EX-99.1 3 c76948exv99w1.txt LETTER FROM MHC TO CHATEAU DATED 5/1/03 EXHIBIT 99.1 May 1, 2003 Mr. Steven J. Sherwood Chairman of the Board Chateau Communities, Inc. 6160 South Syracuse Way Greenwood Village, CO 80111 Dear Mr. Sherwood: Manufactured Home Communities, Inc. ("MHC") is pleased to set forth the principal terms under which it would proceed with the acquisition of one hundred percent (100%) of the manufactured home community properties, excluding properties held for sale and development properties (the "Properties") of Chateau Communities, Inc. and its subsidiaries and affiliates (collectively, the "Company" or "Chateau"). The shareholders of Chateau could realize in excess of $26.00 per share as a result of this transaction. MHC's proposal is based upon information publicly available to us and discussions with financing sources. MHC proposes entering into a sixty (60) day exclusive negotiating period with the Company with the goal of reaching a definitive agreement and proceeding quickly to a closing, all as more specifically described herein. MHC believes that the proposal set forth herein is in the best interests of the shareholders of both MHC and Chateau and will result in a mutually beneficial transaction while limiting significant expenses and unnecessary distractions involved in a lengthy process for both sides. However, during the exclusive negotiating period MHC is willing to discuss alternative structures. Essentially, the proposal outlined herein is for $1,815,000,000.00, all cash for the Properties that are listed on Exhibit A. MHC has discussed this transaction with a major financial institution and has received a letter indicating that up to $1,450,000,000.00 of first mortgage financing with an average interest rate of 5.5% and an average term of seven years could be provided. In addition, to the extent any Property is subject to a tax protection agreement that would prohibit its sale for cash, such Property may either be excluded from the proposed transaction and the Purchase Price adjusted accordingly, or an alternative structure may be agreed upon. MHC also will make available tax deferral for other Properties not subject to existing agreements if reasonably requested by Chateau. In addition, MHC will forego normal due diligence procedures to expedite the closing of this transaction as more fully discussed herein. While MHC proposes to acquire all of the Properties for the Purchase Price set forth herein, Chateau's shareholders will retain the Company's development assets, assets held for sale, the Company's investment in N' Tandem(1), unrented inventory, notes and rents receivable -------- (1) MHC would also consider acquiring some or all of the N' Tandem properties. Steven J. Sherwood Page 2 May 1, 2003 and other assets identified in the Company's public disclosures. As of March 31, 2003, the Company carries these assets at an approximate book value of $229,000,000.00, or $6.50 per share, net of accounts payable and accrued expenses. MHC has assumed that the Company will deliver the Properties free and clear of liens and encumbrances (unless assumed by MHC as described herein) and has estimated the Company's prepayment and/or assumption costs at 2% of the Company's debt (as shown at March 31, 2003) and closing costs of the proposed transaction which are to be paid by the Company of 1.5% of the Purchase Price resulting in net cash to the Company from the sale in excess of $19.50 cash per share (after adjusting for claims of preferred securities). Together with the book value of the retained assets, this transaction will provide in excess of $26.00 per share to Chateau's shareholders. MHC's proposal is subject to the terms and conditions more fully set forth herein. In this letter, (i) MHC and the Company, together with their respective officers, directors, subsidiaries, affiliates and agents, are sometimes called the "Parties," (ii) the Company and its subsidiaries and affiliates are sometimes called the "Selling Companies," and (iii) MHC's acquisition of the Company's assets is sometimes called the "Acquisition." This letter of intent is intended by the Parties to be non-binding except for the terms and conditions in Part