<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-04544
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 10, 1997)
1,850,000 SHARES
CHATEAU COMMUNITIES, INC.
COMMON STOCK
All of the shares of common stock, $0.01 par value per share (the "Common
Stock"), of Chateau Communities, Inc. (the "Company") offered hereby (the
"Offering") are being sold by the Company. The Common Stock is listed on the New
York Stock Exchange, Inc. (the "NYSE") under the symbol "CPJ." On February 10,
1998, the last reported sale price of the Common Stock on the NYSE was $30.6875
per share.
SEE "RISK FACTORS" COMMENCING ON PAGE S-5 FOR CERTAIN FACTORS AND
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) the Company(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Per Share......................... $30.6875 $1.53 $29.1575
- -------------------------------------------------------------------------------------------------
Total............................. $56,771,875 $2,830,500 $53,941,375
- -------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)........ $65,287,656 $3,255,075 $62,032,581
=================================================================================================
</TABLE>
(1) The Company has agreed to indemnify PaineWebber Incorporated and A.G.
Edwards & Sons, Inc. (the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses payable by the Company of approximately
$150,000.00.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 277,500 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The Common Stock are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Common Stock will be made in New York City on or about February 17, 1998.
------------------------
PAINEWEBBER INCORPORATED A.G. EDWARDS & SONS, INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS FEBRUARY 10, 1998.
<PAGE> 2
PROPERTY LOCATIONS
[GEOGRAPHIC PROPERTIES MAP]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information included elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated herein or
therein by reference. Unless the context otherwise requires, all references in
this Prospectus Supplement to the "Company" shall mean Chateau Communities, Inc.
and its subsidiaries on a consolidated basis, and, as the context may require,
their predecessors. Unless otherwise indicated, the information presented in
this Prospectus Supplement assumes that the Underwriters' over-allotment option
will not be exercised. Investors should carefully consider the information set
forth under the heading "Risk Factors."
THE COMPANY
Chateau Communities, Inc., 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. As of January 31, 1998, the
Company owned and operated 147 manufactured home communities (the "Properties")
located in 29 states, with an aggregate of 46,133 homesites and 1,359 park
model/RV sites. As of January 31, 1998, the Company owned undeveloped land
adjacent to existing Properties containing approximately 4,800 expansion sites
zoned for manufactured housing. As of December 31, 1997, the total occupancy
rate for the Company's homesites, including properties under development, was
approximately 92.1%, and the occupancy rate for the Company's stabilized
property portfolio was approximately 93.6%. The Company's portfolio is
geographically diversified, with significant concentrations in the southeastern
and midwestern United States, permitting economies of scale in property
management operations. The Company's portfolio is also diversified by resident
orientation, with approximately 27% of the residential homesites in
adult-oriented communities and 73% of residential homesites in family-oriented
communities. The Company also currently fee manages 6,600 residential homesites
in 32 communities, and conducts manufactured home sales and brokerage activities
through its taxable subsidiary, Community Sales, Inc. ("CSI"). In 1997, the
National Manufactured Housing Congress presented the Company with the "National
Operator of the Year" award for an unprecedented fifth consecutive year,
confirming the Company's outstanding reputation for excellence in property
management and operations.
On February 11, 1997, the Company completed a strategic merger of equals
(the "Merger") with ROC Communities, Inc. ("ROC"), in which ROC merged with a
special-purpose merger subsidiary of the Company. As a result of the Merger, the
businesses of the Company and ROC were combined under a single unified
organization.
The Company conducts substantially all of its activities through CP Limited
Partnership, a Maryland limited partnership (the "Operating Partnership") in
which, as of January 31, 1998, it owned, directly and through ROC (the other
general partner of the Operating Partnership), an approximate 89% general
partner interest. As general partners of the Operating Partnership, the Company
and ROC have unilateral control and complete responsibility for the management
of the Operating Partnership and over each of the Properties.
Senior management of the Company has a combined 100 years of experience in
the manufactured housing community industry. The Company's directors and
executive officers also have a substantial ownership interest in the Company. As
of December 31, 1997, such persons owned a total of 5.2 million shares of Common
Stock and 686,000 units of limited partner interests ("OP Units") in the
Operating Partnership (representing, in the aggregate, a 22% equity interest in
the Operating Partnership).
The Company's executive and principal property management offices are
located at 6430 South Quebec Street, Englewood Colorado 80111 and their
telephone number is (303) 741-3707. The Company and the Operating Partnership
have divisional and/or regional property management offices in Clinton Township,
Michigan; Indianapolis, Indiana; Tampa, Florida; Atlanta, Georgia; and
Minneapolis, Minnesota.
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RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
commencing on page S-5 prior to any investment in the Company.
THE OFFERING
<TABLE>
<S> <C>
Shares Outstanding prior to Offering................. 28,648,895 shares of Common Stock (1)
Shares Offered by the Company........................ 1,850,000 shares of Common Stock
Shares Outstanding after the Offering................ 30,498,895 shares of Common Stock (1)
Use of Proceeds...................................... To reduce outstanding balances under the
Credit Facilities (as defined herein),
acquire additional manufactured housing
communities, expand and develop the
Properties and for working capital. See "Use
of Proceeds."
NYSE Symbol.......................................... CPJ
</TABLE>
- ---------------
(1) Includes 3,160,631 shares of Common Stock reserved for issuance upon the
possible exchange of outstanding OP Units. Does not include 1,200,000 shares
of Common Stock reserved for issuance upon the exercise of outstanding stock
options granted pursuant to the Company's option plans.
S-4
<PAGE> 5
FORWARD-LOOKING INFORMATION
Certain matters discussed under the captions "Prospectus Supplement
Summary," "Risk Factors," "Business" and "Federal Income Tax Considerations,"
and elsewhere in this Prospectus Supplement and the accompanying Prospectus, and
the information incorporated by reference herein and therein, including without
limitation, Strategic Initiatives and Tax Considerations, may constitute
forward-looking statements for purposes of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Important
factors that could cause the actual results, performance or achievements of the
Company to differ materially from the Company's expectations are disclosed in
this Prospectus Supplement and the accompanying Prospectus ("Cautionary
Statements"), including, without limitation, those statements included under
"Risk Factors" and otherwise herein and therein, and all forward-looking
statements attributable to the Company are expressly qualified in their entirety
by the Cautionary Statements.
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus before making a decision
to purchase Common Stock.
REAL ESTATE INVESTMENT RISKS
General
As with other real estate investments, yields available from manufactured
housing communities depend on the amount of income and capital appreciation
generated by the communities in relationship to their cost (including the cost
of capital). If a community does not generate sufficient operating cash flow to
meet operating expenses, including debt service, capital expenditures and tenant
improvements, income from the property will be adversely affected. Income from
properties may also be adversely affected by the general economic climate, local
conditions (such as an oversupply of or a reduction in demand for manufactured
home sites in the area), the attractiveness of properties to tenants, zoning or
other regulatory restrictions, competition from other available manufactured
home communities for available land for the placement of manufactured homes
outside of established communities and other forms of housing (such as apartment
buildings and site-built single-family homes), and the ability of the Company to
provide adequate maintenance and insurance and to control operating costs,
including site maintenance, insurance premiums and real estate taxes. Income
from properties and real estate values are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing. In addition, real estate investments are relatively illiquid and,
therefore, will tend to limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions.
Geographic Concentration of Properties
As of January 31, 1998, approximately 30% of the Properties were located in
Florida and 26% in Michigan (based in each instance on the total number of
manufactured homesites owned). Thus, the Company's financial performance may be
especially susceptible to changes in economic or other conditions in these
states.
Debt Maturities and Refinancing Risks
As of December 31, 1997, the Company had an aggregate of $384 million in
long-term debt outstanding. Approximately $20 million and $165 million of such
long-term debt matures in the years 1999 and 2000,
S-5
<PAGE> 6
respectively, while $70 million of such debt matures in 2003 and, depending on
whether the MOPPRS(SM) (as defined herein) are remarketed, an additional $100
million of such debt will mature in either 2004 or 2014. See "Business -- Recent
Developments -- Financing Activities." The Company will not be able to repay
such long-term debt out of its operating cash flow upon maturity but will need
to refinance such indebtedness or seek alternative sources of capital. If
prevailing interest rates or other factors at the time of refinancing resulted
in higher interest rates on refinancings, the Company's interest expenses would
increase, which would adversely affect the Company's cash available for
distributions, funds from operations and the level of or ability to make
distributions to stockholders. In addition, if the Company were unable to secure
refinancing of such indebtedness on acceptable terms, the Company might be
forced to dispose of properties on disadvantageous terms, which might result in
losses to the Company and might adversely affect its cash available for
distribution to stockholders. Because of the concentration of debt maturities,
the risks associated with debt refinancing will be greater for the Company than
would be the case if more of its long-term debt matured in different years. In
addition, each Credit Facility bears interest at a variable rate. Thus, an
increase in market interest rates will increase the interest payments under the
Credit Facilities which will reduce funds from operations and cash available for
distribution by the Company.
POTENTIAL ENVIRONMENTAL LIABILITY TO THE PROPERTIES
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs and removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's or
operator's liability therefor as to any property is generally not limited under
such enactments and could exceed the value of the property and/or the aggregate
assets of the owner or operator. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or rent such property and to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is owned or operated by such person. Certain environmental laws impose liability
for release of asbestos-containing materials ("ACMs") into the air and third
parties may seek recovery from owners or operators of real properties from
personal injury associated with ACMs. In connection with the ownership (direct
or indirect), operation, management and development of real properties, the
Company may be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances or named
a potentially responsible person or otherwise identified as potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property.
All of the Properties have been subjected to Phase I or similar
environmental audit after January 1, 1991, completed by independent
environmental consulting companies. These environmental audits have not revealed
any environmental liability that would have a material adverse effect on the
Company's financial condition. The Company is, however, aware of the following
environmental issues, none of which it believes are material to or will have a
material adverse effect on the Company's financial condition, operations or cash
flow:
- All of the Properties have electrical transformers which contain or may
contain polychlorinated byphenyls ("PCBs"). All transformers are the property of
regional utility companies which bear ultimate financial responsibility for
maintenance of the transformers and clean-up of any adversely affected soils.
- Limited quantities of ACMs are present in various building materials such
as floor coverings, acoustical tiles and decorative treatments located at
certain Properties. The ACMs present at the Properties are generally
non-friable, in good condition, and possess low probabilities for disturbance.
- There are petroleum storage tanks located within several of the
Properties. Based on information presently available to the Company, none of
such tanks are currently leaking and no investigation or corrective action with
respect to such tanks has been suggested or required of the Company by any
federal, state or local authority or any other party. There is a potential for
contamination of certain Properties from reported off-site
S-6
<PAGE> 7
leaking petroleum underground storage tanks ("USTs") on land in the vicinity of
such Properties. The Company is not the owner or operator of any such off-site
USTs. No investigative or corrective action concerning any such leaking USTs has
been suggested or required of the Company by any federal, state or local
regulatory authority or any other party. In the event of any contamination
caused by leaking off-site USTs, the Company believes that the off-site
landowners and UST operators are responsible for investigation and cleanup of
any contamination attributable to the leaking USTs. In addition, prior to the
acquisition by the Company of two of its recently acquired Properties, there was
a leakage of heating fuel oil from three storage tanks located on such
Properties. The Company believes that the prior owners of such Properties are
responsible for cleanup of any contamination attributable to such leakage and
that the potential costs of any required remediation are not material.
- Certain of the Properties contain private sewer and water facilities,
including waste water treatment facilities. Local authorities have alleged that
the waste water treatment facility of one Property is not in compliance with
current standards. In this situation, such authorities have requested that such
facility be upgraded to meet certain standards and/or be connected to public
water and sewer systems. The Company does not consider the potential costs to be
material.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company believes that it has operated in a manner so as to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"), for each
of its taxable years since 1993. Qualification as a REIT depends upon the
Company's meeting the various highly technical and complex Code provisions and
REIT qualification rules, which include (i) maintaining ownership of specified
minimum levels of real estate related assets; (ii) generating specified minimum
levels of real estate related income; (iii) maintaining certain diversity of
ownership of Common Stock; and (iv) distributing at least 95% of all real estate
investment taxable income on an annual basis. Although management of the Company
believes that it has operated and will continue to operate in a manner so as to
qualify as a REIT, no assurance can be given that the Company has so qualified
or will be able to continue to operate in a manner so as to remain so qualified.
