<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant /X/
Filed by a Party other than the Registrant
Check the appropriate box:
/X/ Preliminary Proxy Statement
/X/ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
</TABLE>
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ASSET INVESTORS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of limited partnership interest in Asset Investors Operating
Partnership L.P. ("AIOP Units")
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(2) Aggregate number of securities to which transaction applies:
3,383,479 AIOP Units
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$3.4556143
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$11,692,000
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(5) Total fee paid:
$2,338.40
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
[LOGO]
[LOGO]
[LOGO]
[LOGO]
October , 1997
To Our Stockholders:
On behalf of the Board of Directors of Asset Investors Corporation we
cordially invite you to attend the 1997 Annual Meeting of Stockholders of the
Company to be held at 1873 South Bellaire Street, Suite 1700, Denver, Colorado
on November 26, 1997, at 10:00 a.m., local time (the "Meeting").
At the Meeting, we will be seeking your vote on the proposed acquisition of
the Company's manager, Financial Asset Management LLC (the "Manager"). The
Manager provides real estate acquisition, management, day-to-day administrative
functions and related services to the Company and to Commercial Assets, Inc., of
which the Company owns 27% of the outstanding common stock. At the Meeting, we
will also seek your vote on the election of certain directors and approval of a
one-for-five reverse stock split of the Company's common stock.
The proposed acquisition of the Manager is an important step in the
strategic plan we announced in February 1997. If the proposed acquisition is
approved, the Company will become a fully integrated, self-administered and
self-managed real estate investment trust, which we believe should provide
opportunities for future growth.
Because three members of the Company's Board of Directors, Terry Considine,
Thomas L. Rhodes and Bruce D. Benson, are among the owners of the Manager, an
independent committee (the "Special Committee") of your Board was appointed in
January 1997 to consider whether, and on what basis, the Company should become
self-administered and self-managed, including considering the proposed
acquisition of the Manager. The four members of the Special Committee are
neither affiliates of the Manager nor officers or employees of the Company. The
Committee was assisted in its deliberations by Jefferies & Co., Inc., an
investment banking firm with no prior relationship with the Manager or the
Company, and independent counsel. After considering all of the factors that the
Special Committee deemed relevant, the Special Committee unanimously recommended
the proposed acquisition to the Board.
BASED ON THESE AND OTHER FACTORS DISCUSSED MORE FULLY IN THE ATTACHED PROXY
STATEMENT, THE BOARD BELIEVES THAT THE PROPOSED ACQUISITION IS FAIR TO, AND IN
THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR THE PROPOSED ACQUISITION. THE ACQUISITION PROPOSAL IS CONDITIONED UPON,
AMONG OTHER THINGS, THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE COMPANY'S
COMMON STOCK VOTED AT THE ANNUAL MEETING. THEREFORE, YOUR VOTE IS IMPORTANT,
REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK YOU OWN.
The attached Proxy Statement also contains detailed information about the
election of directors and reverse stock split to be acted upon at the Meeting.
Please give the enclosed material your careful attention.
<PAGE>
Whether or not you plan to attend the Meeting, on behalf of the Board we
urge you to complete, sign and date the enclosed proxy card and return it in the
enclosed postage-paid envelope as soon as possible so that your common stock
will be represented. If you attend the Meeting, you may vote in person even if
you have previously returned your proxy card. You may revoke your proxy by
following the procedures outlined in the Proxy Statement. We appreciate your
prompt cooperation.
Sincerely,
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[SIG] [SIG]
Terry Considine Thomas L. Rhodes
CO-CHAIRMAN OF THE BOARD CO-CHAIRMAN OF THE BOARD
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<PAGE>
CONFIDENTIAL: FOR USE OF THE COMMISSION ONLY
[LOGO]
ASSET INVESTORS CORPORATION
3410 SOUTH GALENA, SUITE 210
DENVER, COLORADO 80231
(303) 614-9400
---------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------------------------------------
To Our Stockholders:
The 1997 Annual Meeting of Stockholders (the "Meeting") of Asset Investors
Corporation (the "Company") will be held at 1873 South Bellaire Street, Suite
1700, Denver, Colorado on November 26, 1997, at 10:00 a.m., local time, to
consider and act upon:
1. the proposed acquisition of the Company's manager, Financial Asset
Management LLC, which conducts all of the Company's real estate
acquisition, management and related services, all as more fully described
in the accompanying proxy statement;
2. the election of Messrs. Terry Considine, Bruce D. Benson and William J.
White, three Class II Directors, to terms expiring in 2000 and Mr. Thomas
L. Rhodes, a Class III Director, to a term expiring in 1998;
3. an amendment to the Company's Articles of Incorporation to effect a
reverse stock split of the Company's issued and outstanding shares of
common stock on a basis of one (1) new share for each five (5) shares
currently outstanding; and
4. such other business as properly may come before the Meeting and any
adjournments or postponements thereof.
Only stockholders of record at the close of business on October , 1997,
the record date, will be entitled to notice of, and to vote at, the Meeting.
The Board of Directors of the Company desires to have maximum representation
at the Meeting and requests that you mark, date, sign and timely return the
enclosed proxy in the postage-paid envelope provided.
BY ORDER OF THE BOARD OF DIRECTORS,
[SIG]
John C. Singer
SECRETARY
October , 1997
<PAGE>
PROXY STATEMENT
ASSET INVESTORS CORPORATION
OCTOBER , 1997
This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation by the Board of Directors of Asset Investors Corporation (the
"Company") of proxies to be used at the 1997 Annual Meeting of Stockholders of
the Company (the "Meeting") to be held at 1873 South Bellaire Street, Suite
1700, Denver, Colorado, on November 26 , 1997, at 10:00 a.m., local time, and at
any adjournments or postponements thereof. The Meeting is being held for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement, the accompanying proxy card and the Notice of Annual
Meeting (the "Proxy Materials") are first being provided to stockholders
beginning on or about October , 1997.
All of the Company's management operations are currently performed pursuant
to a management agreement (the "Management Agreement") with an external manager,
Financial Asset Management LLC (the "Manager"). The Company has no employees,
and certain employees of the Manager have been elected by the Board of Directors
as the officers of the Company. At the Meeting, holders (the "Stockholders") of
the Company's outstanding shares of Common Stock, $.01 par value per share (the
"Shares"), will consider and vote upon, among other things, a proposal for the
Company to acquire the Manager and therefore become internally managed and
self-administered (the "Acquisition" or "Acquisition Proposal"). This change in
the Company's status will be effected through the proposed contribution by the
Manager to Asset Investors Operating Partnership, L.P. ("AIOP"), which holds all
of the Company's assets and liabilities and through which the Company carries on
all of its business operations, of all of the equity interest (the "Interests")
of New FAM LLC, a Delaware limited liability company ("New FAM"). The
contribution will be on the terms and subject to the conditions of the asset
contribution agreement dated September 8, 1997 among AIOP, the Company and the
Manager (the "Asset Contribution Agreement"). New FAM is an entity recently
formed by the Manager to hold the assets and operations of the Manager; it
conducts no other business. These operations consist primarily of the advisory
business that the Manager performs for the Company and for Commercial Assets,
Inc., a Maryland corporation ("CAX") in which the Company has a 27% ownership
interest. The Manager provides management services to CAX through an agreement
similar to the Management Agreement (the "CAX Management Agreement").
The Manager is owned, through certain investment concerns, by an investment
group that includes Terry Considine and Thomas L. Rhodes, the Co-Chairmen of the
Company's Board of Directors and Co-Chief Executive Officers of the Company and
CAX, and Bruce D. Benson, a Director of the Company and CAX. This investment
group acquired the Manager in September 1996 from its former owners,
subsidiaries of M.D.C. Holdings, Inc., at a cost of $11,692,000 in cash and
notes.
Pursuant to the Asset Contribution Agreement, if the Stockholders approve
the Acquisition Proposal and all other conditions to the closing under the Asset
Contribution Agreement are satisfied or waived, consideration equal to the
investment group's cost of acquiring the Manager will be paid at the closing.
The consideration paid at closing is to be 3,383,479 units of limited
partnership interest in AIOP ("AIOP Units"). In addition, under the terms of the
Asset Contribution Agreement, AIOP will issue additional consideration of an
aggregate of 1,200,000 AIOP Units to the Manager in the future if the Company
achieves certain performance goals (the "Earnout").
A COMMITTEE (THE "SPECIAL COMMITTEE") OF THE COMPANY'S BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE ACQUISITION PROPOSAL AS BEING IN THE BEST INTERESTS
OF THE COMPANY AND FAIR TO THE STOCKHOLDERS OF THE COMPANY OTHER THAN MESSRS.
BENSON, CONSIDINE AND RHODES (THE "PUBLIC STOCKHOLDERS"). THE BOARD OF DIRECTORS
(WITH MESSRS. BENSON, CONSIDINE AND RHODES ABSTAINING), AFTER CONSIDERING THE
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS UNANIMOUSLY APPROVED THE
ACQUISITION PROPOSAL AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY APPROVE
THE ACQUISITION PROPOSAL. SEE "PROPOSAL NO. 1--BACKGROUND AND REASONS FOR THE
ACQUISITION PROPOSAL." THE ACQUISITION PROPOSAL INVOLVES CERTAIN RISKS TO THE
COMPANY THAT STOCKHOLDERS SHOULD CONSIDER IN DECIDING THEIR VOTE ON THE
ACQUISITION PROPOSAL. SEE "RISK FACTORS ASSOCIATED WITH THE ACQUISITION
PROPOSAL."
At the Meeting, Stockholders will also elect certain directors and consider
and vote upon an amendment to the Company's Articles of Incorporation to effect
a reverse stock split of the Company's issued and outstanding Shares on a basis
of one (1) new Share for each five (5) Shares currently outstanding (the
"Reverse Stock Split" or "Reverse Stock Split Proposal").
