent, the acquisition of three
communities in 1996 and one community in 1995. The increase in net operating
income from the Company's Core 1995 Portfolio was due to increased occupancy and
rental increases offset by general operating expense increases.
Rental revenue in 1996 was $67,233,000, an increase of $5,675,000 or 9.2 percent
from 1995. Approximately 2.3 percent of the increase was due to the acquisitions
of three communities in 1996 and one in 1995; 3.9 percent represented the effect
of annual rent increases in the Core 1995 Portfolio; 1.8 percent was due to
increased occupancy in the Core 1995 Portfolio and 1 percent was due to an
increase in amenity income. Weighted average occupancy for the year ended
December 31, 1996, was 18,889 sites, or 4.6 percent higher than weighted average
occupancy for the year ended December 31, 1995. Weighted average occupancy
increased in 1996 due to the 1996 and 1995 acquisitions and the filling of 265
additional sites that were either vacant at January 1, 1996 or developed in
1996. The occupancy rate was 94.4 percent on 20,279 sites as of December 31,
1996, as compared with 94.3 percent on 19,594 sites as of December 31, 1995. On
a per site basis, weighted average monthly rental revenue for the year ended
December 31, 1996 increased to $285 from $277 in 1995 or 3.2 percent due to
rental increases in the Core 1995 Portfolio in 1996.
The increase in amenity income of approximately $600,000 was due primarily to
the inclusion of the results of operations of four golf courses and a marina for
the period beginning January 1, 1996. These operations were previously conducted
by GC Properties, Inc. ("GCI"), a corporation wholly owned by an equity owner of
the Company, in order to permit the Company's qualification as a REIT under the
Internal Revenue Code. From November 23, 1993 through December 31, 1995, the
Company recognized net lease income from GCI, which was classified as other
income. In early 1996, the Company received a ruling from the Internal Revenue
Service allowing the Company to conduct these operations. Effective January 1,
1996, as a result of acquiring the operations of GCI, the Company has
consolidated these operations.
Property operating and maintenance expense for the year ended December 31, 1996
increased by $2,180,000 or 13.6 percent from the same period a year ago.
Approximately $1,028,000 of the increase represents the operating costs of the
golf course and marina operations discussed above. The remaining increase of
$1,152,000 or a 7.2 percent increase over the prior year, is due primarily to
the acquisition of three communities in 1996 and one in 1995. On a per site
basis, monthly weighted average property operating and maintenance expense
increased from $74 in 1995 to $80 in 1996, or 8.6 percent. Excluding the golf
course and marina operations, monthly weighted average property operating and
maintenance expense increased 2.4 percent, on a per site basis, year over year.
20
<PAGE> 21
Real estate taxes for the year ended December 31, 1996, increased by $333,000,
or 7.4 percent, from the year ended December 31, 1995. The increase is due
primarily to acquisitions and expansions of communities and general increases.
On a per site basis, monthly weighted average real estate taxes were $21.40 in
1996 compared to $20.90 in 1995, an increase of 2.6 percent. 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 Company operates.
Administrative expense for 1996 was relatively constant with 1995.
Administrative expense in 1996 was 5.7 percent of revenues as compared to 6.3
percent in 1995.
Interest and related amortization costs increased for the year ended December
31, 1996, by $510,000, as compared with the year ended December 31, 1995. The
increase is attributable to the indebtedness incurred to finance the 1996
acquisitions of three communities and one in 1995, as well as the investment in
a joint venture with ROC that owns six development communities. Interest expense
also increased due to the financing of the Company's repurchase and retirement
of 450,000 shares of its common stock in connection with the Merger. Interest
expense as a percentage of average debt outstanding decreased to approximately
8.1 percent in 1996 from approximately 8.9 percent in 1995.
Depreciation expense for the year ended December 31, 1996, increased $438,000
from the same period a year ago. The increase is due to acquisitions and
expansions. Depreciation expense as a percentage of average depreciable rental
property in 1996 remained relatively unchanged from 1995.
Liquidity and Capital Resources
Net cash provided by operating activities was $54,545,000 for the year ended
December 31, 1997, compared to $29,755,000 for the year ended December 31, 1996.
The increase in cash provided by operating activities was due primarily to the
increase in net operating income as a result of the Company's larger size.
Net cash provided by financing activities for the year ended December 31, 1997,
was $21,088,000. This amount includes net proceeds of $102 million received from
the issuance of senior notes and proceeds of $25,477,000 from the issuance of
984,423 shares to certain OP Unitholders at the time of the Merger. Use of cash
included distributions made to shareholders/OP Unitholders of $42,111,000; the
payment of $19,851,000 to repurchase and retire 750,000 shares of the Company's
common stock in connection with the Merger, and net payment on the line of
credit of $45,834,000 with the proceeds from the senior notes. The shares
purchased in 1997 and 1996 as a part of the program were purchased at an average
price of approximately $25.75.
21
<PAGE> 22
Net cash used in investing activities for the year ended December 31, 1997 was
$61,309,000. This amount primarily represented the acquisition of four
communities, payment of merger costs, joint venture investments, and advances to
CSI, capital expenditures and construction and development costs. The
acquisition of the four communities for an aggregate purchase price of $20
million was financed by $19.5 million borrowed on the Company's line of credit
and $500,000 through the issuance of 16,480 OP Units. The Company invested
approximately $4 million in cash in other joint ventures. The Company also
advanced approximately $9 million to CSI. For the year ended December 31, 1997,
construction and development costs approximated $8.1 million, while recurring
property capital expenditures, other than construction and development costs,
were approximately $3.7 million. Recurring property capital expenditures in 1997
increased significantly over the same period in 1996, due to the increased
number of communities in the Company's portfolio. Capital expenditures have
historically been financed with funds from operations and it is the Company's
intention that such future expenditures will be financed with funds from
operations.
In July 1997, the Company 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 (the "First Chicago Credit
Facilities"). Effective 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 Company 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"). As of December 31,
1997, approximately $25 million was outstanding under the Credit Facilities and
the Company had available $82.5 million in additional borrowing capacity.
On December 23, 1997, the Company issued 6.92% MandatOry Par Put Remarketed
Securities(SM) ("MOPPRS(SM)" ) due December 10, 2014. The net proceeds to the
Company from the issuance before deducting offering expenses, was approximately
$102.0 million. The net proceeds from the MOPPRS(SM) were utilized primarily to
reduce outstanding balances under the Credit Facilities and to finance
acquisitions. The MOPPRS(SM) are rated as "BBB" by Standard & Poor's Rating
Service and "Baa3" by Moody's Investors Service.
In connection with the issuance of the MOPPRS(SM), the Company and the Operating
Partnership entered into a Remarketing Agreement, dated as of December 23, 1997
(the "Remarketing Agreement"), with the remarketing dealer named therein (the
"Remarketing Dealer"), pursuant to which the MOPPRS(SM) are subject to mandatory
tender in favor of the Remarketing Dealer on December 10, 2004 (the "Remarketing
Date"), for a purchase price equal to 100% of the principal amount of the
outstanding MOPPRS(SM). Upon the Remarketing Dealer's election to remarket the
MOPPRS(SM), the interest rate to the December 10, 2014 maturity date of the
MOPPRS will be adjusted to equal the sum of 5.75% plus the Applicable Spread (as
defined in the Remarketing Agreement). In the event the Remarketing Dealer does
not elect to remarket the MOPPRS(SM), the MOPPRS(SM) will mature on the
Remarketing Date.
As of December 31, 1997, the Company had outstanding, in addition to the Credit
Facilities and the MOPPRS(SM), $145 million of other unsecured senior debt with
a weighted average interest rate and maturity of 8.2 percent and 4 years,
respectively, and $114 million of secured mortgage debt with a weighted average
interest rate and maturity of 7.95 percent and 2.5 years, respectively.
22
<PAGE> 23
Repayment of long-term borrowings and amounts outstanding under the Credit
Facilities, future acquisitions of communities and land for development and new
community development activities represent the principal long-term liquidity
need of the Company. The Company does not expect to generate sufficient funds
from operations to finance these long-term liquidity needs and instead intends
to meet its long-term liquidity requirements through additional borrowing under
the Credit Facilities or other lines of credit, the issuance of additional
equity or debt securities and the assumption of existing secured or unsecured
indebtedness.
The Company expects to meet its short-term liquidity requirements, including
expansion activities and capital expenditure requirements, through cash flow
from operations and, if necessary, borrowings under the Credit Facilities and
other lines of credit.
In January 1998, the Company completed the acquisition of 16 properties, in
Connecticut, South Carolina, and Florida, containing approximately 2,333
homesites and 1,359 park/model RV sites, for a total of approximately $55.4
million. These acquisitions were financed by $33.7 million in borrowings under
the Company's line of credit, the issuance of 412,480 OP Units and $5.7 million
in cash available from the proceeds of the December 1997 Debt Offering. Nine of
the above communities, containing approximately 900 homesites and 1,100 park
model/RV sites, are subject to long-term ground leases.
In February 1998, the Company received net proceeds of approximately $53.9
million from the issuance of 1,850,000 shares of its common stock. The proceeds
from the offering were used to reduce outstanding balances under the Company's
line of credit from the January 1998 acquisitions and for the March 1998
acquisitions.
In March 1998, the Company completed the acquisition of 6 properties, 1 in
Michigan and 5 in Indiana, containing approximately 1,500 homesites, for a total
of approximately $36.7 million. These acquisitions were financed by the issuance
of common stock in February 1998 and by borrowings on the Company's line of
credit. In addition, CSI purchased a 60 percent interest in three retail sales
centers in Indiana, for approximately $1.2 million.
Inflation
All of the leases or terms of tenants' occupancies at the communities allow for
at least annual rental adjustments. In addition, all leases are short-term
(generally one year or less) and enable the Company to seek market rentals upon
reletting the sites. Such leases generally minimize the risk to the Company of
any adverse effect of inflation.
New Accounting Standards
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This accounting
standard specifies new computation, presentation and disclosure requirements for
earnings per share to be applied retroactively. Among other things, SFAS No. 128
requires presentation of basic and diluted earnings per share on the face of the
income statement.
23
<PAGE> 24
Year 2000 Compliance
The Company is currently engaged in a review with its software vendors to ensure
all systems are modified for year 2000 compliance. Since all systems are owned
and maintained by third party vendors, the Company believes that the additional
costs for compliance will not be material to future results of operations,
financial condition or cash flows of the Company.
Other
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as consolidated net income of the Operating
Partnership without giving effect to gains (or losses) from debt restructuring
and sales of property and rental property depreciation and amortization.
Management believes that FFO is an important and widely used measure of the
operating performance of REITs, which provides a relevant basis for comparison
among REITs. For all periods presented, depreciation of rental property and
amortization of intangibles are the only non-cash adjustments. FFO (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. FFO is calculated as follows:
<TABLE>
<CAPTION>
For the year
ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before extraordinary item $24,688 $16,100 $13,979
Depreciation of rental property 30,867 11,360 10,919
Amortization of intangibles 407 -- --
------- ------- -------
Funds from operations $55,962 $27,460 $24,898
======= ======= =======
</TABLE>
24
<PAGE> 25
Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants
To the Shareholders and Board of Directors of Chateau Communities, Inc.:
We have audited the accompanying consolidated balance sheets of Chateau
Communities, Inc. (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. We have also
audited the financial statement schedule as identified in item 14(a)(2) of this
Form 10-K. These financial statements and the financial statement schedule are
the responsibility of the management of Chateau Communities, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chateau Communities, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
February 4, 1998, except for Note 15
for which the date is March 10, 1998
25
<PAGE> 26
CHATEAU COMMUNITIES, INC.
CONDSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Year Ended
December 31,
In dollars, except per share data 1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Revenues:
Rental income $ 134,801 $ 67,233 $ 61,558
Management, interest and other income 3,368 151 297
--------- --------- ---------
138,169 67,384 61,855
Expenses:
Property operating and maintenance 39,146 18,201 16,021
Real estate taxes 9,946 4,856 4,523
Depreciation 31,510 11,452 11,014
Administrative 6,961 3,813 3,866
Interest and related amortization 25,918 12,962 12,452
--------- --------- ---------
113,481 51,284 47,876
--------- --------- ---------
Income before extraordinary
item and minority/majority interest 24,688 16,100 13,979
Extraordinary charge from early
extinguishment of debt -- -- (829)
--------- --------- ---------
Income before minority/majority interest 24,688 16,100 13,150
Minority/majority interest in income of
Operating Partnership (2,986) (9,566) (7,847)
--------- --------- ---------
Net income $ 21,702 $ 6,534 $ 5,303
========= ========= =========
Basic earnings per common share:
Income before extraordinary item $ .92 $ 1.09 $ .95
Extraordinary item -- -- (.06)
--------- --------- ---------
Net income $ .92 $ 1.09 $ .89
========= ========= =========
Diluted earnings per common share:
Income before extraordinary item $ .91 $ 1.08 $ .94
Extraordinary item -- -- (.05)
--------- --------- ---------
Net Income $ .91 $ 1.08 $ .89
========= ========= =========
Dividends/distributions declared per
common share/OP Unit outstanding $ 1.72 $ 1.62 $ 1.525
========= ========= =========
Tax status of dividends,
return of capital portion $ .62 $ .65 $ .53
========= ========= =========
Weighted average common shares
outstanding 23,688 6,022 5,959
========= ========= =========
Weighted average common
shares and OP Units outstanding 26,947 14,837 14,779
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 27
CHATEAU COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
Dollars in thousands, except per share data 1997 1996
---- ----
<S> <C> <C>
Assets
Rental property:
Land $ 111,832 $ 33,821
Land and improvements for expansion sites 14,437 1,988
Manufactured home community improvements 647,388 239,514
Community buildings 44,406 17,607
Furniture and other equipment 18,112 7,701
--------- ---------
Total rental property 836,175 300,631
Less accumulated depreciation 112,314 81,293
--------- ---------
Net rental property 723,861 219,338
Cash and cash equivalents 14,910 586
Rents, notes and other receivables 11,079 3,157
Investment in and advances to affiliates 21,646 3,408
Prepaid expenses and other assets 11,242 5,577
--------- ---------
Total assets $ 782,738 $ 232,066
========= =========
Liabilities
Debt $ 387,015 $ 168,315
Accrued interest payable 3,909 2,796
Accounts payable and other accrued expenses 15,848 7,489
Rents received in advance and security deposits 5,580 4,852
Distributions payable 12,148 5,871
--------- ---------
Total liabilities 424,500 189,323
Minority/majority interest in Operating Partnership 35,272 26,552
Shareholders' Equity
Preferred stock, $.01 par value, 2 million shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 90 million shares authorized:
25,476,172 and 5,660,960 shares issued and
outstanding at December 31, 1997
and 1996, respectively 255 57
Additional paid-in capital 356,780 28,187
Dividends in excess of accumulated earnings (33,174) (11,233)
Notes receivable, officers, 49,507 and 43,125
shares outstanding at December 31, 1997
and 1996, respectively (895) (820)
--------- ---------
Total shareholders' equity 322,966 16,191
--------- ---------
Total liabilities and shareholders' equity $ 782,738 $ 232,066
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 28
CHATEAU COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Year Ended
December 31,
Dollars in thousands, except per share data 1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of period $ 57 $ 61 $ 58
Issuance of shares in connection with the Merger 196
Issuance of shares from awards, exercise of
options and sales to key employees 2 -- --
Issuance of shares in connection with
acquisitions 1
Issuance of shares in exchange for Units
in Operating Partnership 10 -- 3
Repurchase and retirement of shares (11) (4) --
--------- --------- ---------
Balance at end of period $ 255 $ 57 $ 61
========= ========= =========
Additional paid-in capital:
Balance at beginning of period $ 28,187 $ 33,152 $ 30,678
Issuance of shares in connection with the Merger 359,584
Issuance of shares from awards, exercise of
options and sales to key employees 4,492 239 150
Issuance of shares in connection with
acquisitions 3,022
Issuance of shares in exchange for Units
in Operating Partnership 159,693 -- 1,544
Repurchase and retirement of shares (28,676) (11,235) --
Transfer (to) from minority/majority interest
ownership in Operating Partnership (169,522) 6,031 780
--------- --------- ---------
Balance at end of period $ 356,780 $ 28,187 $ 33,152
========= ========= =========
Dividends in excess of accumulated earnings:
Balance at beginning of period $ (11,233) $ (8,064) $ (4,203)
Net income 21,702 6,534 5,303
Dividends declared, $1.72, $1.62
and $1.525 per share (43,643) (9,703) (9,164)
--------- --------- ---------
Balance at end of period $ (33,174) $ (11,233) $ (8,064)
========= ========= =========
Notes receivable, officers:
Balance at beginning of period $ (820) $ (841) $ (991)
Issuance of shares through sales
to key employees (100) -- --
Payments received 25 21 150
--------- --------- ---------
Balance at end of period $ (895) $ (820) $ (841)
========= ========= =========
Total shareholders' equity, end of period $ 322,966 $ 16,191 $ 24,308
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 29
CHATEAU COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
In thousands 1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,702 $ 6,534 $ 5,303
Adjustments to reconcile net income to net
cash provided by operating activities:
Income attributable to minority/majority interest 2,986 9,566 7,847
Extraordinary item -- -- 829
Depreciation and amortization 31,510 11,452 11,014
Amortization of debt issuance costs 480 437 538
Decrease (increase) in operating assets 1,495 (562) (77)
Increase (decrease) in operating liabilities (3,628) 2,328 2,643
--------- --------- ---------
Net cash provided by operating activities 54,545 29,755 28,097
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of Senior Notes 102,630 -- 74,866
Borrowings on line of credit 105,111 36,750
Payments on the line of credit (150,945) (30,000)
Principal payments on mortgages (1,596) (1,135) (45,066)
Prepayment penalties -- -- (667)
Payment of debt issuance costs (895) (234) (954)
Distributions to shareholders/OP
Unitholders (42,111) (24,065) (21,982)
Shares/OP Units repurchased (19,851) (12,171) (882)
Proceeds from the issuance of common shares 25,477 -- --
Exercise of common stock options and other 3,268 260 320
--------- --------- ---------
Net cash provided by (used in)
financing activities 21,088 (595) (24,365)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of rental properties (22,655) (21,727) (2,766)
Disposition of rental property 2,455 -- --
Additions to rental properties (15,544) (4,731) (3,392)
Investment in joint ventures (4,259) -- --
Advances to Community Sales, Inc. ("CSI") (8,849) -- --
Merger costs (12,457) (3,060) --
--------- --------- ---------
Net cash used in investing activities (61,309) (29,518) (6,158)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 14,324 (358) (2,426)
Cash and cash equivalents, beginning of period 586 944 3,370
--------- --------- ---------
Cash and cash equivalents, end of period $ 14,910 $ 586 $ 944
========= ========= =========
Supplemental information:
Cash paid for interest $ 24,325 $ 12,176 $ 9,987
========= ========= =========
Fair market value of OP Units/shares issued
for acquisitions $ 3,683 $ 1,964 $ 3,434
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 30
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. Organization and Formation of Company:
The Company was formed in November 1993 as Chateau Properties, Inc., a real
estate investment trust ("REIT"). In 1997, the Company merged with ROC
Communities, Inc, (ROC). The Company is engaged in the business of owning and
operating manufactured housing community properties primarily through CP Limited
Partnership, its Operating Partnership. As of December 31, 1997, the Company
owned 131 properties containing an aggregate of 43,800 homesites, located in 28
states. Approximately 29 percent of these homesites were in Florida and 27
percent were in Michigan. The Company also fee managed 31 properties containing
an aggregate of 6,500 homesites. A manufactured housing community is real estate
designed and improved with sites for placement of manufactured homes. The owner
of the home leases the site from the Company generally for a term of one year or
less.
2. Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying consolidated financial statements of the Company include all
accounts of the Company, its wholly owned qualified REIT subsidiaries and its
Operating Partnership. The Company and ROC are the general partners, and as
such, the Company has unilateral control and complete responsibility for
management of the Operating Partnership including the right and power to make
all decisions and actions with respect to the acquisition, mortgage and sale of
properties and the other business affairs of the Operating Partnership. All
significant inter-entity balances and transactions have been eliminated in
consolidation.
Minority/Majority Interest
Income before minority/majority interest is ascribed to the limited partners of
the Operating Partnership (the Minority Interest") based on their respective
weighted average ownership percentage of the Operating Partnership. The
ownership percentage is determined by dividing the number of Operating
Partnership ("OP") Units held by the limited partners by the total OP Units
outstanding including the Units held by the Company. Issuance of additional
shares of common stock or OP Units changes the percentage ownership of both the
Minority Interest and the Company. Since an OP unit is equivalent to a common
share (due to, among other things, its exchangeability for a common share), such
transactions are treated as capital transactions and result in an equity
transfer adjustment among Shareholders' equity and Minority Interest in the
Company's balance sheet to account for the change in the respective ownership in
the underlying equity of the Operating Partnership.
30
<PAGE> 31
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies Continued:
Investments in and Advances to Affiliates
The Company conducts manufactured home sales and brokerage activities through
its taxable subsidiary Community Sales, Inc. ("CSI"). The Company owns 100% of
the preferred stock of CSI and is entitled to 100% of its cash flow. The Company
accounts for its investment in CSI utilizing the equity method of accounting.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles involves the use of certain management estimates and
assumptions that affect reported amounts and disclosures, such as the useful
lives of rental properties. Actual results could differ from those estimates.
Revenue Recognition
Rental income is recognized when earned and due from residents. The leases
entered into by residents for the rental of a site are generally for terms not
longer than one year and renewable upon the consent of both parties or, in some
instances, as provided by statute.
Rental Property
Rental property is carried at the lower of cost, less accumulated depreciation,
or fair value. Management evaluates the recoverability of its investment in
rental property in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets To Be Disposed Of". This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that full asset recoverability is questionable. Management's assessment of
recoverability of its rental property under this statement includes, but is not
limited to, recent operating results, expected net operating cash flow and
management's plans for future operations.