If the Company were to fail to qualify as a REIT, the Company would not be
allowed a deduction in computing taxable income for amounts distributed to its
stockholders and would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at corporate rates. In
addition, unless entitled to relief under certain statutory provisions, the
Company would be ineligible for qualification as a REIT for the four taxable
years following the year during which qualification is lost. This treatment
would reduce the net earnings of the Company available for investment or
distribution to stockholders because of the additional tax liability to the
Company for the year or years involved. In addition, distributions to
stockholders would no longer be required to be made. To the extent that
distributions to stockholders had been made in anticipation of the Company's
continuing qualification as a REIT, the Company might be required to borrow
funds or to liquidate certain of its investments to pay the applicable tax. See
"Federal Income Tax Considerations -- Taxation of the Company" in the Prospectus
attached hereto.
LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Company's Charter and Bylaws and
certain provisions of Maryland law may have the effect of discouraging a third
party from making an acquisition proposal for the Company and may thereby
inhibit a change in control of the Company. These include the Company's
staggered board of directors, certain provisions of the Charter intended to
protect the Company's status as a REIT and provisions of the Maryland General
Corporation Law relating to certain "business combinations." Such provisions may
(i) deter tender offers for shares of Common Stock, which offers may be
attractive to the Company's stockholders; or (ii) deter purchases of large
blocks of Common Stock, thereby limiting the opportunity for stockholders to
receive a premium for their Common Stock over then-prevailing market prices.
S-7
<PAGE> 8
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the shares of Common Stock could be substantially
affected by general market conditions, including changes in interest rates,
government, legislative or regulatory action and changes in tax laws. An
increase in market interest rates may lead purchasers of the shares of Common
Stock to demand a higher annual dividend yield on the shares, which could
adversely affect the market price of the Common Stock. Moreover, numerous other
factors, such as government, legislative or regulatory action and changes in tax
laws, could have a significant impact on the future market price of the shares.
See "Risk Factors -- Proposed Legislation."
PROPOSED LEGISLATION
Although REITs are prohibited from holding more than 10% of the voting
securities of any one issuer, a REIT is not currently prohibited from holding
more than 10% of the value of any one issuer, subject to the general REIT asset
requirements. See "Federal Income Tax Considerations -- Taxation of the
Company -- Asset Tests" in the Prospectus attached hereto.
As part of the federal budget for fiscal year 1999, President Clinton has
made several proposals affecting REITs. One such proposal, if enacted in its
present form, would prohibit a REIT from holding securities representing more
than 10% of the vote or value of all classes of stock of a corporation, other
than stock of a qualified REIT subsidiary or another REIT. Although stock
interests currently owned in existing subsidiaries, such as CSI, would be
grandfathered under such proposal, such subsidiaries would be prohibited from
acquiring substantial new assets or engaging in a new trade or business. If
enacted in its present form, the proposal may limit the future activities and
growth of CSI. At this time, it is not possible to predict whether any
proposals, as currently proposed or as modified by Congress, will be enacted.
S-8
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BUSINESS
THE COMPANY
The Company, a self-administered and self-managed equity REIT, is the
largest owner/manager of manufactured home communities in the United States,
based both on the number of communities and the number of residential homesites
owned. As of January 31, 1998, the Company owned and operated 147 Properties
located in 29 states, with an aggregate of 46,133 homesites and 1,359 park
model/RV sites. As of that date, the Company owned undeveloped land adjacent to
existing Properties containing approximately 4,800 expansion sites zoned for
manufactured housing. As of December 31, 1997, the total occupancy rate for the
Company's homesites, including properties under development, was approximately
92.1%, and the occupancy rate for the Company's stabilized property portfolio
was approximately 93.6%. The Company's portfolio is geographically diversified,
with significant concentrations in the southeastern and midwestern United
States, permitting economies of scale in property management operations. The
Company's portfolio is also diversified by resident orientation, with
approximately 27% of the residential homesites in adult-oriented communities and
73% of residential homesites in family-oriented communities. The Company also
currently fee manages 6,600 residential homesites in 32 communities, and
conducts manufactured home sales and brokerage activities through its taxable
subsidiary, CSI. In 1997, the National Manufactured Housing Congress presented
the Company with the "National Operator of the Year" award for an unprecedented
fifth consecutive year, confirming the Company's outstanding reputation for
excellence in property management and operations.
On February 11, 1997, the Company completed the Merger with ROC, in which
ROC merged with a special-purpose merger subsidiary of the Company. As a result
of the Merger, the businesses of the Company and ROC were combined under a
single unified organization.
The Company conducts substantially all of its activities through the
Operating Partnership in which, as of January 31, 1998, it owned, directly and
through ROC (the other general partner of the Operating Partnership), an
approximate 89% general partner interest. As general partners of the Operating
Partnership, the Company and ROC have unilateral control and complete
responsibility for the management of the Operating Partnership and over each of
the Properties. The Company's Common Stock is listed on the New York Stock
Exchange under the Symbol "CPJ."
Senior management of the Company has a combined 100 years of experience in
the manufactured housing community industry. The Company's directors and
executive officers also have a substantial ownership interest in the Company. As
of December 31, 1997, such persons owned a total of 5.2 million shares of Common
Stock and 686,000 OP Units (representing, in the aggregate, a 22% equity
interest in the Operating Partnership).
1997 FINANCIAL RESULTS
The Company reported total revenue of $138.2 million for the year ended
December 31, 1997, compared to $67.4 million for the year ended December 31,
1996. The Company reported net income and funds from operations ("FFO") for the
year ended December 31, 1997, of $21.7 million and $56.0 million, respectively,
compared to $6.5 million and $27.5 million, respectively, for the year ended
December 31, 1996. The Company primarily attributes the increases in revenue,
net income and FFO to the completion of the Merger with ROC on February 11,
1997, other acquisitions completed throughout 1996 and 1997, improved
performance of its core portfolio and commissions from brokered home sales
through CSI. FFO as used by the Company, and as defined by the National
Association of Real Estate Investment Trusts, means net income excluding gains
(or losses) from debt restructuring and sales of property, plus certain
depreciation and amortization. Management believes that FFO is an important
measure of operating performance that provides a relevant basis for comparison
among REITs, and industry analysts consider FFO to be an appropriate measure of
the performance of an equity REIT. FFO (i) does not represent cash flow from
operations as defined by generally accepted accounting principles, (ii) should
not be considered an alternative to net income
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<PAGE> 10
as a measure of operating performance or cash flows from operating, investing
and financing activities, and (iii) is not an alternative to cash flows as a
measure of liquidity.
RECENT DEVELOPMENTS
The Merger
The Company completed the Merger with ROC on February 11, 1997. The Merger
combined the property management, administration, acquisition, development and
new home sales and brokerage expertise of the two companies under a single
entity. The Merger also brought together the skills and experience of senior
executives of both companies who now form the core of senior management for the
combined organization. Since the Merger, the Company has integrated the
operations and organizational reporting structures of the two companies,
reorganized all aspects of property management under a single Company-wide
system, developed and implemented a combined capital and financing strategy,
implemented a uniform accounting and financial reporting system, and commenced
new business initiatives relating to new community development, expansions and
home sales and brokerage activities.
Recent Acquisitions
Since January 1, 1997, the Company has acquired 24 communities (containing
a total of approximately 3,500 homesites and 1,359 park model/RV sites) for an
aggregate purchase price of approximately $82 million (including acquisitions
made by ROC prior to the Merger). This includes nine communities (containing
approximately 900 homesites and 1,100 park model/RV sites) that are subject to
long-term ground leases. These communities are located in Massachusetts (four),
Texas (two), Georgia (two), South Carolina (two), Connecticut (four) and Florida
(ten).
In addition, in September 1997, the Company completed the acquisition of
The Windsor Corporation ("Windsor"), the general partner of partnerships that
own 28 manufactured home communities (containing 5,700 homesites), all of which
had been managed by ROC on a fee basis since 1993 and by the Company since the
Merger. The Windsor acquisition was financed with the issuance of 101,239 shares
of Common Stock at a price of approximately $29 per share and $750,000 in cash.
Development and Expansion
Since January 1, 1997, the Company commenced or completed development
projects at six separate Properties in six states, substantially completing the
development at these Properties of 509 new homesites. In these developments, the
Company's invested cost per site is expected to average approximately $12,000.
At January 31, 1998, the Company owned approximately 4,800 sites in its existing
Properties that are suitable for further expansion. The Company is also involved
in third-party joint ventures to develop four new communities, containing a
potential of 2,000 new homesites. Through these activities, the Company
completed the development of 51 sites in 1997. During 1997, the Company had
invested an aggregate of approximately $4 million in these third-party joint
venture developments, and committed to invest approximately $36 million in such
ventures over the next seven years.
Financing Activities
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 in July 1997, the interest rate on the revolving credit
facility was reduced to LIBOR plus 110 basis points (from LIBOR plus 150 basis
points). In addition, in September 1997 the 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.
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In December 1997, the Operating Partnership completed a public offering of
6.92% Mandatory Par Put Remarketed Securities(SM) ("MOPPRS(SM)") due December
10, 2014. The aggregate proceeds to the Operating Partnership from the sale of
the MOPPRS(SM), before deducting offering expenses, were 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 Ratings Services 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(SM) will be adjusted to equal the sum of 5.753% 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.
Organization of CSI
Prior to the Merger, new home sales and commercial brokerage activities at
the Company's communities were conducted by third parties. As a result of the
Merger, the Company acquired the sales and brokerage capabilities of CSI, which
had previously been operated as a taxable subsidiary of ROC, and which is now
operated as a taxable subsidiary of the Operating Partnership. CSI achieved
total sales and brokerage revenues from January 1 through December 31, 1997 of
approximately $17.9 million, involving approximately 300 new home sales and 800
brokered sales. The Company anticipates that revenues from sales and brokerage
activities will represent a growing portion of its revenue base for 1998. For a
discussion of proposed legislation that, if enacted, could limit the future
activities and growth of CSI, see "Risk Factors -- Proposed Legislation."
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 Properties 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 investment and operating 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 on-site services and accessibility to on-site managers
to maximize retention, encourage home maintenance and improvements and to
minimize turnover;
- Providing frequent personal contact between on-site managers and
residents to foster a sense of pride in the community and to promote the
desirability of each Property; and
- Offering potential residents the convenience of purchasing a home already
in place within a community.
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<PAGE> 12
Acquisitions, Development and Expansions
- Selectively acquiring well-located manufactured home communities that
demonstrate the potential for increases in revenue and cash flow through
professional property management, improved operating efficiencies,
aggressive leasing and, where appropriate, renovation and expansion;
- Acquiring properties in existing markets in order to achieve economies of
scale in management and operations, and in new markets where portfolios
may be acquired with regional management in place;
- Pursuing acquisitions which offer opportunities for expansion and
development, either through the leaseup of existing homesites or the
development of new homesites;
- Utilizing the expertise and relationships developed by management to
identify acquisition opportunities;
- Selectively developing new communities in regions where management has
significant experience and where further development is supported by
favorable demographics and strong market demand; and
- Capitalizing on opportunities to renovate and expand properties
consistent with local market demand.
FINANCING STRATEGIES
The 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.
PROPERTIES
At January 31, 1998, the Properties consisted of 147 manufactured home
communities located in 29 states, containing 46,133 homesites and 1,359 park
model/RV sites.
The distribution of the Properties across the United States reflects
management's belief that geographic diversification helps insulate the portfolio
from regional economic influences. At the same time, the Company has sought to
create concentrations of properties within each of its primary regions in order
to facilitate effective property management and achieve economies of scale. In
addition to its headquarters in Englewood, Colorado, the Company maintains
divisional and/or regional property management offices in Clinton Township,
Michigan; Indianapolis, Indiana; Tampa, Florida; Atlanta, Georgia; and
Minneapolis, Minnesota.