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION.......................... 3
INCORPORATION BY REFERENCE..................... 3
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
INFORMATION.................................. 4
SUMMARY OF PROXY STATEMENT..................... 5
SELECTED CONSOLIDATED FINANCIAL DATA........... 11
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS......................... 13
COMPARATIVE PER SHARE DATA..................... 18
RISK FACTORS ASSOCIATED WITH THE ACQUISITION
PROPOSAL..................................... 18
Conflicts of Interest........................ 18
Increase in Stock Ownership by Management.... 18
Non-Arm's Length Transactions................ 19
No Appraisal of Assets....................... 19
Change in the Nature of the Company's
Business................................... 19
Expenses of Obtaining Additional
Management................................. 19
Certain Tax Risks............................ 20
Shares Eligible for Future Sale.............. 21
GENERAL INFORMATION............................ 22
Voting Rights and Votes Required............. 22
Voting of Proxies............................ 22
Revocability of Proxy........................ 22
Annual Report................................ 22
PROPOSAL NO. 1--PROPOSED ACQUISITION OF
FINANCIAL ASSET MANAGEMENT LLC............... 23
Recommendation of the Board.................. 23
General...................................... 23
Background and Reasons for the Acquisition
Proposal................................... 24
Description of the Asset Contribution
Agreement.................................. 29
Benefits from the Acquisition Proposal....... 32
Alternatives to the Acquisition Proposal..... 34
Fairness Opinion of Jefferies................ 34
Interests of Certain Persons in the
Acquisition Proposal....................... 41
Consequences of Failure to Approve the
Acquisition Proposal....................... 42
Expenses..................................... 42
Accounting Treatment......................... 42
Certain Federal Income Tax Consequences...... 43
No Appraisal Rights.......................... 50
Information Concerning the Company........... 50
Certain Information Concerning the Manager... 53
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Management's Discussion and Analysis of the
Manager's Financial Condition and Results
of Operations.............................. 54
MARKET PRICE DATA.............................. 55
Dividend Policy.............................. 55
PROPOSAL NO. 2--ELECTION OF DIRECTORS.......... 56
DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY...................................... 57
Compliance with Section 16(a) of the Exchange
Act........................................ 59
COMPENSATION................................... 59
Summary Compensation Table................... 59
Option Grants in 1996........................ 60
INDIVIDUAL GRANTS.............................. 60
Aggregate Option Exercises During 1996 and
Fiscal Year-End Option Value Table......... 60
Board Report on Executive Compensation....... 61
Compensation Paid to Directors............... 61
OWNERSHIP OF COMMON STOCK...................... 62
Compensation Committee Interlocks and Insider
Participation.............................. 62
PERFORMANCE GRAPHS............................. 63
PROPOSAL NO. 3--AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION.................... 65
General...................................... 65
Purpose and Effect of the Proposed
Amendment.................................. 65
Conversion of Stock Options.................. 66
Exchange of Certificates..................... 66
Fractional Shares............................ 67
FEDERAL INCOME TAX CONSEQUENCES................ 67
APPRAISAL AND DISSENTERS' RIGHTS............... 67
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 68
COMPANY'S RELATIONSHIP WITH INDEPENDENT
AUDITORS..................................... 68
OTHER MATTERS.................................. 68
STOCKHOLDER PROPOSALS.......................... 68
INDEX TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS......................... F-1
APPENDICES..................................... 68
APPENDIX A..................................... 69
APPENDIX B..................................... 101
APPENDIX C..................................... 105
APPENDIX D..................................... 106
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, Proxy Statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, Proxy
Statements and other information can 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 following regional offices of
the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and are also
available on the Commission's Worldwide Web site at http://www.sec.gov. Copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Shares are listed and traded on the New York Stock Exchange (the "NYSE") under
the symbol "AIC". All such reports, Proxy Statements and other information filed
by the Company with the NYSE may be inspected at the NYSE's offices at 20 Broad
Street, New York, New York 10005.
INCORPORATION BY REFERENCE
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN THE
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON ORAL OR
WRITTEN REQUEST TO JOHN C. SINGER, SECRETARY, AT THE COMPANY'S PRINCIPAL
EXECUTIVE OFFICES, 3410 SOUTH GALENA, SUITE 210, DENVER, COLORADO 80231,
TELEPHONE (303) 614-9400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY OCTOBER , 1997. ANY DOCUMENTS REQUESTED WILL BE
SENT BY FIRST CLASS MAIL WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are hereby incorporated herein by reference (Commission
File No. 1-9360):
(a) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997; and
(b) Current Reports on Form 8-K filed April 10, May 30, and August 14, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the
Meeting shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of filing of such documents. All information appearing in
this Proxy Statement or in any document incorporated herein by reference is not
necessarily complete and is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in this Proxy Statement
or the documents incorporated by reference herein and should be read together
with such information and documents.
This Proxy Statement is accompanied by the Company's Annual Report on form
10-K for the year ended December 31, 1996 and its Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997. The Consent of Independent Auditors is
attached to this Proxy Statement as Appendix D.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as to modified
or superseded, to constitute a part of this Proxy Statement.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement, and if given or made, such information or representations
should not be relied upon as having been authorized. This Proxy Statement does
not constitute the solicitation of the proxy, in any jurisdiction to or from any
person to whom or from whom it is unlawful to make such proxy solicitation in
such jurisdiction. The delivery of this
3
<PAGE>
Proxy Statement shall not, under any circumstances, create any implication that
there has been no change in the information set forth or incorporated herein by
reference or in the affairs of the Company or the Manager since the date of this
Proxy Statement. However, if any material change occurs during the period in
which this Proxy Statement is required to be delivered, this Proxy Statement
will be amended and supplemented accordingly. All information regarding the
Company in this Proxy Statement has been supplied by the Company, and all
information regarding the Manager in this Proxy Statement has been supplied by
the Manager.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The statements contained in this Proxy Statement that are not historical
facts are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act") and Section 21E of the Exchange
Act. These forward-looking statements are based on current expectations,
estimates and projections about the industry and markets in which the Company
operates, management's beliefs and assumptions made by management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Operating results depend primarily on income from manufactured
housing communities and subordinate classes of commercial mortgage backed
securities (the "CMBS bonds"), held by the Company through its ownership of CAX,
which, in turn, are substantially influenced by the risks inherent on owning
real estate or debt secured by real estate including, among other things: (i)
the demand for and supply of manufactured housing properties in the Company's
primary target markets and submarkets, (ii) operating expense levels, (iii) the
effectiveness of property-level operations, (iv) interest rate levels, and (v)
the pace and price at which the Company can acquire and develop additional
manufactured housing properties. Capital and credit market conditions which
affect the Company's cost of capital also influence operating results.
4
<PAGE>
SUMMARY OF PROXY STATEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROXY
STATEMENT. THE SUMMARY IS NOT INTENDED TO BE COMPLETE, AND STOCKHOLDERS ARE
URGED TO READ THIS PROXY STATEMENT AND THE APPENDICES IN THEIR ENTIRETY.
GENERAL
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The Annual Meeting................ The 1997 Annual Meeting will be held at 1873 South
Bellaire Street, Suite 1700, Denver, Colorado on
November 26, 1997, at 10:00 a.m. local time.
Purpose of the Meeting............ The purpose of the Meeting is to consider and act
upon the proposed acquisition of the assets and
operations of the Company's Manager, Financial Asset
Management LLC, to elect certain directors, to amend
the Company's Articles of Incorporation to effect a
reverse stock split, and to consider such other
business as properly may come before the Meeting.
Record Date for the Meeting....... Only Stockholders of record at the close of business
on October , 1997, (the "Record Date") will be
entitled to vote at the Meeting.
Quorum and Votes Required......... On the Record Date, [25,239,217] Shares were
outstanding. The presence, in person or by proxy, of
holders of a majority of the Shares entitled to vote
at the Meeting constitutes a quorum for the
transaction of business at the Meeting. Each Share
outstanding on the Record Date is entitled to one
vote on all matters presented at the Meeting. The
affirmative vote of a majority of the votes cast at
the Meeting by Stockholders present or represented
and entitled to vote on the proposal is required for
the Acquisition Proposal. The affirmative vote of a
plurality of all votes cast at the Meeting by the
Stockholders is required for the election of
Directors. The affirmative vote of two-thirds of the
votes entitled to be cast on the proposal is required
to amend the Company's Articles of Incorporation, as
amended (the "Articles") to effect the Reverse Stock
Split of the Company's issued and outstanding Shares
on a basis of one (1) new Share for each five (5)
Shares currently outstanding.
THE PROPOSED ACQUISITION
Parties to the Acquisition and
Structure of the Transaction.... The parties to the Acquisition Proposal are the
Company, AIOP, and the Manager. If approved by the
Stockholders at the Meeting, the Acquisition Proposal
will be carried out pursuant to terms and on the
conditions of the Asset Contribution Agreement dated
September 8, 1997.
Background of the Acquisition..... On February 24, 1997, the Board of Directors adopted
a multi-step plan to restructure the Company's asset
base and redeploy its assets in order to reduce
portfolio risks and maximize long-term, risk-adjusted
returns to Stockholders (the "1997 Strategic Plan").
The elements of the 1997 Strategic Plan were the (i)
resecuritization of the
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Company's portfolio of subordinate non-agency
mortgage backed securities, generally, first-loss
positions in pools of mortgage loans on residential
properties, referred to as "non-agency MBS bonds";
(ii) reinvestment of the cash from the
resecuritization in real estate, a step which was
expected to reduce the Company's current return on
assets but also might result in increased
opportunities for capital appreciation and reduced
portfolio risk; (iii) conversion of the Company to an
umbrella partnership real estate investment trust
("UPREIT") through the contribution of the Company's
assets to an operating partnership, which was
intended to facilitate the future acquisition of real
estate; and (iv) acquisition of the Manager, a step
intended to result in the Company becoming
self-managed and fully integrated.
Consideration to be Paid by the
Company......................... The Manager will contribute to a newly created single
member limited liability company, New FAM, the assets
and liabilities of the advisory business previously
conducted by the Manager directly. Pursuant to the
Asset Contribution Agreement, the Manager will
contribute to the Company 100% of the members'
interests in New FAM in exchange for consideration at
closing under the Asset Contribution Agreement (the
"Closing"), valued for purposes of the Agreement at
$11,692,000, the cost at which the Manager's advisory
business was acquired by the Manager in September
1996. The consideration to be delivered at Closing is
comprised of 3,383,479 AIOP Units, valued at the book
value per Share at June 30, 1997 or $3.4556143 per
Share.
In addition to the consideration paid at Closing, the
Manager will be entitled to certain additional
payments in the future, aggregating 1,200,000 AIOP
Units if the Company achieves certain performance
goals.
Recommendation of the Special
Committee and the Board of
Directors....................... For the reasons described under the caption "Proposal
No. 1--Background and Reasons for the Acquisition
Proposal," a Special Committee of the Board formed
for the purpose of evaluating this transaction (which
represents a majority of the Board of Directors) has
unanimously approved the Acquisition Proposal having
determined that the Acquisition Proposal is fair to
and in the best interests of the Company and the
Public Stockholders. The Special Committee of the
Board unanimously recommends that Stockholders vote
FOR the Acquisition Proposal.
Fairness Opinion.................. Jefferies and Co., Inc. ("Jefferies") has given its
written opinion that the consideration for the
Acquisition Proposal is fair to the Public
Stockholders from a financial point of view.