Depreciation
Depreciation on manufactured home communities is computed primarily on the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives of the various classes of rental property assets are
primarily as follows:
<TABLE>
<CAPTION>
Estimated Useful
Class of Asset Lives (Years)
- -------------- -------------
<S> <C>
Manufactured home community improvements 20 to 30
Community buildings 25 to 30
Furniture and other equipment 4 to 10
</TABLE>
31
<PAGE> 32
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies Continued:
Maintenance, repairs and minor improvements to rental properties are expensed
when incurred. Major improvements and renewals are capitalized. When rental
property assets are sold or otherwise retired, the cost of such assets, net of
accumulated depreciation compared to the sale proceeds, are recognized in income
as gains or losses on disposition.
Capitalized Interest
Interest is capitalized on projects during periods of construction. Interest
capitalized by the Company during 1997 was $708,000.
Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT")
under Section 856(c) of the Internal Revenue Code of 1986, as amended. The
Company generally will not be subject to Federal income tax to the extent it
distributes its REIT taxable income to its shareholders. REITs are subject to a
number of organizational and operational requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. The Company remains subject to certain state
and local taxes on its income and property as well as Federal income and excise
taxes on its undistributed income.
Per Share Data
Basic earnings per share are computed based upon the weighted average number of
common shares outstanding during the period. The conversion of an OP unit to
common stock has no effect on earnings per common share since the earnings of an
OP unit are equivalent to the earnings of a share of common stock. Diluted
earnings per common share are computed assuming the exercise of all outstanding
stock options, which would have a dilutive effect, and the exchange of all OP
Units into common stock.
Stock-Based Compensation
During 1996 the Company adopted SFAS No. 123 for "Accounting for Stock-Based
Compensation." The Company has elected to continue to account for employee stock
based compensation under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and therefore the disclosure method
as permitted and required by SFAS No. 123 is presented in Note 9.
32
<PAGE> 33
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. Summary of Significant Accounting Policies Continued:
Cash Equivalents
All highly liquid investments with an initial maturity of three months or less
are considered to be cash equivalents.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current year financial statement presentation. These
reclassifications have no impact on net operating results previously reported.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" requires
disclosures about the fair value of financial instruments whether or not such
instruments are recognized in the balance sheet. Due to the short-term nature of
the Company's financial instruments, other than debt, fair values are not
materially different from their carrying values. The carrying value of debt
approximates fair value.
Debt Issuance Costs
Costs incurred related to obtaining financing such as service and commitment
fees are deferred and are amortized over the term of the related
commitment/loans. These costs net of accumulated amortization are included in
prepaid expenses and other assets in the accompanying balance sheets.
3. Merger with ROC Communities, Inc.
On February 11, 1997, the Company completed its merger with ROC Communities,
Inc. (the "Merger"). The Merger and related transactions was accounted for using
the purchase method of accounting in accordance with generally accepted
accounting principles. Accordingly, the assets and liabilities of ROC were
adjusted to fair value for financial accounting purposes and the results of
operations of ROC were included in the results of operations of the Company
beginning in February 1997.
33
<PAGE> 34
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
3. Merger with ROC Communities, Inc. Continued:
In connection with the Merger, the related transactions occurred
- - The Company repurchased and retired 1,200,000 shares of its common stock,
of which 750,000, and 450,000 were repurchased in 1997 and 1996,
respectively
- - ROC purchased 350,000 shares of Chateau common stock, in 1996, which was
retired at the time of the Merger
- - The Company issued 1.042 shares of its common stock for each share of ROC
stock outstanding
- - The Company paid a stock dividend equal to .0326 shares of Company common
stock per common share/OP Unit outstanding
- - Certain OP Unitholders converted 6,170,908 OP Units into common shares.
These Unitholders waived their right to receive the above dividend and as
a result it was re-allocated to the existing shareholders, resulting in a
distribution to the common shareholders of .068 shares of common stock
- - Certain OP Unitholders purchased 984,423 additional shares of common stock
from the Company at $25.88 per share.
- - In May 1997 the Company's name was changed to Chateau Communities, Inc
The total price of $351 million was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Rental property $ 501.3
Net working capital 15.8
Debt assumed (166.1)
--------
$ 351.0
========
</TABLE>
34
<PAGE> 35
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
3. Merger with ROC Communities, Inc. Continued
The following unaudited pro forma income statement information has been prepared
as if the Merger and related transactions had occurred on January 1, 1996. In
addition, the pro forma information is presented as if the acquisitions of 14
properties made in 1996 by the Company and ROC had occurred on January 1, 1996.
No adjustments were made for the 1997 acquisitions made by the Company. The pro
forma income statement information is not necessarily indicative of the results
which actually would have occurred if the Merger had been consummated on January
1, 1996.
<TABLE>
<CAPTION>
(In thousands, except per share data)
1997 1996
-------- --------
<S> <C> <C>
Revenues $142,600 $132,800
======== ========
Total expenses $117,500 $113,200
======== ========
Net income* $ 25,100 $ 19,600
======== ========
Per share* $ .89 $ .70
======== ========
</TABLE>
*Assumes all OP Units are exchanged for common stock.
4. Common Stock and Related Transactions
The following table presents the changes in the Company's outstanding common
stock for the years ended December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Common shares outstanding at January 1 5,660,960 6,095,960 5,750,000
Shares repurchased and retired (1,100,100) (450,000)
Shares issued in exchange for ROC
common stock outstanding 13,109,941
Shares issued in exchange for OP Units 6,170,908 335,460
Shares issued in connection with the stock dividend 310,323
Shares issued to certain OP Unitholders for cash 984,423
Shares issued through stock awards, sales to key
employees and the exercise of stock options 238,478 15,000 10,500
Shares issued in connection with the acquisiton
of Windsor Corporation 101,239
----------- ----------- -----------
Common shares outstanding at December 31 25,476,172 5,660,960 6,095,960
=========== =========== ===========
</TABLE>
35
<PAGE> 36
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
4. Common Stock and Related Transactions Continued:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and replaces the presentation of primary EPS with a
presentation of basic EPS and diluted EPS, as summarized in the table below:
<TABLE>
<CAPTION>
(In thousands, except per share data) For the year ended December 31,
1997 1996 1995
---- ---- ----
Basic EPS:
<S> <C> <C> <C>
Income (1) ................... $24,688 $16,100 $13,150
Shares (2) ................... 26,947 14,837 14,779
Per Share .................... $ .92 $ 1.09 $ .89
Diluted EPS:
Income (1) ................... $24,688 $16,100 $13,150
Shares (3) ................... 27,192 14,957 14,825
Per Share .................... $ .91 $ 1.08 $ .89
</TABLE>
(1) Represents income before minority/majority interest
(2) Represents the weighted average shares and OP Units outstanding
(3) Represents the weighted average shares and OP Units outstanding, as well
as dilutive stock options
36
<PAGE> 37
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. Acquisitions of Rental Property:
(In thousands)
<TABLE>
<CAPTION>
Amount Fair Market
Allocated Value of OP
Acquisition Property Name to Assets Units/Shares
Date and Location Acquired Issued Cash
----------- ------------ -------- ------ ----
<S> <C> <C> <C> <C>
Acquisitions - 1997:
February, 1997 75 communities acquired through the
Merger with ROC see note 3
November, 1997 Purchase of 4 communities in
Boston, Massachusetts $20,000 $ 500 $ 19,500
Various Investment in joint ventures (2) $ 4,259 $ -- $ 4,259
- ----------------------------------------------------------------------------------------------------------------
Acquisitions - 1996
March, 1996 Chestnut Creek Farm-
Davison, MI $ 3,400 $ 3,400
May, 1996 Maple Valley and Maple Ridge-
Manteno, IL $ 5,800 $ 1,000 $ 4,800
September, 1996 Joint venture with ROC
purchase of six
communities in six states (1) $10,300 $ 10,300
Various Other joint ventures (2) $ 4,200 $ 1,000 $ 3,200
- ----------------------------------------------------------------------------------------------------------------
Acquisitions - 1995:
September, 1995 Hidden Valley
Lake Buena Vista, FL $ 6,200 $ 3,400 $ 2,800
</TABLE>
37
<PAGE> 38
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. Acquisitions of Rental Property Continued:
(1) Represents a 50 percent interest in a joint venture with ROC
accounted for as a property acquisition and included in rental
properties. After the merger with ROC in February, the Company now
owns 100% of these properties.
(2) In connection with a joint venture, the Company may guarantee up to
$8 million of debt in return for a guarantee fee. As of December 31,
1997, the Company has guaranteed $8 million of debt.
In September 1997, the Company completed the acquisition of Windsor, the general
partner and advisor to one REIT owning 28 manufactured home communities
(containing 5,700 homesites), all of which had been managed by ROC on a fee
basis since 1993 and by the Company since the Merger. The acquisition was
financed with the issuance of 101,239 shares of common stock and $750,000 in
cash.
6. Investments in and Advances to Affiliates:
Investments in and advances to affiliates as of December 31, consisted primarily
of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Investments in and amounts due from Community Sales, Inc. ("CSI") $12,950 --
Investments in and amounts due from joint ventures 8,696 $ 3,408
------- -------
$21,646 $ 3,408
======= =======
</TABLE>
38
<PAGE> 39
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Financing:
The following table sets forth certain information regarding debt at December
31:
<TABLE>
<CAPTION>
Weighted Principal Balance
Average Maturity -------------------
Interest Rate Date 1997 1996
------------- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Fixed rate mortgages 7.95% 1998-2011 $113,969 $ 54,441
Unsecured Senior Notes 7.52% 2003 70,000 --
Unsecured Senior Notes 8.75% 2000 75,000 75,000
Unsecured Senior Notes 6.92% 2004 100,000 --
Unsecured line of credit 6.75% 1999 25,000 36,750
Other notes payable 3,046 2,124
-------- --------
$387,015 $168,315
======== ========
</TABLE>
At December 31, 1997, the Company had a $100 million line of credit arrangement,
including a $25 million term loan, with First National Bank of Chicago/NBD
acting as lead agent for a bank group to provide financing for future
construction, acquisitions and general business obligations. The line of credit
arrangement is unsecured, bears interest at the prime rate of interest or, at
the Company's option, LIBOR plus 110 basis points. At December 31, 1997, there
was $25 million in borrowings outstanding under the term loan. The line matures
in May 1999 and the term loan matures May 1998. The terms of the line of credit
provide for the payment of a fee on the average daily unused amount of the line
of credit. In addition, in September 1997, the Company 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. As of December 31, 1997, approximately $25
million was outstanding under the Company's line of credit and the Company had
available $82.5 million in additional borrowing capacity. The financing
arrangements contain customary covenants, including a debt service coverage
ratio and a restriction on the incurrence of additional collateralized
indebtedness without a corresponding increase in rental property.
On December 23, 1997, the Company issued 6.92% MandatOry Par Put Remarketed
Securities(SM) ("MOPPRS(SM)") due December 10, 2014. The net proceeds to the
Company from the issuance before deducting offering expenses, was approximately
$102.0 million. The additional $2 million represents a payment made by the
"Remarketing Dealer" for the right to remarket the securities in 2004. This
amount will be amortized over the life of the related debt.
39
<PAGE> 40
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Financing Continued:
In connection with the issuance of the MOPPRS(SM), the Company and the Operating
Partnership entered into a Remarketing Agreement, dated as of December 23, 1997
(the "Remarketing Agreement"), with the remarketing dealer named therein (the
Remarketing Dealer"), pursuant to which the MOPPRS(SM) are subject to mandatory
tender in favor of the Remarketing Dealer on December 10, 2004 (the "Remarketing
Date"), for a purchase price equal to 100% of the principal amount of the
outstanding MOPPRS(SM). Upon the remarketing dealer's election to remarket the
MOPPRS(SM), the interest rate to the December 10, 2014 maturity date of the
MOPPRS will be adjusted to equal the sum of 5.75% plus the Applicable Spread (as
defined in the Remarketing Agreement). In the event the Remarketing Dealer does
not elect to remarket the MOPPRS(SM), the MOPPRS(SM) will mature on the
Remarketing Date.
The aggregate amount of principal maturities on the fixed rate mortgages and
Senior Notes payable subsequent to December 31, 1997 (in thousands) is as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
- ------------
<S> <C>
1998 $ 2,884
1999 19,938
2000 164,581
2001 125
2002 136
Thereafter 171,305
---------
$ 358,969
=========
</TABLE>
8. Minority/Majority Interest in Operating Partnership:
Minority/majority interest in the accompanying balance sheets represents the
ownership interest in the Operating Partnership held by other than the Company.
As of December 31, 1997 and December 31, 1996, the minority/majority interest
was approximately 10 percent and 61 percent, respectively.
During 1997, in connection with the merger, and during 1995, certain OP
Unitholders converted their OP Units into 6,170,908 and 335,460 shares of common
stock, respectively, of the Company at a one for one exchange ratio. These
transactions resulted in an increase to outstanding common shares, and a
corresponding decrease in outstanding OP Units. In connection with these
transactions, there were no proceeds received nor expenses incurred by the
Company.
During 1996 and 1995 the Company, through the Operating Partnership, purchased
and retired 43,334 and 44,085 OP Units, respectively, at approximately $21.50
and $20.00 per unit, respectively.
40
<PAGE> 41
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. Minority/Majority Interest in Operating Partnership Continued:
The following is a summary of activity of the minority/majority interest in the
Operating Partnership for the periods presented including the transfer
adjustment among the minority/majority interest and shareholders' equity in the
balance sheet to account for the change in the respective ownership in the
underlying equity of the Operating Partnership.
<TABLE>
<CAPTION>
Operating
Partnership Minority
Units Interest
----- --------
(in thousands)
<S> <C> <C>
Majority interest in Operating Partnership
at January 1, 1995 9,008 $ 41,569
Majority interest in income -- 7,847
Distributions declared, $1.525 per unit -- (13,377)
Issuance of OP Units at fair value in connection
with acquisitions 162 3,434
Exchange of OP Units for shares of common
stock (336) (1,547)
OP Units reacquired and retired by Operating
Partnership (44) (882)
Transfer to shareholders' equity -- (780)
--------- ---------
Majority interest in Operating Partnership
at December 31, 1995 8,790 36,264
--------- ---------
Majority interest in income -- 9,566
Distributions declared, $1.62 per unit -- (14,279)
Issuance of OP Units at fair value in connection
with acquisitions 89 1,964
OP Units reacquired and retired by Operating
Partnership (43) (932)
Transfer to shareholders' equity -- (6,031)
--------- ---------
Majority interest in Operating Partnership
at December 31, 1996 8,836 26,552
--------- ---------
Minority interest in income -- 2,986
Distributions declared, $1.72 per unit -- (4,745)
Issuance of OP Units at fair value in
connection with acquisitions 23 660
Exchange of OP Units for shares of common
stock (6,171) (159,703)
Issuance of OP Units through a dividend 87
Transfer from shareholders' equity -- 169,522
--------- ---------
Minority interest in Operating Partnership
at December 31, 1997 2,775 $ 35,272
========= =========
</TABLE>
41
<PAGE> 42
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. Stock Option Plan:
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," effective with the year ended December 31, 1996. The
Company measures compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees."
The Company's 1997 Equity Compensation Plan and 1993 Long Term Incentive Stock
Plan (the "Plans") provide for up to 950,000 shares of common stock that may be
granted to directors, executive officers and other key employees. The Plan
provides for the grant of options restricted stock awards and stock appreciation
rights. The Plans provide for the grant of options at "fair market value" which
represents the quoted market price of the Company's common stock on the date of
grant. The Compensation Committee will determine the vesting schedule of each
option and the term, which term shall not exceed ten years from the date of
grant.
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Shares subject to option:
Outstanding at beginning of year 735,300 $ 21.66 454,150 $ 20.08 193,000 $ 20.43
Granted(1) 60,000 25.62 308,150 23.99 315,550 19.82
Issued in connection with the merger(2) 557,334 21.06
Exercised (155,228) 21.00 (11,250) 21.21 (7,500) 20.00
Forfeited -- -- (15,750) 22.11 (46,900) 19.74
---------- ----------- ---------- ----------- ---------- -----------
Outstanding at end of year 1,197,406 $ 21.66* 735,300 $ 21.66* 454,150 $ 20.08
========== =========== ========== =========== ========== ===========
Options exercisable at year-end 1,182,406 176,287 74,000
========== ========== ==========
Options available for grant at year-end 811,200 238,900 535,350
========== ========== ==========
Weighted average remaining
contractual life (in years) 7.3 8.2 8.4
========== ========== ==========
</TABLE>
(1) The options granted do not include the grant of 80,000 shares of
restricted stock to executive officers of the Company.
(2) These represent options issued in exchange for existing ROC options at the
time of the Merger and the adjustments for the 6.8 percent stock dividend
paid on the Company's common stock, also in connection with the Merger.
* Ranging in price from $18.18-$29.94 and $19.50 - $24.25 at December 31,
1997 and 1996, respectively.
42
<PAGE> 43
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. Stock Option Plan Continued:
The fair value of each option was estimated as of date of grant using an
option-pricing model with the following assumptions used for options granted in:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Estimated fair value per share of
options granted during the year $ 3.58 $ 3.39 $ 2.72
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Assumptions:
Annualized dividend yield 6.1% 6.7% 7.6%
Common Stock price volatility 20.0% 20.0% 20.0%
Risk-free rate of return 6.35% 6.56% 7.57%
Expected option term (in years) 10 10 10
</TABLE>
If compensation cost for stock option grants had been recognized based on the
fair value at the grant dates for 1997, 1996 and 1995 consistent with the method
prescribed by SFAS 123, net income and net income per share would have been:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $ 20,091,000 $ 6,457,000 $ 5,268,000
Net income per share-basic $ .85 $ 1.07 $ .88
Net income per share-diluted $ .84 $ 1.06 $ .88
</TABLE>
10. Savings Plan:
The Company has two qualified retirement plans designed to qualify under Section
401 of the Internal Revenue Code (the "Plan"). The Plans allow the employees of
the Company to defer a portion of their eligible compensation on a pre-tax basis
subject to certain maximum amounts. Contributions by the Company are
discretionary and determined by the Company's management. Company contributions
are allocated to each participant based on the relative compensation of the
participant to the compensation of all participants. The Company contributed
approximately $421,000, $300,000 and $275,000 to the 401(k) Plan for the Plan
years ended December 31, 1997, 1996 and 1995, respectively.
43
<PAGE> 44
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
11. Related Party Transactions:
Rental expense of approximately $100,000 annually has been incurred for leasing
space in an office building owned by certain officers and equity owners. The
office lease expires November 2001. For the year ended December 31, 1995 net
lease income of approximately $695,000 was recognized from a ground lease with a
corporation wholly owned by an equity owner to the Company.
The Company, through CSI, purchases manufactured home inventory for resale from
Clayton Homes, Inc., which is affiliated with one of the Company's directors.
During 1997, CSI purchased approximately 94 homes for a cost of $2.2 million. In
certain instances, the Company finances the purchase of these homes with
Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt"), which is also affiliated
with the same director . As of December 31, 1997 the Company has a payable to
Vanderbilt for $656,000.
In addition, when CSI sells these homes, the purchaser often finances them with
Vanderbilt. In certain cases, Vanderbilt has recourse to the Company if these
loans are not repaid. As of December 31, 1997 there is a total of $11.7 million
of such amounts that are recourse to the Company.
As of December 31, 1997 the Company has a receivable of $3.3 million from a
partnership with which several officers of the Company are affiliated. The
partnership owns a manufactured home community property that the Company has the
option to purchase. The receivable is collateralized by the property and was
approved by the directors of the Company who have no interest in the
partnership.
12. Extraordinary Item - Early Extinguishment of Debt:
The extraordinary charge in the accompanying statements of income represent
prepayment penalties and certain other related costs incurred in connection with
the early extinguishment of debt.
13. Contingencies:
The Company, as an owner of real estate, is subject to various environmental
laws. Compliance by the Company with existing laws has not had a material effect
on the results of operations, financial condition or cash flows of the Company,
nor does management believe it will have a material impact in the future.
However, management cannot predict the impact of new or changed laws or
regulations on its current properties or properties that it may acquire.
Several claims and legal actions arising from the normal course of business,
none of which are environmental related matters, have been asserted against the
Company, and are pending final resolution. Although the amount of liability at
December 31, 1997, if any, with respect to these matters is not determinable, in
the opinion of management, none of these matters will be material to future
results of operations, financial condition or cash flows of the Company.
44
<PAGE> 45
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
14. Quarterly Financial Information (Unaudited):
The following is quarterly financial information for the years ended December
31, 1997 and 1996; (Amounts in thousands except per share data.)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
1997
<S> <C> <C> <C> <C>
Total revenues $29,376 $35,600 $36,560 $36,633
======= ======= ======= =======
Operating income (a) $17,693 $21,264 $21,395 $21,764
======= ======= ======= =======
Income before minority interest $ 5,588 $ 6,123 $ 5,670 $ 7,307
Minority interest in income of
Operating Partnership 1,133 560 557 736
------- ------- ------- -------
Net income $ 4,455 $ 5,563 $ 5,113 $ 6,571
======= ======= ======= =======
Weighted average common shares
outstanding 18,720 25,253 25,308 25,473
======= ======= ======= =======
Weighted average common shares
and OP Units outstanding 23,480 28,009 28,064 28,242
======= ======= ======= =======
Net income per share - basic (b) $ .24 $ .22 $ .20 $ .25
======= ======= ======= =======
Net income per share - diluted (b) $ .24 $ .22 $ .20 $ .25
======= ======= ======= =======
1996
Total revenues $16,391 $16,829 $16,983 $17,181
======= ======= ======= =======
Operating income (a) $10,132 $ 9,685 $ 9,992 $10,705
======= ======= ======= =======
Income before majority interest $ 4,321 $ 3,599 $ 3,955 $ 4,225
Majority interest in income of
Operating Partnership 2,551 2,126 2,340 2,549
------- ------- ------- -------
Net income $ 1,770 $ 1,473 $ 1,615 $ 1,676
======= ======= ======= =======
Weighted average common shares
outstanding 6,097 6,099 6,100 5,793
======= ======= ======= =======
Weighted average common shares
and OP Units outstanding 14,887 14,896 14,936 14,630
======= ======= ======= =======
Net income per share - basic (b) $ .29 $ .24 $ .26 $ .29
======= ======= ======= =======
Net income per share - diluted (b) $ .29 $ .24 $ .26 $ .29
======= ======= ======= =======
</TABLE>
(a) Operating income represents total revenues less property operating and
maintenance expense, real estate taxes and administrative expense.