Two which are binding on the Parties. PART ONE The Parties will immediately commence negotiating a definitive written acquisition agreement providing for the Acquisition (a "Definitive Agreement"). To facilitate the negotiation of a Definitive Agreement, the Parties agree that the Selling Companies' counsel shall prepare an initial draft. Based on the public information currently available to MHC, it is proposed that the Definitive Agreement include the following terms: 1. BASIC TRANSACTION The Selling Companies would sell all of the real estate set forth on Exhibit A and related assets owned by them (including, but not limited to, all assets of any kind and nature located at the Properties) to MHC at the price ("Purchase Price") set forth below. The Selling Companies would retain the Excluded Assets (as hereinafter defined). The Excluded Assets have not yet been fully identified, but may include assets such as the stock and partnership interests held by the Selling Companies, the properties listed on Exhibit B, the Company's interest in N' Tandem and its assets, inventory of manufactured homes (except as more fully set forth herein), and notes receivable and other as identified in the public disclosures. 2. PURCHASE PRICE Based upon public information available to MHC and assuming the Selling Companies own and will deliver to MHC 100% of the assets free and clear of all liens and encumbrances and subject to the other assumptions set forth herein, the Purchase Price would be $1,815,000,000.00 all cash (subject to customary prorations and other adjustments). Steven J. Sherwood Page 3 May 1, 2003 3. OTHER TERMS AND CONDITIONS The Selling Companies would make representations and warranties to MHC and would provide covenants, indemnities and other protections for the benefit of MHC. Specifically the Selling Companies would represent and warrant to MHC that the financial and other data for the Properties is not materially different than the financial and other data for the Properties shown in the Company's public disclosures. The consummation of the contemplated transaction by MHC would be subject to the satisfaction of various conditions, including: (a) MHC obtaining first mortgage financing. However, MHC will agree to assume any existing first mortgage debt subject to (i) an adjustment to the Purchase Price at closing representing the mark to market of such financing, and (ii) to the extent such financing represents less than 80% of the underwritten value of such Property, MHC would be allowed to substitute an unsecured note in lieu of cash at closing in an amount equal to the difference (with such note being for 7 years at an annual interest rate of 5.5%). To the extent that any Property listed on Exhibit A cannot be financed for any reason, MHC will have the option of not closing on such Property or obtaining seller financing on terms consistent with this subparagraph (a). (b) Approval by the Board of Directors of MHC. (c) The Company or Selling Companies, as appropriate, delivering an affidavit in form and substance reasonably acceptable to MHC satisfying the requirements of Florida Statutes Section 723.071 and 723.072 to the effect that MHC's offer for these assets was unsolicited. (d) Other customary conditions. 4. CLOSING The closing will occur as soon as all steps necessary to consummate the Acquisition have occurred. 5. INVENTORY Title to all manufactured homes owned by the Company and which are rented to third-party tenants will be transferred to MHC at closing and included in the Purchase Price. MHC will agree to sell any remaining inventory of the Company for a commission of 15% and remit net proceeds of the sales to the Company. 6. POST-CLOSING ESCROW At closing $50 million of the Purchase Price will be deposited into escrow to be used to satisfy any post-closing claims of MHC. MHC intends the escrow to replace formal due diligence and a due diligence contingency. The escrow will be for a period of one year following closing. MHC may submit claims and be paid amounts from the escrow based upon breach of representation and warranty by the Company and/or Selling Companies, environmental claims and deficiencies, deferred maintenance, deferred capital, undisclosed liens and claims of third Steven J. Sherwood Page 4 May 1, 2003 parties, and material differences in the financial and other data for the Properties from that set forth in the Company's public disclosures, among other possible claims. The terms of the escrow and claim mechanism shall be more fully set forth in the Definitive Agreement. 