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Risk Factors...................... There are certain risk factors associated with the
Acquisition Proposal that are discussed in this Proxy
Statement, including conflicts of interest, increase
in
stock ownership by management, non-arm's length
transactions, no appraisal of assets, change in the
nature of the Company's business, expenses of
obtaining additional management, certain tax risks
relating to real estate investment trust ("REIT")
status, and shares eligible for future sale.
Benefits of the Acquisition to the
Company and Stockholders........ As a result of the consummation of the Acquisition
Proposal, the Company will become a fully integrated,
self-administered and self-managed REIT, engaging in
not only its current activities but also in
management activities. The Board believes that the
Acquisition Proposal, if consummated, should result
in the following specific benefits to the Company:
- Certain existing conflicts of interest between the
Company, the Manager and its affiliates will be
substantially eliminated.
- The Company will be more attractive to
institutional and other investors, improving the
Company's ability to raise capital.
- The Company will have within its organization the
substantial experience of Messrs. Considine and
Rhodes and the existing management team, enhancing
the Company's ability to manage its assets,
including pursuit of its strategy of growth
through acquisitions of interests in real estate
and to expand its lines of business. If the
Acquisition Proposal is consummated, Messrs.
Benson, Considine and Rhodes will have a
significant ownership interest in the Company, in
the form of Shares and AIOP Units, thereby
generally aligning their incentives with the
interests of the Public Stockholders.
There can be no assurance, however, that these
benefits, each of which is discussed in this Proxy
Statement, will be realized.
Benefits of the Acquisition to
Messrs. Benson, Considine and
Rhodes.......................... As a result of the Acquisition and the Earnout, the
Manager could receive up to 4,583,479 AIOP Units.
Assuming the conversion of AIOP Units into Shares,
the Manager could acquire beneficial ownership of an
aggregate of up to 18.1% of the issued and
outstanding Shares. Payment of the consideration at
Closing under the Asset Contribution Agreement will
allow Messrs. Benson, Considine and Rhodes and the
other owners of the Manager to recoup the entire cost
incurred in September 1996 to acquire the Manager. In
addition, through June 30, 1997, management fees of
$3,123,000
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and $929,000 have been paid by the Company and CAX,
respectively, to the Manager since Messrs. Benson,
Considine and Rhodes and others acquired the Manager.
The Manager's advisory agreements with the Company
and CAX are subject to annual renewal at the option
of the Company and CAX, on the one hand, and the
Manager, on the other hand. Under the Acquisition
Proposal, the assets being transferred to AIOP
include the Management Agreement and the CAX
Management Agreement. The fees received by the
Manager under the Management Agreement and the CAX
Management Agreement represent substantially all of
the revenues of the Manager. Thus, if the Acquisition
Proposal is consummated, Messrs. Benson, Considine
and Rhodes and the other owners of the Manager will
eliminate the risk of loss of contracts that provide
for substantial payments and, in the case of the CAX
Management Agreement, the Company will assume that
risk of loss if the Board of Directors of CAX should
terminate the CAX Management Agreement or remove the
Company as manager under that agreement. In addition,
because of the method that will be elected by AIOP
for purposes of allocating items of income, gain,
loss and deduction on the assets to be contributed to
and held by AIOP pursuant to the Acquisition, the
Manager will receive allocations with respect to
depreciation on certain assets contributed to AIOP
that will exceed the allocations it would have
received if AIOP were to elect to allocate such items
under another permissible method. Such allocations of
depreciation may be beneficial for income tax
purposes to certain of the owners of the Manager. See
"Certain Federal Income Tax Consequences--Income
Taxation of AIOP and its Partners and--Tax
Depreciation Allocations with Respect to Certain
Properties."
Conditions to the Acquisition;
Termination..................... The obligations of the Company, AIOP and the Manager
to consummate the transactions contemplated by the
Asset Contribution Agreement are subject to the
fulfillment or waiver at or prior to the closing of
certain conditions, including the following: (i) the
representations and warranties of the parties shall
be true and correct in all material respects at and
as of the closing date; (ii) the parties shall have
performed and complied with all of the covenants
under the Asset Contribution Agreement in all
material respects through the Closing; (iii) the
Manager shall have procured all of the material third
party consents required to consummate the
transactions contemplated by the Asset Contribution
Agreement; (iv) the parties shall have received all
other material authorizations, consents, and
approvals of governments and governmental agencies
required to consummate the transactions contemplated
by the Asset Contribution Agreement; (v) no action,
suit, or proceeding shall be pending before any court
or quasi-
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions
contemplated by the Asset Contribution Agreement, (B)
cause any of the transactions contemplated by the
Asset Contribution Agreement to be rescinded
following consummation, or (C) affect adversely the
right of AIOP to own the Interests or to operate the
business of New FAM; (vi) the Company's independent
outside auditors shall have provided to the Company
written confirmation of the amounts of the Manager's
cost of acquiring the advisory business; (vii) the
written opinion from Jefferies that the consideration
to be paid by AIOP contemplated by the Asset
Contribution Agreement is fair to the Public
Stockholders from a financial point of view shall not
have been withdrawn; (viii) the transactions
contemplated by the Asset Contribution Agreement
shall have been approved and adopted by the vote of
the Stockholders and by the owners of the Manager;
and (ix) the Manager and the Company shall have
executed a registration rights agreement.
No Appraisal Rights............... Under the Maryland General Corporation Law, holders
of the Shares will not be entitled to rights of
appraisal in connection with the Acquisition.
Federal Income Tax Consequences... The Company expects to continue to be taxed as a REIT
for federal income tax purposes and believes that the
Acquisition should not result in the violation by the
Company of any of the asset or income tests required
to maintain its qualification as a REIT for federal
income tax purposes.
Accounting Treatment.............. The Acquisition of New FAM by the Company will be
accounted for under the purchase method. See
"Unaudited Pro Forma Condensed Consolidated Financial
Statements."
ELECTION OF DIRECTORS............. At the Meeting, Stockholders will act upon the
election of Messrs. Terry Considine, Bruce D. Benson
and William J. White, three Class II Directors, to
terms expiring in 2000 and Mr. Thomas L. Rhodes, a
Class III Director, to a term expiring in 1998, all
of whom have been nominated by the Board of
Directors.
AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION AND
REVERSE STOCK SPLIT
Terms............................. At the Meeting, Stockholders will consider and vote
upon an amendment to the Articles to effect a reverse
stock split of the Company's issued and outstanding
Shares on a basis of one (1) new Share for each five
(5) Shares currently outstanding.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Purpose and Effect of the Proposed
Amendment....................... As a result of the Reverse Stock Split, all issued
and outstanding Shares on the effective date of the
Reverse Stock Split (the "Effective Date") will be
reconstituted on the basis of one (1) post-split
Share for each five (5) Shares then-outstanding,
thereby decreasing the number of outstanding Shares
from approximately 25,000,000 Shares to approximately
5,000,000 Shares. The Company believes that the
Reverse Stock Split will result in a market price for
the Shares that is more attractive to the financial
community and investing public.
Fractional Shares................. Any fractional Shares resulting from the Reverse
Stock Split will be purchased by the Company or other
Stockholders or, at the election of the Stockholder,
be combined with another fractional Share purchased
by such Stockholder to equal a full Share.
Federal Income Tax Consequences... A Stockholder's receipt of post-split Shares in the
Reverse Stock Split will be a tax-free transaction,
and the holding period and tax basis of the pre-split
Shares will be transferred to the post-split Shares
received in exchange therefor. Generally, cash
received in lieu of fractional Shares will be treated
as a sale of the fractional Shares, and Stockholders
will recognize gain or loss based upon the difference
between the amount of cash received and the basis in
the surrendered fractional Shares. Likewise, any cash
paid to round-up a fractional Share will generally be
treated as a purchase and such amount will be added
to the basis of the fractional Share.
No Appraisal Rights............... The Maryland General Corporation Law does not provide
appraisal or similar dissenters' rights to the
holders of the Shares in connection with the Reverse
Stock Split.
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
The selected consolidated financial data presented below for the five years
ended December 31, 1996 and as of December 31, 1996, 1995, 1994, 1993, and 1992
were derived from the audited consolidated financial statements of the Company.
The selected consolidated financial data as of June 30, 1997 and 1996, and for
the six months then ended have been derived from the unaudited consolidated
financial statements of the Company accompanying or incorporated by reference in
this Proxy Statement. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the results of
operations for the periods presented.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the notes thereto, in the
Company's annual report on Form 10-K for the year ended December 31, 1996 and
the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1997
accompanying this Proxy Statement.
Pro forma adjustments are detailed in the "Notes to Pro Forma Condensed
Consolidated Financial Statements" below.
11
<PAGE>
INCOME STATEMENT DATA:(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
PRO FORMA HISTORICAL
1996 1996 1995 1994 1993 1992
----------- ----------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................... $ 11,406 $ 13,524 $ 18,199 $ 18,904 $ (40,571)(2) $ (24,874)
Net Income (loss)...................................... $ 8,788 $ 9,673 $ 14,440 $ 13,358 $ (51,018)(2) $ (32,122)
Net Income (loss) per Share............................ $ 0.35 $ 0.39 $ 0.60 $ 0.92 $ (3.64)(2) $ (2.30)
Dividends per Share.................................... $ 0.37 $ 0.37 $ 0.34 $ 0.33 $ 3.99(3) $ 1.18
Weighted-average Shares outstanding.................... 24,958 24,595 24,279 14,548 14,024 13,986
BALANCE SHEET DATA:
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------
PRO FORMA HISTORICAL
1996 1996 1995 1994 1993 1992
----------- ----------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Total assets........................................... $ 104,175 $ 90,344 $ 79,653 $ 109,539 $ 94,250 $ 241,116
Long-term debt......................................... $ 4,962 $ -- $ -- $ 30,592 $ 42,000 $ 48,000
Total stockholders' equity............................. $ 85,868 $ 86,365 $ 78,759 $ 72,965(4) $ 47,187(5) $ 153,316
Book value per Share................................... $ 3.46 $ 3.48 $ 3.23 $ 3.01(4) $ 3.35(5) $ 10.96
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------------
PRO FORMA HISTORICAL
1997 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Revenues............................................... $ 6,539 $ 4,836 $ 6,770
Net Income (loss)...................................... $ 8,781 $ 8,838 $ 4,488
Net Income (loss) per Share............................ $ 0.35 $ 0.35 $ 0.18
Dividends per Share.................................... $ 0.155 $ 0.155 $ 0.18
Weighted-average Shares outstanding.................... 24,952 24,952 24,433
BALANCE SHEET DATA:
JUNE 30
-----------------------------------
PRO FORMA HISTORICAL
1997 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Total assets........................................... $ 105,696 $ 94,004 $ 82,526
Long-term debt......................................... $ 4,940 $ 4,940 $ --
Total stockholders' equity............................. $ 87,217 $ 87,217 $ 80,034
Book value per Share................................... $ 3.46 $ 3.46 $ 3.24
</TABLE>
- ------------------------------
(1) During 1992, the Company's portfolio consisted primarily of interests in
collateralized mortgage obligations ("CMOs"). CMOs are multi-class issuances
of bonds which are secured and funded as to the payment of interest and
repayment of principal by a specific group of mortgage loans or mortgage
backed certificates and other collateral. During 1993 through 1995, the
Company sold substantially all of its CMOs, and during 1994 through 1996,
the Company acquired a portfolio of non-agency MBS bonds. In March 1997, the
Company contributed these bonds into an owner trust in a structured
transaction in which the Company received cash proceeds and retained a small
equity interest. The Company, beginning in May 1997, is investing the
$67,673,000 of net proceeds from the structured transaction in manufactured
housing communities and related assets.