Operating income is a measure of the performance of the properties before
the effects of depreciation and interest and related amortization costs.
(b) Quarterly earnings per common share amounts may not total to the full year
amounts due to rounding and to the change in the number of common shares
outstanding.
45
<PAGE> 46
CHATEAU COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
15. Subsequent Events:
In January 1998, the Company completed the acquisition of 16 properties, in
Connecticut, South Carolina, and Florida, containing approximately 2,333
homesites and 1,359 park/model RV sites, for a total of approximately $55.4
million. These acquisitions were financed by $33.7 million in borrowings under
the Company's line of credit, the issuance of 412,480 OP Units and $5.7 million
in cash available from the proceeds of the December 1997 Debt Offering. Nine of
the above communities, containing approximately 900 homesites and 1,100 park
model/RV sites, are subject to long-term ground leases.
In February 1998, the Company received net proceeds of approximately $53.9
million from the issuance of 1,850,000 shares of its common stock. The proceeds
from the offering were used to reduce outstanding balances under the Company's
line of credit from the January 1998 acquisitions and for the March 1998
acquisitions.
In March 1998, the Company completed the acquisition of 6 properties, 1 in
Michigan and 5 in Indiana, containing approximately 1,500 homesites, for a total
of approximately $36.7 million. These acquisitions were financed by the issuance
of common stock in February 1998 and by borrowings on the Company's line of
credit. In addition, CSI purchased a 60 percent interest in three retail sales
centers in Indiana, for approximately $1.2 million.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
46
<PAGE> 47
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 21,
1998.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 21,
1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 21,
1998
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to the
information in the Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Shareholders to be held on May 21,
1998.
47
<PAGE> 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
Report of Independent Accountants
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
III - Real Estate and Accumulated Depreciation
48
<PAGE> 49
3. Exhibits
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
Exhibit Description
-------------------
3(i) (a)(c) Chateau Communities, Inc. Amended and Restated
Articles of Incorporation
3(ii) (b)(e) Chateau Communities, Inc. Amended and Restated
Bylaws
4.1 (b) Form of Stock Certificate
4.2(i) (f) Indenture dated as of December 19, 1997 between CP
Limited Partnership and The First National Bank of
Chicago, as supplemented
4.2(ii) (f) First Supplemental Indenture dated as of December
19, 1997 between CP Limited Partnership and The First
National Bank of Chicago related to the $100,000,000
MadatOry Par Put Remarketed Securities(SM)
("MOPPRS(SM)") due December 10, 2014.
4.2(iii) (f) Remarketing Agreement dated as of December 23, 1997
among Chateau Communities, Inc., CP Limited Partnership
and the "Remarketing Dealer" named therein.
4.3* $75,000,000 8 3/4% Indenture, dated March 2, 1995, of CP
Limited Partnership.
4.4* Note Purchase Agreement dated as of November 4, 1996,
between Pacific Mutual and ROC Communities, Inc. for
$70,000,000 in Senior Notes due November 4, 2003
4.5* Deed to secure Debt and Security Agreement from ROCF,
Inc. to Pacific Mutual, dated as of August 25, 1993
10.1 (h) Amended and Restated Agreement of Limited
Partnership of CP Limited Partnership dated January 22,
1997.
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and Allen)
10.4(i) (e) Employment Agreement (McDaniel)
10.4(ii) (e) Employment Agreement (Kellogg)
10.4(iii) (e) Employment Agreement (Fischer)
10.4(iv) (e) Employment Agreement (Grange)
10.4(v) (e) Employment Agreement (Davis)
10.5 (g) Amended and restated agreement and plan of Merger
between Chateau Properties, Inc., it's subsidiary and
ROC Communities, Inc., dated September 17, 1996.
10.6 (h)1997 Equity Compensation Plan
10.7 (b) Long-Term Incentive Stock Plan
21 (d)List of Subsidiaries of Chateau Communities, Inc.
23 Consent of Coopers & Lybrand L.L.P.
* Other instruments defining long-term debt not exceeding 10 percent of
total assets have been omitted in reliance on Item 601(b)4)(iii)(A) of
Regulation S-K but will be filed upon the request of the
49
<PAGE> 50
Commission.
(a) Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995
filed with the Commission on August 10, 1995 (Commission File No.
1-12496).
(b) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-11 filed with the Securities and Exchange
Commission on November 10, 1993 (Commission File No. 33-69150).
(c) Incorporated by reference to the Exhibits filed with the Company's Form
8-K filed with the Commission on May 23, 1997.
(d) Incorporated by reference to the exhibits filed with the Company's Annual
Report in Form 10-K for the year ended December 31, 1995 filed with the
commission on March 29, 1996 (Commission File No. 1-12496).
(e) Incorporated by reference to the Company's Quarterly Report on Form 10Q
filed with the Commission on May 14, 1997.
(f) Incorporated by reference to the Company's Form 8-K filed with the
Securities Exchange Commission on December 9, 1997.
(g) Incorporated by reference to the Company's Form S-4 filed with the
Commission on September 24, 1996.
(h) Filed herewith.
b. Reports on Form 8-K
A report on Form 8-K was filed with the Securities and Exchange Commision
on December 10, 1997 and December 19, 1997.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, and in the capacities
indicated, on the 19th day of March, 1998.
CHATEAU COMMUNITIES, INC.
By: /s/ Gary P. McDaniel
-----------------------------------------
Gary P. McDaniel
Director and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Tamara D. Fischer
-----------------------------------------
Tamara D. Fischer
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 19, 1998.
Signature Title
--------- -----
/s/ John Boll Chairman of the Board of Directors
- ------------------------------
John A. Boll
/s/ C.G. Kellogg Director and President
- ------------------------------
C.G. Kellogg
/s/ Gary P. McDaniel Director and Chief Executive Officer
- ------------------------------
Gary P. McDaniel
/s/ Edward R. Allen Director
- ------------------------------
Edward R. Allen
/s/ Gebran S. Anton, Jr. Director
- ------------------------------
Gebran S. Anton, Jr.
<PAGE> 52
/s/ James L. Clayton Director
- ------------------------------
James L. Clayton
/s/ Steven G. Davis Director
- ------------------------------
Steven G. Davis
/s/ James M. Hankins Director
- ------------------------------
James M. Hankins
/s/ Rhonda Hogan Director
- ------------------------------
Rhonda Hogan
/s/ James M. Lane Director
- ------------------------------
James M. Lane
/s/ Donald E. Miller Director
- ------------------------------
Donald E. Miller
<PAGE> 53
CHATEAU COMMUNITIES, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(a)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
for the year ended December 31, 1997
CHATEAU COMMUNITIES, INC.
FINANCIAL STATEMENT SCHEDULE
Pages
-----
III. Real Estate and Accumulated Depreciation................................F-2
No other financial statement schedules are required as the amounts are not
significant, or not applicable, or reported in the Company's financial
statements or notes thereto.
F-1
<PAGE> 54
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
for the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------- -------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- --------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Algoma Algoma Township, MI 60 66 1,951
Anchor Bay Ira Township, MI 432 80 2,877 14,482
Atlanta Meadows Atlanta, GA 554 625 435 - 11
Audubon Orlando, FL 281 296 2 2,907
Avon Rochester Hills, MI 621 484 640 6,946
Bermuda Palms Indio, CA 1,291 2,477 - 50
Breazeale Laramie, WY. 1,094 251 1,618 - 11
Buena Vista Fargo, ND 713 6,248 - 58
Butler Creek Augusta, GA 1,238 2,309 - 53
Camden Point Kingsland, GA 466 1,701 - 21
Casa Linda Las Vegas, NV. 849 586 1,659 - 31
Castlewood Estates Mabelton, GA 656 2,918 - 95
Casual Estates Syracuse, NY 9,208 2,135 14,324 - 145
Cedar Knolls Minneapolis, MN 1,217 11,006 - 43
Central Office Englewood, CO - - 80 4,081
Chesterfield Chesterfield Township, MI 405 - 262 2,051
Chestnut Creek Davison, MI 274 - - 3,280
Cimarron Park St. Paul, MN 1,424 12,882 - 128
Clinton Clinton Township, MI 989 - 430 5,415
Coach Royale Boise, ID 197 1,065 11
Colonial Kalamazoo, MI 816 195 4 7,533
Colonial Coach Riverdale, GA 1,052 4,277 - 60
Colony Cove Ellenton, FL 5,683 28,256 - 129
Columbia Heights Grand Forks, ND 588 5,282 - 47
Conway Circle Orlando, FL 931 544 864 - 3
Conway Plantation Conway, SC 428 3,696 - -
Country Estates Spring Lake Township, MI 30 - - 1,810
Countryside Great Falls Great Falls, MT 629 361 1,650 - (36)
Countryside Village Denver Denver, CO 1,459 4,384 - 33
Countryside Village Jackson. Jacksonville, FL 962 4,796 - 110
Countryside Village Longmont Longmont, CO 1,481 4,455 - 12
Cranberry Lake White Lake Township, MI 432 220 - 2,748
Crestview Stillwater, OK 689 362 963 - (28)
Crystal Lake Zephryhills, FL 1,323 2,239 - 119
Del Tura Fort Myers, FL 32,747 4,360 50,508 420 3,120
Eagle Creek Tyler, TX 1,291 1,761 299 277
Eastridge San Jose, CA 2,476 4,671 - 5
Eldorado Daytona Bch, FL 967 408 1,248 - 22
Emerald Lake Punta Gorda, FL 399 1,150 - 224
Fairways Country Club Orlando, FL 955 5,823 8 1,553
Ferrand Estates Wyoming, MI 257 1,579 - 219
Forest Lake Estates Spring Lake Township, MI 414 2,293 18 368
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/97
------------------- Date of
Building & Accumulated Construction (C)
Community Location Land Fixtures Total Depreciation Acquisition (A)
- ------------------------------------------------------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Algoma Algoma Township, MI 126 1,951 2,077 758 1974(C)
Anchor Bay Ira Township, MI 3,309 14,562 17,871 6,542 1968(C)
Atlanta Meadows Atlanta, GA 625 446 1,071 20 08/25/93(A)
Audubon Orlando, FL 283 3,203 3,486 1,521 1988(A)
Avon Rochester Hills, MI 1,261 7,430 8,691 4,778 1988(A)
Bermuda Palms Indio, CA 1,291 2,527 3,818 87 08/29/94(A)
Breazeale Laramie, WY. 251 1,629 1,880 50 08/25/93(A)
Buena Vista Fargo, ND 713 6,306 7,019 847 1994(A)
Butler Creek Augusta, GA 1,238 2,362 3,600 84 08/25/93(A)
Camden Point Kingsland, GA 466 1,722 2,188 59 08/25/93(A)
Casa Linda Las Vegas, NV. 586 1,690 2,276 58 08/25/93(A)
Castlewood Estates Mabelton, GA 656 3,013 3,669 106 2/1/97(A)
Casual Estates Syracuse, NY 2,135 14,469 16,604 598 08/25/93(A)
Cedar Knolls Minneapolis, MN 1,217 11,049 12,266 1,514 1994(A)
Central Office Englewood, CO 80 4,081 4,161 974
Chesterfield Chesterfield Township, MI 667 2,051 2,718 1,576 1969(C)
Chestnut Creek Davison, MI 274 3,280 3,554 241 1996(A)
Cimarron Park St. Paul, MN 1,424 13,010 14,434 1,768 1994(A)
Clinton Clinton Township, MI 1,419 5,415 6,834 4,440 1969(C)
Coach Royale Boise, ID 197 1,076 1,273 43 01/01/94(A)
Colonial Kalamazoo, MI 820 7,728 8,548 4,766 1985(A)
Colonial Coach Riverdale, GA 1,052 4,337 5,389 157 2/1/97(A)
Colony Cove Ellenton, FL 5,683 28,385 34,068 992 08/02/94(A)
Columbia Heights Grand Forks, ND 588 5,329 5,917 711 1994(A)
Conway Circle Orlando, FL 544 867 1,411 30 08/25/93(A)
Conway Plantation Conway, SC 428 3,696 4,124 140 2/1/97(A)
Country Estates Spring Lake Township, MI 30 1,810 1,840 1,206 1974(C)
Countryside Great Falls Great Falls, MT 361 1,614 1,975 58 08/25/93(A)
Countryside Village Denver Denver, CO 1,459 4,417 5,876 156 08/25/93(A)
Countryside Village Jackson. Jacksonville, FL 962 4,906 5,868 175 08/25/93(A)
Countryside Village Longmont Longmont, CO 1,481 4,467 5,948 160 08/25/93(A)
Cranberry Lake White Lake Township, MI 432 2,968 3,400 1,636 1986(A)
Crestview Stillwater, OK 362 935 1,297 28 08/25/93(A)
Crystal Lake Zephryhills, FL 1,323 2,358 3,681 100 2/1/1997(A)
Del Tura Fort Myers, FL 4,780 53,628 58,408 6,975 1994(A)
Eagle Creek Tyler, TX 1,590 2,038 3,628 80 2/1/97(A)
Eastridge San Jose, CA 2,476 4,676 7,152 164 08/29/94(A)
Eldorado Daytona Bch, FL 408 1,270 1,678 42 08/25/93(A)
Emerald Lake Punta Gorda, FL 399 1,374 1,773 600 1988(A)
Fairways Country Club Orlando, FL 963 7,376 8,339 4,774 1979(A)(C)
Ferrand Estates Wyoming, MI 257 1,798 2,055 1,439 1989(A)
Forest Lake Estates Spring Lake Township, MI 432 2,661 3,093 427 1994(A)
</TABLE>
F-3
<PAGE> 55
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
for the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------- -------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- --------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Foxhall Village Raleigh, NC 521 5,283 - 383
Foxwood Farms Ocala, FL 691 1,502 - 74
Friendly Village Greely, CO 523 2,702 (5) 87
Gold Tree Bradenton, FL 1,285 3,850 - 65
Golden Citrus/
Homestead Ranch McAllen, TX 500 195 1,108 - 124
Golden Valley Douglasville, TX 254 800 - 143
Grand Blanc Grand Blanc, MI 1,749 - 289 7,435
Hickory Knoll Indianapolis, IN 3,029 356 2,669 - 6
Hidden Valley Orlando, FL 492 5,714 - 49
Hillcrest Rockland, MA 236 1,285 - -
Holiday Estates Byron Township, MI 93 - - 1,696
Howell Howell, MI 345 151 2,683
Hunters Chase Lima, OH 921 1246 - 127
Jade Isle Orlando, FL 863 273 1,076 - 3
Knoll Terrace Salem, OR 1,986 1,379 2,050 - 20
La Quinta Ridge Indio, CA 1,013 1,873 - 267
Lake in the Hills Auburn Hills, MI 952 6,389 - 20
Lakeland Harbor Lakeland, FL 875 - - 3,272
Lakeland Junction Lakeland, FL 471 972 1 108
Lakes at Leesburg Leesburg, FL 1,178 - 39 3,398
Lakewood Davenport, LA 892 442 1,210 - 188
Land O'Lakes Orlando, FL 1,416 472 2,507 - 7
Landmark Village Fairburn, GA 2,539 4,352 - 85
Leisure Woods - Rockland Rockland, MA 831 14,326 - -
Leisure Woods - Tauton Tauton, MA 256 2,780 - -
Leisure World Weslaco, TX 228 1,639 - 35
Leonard Gardens Walker, MI 94 - 247 3,261
Macomb Macomb Township, MI 15,972 1,459 - 2,173 16,348
Maintenance Clinton, Township, MI - - - 248
Maple Grove Boise, ID 1,139 702 2,384 - 9
Maple Ridge Manteno, IL 126 - - 1,455
Maple Valley Manteno, IL 338 - - 3,897
Mariwood Indianapolis, IN 2,138 324 2,415 51
Marnelle Fayetteville, GA 1,209 464 2,635 - 319
Marysville Meadows/
Eagle Point Seattle, WA 2,738 1,048 3,514 - -
Meadow Park Fargo, ND 133 1,183 - 15
Meadowbrook Ithaca, NY 1,849 291 4,029 - 18
Midway Estates Vero Bch., FL 1,841 1,313 2,095 2 32
Mobet/Falcon Farms Moline, IL 801 295 1,576 - 198
Mobiland Melbourne, FL 1,942 1,247 2,238 - 20
Mobile Village/The Homestead McAllen, TX 672 100 742 - 161
Mosby's Point Florence, KY 1,201 608 1,574 - 7
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/97
------------------- Date of
Building & Accumulated Construction (C)
Community Location Land Fixtures Total Depreciation Acquisition (A)
- ------------------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foxhall Village Raleigh, NC 521 5,666 6,187 203 2/1/97(A)
Foxwood Farms Ocala, FL 691 1,576 2,267 53 07/26/94(A)
Friendly Village Greely, CO 518 2,789 3,307 98 01/18/94(A)
Gold Tree Bradenton, FL 1,285 3,915 5,200 121 11/23/93(A)
Golden Citrus/
Homestead Ranch McAllen, TX 195 1,232 1,427 50 2/1/97(A)
Golden Valley Douglasville, TX 254 943 1,197 35 2/1/97(A)
Grand Blanc Grand Blanc, MI 2,038 7,435 9,473 1,807 1990(C)
Hickory Knoll Indianapolis, IN 356 2,675 3,031 98 08/25/93(A)
Hidden Valley Orlando, FL 492 5,763 6,255 491 1995(A)
Hillcrest Rockland, MA 236 1,285 1,521 3 11/5/97(A)
Holiday Estates Byron Township, MI 93 1,696 1,789 1,112 1984(C)
Howell Howell, MI 496 2,683 3,179 2,177 1972(C)
Hunters Chase Lima, OH 921 1,373 2,294 54 2/1/97(A)
Jade Isle Orlando, FL 273 1,079 1,352 36 08/25/93(A)
Knoll Terrace Salem, OR 1,379 2,070 3,449 72 08/25/93(A)
La Quinta Ridge Indio, CA 1,013 2,140 3,153 65 08/29/94(A)
Lake in the Hills Auburn Hills, MI 952 6,409 7,361 1,120 1994(A)
Lakeland Harbor Lakeland, FL 875 3,272 4,147 2,139 1983(C)
Lakeland Junction Lakeland, FL 472 1,080 1,552 768 1981(C)
Lakes at Leesburg Leesburg, FL 1,217 3,398 4,615 1,908 1984(C)
Lakewood Davenport, LA 442 1,398 1,840 49 08/25/93(A)
Land O'Lakes Orlando, FL 472 2,514 2,986 88 08/25/93(A)
Landmark Village Fairburn, GA 2,539 4,437 6,976 161 07/15/94(A)
Leisure Woods - Rockland Rockland, MA 831 14,326 15,157 30 11/5/97(A)
Leisure Woods - Tauton Tauton, MA 256 2,780 3,036 6 11/5/97(A)
Leisure World Weslaco, TX 228 1,674 1,902 58 05/06/94(A)
Leonard Gardens Walker, MI 341 3,261 3,602 1,119 1987(C)
Macomb Macomb Township, MI 3,632 16,348 19,980 7,953 1973(C)
Maintenance Clinton, Township, MI - 248 248 180 2/1/97(A)
Maple Grove Boise, ID 702 2,393 3,095 84 08/25/93(A)
Maple Ridge Manteno, IL 126 1,455 1,581 109 2/1/97(A)
Maple Valley Manteno, IL 338 3,897 4,235 288 2/1/97(A)
Mariwood Indianapolis, IN 324 2,466 2,790 87 08/25/93(A)
Marnelle Fayetteville, GA 464 2,954 3,418 118 2/1/97(A)
Marysville Meadows/
Eagle Point Seattle, WA 1,048 3,514 4,562 123 08/25/93(A)
Meadow Park Fargo, ND 133 1,198 1,331 160 1994(A)
Meadowbrook Ithaca, NY 291 4,047 4,338 118 08/25/93(A)
Midway Estates Vero Bch., FL 1,315 2,127 3,442 74 08/25/93(A)
Mobet/Falcon Farms Moline, IL 295 1,774 2,069 57 08/25/93(A)
Mobiland Melbourne, FL 1,247 2,258 3,505 79 08/25/93(A)
Mobile Village/The Homestead McAllen, TX 100 903 1,003 32 2/1/97(A)
Mosby's Point Florence, KY 608 1,581 2,189 56 08/25/83(A)
</TABLE>
F-4
<PAGE> 56
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
for the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------- -------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- --------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Norton Shores Norton Shores, MI 3,435 103 - 118 4,724
Novi Novi, MI 896 - 393 4,794
Oak Grove Albany, GA 416 418 764 - 15
Oak Hill Groveland Township, MI 1,216 115 2,165 - 3,996
Oak Orchard Albion, NY 701 3,425 - 14
Oak Springs Sorrento, FL 206 1,461 2 312
Oakwood Forest Greensboro, NC 1,111 3,843 - 136
Old Orchard Davison, MI 211 182 - 2,618
One Hundred Oaks Fultondale, AL 345 1,839 - 5
Orange Lake Clermont, FL 246 85 1 1,994
Orion Orion Township, MI 423 198 - 4,529
Palm Beach Colony West Palm Beach, FL 691 1,962 - 98
Paradise Village Albany, GA 492 340 918 - 7
Pedaler's Pond Lake Wales, FL 350 285 - 2,314
Pendleton Indianapolis, IN 634 122 964 - 2
Pine Lakes Ranch Thorton,CO 2,463 10,099 34 202
Pinecrest Village Shreveport, LA 93 719 - 420
Pinellas Cascades Clearwater, FL 2,169 1,747 2,313 - (2)
Presidents Park Grand Forks, ND 258 1,283 - 22
Redwood Estates Thorton,CO 2,473 10,044 - 81
Regency Lakes Winchester, VA 1,176 3,705 - 916
Riverview Portland, OR 1,429 537 1,942 - 29
Rolling Hills Louisville, KY 736 342 1,034 - 9
Rosemount Woods Minneapolis/St. Paul, MN 475 4,297 - 6
Royal Estates Kalamazoo, MI 190 1,015 2,475 - 24
Science City Midland, MI 1,496 870 1,760 - 45
Shenandoah Boise, ID 443 2,528 - 3
Skyway Indianapolis, IN 1,207 178 1,366 - 8
Southwind Naples, FL 2,619 1,476 3,463 - 45
Springfield Farms Brookline, MO 1,698 2,157 - 1,491
Starlight Ranch Orlando, FL 5,597 8,859 - 36
Stonegate, LA Shreveport, LA 455 160 642 - 89
Terrace Heights Dubuque, IA 1,686 919 2,413 - 8
The Colony Rancho Mirage, CA 2,259 4,745 - 30
The Glen Rockland, MA 261 252 - -
The Orchard Sanat Rosa, CA 2,794 6,363 - 8
Torrey Hills Flint, MI 346 205 1 4,271
Town & Country, FL Orlando, FL 458 245 896 - 7
Trails End Weslaco, TX 260 1,804 - 40
Twenty-Nine Pines St. Paul, MN 317 2,871 - 17
Twin Pines Goshen, IN 1,078 197 1,934 - 26
Vance Columbus, OH 670 200 993 - 19
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/97
------------------- Date of
Building & Accumulated Construction (C)
Community Location Land Fixtures Total Depreciation Acquisition (A)
- ------------------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norton Shores Norton Shores, MI 221 4,724 4,945 2,557 1978(C)
Novi Novi, MI 1,289 4,794 6,083 4,595 1973(C)
Oak Grove Albany, GA 418 779 1,197 26 08/25/93(A)
Oak Hill Groveland Township, MI 115 6,161 6,276 2,977 1983(A)
Oak Orchard Albion, NY 701 3,439 4,140 129 2/1/97(A)
Oak Springs Sorrento, FL 208 1,773 1,981 1,254 1981(A)
Oakwood Forest Greensboro, NC 1,111 3,979 5,090 139 08/25/93(A)
Old Orchard Davison, MI 211 2,800 3,011 1,340 1988(A)
One Hundred Oaks Fultondale, AL 345 1,844 2,189 30 2/1/97(A)
Orange Lake Clermont, FL 247 2,079 2,326 905 1988(A)
Orion Orion Township, MI 423 4,727 5,150 2,687 1986(A)
Palm Beach Colony West Palm Beach, FL 691 2,060 2,751 655 1983(A)
Paradise Village Albany, GA 340 925 1,265 31 08/25/93(A)
Pedaler's Pond Lake Wales, FL 350 2,599 2,949 1,056 1990(A)
Pendleton Indianapolis, IN 122 966 1,088 33 08/25/93(A)
Pine Lakes Ranch Thorton,CO 2,497 10,301 12,798 378 2/1/97(A)
Pinecrest Village Shreveport, LA 93 1,139 1,232 35 2/1/97(A)
Pinellas Cascades Clearwater, FL 1,747 2,311 4,058 78 08/25/93(A)
Presidents Park Grand Forks, ND 258 1,305 1,563 47 01/01/94(A)
Redwood Estates Thorton,CO 2,473 10,125 12,598 374 2/1/97(A)
Regency Lakes Winchester, VA 1,176 4,621 5,797 168 2/1/97(A)
Riverview Portland, OR 537 1,971 2,508 68 08/25/93(A)
Rolling Hills Louisville, KY 342 1,043 1,385 37 08/25/93(A)
Rosemount Woods Minneapolis/St. Paul, MN 475 4,303 4,778 575 1994(A)
Royal Estates Kalamazoo, MI 1,015 2,499 3,514 91 08/25/93(A)
Science City Midland, MI 870 1,805 2,675 63 08/25/93(A)
Shenandoah Boise, ID 443 2,531 2,974 86 05/06/94(A)
Skyway Indianapolis, IN 178 1,374 1,552 48 08/25/93(A)
Southwind Naples, FL 1,476 3,508 4,984 120 08/25/93(A)
Springfield Farms Brookline, MO 1,698 3,648 5,346 95 2/1/97(A)
Starlight Ranch Orlando, FL 5,597 8,895 14,492 319 2/1/97(A)
Stonegate, LA Shreveport, LA 160 731 891 20 08/25/93(A)
Terrace Heights Dubuque, IA 919 2,421 3,340 86 08/25/93(A)
The Colony Rancho Mirage, CA 2,259 4,775 7,034 160 09/02/94(A)
The Glen Rockland, MA 261 252 513 - 11/5/97(A)
The Orchard Sanat Rosa, CA 2,794 6,371 9,165 200 08/29/94(A)
Torrey Hills Flint, MI 347 4,476 4,823 2,379 1987(A)
Town & Country, FL Orlando, FL 245 903 1,148 30 08/25/93(A)
Trails End Weslaco, TX 260 1,844 2,104 60 05/06/94(A)
Twenty-Nine Pines St. Paul, MN 317 2,888 3,205 392 1994(A)
Twin Pines Goshen, IN 197 1,960 2,157 70 08/25/93(A)
Vance Columbus, OH 200 1,012 1,212 29 08/25/93(A)
</TABLE>
F-5
<PAGE> 57
CHATEAU COMMUNITIES, INC.