In the aggregate, the Properties had an average occupancy rate of 93% over
the last three years. As of December 31, 1997, the total occupancy rate for the
Company's homesites, including properties under development, was approximately
92.1%, and the occupancy rate for the Company's stabilized property portfolio
was approximately 93.6%. Weighted average rent for the twelve months ended
December 31, 1997 was $287 per month. Weighted average rent is calculated as net
rental and utility income for the period, on a monthly basis, divided by the
weighted average occupied sites. Weighted average occupancy is computed by
averaging the occupied sites at the end of each month in the period. Over the
past three years, the Properties have averaged an annual turnover of homes
(where the home is moved out of the community) of approximately 3%. During this
period, the annual change of ownership of homes within the Properties has been
approximately 10% to 12%. The Company believes that the relative stability of
its resident base reflects the Company's emphasis on resident relations and
property management and enhances the predictability of future cash flows.
Each of the Properties provides amenities consistent with the market and
type of property (retirement or family living), which may include a clubhouse,
swimming pools and jacuzzis, playgrounds, basketball courts,
S-12
<PAGE> 13
picnic areas, tennis courts, shuffleboard courts, laundry facilities, golf
courses, marinas and cable television service.
The following table describes the Properties owned as of January 31, 1998:
<TABLE>
<CAPTION>
COMMUNITIES HOMESITES WEIGHTED
AS A AS A AVERAGE RENT
NUMBER OF PERCENT OF TOTAL PERCENT OF PER EXPANSION
STATE COMMUNITIES TOTAL HOMESITES(1) TOTAL(1) OCCUPANCY(2) HOMESITE(2) SITES
- ---------------- ----------- ----------- ------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama......... 1 1% 230 ,1% 89.6% $190 --
California...... 5 3% 977 2% 95.4% 515 --
Colorado........ 5 3% 2,396 1% 97.1% 301 --
Connecticut(3).. 4 3% 279 5% N/A N/A 192
Florida(3)...... 39 27% 13,825 30% 91.4% 294 989
Georgia......... 10 7% 2,775 6% 83.4% 216 164
Iowa............ 2 1% 489 1% 96.5% 229 --
Idaho........... 3 2% 508 1% 97.4% 252 --
Illinois........ 3 2% 491 1% 93.5% 211 --
Indiana......... 5 3% 1,117 2% 94.8% 246 --
Kentucky........ 2 1% 308 1% 98.1% 222 --
Louisiana....... 2 1% 605 1% 74.0% 144 --
Massachusetts... 4 3% 641 1% 96.0% 301 149
Michigan........ 28 19% 12,173 26% 95.5% 313 1,355
Minnesota....... 5 3% 1,472 3% 93.9% 329 --
Missouri........ 1 1% 134 ,1% 64.9% 154 --
Montana......... 1 1% 222 1% 88.7% 197 185
North
Carolina...... 2 1% 796 2% 96.6% 252 --
North Dakota.... 3 2% 820 2% 96.2% 224 --
Nevada.......... 1 1% 107 ,1% 99.1% 383 --
New York........ 3 2% 1,522 3% 84.4% 292 560
Ohio............ 4 3% 861 2% 87.5% 234 439
Oklahoma........ 1 1% 237 1% 87.8% 169 --
Oregon.......... 2 1% 345 1% 98.8% 318 --
South
Carolina...... 3 2% 1,260 3% 60.5% 157 150
Texas........... 5 3% 908 2% 78.3% 181 417
Virginia........ 1 1% 289 1% 87.2% 196 229
Washington...... 1 1% 230 1% 97.8% 408 --
Wyoming......... 1 1% 116 ,1% 95.7% 208 --
------- --------- -------
Total/Wtd
Average....... 147 100% 46,133 100% 92.1% $287 4,829
======= ========= =======
</TABLE>
- ---------------
(1) The total homesites does not include 1,359 park model/RV sites.
(2) This column reflects information for the Properties as of or for the year
ended December 31, 1997.
(3) These include nine communities (containing approximately 900 homesites and
1,100 park model/RV sites) that are subject to long-term ground leases.
INDUSTRY
A manufactured home community is a residential subdivision designed and
improved with homesites for the placement of manufactured homes, including
related improvements and amenities. Manufactured homes are detached, single
family homes which are produced off-site by manufacturers and installed on sites
within the community. Manufactured homes are available in a wide array of
architectural styles and floor plans, offering a variety of amenities,
customization options and on-site built structures.
S-13
<PAGE> 14
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.
The owner of each home in a manufactured home community leases a site from
the community. The manufactured home community is the owner of the underlying
land, utility connections, streets, lighting, driveways, common area amenities
and other capital improvements and is responsible for enforcement of community
guidelines and maintenance. Each home owner within the manufactured home
community is responsible for the maintenance of his home and leased site.
Additionally, manufactured home communities tend to have relatively stable
resident bases, with relatively few residents moving manufactured homes out of
their communities. Management thus tends to be less intensive, and capital
expenditure needs less significant, relative to multi-family rental apartment
complexes.
According to data published by the Manufactured Housing Institute, the
number of manufactured home shipments has increased by more than 64% from 1980
to 1996, and from 1986 to 1996 approximately 27% of all new single-family homes
sold in the United States were manufactured homes. In addition, based on U.S.
Census Bureau statistics from the 1990 Census, manufactured housing represents
the fastest growing sector of the U.S. housing market. According to these
statistics, from 1980 to 1990, approximately 29% of all new single-family homes
sold in the United States were manufactured homes.
The Company attributes the growth in manufactured housing primarily to
several factors. First, manufactured homes tend to be more affordable than
traditional site built homes. According to 1996 data supplied by the
Manufactured Housing Institute, the cost of manufactured housing averaged
approximately $27.83 per square foot of living space compared to $58.11 for site
built homes, excluding land. Second, since the introduction of the first "mobile
homes," dramatic improvements in quality, design, amenities and siting have been
introduced to the manufactured home. Since 1976, manufactured homes have been
required to be built in compliance with stringent federal quality regulations
which have improved the industry's product. Third, manufactured homes represent
a life style choice, particularly when located within a community that offers an
appealing amenity package, close proximity to local services, social activities,
low maintenance and a secure environment.
S-14
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting expenses
incurred in connection with the Offering, are estimated to be approximately
$53.8 million (approximately $61.9 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use the net proceeds from
the Offering to reduce outstanding balances under the Credit Facilities. Upon
completion of the Offering, the Company expects to have $107.5 million available
under the Credit Facilities. The balance of the net proceeds, together with
future borrowings under the Credit Facilities, will be used for acquisition of
additional manufactured housing communities, expansions and new community
development of the Properties and working capital. Pending such uses, the net
proceeds will be invested in short-term investments such as government
securities or money market funds that invest in government securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, (i) on an historical basis, (ii) on a pro forma basis, and
(iii) pro forma as adjusted to give effect to the Offering and the application
of the net proceeds therefrom as described under "Use of Proceeds." The
following table should be read in conjunction with the historical financial
statements and related notes incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30,1997
(UNAUDITED)
----------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) ADJUSTED(2)
---------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Mortgage Debt....................................... $ 115,486 115,486 $115,486
Unsecured Senior Notes(3)........................... 145,000 245,000 245,000
Credit Facilities................................... 87,751 36,351 --
Other Notes Payable................................. 2,002 2,002 2,002
MINORITY INTEREST(4).................................. 35,477 46,273 46,273
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share;
2,000,000 authorized; none issued or
outstanding...................................... -- -- --
Common Stock, par value $0.01 per share; 90,000,000
authorized; 25,469,358 issued and outstanding;
27,319,358 issued and outstanding on a pro forma
as adjusted basis................................ 258 258 273
Additional Paid in Capital.......................... 356,365 356,365 410,141
Notes Receivable From Officers...................... (904) (904) (904)
Dividends in Excess of Accumulated Earnings......... (28,787) (28,787) (28,787)
Total Capitalization........................ $ 712,648 $772,044 $789,484
======== ======== ========
</TABLE>
- ---------------
(1) The pro forma amounts are calculated by adjusting the historical September
30, 1997 amounts to include subsequent transactions consisting of the
issuance of the MOPPRS(SM)and the use of the proceeds therefrom to reduce
outstanding balances under the Credit Facilities, and changes in amounts
outstanding under the Credit Facilities and the issuance of additional OP
Units in connection with acquisition activity through January 31, 1998.
(2) Includes the offering of 1,850,000 shares of Common Stock and the
application of the proceeds thereof as described herein under "Use of
Proceeds."
(3) Includes the MOPPRS(SM). See "Business -- Recent Developments -- Financing
Activities."
(4) Includes 2,756,059 OP Units; 3,168,539 OP Units on a pro forma and a pro
forma as adjusted basis.
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company, the Operating Partnership
and the Underwriters named below, the Underwriters have severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, 1,850,000 shares of Common Stock, which in the aggregate equal the
number of shares of Common Stock set forth opposite the names of the
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF SHARES TO
UNDERWRITERS BE PURCHASED
------------------------------------------------------------------- -------------------
<S> <C>
PaineWebber Incorporated........................................... 1,200,000
A.G. Edwards & Sons, Inc........................................... 650,000
---------
Total......................................................... 1,850,000
=========
</TABLE>
The Company has been advised by the Underwriters that the Underwriters
propose to offer the 1,850,000 shares of Common Stock in part to the public at
the price to the public set forth on the cover page of this Prospectus
Supplement, and in part to certain securities dealers (who may include the
Underwriters) at such price less a concession not in excess of $0.91 per share;
and that the Underwriters and such dealers may reallow a discount not in excess
of $0.10 per share to other dealers, including the Underwriters. Following the
completion of this Offering, the concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus Supplement, under which the
Underwriters may purchase up to 277,500 additional shares of Common Stock from
the Company at the price to the public set forth on the cover page of this
Prospectus Supplement, less the underwriting discounts and commissions. The
Underwriters may exercise the option only to cover over-allotments, if any, made
in connection with the offering of the shares of Common Stock offered hereby.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof. The Company has also
agreed to reimburse the Underwriters for certain expenses.
The shares of Common Stock offered and sold hereby have been listed on the
NYSE, subject to official notice of issuance.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters to
bid for and purchase shares of the Company's common stock. As an exception to
these rules, the Underwriters are permitted, subject to certain restrictions to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e. if they sell more shares of Common Stock than
are set forth on the cover page of this Prospectus Supplement), the Underwriters
may reduce that short position by purchasing shares of Common Stock in the open
market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriters may also impose penalty bids on certain Underwriters and
selling group members. This means that if the Underwriters purchase Common Stock
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Common Stock, they may reclaim the amount of the selling
concession from any Underwriter and any selling group members who sold the
Common Stock as part of this Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Common Stock.
S-16
<PAGE> 17
In addition, neither the Company nor the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
In the ordinary course of their businesses, the Underwriters and their
affiliates have engaged and may in the future engage in investment banking,
financial advisory and other transactions with the Company for which customary
compensation has been, and will be, received.
LEGAL MATTERS
Certain legal matters, including the legality of the Common Stock, will be
passed upon for the Company by Rogers & Wells LLP, New York, New York and for
the Underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. As to
matters of Maryland law contained in these opinions, Rogers & Wells LLP and
Goodwin, Procter & Hoar LLP will rely upon the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland.
S-17
<PAGE> 18
PROSPECTUS
$200,000,000
CHATEAU COMMUNITIES, INC.
COMMON STOCK, WARRANTS, PREFERRED
STOCK, DEPOSITARY SHARES AND GUARANTEES
$120,000,000
CP LIMITED PARTNERSHIP
DEBT SECURITIES
Chateau Communities, Inc. (the "Company") may from time to time offer in
one or more series (i) shares of its common stock, par value $.01 per share (the
"Common Stock"); (ii) warrants to purchase Common Stock (the "Warrants"); or
(iii) shares or fractional shares of its preferred stock, par value $.01 per
share (the "Preferred Stock"), which may be issued in the form of depositary
shares (the "Depositary Shares") evidenced by depositary receipts, with an
aggregate public offering price of up to $200,000,000. CP Limited Partnership, a
Maryland limited partnership and a majority-owned subsidiary of the Company (the
"Operating Partnership"), may from time to time offer in one or more series
unsecured non-convertible investment grade debt securities or other
non-convertible debt securities which will be fully and unconditionally
guaranteed by the Company (any such debt securities being referred to herein as
"Debt Securities" and any such guarantees being referred to herein as
"Guarantees"), with an aggregate public offering price of up to $120,000,000.