7. CLOSING COSTS Except for Properties where MHC will assume existing debt as set forth in paragraph 3(a), the Company will deliver the Properties free and clear of all liens and will provide MHC and its lenders with title insurance policies insuring title to the Properties subject to only those exceptions acceptable to MHC and including customary endorsements. In addition to the cost of the title insurance policies and endorsements, the Company will be responsible for paying for surveys of each of the Properties, transfer taxes, intangible taxes, mortgage taxes and prepayment penalties related to its debt, and its own legal expenses. MHC will bear the costs and expenses of its lenders and its legal expenses. To the extent MHC agrees to assume any existing debt, the Company will be responsible for any costs associated with such assumption. 8. BREAK-UP FEE The Definitive Agreement will contain a break-up fee. PART TWO The following paragraphs of this letter (the "Binding Provisions") are the legally binding and enforceable agreements of MHC and each Selling Company. 1. ACCESS During the period from the date this letter is signed by the Company (the "Signing Date") until the date on which MHC provides the Company with written notice that negotiations toward a Definitive Agreement are terminated (the "Termination Date"), the Company will afford MHC full and free access to the Properties, the Selling Companies, their personnel, properties, assets, contracts, books and records, and all other documents and data. 2. EXCLUSIVE DEALING Until the earlier of (i) 60 days after the Signing Date, or (ii) the Termination Date (in either case, such period is hereinafter called the "Exclusive Dealing Period"): (a) The Company will not and will cause the Selling Companies and all of their employees, agents, subsidiaries and affiliates not to, directly or indirectly, through any representative or otherwise, solicit or entertain offers from, negotiate with or in any manner encourage, discuss, accept, or consider any proposal of any other person relating to the acquisition of the stock of the Company or the Selling Companies, their assets or business, in whole or in part, whether directly or indirectly, through purchase, merger, consolidation, or otherwise, including, but not limited to, the Properties; and Steven J. Sherwood Page 5 May 1, 2003 (b) The Company will immediately notify MHC regarding any contact between the Company, any Selling Company or their respective representatives and any other person regarding any such offer or proposal or any related inquiry. 3. STANDSTILL AGREEMENT The Company agrees that for a period of six (6) months following the Exclusive Dealing Period (the "Standstill Period"), the Company will not, directly or indirectly, and will not permit any of its affiliates or associates (as defined in the 1934 Act) to solicit, initiate, knowingly encourage or enter into any agreement with respect to or participate in discussions or negotiations with, provide any confidential information to (including, without limitation, information relating to the fact that discussions or negotiations have taken place between the Company and MHC and as to the status of such discussions or negotiations), enter into any agreement with or otherwise cooperate in any way in connection with, any Third Party (as hereinafter defined) concerning any Competing Transaction (as hereinafter defined). For purposes of this agreement, the term "Third Party" shall mean any individual, group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act")), corporation, partnership, or other entity other than MHC or its representatives, and the term "Competing Transaction" shall mean any of the following involving the Company: (i) any merger, consolidation, business combination, or other similar transaction with or involving a Third