SCHEDULE III, REAL ESTATE AND ACCUMULATED DEPRECIATION
For the year ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
----------------------- -----------------------------
Building & Building &
Community Location Encumbrance Land Fixtures Land Fixtures
- --------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Villa Flint, MI 135 332 (6) 2,713
Whispering Pines Clearwater, FL 4,165 4,208 4,071 - 18
Willo Arms Cleveland, OH 1,563 473 2,146 - 15
Winter Haven Oaks Winter Haven, FL 490 705 362 1,305
Yorktowne Sharonville, OH 2,130 6,311 145
Difference between allocated
purchase price and
historical cost of
properties acquired in
the ROC Acquistion 959 180,377
======== ======= ======= ===== =======
113,970 109,567 392,348 9,867 324,393
======== ======= ======= ===== =======
<CAPTION>
Gross Amount
Carried at Close of
Period 12/31/97
------------------- Date of
Building & Accumulated Construction (C)
Community Location Land Fixtures Total Depreciation Acquisition (A)
- ------------------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Villa Flint, MI 129 3,045 3,174 2,033 1984(A)
Whispering Pines Clearwater, FL 4,208 4,089 8,297 62 08/25/93(A)
Willo Arms Cleveland, OH 473 2,161 2,634 77 08/25/93(A)
Winter Haven Oaks Winter Haven, FL 852 2,010 2,862 890 1988(A)(C)
Yorktowne Sharonville, OH 2,130 6,456 8,586 242 2/1/97(A)
Difference between allocated
purchase price and
historical cost of
properties acquired in
the ROC Acquistion 959 180,378 181,337 10,269
======= ======= ======= =======
119,434 716,741 836,175 112,314
======= ======== ======== ========
</TABLE>
F-6
<PAGE> 58
SCHEDULE III
Continued
CHATEAU COMMUNITIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
-------
The changes in total real estate for the years ended December 31, 1997 and 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 300,631 $ 276,423 $ 266,833
Acquisitions 525,625 19,531 6,922
Improvements 13,250 4,731 2,670
Dispositions and other (3,331) (54) (2)
--------- --------- ---------
Balance, end of year $ 836,175 $ 300,631 $ 276,423
========= ========= =========
</TABLE>
The change in accumulated depreciation for the years ended December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 81,293 $ 69,868 $ 58,856
Depreciation for the period 31,103 11,452 11,014
Disposition and other (82) (27) (2)
--------- --------- ---------
Balance, end of year $ 112,314 $ 81,293 $ 69,868
========= ========= =========
</TABLE>
F-7
<PAGE> 59
Exhibit Number
(Referenced to Item 601 of
Regulation S-K)
3(i) (a)(c) Chateau Communities, Inc. Amended and Restated
Articles of Incorporation
3(ii) (b)(e) Chateau Communities, Inc. Amended and Restated
Bylaws
4.1 (b) Form of Stock Certificate
4.2(i) (f) Indenture dated as of December 19, 1997 between CP
Limited Partnership and The First National Bank of
Chicago, as supplemented
4.2(ii) (f) First Supplemental Indenture dated as of December
19, 1997 between CP Limited Partnership and The First
National Bank of Chicago related to the $100,000,000
MadatOry Par Put Remarketed Securities(SM)
("MOPPRS(SM)") due December 10, 2014.
4.2(iii) (f) Remarketing Agreement dated as of December 23, 1997
among Chateau Communities, Inc., CP Limited Partnership
and the "Remarketing Dealer" named therein.
4.3* $75,000,000 8 3/4% Indenture, dated March 2, 1995, of CP
Limited Partnership.
4.4* Note Purchase Agreement dated as of November 4, 1996,
between Pacific Mutual and ROC Communities, Inc. for
$70,000,000 in Senior Notes due November 4, 2003
4.5* Deed to secure Debt and Security Agreement from ROCF,
Inc. to Pacific Mutual, dated as of August 25, 1993
10.1 (h) Amended and Restated Agreement of Limited
Partnership of CP Limited Partnership dated January 22,
1997.
10.2 (b) Lease of 19500 Hall Road
10.3 (b) Form of Noncompetition Agreement (Boll and Allen)
10.4(i) (e) Employment Agreement (McDaniel)
10.4(ii) (e) Employment Agreement (Kellogg)
10.4(iii) (e) Employment Agreement (Fischer)
10.4(iv) (e) Employment Agreement (Grange)
10.4(v) (e) Employment Agreement (Davis)
10.5 (g) Amended and restated agreement and plan of Merger
between Chateau Properties, Inc., it's subsidiary and
ROC Communities, Inc., dated September 17, 1996.
10.6 (h)1997 Equity Compensation Plan
10.7 (b) Long-Term Incentive Stock Plan
21 (d)List of Subsidiaries of Chateau Communities, Inc.
23 Consent of Coopers & Lybrand L.L.P.
<PAGE> 60
Exhibit
Index
* Other instruments defining long-term debt not exceeding 10 percent of
total assets have been omitted in reliance on Item 601(b)4)(iii)(A) of
Regulation S-K but will be filed upon the request of the Commission.
(a) Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995
filed with the Commission on August 10, 1995 (Commission File No.
1-12496).
(b) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-11 filed with the Securities and Exchange
Commission on November 10, 1993 (Commission File No. 33-69150).
(c) Incorporated by reference to the Exhibits filed with the Company's Form
8-K filed with the Commission on May 23, 1997.
(d) Incorporated by reference to the exhibits filed with the Company's Annual
Report in Form 10-K for the year ended December 31, 1995 filed with the
commission on March 29, 1996 (Commission File No. 1-12496).
(e) Incorporated by reference to the Company's Quarterly Report on Form 10Q
filed with the Commission on May 14, 1997.
(f) Incorporated by reference to the Company's Form 8-K filed with the
Securities Exchange Commission on December 9, 1997.
(g) Incorporated by reference to the Company's Form S-4 filed with the
Commission on September 24, 1996.
(h) Filed herewith.
<PAGE> 1
Exhibit 10.1
CP LIMITED PARTNERSHIP
Amended and Restated Agreement of Limited Partnership
Transfer of the Limited Partnership Interests
("Partnership Interests") represented hereby is restricted
by the terms of this Agreement. In addition, the sale of the
Partnership Interests has not been registered under the
Securities Act of 1933, as amended, nor any state's security
law, and they may not be transferred or sold unless such
sale is subsequently
registered or an exemption from registration is available.
<PAGE> 2
CP LIMITED PARTNERSHIP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is made as of the 22nd day of January, 1997, by and among CHATEAU
PROPERTIES, INC., a Maryland corporation (the "Company"), and each of the
limited partners whose names appear as such on Exhibit A attached hereto (the
"Limited Partners"). The Company and the Limited Partners are hereinafter
sometimes individually referred to as a "Partner" or collectively as the
"Partners."
WITNESSETH:
WHEREAS, CP Limited Partnership, a Maryland limited partnership (the
"Partnership"), was formed under the laws of the State of Maryland pursuant to a
Certificate of Limited Partnership filed September 16, 1993 with the Maryland
Department of Assessments and Taxation (the "Original Certificate") and an
Agreement of Limited Partnership dated September 16, 1993, as thereafter amended
and restated and most recently amended on October 24, 1994 and September 26,
1995 (the "Original Partnership Agreement");
WHEREAS, the Company, ROC Communities, Inc., a Maryland corporation
("ROC"), and a merger subsidiary of the Company have entered into an Amended and
Restated Agreement and Plan of Merger dated as of September 17, 1996 and amended
by the amendment thereto dated as of December 20, 1996 (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, at the Effective Time of the
Mergers, as defined in the Merger Agreement, the merger subsidiary of the
Company shall merge with and into ROC, with ROC being the surviving corporation
in such merger;
WHEREAS, Section 5.15 of the Merger Agreement requires that, immediately
following the Effective Time of the Mergers, as defined in the Merger Agreement,
ROC shall, pursuant to a Contribution Agreement contemplated by the Merger
Agreement (the "Contribution Agreement") (i) contribute to the capital of the
Partnership the Contributor Properties, the Other Assets and the Management
Agreements, as each term is defined in the Contribution Agreement, (ii) cause
its wholly owned subsidiary, Redwood Acquisition Corp., a Maryland corporation
("RAC"), to contribute to the capital of the Partnership the RAC Properties (as
defined in the Contribution Agreement) and (iii) cause its wholly owned
subsidiary, ROCF, Inc., a Maryland corporation, to merge with and into a newly
organized financing partnership subsidiary of the Partnership ("Financing
Partnership"), with the Financing Partnership surviving such merger (the
"Financing Partnership Merger"), and concurrently therewith contribute to the
capital of the Partnership its ninety-nine percent limited partnership interest
in the Financing Partnership to be received pursuant to the Financing
Partnership Merger, all in accordance with the terms of the Contribution
Agreement;
WHEREAS, upon the effectiveness of this Agreement, and in exchange for the
contributions
1.
<PAGE> 3
to the capital of the Partnership as set forth herein, ROC is to receive OP
Units of the Partnership and is to be admitted as a general partner of the
Partnership;
WHEREAS, the Partners desire to amend and restate the Original Partnership
Agreement as set forth herein, to be effective immediately following the
Effective Time of the Mergers, as defined in the Merger Agreement, if and only
if the Mergers and other transactions contemplated by the Merger Agreement and
the Contribution Agreement are consummated in accordance with their respective
terms; and
WHEREAS, if the Mergers and other transactions contemplated by the Merger
Agreement and the Contribution Agreement are not consummated in accordance with
their respective terms, then this amendment shall be void and of no force and
effect whatsoever.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree that, effective immediately following the Effective Time of the
Mergers, as defined in the Merger Agreement, if and only if the Mergers and
other transactions contemplated by the Merger Agreement and the Contribution
Agreement are consummated in accordance with their respective terms, the
Original Partnership Agreement shall be amended and restated in its entirety to
read as follows:
ARTICLE ONE
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Act" shall mean the Maryland Revised Uniform Limited Partnership Act
as amended from time to time, and any corresponding provision of future laws.
1.2 "Additional Capital Contributions" shall mean the capital
contributions described in Paragraph 4.5 hereof.
1.3 "Adjusted Capital Account Deficit" shall mean, at any time with
respect to any Partner, the deficit balance, if any, in such Partner's Capital
Account, after giving effect to the following adjustments:
(a) Such Capital Account shall be increased by the amounts which
such Partner is deemed obligated to restore as described in the
penultimate sentence of Treasury Regulation Section 1.704-2(g)(1) and
Treasury Regulation Section 1.704-2(i)(5), or any successor provisions;
and
(b) Such Capital Account shall be reduced by the amount of the items
described in Treasury Regulation Sections 1.704-1(b)(2) (ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
2.
<PAGE> 4
The definition of Adjusted Capital Account Deficit is intended to comply
with Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
1.4 "Affiliate" shall mean (i) any person or entity directly or indirectly
controlling, controlled by or under common control with any Partner, (ii) any
person or entity owning or controlling five (5%) percent or more of the
outstanding voting interests of any Partner, (iii) any officer, director,
employee, general partner, shareholder or beneficiary of any Partner, or (iv)
any person or entity who is an officer, director, general partner, trustee or
holder of five (5%) percent or more of the voting interests or beneficial
interest of any person or entity described in clause (i) (ii) or (iii) of this
Paragraph.
1.5 "Agent for Service of Process" shall be CT Corp., which is hereby
designated as the Agent of the Partnership for purposes of accepting service of
process for the Partnership.
1.6 "Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other Federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b) the making by a Partner of any assignment for the benefit
of its creditors or the admission by a Partner in writing of its inability to
pay its debts as they mature, or (c) the expiration of sixty (60) days after the
filing of an involuntary petition under Title 11 of the United States Code (or
corresponding provisions of future laws), seeking an application for the
appointment of a receiver for the assets of a Partner, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other Federal or state insolvency law, provided that the same
shall not have been vacated, set aside or stayed within such 60-day period.
1.7 "Capital Account" shall mean, with respect to any Partner, a
bookkeeping account maintained by the Partnership for such Partner, which shall
be credited with the amount of such Partner's Capital Contributions paid in cash
to the Partnership, and with such Partner's distributive share of Net Profits
and any items in the nature of income or gain specially allocated pursuant to
Paragraph 6.4 hereof, and which shall be debited with the amount of cash
distributed to such Partner pursuant to any provision of this Agreement, and
such Partner's distributive share of Partnership Net Losses and any items in the
nature of expenses or losses specially allocated pursuant to Paragraph 6.4
hereof. If a Partner makes a contribution of (or receives a distribution of)
non-cash property, such Partner's Capital Account shall be credited (or debited)
with the Gross Asset Value of such property, net of liabilities assumed by the
Partnership (or the Partner) in connection with such contribution (or
distribution) and liabilities to which such property is subject. In the case of
a transfer of a Partnership Interest permitted under this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
it related to the transferred interest. In determining the amount of any
liability for purposes of this Paragraph 1.7 there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations. The foregoing provisions and other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b) and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partners shall
3.
<PAGE> 5
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto, are computed in order to comply with such
Regulations, the General Partners may make such modification, provided that such
modification is not likely to have a material effect on the amounts
distributable to any Partner pursuant to this Agreement upon the dissolution of
the Partnership. The General Partners also shall (i) make any adjustments that
are necessary or appropriate to maintain equality between the Capital Accounts
of the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, or computed for book purposes, in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Treasury Regulation Section 1.704-1(b).
1.8 "Capital Cash Flow" of the Partnership shall have the meaning set
forth in Paragraph 6.3 hereof.
1.9 "Capital Contribution" shall mean, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the capital of the Partnership (net of liabilities assumed
by the Partnership in connection with such contribution and liabilities to which
such property is subject) contributed by such Partner to the capital of the
Partnership pursuant to the terms of this Agreement, including the Capital
Contribution made by any predecessor holder of the Partnership Interest of such
Partner.
1.10 "Company" shall mean Chateau Properties, Inc., a Maryland
corporation.
1.11 "Depreciation" shall mean, for each fiscal year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to any asset for such year or other period, except that
if the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided that if the federal income tax depreciation,
amortization, or other cost recovery deduction is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partners.
1.12 "General Partner" shall mean the Company and ROC or any other person
(i) admitted to the Partnership and designated as a General Partner in Exhibit A
attached hereto, or who has become a General Partner pursuant to the terms and
conditions of this Agreement, and (ii) who holds a Partnership Interest.
General Partners shall mean all such persons.
1.13 "General Partnership Interest" shall mean the Partnership Interest
owned by the General Partners together with all the rights, benefits and
obligations of the General Partners pursuant to this Agreement. Notwithstanding
anything contained in this Agreement to the contrary, the General Partners shall
at all times have an aggregate interest of not less than one (1%) percent in
each material item of Partnership income, gain, loss, deduction or credit.
4.
<PAGE> 6
1.14 "Gross Asset Value" shall mean, with respect to any Partnership
asset, the asset's adjusted basis for federal income tax purposes, except as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the General Partners,
and as set forth on Exhibit B attached hereto;
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by the General Partners, as of the following times: (i) the acquisition of
an additional interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution; (ii) the
distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property, as consideration for an interest in the
Partnership, and (iii) the liquidation of the Partnership within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (i) and (ii) above shall be
made only if the General Partners reasonably determine that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(c) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or 743(b), but only to the extent
that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m) and
Paragraph 6.4(e) hereof; provided that the Gross Asset Values shall not be
adjusted pursuant to this Paragraph 1.14(c) to the extent the General
Partners determine that an adjustment pursuant to Paragraph 1.14(b) is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Paragraph 1.14(c); and
(d) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to Paragraph 1.14(a), (b) or (c) hereof, such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profits
and Net Losses.
1.15 "Gross Income" shall mean, for each fiscal year or other period, the
gross income of the Partnership, as finally determined for federal income tax
purposes.
1.16 "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time (or any corresponding provision of
future laws).
1.17 "Limited Partner" shall mean any person (i) admitted to the
Partnership and designated as a Limited Partner in Exhibit A attached hereto, or
who has become a Limited Partner pursuant to the terms and conditions of this
Agreement, and (ii) who holds a Partnership Interest. "Limited Partners" shall
mean all such persons.
1.18 "Limited Partnership Interests" shall mean the Partnership Interests
of the Limited
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Partners.
1.19 "Majority in Interest" shall mean the Limited Partners who, in the
aggregate, own more than one-half (1/2) of the total Percentage Interests owned
by the Limited Partners.
1.20 "Net Profits" and "Net Losses" shall mean, for each fiscal year or
other period, the taxable income of the Partnership as finally determined in
accordance with Internal Revenue Code Section 703(a) for Federal income tax
purposes (for this purpose all items of income, gain, loss or deduction required
to be stated separately pursuant to Internal Revenue Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits or Net
Losses shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Internal
Revenue Code Section 705(a)(2)(B) or treated as Internal Revenue Code
Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Profits or Net Losses, shall be subtracted from such taxable income or
loss;
(c) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(d) If the Gross Asset Value of any Partnership asset is adjusted
pursuant to Paragraph 1.14 hereof, the amount of such adjustment shall be
taken into account as gain (if an increase) or loss (if a decrease) from
the disposition of such asset for purposes of computing Net Profits or Net
Losses;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year
or other period; and
(f) to the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b)
is required pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in complete liquidation
of a Partner's Partnership Interest, the amount of such adjustment shall
be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases the basis of the
asset)from the disposition of the asset and shall be taken into account
for purposes of computing Net Profits or Net Losses;
(g) Any items which are specially allocated pursuant to Paragraphs
6.4 or 6.5 hereof shall not be taken into account in computing Net Profits
or Net Losses.