The Common Stock, Warrants, Preferred Stock, Depositary Shares, Debt Securities
and Guarantees (collectively, the "Offered Securities") may be offered
separately or together, in separate series, in amounts, at prices and on terms
to be determined at the time of offering and set forth in one or more
supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Common Stock,
any public offering price; (ii) in the case of Warrants, the duration, offering
price, exercise price and detachability features; (iii) in the case of Preferred
Stock, the specific title, any distribution, liquidation, redemption,
conversion, voting and other rights and any initial public offering price; (iv)
in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share; and (v) in the case of Debt
Securities, the title, aggregate principal amount, denominations, maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Operating Partnership or the holder, any terms for sinking fund payments, rank,
any conversion or exchange rights, any Guarantees, and the initial public
offering price and any other terms in connection with the offering and sale of
such Debt Securities. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about all material federal income tax considerations relating to,
and any listing on a securities exchange of, the Offered Securities covered by
such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is December 10, 1997.
<PAGE> 19
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING PARTNERSHIP OR ANY
UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF OR THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission). Such
reports, proxy statements and other information filed by the Company and the
Operating Partnership may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Company and the
Operating Partnership file their reports, proxy statements and other information
with the Commission electronically. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Common Stock of the Company is listed on the New York Stock
Exchange ("NYSE") and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York, 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement (of which this Prospectus is a part) on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Offered Securities. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission,
and in the exhibits thereto. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company, the Operating
Partnership and the Offered Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be examined
without charge at, or copies obtained upon payment of prescribed fees from, the
Commission and its regional offices listed below.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference herein may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, and as such may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company and the Operating
Partnership to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company and the Operating
Partnership, are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," estimate," "believe," "intend" or "project" or
the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse
2
<PAGE> 20
effect on the operations and future prospects of the Company and the Operating
Partnership include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/regulatory
changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
properties in the Company's and the Operating Partnership's current and proposed
market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and the Operating Partnership
with the Commission pursuant to the Exchange Act are incorporated by reference
herein and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Operating Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
4. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997.
5. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.
6. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997.
7. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997.
8. The Operating Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997.
9. The Company's Current Report on Form 8-K, dated February 11, 1997,
filed with the Commission on February 26, 1997, pursuant to the
Exchange Act.
10. The Company's Current Report on Form 8-K, dated May 22, 1997, filed
with the Commission on May 30, 1997.
11. The Company's Current Report on Form 8-K, dated June 16, 1997, filed
with the Commission on June 24, 1997.
12. The Company's Current Report on Form 8-K, dated December 10, 1997,
filed with the Commission on December 10, 1997.
13. The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A, including any amendments
or reports filed for the purpose of updating such description.
All documents subsequently filed by the Company or the Operating
Partnership pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act
and prior to the termination of the offering of all Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such document.
Any statement or information contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
3
<PAGE> 21
The Company and the Operating Partnership will provide without charge to
each person to whom this Prospectus is delivered, upon written or oral request
of such person, a copy of any and all of the information incorporated by
reference into this Prospectus (not including exhibits to the information that
is incorporated by reference unless such exhibits are specifically incorporated
by reference to the information that this Prospectus incorporates). Written
requests for the information described in this paragraph shall be directed to:
Chateau Communities, Inc., 6430 South Quebec Street, Englewood, Colorado 80111.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company, a self-administered and self-managed equity real estate
investment trust ("REIT"), is the largest owner/manager of manufactured home
communities in the United States, based both on the number of communities and
the number of residential homesites owned. On February 11, 1997, the Company
completed a strategic merger of equals (the "Merger") with ROC Communities, Inc.
("ROC"), in which ROC merged with a special-purpose merger subsidiary of the
Company. As a result of the Merger, the businesses of the Company and ROC were
combined. At March 31, 1997, the Company owned and operated 128 manufactured
home communities (the "Properties") located in 27 states, with an aggregate of
42,986 homesites. The Company's portfolio is geographically diversified, with
significant concentrations in the southeastern and midwestern United States, as
well as the Pacific Coast states, permitting economies of scale in property
management operations. The Company's portfolio is also diversified by resident
orientation, with approximately 28% of the residential homesites in communities
which are adult-oriented and 72% of residential homesites in communities which
are family-oriented. At March 31, 1997, approximately 94.1% of the Company's
homesites were occupied. In addition, the Company fee manages 6,953 residential
homesites in 34 communities. Also at March 31, 1997, the Company owned
undeveloped land adjacent to existing communities containing approximately 4,200
expansion sites which are zoned for manufactured housing.
The Company conducts substantially all of its activities through the
Operating Partnership in which as of March 31, 1997 it owned, directly and
through ROC (the other general partner of the Operating Partnership), an
approximate 90% general partner interest. As general partners of the Operating
Partnership, the Company and ROC have unilateral control and complete
responsibility for the management of the Operating Partnership and over each of
the Properties. The Company's Common Stock is listed on the NYSE under the
Symbol "CPJ."
The Company's and the Operating Partnership's executive and principal
property management offices are located at 6430 South Quebec Street, Englewood,
Colorado 80111 and their telephone number is (303) 741-3707. The Company and the
Operating Partnership have regional property management offices in Clinton
Township, Michigan; Indianapolis, Indiana; Tampa, Florida; and Atlanta, Georgia.
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement, the
Company and the Operating Partnership intend to use the net proceeds from any
sale of the Offered Securities for working capital and for general corporate
purposes, which may include the repayment of indebtedness, the financing of
capital commitments and possible future acquisitions, expansions and development
of manufactured housing communities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------
1997 1996 1995 1994 1993 1992
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............ 2.03 2.24 2.12 3.47 1.31 1.20
Ratio of funds from operations to fixed
charges..................................... 3.25 3.11 2.99 4.65 1.82 1.65
</TABLE>
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<PAGE> 22
Ratio of earnings to fixed charges represents income before extraordinary
item plus fixed charges to fixed charges (principally interest and amortization
of deferred financing costs). Ratio of funds from operations to fixed charges
represents the ratio of funds from operations plus fixed charges to fixed
charges. Funds from operations, as used in the above table and as defined by the
National Association of Real Estate Investment Trusts, means net income
excluding gains (or losses) from debt restructuring and sales of property, plus
certain depreciation and amortization. Management believes that funds from
operations is an important and widely used measure of the operating performance
of REITs which provides a relevant basis for comparison among REITs. Funds from
operations (i) does not represent cash flow from operations as defined by
generally accepted accounting principles, (ii) should not be considered an
alternative to net income as a measure of operating performance or to cash flows
from operating, investing and financing activities and (iii) is not an
alternative to cash flows as a measure of liquidity. The ratios for 1993 include
the ratio for certain predecessors of the Company and the Operating Partnership.
The ratios for 1992 represent the ratios of the same predecessors. To date, the
Company has not issued any Preferred Stock. Consequently, the ratios of earnings
to combined fixed charges and preferred stock dividends would not be any
different from the ratios of earnings to fixed charges shown above.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general term and provisions of the
Indenture under which the Debt Securities are to be issued by the Operating
Partnership. The particular terms of the Debt Securities will be set forth in a
Prospectus Supplement relating to such Debt Securities.
The Debt Securities may be issued by the Operating Partnership, and will be
either (i) non-convertible investment grade Debt Securities or (ii)
non-convertible Debt Securities that are fully and unconditionally guaranteed
by, and are accompanied by Guarantees of, the Company. The Debt Securities will
be issued pursuant to indentures (each an "Indenture") between the Operating
Partnership and a trustee named in the Indenture (the "Trustee"). The form of
each Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time and is available for inspection as described
above under "Available Information." Each Indenture will be dated as of a date
on or prior to the issuance of the Debt Securities to which it relates. The
Indentures are subject to, and governed by, the Trust Indenture Act of 1939, as
amended (the "TIA"). The statements made hereunder relating to the Indentures
and the Debt Securities to be issued thereunder are summaries of certain
provisions thereof, do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indentures
and the Debt Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership.
Section 301 of the Indenture provides that the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time in or pursuant to authority granted
by the Company and ROC, as general partners of the Operating Partnership, or
indentures supplemental to the Indenture. Prior to the issuance of Debt
Securities of any series, any or all of the following, as applicable (each of
which (except for the matters set forth in clauses (1), (2) and (13) below), if
so provided, may be determined from time to time by the Operating Partnership
with respect to unissued Debt Securities of or within the series when issued
from time to time) and will be set forth in the Prospectus Supplement relating
to the series of Debt Securities:
(1) the title of the Debt Securities of or within the series (which shall
distinguish the Debt Securities of such series from all other series in Debt
Securities);
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<PAGE> 23
(2) any limit upon the aggregate principal amount of the Debt Securities of
or within the series that may be authenticated and delivered under the
Indenture;
(3) the percentage of the principal amount at which the Debt Securities of
the series will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of acceleration
of maturity thereof;
(4) the date or dates, or the method by which such date or dates will be
determined, on which the principal of the Debt Securities of or within the
series shall be payable and the amount of principal payable thereon;
(5) the rate or rates at which the Debt Securities of or within the series
shall bear interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest Payment
Dates on which such interest will be payable and the Regular Record Date, if
any, for the interest payable on any Debt Security on any Interest Payment Date,
or the method by which such date shall be determined, and the basis upon which
interest shall be calculated if other than that of a 360-day year consisting of
twelve 30-day months;
(6) the place or places, if any other than or in addition to the Borough of
Manhattan, the City of New York or the City of Chicago, where the principal of
(and premium or Make-Whole Amount, if any) and interest, if any, on Debt
Securities of or within the series may be surrendered for registration of
transfer or exchange and notices or demands to or upon the Operating Partnership
in respect of the Debt Securities of or within the series and the Indenture may
be served;
(7) the period or periods within which, the price or prices (including the
premium or Make-Whole Amount, if any) at which, and other terms and conditions
upon which Debt Securities of or within the series may be redeemed in whole or
in part, at the option of the Operating Partnership, if the Operating
Partnership is to have the option;
(8) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase Debt Securities of or within the series pursuant to any sinking fund
or analogous provision or at the option of a Holder thereof, and the period or
periods within which or the date or dates on which, the price or prices at
which, and other terms and conditions upon which Debt Securities of or within
the series shall be redeemed, repaid or purchased, in whole or in part, pursuant
to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Debt Securities of or within the series
shall be issuable;
(10) if other than the Trustee, the identity of each Security Registrar
and/or Paying Agent;
(11) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of or within the series that shall be
payable upon declaration of acceleration of the maturity thereof pursuant to
Section 502 of the Indenture or the method by which such portion shall be
determined;
(12) whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on the Debt Securities of or
within the series may be determined with reference to an index, formula or other
method (which index, formula or method may be based, without limitation, on one
or more currencies, currency units, composite currencies, commodities, equity
indices or other indices), and the manner in which such amounts shall be
determined;
(13) provisions, if any, granting special rights to the Holder of Debt
Securities of or within the series upon the occurrence of such events as may be
specified;
(14) any deletions from, modifications of or additions to the Events of
Default or covenants of the Operating Partnership with respect to Debt
Securities of or within the series, whether or not such Events of Default or
covenants are consistent with the Events of Default or covenants set forth in
the Indenture;
(15) whether any Debt Securities of or within the series are to be issuable
initially in temporary global form and whether any Debt Securities of or within
the series are to be issuable in permanent global form and,
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<PAGE> 24
if so, whether beneficial owners of interests in any such permanent global Debt
Security may exchange such interests for Debt Securities of such series and of
like tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, if other than in the manner provided in
Section 305 of the Indenture, and, if Debt Securities of or within the series
are to be issuable as a global Debt Security, the identity of the depositary for
such series;
(16) the date as of which any temporary global Debt Security representing
Outstanding Securities of or within the series shall be dated if other than the
date of original issuance of the first Debt Security of the series to be issued;
(17) the Person to whom any interest on any Debt Security of the series
shall be payable, if other than the Person in whose name that Debt Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, and the extent to which, or the
manner in which, any interest payable on a temporary global Debt Security on an
Interest Payment Date will be paid if other than in the manner provided in
Section 304 of the Indenture;
(18) the applicability, if any, of Sections 1402 and/or 1403 of the
Indenture to the Debt Securities of or within the series and any provisions in
modification of, in addition to or in lieu of any of the provisions of Article
Fourteen;
(19) if the Debt Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Debt Security
of such series) only upon receipt of certain certificates or other documents or
satisfaction of other conditions, then the form and/or terms of such
certificates, documents or conditions;
(20) if the Debt Securities of or within the series are to be issued upon
the exercise of debt warrants, the time, manner and place for such Debt
Securities to be authenticated and delivered;
(21) the extent to which the Debt Securities of or within the series are
subordinated to other indebtedness; and
(22) any other terms of the Debt Securities of or within the series or of
any Guarantees issued concurrently with such Debt Securities not inconsistent
with the provisions of the applicable Indenture.