Party, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of any of the Properties, or (iii) any tender offer or exchange offer for any portion of the outstanding common shares of the Company. To the extent that the Company receives an offer during the Standstill Period for a Competing Transaction that the Company will consider, the Company hereby grants MHC a right of first refusal with respect to any such Competing Transaction for a period of ninety (90) days following MHC's receipt of written notice from the Company of such Competing Transaction. The Company agrees to give MHC written notice of the receipt of any offer for a Competing Transaction within five (5) days of the Company's receipt thereof. The Company shall also inform MHC in such notice whether or not the Company will consider such offer. 4. CONDUCT OF BUSINESS During the period from the Signing Date until the Termination Date, the Company shall cause the Selling Companies to operate their business in the ordinary course and to refrain from any extraordinary transactions. 5. ENTIRE AGREEMENT The Binding Provisions constitute the entire agreement between the Parties, and supersede all prior oral or written agreements, understandings, representations and warranties, and courses of conduct and dealing between the Parties on the subject matter hereof. Except as otherwise provided herein, the Binding Provisions may be amended or modified only by a writing executed by MHC and the Company. Steven J. Sherwood Page 6 May 1, 2003 6. GOVERNING LAW The Binding Provisions will be governed by and construed under the laws of the State of Illinois without regard to conflicts of laws principles. 7. JURISDICTION; SERVICE OF PROCESS Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this letter may be brought against any of the Parties in the courts of the State of Illinois, County of Cook, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of Illinois, and each of the Parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any Party anywhere in the world. 8. SURVIVAL OF BINDING PROVISIONS The Binding Provisions will survive for a period of two (2) years after the Termination Date provided, however, that the termination of the Binding Provisions at any time will not affect the liability of a Party for breach of any of the Binding Provisions prior to the termination; and provided further, however, that if a Competing Transaction occurs after two (2) years after the Termination Date, MHC has the right to enforce this letter agreement if MHC demonstrates that such Competing Transaction resulted from activities that pursuant to Paragraphs 2 or 3 of the Binding Provisions would have resulted in a right of first refusal for MHC. Upon termination of the Binding Provisions, the Parties will have no further obligations hereunder, except as stated in Paragraphs 2, 3, 5, 6, 7, 8, 9, 10, and 11 of this Part Two, which will survive any such termination. 9. COUNTERPARTS This letter may be executed in one or more counterparts, each of which will be deemed to be an original copy of this letter and all of which, when taken together, will be deemed to constitute one and the same agreement. 10. NO LIABILITY The paragraphs and provisions of Part One of this letter do not constitute and will not give rise to any legally binding obligation on the part of any of the Parties or any of the Selling Companies. Moreover, except as expressly provided in the Binding Provisions (or as expressly provided in any binding written agreement that the Parties may enter into in the future), no past or future action, course of conduct, or failure to act relating to the Acquisition, or relating to the negotiation of the terms of the Acquisition or any Definitive Agreement, will give rise to or serve as a basis for any obligation or other liability on the part of the Parties or any of the Selling Companies. Steven J. Sherwood Page 7 May 1, 2003 11. NOTICES All notices, requests, demands or other communications required or permitted under this letter shall be in writing and delivered personally (including delivery by overnight courier such as Federal Express, by messenger or by facsimile to the numbers set forth below) or by certified mail, return