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1.21 "Nonrecourse Debt" is any liability of the Partnership for which (as
between the Partnership and the creditor) the creditor's right to repayment is
limited to one or more assets of the Partnership, within the meaning of Section
1.1001-2 of the Treasury Regulations.
1.22 "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Treasury Regulations.
1.23 "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Treasury Regulations.
1.24 "Operating Cash Flow" of the Partnership shall have the meaning set
forth in Paragraph 6.2 hereof.
1.25 "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Section 1.704-2(i)(3) of the Treasury Regulations.
1.26 "Partner Nonrecourse Debt" or "Partner Nonrecourse Liability" have
the meanings set forth in Section 1.704-2(b)(4) of the Treasury Regulations.
1.27 "Partner Nonrecourse Deductions" has the meaning set forth in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
1.28 A "Partner's Share of Partnership Minimum Gain" at the end of any
Partnership fiscal year has the meaning set forth in Section 1.704-2(g) of the
Treasury Regulations.
1.29 A "Partner's Share of Partner Nonrecourse Debt Minimum Gain" at the
end of any Partnership fiscal year has the meaning set forth in Section
1.704-2(i)(5) of the Treasury Regulations.
1.30 "Partners" shall mean, collectively, the General Partners and Limited
Partners. Any reference to a Partner shall, unless the context clearly requires
otherwise, be deemed a reference to any one of the Partners, his or her
predecessor and substituted successor in interest.
1.31 "Partnership" means CP Limited Partnership, a Maryland limited
partnership formed under and pursuant to the Act.
1.32 "Partnership Interest" means a Partner's ownership interest in the
Partnership as set forth on Exhibit A attached hereto, including the right of a
Partner to any and all benefits to which it may be entitled pursuant to this
Agreement, and to the extent not inconsistent with this Agreement, under the
Act, together with the obligations of a Partner to comply with all the terms and
provisions of this Agreement and of the Act.
7.
<PAGE> 9
1.33 "Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
1.34 "Percentage Interest" of a Partner in the Partnership shall mean the
percentage interest of such Partner as stated in Exhibit A of this Agreement, as
such percentage interest may be adjusted from time to time in accordance with
the provisions of this Agreement.
1.35 "Regulations" or "Treasury Regulations" shall mean the Income Tax
Regulations, including Temporary Regulations, promulgated under the Code, as
such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
1.36 "Substitute Limited Partner" shall mean a permitted successor to a
Limited Partner's Partnership Interest pursuant to Paragraph 9.2 hereof who has
been admitted to the Partnership as a Limited Partner.
1.37 "Syndication Expenses" shall mean all expenditures classified as
syndication expenses pursuant to Treasury Regulation Section 1.709-2(b).
Syndication Expenses shall be taken into account under this Agreement at the
time they would be taken into account under the Partnership's method of
accounting if they were deductible expenses.
1.38 "Tax Matters Partner" shall mean the Company who shall have the
rights and authority as described in Paragraph 5.1(j) hereof.
All references to statutory provisions shall be deemed to include
reference to corresponding provisions of subsequent law.
ARTICLE TWO
CONTINUATION OF PARTNERSHIP, NAME, OFFICE LOCATION AND TERM
2.1 Continuation. The Partnership was originally formed under the name CP
LIMITED PARTNERSHIP, on September 16, 1993 pursuant to the provisions of the
Original Certificate filed as of such date, and the terms of the Act, and the
parties hereto hereby agree to continue the Partnership on the terms and
conditions set forth herein. The General Partners and the Limited Partners shall
continue to carry on the Partnership, as a limited partnership under the Act,
for the purposes set forth herein and in accordance with the provisions of this
Agreement.
The name of the Partnership shall continue to be CP LIMITED PARTNERSHIP,
or such other name or names as shall be selected from time to time by the
General Partners. The Partnership may transact its business under any trade or
fictitious name or names selected by the General Partners at any time and from
time to time.
2.2 Admission of ROC. ROC is hereby admitted to the Partnership as a
General Partner, subject to the terms and conditions of this Agreement.
8.
<PAGE> 10
2.3 Office Location. The location of the principal office of the
Partnership shall be 6430 S. Quebec Street, Englewood, Colorado 80111, or at
such other location as may be designated by the General Partners. Notice of any
change of office shall be given to all Limited Partners prior to or within ten
(10) days after such change in location.
2.4 Amended and Restated Certificate of Limited Partnership. Promptly
after the admission of ROC as a General Partner in the Partnership the General
Partners shall sign a Restated Certificate of Limited Partnership, with respect
to the Partnership on behalf of themselves and the Limited Partners as their
attorney-in-fact pursuant to the power(s) of attorney provided in Paragraph
5.1(k) of this Agreement, and the General Partners shall cause same to be filed
in the office of the Maryland State Department of Assessment and Taxation,
Department of Commerce.
2.5 Term. The term of the Partnership, which commenced on the effective
date of the Original Certificate, shall continue until the winding up and
liquidation of the Partnership and its business is completed following a
Liquidating Event as provided in Paragraph 7.2 hereof.
2.6 Qualification to Do Business. The General Partners shall take all
actions necessary or required to qualify the Partnership to transact business in
all jurisdictions where such qualification is required.
ARTICLE THREE
PURPOSES AND POWERS OF PARTNERSHIP
3.1 Purpose. The purpose of the Partnership is to acquire, purchase, own,
operate, manage, develop, redevelop, invest in, finance, refinance, sell, lease
and otherwise deal with manufactured housing community properties and assets
related thereto, and interests therein, whether directly or indirectly, alone or
in association with others. The purposes of the Partnership include, but are not
limited to:
(a) acquiring, developing, operating, leasing and managing
manufactured housing community properties and conducting any other lawful
business relating thereto:
(b) mortgaging, exchanging, selling, encumbering or otherwise
disposing of all or any part of a manufactured housing community property
or any interest therein:
(c) constructing, reconstructing, altering, modifying and
subtracting from or adding to a manufactured housing community property or
any part thereof;
(d) organizing and holding partnership interests in partnerships
owning or otherwise having an interest in, whether directly or indirectly,
one or more manufactured housing community properties; and
(e) in general, the making of any investments or expenditures, the
borrowing and lending of money and the taking of any and all actions which
are incidental or related to any of the purposes recited above.
9.
<PAGE> 11
It is agreed that each of the foregoing is an ordinary part of the
Partnership's business and affairs. Property may be acquired subject to, or by
assuming, the liens, encumbrances, and other title exceptions which affect such
property. The Partnership may also be a partner, general or limited, in
partnerships, general or limited, and joint ventures created to accomplish all
or any or the foregoing.
The Partnership purposes may be accomplished by taking any action which is
not prohibited under the Act and which is related to the acquisition, ownership,
development, improvement, operation, management, financing, leasing, exchanging,
selling or otherwise encumbering or disposing of all or any portion of the
assets of the Partnership, or any interest therein.
ARTICLE FOUR
CAPITAL CONTRIBUTIONS, ADMISSION OF PARTNERS, OP UNITS
4.1 Capital Contributions. Each of the Partners (or their respective
predecessors in interest), other than ROC, have heretofore made Capital
Contributions to the Partnership. In connection with the admission of ROC as a
General Partner, and in accordance with the terms of the Contribution Agreement,
ROC is hereby contributing to the capital of the Partnership the amounts and/or
properties set forth on Exhibit C attached hereto, and in exchange therefor the
Partnership is hereby issuing to ROC that number of OP Units determined in
accordance with Section 8 of the Contribution Agreement.
4.2 Omitted.
4.3 Admission of Partners. Upon admission of a Partner into the
Partnership and receipt of the Partner's Capital Contribution, the Percentage
Interest of the Partner shall be set forth opposite the Partner's name in
Exhibit A attached hereto, which shall be amended as appropriate to reflect
changes in the Percentage Interest of each Partner pursuant to the provisions of
this Agreement.
4.4 Issuance and Conversion of OP Units.
A. The interest of a Partner in the Partnership is sometimes
referred to as being evidenced by one or more "OP Units." The aggregate
total of all OP Units outstanding as of the date of this Agreement after
giving effect to the Capital Contribution by ROC in accordance with
Paragraph 4.1 hereof and the number of OP Units owned by each Partner is
set forth on Exhibit A attached hereto.
B. From time to time, the General Partners, subject to the
provisions of this Paragraph 4.4(B), shall cause the Partnership to issue
additional OP Units either (i) to existing or newly-admitted Partners
(including itself) in exchange for the contribution by a Partner (the
"Contributing Partner") of additional Capital Contributions to the
Partnership, (ii) to the Company upon the issuance by the Company of
additional shares of its common stock ("Common Stock") not in connection
with the exchange of OP Units as provided in Paragraph 4.4(C) hereof,
provided that any net proceeds received by the Company as a result
10.
<PAGE> 12
of the issuance of such additional shares of Common Stock are contributed
to the Partnership as additional Capital Contributions, in accordance with
Paragraph 4.5(B) hereof (it being understood that the Company may issue
shares of Common Stock in connection with stock option plans, restricted
stock plans or other employee benefit plans without receiving any proceeds
and that the issuance of such shares shall nonetheless entitle the Company
to additional OP Units). The number of OP Units issued to a Contributing
Partner under clause (i) of this Paragraph 4.4(B) shall be equal to the
quotient (rounded to the nearest whole number) arrived at by dividing (x)
the initial Gross Asset Value of the property contributed as additional
Capital Contributions (net of any debt to which such property is subject
or assumed by the Partnership in connection with such contribution) by (y)
such price as may be determined by the General Partners in connection with
such contributions. The number of OP Units issued to the Company under
clause (ii) of this Paragraph 4.4(B) shall be equal to the number of
shares of Common Stock issued. Upon the issuance of additional OP Units,
or upon the exchange of OP Units for Common Stock as provided in Paragraph
4.4(C) hereof, the Percentage Interests of all of the Partners shall be
adjusted by the General Partners so that the Percentage Interest of each
Partner is equal to the quotient (expressed as a percentage) arrived at by
dividing the number of OP Units held by a Partner by the total number of
OP Units then outstanding. Notwithstanding anything to the contrary
contained herein, in no event shall any additional OP Units be issued
(pursuant to this Paragraph 4.4(B) or otherwise) to the extent that the
effect of such issuance would be to reduce the General Partners' aggregate
Percentage Interest to less than one (l%) percent.
C. Subject to the further provisions of this Paragraph 4.4(C), the
Company hereby grants to each Limited Partner other than Chateau Estates,
a Michigan co-partnership, J. Peter Ministrelli and Ministrelli
Construction Company, a Michigan corporation, (together referred to herein
as the "Initial Limited Partners") the right to exchange any or all of the
OP Units held by that Partner for shares of Common Stock. In the case of
an exchange of OP Units pursuant to this Paragraph 4.4(C), one OP Unit
shall be exchangeable for one share of Common Stock. Such right may be
exercised by a Limited Partner from time to time upon not less than ten
(10) days prior written notice to the Company. The Initial Limited
Partners shall have the right to exchange the OP Units held by such
Initial Limited Partners for shares of Common Stock only in accordance
with the Formula defined in the Appendix to the Private Letter Ruling
dated April 5, 1996, issued by the Internal Revenue Service to the
Company. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the exchange of OP Units for shares Common Stock, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding OP Units subject to conversion
and not owned by the Company. No Limited Partner shall, by virtue of being
the holder of one or more OP Units, be deemed to be a shareholder of or
have any other interest in the Company. In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend, split,
recapitalization, merger, consolidation, combination, exchange of shares
or other similar corporate change, the number of OP Units held by each
partner shall be proportionately adjusted so that one OP Unit remains
exchangeable for one share of Common Stock without dilution. In the event
the Company issues any Common Stock in exchange for OP Units pursuant to
this Paragraph 4.4(C), any such OP Units so
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<PAGE> 13
acquired by the Company shall immediately thereafter be converted in the
hands of the Company into General Partnership Interests. Notwithstanding
the foregoing provisions of this Paragraph 4.4(C), a Limited Partner shall
not have the right to exchange OP Units for Common Stock if (i) in the
opinion of counsel to the Company, acceptable to such Limited Partner and
the Company, the Company would, as a result of such exchange (or the right
to effectuate such exchange), no longer qualify (or it would be likely
that the Company no longer would qualify) as a real estate investment
trust under the Code; or (ii) such exchange (or the right to effectuate
such exchange) would violate the ownership limitations set forth in the
Articles of Incorporation of the Company; or (iii) such exchange would
not, in the opinion of counsel acceptable to such Limited Partner and the
Company, be an exempt transaction under applicable securities laws.
4.5 Additional Capital Contributions.
A. No Partner shall be assessed or, except as provided in Paragraph
4.5(B) below, required to contribute additional funds or other property to
the Partnership. Any additional funds or other property required by the
Partnership, as determined by the General Partners in their sole
discretion, may, at the option of the General Partners and without any
obligation to do so (except as provided for in Paragraph 4.5(B) below), be
contributed by the General Partners as additional Capital Contributions.
If and when the General Partners or any other Partner makes additional
Capital Contributions to the Partnership, each such Partner shall receive
additional OP Units as provided for in Paragraph 4.4 above. The General
Partners shall also have the right (but not the obligation) to raise any
additional funds required for the Partnership by causing the Partnership
to borrow the necessary funds from third parties on such terms and
conditions as the General Partners shall deem appropriate in their sole
discretion. If the General Partners elect to cause the Partnership to
borrow the additional funds, they may cause one or more of the
Partnership's assets to be encumbered to secure the loan. No Limited
Partner shall have the right to contribute additional Capital
Contributions to the Partnership without the prior written consent of the
General Partners.
B. The net proceeds of any and all funds raised by or through the
Company or ROC through the issuance of additional shares of common stock
of the Company or ROC, as the case may be, shall be contributed to the
Partnership as additional Capital Contributions, and in such event the
Company or ROC, as the case may be, shall be issued additional OP Units
pursuant to Paragraph 4.4 above.
C. The net proceeds of any and all funds raised by or through the
Company or ROC through the issuance of shares of preferred stock of the
Company or ROC, as the case may be, shall be contributed to the
Partnership as additional Capital Contributions, and in such event the
Company or ROC, as the case may be, shall be issued additional OP Units
pursuant to Paragraph 4.4 above; provided that any such OP Units
("Preferred OP Units") shall have such terms, preferences and limitations
consistent with the terms, preferences and limitations of such preferred
stock. The General Partners shall have the right to amend this Agreement
at their sole discretion and without the consent of any other Partner
solely as to
12.
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matters respecting the issuance of Preferred OP Units by the Partnership.
4.6 Return of Capital. Except as expressly provided for in this Agreement,
no Partner shall have the right to demand or to receive the return of all or any
part of his Capital Contributions to the Partnership and there shall be no
priority of one Partner over another as to the return of Capital Contributions
or withdrawals or distributions of Net Profits and Net Losses. No Partner shall
have the right to demand or receive property other than cash in return for the
contributions of such Partner to the Partnership.
4.7 Interest. No interest shall be paid to any Partner on any contribution
to the capital of the Partnership.
4.8 Negative Capital Accounts. No Partner shall be required to pay to the
Partnership any deficit or negative balance which may exist in its Capital
Account.
ARTICLE FIVE
MANAGEMENT OF THE PARTNERSHIP
5.1 Management of Partnership. The General Partners shall be the sole
managers of the Partnership business, and shall have the right and power to make
all decisions and take any and every action with respect to the property,
business and affairs of the Partnership and shall have all the rights, power and
authority generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All decisions or actions made or
taken by the General Partners hereunder shall require the consent of all General
Partners and shall be binding upon all of the Partners and the Partnership. The
powers of the General Partners to manage the Partnership business shall include,
without limitation, the power and authority to:
(a) operate any business normal or customary for an owner of or
investor in manufactured housing community property;
(b) perform any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited to,
applications for rezoning, objections to rezoning of other property and
the establishment of bank accounts in the name of the Partnership;
(c) procure and maintain with responsible companies such insurance
as may be available in such amounts and covering such risks as are deemed
appropriate by the General Partner;
(d) take and hold all real, personal and mixed property of the
Partnership in the name of the Partnership or in the name of a nominee;
(e) execute and deliver leases on behalf of and in the name of the
Partnership;
13.
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(f) borrow money, finance and refinance the assets of the
Partnership or any part thereof or interest therein;
(g) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, property managers,
leasing agents and other management or service personnel as may from time
to time be required to carry on the business of the Partnership;
(h) acquire, encumber, sell, ground lease or otherwise dispose of
any or all of the assets of the Partnership, or any part thereof or
interest therein; and
(i) organize one or more partnerships or corporations which are
controlled, directly or indirectly by the Partnership and make any capital
contributions required pursuant to the partnership agreements of any such
partnership.
(j) The Company is hereby designated as the Tax Matters Partner
("TMP") as defined in Section 6231(a)(7) of the Code. As Tax Matters
Partner, the Company shall have full power and authority to act as such
for the Partnership and the Partners, with all the rights and
responsibilities of that position described in Sections 6222 through 6232
of the Internal Revenue Code. The Tax Matters Partner is authorized to
enter into any settlement with the Internal Revenue Service with respect
to any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes, and in the settlement agreement the Tax Matters
Partners may expressly state that such agreement shall bind all Partners
except that such settlement agreement shall not bind any Partner (i) who
(within the time prescribed pursuant to the Code and Regulations) files a
statement with the Internal Revenue Service providing that the Tax Matters
Partner shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice partner" (as defined in
Section 6231 of the Code) or a member of a "notice group" (as defined in
Section 6223 (b)(2) of the Code. In addition, except as restricted
hereunder, the Company is hereby authorized to make or revoke any election
permitted by the Partnership by any taxing authority. If the TMP receives
notice of a Final Partnership Administrative Adjustment ("FPAA") or if a
request for an administrative adjustment made by the TMP is not allowed by
the United States Internal Revenue Service ("IRS") and the IRS does not
notify the TMP of the beginning of an administrative proceeding with
respect to the Partnership's taxable year to which such request relates
(or if the IRS so notifies the TMP but fails to mail a timely notice of an
FPAA), the TMP may, but shall not be obligated to, petition a Court for
readjustment of partnership items. In the case of a notice of an FPAA, if
the TMP determines that the United States District Court or Claims Court
is the most appropriate forum for such a petition, the TMP shall notify
each person who was Partner at any time during the Partnership's taxable
year to which the IRS notice relates of the approximate amount by which
its tax liability would be increased (based on such assumptions as the TMP
may in good faith make) if the treatment of partnership items on his
return was made consistent with the treatment of partnership items on the
Partnership's return, as adjusted by the FPAA. Unless each such person
deposits with the TMP, for deposit with the IRS, the approximate amount of
such Partner's increased tax liability,
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together with a written agreement to make additional deposits if required
to satisfy the jurisdictional requirements of the Court, within thirty
days after the TMP's notice to such person, the TMP shall not file a
petition in such Court. Instead, the TMP may, but shall not be obligated
to, file a petition in the United States Tax Court.
(k) Each Limited Partner irrevocably appoints the Company as the
Limited Partner's attorney-in-fact on the behalf and in the stead of such
Limited Partner to execute, swear to, and file the Partnership's Amended
and Restated Certificate of Limited Partnership and any amendment or
revocation thereof, and to execute, sign any Partner's name to, swear to,
and file any writing, and to give any notice which may be required by any
rule or law, or which may be appropriate to the effecting of any action by
or on behalf of the Partnership or the Partners which has been taken as
provided in this Agreement. This power of attorney is coupled with an
interest and shall not be revoked by the act, death, or incapacity of any
Partner. This power of attorney shall survive an assignment by any Limited
Partner of his or her interest in the Partnership.
5.2 Limitations on Powers and Authorities of Partners. Notwithstanding the
power of the General Partners set forth in Section 5.1 above, no Partner shall
have the right or power to do any of the following:
(a) do any act in contravention of this Agreement, or any amendment
hereto;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that such act
is specifically permitted by the terms hereof (it being understood and
agreed that, except as hereafter provided in this Paragraph 5.2, a sale of
any or all of the assets of the Partnership, for example, would be an
ordinary part of the Partnership's business and affairs and is
specifically permitted hereby); or
(c) confess a judgment against the Partnership.
5.3 Limited Partners. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and no Limited Partner shall
participate in the conduct or control of the Partnership's affairs or business.
5.4 Liability of General Partners. No General Partner shall be liable or
accountable, in damages or otherwise, to the Partnership or to any other Partner
for any error of judgment or for any mistakes of fact or law or for anything
which it may do or refrain from doing hereafter in connection with the business
and affairs of the Partnership except (i) in the case of fraud, willful
misconduct (such as an intentional breach of fiduciary duty or an intentional
breach of this Agreement) or gross negligence, and (ii) for other breaches of
this Agreement, but the liability of a General Partner under this clause (ii)
shall be limited to its interest in the Partnership as more particularly
provided for in Paragraph 5.8 below. No General Partner shall have any personal
liability for the return of any Limited Partner's capital.
5.5 Indemnity. The Partnership shall indemnify and shall hold each General
Partner (and
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the officer and directors thereof) harmless from any loss or damage, including
without limitation reasonable legal fees and court costs, incurred by it by
reason of anything it may do or refrain from doing hereafter for and on behalf
of the Partnership or in connection with its business or affairs; provided,
however, that (i) the Partnership shall not be required to indemnify a General
Partner (or any officer or director thereof) for any loss or damage which it
might incur as a result of its fraud, willful misconduct or gross negligence in
the performance of its duties hereunder and (ii) this indemnification shall not
relieve a General Partner of its proportionate part of the obligations of the
Partnership as a Partner. In addition, each General Partner shall be entitled to
reimbursement by the Partnership for any amounts paid by it in satisfaction of
indemnification obligations owed by such General Partner to present or former
directors of such General Partner or their predecessors, as provided for in or
pursuant to the Articles of Incorporation and By-Laws of such General Partner.
The right of indemnification set forth in this Paragraph 5.5 shall be in
addition to any rights to which the person or entity seeking indemnification may
otherwise be entitled and shall inure to the benefit of the successors and
assigns or any such person or entity. No Partner shall be personally liable with
respect to any claim for indemnification pursuant to this Paragraph 5.5, but
such claim shall be satisfied solely out of assets of the Partnership.