All Debt Securities of any one series shall be substantially identical,
except, in the case of Debt Securities issued in global form, as to denomination
and except as may otherwise be provided in or pursuant to such resolution of the
Board of Directors or in any indenture supplemental to the Indenture. All Debt
Securities of any one series need not be issued at the same time and unless
otherwise provided, a series may be reopened, without the consent of the
Holders, for issuances of additional Debt Securities of such series.
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into any other
entity, provided that in any such case, (i) either the Operating Partnership
shall be the continuing entity, or the successor entity (if any other than the
Operating Partnership) shall be an entity organized and existing under the laws
of the United States of America or a State thereof and such successor entity
shall expressly assume the due and punctual payment of the principal of and any
interest (including all Additional Amounts, if any) on all of the Debt
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indenture to be
performed by the Operating Partnership by supplemental indenture, satisfactory
to the Trustee, executed and delivered to the Trustee by such entity and (ii)
immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Operating Partnership or any
Subsidiary as a result thereof as having been incurred by the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or the lapse of time, or both, would
become an Event of Default, shall have occurred and be continuing and (iii) an
Officers' Certificate and an Opinion of Counsel covering such conditions shall
be delivered to the Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "Consolidation, Merger, Sale, Lease
or Conveyance" the Operating Partnership will do or cause to be done all things
necessary to preserve and keep in full force and
7
<PAGE> 25
effect its existence, rights and franchises; provided, however, that Operating
Partnership shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Operating Partnership, and that the loss thereof is not
disadvantageous in any material respect to the Holders.
Payment of Taxes and Other Claims. The Operating Partnership, will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Operating Partnership or any Subsidiary or upon the income,
profits or property of the Operating Partnership or any Subsidiary, and (ii) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Operating Partnership or any Subsidiary;
provided, however, that the Operating Partnership shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings.
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any installment of interest or Additional Amounts on
any Debt Security of such series; (ii) default in the payment of the principal
of (or premium, if any, on) any Debt Security of such series at its maturity;
(iii) default in making any sinking fund payment as required for any Debt
Security of such series; (iv) default in the performance of any other covenant
or warranty of the Issuer contained in the applicable Indenture (other than a
covenant added to such Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), such default having
continued for 60 days after written notice as provided in such Indenture; (v)
default in the payment of an aggregate principal amount exceeding a specified
dollar amount of any evidence of indebtedness (including a default with respect
to Debt Securities of any series other than that series) of the Issuer (or by
any Subsidiary, the repayment of which the Issuer has guaranteed or for which
the Issuer is directly responsible or liable as obligor or guarantor) or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (vi)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Issuer or any Significant Subsidiary
(as hereinafter defined) or any of their respective property; and (vii) any
other event of default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Issuer.
If an event of default under the Indentures with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all of the Debt Securities
of that series to be due and payable immediately by written notice thereof to
the Issuer (and to the applicable Trustee if given by the holders). However, at
any time after such a declaration of acceleration with respect to Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) has been made, but before a judgment
or decree for payment of the money due has been obtained by the applicable
Trustee, the holders of not less than a majority in principal amount of
outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) the Issuer shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium, if any) and interest, if any, on the Debt Securities of such
series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (ii) all events of default, other than
the non-payment of accelerated principal (or
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<PAGE> 26
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) have been cured or waived as provided
in the applicable Indenture. Each Indenture also provides that the holders of
not less than a majority in principal amount of the outstanding Debt Securities
of any series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be) may waive any past default with respect to such
series and its consequences, except a default (i) in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or (ii) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security affected thereby.
The Trustee is required to give notice to the Holders of the Debt
Securities within 90 days of a default under the Indenture; provided, however,
that the Trustee may withhold such notice (except a default in the payment of
the principal of (or the Make-Whole Amount, if any) or interest on any Debt
Securities of any series or in the payment of any sinking fund installment with
respect to Debt Securities of such series if the Responsible Officers of the
Trustee in good faith consider such withholding to be in the interest of such
Holders of the Debt Securities; and provided further that in the case of any
default or breach of the character specified in Section 501(iv) of the Indenture
with respect to the Debt Securities, no such notice to Holders shall be given
until at least 60 days after the occurrence thereof.
The Indenture provides that no Holders of the Debt Securities may institute
any proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, unless (i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default with respect to the Securities of
that series; (ii) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder; (iii) such Holder or Holders have offered to the
Trustee indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with such request; (iv)
the Trustee for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during such
60-day period by the Holders of a majority in principal amount of the
Outstanding Securities of that series; it being understood and intended that no
one or more of such Holders shall have any right in any manner whatsoever by
virtue of, or by availing to, any provision of the Indenture to affect, disturb
or prejudice the rights of any other of such Holders, to obtain or to seek to
obtain priority or preference over any other of such Holders or to enforce any
right under the Indenture, except in the manner herein provided and for the
equal and ratable benefit of all such Holders.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Note affected thereby, (a) change
the Stated Maturity of the principal of (or the Make-Whole Amount, if any), or
any interest on, any such Debt Security; (b) reduce the principal amount of, or
the rate or amount of interest on, or any Make-Whole Amount payable on
redemption of, any such Debt Security; (c) change the Place of Payment, or the
coin or currency, for payment of principal of (or the Make-Whole Amount, if any)
or interest on, any such Debt Security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any such Debt Security
on or after the Stated Maturity thereof; (e) reduce the percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Note.
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by the Operating Partnership
with certain covenants in the Indenture.
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<PAGE> 27
The Indenture also contains provisions permitting the Operating Partnership
and the Trustee, without the consent of any Holders of the Debt Securities, to
enter into supplemental indentures, in form satisfactory to the Trustee, for any
of the following purposes: (i) to evidence the succession of another Person to
the Operating Partnership and the assumption by any such successor of the
covenants of the Operating Partnership contained in the Indenture and in the
Debt Securities; (ii) to add to the covenants of the Operating Partnership for
the benefit of the Holders of all or any series of Debt Securities (and if such
covenants are to be for the benefit of less than all series of Debt Securities,
stating that such covenants are expressly being included solely for the benefit
of such series) or to surrender any right or power conferred upon the Operating
Partnership by the Indenture; (iii) to add any additional Events of Default for
the benefit of the Holders of all or any series of Debt Securities (and if such
Events of Default are to be for the benefit of less than all series of Debt
Securities, stating that such Events of Default are expressly being included
solely for the benefit of such series); provided, however, that in respect of
any such additional Events of Default such supplemental indenture may provide
for a particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such default or may limit the remedies available to
the Trustee upon such default or may limit the right of the Holders of a
majority in aggregate principal amount of that or those series of Debt
Securities to which such additional Events of Default apply to waive such
default; (iv) to add to or change any of the provisions of the Indenture to
provide that Bearer Debt Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal of, or any
premium or interest on, Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities to be
issued in exchange for Bearer Securities of other authorized denominations or to
permit or facilitate the issuance of Debt Securities in uncertificated form;
provided that any such action shall not adversely affect the interests of the
Holders of Debt Securities of any series or any related coupons in any material
respect; (v) to change or eliminate any of the provisions of the Indenture;
provided that any such change or elimination shall become effective only when
there is no Debt Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit of
such provision; (vi) to secure the Debt Securities; (vii) to establish the form
or terms of Debt Securities of any series as permitted by the Indenture; (viii)
to evidence and provide for the acceptance of appointment under the Indenture by
a successor Trustee with respect to the Debt Securities of one or more series
and to add to or change any of the provisions of the Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee; (ix) to cure any ambiguity, to correct or
supplement any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to matters
or questions arising under the Indenture which shall not be inconsistent with
the provisions of the Indenture; provided such provisions shall not adversely
affect the interests of the Holders of Debt Securities of any series or any
related coupons in any material respect; or (x) to supplement any of the
provisions of the Indenture to such extent as shall be necessary to permit or
facilitate the defeasance and discharge of any series of Debt Securities
pursuant to Sections 1401, 1402 and 1403 of the Indenture; provided that any
such action shall not adversely affect the interests of the Holders of Debt
Securities of such series and any related coupons or any other series of Debt
Securities in any material respect.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership may discharge certain obligations to Holders of Debt Securities that
have not already been delivered to the Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
Trustee, in trust, funds in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be.
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, the Operating Partnership may elect either (a) to defease and be
discharged from any and all obligations with respect to the Debt Securities
(except for the obligations to register the transfer or exchange of the Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in
10
<PAGE> 28
respect of the Debt Securities and to hold moneys for payment in trust
("Defeasance") or (b) to be released from its obligations with respect to the
Debt Securities under provisions of the Indenture described under "Certain
Covenants," and its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event or Default with respect to the Debt Securities ("Covenant Defeasance"), in
either case upon the irrevocable deposit by the Operating Partnership with the
Trustee, in trust, of cash or Government Obligations (as deemed below), or both,
which through the scheduled payment of principal and interest in accordance with
their terms will provide money in an amount sufficient to pay the principal of
and interest on the Debt Securities on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of the Debt Securities will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service (the "IRS")
or a change in applicable United States Federal income tax laws occurring after
the date of the Indenture.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
In the event the Operating Partnership effects covenant defeasance and the
Debt Securities are declared due and payable because of the occurrence of any
Event of Default other than an Event of Default with respect to provisions of
the Indenture which as a result of such covenant defeasance would no longer be
applicable to the Debt Securities, the cash and Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Debt Securities at the time of the acceleration resulting
from such Event of Default. However, the Operating Partnership would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
GUARANTEES
If the Operating Partnership issues any Debt Securities that are rated
below investment grade at the time of issuance, the Company will fully and
unconditionally guarantee, on a senior or subordinated basis, the due and
punctual payment of principal of or premium, if any, and interest on such Debt
Securities, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
The applicability and terms of any such Guarantees relating to a series of Debt
Securities will be set forth in the Prospectus Supplement relating to such Debt
Securities.
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DESCRIPTION OF COMMON STOCK
STOCK -- GENERAL
The Company's Articles of Incorporation, as amended and supplemented (the
"Charter"), provide that the Company may issue up to 92,000,000 shares of
capital stock, currently consisting of 90,000,000 shares of Common Stock (par
value $.01 per share) and 2,000,000 shares of Preferred Stock (par value $.01
per share), of which, at April 30, 1997, 25,175,114 shares of Common Stock were
issued and outstanding. Up to 2,198,000 shares of Common Stock have been
reserved for issuance under the Company's stock option and incentive plans. In
addition, 2,756,057 shares of Common Stock are reserved for issuance upon the
conversion of outstanding units of limited partner interest ("OP Units") in the
Operating Partnership. The Board of Directors has the authority to classify or
reclassify any authorized but unissued shares of capital stock into one or more
classes or series (including classes or series of preferred stock) and to
establish the terms of such classes or series. Under Maryland law, stockholders
generally are not liable for a corporation's debts or obligations. The following
descriptions do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the more complete descriptions thereof set forth
in the following documents: (i) the Charter and (ii) the Company's By-Laws (the
"By-Laws"), which documents are exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or Depositary Shares or upon the
exercise of Warrants issued by the Company. This description is in all respects
subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Charter and its By-laws. The Common Stock is listed
on the NYSE under the symbol "CPJ." The transfer agent and registrar for the
Common Stock is The Huntington National Bank.
All shares of Common Stock offered hereby will, when issued, be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of stock and to the provisions of the Company's
Charter regarding "Excess Stock" (as defined below), holders of shares of Common
Stock will be entitled to receive dividends on such stock if, as and when
authorized and declared by the Board of Directors of the Company out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company. The Company currently pays
quarterly dividends to holders of Common Stock.
Subject to the provisions of the Company's Charter regarding Excess Stock,
each outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, and, except as otherwise required
by law or except as provided with respect to any other class or series of stock,
the holders of such shares will possess the exclusive voting power. In the
election of directors, each outstanding shares of Common Stock entitles the
holder to one vote for each director to be elected, but there is no cumulative
voting in the election of directors, which means that the holders of a majority
of the outstanding shares of Common Stock can elect all of the directors then
standing for election and the holders of the remaining shares will not be able
to elect any directors.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
Subject to the provisions of the Company's Charter regarding Excess Stock,
shares of Common Stock will have equal dividend, distribution, liquidation and
other rights, and will have no preference, appraisal or exchange rights.