(2) Includes a loss of $24,399,000 ($1.74 per Share) from a cumulative effect of
an accounting change from adoption of Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES.
(3) Includes $.25 per Share in cash and $3.74 per Share in shares of CAX common
stock.
(4) Includes $17,208,000 of net proceeds and 10,053,794 Shares from a
one-for-one rights offering completed December 16, 1994 (the "Rights
Offering"). Shares were sold at $1.90 per Share, $2.04 per Share less than
the book value of the Shares prior to the Rights Offering which reduced the
book value per Share from approximately $3.94 to $3.01.
(5) The decrease in stockholders' equity between 1992 and 1993 reflects, among
other things, the payment of a dividend of $3.99 per Share, including a
dividend of $3.74 per Share in the form of shares of CAX common stock.
12
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS
PREVIOUSLY PRO FORMA PRO FORMA
REPORTED ADJUSTMENTS RESULTS
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Investment in rental properties, net............................ $ 26,442 $ -- $ 26,442
Investment in rental property joint ventures.................... -- 10,256 )(B 10,256
Cash and cash equivalents....................................... 42,943 (10,800) (C) 32,143
Investment in Commercial Assets................................. 19,895 -- 19,895
Goodwill........................................................ -- 14,982 )(C 14,982
Other assets, net............................................... 4,724 (2,746)(B) 1,978
------------ ----------- ------------
Total Assets.................................................. $ 94,004 $ 11,692 $ 105,696
------------ ----------- ------------
------------ ----------- ------------
LIABILITIES
Mortgage notes payable.......................................... $ 4,940 $ -- $ 4,940
Accounts payable and accrued liabilities........................ 1,276 -- 1,276
Management fees payable......................................... 249 -- 249
------------ ----------- ------------
Total Liabilities............................................. 6,465 -- 6,465
------------ ----------- ------------
Minority interest in operating partnership........................ 322 11,692(C) 12,014
------------ ----------- ------------
STOCKHOLDERS' EQUITY
Common stock.................................................... 252 -- 252
Additional paid-in capital...................................... 230,112 -- 230,112
Cumulative dividends............................................ (242,241) -- (242,241)
Cumulative net income........................................... 99,476 -- 99,476
------------ ----------- ------------
Dividends in excess of net income............................. (142,765) -- (142,765)
Unrealized holding losses on debt securities.................... (382) -- (382)
------------ ----------- ------------
Total Stockholders' Equity.................................... 87,217 -- 87,217
------------ ----------- ------------
Total Liabilities and Stockholders' Equity.................... $ 94,004 $ 11,692 $ 105,696
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
13
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------
ACQUISITION OF
INTERESTS IN
RESECURITIZATION MANUFACTURED
AS PREVIOUSLY OF NON-AGENCY HOUSING ACQUISITION PRO FORMA
REPORTED MBS BONDS COMMUNITIES OF MANAGER RESULTS
------------- ------------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income................................ $ 568 $ -- $ 1,752(G) $ -- $ 2,320
Equity in earnings of rental property joint
ventures................................... -- -- 359(H) -- 359
Property management income................... 23 -- 75(I) -- 98
REIT management income....................... -- -- -- 1,359(N) 1,359
Non-agency MBS bonds......................... 2,450 (2,000)(D) -- -- 450
Equity in earnings of Commercial Assets...... 948 -- -- -- 948
Interest and other income.................... 847 830(E) (672)(J) -- 1,005
------------- ------- ------- ------------ -----------
Total revenues............................. 4,836 (1,170) 1,514 1,359 6,539
------------- ------- ------- ------------ -----------
EXPENSES
Property operations and maintenance.......... 174 -- 618(G) -- 792
Real estate taxes............................ 53 -- 167(G) -- 220
Property management expenses................. 31 -- 90(I) -- 121
REIT management expenses..................... -- -- -- 591(N) 591
Management fees.............................. 374 (248)(F) 240(K) (366)(O) --
General and administrative................... 423 (42)(D) -- 372(N) 753
Depreciation and amortization................ 149 -- 447(L) 625(P) 1,221
Interest..................................... 81 (26)(E) 153(M) -- 208
Minority interest............................ -- -- -- 1,211(Q) 1,211
------------- ------- ------- ------------ -----------
Total expenses............................. 1,285 (316) 1,715 2,433 5,117
------------- ------- ------- ------------ -----------
NET INCOME BEFORE GAIN ON RESECURITIZATION OF
NON-AGENCY MBS BONDS......................... 3,551 (854) (201) (1,074) 1,422
Gain on resecuritization of non-agency MBS
bonds........................................ 7,359 -- -- 7,359
Management fees on resecuritization of non-
agency MBS bonds............................. (2,072) 145(F) -- 1,927(O) --
------------- ------- ------- ------------ -----------
NET INCOME..................................... $ 8,838 $ (709) $ (201) $ 853 $ 8,781
------------- ------- ------- ------------ -----------
------------- ------- ------- ------------ -----------
NET INCOME PER SHARE........................... $ 0.35 $ 0.35
------------- -----------
------------- -----------
Weighted-average shares outstanding............ 24,952 24,952
OTHER DATA--FUNDS FROM OPERATIONS:
NET INCOME..................................... $ 8,838 $ (709) $ (201) $ 853 $ 8,781
Amortization of discounts on non-agency MBS
bonds........................................ 469 (469)(D) -- -- --
Depreciation of rental properties.............. 130 -- 397(L) -- 527
Amortization of goodwill on management
contracts.................................... 19 -- 50(L) 625(P) 694
------------- ------- ------- ------------ -----------
FUNDS FROM OPERATIONS.......................... $ 9,456 $ (1,178) $ 246 $ 1,478 $ 10,002
------------- ------- ------- ------------ -----------
------------- ------- ------- ------------ -----------
FUNDS FROM OPERATIONS PER SHARE................ $ 0.38 $ 0.40
------------- -----------
------------- -----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
14
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------
ACQUISITION OF
RESECURITIZATION INTERESTS IN
OF MANUFACTURED
AS PREVIOUSLY NON-AGENCY MBS HOUSING ACQUISITION OF PRO FORMA
REPORTED BONDS COMMUNITIES MANAGER RESULTS
------------- ----------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income.............................. $ -- $ -- $ 4,419(G) $ -- $ 4,419
Equity in earnings of rental property joint
ventures................................. -- -- 573(H) -- 573
Property management income................. -- -- 198(I) -- 198
REIT management income..................... -- -- -- 2,498(N) 2,498
Non-agency MBS bonds....................... 11,513 (11,513)(D) -- -- --
Equity in earnings of Commercial Assets.... 1,875 -- -- -- 1,875
Interest and other income.................. 136 3,329(E) (1,622)(J) -- 1,843
------------- -------- ------- ------- -----------
Total revenues........................... 13,524 (8,184) 3,568 2,498 11,406
------------- -------- ------- ------- -----------
EXPENSES
Property operations and maintenance........ -- -- 1,545(G) 1,545
Real estate taxes.......................... -- -- 438(G) 438
Property management expenses............... -- -- 240(I) 240
REIT management expenses................... -- -- -- 1,182(N) 1,182
Management fees............................ 1,793 (1,664)(F) 541(K) (670)(O) --
General and administrative................. 1,145 (82)(D) -- 744(N) 1,807
Elimination of DERs........................ 825 -- -- -- 825
Depreciation and amortization.............. -- -- 1,059(L) 1,249(P) 2,308
Interest................................... 88 (88)(E) 408(M) -- 408
Minority interest.......................... -- -- -- 1,224(Q) 1,224
------------- -------- ------- ------- -----------
Total expenses........................... 3,851 (1,834) 4,231 3,729 9,977
------------- -------- ------- ------- -----------
NET INCOME BEFORE GAIN ON RESECURITIZATION
OF NON-AGENCY MBS BONDS.................. 9,673 (6,350) (663) (1,231) 1,429
Gain on resecuritization of non-agency MBS
bonds...................................... -- 7,359 -- -- 7,359
Management fees on resecuritization of non-
agency MBS bonds........................... -- (1,466)(F) -- 1,466(O) --
------------- -------- ------- ------- -----------
NET INCOME................................... $ 9,673 $ (457) $ (663) $ 235 $ 8,788
------------- -------- ------- ------- -----------
------------- -------- ------- ------- -----------
NET INCOME PER SHARE......................... $ 0.39 $ 0.35
------------- -----------
------------- -----------
Weighted-average shares outstanding.......... 24,595 24,958
OTHER DATA--FUNDS FROM OPERATIONS:
NET INCOME................................... $ 9,673 $ (457) $ (663) $ 235 $ 8,788
Amortization of discounts on non-agency MBS
bonds...................................... 2,998 (2,998)(D) -- -- --
Depreciation of rental properties............ -- -- 920(L) -- 920
Amortization of goodwill on management
contracts.................................. -- -- 139(L) 1,249(P) 1,388
------------- -------- ------- ------- -----------
FUNDS FROM OPERATIONS........................ $ 12,671 $ (3,455) $ 396 $ 1,484 $ 11,096
------------- -------- ------- ------- -----------
------------- -------- ------- ------- -----------
FUNDS FROM OPERATIONS PER SHARE.............. $ 0.52 $ 0.44
------------- -----------
------------- -----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
15
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
The pro forma condensed consolidated balance sheet of the Company as of June 30,
1997, is presented as if the July 30, 1997, acquisition of an interest in
manufactured housing communities and the proposed acquisition of the Manager had
occurred on June 30, 1997. The pro forma condensed consolidated statements of
income are presented as if the March 27, 1997 resecuritization of the non-agency
MBS bonds, the May 14, 1997 and July 30, 1997, manufactured housing acquisition
transactions and the proposed acquisition of the Manager had occurred: (i) on
January 1, 1997, for the statement of income for the six months ended June 30,
1997; and (ii) on January 1, 1996, for the statement of income for the year
ended December 31, 1996. In management's opinion, all adjustments necessary to
reflect the resecuritization of the Company's non-agency MBS bond portfolio, the
acquisition of interests in manufactured housing communities and related assets
and the proposed acquisition of the Manager have been made. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1996, the Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, which accompany this Proxy Statement, and the Company's Current Report on
Form 8-K dated July 30, 1997, which is incorporated by reference.