5.6 Other Activities of Partners and Agreements with Related Parties. The
General Partners shall devote their full-time efforts in furtherance of the
Partnership business, it being expressly understood that except for any direct
interest in a partnership in which the Partnership and one or more of the
General Partners (or a wholly owned subsidiary thereof) are the only partners
and in which the General Partners (or their wholly owned subsidiaries) have an
aggregate interest of not more than one (1%) percent therein, without the
consent of a Majority in Interest the General Partners shall conduct all of
their activities with respect to the manufactured housing community property
business exclusively through the Partnership and shall not conduct or engage in
any way in any other business. Except as may otherwise be agreed to in writing,
each Limited Partner, and its Affiliates, shall be free to engage in, to conduct
or to participate in any business or activity whatsoever, including, without
limitation, the acquisition, development, management and exploitation of real
and personal property (other than property of the Partnership), without any
accountability, liability or obligation whatsoever to the Partnership or to any
other Partner, even if such business or activity competes with or is enhanced by
the business of the Partnership. The General Partners, in the exercise of their
power and authority under this Agreement, may contract and otherwise deal with
or otherwise obligate the Partnership to entities in which the General Partners
or any one or more of the officers, directors or shareholders of the General
Partners may have an ownership or other financial interest, whether direct or
indirect.
5.7 Other Matters Concerning the General Partners.
(a) The General Partners shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(b) The General Partners may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or
through agents. The General
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Partners may consult with counsel, accountants, appraisers, management
consultants, investment bankers and other consultants selected by them,
each of whom may serve as consultants for the Partnership. An opinion by
any consultant on a matter which the General Partners believe to be within
its professional or expert competence shall be full and complete
protection as to any action taken or omitted by the General Partners based
on the opinion and taken or omitted in good faith. The General Partners
shall not be responsible for the misconduct, negligence, acts or omissions
of any consultant or contractor of the Partnership or of the General
Partners and shall assume no obligations other than to use due care in the
selection of all consultants and contractors.
(c) No mortgagee, grantee, creditor or other person dealing with the
Partnership shall be required to investigate the authority of any General
Partner or secure the approval of or confirmation by any Limited Partner
of any act of any General Partner in connection with the conduct of the
Partnership business.
(d) The General Partners may retain such persons or entities as they
shall determine (including the General Partners or any entity in which the
General Partners shall have an interest or with which it is affiliated) to
provide services to or on behalf of the Partnership. The General Partners
shall be entitled to reimbursement from their Partnership for their
out-of-pocket expenses (including, without limitation, amounts paid and
payable to the General Partners or any entity in which its General
Partners shall have an interest or with which it is affiliated) incurred
in connection with Partnership business. Such expenses shall be deemed to
include the expenses required in connection with the administration of the
Partnership such as the maintenance of Partnership books and records,
management of the Partnership properties and assets and preparation of
information respecting the Partnership needed by the Partners in the
preparation of their individual tax returns.
5.8 Partnership Exculpation. Except for fraud, willful misconduct and
gross negligence, no Partner shall have any personal liability whatever, whether
to the Partnership or to the other Partners, for the debts or liabilities of the
Partnership or its obligations hereunder, and the full recourse of the other
Partner shall be limited to the interest of that Partner in the Partnership. To
the fullest extent permitted by law, no officer, director or shareholder of the
General Partners shall be liable to the Partnership for money damages except for
(i) active and deliberate dishonesty established by a final judgment or (ii)
actual receipt of an improper benefit or profit in money, property or services.
Without limitation of the foregoing, and except for fraud, willful misconduct
and gross negligence, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of each Partner
solely as officers of the same and not in their own individual capacities. No
advisor, trustee, director, officer, partner, employee, beneficiary,
shareholder, participant or agent of any Partner (or of any partner of a
Partner) shall be personally liable in any matter or to any extent under or in
connection with this Agreement, and the Partnership, each Partner and their
respective successors and assigns shall look solely to the interest of the other
Partner in the Partnership for the payment of any claim or for any performance
hereunder.
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5.9 General Partner Expenses and Liabilities. All costs and expenses
incurred by the General Partners in connection with their activities as the
General Partners hereunder, all costs and expenses incurred by the General
Partners in connection with their qualification as real estate investment trusts
under the Code and otherwise, other than directors' fees, any income tax
liabilities and any filing or similar fees in connection with maintaining its
continued corporate existence, and all other liabilities incurred or suffered by
the General Partners in connection with the pursuit of their business and
affairs as contemplated hereunder and in connection herewith, shall be paid (or
reimbursed to the General Partners, if paid by the General Partners) by the
Partnership unless and to the extent that any such costs were paid by the
General Partners in connection with the issuance of additional shares of stock
of the Company as contemplated by Paragraph 4.5(B) above.
5.10 Banking. The funds of the Partnership shall be kept in accounts
designated by the General Partners and all withdrawals therefrom shall be made
on such signature or signatures as shall be designated by the General Partners.
ARTICLE SIX
ALLOCATION OF NET PROFITS AND NET LOSSES
CASH FLOW AND DISTRIBUTIONS
6.1 Allocation of Net Profits and Net Losses.
6.1.1 After giving effect to the special allocations set forth in
Paragraphs 6.4 and 6.5 hereof, Net Profits for any Partnership fiscal year shall
be allocated first, one hundred percent (100%) to the General Partners to the
extent of the excess, if any, of the cumulative Net Losses allocated pursuant to
Paragraph 6.1.4, which have not effectively been reversed under Paragraphs
6.4(a) or 6.4(d) hereof, over the cumulative Net Profits allocated pursuant to
this Paragraph 6.1.1 for all prior fiscal years;
6.1.2 Next, among the Partners in proportion to their respective
Percentage Interests.
6.1.3 After giving effect to the special allocations set forth in
Paragraphs 6.4 and 6.5 hereof, Net Losses for any Partnership fiscal year shall
be allocated among the Partners in proportion to their respective Percentage
Interests.
6.1.4 The Net Losses allocated pursuant to Paragraph 6.1.3 hereof shall
not exceed the maximum amount of Net Losses that can be allocated without
causing any Partner who is not a General Partner to have an Adjusted Capital
Account Deficit at the end of any fiscal year. All losses in excess of the
limitations set forth in this Paragraph 6.1.4 shall be allocated to the General
Partners in proportion to their respective Percentage Interests.
6.2 Distributions of Operating Cash Flow. As used in this Agreement,
Operating Cash Flow shall mean and be defined as the Net Profits or Net Losses
(a Net Loss being treated as a negative Net Profit amount) during the period in
question of the Partnership increased by the following:
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<PAGE> 20
(a) Any receipts, but excluding Capital Cash Flow and excluding the
proceeds of any additional Capital Contributions to the Partnership
pursuant to Paragraphs 4.1 and 4.5 hereof, which are not included in Net
Profits including, but not limited to, capital contributions and
withdrawals from operating reserves established by the General Partners;
and
(b) Any non-cash charges (such as Depreciation and amortization)
deducted in determining Net Profits and Net Losses;
- ---and decreased by the following:
(c) All expenditures, including any principal payments with respect
to any indebtedness of the Partnership, which are not deducted in
determining Net Profits or Net Losses; and
(d) Any amounts set aside by the General Partners to provide a
reserve for working capital needs, improvements, repairs or replacements
or such other purposes as the General Partners shall determine in their
sole discretion, including but not limited to reserves of cash held for
future acquisitions.
Operating Cash Flow of the Partnership shall be determined by the General
Partners not less frequently than quarterly and shall be distributed to or for
the benefit of the Partners in accordance with the respective Percentage
Interests of the Partners not later than fifteen (15) days following the date of
each such determination, except that with respect to OP Units issued pursuant to
clause (i) of the first sentence of Paragraph 4.4(B) hereof, the distribution
with respect to the calendar quarter in which such OP Units are first issued
shall be pro rated based upon a fraction the numerator of which is the number of
days in such calendar quarter such OP Units were outstanding and the denominator
of which is the total number of days in such calendar quarter; provided however,
that there shall be no such pro ration with respect to OP Units issued to the
Company or to an entity directly or indirectly controlled by the Company, for
which the Company issues a corresponding number of additional shares of Common
Stock.
6.3 Capital Cash Flow. As used in this Agreement, "Capital Cash Flow"
shall mean and be defined as collectively (a) gross proceeds realized in
connection with the sale of any assets of the Partnership, (b) gross financing
or refinancing proceeds, (c) gross condemnation proceeds (excluding condemnation
proceeds applied to restoration of remaining Partnership property) and (d) gross
insurance proceeds (excluding rental insurance proceeds or insurance proceeds
applied to restoration of Partnership property), less (a) applicable closing
costs, (b) the cost to discharge any Partnership financing encumbering or
otherwise associated with the asset(s) involved in any such transaction, (c) the
establishment of reserves (as determined by the General Partners in their sole
discretion, and which may include cash held for future acquisitions), and (d)
other expenses of the Partnership then due and owing. Subject to Paragraph 8.1
below, if applicable, Capital Cash Flow shall be distributed to or for the
benefit of the Partners not less frequently than quarterly and shall be
distributed to the Partners in accordance with the respective Percentage
Interests of the Partners not later than fifteen (15) days following the date of
each such determination.
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6.4 Special Allocations. Notwithstanding the foregoing provisions of this
Article Six, the following allocations may apply:
(a) Except as provided in Paragraphs 6.4(b) and 6.4(c) hereof, in
the event any Partner unexpectedly receives any adjustments, allocations,
or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), which create or increase an Adjusted Capital
Account Deficit items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Adjusted Capital Account
Deficit created by such adjustments, allocations, or distributions as
quickly as possible; provided that an allocation pursuant to this
Paragraph 6.4(a) shall be made if and only to the extent that such Partner
would have an Adjusted Capital Account Deficit after all allocations
provided for in this Article Six have been tentatively made as if this
Paragraph 6.4(a) were not in this Agreement.
(b) Except as otherwise provided in Regulations Section 1.704-2(f),
notwithstanding any other provision of this Article Six, if there is a net
decrease in Partnership Minimum Gain during any Partnership fiscal year,
each Partner shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, for subsequent years) in an amount
equal to such Partner's Share of the net decrease in Partnership Minimum
Gain, to the extent required and in the manner provided by Sections
1.704-2(g) of the Treasury Regulations. The items to be so allocated shall
be determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Paragraph 6.4(b) is intended to comply with the
minimum gain charge-back provision of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(c) Except as otherwise provided in Regulations Section
1.704-2(i)(4), notwithstanding any other provision of this Article Six, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership fiscal
year, each Partner who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, to the extent required and
in the manner provided by Section 1.704-2(i)(4) of the Treasury
Regulations. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(i)(2). This
Paragraph 6.4(c) is intended to comply with the minimum gain charge-back
provision of Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(d) In the event any Partner has a deficit Capital Account at the
end of any Partnership fiscal year which is in excess of the sum of (i)
the amount such Partner is obligated to restore pursuant to any provision
of this Agreement, and (ii) the amount such Partner is deemed to be
obligated to restore pursuant to the penultimate sentences of
20.
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Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner
shall be specifically allocated items of Partnership income and gain in
the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Paragraph 6.4(d) shall be made only if and to
the extent that such Partner would have a deficit Capital Account in
excess of such amount after all other allocations provided for in this
Paragraph 6.4 have been made as if Paragraph 6.4(a) hereof and this
Paragraph 6.4(d) were not in this Agreement.
(e) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or 743(b) is required to
be taken into account in computing Capital Accounts pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), the amount of such adjustment to
the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and shall be specially allocated to the Partners in
a manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such regulations.
(f) Syndication Expenses for any fiscal year of the Partnership or
other period shall be allocated to the Partners in proportion to their
Partnership Interests, provided that if additional Partners are admitted
to the Partnership on different dates, all Syndication Expenses shall be
divided among the Partners who own Partnership Interests from time to time
so that, to the extent possible, the cumulative Syndication Expenses are
allocated with respect to each Partner in proportion to their respective
Partnership Interests. In the event the General Partners determine that
such result is not likely to be achieved through future allocations of
Syndication Expenses, the General Partners may allocate a portion of Net
Profits or Net Losses so as to achieve the same effect in the Capital
Accounts of the Partners, notwithstanding any other provision with this
Agreement.
(g) Nonrecourse Deductions for any fiscal year or other period shall
be allocated among the Partners in accordance with their respective
Percentage Interests.
(h) Partner Nonrecourse Deductions for any fiscal year or other
period shall be allocated to the Partners who bear the economic risk of
loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulation Section 1.704-2(i)(1).
The allocations set forth in this Paragraph 6.4 (the "Regulatory
Allocations") are intended to comply with certain requirements of Treasury
Regulation Section 1.704-1(b). The Regulatory Allocations may not be
consistent with the manner in which the Partners intend to divide
Partnership distributions. Accordingly, the General Partners are hereby
authorized to divide other allocations of Net Profit, Net Losses, and
other items among the Partners so as to prevent the Regulatory Allocations
from distorting the manner in which Partnership distributions will be
divided among the Partners pursuant to Article 6 hereof. In general, the
Partners anticipate that this will be accomplished by specially allocating
other Net Profit, Net Losses, and items of income, gain, loss, and
deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each such person is zero.
However, the General Partners shall have discretion to accomplish this
result
21.
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in any reasonable manner.
6.5 Other Allocation Rules
(a) For purposes of determining the Net Profits, Net Losses, or any
other items allocable to any period, Net Profits, Net Losses, and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the General Partners using any permissible method under Code
Section 706 and the Regulations thereunder.
(b) Any provision of this Agreement to the contrary notwithstanding,
the allocation of Net Profits or Net Losses for any fiscal year of the
Partnership during which a person acquires a Partnership Interest (other
than on formation of the Partnership) shall take into account the
Partners' varying interests in the Partnership for such fiscal year,
pursuant to any method permissible under Section 706 of the Internal
Revenue Code that is selected by the General Partners.
(c) The Partners are aware of the income tax consequences of the
allocations made by this Article Six and hereby agree to be bound by the
provisions of this Article Six in reporting their share of Partnership
income and loss for income tax purposes.
(d) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within
the meaning of Regulations Section 1.752-3(a)(3), the Partners' interests
in Partnership profits are equal to their respective Percentage Interests.
6.6 Tax Allocations: Code Section 704(c)
(a) Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for federal income tax purposes and its initial Gross Asset Value in
accordance with any permissible manner or manners under Code Section
704(c) and the Regulations thereunder .
(b) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Paragraph 1.14(b) hereof, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner
or manners as under Code Section 704(c) and the Regulations thereunder.
(c) Any elections or other decisions relating to such allocations
shall be made by the General Partners in any permissible manner under the
Code or the Regulations that the General Partners may elect in their sole
discretion. Allocations pursuant to this Paragraph 6.6 are solely for
purposes of federal, state, and local taxes and shall not affect, or in
any way be taken into account in computing, any Partner's Capital Account
or share of Net Profits, Net
22.
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Losses, other items, or distributions pursuant to any provision of this
Agreement.
6.7 Amounts Withheld. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partners determine that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within 15 days after notice
from the General Partners that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partners determine, in their
sole and absolute discretion, that such payment may be satisfied out of the
available funds of the Partnership which would, but for such payment, be
distributed to the Limited Partner. Any amounts withheld pursuant to the
foregoing clauses (i) or (ii) shall be treated as having been distributed to
such Limited Partner. Each Limited Partner hereby unconditionally and
irrevocably grants to the Partnership a security interest in such Limited
Partner's Partnership Interest to secure such Limited Partner's obligation to
pay to the Partnership any amounts required to be paid pursuant to this Section
6.7. In the event that a Limited Partner fails to pay any amounts owed to the
Partnership pursuant to this Section 6.7 when due, the General Partners may, in
their sole and absolute discretion, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and in such event shall be deemed
to have loaned such amount to such defaulting Limited Partner and shall succeed
to all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., 15 days after demand) until such amount is paid in full. Each
Limited Partner shall take such actions as the Partnership or the General
Partners shall request in order to perfect or enforce the security interest
created hereunder.
ARTICLE SEVEN
TERM OF PARTNERSHIP
7.1 Commencement. The term of the Partnership shall be deemed to have
commenced upon the filing of the Original Certificate of Limited Partnership.
7.2 Termination. The term of the Partnership shall end, and the
Partnership shall be dissolved and its affairs wound up in the manner hereafter
provided, solely on the first to occur of the following events ("Liquidating
Event"):
(a) December 31, 2093;
(b) the agreement of those Partners holding at least ninety percent
(90%) of the
23.
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Percentage Interests of all of the Partners determining that the
Partnership should be dissolved;
(c) the happening of any other event that makes it unlawful,
impossible, or impractical to carry on the business of the Partnership; or
(d) the withdrawal or removal of the last remaining General Partner,
the assignment by the last remaining General Partner of its entire
Partnership Interest (other than by virtue of a merger of such General
Partner), or the happening of any other event that causes any General
Partner to cease to be a general partner under the Act, provided that any
such event shall not constitute a Liquidating Event if the Partnership is
continued pursuant to this Paragraph 7.2.
The Partners hereby agree that, notwithstanding any provision of the Act,
the Partnership shall not dissolve prior to the occurrence of a Liquidating
Event. Upon the occurrence of any event set forth in Paragraph 7.2(d) hereof,
the Partnership shall not be dissolved or required to be wound up if within
ninety (90) days after such event a majority in interest (within the meaning of
Section 301.7701-2(b)(1) of the Treasury Regulations, determined in accordance
with Revenue Procedure 94-46, 1994-28 I.R.B. 129, or any successor revenue
procedure or pronouncement of the Internal Revenue Service) of all the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of one or more additional
General Partners if the successor general partner is not a former General
Partner, then the interest in the Partnership of any former General Partner
shall be treated thereafter as the interest of a Limited Partner.
7.3 Continuation. None of the following shall cause a dissolution or
termination of the Partnership: the death, legal incompetency, dissolution or
insolvency of a Limited Partner or the admission of a new General or Limited
Partner. In such event, and subject to other provisions of this Agreement, the
Partnership shall continue among the remaining Partners and the successor to
such Limited Partner's Partnership Interest. In the event of the death of an
individual Partner, such individual Limited Partner's interest in the
Partnership shall be transferred either by will, the laws of intestacy or
otherwise to the legal representative or successor of such individual Limited
Partner.
ARTICLE EIGHT
APPLICATION OF ASSETS
8.1 Dissolution and Liquidation. Upon the happening of any of the events
specified in Paragraph 7.2 hereof, the General Partners shall conclude the
affairs and liquidate the property and assets of the Partnership and the
proceeds of such liquidation shall be applied in the order of priority as
follows:
(a) First, to the payment of, or to a reserve for the payment of,
Partnership liabilities and obligations (other than those described in
Paragraph 8.1(b) hereof) including such provision for contingent or
unforeseen liabilities as the General Partners, or by the
24.
<PAGE> 26
person(s) winding up the affairs of the Partnership in the event there is
no remaining General Partner of the Partnership, may establish for any
contingent or unforeseen liabilities or obligations of the Partnership.
Such reserves established hereunder shall be held for the purpose of
paying any such contingent or unforeseen liabilities or obligations and,
at the expiration of such period as the General Partners, or such
person(s) deems advisable, the balance of such reserves shall be
distributed in the manner provided hereinafter in this Paragraph 8.1 as
though such reserves had been distributed contemporaneously with the other
funds distributed hereunder:
(b) Second, to the General Partners and any Affiliate, an amount
equal to the outstanding principal balance of, and all accrued and unpaid
interest on, any loans made by them to the Partnership, apportioned
between them, pro rata, based on the respective balances of such loans;
and
(c) Then, to the Partners in accordance with their respective
Capital Accounts, after giving effect to all contributions, distributions,
and allocations for all periods.
To the extent that Partnership assets cannot either be sold without undue
loss or readily divided for distribution in kind to the Partners, then the
Partnership may, as determined by the General Partners or the Trustee appointed
pursuant to Paragraph 8.4 hereof, convey those assets to a trust or other
suitable holding entity established for the benefit of the Partners in order to
permit the assets to be sold without undue loss and the proceeds thereof
distributed to the Partners at a future date. The legal form of the holding
entity, the identity of the trustee or other fiduciary, and the terms of its
governing instrument shall be determined by the General Partners or the Trustee.
8.2 Power of Attorney. The Limited Partners hereby appoint each of the
General Partners as their true and lawful attorney-in-fact to hold, collect and
disburse, in accordance with this Agreement, any Partnership receivables
existing at the time of the termination of the Partnership and the proceeds of
the collection of such receivables, including those arising from the sale of
Partnership property and assets. The foregoing power of attorney (and all other
powers of attorney granted hereunder) is a special power of attorney coupled
with an interest, is irrevocable and shall survive the transfer or assignment by
a Limited Partner of his or her Partnership Interest and the death or disability
of each Limited Partner; provided, however, such power of attorney shall
terminate upon the distribution of the proceeds of all of such receivables in
accordance with the provisions of this Agreement. The General Partners shall be
entitled to reimbursement for the reasonable expenses incurred by them in acting
under this power of attorney.
8.4 Appointment of Trustee. If, at the time of dissolution and winding up
of the Partnership there is no General Partner, or if the General Partners have
failed to act in accordance with this Agreement or are otherwise in default
under the terms of this Agreement, which default has not been cured, those
Limited Partners constituting a Majority in Interest shall appoint a liquidating
trustee ("Trustee") to wind up the affairs and liquidate (and/or, if applicable,
distribute) the property and assets of the Partnership, and such Trustee shall
have all powers necessary under this Article Eight and shall be compensated as
agreed upon by the Majority Interest and such Trustee. Such Trustee may, but
need not, be one of the Limited Partners.
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8.5 Date of Termination. The Partnership shall be terminated when all
notes received in connection with the disposition of its assets have been paid
and all of the cash or property available for application and distribution under
Paragraph 8.1 hereof (including amounts held as reserves) shall have been
applied and distributed in accordance therewith.