Pursuant to Maryland law, a corporation generally cannot dissolve, amend
its Charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary
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course of business unless approved by the affirmative vote of stockholders
holding at least two-thirds of the shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all of the votes to be cast
on the matter) is set forth in the corporation's Charter. The Company's Charter
does not provide for a lesser percentage in such situations.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), shares of Common Stock must be beneficially owned
by 100 or more persons during at least 335 days of the taxable year of 12 months
(other than the first year) or during a proportionate part of a shorter taxable
year. Also, not more than 50% of the value of the outstanding shares of capital
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year (other than the first year) or during a proportionate part of a
shorter taxable year. (See "Federal Income Tax Considerations").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions,
provides that, except as otherwise provided below, no holder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than 7%
(the "Ownership Limit") of the number or value of the issued and outstanding
stock of the Company (or such greater percentage up to 9.8% as shall be
determined by the Board of Directors). The Company's Board of Directors, upon
receipt of a ruling from the IRS and upon such other conditions as the Board of
Directors may direct, may also exempt a proposed transferee from the Ownership
Limit. As a condition of such exemption, the intended transferee must give
written notice to the Company of the proposed transfer no later than the
fifteenth day prior to any transfer which, if consummated, would result in the
intended transferee owning shares in excess of the Ownership Limit. The Board of
Directors of the Company may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Company's status as a REIT. Any transfer of shares of
Common Stock or Preferred Stock that would (i) create a direct or indirect
ownership of shares of stock in excess of the Ownership Limit, (ii) result in
the shares of stock being owned by fewer than 100 persons, or (iii) result in
the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the shares. The foregoing restrictions on transferability and ownership will
not apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.
The Company's Charter excludes certain predecessors of the Company (the
"Chateau Contributing Parties") from the Ownership Limit. Each of John A. Boll
and J. Peter Ministrelli (and certain persons related to each of them) is exempt
from the Ownership Limit up to a maximum level of 14.1% and 10.0%, respectively.
Any purported transfer of shares that would result in a person owning
shares of capital stock in excess of the Ownership Limit or cause the Company to
become "closely held" under Section 856(h) of the Code that is not otherwise
permitted as provided above will constitute excess shares ("Excess Stock"), and
shall be deemed to have been transferred to such person or persons (who are
unaffiliated with the Company and the purported transferee), as designated from
time to time by the Company, who shall serve as Trustee or Co-Trustees, as the
case may be, of a Trust for the exclusive benefit of one or more organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code, as Beneficiary of
such Trust. While this Excess Stock is held in trust, any dividends or other
distributions shall be paid to the Trustee and the Trustee shall be deemed to
hold an irrevocable proxy to vote the shares. Subject to the Ownership Limit,
the Excess Stock may be retransferred by the trustee to any person (if the
Excess Stock would not be Excess Stock in the hands of such person). The
Purported Beneficial Transferee shall receive the lesser of (i) the price per
share which such Purported Beneficial Transferee paid for the Common Stock or
Preferred Stock, as the case may be, in the purported Transfer that resulted in
the Excess Stock or, if the Purported Beneficial Transferee did not give value
for such Excess Stock (through a gift, devise or other transaction), a price per
share equal to the Market Price for the shares of the Excess Stock on the date
of the purported Transfer that resulted in the Excess Stock, and (ii) the price
per share received by the Trustee from the sale or other disposition of the
shares of
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Excess Stock held by the Trust. Any proceeds in excess of the amount payable to
the Purported Beneficial Transferee shall be payable to the Beneficiary.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Stock may be deemed, at the option of the Company, to
have acted as an agent on behalf of the Company in acquiring such Excess Stock
and to hold such Excess Stock on behalf of the Company.
In addition, Excess Stock shall be deemed to have been offered for sale to
the Company, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Excess Stock (or, in
the case of a devise or gift, the Market Price at the time of such devise or
gift) and (ii) the Market Price of the Common Stock or Preferred Stock to which
such Excess Stock relates on the date the Company, or its designee, accepts such
offer. The Company shall have the right to accept such offer for a period of 90
days after the later of (i) the date of the Transfer which resulted in such
Excess Stock and (ii) the date the Board of Directors determines in good faith
that a Transfer resulting in Excess Stock has occurred, if the Company does not
receive a notice of such Transfer.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
All persons who own directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding shares of stock of the Company must give written
notice of such ownership to the Company by January 31 of each year. In addition,
each stockholder shall upon demand be required to disclose to the Company in
writing such information with respect to the direct, indirect and constructive
ownership of shares of Common Stock or Preferred Stock as the Board of Directors
deems reasonably necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock or Preferred Stock (if issued and outstanding) might receive a
premium for their shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interest.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Charter, the Company currently has authority to issue 2,000,000
shares of Preferred Stock, none of which is outstanding as of the date of this
Prospectus. In addition, under the Charter the Board of Directors has authority
to classify or reclassify any authorized but unissued shares of any class of
capital stock into classes or series of preferred stock. Prior to issuance of
shares of each series, the Board of Directors is required by the Maryland
General Corporation Law (the "MGCL") and the Charter to fix for each series,
subject to the provisions of the Charter, the terms, preferences, conversion or
other rights, voting powers, restrictions (including restrictions on transfers
of shares), limitations as to distributions, qualifications and terms or
conditions of redemption, and to file articles supplementary to the Charter (the
"Articles Supplementary") reflecting such terms, preferences and other rights.
The Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares over the then-prevailing
market price or might believe to be otherwise in their best interest.
The Preferred Stock will, upon issuance against full payment of the
purchase price therefor, will be fully paid and nonassessable and will have no
preemptive rights (except as may be granted by the Board of Directors at the
time of issuance). The specific terms of a particular class or series of
Preferred Stock will be described in the Prospectus Supplement relating to that
class or series, including a Prospectus Supplement providing that Preferred
Stock may be issuable upon the exercise of Warrants issued by the Company. The
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description of Preferred Stock set forth below and the description of the terms
of a particular class or series of Preferred Stock set forth in a Prospectus
Supplement do not purport to be complete and are qualified in their entirety by
reference to the articles supplementary relating to that class or series. The
discussion of Excess Stock is also applicable to Preferred Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and the By-Laws and any Articles
Supplementary designating terms of a series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for the specific terms thereof, including, where
applicable, the following:
1. The title of such Preferred Stock;
2. The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
3. The distribution rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Stock;
4. Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which distributions on such Preferred
Stock shall accumulate;
5. The provision for sinking fund, if any, for such Preferred Stock;
6. The provision for redemption, if applicable, of such Preferred
Stock;
7. Any listing of such Preferred Stock on any securities exchange;
8. The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock, including the
conversion price (or manner of calculation thereof);
9. Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the
status of the Company as a REIT;
10. The relative ranking and preferences of such Preferred Stock as to
distribution rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
11. Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series
of Preferred Stock as to distribution rights and rights upon
liquidation, dissolution or winding up of the affairs of the
Company;
12. Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
13. Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to distribution rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to Common Stock (and
Excess Stock arising from Common Stock) of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to distribution
rights and rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such
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equity securities rank senior to the Preferred Stock with respect to
distribution rights or rights upon liquidation, dissolution or winding up of the
Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Common Stock into which the share of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such class or series of Preferred Stock or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such class or series of Preferred
Stock.
RESTRICTIONS ON TRANSFER
The provisions contained in the Charter restricting certain transfers and
limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will affect any shares of Preferred Stock that may
from time to time be issued by the Company. See "Description of Common
Stock -- Restrictions on Transfer."
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of particular class or series of Preferred Stock,
as specified in the applicable Prospectus Supplement. Shares of a class or
series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (the "Preferred Stock Depositary") and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ("Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
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In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted into
Excess Stock or otherwise converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related class or series of Preferred Stock on the basis
of the proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such shares of
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of shares of Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of the Depositary Shares representing shares of
such class or series of Preferred Stock so redeemed, provided the Company shall
have paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except the
right to receive any moneys payable upon such redemption and any money or other
property to which the holders of such Depositary Receipts were entitled upon
such redemption upon surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series
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of Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by the Preferred Stock Depositary in order to enable the
Preferred Stock Depositary to do so. The Preferred Stock Depositary will abstain
from voting the amount of Preferred Stock represented by such Depositary Shares
to the extent it does not receive specific instructions from the holders of
Depositary Receipts evidencing such Depositary Shares. The Preferred Stock
Depositary will not be responsible for any failure to carry out any instruction
to vote, or for the manner or effect of any such vote made, as long as any such
action or non-action is in good faith and does not result from negligence or
willful misconduct of the Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status as
a REIT. See "Description of Common Stock -- Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the applicable Preferred Stock Depositary with written
instructions to the Preferred Stock Depositary to instruct the Company to cause
conversion of a class or a series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, other shares of a class or series of Preferred Stock (including
Excess Stock) of the Company or other shares of stock, and the Company has
agreed that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a Depositary Receipt or Receipts will be issued for any Depositary Shares
not to be converted. No fractional shares of Common Stock will be issued upon
conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreement, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of any outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series or class of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
will deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of
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whole or fractional shares of Preferred Stock as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by Preferred Stock Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
preserve the Company's status as a REIT, then the Company will use its best
efforts to list each class or series of Preferred Stock issued upon surrender of
the related Depositary Shares on a national securities exchange. In addition,
the Deposit Agreement will automatically terminate if (i) all outstanding
Depositary Shares have been redeemed, (ii) there shall have been a final
distribution in respect of each class or series of Preferred Stock in connection
with any liquidation, dissolution or winding up of the Company and such
distribution shall have been distributed to the holders of the Depositary
Receipts evidencing the Depositary Shares representing such class or series of
Preferred Stock or (iii) each share of the related Preferred Stock shall have
been converted into stock of the Company not so represented by Depositary
Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and have a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
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RESTRICTIONS ON TRANSFER
The provisions contained in the Charter restricting certain transfers and
limiting the beneficial ownership, directly or indirectly, of the Company's
outstanding capital stock will affect any Depositary Shares that may from time
to time be issued by the Company. See "Description of Common
Stock -- Restrictions on Transfer."
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's stock option plans). The Company may issue Warrants for the
purchase of Common Stock. Warrants may be issued independently or together with
any other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant Agreement")
to be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any provisions of the Warrants offered hereby. Further terms of the
Warrants and the applicable Warrant Agreements will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, terms and number of shares of
Common Stock purchasable upon exercise of such Warrants; (5) the designation and
terms of the Offered Securities, if any, with which such Warrants are issued and
the number of such Warrants issued with each such Offered Security; (6) the
date, if any, on and after which such Warrants and the related Common Stock will
be separately transferable; (7) the price at which each share of Common Stock
purchasable upon exercise of such Warrants may be purchased; (8) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (9) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (10) information with respect to
book-entry procedures, if any; and (11) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of material federal income tax considerations
relevant to the Company is based upon current law, and is not intended as tax
advice. The following discussion is not exhaustive of all possible tax
considerations, and does not give a detailed discussion of any state, local, or
foreign tax considerations. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective holder of Offered
Securities in light of his or her particular investment or tax circumstances or
to certain types of stockholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. The tax treatment of a
holder of any Offered Securities will also vary depending upon the terms of the
specific securities acquired by such holder. Additional federal income tax
considerations relevant to holders of the Offered Securities other than Common
Stock may be provided in the applicable Prospectus Supplement relating thereto.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations under the
Code, the legislative history of the Code, existing administrative rulings and
practices of the IRS, and judicial decisions. No assurance can be given that
legislative, judicial, or administrative changes will not affect the accuracy of
any statements in this Prospectus with respect to transactions entered into or
contemplated prior to the effective date of such changes.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected to be taxed as a REIT under Sections 856
through 860 of the Code and applicable Treasury Regulations, commencing with its
taxable year ended December 31, 1993. The Company believes that it was organized
and has operated in a manner so as to qualify for taxation as a REIT under the
applicable provisions of the Code, and the Company intends to continue to
operate in such a manner. No assurance can be given, however, that the Company
has operated in a manner so as to qualify or will operate in a manner so as to
remain qualified as a REIT. Rogers & Wells, counsel to the Company ("Counsel"),
has rendered an opinion that commencing with its taxable year ended December 31,
1993, the Company was organized in conformity with the requirements for
qualification and taxation as a REIT, and the Company's proposed method of
operation will enable it to continue to so qualify. It must be emphasized that
Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters. In addition,
Counsel's opinion is based upon factual representations of the Company
concerning its business and properties and the business and properties of the
Operating Partnership. Unlike a tax ruling, an opinion of counsel is not binding
upon the IRS and no assurance can be given that the IRS will not challenge the
status of the Company as a REIT. Moreover, such qualification and taxation as a
REIT depend upon the Company's ability to meet, through actual annual operating
results, distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code, discussed below, the results of
which will not be reviewed by Counsel. Accordingly, no assurance can be given
that the actual results of the Company's operations for any taxable year will
satisfy such requirements. See "-- Failure to Qualify."