"Funds from operations" as defined by the national Association of Real
Estate Investment Trusts represents net income computed in accordance with
generally accepted accounting principles ("GAAP") plus depreciation and
amortization. Funds from operations should not be considered as an alternative
to net or operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. The
Company believes that funds from operations is helpful to a reader as a measure
of the performance of a REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides an
indication of the ability of the Company to incur and service debt, to declare
dividends, to make capital expenditures and to fund other cash needs.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been assuming the transactions had been completed as of
the dates indicated, nor does it purport to represent the future financial
position or results of operations of the Company.
(a) Reflects $10,000,000 of cash advanced under notes receivable secured by four
manufactured housing communities.
(b) Reflects reclassification of $256,000 in advances and other costs for the
acquisition of the 50% joint venture interest in a manufactured housing
community and $2,490,000 in unamortized goodwill paid for the acquisition of
manufactured housing community management contracts reflected in other
assets at June 30, 1997.
(c) Reflects consideration for the acquisition of the Manager of $11,692,000 in
AIOP Units and the cash payment of $800,000 of related transaction costs.
(d) Eliminates income from and expenses directly attributable to the non-agency
MBS bonds as a result of the resecuritization.
(e) Reflects the assumption that a portion of the proceeds from the
resecuritization of the non-agency MBS bonds is used to repay outstanding
debt and the remaining proceeds are invested in short-term investments
earning 5% per annum.
(f) Eliminates base fees and administrative fees on the non-agency MBS bonds and
adjusts incentive fees based upon adjusted net income and cash earned for
Stockholders ("CEFS").
16
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(g) Reflects adjustment for the rental income and property expenses of seven
acquired manufactured housing communities.
(h) Reflects the equity in the earnings from the joint venture interests in
manufactured housing communities.
(i) Reflects expenses of the manufactured housing community management business
and income earned from the four managed communities not owned by the
Company.
(j) Eliminates the short-term investment income at 5% per annum on the cash
used to acquire the interests in manufactured housing communities and
management operations.
(k) Reflects base fees on assets acquired and additional incentive fees on
improved earnings as a result of the acquisition of the manufactured housing
communities and management operations (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 1997 31, 1996
------------------- -------------------
<S> <C> <C>
Base fees............................................... $ 165 $ 407
Incentive fees.......................................... 75 234
----- -----
Total Adjustment...................................... $ 240 $ 641
----- -----
----- -----
</TABLE>
(l) Reflects depreciation and amortization of acquired assets on the
straight-line basis over the estimated useful lives of the assets. The
estimated useful lives are 25 years for land improvements and buildings and
10 years for the cost of management contracts on communities not owned by
the Company.
(m) Reflects interest expense on the assumed debt at 8.25% per annum.
(n) Reflects the costs assumed for the administration of the Company plus fees
earned from the CAX Management Agreement and other assets and the related
costs of providing these services.
(o) Eliminates fees from the Management Agreement paid to the Manager.
(p) Reflects amortization of the cost of the assets acquired on the
straight-line basis over estimated life of 10 years.
(q) Reflects minority interest in net income allocated to the owners of AIOP
Units.
17
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and pro forma summary per
Share financial information for the six months ended June 30, 1997 and the year
ended December 31, 1996. The following information should be read in conjunction
with and is qualified in its entirety by the consolidated financial statements
and accompanying notes of the Company and the pro forma condensed consolidated
financial statements presented with this Proxy Statement. Pro forma adjustments
are detailed in the "Notes to The Pro Forma Condensed Consolidated Financial
Statements," above.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
PER SHARE DATA: JUNE 30, 1997 31, 1996
- ---------------------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Net income:
Historical................................................................ $ 0.35 $ 0.39
Pro forma before the Acquisition.......................................... $ 0.32 $ 0.34
Pro forma after the Acquisition........................................... $ 0.35 $ 0.35
Funds From Operations:
Historical................................................................ $ 0.38 $ 0.52
Pro forma before the Acquisition.......................................... $ 0.34 $ 0.39
Pro forma after the Acquisition........................................... $ 0.40 $ 0.44
Book Value
Historical................................................................ $ 3.46 $ 3.48
Pro forma before the Acquisition.......................................... $ 3.46 $ 3.46
Pro forma after the Acquisition........................................... $ 3.46 $ 3.46
</TABLE>
RISK FACTORS ASSOCIATED WITH THE ACQUISITION PROPOSAL
CONFLICTS OF INTEREST
The Shares are listed and traded on the NYSE. Under a NYSE policy governing
the continued listing of the Shares, Stockholder approval is required in
connection with certain acquisitions of businesses from directors and officers
of the Company. The owners of the Manager include investment concerns owned by
Messrs. Considine and Rhodes, executive officers and directors of the Company,
and Mr. Benson, a director of the Company. Accordingly, the Board of Directors
is seeking Stockholder approval of the Acquisition Proposal. See "Proposal No.
1--Interests of Certain Persons in the Acquisition Proposal."
Closing under the Asset Contribution Agreement is conditioned, among other
things, on the affirmative vote of the holders of a majority of the outstanding
Shares. As of the Record Date, there were 25,239,217 Shares outstanding. As of
the Record Date, Messrs. Benson, Considine and Rhodes beneficially owned an
aggregate of 805,002 Shares.
Messrs. Benson, Considine and Rhodes have advised the Company that they
intend to vote the Shares that they beneficially own in favor of the Acquisition
Proposal. Other officers and directors of the Company have advised the Company
that they intend to vote an aggregate of Shares beneficially owned by them
in favor of the Acquisition Proposal.
INCREASE IN STOCK OWNERSHIP BY MANAGEMENT
If the Acquisition is consummated, Messrs. Benson, Considine and Rhodes will
continue to constitute three of the Company's seven directors. Messrs. Considine
and Rhodes will continue to be Co-Chairmen and Co-Chief Executive Officers of
the Company. Upon consummation of the Acquisition, assuming the issuance of
3,383,479 AIOP Units pursuant to the Acquisition Proposal, the owners of the
Manager will beneficially own in the aggregate approximately 14.6% of the
outstanding Shares and AIOP Units. Pursuant to the Asset Contribution Agreement,
the Company will issue an
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aggregate of 1,200,000 AIOP Units to the Manager in the future, contingent upon
achievement of certain performance goals. See "Proposal No. 1--Interests of
Certain Persons in the Acquisition Proposal." If the contingent AIOP Units are
issued, the owners of the Manager will beneficially own in the aggregate 18.1%
of the outstanding Shares and AIOP Units (assuming the AIOP Units acquired are
converted into Shares).
NON-ARM'S LENGTH TRANSACTIONS
In consummating the Asset Contribution Agreement, the Company will engage in
certain transactions with certain of its Stockholders, officers, and directors,
which have not, or may be considered as having not, occurred at arm's-length.
The terms of the Acquisition Proposal (including the Asset Contribution
Agreement) were determined by negotiations between Messrs. Benson, Considine and
Rhodes, on the one hand, and the Special Committee, on the other hand. See
"Proposal No. 1-- Background and Reasons for the Acquisition." Nevertheless,
there can be no assurance that the terms of the Asset Contribution Agreement
represent the best terms that could have been obtained. See "Proposal No.
1--Interests of Certain Persons in the Acquisition."
NO APPRAISAL OF ASSETS
While the Special Committee and its advisors performed various analyses in
connection with their negotiation of the Asset Contribution Agreement, no
independent appraisals of the Manager's advisory business were obtained. There
can be no assurance that the value of the consideration received by Messrs.
Benson, Considine and Rhodes in connection with the Acquisition will accurately
reflect the value of the business acquired by the Company. See "Proposal No.
1--Fairness Opinion of Jefferies."
CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS
The Acquisition will expose the Company to risks to which it has not
historically been exposed, such as the risks associated with its own management
as well as the management of CAX pursuant to the CAX Management Agreement. In
particular, the Company will be exposed to: (i) the risk of inefficiencies and
the need to implement strict cost controls in managing the day-to-day activities
of the Company and CAX; (ii) the risk that the CAX Management Agreement will not
be renewed upon expiration or will not be renewed on terms as favorable as the
current terms; and (iii) the risk that the CAX Management Agreement will be lost
to competitors. While the Board of Directors anticipates that completion of the
Acquisition will be accretive to the Company's earnings, there can no assurance
of this result. Adverse developments could limit the Company's ability to
realize certain expected benefits of the Acquisition Proposal and impair the
ability of the Company to make distributions to Stockholders. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements."
EXPENSES OF OBTAINING ADDITIONAL MANAGEMENT
The success of the Company is, in part, dependent on the support, services
and contributions of Messrs. Considine and Rhodes and the Manager's existing
management team. The loss of the services of either of Messrs. Considine,
Rhodes, or the existing management team through death, disability or otherwise,
after the consummation of the Acquisition, could have a material adverse effect
on the Company. Neither of Messrs. Considine or Rhodes, nor any other member of
the management team, will have employment agreements with the Company following
the Acquisition. If one or both of Messrs. Considine and Rhodes or any other
member of the management team ceases to perform management services for the
Company or its affiliated entities, or their performance is deemed by the
Company to be unsatisfactory, the Company will be required to secure management
services from other personnel or advisory companies. There can be no assurance
in such instance that the Company would be able to obtain qualified management
or advisory services or that such services could be obtained on terms favorable
to the Company.
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The Manager is currently recruiting to fill the position of President and
Chief Operating Officer. The Company expects to continue this effort, and the
person ultimately hired to fill this position will be an integral part of the
management team. The compensation expense to the Company will increase as a
result of filling this position.
CERTAIN TAX RISKS
The Company believes that it has qualified to be taxed as a REIT under
section 856(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Company intends to continue to operate so as to qualify after the
consummation of the Acquisition. A REIT generally is not subject to federal
corporate income taxes on that portion of its income distributed currently to
stockholders. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual and quarterly basis) established under highly
technical and complex Code provisions for which there are only limited judicial
and administrative interpretations, as well as the determination of various
factual matters and circumstances not entirely within the Company's control. Two
of such requirements are that at least 75% of the Company's gross income for
each taxable year generally must be derived from investments in real property
and at least 95% of the Company's gross income for each taxable year must be
derived from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities. In addition, the Company
generally may not own more than ten percent of any one issuer's outstanding
voting securities and the value of any one issuer's securities owned by the
Company may not exceed five percent of the value of the Company's total assets.