ARTICLE NINE
ASSIGNABILITY OF PARTNERSHIP INTERESTS
AND WITHDRAWAL BY A PARTNER
9.1 Assignment by the General Partner. In no event may a General Partner
at any time assign, sell, transfer, pledge, hypothecate or otherwise dispose of
all or any portion of its Partnership Interest, except by operation of law,
which would include a statutory merger or consolidation of a General Partner. In
the case of a transfer of a General Partner's Partnership Interest by statutory
merger or consolidation only, the transferee receiving such interest shall
become a General Partner of the Partnership and shall succeed to the rights,
interests and obligations of the transferor General Partner in the Partnership.
9.2 Limited Partner.
(a) No Limited Partner or Substituted Limited Partner shall, without
the prior written consent of the General Partners (which consent may be
given or withheld in the sole discretion of the General Partners), sell,
assign, distribute or otherwise transfer (a "Transfer") all or any part of
such Partner's interest in the Partnership except by operation of law,
gift (outright or in trust) or by sale or distribution, in each case to or
for the benefit of his spouse or descendants, or to one or more partner,
shareholder, beneficiary or Affiliate of such Partner, except for pledges
or other collateral transfers effected by a Limited Partner to secure the
repayment of a loan, and except for the exchange of OP Units for shares of
common stock of the company, pursuant to Paragraph 4.4(C) hereof. A
Limited Partner shall notify the General Partners of any Transfer of
beneficial interest or other interest which occurs without a transfer of
record ownership, as well as any pledge or other collateral transfer. No
part of the interest of a Limited Partner shall be subject to the claims
of any creditor, any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except
as may be specifically provided for in this Agreement.
(b) An assignee, legatee, distributee or other transferee (whether
by conveyance, operation of law or otherwise) (a "Transferee") of all or
any portion of a Limited Partner's interest in the Partnership shall be
entitled to receive Net Profits, Net Losses and distributions hereunder
attributable to such interest acquired by reason of such Transfer, from
and after the effective date of the Transfer of such interest; provided,
however, anything in this Agreement to the contrary notwithstanding, (a)
no Transfer by a Limited Partner shall be effective until such Transfer
has been consented to by the General Partners, (b) no Transferee shall be
considered a Substituted Limited Partner without the prior written
26.
<PAGE> 28
consent of the General Partners, in their sole discretion, (c) the
Partnership and the General Partners shall be entitled to treat the
transferor of such interest as the absolute owner thereof in all respects,
and shall incur no liability for the allocation of Net Profits and Net
Losses or distributions which are made to such transferor until such time
as the written instrument of Transfer has been received by the General
Partners and the "effective date" of the Transfer has passed. The
"effective date" of any Transfer shall be the last day of the month set
forth on the written instrument of Transfer or such other date consented
to in writing by the General Partners as the "effective date."
(c) Notwithstanding anything to the contrary contained in this
Paragraph 9.2, (i) in the event of a permitted transfer under Paragraph
9.2(a) hereof or in the event an Affiliate distributes, in dissolution and
liquidation or otherwise, all or any portion of its interest in the
Partnership, the permitted transferee and/or partners in such Affiliate
receiving such interest shall become Substituted Limited Partners, and
shall succeed to the rights, interests and obligations of their respective
transferor in the Partnership, in proportion to their respective interests
so received, and (ii) no Transfer shall be effective to the extent that
such Transfer would, by treating the interest in the Partnership so
transferred as if it had been exchanged for Common Stock in accordance
with Paragraph 4.4(C) hereof, violate the limitations on ownership of
Common Stock contained in Article VII of the Articles of Incorporation of
the Company.
(d) Admission Adjustments. The General Partners shall, when
necessary, cause this Agreement to be amended from time to time to reflect
the addition or withdrawal of Partners, including the corresponding
adjustments to Percentage Interests and OP Units required pursuant to
Paragraphs 4.4(B), 4.4(C) and 9.2(c) hereof.
9.3 Withdrawal of a Limited Partner. No Limited Partner may retire or
withdraw from the Partnership prior to the dissolution of the Partnership and
the completion of the winding up of the affairs and the liquidation (and/or
distribution, as the case may be) of the property and assets of the Partnership
pursuant to the provisions of Article Eight hereof.
ARTICLE TEN
OBLIGATIONS AND RIGHTS OF TRANSFEREES
10.1 Acceptance of this Agreement. Any person who acquires in any manner
whatsoever any interest in the Partnership, irrespective of whether such person
has accepted and adopted in writing the terms and provisions of this Agreement,
shall be deemed by the acceptance of the benefit of the acquisition thereof to
have agreed to be subject to and bound by all the obligations of this Agreement
to which or by which any predecessor in interest of such person was subject or
bound.
ARTICLE ELEVEN
INVESTMENT REPRESENTATION
27.
<PAGE> 29
11.1 Investment. The Partners represent to each other and to the
Partnership that they are acquiring their respective interests in the
Partnership for their own personal accounts for investment purposes only, and
without a view to pledging, transferring or distributing their Partnership
Interests.
11.2 Restrictive Legend. If at any time the Partnership Interests are
evidenced by certificates or other documents, each such certificate or other
document will contain a legend stating that (i) such Partnership Interests (1)
have not been registered under the Securities Act of 1933 (the "Federal Act") or
the securities laws of any other state, (2) have been issued pursuant to a claim
of exemption from the registration provisions of the Federal Act and any state
securities law which may be applicable, and (3) may not be sold, transferred or
assigned without compliance with the registration provisions of the Federal Act
and any other applicable Federal or state securities laws or compliance with
applicable exemptions therefrom, and (ii) sale, transfer or assignment of such
Partnership Interests is further subject to restrictions contained in this
Agreement and a subscription agreement pursuant to which each Limited Partner
subscribed for his or her Partnership Interests, and such Partnership Interests
may not be sold, transferred or assigned unless and to the extent permitted by,
and in accordance with, the provisions of this Agreement and such subscription
agreement.
ARTICLE TWELVE
AMENDMENTS
12.1 Amendments to this Agreement. This Agreement shall not be amended
without the prior written consent of the General Partners and a Majority in
Interest; provided, however, that (1) except as otherwise specifically provided
herein, no amendment shall reduce a Partner's interest in the Partnership except
to reflect the admission of additional Partners, unless the Partner consents
thereto in writing, (2) no amendment shall effect any change in this Article
unless all the Partners consent thereto in writing, and (3) Exhibit A may be
modified from time to time by the General Partners to reflect any change in the
Limited Partners or in the interest of any Partner which has been effected by
appropriate action of the parties involved, by filing with the appropriate
authorities an amendment to the Certificate of Limited Partnership setting forth
the Partners and the interest owned by each. Any amendment made pursuant to this
Article may be made effective as of any earlier or later date.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
13.1 Books of Account, Reports.
(a) The General Partners shall keep true and complete books of
account and records of all Partnership transactions. The books of account
and records shall be kept at the principal office of the Partnership. Each
Partner may inspect and make copies of all Partnership books and records,
at reasonable hours and such Partner's expense.
28.
<PAGE> 30
(b) The General Partners shall maintain at the offices of the
Partnership a list of the names and addresses of all Limited Partners
which shall be available to any Limited Partner or designated
representative.
(c) The General Partners shall furnish each Limited Partner a report
setting forth the Partnership assets and liabilities, the Partnership Net
Profits or Net Losses for the year, and the allocation thereof among the
Partners, and such other information relating to the Partnership as may be
reasonably required in order to permit that Partner to file its federal
income tax return for that year.
(d) The fiscal year of the Partnership shall be the calendar year,
unless the Internal Revenue Code requires that some other fiscal year be
utilized.
13.2 Bank Accounts and Investment of Funds. All funds of the Partnership
shall be deposited in its name in such checking accounts, savings accounts, time
deposits, or certificates of deposit or shall be invested in such other manner
as shall be designated by the General Partners from time to time. Withdrawals
shall be made upon such signature or signatures as the General Partners may
designate.
13.3 Accounting Decisions. All decisions as to accounting matters, except
as specifically provided to the contrary herein, shall be made by the General
Partners in accordance with generally accepted federal income tax accounting
principles consistently applied. Such decisions may be acceptable to the
accountants retained by the Partnership, and the General Partners may rely upon
the advice of the accountants as to whether such decisions are in accordance
with generally accepted federal income tax accounting principles.
13.4 Federal Income Tax Elections.
(a) The Partnership shall, to the extent permitted by applicable law
and regulations and upon obtaining any necessary approval of the
Commissioner of Internal Revenue, elect to use such methods of
depreciation, and make all other federal income tax elections in such
manner, as the General Partners determine to be most favorable to the
Partners. The General Partners may rely upon its tax advisors as to the
unavailability and effect of all such elections.
(b) In the event of a permitted transfer of all or part of the
interest of a Partner, the Partnership may, if the transferee so requests
and if the General Partners in its sole and absolute discretion agrees to
do so, file an election in accordance with Section 754 of the Internal
Revenue Code, or any similar provisions enacted in lieu thereof, and the
regulations promulgated thereunder, to adjust the basis of the Partnership
Property. In the event of the death of a Partner the Partnership shall, if
the successor to such deceased Partner's interest in the Partnership
timely requests, file such election in accordance with section 754 of the
Internal Revenue Code. Each Partner hereby agrees to provide the
Partnership with all information necessary to give effect to such
election.
29.
<PAGE> 31
13.5 Conveyances. Any deed, bill of sale, mortgage, lease, contract of
sale, or other commitment purporting to convey or encumber the interest of the
Partnership in all or any portion of any real or personal property at any time
held in its name shall be signed by any General Partner on behalf of the
Partnership, and no other signature shall be required and any transferee of such
interest and any title company may rely upon the authority herein granted and
conferred.
13.6 Recovery of Attorney's Fees. In any action between the parties to
enforce any of the terms of this Agreement or of any other contract relating to
the Partnership, or an action in any other way pertaining to Partnership affairs
or this Agreement, the prevailing party shall be entitled to recover expenses,
including a reasonable attorney's fee.
13.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and may be modified only as provided herein. No
representations, warranties or oral or implied agreements have been made or are
being relied upon by any party hereto or his agent except as expressly set forth
herein.
13.8 Notices, Etc. Any notice, writing, or other matter, and any
distribution, to be delivered hereunder shall be deemed delivered when delivered
by hand or by telecopy or other facsimile transmission, the first business day
after sent by overnight courier (such as Federal Express), or on the second
business day after deposited in the United States mail with postage prepaid,
return receipt requested, properly addressed to the Partner o whom such notice
is intended to be given at the address for the Partner set forth on the
signature pages of this Agreement, or at such other address as such person may
have previously furnished in writing to the Partnership and each Partner with
copies to:
Timmis & Inman L.L.P.
300 Talon Centre
Detroit, Michigan 48207
Attention: Henry J. Brennan III, Esq.
and:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Jay L. Bernstein, Esq.
13.9 Consent of Limited Partners. Various provisions of this Agreement
require or permit the consent, approval, or agreement, written or otherwise, of
the Partners or some specific proportion thereof. In any such case, the General
Partners may give all the Limited Partners written notice that any Limited
Partner who does not indicate disapproval by written notice to the Partnership
within a specified period of time (not less than 90 days after mailing of the
notice) shall be deemed to have given consent or approval to the action or event
or to have made the agreement referred to in the notice. In such event, any
Limited Partner who does not indicate disapproval by written notice to the
Partnership within the time specified shall be deemed to have given his written
consent, approval, or agreement.
30.
<PAGE> 32
13.10 Meetings. The General Partners shall promptly call an information
meeting of all Limited Partners upon the request by Limited Partners who
constitute a Majority in Interest.
13.11 Further Execution. Upon request of the General Partners from time to
time, the Partners shall execute and swear to or acknowledge any amended
Certificate of Limited Partnership or any other writing which may be required by
any rule or law or which may be appropriate to the effecting of any action by or
on behalf of the Partnership or the Partners which has been taken in accordance
with the provisions of this Agreement.
13.12 Submission to Maryland Jurisdiction. During such time as any Limited
Partner is not a resident of the State of Maryland, such Limited Partner
irrevocably designates the General Partners as his or her agent to accept
service of process in any action or proceeding brought by the Partnership or any
party to this Agreement (but not any third party unless such Limited Partner is
impleaded by the Partnership or a party to this Agreement) against such Partner
and arising out of this Agreement or any breach thereof. Such designation shall
not be revoked by the act, death, or incapacity of any Limited Partner and shall
bind heirs, personal representatives, successors, and assigns of such Limited
Partner. The General Partners accepting such service on behalf of a Limited
Partner agrees to give such Limited Partner written notice thereof as soon as
practicable.
13.13 Benefits. This Agreement shall inure to the benefit of and shall
bind the parties hereto, their successors and permitted assigns. None of the
provisions of this Agreement shall be construed as for the benefit of or as
enforceable by any creditor of the Partnership or the Partners or any other
person not a party to this Agreement.
13.14 Severability. The invalidity or unenforceability of any provision of
this Agreement in a particular respect shall not affect the validity and
enforceability of any other provision of this Agreement or of the same provision
in any other respect.
13.15 Captions. All captions are for convenience only, they do not form a
substantive part of this Agreement, and they shall not restrict or enlarge any
substantive provisions of this Agreement.
13.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument. The General Partners shall have custody of
counterparts executed in the aggregate by all Partners.
13.17 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws and decisions of the State of Maryland.
Except to the extent the Act is inconsistent with provisions of this Agreement,
the provisions of the Act shall apply to the Partnership.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
31.
<PAGE> 33
CHATEAU PROPERTIES, INC.
1997 EQUITY COMPENSATION PLAN
<PAGE> 34
TABLE OF CONTENTS
Page
1. Definitions............................................................
2. Effective Date and Termination of Plan.................................
3. Administration of Plan.................................................
4. Eligibility for and Grant of Options and Restricted Stock; Committee
Authority..............................................................
5. Number of Shares Subject to the Plan...................................
6. Options................................................................
7. Restricted Stock.......................................................
88. Regulations and Approvals..............................................
9. Interpretation and Amendments; Other Rules.............................
10. Changes in Capital Structure...........................................
11. Notices................................................................
12. Rights as Stockholder..................................................
13. Rights to Employment...................................................
14. Exculpation and Indemnification........................................
15. Captions...............................................................
16. Governing Law..........................................................
<PAGE> 1
Exhibit 10.5
CHATEAU PROPERTIES, INC.
1997 EQUITY COMPENSATION PLAN
Chateau Properties, Inc., a Maryland corporation, wishes to attract
key employees, directors and key consultants, to the Company and its
Subsidiaries and induce key employees, directors and key consultants, to remain
with the Company and its Subsidiaries, and to provide them with long-term
incentives for sustained high levels of performance. In furtherance thereof, the
Chateau Properties, Inc. 1997 Equity Compensation Plan is designed to provide
equity-based incentives to key employees, directors and key consultants, of the
Company and its Subsidiaries.
1. Definitions.
Whenever used herein, the following terms shall have the meanings
set forth below:
"Award Agreement" means a written agreement in a form approved by
the Committee to be entered into by the Company and the Optionee of an Option or
the Grantee of Restricted Stock, as applicable, as provided in Section 4, and
also refers, if applicable, to any employment agreement between the Company and
the Participant, the provisions of which relate to Options or Grants.
"Board" means the Board of Directors of the Company.
"Cause" means, unless otherwise provided in the Participant's Award
Agreement, (i) engaging in (A) willful or gross misconduct or (B) willful or
gross neglect, (ii) repeatedly failing to adhere to the directions of superiors
or the Board or the written policies and practices of the Company or its
Subsidiaries or its affiliates, (iii) the commission of a felony or a crime of
moral turpitude, or any crime involving the Company or its Subsidiaries, or any
affiliate thereof, (iv) fraud, insubordination, misappropriation or
embezzlement, (v) a material breach of the Participant's employment agreement
(if any) with the Company or its Subsidiaries or its affiliates, or (vi) any
illegal
<PAGE> 2
act detrimental to the Company or its Subsidiaries or its affiliates; provided,
however, that if the Participant is a party to an employment agreement with the
Company or any of its Subsidiaries and such agreement provides for termination
for "Cause," "Cause" hereunder shall have the same meaning ascribed to it in the
employment agreement.
"Change in Control" means the occurrence of one of the following:
a. a "person" or "group" (within the meaning of sections 13(d)
and 14(d) of the Exchange Act) becomes the "beneficial owner"
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company (including options, warrants, rights
and convertible and exchangeable securities) representing 50%
or more of the combined voting power of the Company's then
outstanding securities in any one or more transactions;
provided, however, that purchases by employee benefit plans of
the Company and by the Company or its affiliates shall be
disregarded;
b. any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the operating assets of the Company;
c. the execution and delivery of a definitive agreement by the
Company that provides for a merger or consolidation, or a
transaction having a similar effect (unless such merger,
consolidation or similar transaction is with a subsidiary of
the Company or with another company, a majority of whose
outstanding capital stock is owned by the same persons or
entities who own a majority of the Common Stock at such time),
where (A) the Company is not the surviving corporation, (B)
the majority of the Common Stock of the Company is no longer
held by the stockholders of the Company immediately prior to
the transaction, or (C) the Company's Common Stock is
converted into cash, securities or other property (other than
the common stock of a company into which the Company is
merged); provided, however, that, in the event that the
contemplated merger, consolidation or similar transaction is
not consummated, then any rights that may arise under this
Section 5.3(a) by virtue of such Change of Control shall cease
to apply;
d. at a time when the Common Stock is registered under Section
12 of the Exchange Act, a person
2
<PAGE> 3
other than the Company makes a tender or exchange offer for
50% or more of the Common Stock pursuant to which purchases of
any amount of Common Stock are made; or
e. a majority of the members of the Board are not persons who
(A) had been directors of the Company for at least the
preceding 24 consecutive months or (B) when they initially
were elected to the Board, (I) were nominated (if they were
elected by the stockholders) or elected (if they were elected
by the directors) with the affirmative vote of two-thirds of
the directors who were Continuing Directors (as defined below)
at the time of the nomination or election by the Board and
(II) were not elected as a result of an actual or threatened
solicitation of proxies or consents by a person other than the
Board or an agreement intended to avoid or settle such a proxy
solicitation (the directors described in clauses (A) and (B)
being "Continuing Directors").
Notwithstanding the foregoing, a "Change of Control" shall not include an
offering of any class of shares of common stock of the Company or any of its
affiliates under the Securities Act of 1933, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Executive Compensation Committee of the Board.
"Common Stock" means the Company's Common Stock, par value $.01 per
share, either currently existing or authorized hereafter.
"Company" means Chateau Properties, Inc., a Maryland corporation.
"Disability" means the occurrence of an event which would entitle an
employee of the Company to the payment of disability income under one of the
Company's approved long-term disability income plans or a long-term disability
as determined by the Committee in its absolute discretion pursuant to any other
standard as may be adopted by the Committee; provided, however, that if the
Participant is a party to an employment agreement with the Company or any of its
Subsidiaries and such agreement provides for termination by reason of
"Disability," "Disability" hereunder shall have the same meaning ascribed to it
in the employment agreement.
"Exchange Act" means the Securities Exchange Act of
3
<PAGE> 4
1934, as amended.
"Fair Market Value" per Share as of a particular date means (i) if
Shares are then listed on a national stock exchange, the closing sales price per
Share on the exchange for the last preceding date on which there was a sale of
Shares on such exchange, as determined by the Committee; (ii) if Shares are not
then listed on a national stock exchange but are then traded on an
over-the-counter market, the average of the closing bid and asked prices for the
Shares in such over-the-counter market for the last preceding date on which
there was a sale of such Shares in such market, as determined by the Committee;
or (iii) if Shares are not then listed on a national stock exchange or traded on
an over-the-counter market, such value as the Committee in its discretion may in
good faith determine; provided that, where the Shares are so listed or traded,
the Committee may make discretionary determinations where the Shares have not
been traded for 10 trading days.
"Grantee" means an employee or director of, or key consultant to,
the Company to whom Restricted Stock is granted.
"Option" means the right to purchase, at a price and for the term
fixed by the Committee in accordance with the Plan, and subject to such other
limitations and restrictions in the Plan and the applicable Award Agreement, a
number of Shares determined by the Committee.
"Optionee" means an employee or director of, or key consultant to,
the Company to whom an Option is granted, or the Successors of the Optionee, as
the context so requires.
"Option Price" means the exercise price per Share.
"Participant" means an Optionee or a Grantee.
"Plan" means the Company's 1997 Equity Compensation Plan, as set
forth herein and as the same may from time to time be amended.
"Restricted Stock" means an award of Shares that are subject to
restrictions under Section 7.
"Retirement" means, unless otherwise provided by the Committee in
the Participant's Award Agreement, the termination (other than for Cause) of
employment (or other termination of service, in the case of key consultants or
directors) of a Participant on or after the Participant's attainment of age 65
or on or after the Participant's attainment of age 55 with five consecutive
years of service with the Company and or its Subsidiaries or its affiliates.
"Securities Act" means the Securities Act of 1933, as
4
<PAGE> 5
amended.
"Shares" means shares of Common Stock of the Company.
"Subsidiary" means any corporation (other than the Company) that is
a "subsidiary corporation" with respect to the Company under Section 424(f) of
the Code or, with respect to grants other than Incentive Stock Options (as
herein defined) Subsidiary means any other entity, a majority of whose equity
interests is owned directly or indirectly by the Company. In the event the
Company becomes a subsidiary of another company, the provisions hereof
applicable to subsidiaries shall, unless otherwise determined by the Committee,
also be applicable to any Company that is a "parent corporation" with respect to
the Company under Section 424(e) of the Code.
"Successor of the Optionee" means the legal representative of the
estate of a deceased Optionee or the person or persons who shall acquire the
right to exercise an Option by bequest or inheritance or by reason of the death
of the Optionee.
2. Effective Date and Termination of Plan.
The effective date of the Plan is that date on which the Plan is
approved by the Board of the Company. The Plan shall not become effective unless
and until it is so approved. The Plan shall terminate on, and no Option or
Restricted Stock shall be granted hereunder on or after, the 10-year anniversary
of the earlier of the approval of the Plan by (i) the Board or (ii) the
shareholders of the Company; provided, however, that the Board may at any time
prior to that date terminate the Plan.