The following is a description of the material aspects of the federal
income tax consequences to the Company and its stockholders of the treatment of
the Company as a REIT. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
In any year in which the Company qualifies as a REIT, it generally will not
be subject to federal corporate income tax on that portion of its net income
which is distributed currently to stockholders. However, the Company will be
subject to federal income or excise tax as follows: (i) the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains; (ii) under certain circumstances, the Company
may be subject to the "alternative minimum tax" on its items of tax preference,
if any; (iii) if the Company has (1) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
a foreclosure or otherwise on default of a loan secured by the property) that is
held primarily for sale to customers in the ordinary course of business or (2)
other nonqualifying net income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income; (iv) if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than dispositions of foreclosure property,
and, as a result of the Taxpayer Relief Act of 1997, enacted August 5, 1997 (the
"Taxpayer Relief Act"), effective for the Company's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion)
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax; (v) if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below), and
has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability; (vi) if the Company should fail to distribute with respect to
each calendar year at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain
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net income for such year, and (3) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; (vii) if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation and the Company
subsequently recognizes gain on the disposition of such asset during the 10-year
period (the "Recognition Period") beginning on the date on which the asset was
acquired by the Company (or the Company first qualified as a REIT), then the
excess of (1) the fair market value of the asset as of the beginning of the
applicable Recognition Period, over (2) the REIT's adjusted basis in such asset
as of the beginning of such Recognition Period will be subject to tax at the
highest regular corporate rate (pursuant to Treasury Regulations issued by the
IRS which have not yet been promulgated).
Organizational Requirements. The Code defines a REIT as a corporation,
trust, or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that would be taxable as
a domestic corporation but for Sections 856 through 859 of the Code; (iv) that
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year not more than 50%
in value of the outstanding stock of which is owned, directly or indirectly
(through the application of certain attribution rules), by five or fewer
individuals (as defined in the Code to include certain entities); and (vii) that
has the calendar year as its taxable year. In addition, certain other tests,
described below, regarding the nature of its income and assets must also be
satisfied.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to be
taxed as a REIT. In addition, the Company intends to comply with Treasury
regulations requiring it to ascertain the actual ownership of its outstanding
shares. The Taxpayer Relief Act eliminates the rule that a failure to comply
with these regulations will result in a loss of REIT status. Instead, a failure
to comply with the regulations will result in a fine. This provision will be
effective for the Company's taxable year ending December 31, 1998.
As a result of the Merger, ROC became a subsidiary of Chateau, with the
intent that both the Company and ROC would continue to qualify as REITs for the
purposes of the Code. The Company and ROC believe that they have satisfied and
will continue to satisfy the requirements set forth in (i) through (vii) above.
In addition, both the Company and ROC's Charters include certain restrictions
regarding transfer of the their shares. These restrictions are intended (among
other things) to assist the Company and ROC in continuing to satisfy the share
ownership requirements described in conditions (v) and (vi) above. See
"Description of Common Stock -- Restrictions on Transfer." Moreover, to evidence
compliance with these requirements, a REIT must maintain records which disclose
the actual ownership of its outstanding stock. In fulfilling its obligations to
maintain records, both the Company and ROC have and will continue to demand
written statements each year from the record holders of designated percentages
of their stock disclosing the actual owners of such Shares. A list of those
persons failing or refusing to comply with such demand is maintained as a part
of the their respective records. A stockholder failing or refusing to comply
with such written demands must submit with his tax return a similar statement
disclosing the actual ownership of the shares of stock and certain other
information.
The Company may have one or more "qualified REIT subsidiaries." A
corporation that is a "qualified REIT subsidiary" is not treated as a separate
corporation for federal income tax purposes, and all assets, liabilities and
items of income, deduction, and credit of a "qualified REIT subsidiary" are
treated as assets, liabilities, and items of the REIT. Thus, the Company's
"qualified REIT subsidiaries" will not be subject to federal corporate income
taxation, although they may be subject to state or local taxation. (A qualified
REIT subsidiary is a corporation all of the capital stock of which has been
owned by the REIT from the commencement of such corporate existence. The
Taxpayer Relief Act eliminates the requirement that a
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REIT own a qualified REIT subsidiary from the commencement of its corporate
existence. This change will be effective for the Company's taxable year ending
December 31, 1998.)
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company and ROC's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership, CCF, L.P. (the "Financing Partnership") and other
partnerships in which the Operating Partnership holds an interest (the "Subtier
Partnerships") should be treated as assets, liabilities and items of income of
the Company and ROC, to the extent of their respective interest therein, for
purposes of applying the requirements described herein. See "-- Tax Aspects of
the Company's Investments in Partnerships."
Asset Tests. For the Company and ROC to maintain qualification as REITs,
at the close of each quarter of its taxable year, each company must satisfy two
tests relating to the nature of its assets. First, at least 75% of the value of
such company's total assets must be represented by real estate assets (including
(i) real property, (ii) stock or debt instruments purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of such
Company and held for not more than one year following the receipt of such
proceeds, (iii) interests in mortgages on real property, and (iv) shares in
other REITs), cash, cash items (including receivables) and government
securities. Second, although the remaining 25% of each Company's assets
generally may be invested without restriction, securities in this class may not
exceed either (i) 5% of the value of such Company's total assets as to any one
non-governmental issuer, or (ii) 10% of the outstanding voting securities of any
one issuer.
The Company believes that it and ROC has, and will continue to be able to
comply with the asset tests. More than 75% of the assets of each of the Company
and ROC are real estate assets. In addition, neither Company holds any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary or another qualified REIT, or
securities of any one issuer exceeding 5% of the value of its gross assets. The
securities of ROC held by the Company will not cause the Company to violate the
asset tests as long as ROC qualifies as a REIT. If, however, ROC fails to
qualify as a REIT for any reason, the Company would fail the asset tests because
such securities will no longer qualify as real estate assets for purposes of the
75% asset test and the Company owns more than 10% of ROC's voting securities.
After initially meeting the asset tests at the close of any quarter,
neither the Company nor ROC will lose its status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter as may be required to cure any noncompliance. However,
there can be no assurance that such action will always be successful.
Income Tests. For the Company and ROC to maintain qualification as REITs,
there are three separate percentage tests relating to the sources of each
company's gross income which must be satisfied for each taxable year. First, at
least 75% of each company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from (i) rents from real
property (except as modified below); (ii) interest on obligations secured by
mortgages on real property or on interests in real property; (iii) gains from
the sale or other disposition of real property, interests in real property and
interests in mortgages on real property, other than gains from property held
primarily for sale to customers in the ordinary course of the Company's trade or
business; (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of taxes
on real property; (vi) income and gain derived from foreclosure property; (vii)
commitment fees received or accrued for entering into agreements to make loans
secured by mortgages on real property or to purchase or lease real property; and
(viii) qualified temporary investment income. Second, at least 95% of each
company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from the same items which qualify under the
75% gross income test, and from dividends, interest and gain from the sale or
disposition of stock or other securities, or from any combination of the
foregoing. Any payments made to the
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Company by a financial institution pursuant to a bona fide interest rate swap or
cap agreement to hedge any variable rate indebtedness incurred or to be incurred
to acquire or carry real property, or interests in real property, and any gain
from the sale or other disposition of such agreement also will be included.
Third, each company must derive less than 30% of its gross income for each
taxable year from the sale or other disposition of (i) real property (including
interests in real property and interests in mortgages on real property) held for
less than four years (other than foreclosure property and property involuntarily
or compulsorily converted), (ii) stock or securities held for less than one
year, and (iii) property in a transaction which is a prohibited transaction. The
Taxpayer Relief Act repeals the 30% gross income test for taxable years
beginning after its enactment on August 5, 1997. Thus, the 30% gross income test
will apply only to the Company's taxable year ending December 31, 1997.
Rents received from a tenant will qualify as "rents from real property" in
satisfying the 75% or the 95% gross income tests described above only if several
conditions (related to the identity of the tenant, the computation of rent
payable and the nature of the property leased) are met. Neither company
anticipates receiving rents in excess of a de minimis amount that fail to meet
these conditions. Finally, for rents received to qualify as rents from real
property, a REIT generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor" which
is adequately compensated from whom the REIT derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the REIT are of a type that a tax exempt organization
can provide to its tenants without causing its rental income to be unrelated
business taxable income under the Code, which includes those services provided
which are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant". The Taxpayer Relief Act provides a de minimis rule for non-customary
services which is effective for taxable years beginning after August 5, 1997. If
the value of the non-customary service income with respect to a property (valued
at not less than 150% of the Company's direct costs of performing such services)
is 1% or less of the total income derived from the property, then all rental
income except the non-customary service income will qualify as "rents from real
property." This provision will be effective for the Company's taxable years
ending December 31, 1998.
The Company believes that it and ROC have, and will continue to satisfy the
gross income tests discussed above. The Company receives a significant amount of
dividends from ROC, which will be qualifying income for purposes of the 95%
gross income test, and for the 75% gross income test so long as ROC qualifies as
a REIT. In addition, the majority of both the Company and ROC's income will be
derived from their interests in the Operating Partnership and Subtier
Partnerships, which income will, for the most part, qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests.
The Operating Partnership will provide certain services with respect to its
properties and any newly acquired manufactured housing community properties. The
Company believes, however, that the services which it provides are usually or
customarily rendered in connection with the rental of space for occupancy only,
and therefore that the provision of such services will not cause the rents
received with respect to any properties to fail to qualify as rents from real
property for purposes of the 75% and 95% gross income tests. Further, the
Company has obtained a private letter ruling from the IRS holding that certain
services and amenities provided through the Operating Partnership will not cause
its distributive share of rents paid by tenants to be excluded from the
definition of rents from real property.
The Operating Partnership will receive fees in exchange for the performance
of certain management and administrative services relating to properties not
owned by the Operating Partnership. Such management and administrative fees are
not qualifying income for purposes of the 75% and 95% gross income tests. The
Company and ROC's share of the aggregate amount of such fees and other
non-qualifying income in any taxable year, however, should not cause either
company to exceed the limits on non-qualifying income under the 75% or 95% gross
income tests.
If the Company or ROC fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company or ROC
would be
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entitled to the benefit of these relief provisions. Even if these relief
provisions apply, a tax would be imposed with respect to certain excess net
income.
Annual Distribution Requirements. In order to qualify as REITs, both the
Company and ROC are required to distribute dividends (other than capital gain
dividends) to its stockholders each year in an amount which equals or exceeds
(A) the sum of (i) 95% of such company's REIT taxable income (computed without
regard to the dividends paid deduction and the REIT's net capital gain) and (ii)
95% of the net income (after tax), if any, from foreclosure property, minus (B)
the sum of certain items of noncash income (including, as a result of the
Taxpayer Relief Act, inter alia, cancellation of indebtedness income and
original issue discount income.) Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
either company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income", as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. Furthermore, if either company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, it will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Both the Company and ROC have made and intend to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. It is
possible that either company, from time to time, may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due primarily to
the expenditure of cash for nondeductible expenses such as principal
amortization or capital expenditures. To avoid any problem with the 95%
distribution requirement, the Company and ROC will closely monitor the
relationship between their REIT taxable income and cash flow and, if necessary,
will borrow funds (or cause the Operating Partnership to borrow funds) in order
to satisfy the distribution requirement.
Under certain circumstances, a REIT may be able to rectify a failure to
meet the distribution requirements by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify. If either the Company or ROC fails to qualify for
taxation as a REIT in any taxable year and the special relief provisions do not
apply, the Company (and ROC if it fails to qualify) will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which it
fails to qualify will not be deductible, nor will they be required to be made.