For purposes of these tests, the Company is deemed to own its proportionate
share of the assets of AIOP and will be deemed to be entitled to the income of
AIOP attributable to its share of such assets.
If income earned under the CAX Management Agreement were earned directly by
the Company or AIOP, such income would constitute disqualified income for
purposes of the 75% and the 95% income tests. However, the Company anticipates
that the CAX Management Agreement and certain other assets contributed to AIOP
by the Manager will be contributed to AIC Management Corporation, a company to
be formed if the Acquisition is approved ("AICMC") by AIOP. AIOP will own less
than 5% of the voting securities of AICMC. AICMC will be taxable as a regular
corporation. As a result, the income earned by AICMC under the CAX Management
Agreement will be received by AIOP only indirectly as dividends and interest on
notes owed to AIOP by AICMC. The Company's proportionate share of such income
will constitute qualified income for purposes of the 95% income test. Although
such income will not qualify for purposes of the 75% income test, the Company
believes that its share of such income will not cause it to violate such test.
In addition, although the Company believes that the value of its proportionate
share of the voting securities of AICMC to be held by AIOP will not exceed five
percent of the value of the total assets of the Company, no independent
appraisals will be obtained and there can be no assurance that the Internal
Revenue Service will agree with the Company's valuation.
In order to maintain its qualification as a REIT for federal income tax
purposes, not more than 50% of the value of the outstanding capital stock of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined for federal income tax purposes to include certain entities) during the
last half of each taxable year of the Company. Although the Company will not
issue any additional Shares in connection with the Acquisition, to the extent
that any of the AIOP Units issued to the Manager subsequently are converted into
Shares, such Shares could result in an increase in the percentage of the value
of Shares owned by certain individuals. The Company does not expect that any
such increase in the Shares owned by such individuals would cause the Company to
violate the Share ownership requirements discussed above. In addition, the
Articles and the AIOP Limited Partnership Agreement (the "OP Agreement") contain
certain provisions intended to assist the Company in satisfying such Share
ownership requirements.
Although the Company believes that it will be organized and will continue to
operate so as to maintain its status as a REIT, no assurance can be given that
the Company will be organized or will be
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able to continue to operate in a manner so as to remain so qualified. In
addition, no assurance can be given that legislation, new Department of Treasury
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. If the Company were to
fail to qualify as a REIT in any taxable year, it would be subject to federal
and state income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to Stockholders because of the
additional tax liability of the Company for the years involved. In addition, the
Company would no longer be required to make distributions to Stockholders.
Even if the Company maintains its qualification as a REIT, it will be
subject to certain federal, state and local taxes on its income and assets. In
addition, AICMC's income from its management and advisory operations for CAX
generally will be subject to federal income tax at regular corporate rates. See
"Proposal No. 1--Certain Federal Income Tax Consequences."
SHARES ELIGIBLE FOR FUTURE SALE
Although the recent and historical trading prices of the Shares were given
substantial consideration in determining the terms of the Acquisition Proposal,
there can be no assurance that the market price of the Shares following the
Acquisition will not be less than the current market price of the Shares. Sales
of a substantial number of Shares, or the perception that such sales could
occur, could adversely affect prevailing market prices for Shares. On the
Closing Date (as defined below), the Company will issue 3,383,479 AIOP Units to
the Manager. In connection with the Earnout, Messrs. Benson, Considine and
Rhodes and the other owners of the Manager may receive an additional aggregate
of 1,200,000 AIOP Units. Each AIOP Unit is convertible by the holder into either
Shares or cash, at the election of the Company, which is the general partner of
AIOP. This right of conversion cannot be exercised earlier than one year from
the issuance of AIOP Units. If the Company elects to convert the AIOP Units into
Shares, Messrs. Benson, Considine, Rhodes, and the other owners of the Manager
will have certain rights to require the Company to register for public sale the
Shares they receive in connection with conversion of AIOP Units. While Messrs.
Benson, Considine and Rhodes have advised the Company that they do not presently
intend to cause the Manager to exercise their registration rights in the
foreseeable future, no prediction can be made about the effect that future sales
of Shares, or the perception that such sales could occur, would have on the
market prices of Shares.
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GENERAL INFORMATION
VOTING RIGHTS AND VOTES REQUIRED
Holders of Shares at the close of business on October , 1997, the Record
Date, are entitled to notice of, and to vote at, the Meeting. On the Record
Date, [25,239,217] Shares were outstanding. The presence, in person or by proxy,
of holders of a majority of the Shares entitled to vote at the Meeting
constitutes a quorum for the transaction of business at the Meeting.
Each Share outstanding on the Record Date is entitled to one vote on all
matters presented at the Meeting. The affirmative vote of a majority of the
votes cast at the Meeting by Stockholders present or represented and entitled to
vote on the proposal is required for the Acquisition Proposal. The affirmative
vote of a plurality of all votes cast at the Meeting by the Stockholders is
required for the election of Directors. The affirmative vote of two-thirds of
the votes entitled to be cast on the proposal is required to amend the Articles
to effect the Reverse Stock Split of the Company's Shares on a basis of one (1)
new Share for each five (5) Shares currently outstanding.
Abstentions will be treated as Shares present and entitled to vote for
purposes of determining the presence of a quorum but will not be considered as
votes cast in determining whether a matter has been approved by the
Stockholders. If a broker or other record holder or nominee indicates on a proxy
that it does not have authority as to certain Shares to vote on a particular
matter, those Shares will not be considered as present and entitled to vote with
respect to that matter.
VOTING OF PROXIES
Shares represented by all properly completed and signed proxies received in
time for the Meeting will be voted as specified in the proxy. Unless contrary
instructions are indicated on the proxy, the Shares represented by such proxy
will be voted "FOR" the Acquisition Proposal; "FOR" the election of Messrs.
Considine, Benson, Rhodes and White as Directors of the Company; and "FOR" the
Reverse Stock Split. Management and the Board of Directors of the Company know
of no other matters to be brought before the Meeting other than as described
herein. If any other matters are presented properly to the Stockholders for
action at the Meeting or any adjournments or postponements thereof, the proxy
holders named in the enclosed proxy intend to vote in their discretion on all
matters on which the Shares represented by such proxy are entitled to vote.
REVOCABILITY OF PROXY
The giving of the enclosed proxy does not preclude the right to vote in
person should the Stockholder giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by notice in writing sent to the Secretary of
the Company that the proxy is revoked, by presenting to the Company a
later-dated proxy or by attending the Meeting and voting in person.
ANNUAL REPORT
The Company's 1996 Annual Report to Stockholders, including the Company's
annual report on Form 10-K for the year ended December 31, 1996 (the "Annual
Report"), contains financial and other information about the activities of the
Company, including consolidated financial statements for the year ended December
31, 1996, and has previously been mailed to Stockholders. The Company's annual
report on Form 10-K for the year ended December 31, 1996 and its quarterly
report on Form 10-Q for the quarter ended June 30, 1997, both as filed with the
Commission, accompany this Proxy Statement.
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PROPOSAL NO. 1
PROPOSED ACQUISITION OF FINANCIAL ASSET MANAGEMENT LLC
RECOMMENDATION OF THE BOARD
For the reasons described under the caption "--Background and Reasons for
the Acquisition Proposal," the Special Committee of the Board formed for the
purpose of evaluating the Acquisition (which represents a majority of the Board
of Directors) has unanimously approved the Acquisition Proposal having
determined that the Acquisition Proposal is fair to and in the best interests of
the Company and the Stockholders. Based on the recommendation of the Special
Committee of the Board, the Board recommends that Stockholders vote "FOR" the
Acquisition Proposal.
GENERAL
Since its formation in 1986 as a REIT, the Company has been externally
managed. The Company's day-to-day operations are performed by the Manager
pursuant to the Management Agreement, which is extended annually subject to the
approval of a majority of the Company's Independent Directors, as defined in the
Articles (the "Independent Directors"). The Manager is subject to the
supervision of the Board of Directors. As part of its duties, the Manager
presents the Company with asset acquisition opportunities consistent with the
policies and objectives of the Company and furnishes the Board of Directors with
information concerning the acquisition, holding and disposition of assets. The
Company has no employees. Certain employees of the Manager have been designated
as officers of the Company.
The Management Agreement has a one-year term ending December 31, 1997, and
is approved by the Independent Directors. It may be terminated by either party
with or without cause at any time upon 60 days' written notice. In addition, the
Company has the right to terminate the Management Agreement upon the occurrence
of certain specified events including, among other things, a breach by the
Manager of any material provision, which breach remains uncured for 30 days, or
the bankruptcy of the Manager. The Management Agreement also may be terminated
at any time by a majority vote of either the Independent Directors or
Stockholders. The Manager would be entitled to certain termination payments if,
among other things, the Company is acquired and such acquisition results in the
termination of the Management Agreement.
The Manager receives various fees for the advisory and other services
performed in connection with the Management Agreement. The Manager provides all
personnel and certain overhead items (at its expense) necessary to conduct the
regular business of the Company.
The Company has agreed to indemnify the Manager and its affiliates with
respect to all expenses, losses, damages, liabilities, demands, charges or
claims of any nature in respect of acts or omissions of the Manager made in good
faith and in accordance with the standards set forth in the Management
Agreement.
Pursuant to the Management Agreement, through March 31, 1997, the Manager
received a "Base Fee," an "Incentive Fee" and an "Administrative Fee," all of
which were payable quarterly per the terms of the Management Agreement. The Base
Fee was an annual fee equal to 3/8 of 1% of the "average invested assets" of the
Company and its subsidiaries for such year. The Incentive Fee was equal to 20%
of the amount of the Company's net book income, calculated in accordance with
GAAP which was in excess of the return on the Company's "average net worth"
equal to the "Ten-Year U.S. Treasury Rate" plus 1%. The Manager performed
certain bond administration and other related services for the Company pursuant
to the Management Agreement and received an Administrative Fee of up to $3,500
per annum per bond for such services.
Due to the shift in portfolio assets to equity investments in real estate
after the resecuritization of the Company's non-agency MBS bonds in March 1997,
the Independent Directors of the Company approved an amendment to the Management
Agreement, effective April 1, 1997. The amendment:
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(i) increased the Base Fee from 3/8 of 1% to 1% per annum of "average invested
assets;" (ii) provided for an acquisition fee (the "Acquisition Fee") of 1/2 of
1% of the cost of real estate investments; and (iii) changed the Incentive Fee
to be calculated from CEFS rather than net book income. CEFS is equal to the
Company's net book income adjusted by: (i) depreciation and amortization of
rental properties and management contracts; (ii) capital replacement reserves;
and (iii) certain other non-cash expenditures. The Administrative Fee was
substantially eliminated as a result of the resecuritization of the non-agency
MBS bonds.