3. Administration of Plan.
The Plan shall be administered by the Committee. The Committee shall
consist of at least two individuals each of whom shall be a "nonemployee
director" as defined in Rule 16b-3 as promulgated by the Securities and Exchange
Commission ("Rule 16b-3") under the Exchange Act and shall, at such times as the
Company is subject to Section 162(m) of the Code, qualify as "outside
5
<PAGE> 6
directors" for purposes of Section 162(m) of the Code. The acts of a majority of
the members present at any meeting of the Committee at which a quorum is
present, or acts approved in writing by a majority of the entire Committee,
shall be the acts of the Committee for purposes of the Plan; provided that the
otherwise applicable procedures of the Committee, to the extent inconsistent
with the provisions of this sentence, shall control. If and to the extent
applicable, no member of the Committee may act as to matters under the Plan
specifically relating to such member.
4. Eligibility for and Grant of Options and Restricted Stock;
Committee Authority.
Subject to the provisions of the Plan, the Committee shall, in its
discretion as reflected by the terms of the Award Agreements: (i) authorize the
granting of Options or Restricted Stock (or both) to key employees, directors
and key consultants of the Company and its Subsidiaries; (ii) determine and
designate from time to time those key employees, directors and key consultants
of the Company and its Subsidiaries to whom Options and Restricted Stock are to
be granted and the number of Shares to be optioned or granted (as applicable) to
each employee, director and key consultant; (iii) with respect to Options,
determine whether to grant incentive stock options ("Incentive Stock Options")
within the meaning of Section 422(b) of the Code, or non-qualified stock options
("Non-Qualified Stock Options"), or both (to the extent that any Option does not
qualify as an Incentive Stock Option, it shall constitute a separate Non-
6
<PAGE> 7
Qualified Stock Option); (iv) determine the number of Shares subject to each
Option or Grant, as applicable; (v) determine the time or times when and the
manner and condition in which each Option shall be exercisable and the duration
of the exercise period, and the restrictions applicable to Restricted Stock; and
(vi) determine or impose other conditions to the grant or exercise of Options
and grant of Restricted Stock under the Plan as it may deem appropriate. In
determining the eligibility of an employee, director and key consultant to
receive an Option or Grant, as well as in determining the number of Shares to be
optioned or granted thereto, the Committee may consider his or her position and
responsibilities, the nature and value to the Company of his or her services and
accomplishments whether directly or through its Subsidiaries, his or her present
and potential contribution to the success of the Company whether directly or
through its Subsidiaries and such other factors as the Committee may deem
relevant. The Award Agreement shall contain such other terms, provisions and
conditions not inconsistent herewith as shall be determined by the Committee.
The Participant shall take whatever additional actions and execute whatever
additional documents the Committee may in its reasonable judgment deem necessary
or advisable in order to carry out or effect one or more of the obligations or
restrictions imposed on the Participant pursuant to the express provisions of
the Plan and the Award Agreement. The Committee shall cause each Option to be
designated as an Incentive Stock Option or a Non-Qualified Stock Option.
5. Number of Shares Subject to the Plan.
7
<PAGE> 8
Subject to adjustments pursuant to Section 11, (i) no more than an
aggregate of 950,000 Shares may be the subject of Options or Grants, provided
that 250,000 of the Shares available under the Plan shall be reserved for grant
in connection with the Company's annual bonus program referred to in clause (i)
of Section 7B, and shall not be used for any other purpose hereunder.
Notwithstanding the foregoing provisions of this Section 5, Shares as to which
an Option is granted under the Plan that remains unexercised at the expiration,
forfeiture or other termination of such Option and Shares of Restricted Stock
that are forfeited may be the subject of the grant of further Options or Grants
of a type for which the Shares were initially available. Shares of Common Stock
issued hereunder may consist, in whole or in part, of authorized and unissued
shares or treasury shares. The certificates for Shares issued hereunder may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer hereunder or under the Award Agreement, or as the
Committee may otherwise deem appropriate.
The aggregate Fair Market Value, determined as of the date an Option
is granted, of the Common Stock for which any optionee may be awarded Incentive
Stock Options which are first exercisable by the optionee during any calendar
year under the Plan (or any other stock option plan required to be taken into
account under Section 422(d) of the Code) shall not exceed $100,000.
6. Options.
A. Option Price.
8
<PAGE> 9
The Option Price shall be determined by the Committee on the date
the Option is granted and reflected in the Award Agreement. Any particular Award
Agreement may provide for different exercise prices for specified amounts of
Shares subject to the Option. The Option Price with respect to each Incentive
Stock Option shall not be less than 100% (or 110%, in the case of an individual
described in Section 422(b)(6) of the Code (relating to certain 10% owners)) of
the Fair Market Value of a Share on the day the Option is granted.
B. Period of Option and Vesting.
(a) Unless earlier expired, forfeited or otherwise terminated, each
Option shall expire in its entirety upon the tenth anniversary of the date of
grant or shall have such other term as is set forth in the applicable Award
Agreement (except that, in the case of an individual described in Section
422(b)(6) of the Code (relating to certain 10% owners) who is granted an
Incentive Stock Option, the term of such Option shall be no more than five years
from the date of grant). The Option shall also expire, be forfeited and
terminate at such times and in such circumstances as otherwise provided
hereunder or under the Award Agreement.
(b) Each Option, to the extent that there has been no termination of
the Optionee's employment (or other service, if applicable) and the Option has
not otherwise lapsed, expired, terminated or been forfeited, shall first become
exercisable according to the terms and conditions set forth in the Award
Agreement, as determined by the Committee at the time of grant.
9
<PAGE> 10
Unless otherwise provided in the Award Agreement or herein, no Option (or
portion thereof) shall ever be exercisable if the Optionee's employment or other
service with the Company and its Subsidiaries has terminated before the time at
which such Option would otherwise have become exercisable, and any Option that
would otherwise become exercisable after such termination shall not become
exercisable and shall be forfeited upon such termination. Notwithstanding the
foregoing provisions of this Section 6B(b), Options exercisable pursuant to the
schedule set forth by the Committee at the time of grant may be fully or more
rapidly exercisable or otherwise vested at any time in the discretion of the
Committee. Upon and after the death of an Optionee, such Optionee's Options, if
and to the extent otherwise exercisable hereunder or under the applicable Award
Agreement after the Optionee's death, may be exercised by the Successors of the
Optionee.
C. Exercisability Upon and After Termination of Optionee.
(a) The Committee shall provide in the Award Agreement the extent
(if any) to which any Option may be exercised upon the Optionee's termination of
employment (or other service).
(b) Except as may otherwise be expressly set forth in this Section
6C, and except as may otherwise be expressly provided under the Award Agreement,
no provision of this Section 6C is intended to or shall permit the exercise of
the Option to the extent the Option was not exercisable upon cessation of
employment or other service.
10
<PAGE> 11
D. Exercise of Options.
(a) Subject to vesting and other restrictions provided for hereunder
or otherwise imposed in accordance herewith, an Option may be exercised, and
payment in full of the aggregate Option Price made, by an Optionee only by
written notice (in the form prescribed by the Committee) to the Company
specifying the number of Shares to be purchased.
(b) Without limiting the scope of the Committee's discretion
hereunder, the Committee may impose such other restrictions on the exercise of
Incentive Stock Options (whether or not in the nature of the foregoing
restrictions) as it may deem necessary or appropriate.
E. Payment.
(a) The aggregate Option Price shall be paid in full upon the
exercise of the Option. Payment must be made by one of the following methods:
(i) a certified or bank cashier's check;
(ii) the proceeds of a Company loan program or third-party
sale program or a notice acceptable to the Committee given as
consideration under such a program, in each case if permitted by the
Committee in its discretion, if such a program has been established
and the Optionee is eligible to participate therein;
(iii) if approved by the Committee in its discretion, Shares
of previously owned Common Stock (not subject to restrictions
hereunder) having an aggregate Fair Market Value on the date of
exercise equal to the aggregate Option Price;
(iv) if approved by the Committee in its discretion, through
the written election of the Optionee to have Shares withheld by the
Company from the Shares otherwise to be received, with such withheld
Shares having an aggregate Fair Market Value on the date of exercise
equal to the aggregate Option Price;
11
<PAGE> 12
or
(v) by any combination of such methods of payment or any other
method acceptable to the Committee in its discretion.
(b) The Committee, in its discretion, may also permit the Optionee
to elect to exercise an Option by receiving a combination of Shares and cash,
or, in the discretion of the Committee, either Shares or solely in cash, with an
aggregate Fair Market Value (or, to the extent of payment in cash, in an amount)
equal to the excess of the Fair Market Value of the Shares with respect to which
the Option is being exercised over the aggregate Option Price, as determined as
of the day the Option is exercised.
(c) Except in the case of Options exercised by certified or bank
cashier's check, the Committee may impose limitations and prohibitions on the
exercise of Options as it deems appropriate, including, without limitation, any
limitation or prohibition designed to avoid accounting consequences which may
result from the use of Common Stock as payment upon exercise of an Option. Any
fractional Shares resulting from an Optionee's election that are accepted by the
Company shall in the discretion of the Committee be paid in cash.
F. Tax Withholding -- Options.
The Committee may, in its discretion, require the Optionee to pay to
the Company at the time of exercise of any Option the amount that the Committee
deems necessary to satisfy the Company's obligation to withhold federal, state
or local income or other taxes incurred by reason of the exercise. Upon exercise
of the Option, the Optionee may, if approved by the
12
<PAGE> 13
Committee in its discretion, make a written election to have Shares then issued
withheld by the Company from the Shares otherwise to be received, or to deliver
previously owned Shares (not subject to restrictions hereunder), in order to
satisfy the liability for such withholding taxes. In the event that the Optionee
makes, and the Committee permits, such an election, the number of Shares so
withheld or delivered shall have an aggregate Fair Market Value on the date of
exercise sufficient to satisfy the applicable withholding taxes. Where the
exercise of an Option does not give rise to an obligation by the Company to
withhold federal, state or local income or other taxes on the date of exercise,
but may give rise to such an obligation in the future, the Committee may, in its
discretion, make such arrangements and impose such requirements as it deems
necessary or appropriate. Notwithstanding anything contained in the Plan to the
contrary, the Optionee's satisfaction of any tax-withholding requirements
imposed by the Committee shall be a condition precedent to the Company's
obligation as may otherwise be provided hereunder to provide Shares to the
Optionee, and the failure of the Optionee to satisfy such requirements with
respect to the exercise of an Option shall cause such Option to be forfeited.
G. Exercise by Successors and Payment in Full.
An Option may be exercised, and payment in full of the aggregate
Option Price made, by the Successors of the Optionee only by written notice (in
the form prescribed by the Committee) to the Company specifying the number of
Shares to be purchased. Such notice shall state that the aggregate Option Price
will be
13
<PAGE> 14
paid in full, or that the Option will be exercised as otherwise provided
hereunder, in the discretion of the Company or the Committee, if and as
applicable.
H. Nontransferability of Option.
Each Option granted under the Plan shall by its terms be
nontransferable by the Optionee except by will or the laws of descent and
distribution of the state wherein the Optionee is domiciled at the time of his
death; provided, however, that the Committee may (but need not) permit other
transfers, where the Committee concludes that such transferability (i) does not
result in accelerated taxation, (ii) does not cause any Option intended to be an
Incentive Stock Option to fail to be described in Section 422(b) of the Code and
(iii) is otherwise appropriate and desirable.
7. Restricted Stock.
A. Certificates for Restricted Stock.
(a) Each Grantee shall be issued a stock certificate in respect of
Shares of Restricted Stock awarded under the Plan. Such certificate shall be
registered in the name of the Grantee, and (without limiting the provisions
relating to the legending of Share certificates contained in Section 5) shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the Corporation's Equity Participation
Plan and an Agreement
14
<PAGE> 15
entered into between the registered owner and the Corporation.
Copies of such Plan and Agreement are on file in the offices of the
Corporation.
(b) The Committee shall require that the stock certificates
evidencing such Shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the Grantee shall have delivered a stock power, endorsed in blank,
relating to the stock covered by such award. If and when such restrictions so
lapse, the stock certificates shall be delivered by the Company to the recipient
or his or her designee.
B. Restrictions and Conditions.
The Shares of Restricted Stock awarded pursuant to the Plan shall be
subject to the following restrictions and conditions:
(i) Subject to the provisions of the Plan and the Award
Agreements, during a period set by the Committee commencing with the
date of such award and ending on a date established by the
Committee, the Grantee shall not be permitted voluntarily or
involuntarily to sell, transfer, pledge, anticipate, alienate,
encumber or assign Shares of Restricted Stock awarded under the Plan
(or have such shares attached or garnished). Unless otherwise
determined by the Committee, the restriction period with respect to
Shares issued to Grantees on account of their elections to receive
all or a portion of their annual bonuses under the Company's annual
bonus program in Shares of Restricted Stock hereunder shall be for a
period of three years from the date of grant.
(ii) Except as provided in the foregoing clause (i), the
Grantee shall have, in respect of the Shares of Restricted Stock,
all of the rights of a stockholder of the Company, including the
right to vote the Shares, and the right to receive any cash
dividends. Certificates for shares of Stock (not subject to
restrictions) shall be delivered to the Grantee promptly after, and
only after, the period of
15
<PAGE> 16
forfeiture shall expire without forfeiture in respect of such Shares
of Restricted Stock.
(iii) Subject to the provisions of the Award Agreement and
clause (iv) below, upon the termination of employment (or other
service, if applicable) with the Company and its Subsidiaries for
any reason or by the Grantee during the applicable restriction
period, all Shares still subject to restriction shall be forfeited
by the Grantee.
(iv) In the event the Grantee's employment with the Company
and its Subsidiaries terminates on account of death, Retirement or
Disability of the Grantee during the applicable restriction period,
restrictions will immediately lapse on all Restricted Stock granted
under this Section 7.
C. Tax Withholding -- Restricted Stock.
The Committee may, in its discretion, require the Grantee to pay to
the Company at the time of vesting of any Restricted Stock (or other income
recognition event, such as election under Section 83(b) of the Code) the amount
that the Committee deems necessary to satisfy the Company's obligation to
withhold federal, state or local income or other taxes incurred by reason of the
vesting (or other such event). Upon vesting (or such other event), the Grantee
may, if approved by the Committee in its discretion, make a written election to
have Shares withheld by the Company from the Shares otherwise to be released
from restriction, or to deliver previously owned Shares (not subject to
restrictions hereunder), in order to satisfy the liability for such withholding
taxes. In the event that the Optionee makes, and the Committee permits, such an
election, the number of Shares so withheld or delivered shall have an aggregate
Fair Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes. Notwithstanding anything contained in the Plan
16
<PAGE> 17
to the contrary, the Grantee's satisfaction of any tax-withholding requirements
imposed by the Committee shall be a condition precedent to the release of any
restrictions as may otherwise be provided hereunder, and the failure of the
Grantee to satisfy such requirements with respect to the vesting of Restricted
Stock (or another income recognition event) shall cause the applicable
Restricted Stock to be forfeited.
8. Regulations and Approvals.
(a) The obligation of the Company to sell Shares with respect to
Options granted under the Plan shall be subject to all applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
(b) The Committee may make such changes to the Plan as may be
necessary or appropriate to comply with the rules and regulations of any
government authority or to obtain tax benefits applicable to stock options or
restricted stock.
(c) Each Option and grant of Restricted Stock is subject to the
requirement that, if at any time the Committee determines, in its discretion,
that the listing, registration or qualification of Shares issuable pursuant to
the Plan is required by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, the grant of an Option or
the issuance of Shares of Restricted Stock or other Shares, no Options shall be
granted or payment made
17
<PAGE> 18
or Shares issued or grant of Restricted Stock made, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions in a manner acceptable to the Committee.
(d) In the event that the disposition of stock acquired pursuant to
the Plan is not covered by a then current registration statement under the
Securities Act, and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required under the Securities
Act, and the Committee may require any individual receiving Shares pursuant to
the Plan, as a condition precedent to receipt of such Shares, to represent to
the Company in writing that the Shares acquired by such individual are acquired
for investment only and not with a view to distribution and that such Shares
will be disposed of only if registered for sale under the Securities Act or if
there is an available exemption for such disposition.
9. Interpretation and Amendments; Other Rules.
The Committee may make such rules and regulations and establish such
procedures for the administration of the Plan as it deems appropriate. Without
limiting the generality of the foregoing, the Committee may (i) determine (A)
the conditions under which a Participant will be considered to have retired or
become disabled and (B) whether any Participant has done so; (ii) establish or
assist in the establishment of a program (which need not be administered in a
nondiscriminatory or uniform manner) under which the Company or a third party
may make bona-fide loans
18
<PAGE> 19
on arm's-length terms to any or all Optionees to assist such Optionees with the
satisfaction of any or all of the obligations that such Optionees may have
hereunder or under which third-party sales may be made for such purpose
(including, without limitation, a loan program under which the Company or a
third party would advance the aggregate Option Price to the Optionee and be
repaid with Option stock or the proceeds thereof and a sale program under which
funds to pay for Option stock are delivered by a third party upon the third
party's receipt from the Company of stock certificates); (iii) determine the
extent, if any, to which Options or Shares (whether or not Shares of Restricted
Stock) shall be forfeited (whether or not such forfeiture is expressly
contemplated hereunder); (iv) interpret the Plan and the Award Agreements
hereunder, with such interpretations to be conclusive and binding on all persons
and otherwise accorded the maximum deference permitted by law; and (v) take any
other actions and make any other determinations or decisions that it deems
necessary or appropriate in connection with the Plan or the administration or
interpretation thereof. Unless otherwise expressly provided hereunder, the
Committee, with respect to any Option or Grant, may exercise its discretion
hereunder at the time of the award or thereafter. In the event of any dispute or
disagreement as to the interpretation of the Plan or of any rule, regulation or
procedure, or as to any question, right or obligation arising from or related to
the Plan, the decision of the Committee shall be final and binding upon all
persons. The Board may amend the Plan as it shall deem advisable, except that no
amendment may adversely
19
<PAGE> 20
affect a Participant with respect to Options or Restricted Stock previously
granted unless such amendments are in connection with compliance with applicable
laws; provided that the Board may not make any amendment in the Plan that would,
if such amendment were not approved by the holders of the Common Stock, cause
the Plan to fail to comply with any requirement of applicable law or regulation,
unless and until the approval of the holders of such Common Stock is obtained.
General 162(m) provision -- Without limiting the generality of the foregoing,
the Committee may (subject to such considerations as may arise under Section 16
of the Exchange Act, or under other corporate, securities or tax laws) take any
steps it deems appropriate, that are not inconsistent with the purposes and
intent of the Plan, to take into account the provisions of Section 162(m) of the
Code.
10. Changes in Capital Structure.
If (i) the Company or its Subsidiaries shall at any time be involved
in a merger, consolidation, dissolution, liquidation, reorganization, exchange
of shares, sale of all or substantially all of the assets or stock of the
Company or its Subsidiaries or a transaction similar thereto, (ii) any stock
dividend, stock split, reverse stock split, stock combination, reclassification,
recapitalization or other similar change in the capital structure of the Company
or its Subsidiaries, or any distribution to holders of Common Stock other than
cash dividends, shall occur or (iii) any other event shall occur which in the
judgment of the Committee necessitates action by way of adjusting the terms of
the outstanding Options and Restricted Stock, then
20
<PAGE> 21
the Committee may forthwith take any such action as in its judgment shall be
necessary to preserve to the Participants rights substantially proportionate to
the rights existing prior to such event, and to maintain the continuing
availability of Shares under Section 4 (if Shares are otherwise then available)
in a manner consistent with the intent hereof, including, without limitation,
adjustments in (x) the number and kind of shares subject to Options and Grants,
(y) the Option Price, and (z) the number and kind of shares available under
Section 4. To the extent that such action shall include an increase or decrease
in the number of shares subject to outstanding Options and Grants, the number of
shares available under Section 4 above shall be increased or decreased, as the
case may be, proportionately.
If a Change of Control shall occur, then the Committee may make such
adjustments as it, in its discretion, determines are necessary or appropriate in
light of the Change of Control (including, without limitation, the substitution
of stock other than stock of the Company as the stock optioned or granted (as
applicable) hereunder, and the acceleration of the exercisability of the Option
or vesting of the Restricted Stock), provided that the Committee determines that
such adjustments do not have a substantial adverse economic impact on the
Participant as determined at the time of the adjustments.
The judgment of the Committee with respect to any matter referred to
in this Section 11 shall be conclusive and binding upon each Participant without
the need for any amendment to the Plan.
21
<PAGE> 22
11. Notices.
All notices under the Plan shall be in writing, and if to the
Company, shall be delivered to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the Participant, shall be
delivered personally or mailed to the Participant at the address appearing in
the records of the Company. Such addresses may be changed at any time by written
notice to the other party given in accordance with this Section 12.
12. Rights as Stockholder.
Neither the Optionee nor any person entitled to exercise the
Optionee's rights in the event of death shall have any rights of a stockholder
with respect to the Shares subject to an Option, except to the extent that a
certificate for such Shares shall have been issued upon the exercise of the
Option as provided for herein.
13. Rights to Employment. Nothing in the Plan or in any Option or
Restricted Stock granted pursuant to the Plan shall confer on any individual any
right to continue in the employ or other service of the Company or its
Subsidiaries or interfere in any way with the right of the Company or its
Subsidiaries and its shareholders to terminate the individual's employment or
other service at any time.
14. Exculpation and Indemnification.
To the maximum extent permitted by law, the Company shall indemnify
and hold harmless the members of the Board and the members of the Committee from
and against any and all liabilities,
22
<PAGE> 23
costs and expenses incurred by such persons as a result of any act or omission
to act in connection with the performance of such person's duties,
responsibilities and obligations under the Plan, other than such liabilities,
costs and expenses as may result from the gross negligence, bad faith, willful
misconduct or criminal acts of such persons.
15. Captions.
The use of captions in this Plan is for convenience. The captions
are not intended to provide substantive rights.
16. Governing Law.
THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
23
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Chateau Communities, Inc. or CP Limited Partnership on Form S-8 (File No.
33-84616) and Form S-3 (File Nos. 333-36323, 333-28703, 333-4544 and
333-4544-01) of our report dated February 4, 1998, except for Note 15 as to
which the date is March 10, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Chateau Communities, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, (as described in our Report of Independent Accountants),
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 20, 1998
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