In such event, to the extent of current and accumulated earnings and profits,
all distributions to stockholders will be taxable as ordinary income and,
subject to certain limitations in the Code, corporate distributees may eligible
for the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company (and ROC if it fails to qualify) also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances either the Company or ROC would be entitled to such statutory
relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN PARTNERSHIPS
General. The Company and ROC hold direct and indirect interests in the
Operating Partnership, the Financing Partnership and the Subtier Partnerships
(together, the "Partnerships").
The Company believes that each of the Partnerships are properly treated as
partnerships for federal income tax purposes. If, however, either the Operating
Partnership, the Financing Partnership and/or a Subtier Partnership was treated
as an association taxable as a corporation, the Company would most likely fail
to qualify as a REIT. See "Federal Income Tax Considerations -- Taxation of the
Company -- Failure to Qualify". Furthermore, in such a situation, any
Partnership treated as a corporation would be subject to corporate income taxes.
Tax Allocations with Respect to the Properties. The Operating Partnership
was originally formed by way of contribution of properties which had appreciated
in value (the "Chateau Properties") at the date of
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contribution. In addition, ROC, contributed or caused to be contributed
properties, which were also appreciated, to the Operating Partnership and
Financing Partnership immediately after the Merger (the "ROC Properties"). When
property is contributed to a partnership in exchange for an interest in the
partnership, the partnership generally takes a carryover basis in that property
for tax purposes equal to the adjusted basis of the contributing partner in the
property, rather than a basis equal to the fair market value of the property at
the time of contribution (this difference is referred to as a "Book-Tax
Difference"). The Company also inherited most or all of the existing Book-Tax
Differences with respect to OP Units previously exchanged by unitholders. The
partnership agreements of the Operating Partnership and the Financing
Partnership require allocations of income, gain, loss and deduction with respect
to contributed properties to be made in a manner consistent with the special
rules in Section 704(c) of the Code and the Treasury Regulations thereunder,
which will tend to eliminate the Book-Tax Differences with respect to the ROC
Properties and the Chateau Properties over the life of the Operating Partnership
and the Financing Partnership. Under these rules, ROC and/or the Company and the
initial contributors of the Chateau Properties who are OP unitholders are
generally allocated lower amounts of depreciation deductions with respect to,
and increased taxable gain on a sale of, the ROC or Chateau Properties,
respectively. However, because of certain technical limitations, the special
allocation rules of Section 704(c) may not always entirely eliminate the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed ROC
Properties in the hands of the Operating Partnership and the Financing
Partnership and the carryover basis of the contributed Chateau Properties in the
hands of the Operating Partnership could cause the Company (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes that it
would be allocated if such properties had a tax basis equal to their fair market
value at the time of acquisition and (ii) to be allocated lower amounts of
taxable loss in the event of the sale of such a property at a book loss less
than the economic or book loss allocated to it as a result of such sale. The
foregoing principles also apply in determining the earnings and profits of the
Company for purposes of determining the portion of distributions taxable as
dividend income. The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
the Company purchased the Chateau and ROC Properties and the OP Units exchanged
at their respective fair market values.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. The Taxpayer Relief Act
provides that, beginning with the Company's taxable year ending December 31,
1998, if the Company elects to retain and pay income tax on any net long term
capital gain, domestic stockholders of the Company would include in their income
as long term capital gain their proportionate share of such net long term
capital gain. A domestic stockholder would also receive a refundable tax credit
for such domestic stockholder's proportionate share of the tax paid by the
Company on such retained capital gains, and an increase in basis in an amount
equal to the difference between the undistributed long term capital gains and
the amount of tax paid by the Company. To the extent that the Company makes
distributions in excess of its current and accumulated earnings and profits,
such distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholder's tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the
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Company during January of the following calendar year. Stockholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic stockholders
and to the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such stockholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
domestic stockholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to the Company. See "-- Taxation of Foreign
Stockholders" below.
Taxation of Tax-Exempt Stockholders. Distributions by the Company to a
stockholder that is a tax-exempt entity generally should not constitute
unrelated business taxable income ("UBTI"), provided that the tax-exempt entity
has not financed the acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code, and that the shares are not otherwise used in an
unrelated trade or business by such tax-exempt entity. In addition, under
certain circumstances, qualified trusts that own more than 10% (by value) of the
Company's shares may be required to treat a certain percentage of dividends as
UBTI. This requirement will only apply if the Company is a "pension-held REIT."
The restrictions on ownership in the Company's Charter should prevent the
Company from being treated as a pension-held REIT.
Taxation of Foreign Stockholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state, and local
income tax laws with regard to an investment in shares, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income taxation with respect to their investment in shares of Common
Stock in the same manner as a U.S. Stockholder (i.e., at graduated rates on a
net basis, after allowance of deductions) if such investment is "effectively
connected" with the conduct by such Non-U.S. Stockholder of a trade or business
in the United States. A Non-U.S. Stockholder that is a corporation and that
receives income with respect to its investment in shares of Common Stock that is
(or is treated as) "effectively connected" with the conduct of a trade or
business in the United States may also be subject to the 30% branch profits tax
imposed under Section 884 of the Code, which is payable in addition to the
regular United States corporate income tax. The following discussion addresses
only the United States federal income taxation of Non-U.S. Stockholders whose
investment in shares of Common Stock is not "effectively connected" with the
conduct of a trade or business in the United States. Prospective investors whose
investment in shares of Common Stock may be "effectively connected" with the
conduct of a United States trade or business should consult their own tax
advisors as to the tax consequences thereof.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the
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<PAGE> 45
gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. Pursuant to current Treasury Regulations, dividends paid to
an address in a country outside the United States are generally presumed to be
paid to a resident of such country for purposes of determining the applicability
of withholding discussed above and the availability of a reduced tax treaty
rate. Under proposed Treasury Regulations, not currently in effect, however, a
Non-U.S. Stockholder who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy certain certification and other requirements.
Distributions made by the Company in excess of its current and accumulated
earnings and profits will not be taxable to a stockholder to the extent they do
not exceed the adjusted basis of the stockholder's shares, but rather will
reduce the adjusted basis of such shares (but not below zero). To the extent
that such distributions exceed the adjusted basis of the Non-U.S. Stockholder's
shares, they will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares in the Company, as described below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company, and the amount withheld exceeded the Non-U.S.
Stockholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with the conduct of a
United States trade or business. Non-U.S. Stockholders would thus be taxed at
the normal capital gain rates applicable to U.S. stockholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by Treasury Regulations to withhold 35% of any
distribution to a Non-U.S. Stockholder that could be designated by the Company
as a capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by the Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of its stock was held directly or
indirectly by foreign persons. The Company believes that it is, and will
continue to be a domestically controlled REIT and therefore, that the sale of
its shares will not be subject to taxation under FIRPTA.
If the gain on the sale of shares were to be subject to tax under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as U.S.
Stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax in
the case of foreign corporations), and the purchaser of the shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Notwithstanding the foregoing, gain from the sale or exchange of shares of
Company stock not otherwise subject to FIRPTA and distributions made by the
Company to Non-U.S. Stockholders that are designated as capital gain dividends
(and are not attributable to the sale or other disposition of a United States
real property interest) generally will not be taxable unless the Non-U.S.
Stockholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States. In such case, the nonresident alien individual will be subject to
a 30% United States withholding tax on the amount of such individual's gain.
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OTHER TAX CONSIDERATIONS
Dividend Reinvestment Program. Stockholders participating in the Company's
dividend reinvestment program will be deemed to have received the gross amount
of any cash distributions which would have been paid by the Company to such
stockholders had they not elected to participate. These deemed distributions
will be treated as actual distributions from the Company generally. See "Federal
Income Tax Considerations -- Taxation of Stockholders." Participants in the
dividend reinvestment program are subject to federal income tax on the amount of
the deemed distributions to the extent that such distributions represent
dividends or gains, even though they receive no cash. Shares of Common Stock
received under the program will have a holding period beginning with the day
after purchase, and a tax basis equal to their cost (which is the gross amount
of the deemed distribution).
State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its stockholders may not conform to the federal income tax advisors
regarding the effect of state and local tax laws on an investment in the Common
Stock of the Company.
PLAN OF DISTRIBUTION
The Company may sell the Common Stock, Preferred Stock, Warrants,
Depositary Shares and Guarantees, and the Operating Partnership may sell the
Debt Securities, through underwriters or dealers, directly to one or more
purchasers (including executive officers of the Company or other persons that
may be deemed affiliates of the Company), through agents or through a
combination of any such methods of sale.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of the sale, at prices related
to such prevailing market prices or at negotiated prices. Further, the
distribution of any Common Stock in one or more special offerings pursuant to a
dividend reinvestment plan or other similar plan of the Company may be effected
from time to time at a fixed price or prices, which may be changed, at market
prices prevailing at the time of the sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or the Operating Partnership or
from purchasers of the Offered Securities, for whom they may act as agents in
the form of discounts, concessions or commissions. Underwriters may sell the
Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
the Offered Securities may be deemed to be underwriters under the Securities
Act, and any discounts or commissions they receive from the Company or the
Operating Partnership and any profit on the resale of the Offered Securities
they realize may be deemed to be underwriting discounts and commissions under
the Securities Act. Any such underwriter or agent will be identified, and any
such compensation received from the Company or the Operating Partnership will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of the Offered Securities will be a new issue with no established trading
market, other than the Common Stock which is listed on the NYSE. Any shares of
Common Stock sold pursuant to a Prospectus Supplement will be listed on the
NYSE, subject to official notice of issuance. The Company or the Operating
Partnership, as the case may be, may elect to list any series of Debt
Securities, Warrants, Preferred Stock or Depositary Shares on an exchange, but
is not obligated to do so. It is possible that one or more underwriters may make
a market in a series of the Offered Securities, but will not be obligated to do
so and may discontinue any market making at any time without notice. Therefore,
no assurance can be given as to the liquidity of, or the trading market for, the
Offered Securities.
Under agreements into which the Company or the Operating Partnership may
enter, underwriters, dealers and agents who participate in the distribution of
the Offered Securities may be entitled to
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indemnification by the Company or the Operating Partnership, as the case may be,
against certain liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company or the Operating Partnership
in the ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
LEGAL MATTERS
The legality of the Offered Securities will be passed upon for the Company
and the Operating Partnership by Rogers & Wells LLP, New York, New York. Rogers
& Wells LLP will rely on Piper & Marbury L.L.P., Baltimore, Maryland, as to
matters of Maryland law.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995 of the
Company, and the consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996 and
the financial statement schedule for the year ended December 31, 1996, the
consolidated balance sheets as of December 31, 1996 and 1995 of the Operating
Partnership, and the consolidated statements of income, partners' capital and
cash flows for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Registration Statement, have been incorporated
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheet as of December 31, 1996 of ROC Communities,
Inc., and the consolidated statements of income, stockholders' equity and cash
flows for the year ended December 31, 1996, incorporated by reference in this
Registration Statement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given upon the authority
of that firm as experts in accounting and auditing.
The consolidated balance sheet of ROC Communities, Inc. and its subsidiary
as of December 31, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994, incorporated in this Prospectus by reference from the Company's Current
Report on Form 8-K dated December 10, 1997, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is also
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 50
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCE IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-3
Forward-Looking Information........... S-5
Risk Factors.......................... S-5
Business.............................. S-9
Use of Proceeds....................... S-15
Capitalization........................ S-15
Underwriting.......................... S-16
Legal Matters......................... S-17
PROSPECTUS
Available Information................. 2
Forward-Looking Information........... 2
Incorporation of Certain Documents by
Reference........................... 3
The Company and the Operating
Partnership......................... 4
Use of Proceeds....................... 4
Ratio of Earnings to Fixed Charges.... 4
Description of Debt Securities........ 5
Description of Common Stock........... 12
Description of Preferred Stock........ 14
Description of Depositary Shares...... 16
Description of Warrants............... 20
Federal Income Tax Considerations..... 20
Plan of Distribution.................. 29
Legal Matters......................... 30
Experts............................... 30
</TABLE>
======================================================
======================================================
1,850,000 SHARES
CHATEAU COMMUNITIES, INC.
COMMON STOCK
-------------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------------
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
------------------------
FEBRUARY 10, 1998
======================================================