The Base Fees and the Administrative Fees for the year ended December 31,
1996 were $230,000 and $732,000, respectively, and for the six months ended June
30, 1997 were $97,000 and $224,000, respectively. The Manager also received
Incentive Fees of $831,000 for the year ended December 31, 1996 and $53,000 for
the six months ended June 30, 1997. Acquisition Fees were $152,000 for the six
months ended June 30, 1997, and fees related to the gain on the resecuritization
of the non-agency MBS bonds were $2,072,000 for the six months ended June 30,
1997.
The Manager also provides management and advisory services to CAX, pursuant
to the CAX Management Agreement, which is similar to the Management Agreement
between the Manager and the Company. The base fees and the administrative fees
paid by CAX under the CAX Management Agreement for the year ended December 31,
1996 were $654,000 and $58,000, respectively, and for the six months ended June
30, 1997 were $341,000 and $30,000, respectively. The Manager received incentive
fees from CAX of $713,000 for the year ended December 31, 1996 and $237,000 for
the six months ended June 30, 1997, and acquisition fees of $23,000 for the six
months ended June 30, 1997.
For the reasons discussed under the caption "--Background and Reasons for
the Acquisition Proposal," the Board of Directors (with Messrs. Benson,
Considine and Rhodes abstaining) and the Special Committee have concluded that
the best interests of the Company would be served by the Company becoming
self-managed. As a result, the Company has entered into the Asset Contribution
Agreement, pursuant to which, subject to Stockholder approval among other
things, AIOP will acquire a newly-created entity, New FAM, which will hold the
assets and operations of the Manager's advisory business.
BACKGROUND AND REASONS FOR THE ACQUISITION PROPOSAL
On September 30, 1996, an investor group led by Messrs. Considine, Rhodes
and Benson acquired 100% of the Manager from its former owner, subsidiaries of
M.D.C. Holdings, Inc. The purchase price for such acquisition was $11,692,000,
comprised of $6,242,000 in cash and $5,450,000 in promissory notes, convertible
into the equity of the Manager. In connection with the sale, Messrs. Considine
and Rhodes were elected as Co-Chairmen of the Board of Directors and Co-Chief
Executive Officers of the Company and CAX. Subsequent to such acquisition, Mr.
Benson was elected to the Board of Directors of the Company and CAX.
Subsequent to such acquisition, new management undertook a review of the
Company's business, assets, operations and prospects. This review led to
management's recommendation that the Company adopt a new strategic direction. On
February 24, 1997, the Board of Directors adopted the 1997 Strategic Plan, a
multi-step plan to restructure the Company's asset base and redeploy its assets
in order to reduce portfolio risks and maximize long-term, risk-adjusted returns
to Stockholders. The elements of the 1997 Strategic Plan were the (i)
resecuritization of the Company's portfolio of subordinate non-agency MBS bonds
(generally, first-loss positions in pools of mortgage loans on residential
properties); (ii) reinvestment of the cash from the resecuritization in real
estate, a step which was expected to reduce the Company's current return on
assets but also might result in increased opportunities for capital appreciation
and reduced portfolio risk; (iii) conversion of the Company to an UPREIT through
the contribution of the Company's assets to an operating partnership, which was
intended to facilitate the future acquisition of real estate; and (iv)
acquisition of the Manager, a step intended to result in the Company becoming
self-managed and fully integrated.
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RESECURITIZATION. The Company completed the resecuritization transaction
contemplated by the 1997 Strategic Plan on March 27, 1997 by contributing the
non-agency MBS bonds to an owner trust in which it retained an equity interest.
The owner trust sold, for $70,795,000 in cash, privately-placed debt securities
representing senior interests in the trust's assets, without recourse to the
Company. The Company's equity interest in the trust has no carrying value and
represents the first-loss class of the portfolio, providing credit support for
the senior debt securities. In connection with the transaction, the Company
incurred approximately $1,050,000 in related costs and approximately $2,072,000
of fees paid to the Manager, resulting in net proceeds of approximately
$67,673,000. The transaction resulted in a gain of $7,360,000 less related
management fee expense of $2,072,000, which was recognized in the first quarter
of 1997.
The Company has conducted its operations so as not to become regulated as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The 1940 Act exempts entities that, directly or through
majority-owned subsidiaries, are "primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens on and interests in
real estate" ("Qualifying Interests"). In order to qualify for this exemption,
the Company, among other things, must maintain at least 55% of its assets in
Qualifying Interests and may also be required to maintain an additional 25% in
Qualifying Interests or other real estate-related securities. As a result of the
resecuritization transaction, the Company held insufficient Qualifying Interests
to claim this exemption. The Company is primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens on and interests in
real estate, and does not now engage, nor has it engaged or intended to engage
in the business of investing, reinvesting, owning, holding or trading of
securities. Since the closing of resecuritization, the Company has taken the
steps necessary to give itself the benefits of a temporary exemption under the
1940 Act. In carrying out the 1997 Strategic Plan, new real estate assets
acquired by the Company have been Qualifying Interests, and the Company intends
that any additional real estate assets acquired by the Company will be
Qualifying Interests.
REINVESTMENT. The Company made its first real estate acquisition on May 14,
1997, when it acquired seven manufactured housing communities, a 50% joint
venture interest in another manufactured housing community and certain
manufactured housing community management contracts from Brandywine Communities,
an unaffiliated party, for an aggregate purchase price of $29,399,000. The
consideration consisted of $22,871,000 of cash, the assumption of $4,962,000 of
existing debt, 363,372 Shares and 91,760 AIOP Units. In addition, on July 30,
1997 the Company acquired two mortgages aggregating $10,000,000 secured by four
manufactured housing communities. One of the mortgages includes certain equity
features, including the right to purchase the properties. The Company is
evaluating a number of other manufactured housing community acquisitions. See
"Information Concerning the Company."
CONVERSION TO UPREIT. The Company converted to an UPREIT in May 1997 by
contributing its assets to an operating partnership, AIOP, while retaining the
general partner's interest, pursuant to the OP Agreement. The OP Agreement
authorizes AIOP to issue AIOP Units. The OP Agreement provides that, subject to
compliance with applicable securities laws, the limited partners of AIOP are
granted the right, but not the obligation, to convert all or a portion of each
such limited partner's AIOP Units into Shares or cash, as determined by the
Company in its discretion, upon the terms and conditions set forth in the OP
Agreement. Each AIOP Unit is convertible into one Share, or the cash equivalent
thereof. No AIOP Unit may be converted earlier than one year from its issuance
by AIOP. The Company intends to use AIOP Units as a form of currency to grow the
asset base of the Company. Under existing federal tax laws, the owner of real
estate or other assets who contributes such assets to AIOP in exchange for AIOP
Units will defer, in most instances, the gain in connection with such
contribution unless and until such owner exercises its conversion option, or the
underlying asset is sold or refinanced. Thus, a real estate owner who
contributes its assets to AIOP in exchange for AIOP Units may defer its taxable
gain at the federal level, while receiving AIOP Units that are convertible into
a liquid security. Although any Shares issued upon conversion will not
automatically be registered under the Securities Act, or listed on the NYSE,
each AIOP limited partner is expected to be entitled
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to the benefits of a registration rights agreement, which provides a mechanism
for such registration and listing to be accomplished at the Company's expense.
ACQUISITION OF THE MANAGER. In mid-December 1996, Mr. Considine approached
all of the Company's Independent Directors regarding the possibility of the
Company becoming a self-administered and self-managed REIT. On December 16,
1996, the Board met and discussed Mr. Considine's suggestions and the
possibility of the Company becoming self-administered and self-managed through
an acquisition of the Manager in exchange for Shares. At this time, the
Independent Directors discussed with Messrs. Benson, Considine and Rhodes their
desire to form a special committee of Directors to consider the advisability of
becoming a self-administered and self-managed REIT. The sense of the Board at
this time was that the Independent Directors should consult with their counsel,
Paul, Weiss, Rifkind, Wharton & Garrison, and determine the advisability of
forming a special committee and retaining an independent financial advisor. No
agreements or understandings were reached at this meeting regarding any possible
transaction.
Following the Independent Directors' consultation with their counsel
regarding the formation of a special committee, the Board, on January 22, 1997,
authorized the formation of the Special Committee to consist of all of the
Company's Independent Directors, Messrs. Kline, Schultz, White, and Mr.
Robinson, none of whom has an interest in the Manager. The Special Committee was
to consider whether, and on what basis, the Company should become
self-administered and self-managed, including consideration of the possible
acquisition of the Manager. The Board also authorized the Special Committee to
retain a financial advisor to be selected by the Special Committee to advise it
with respect to the whether the Company should become self-administered and
self-managed and to render an opinion concerning the fairness of any proposed
transaction to the Company and its Public Stockholders from a financial point of
view.
The Special Committee met on February 4, 1997, and elected William White as
its chairman and retained Paul, Weiss, Rifkind, Wharton & Garrison as special
counsel to the Special Committee. The Special Committee discussed the issue of
becoming self-managed and determined to consider a transaction to acquire the
Manager if acceptable terms could be negotiated and if it was satisfied with the
Manager's goals and objectives. Members of the Committee decided to retain an
independent financial investment banking firm with no prior relationship with
the Company or the Manager to advise it in connection with the possible
transaction and a search was undertaken to engage a financial advisor. In the
ensuing weeks, the Special Committee considered and interviewed several possible
advisors, and on April 22, 1997, the Special Committee retained Jefferies to
advise it in deciding whether the Company should become self-managed, to assist
in the negotiation of an acquisition agreement, and to render an opinion
concerning the fairness of any proposed transaction to the Company and its
Public Stockholders from a financial point of view. An engagement letter was
entered into with Jefferies after negotiation of the terms thereof by the
Special Committee and its special counsel. The terms of the engagement letter
are set forth in "--Fairness Opinion of Jefferies". Jefferies received
information from the Company and the Manager with respect to the operations of
the Manager and participated along with special counsel in discussions with
members of the Special Committee concerning the structuring and terms of a
possible transaction. Special counsel also participated in discussions with the
Manager and the Manager's accountants and counsel, in connection with the tax
aspects of such a transaction.
At a meeting on May 19, 1997, the members of the Special Committee, after
hearing a preliminary report from Jefferies and from special counsel, determined
that being self-managed and self-administered would be in the best interest of
the Company and its Public Stockholders and that a transaction with the Manager
to accomplish such was, in principle, desirable. The members of the Special
Committee also expressed their beliefs that the management team of the Manager
had been effective in the management of the Company to date, and that the base
price to be paid for the Manager should not exceed the price which the owners of
the Manager, Messrs. Benson, Considine and Rhodes and others, had paid in
September 1996 to acquire the Manager. Members of the Special Committee,
however, expressed their belief that an earnout based on performance goals could
and should be added
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to the base price, since attaining performance goals would demonstrate added
value to Stockholders. These preliminary thoughts were communicated to Mr.