receipt requested, postage prepaid, addressed as follows: (i) If to the Company: c/o Chateau Communities, Inc. 6160 South Syracuse Way Greenwood Village, CO 80111 Telephone: ___________ Facsimile: ___________ Attention: Steven J. Sherwood (ii) If to MHC: c/o Manufactured Home Communities, Inc. Two North Riverside Plaza, Suite 800 Chicago, IL 60606 Telephone: 312-279-1400 Telecopy: 312-279-1715 Attention: Chief Executive Officer With a copy to: Manufactured Home Communities, Inc. Two North Riverside Plaza, Suite 800 Chicago, IL 60606 Telephone: 312-279-1400 Telecopy: 312-279-1715 Attention: General Counsel All notices given in accordance with the terms hereof shall be deemed received forty-eight (48) hours after posting, or when delivered personally by messenger, overnight courier or facsimile. Either Party hereto may change its address for receiving notices, requests, demands or other communications by notice sent in accordance with the terms of this paragraph. If you are in agreement with the foregoing, please sign and return one copy of this letter, which thereupon will constitute our agreement with respect to its subject matter. Steven J. Sherwood Page 8 May 1, 2003 If we do not receive a reply to this letter within seven days of the date hereof, we will assume that you are not interested in pursuing the foregoing, and in such case, we will consider other available options. Very truly yours, MANUFACTURED HOME COMMUNITIES, INC. /S/ Howard Walker --------------------------- Howard Walker Chief Executive Officer Accepted and Agreed to on May __, 2003, with the undersigned expressly representing and acknowledging the binding effect and enforceability of the Binding Provisions. CHATEAU COMMUNITIES, INC. ------------------------------- ------------------------------- EXHIBIT A PROPERTIES TO BE SOLD
COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- 100 Oaks Fultondale AL 235 Algoma Estates Grand Rapids MI 343 Anchor Bay Detroit MI 1,384 Anchor North Tampa FL 93 Apache East Phoenix AZ 123 Arlington Lakeside Dallas TX 233 Audubon Orlando FL 280 Autumn Forest Greensboro NC 299 Avon Detroit MI 617 Beacon Hill Colony Tampa FL 201 Beacon Terrace Tampa FL 297 Bermuda Palms Palm Springs CA 185 Berryman's Branch Philadelphia NJ 257 Broadmore South Bend MI 370 Buena Vista Fargo ND 400 Butler Creek Augusta GA 376 Camden Point Kingsland GA 268 Canterbury Estates Grand Rapids MI 290 Carnes Crossing Summerville SC 604 Castlewood Estates Atlanta GA 334 Casual Estates Syracuse NY 961 Cedar Grove New Haven CT 60 Cedar Knolls Minneapolis MN 458 Chesterfield Detroit MI 345 Cimmaron St. Paul MN 505 Clinton Detroit MI 1,000 Coach Royale Boise ID 91 Colonial Acres Kalamazoo MI 612 Riverdale (Colonial Coach) Atlanta GA 481 Colonial Manor Kalamazoo MI 195 Colony Cove Sarasota FL 2,210 Columbia Heights Grand Forks ND 302 Conway Plantation Myrtle Beach SC 299 Country Estates Grand Rapids MI 254 Cranberry Pontiac MI 328 Creekside Dallas TX 583 Crestview Stillwater OK 238
COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Crystal Lake Club Tampa FL 599 Crystal Lakes Tampa FL 330 CV-Denver Denver CO 345 CV-Jacksonville Jacksonville FL 643 CV-Longmont Longmont CO 310 Del Tura Fort Myers FL 1,344 Denali Park Phoenix AZ 162 Eagle Creek Tyler TX 194 Eagle Point Seattle WA 230 Eastridge San Jose CA 187 Eldorado Estates Daytona Beach FL 126 Emerald Lake Fort Myers FL 201 Evergreen New Haven CT 102 Fairways Country Club Orlando FL 1,141 Falcon Farms Davenport IL 215 Ferrand Estates Grand Rapids MI 420 Forest Creek South Bend IN 167 Forest Lake Estates Grand Rapids MI 221 Fountainvue Marion MI 120 Four Seasons Atlanta GA 214 Foxhall Village Raleigh NC 315 Foxwood Farms Orlando FL 375 Friendly Village Greeley CO 226 Friendly Village Atlanta GA 203 Grand Blanc Flint MI 478 Grand Place Dallas TX 334 Green Acres New Haven CT 64 Green Park South Montgomery AL 421 Green River Los Angeles CA 333 Greenbriar Village Allentown PA 319 Haselton Village Orlando FL 292 Hickory Knoll Indianapolis IN 325 Hidden Valley Orlando FL 303 Highland New Haven CT 50 Hillcrest Boston MA 83 Holiday Estates Grand Rapids MI 204 Hoosier Estates Indianapolis IN 288 Howell Lansing MI 455 Hunter Ridge Atlanta GA 828 Hunter's Chase Lima OH 135 Huron Estates Flint MI 111
COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Indian Rocks Clearwater FL 148 Jurupa Hills Cascade Los Angeles CA 322 La Quinta Ridge Palm Springs CA 151 Lake in the Hills Detroit MI 238 Lakeland Harbor Tampa FL 504 Lakeland Junction Tampa FL 191 Lakes at Leesburg Orlando FL 640 Lakeside Terrace Orlando FL 241 Lakewood Montgomery AL 396 Lakewood Estates Davenport IA 180 Lamplighter Village Atlanta GA 431 Land O' Lakes Orlando FL 173 Landmark Atlanta GA 524 Leisurewoods Rockland Boston MA 394 Leisurewoods Taunton Boston MA 222 Leonard Gardens Grand Rapids MI 319 Longview Longmont CO 400 Los Ranchos Los Angeles CA 389 Macomb Detroit MI 1,427 Maple Grove Estates Boise ID 270 Maple Valley/Maple Ridge Chicago IL 276 Mariwood Indianapolis IN 296 Marnelle Atlanta GA 205 Meadow Park Fargo ND 117 Midway Estates Vero Beach FL 204 Misty Winds Corpus Christi TX 354 Mountain View Las Vegas NV 349 North Bluff Estates Austin TX 274 Northwood Dallas TX 451 Norton Shores Grand Rapids MI 656 Novi Detroit MI 725 Oak Ridge South Bend IN 204 Oakhill Flint MI 504 Oakwood Forest Greensboro NC 482 Old Orchard Flint MI 200 Orange Lake Orlando FL 242 Palm Beach Colony West Palm Beach FL 285 Palm Valley Orlando FL 790 Parkwood Communities Orlando FL 695 Pedaler's Pond Orlando FL 214 Pine Lakes Ranch Denver CO 762
COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Pinecrest Village Shreveport LA 446 Pinelake Gardens Vero Beach FL 532 Pinewood Columbus MI 380 Pleasant Ridge Lansing MI 305 President's Park Grand Forks ND 174 Redwood Estates Denver CO 754 Regency Lakes Winchester VA 384 Rosemount Minneapolis/St. Paul MN 182 Royal Estates Kalamazoo MI 183 Saddlebrook Charleston SC 425 Science City Midland MI 171 Shadow Hills Orlando FL 670 Shadowood Atlanta GA 506 Shady Lane Clearwater FL 108 Shady Oak Clearwater FL 250 Shady Village Clearwater FL 156 Shenandoah Estates Boise ID 154 Shenandoah Village Philadelphia NJ 359 Sherwood Marion MI 134 Skyway Indianapolis IN 156 Smoke Creek Atlanta GA 264 South Oaks Atlanta GA 294 Southwind Village Naples FL 337 Springbrook Utica MI 398 Springfield Farms Springfield MO 290 Starlight Ranch Orlando FL 783 Stone Mountain Atlanta GA 354 Stonegate Austin Austin TX 359 Stonegate Pines Dallas TX 160 Stonegate, LA Shreveport LA 157 Suburban Woods Atlanta GA 216 Sunny South Estates West Palm Beach FL 319 Swan Creek Ann Arbor MI 294 Tara Woods Tampa FL 531 Tarpon Glen Clearwater FL 170 Terrace Heights Dubuque IA 317 The Colony Palm Springs CA 220 The Glen Boston MA 36 The Highlands Flint MI 682 The Orchard San Francisco CA 233 Tierra West Albuquerque NM 653
COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Timber Heights Flint MI 221 Torrey Hills Flint MI 377 Twenty-Nine Pines St. Paul MN 152 Twin Pines Goshen IN 238 University Village Orlando FL 480 Valley Vista Grand Rapids MI 137 Villa Flint MI 319 Village Green Vero Beach FL 780 Westbrook Detroit MI 388 Westpark Phoenix AZ 183 Whispering Pines Clearwater FL 392 Winter Haven Oaks Orlando FL 343 Woodlake Greensboro NC 308 Woodlands of Kennesaw Atlanta GA 273 Yankee Spring Grand Rapids MI 284 Yorktowne Cincinnati OH 354
EXHIBIT B DEVELOPMENT ASSETS AND ASSETS HELD FOR SALE
DEVELOPMENT ASSETS ------------------ COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Prairie Greens Denver CO 139 Antelope Ridge Colorado Springs CO 246 Wolf Creek Des Moines IA 80 Deerfield Manor (aka Allendale) Allendale MI 96 Glenmoor Leroy Township MI 41 Holly Hills Holly MI 174 Maple Run Clio MI 146 Pine Lakes Lapeer MI 136 Oakley Point Moncks Corner SC 91 Harston Woods Dallas TX 106 Onion Creek Austin TX 350 ASSETS HELD FOR SALE -------------------- COMMUNITY LOCATION (CLOSEST MAJOR CITY) STATE TOTAL SITES --------- ----------------------------- ----- ----------- Jade Isle Orlando FL 101 Arbor Village Jackson MI 266 Breazeale Laramie WY 117 Crystal Lake St. Petersburg FL 166 Golden Valley Atlanta GA 131 Knoll Terrace Salem OR 212 Mosby's Point Cincinnati KY 150 Orion Detroit MI 423 Pinellas Cascades Clearwater FL 238 Riverview Portland OR 133 Vance Columbus OH 113 Pooles Manor Atlanta GA 194 Atlanta Meadows aka Chateau Jonesboro Atlanta GA 75