Considine.
On June 4, 1997, Mr. Considine provided Mr. White with a written proposal
for the Company to acquire the Manager. This proposal contemplated that the
Company would acquire the Manager's advisory business for fixed consideration
equal to the cost that Messrs. Benson, Considine, Rhodes and others had paid in
September 1996 plus future contingent consideration tied to the Company's
achievement of specified performance goals to be set by the Special Committee
for the management team. The contingent consideration was to equal a combination
of 600,000 AIOP Units for the achievement by the Company of certain performance
goals and 600,000 AIOP Units for the achievement by the Company of other
performance goals. See "Description of the Asset Contribution
Agreement--Contribution and Consideration to be Paid."
After receipt of Mr. Considine's written proposal, Mr. White provided copies
to each of the members of the Special Committee, Jefferies and special counsel
to the Special Committee. Subsequently, special counsel discussed certain legal
and other issues raised by the proposal with counsel for the Manager.
On June 16, 1997, the Special Committee determined in principle to recommend
to the Board this transaction at the cost at which Messrs. Benson, Considine and
Rhodes had acquired the Company plus the Earnout in the aggregate amount
described in the proposal presented to the Special Committee by Mr. Considine on
June 4, 1997. However, there were numerous terms, including the conditions under
which the Earnout would be paid, and representations and warranties and other
relevant terms that remained to be determined. Upon receiving advice from
Jefferies and the Committee's special counsel, the Special Committee continued
negotiations (through its special counsel) of the terms of an acquisition of the
Manager. In these discussions, the terms of the Earnout formula and other terms
and conditions to the Asset Contribution Agreement were further developed.
Following the June 16, 1997 meeting, counsel for the Manager prepared a summary
of the material terms of Mr. Considine's proposal and furnished this summary to
the Special Committee and its special counsel.
On June 17, 1997, the Board of Directors held a previously scheduled meeting
and discussed, among other things, Mr. Considine's June 4, 1997, proposal and
the subsequent conversations between counsel for the Special Committee and
counsel for the Manager. During this meeting, the Special Committee, on the one
hand, and Messrs. Benson, Considine and Rhodes, on the other hand, discussed
principally the performance goals applicable to the various elements of the
Earnout. The Board instructed special counsel for the Special Committee and
counsel for the Manager to reduce to writing the essential terms of the
transaction for the consideration of the Board.
On June 30, 1997, the Special Committee held a meeting and discussed the
summary of material terms previously prepared and furnished by the counsel for
the Manager. Following this meeting, at the direction of the Special Committee,
its special counsel communicated the comments of the Special Committee to
counsel for the Manager. These comments related particularly to the performance
goals which could be considered in the determination of the Earnout.
On July 1, 1997, the Board held a telephonic meeting to discuss the economic
terms of the Acquisition Proposal. At this meeting, the Special Committee
indicated that it would be willing to recommend for Stockholder consideration a
transaction having substantially the same economic terms that are currently set
forth in the Acquisition Proposal. See "--Description of the Asset Contribution
Agreement." The Special Committee and Messrs. Benson, Considine and Rhodes
instructed counsel to prepare a draft Proxy Statement and acquisition agreement
that reflected the terms of the parties' agreement in principle. A draft of the
Asset Contribution Agreement reflecting the agreement in principle was prepared
by counsel to the Manager and was distributed to, reviewed by, and discussed
among the Special Committee, its special counsel and representatives of
Jefferies. Preliminary negotiations with respect to the agreement occurred in
July primarily through discussions between special counsel to the Special
Committee and counsel to the Manager.
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On July 28, 1997, the Special Committee held a meeting to discuss the most
recent draft of the Asset Contribution Agreement. Numerous provisions of the
Asset Contribution Agreement, including the performance goals applicable to the
various elements of the Earnout, the basis for determining the nature of the
consideration to be paid, the structure of the acquisition, registration rights
applicable to shares to be issued to Messrs. Benson, Considine and Rhodes and
other sellers, and non-competition provisions, among other issues, were
discussed. Following this meeting, at the direction of the Special Committee,
counsel to the Special Committee communicated the comments of the Special
Committee to counsel for the Manager. Negotiations with respect to the Asset
Contribution Agreement occurred in early August 1997 primarily through
discussions between the counsel to the Special Committee and counsel to the
Manager.
On August 19, 1997, the Board held a meeting to review the terms of the
Acquisition Proposal in light of various issues that had been raised during the
process of documenting the transaction, concerning principally the duration and
other terms of the future contingent consideration to be received. At this
meeting, the Special Committee and Messrs. Benson, Considine and Rhodes reached
agreement on such terms (which are reflected in the Asset Contribution
Agreement), and the parties determined to recommend the Asset Contribution
Agreement to the Public Stockholders subject to the final delivery of an opinion
by Jefferies that the Acquisition Proposal is fair to the Public Stockholders
from a financial point of view.
On September 8, 1997, Jefferies made a presentation to the Special
Committee, including certain written materials and its form of opinion, and gave
its opinion that, subject to final documentation and certain other matters, the
Acquisition Proposal, as set forth in a draft of this Proxy Statement and a
draft of the Asset Contribution Agreement, were fair to the Company and the
Public Stockholders from a financial point of view. After this presentation, and
considering all of the factors it deemed relevant, the Special Committee
recommended to the Board, and the Board (with Messrs. Benson, Considine and
Rhodes abstaining) approved, the signing of the Asset Contribution Agreement. On
September 8, 1997, the Company (at the direction of the Special Committee) and
the Manager executed the Asset Contribution Agreement.
In its deliberations concerning the Acquisition Proposal, the Special
Committee was free to consider Mr. Considine's various proposals and any
alternatives without limitation. In this regard, with the assistance of
Jefferies, the Special Committee considered (i) the continued operation of the
Company with the services of the Manager being provided under the existing
Management Agreement (and renewals thereof), (ii) the replacement of the Manager
with an alternative external advisory company or an internal management team
made up of persons other than Messrs. Considine and Rhodes and the existing
management team of the Company, and (iii) the various proposals made by Mr.
Considine. As discussed more fully below, after considering all of the factors
it deemed relevant and after discussions with Jefferies, the Special Committee
concluded that consummation of the Acquisition Proposal will better serve the
interests of the Company and its Stockholders than any of these alternatives.
See "--Alternatives to the Acquisition Proposal." The Special Committee believes
that the Acquisition Proposal, which, if consummated, will result in the Company
becoming self-administered and self-managed, should substantially eliminate
certain existing conflicts of interest between the Company and the Manager and
make the Company more attractive to institutional and other investors, improving
the Company's ability to raise capital. The Special Committee also believes that
it is important to retain the expertise and experience of Messrs. Considine and
Rhodes and the Company's existing management team in connection with the
Company's becoming self-administered and self-managed and that the equity
ownership components of the Acquisition consideration will be sufficient for
this purpose.
In connection with its consideration of the Acquisition Proposal and
alternatives to the Acquisition Proposal, the Special Committee did not seek an
independent appraisal of the assets and liabilities of the Manager because the
Special Committee believes that it received sufficient financial advice and
consultation from Jefferies and that, as a result, such an appraisal was not
necessary. As noted below, Jefferies has provided the Special Committee with its
opinion that the consideration to be paid
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by AIOP pursuant to the Acquisition Proposal is fair to the Company and the
Public Stockholders from a financial point of view. See "--Fairness Opinion of
Jefferies."
DESCRIPTION OF THE ASSET CONTRIBUTION AGREEMENT
GENERAL. If approved by the Stockholders at the Meeting, the Acquisition
Proposal will be carried out pursuant to terms and on the conditions of the
Asset Contribution Agreement among the Company, AIOP and the Manager. A copy of
the Asset Contribution Agreement is reproduced at Appendix A of this Proxy
Statement. The following summary of the principal terms of the Asset
Contribution Agreement is qualified in its entirety to Appendix A, which is
incorporated herein by reference. If the transactions contemplated by the Asset
Contribution Agreement are consummated, AIOP will cancel the Management
Agreement and contribute the CAX Management Agreement and other assets acquired
to AICMC in exchange for AICMC preferred stock and notes. The voting common
stock of AICMC will be owned by Messrs. Considine and Rhodes.
Upon the consummation of the Acquisition, the fees formerly payable by the
Company to the Manager pursuant to the Management Agreement will cease. The fees
formerly payable by CAX to the Manager pursuant to the CAX Management Agreement
will be paid to AICMC. The twelve people, including Messrs. Considine and
Rhodes, employed by the Manager to perform the services under the Management
Agreement and the CAX Management Agreement will, after the Acquisition, be
employed by the Company and by AICMC.
CONTRIBUTION AND CONSIDERATION TO BE PAID. The Manager will contribute to a
newly created single member limited liability company, New FAM, the assets and
liabilities of the advisory businesses previously conducted by the Manager
directly. Pursuant to the Asset Contribution Agreement, the Manager will
contribute to the Company 100% of the members' interests in New FAM in exchange
for consideration at closing under the Asset Contribution Agreement, valued for
purposes of the Agreement at $11,692,000, the cost at which the Manager's
advisory business was acquired by the Manager in September 1996. The
consideration to be delivered at Closing is comprised of 3,383,479 AIOP Units,
valued at $3.4556143. In addition to the consideration paid at Closing, the
Manager will be entitled to the Earnout, additional payments in the future,
contingent upon the Company's achievement of certain performance goals.
First, the Manager is entitled to receive an additional 600,000 AIOP Units
at such time as the Company's independent auditors confirm to the Special
Committee that substantially all of the proceeds of the Company's
resecuritization of its portfolio of non-agency MBS bonds ($67,673,000), less
cash invested in manufactured housing communities in May 1997, has been invested
by the Company, AIOP or both, in real estate and related assets during the
18-month period (which may be extended up to an additional six months at the
discretion of the Special Committee) subsequent to June 17, 1997 that has
achieved an annualized return over any six month period of at least 9% during
the 24-month period (which may be extended up to an additional six months at the
discretion of the Special Committee) subsequent to June 17, 1997. For purposes
of the preceding sentence, the "return" shall be measured by computing GAAP net
income for the period in question plus depreciation minus reserves for capital
replacements over the total investment cost. As of the date of this Proxy
Statement, the Company has invested cash of $32,871,000 from the proceeds of the
resecuritization, issued $1,566,000 worth of Shares and AIOP Units, and assumed
$4,962,000 of existing debt for a total investment of $39,399,000 in
manufactured housing communities and related assets. The annualized cash returns
to the Company from these assets to date has averaged approximately 9%.
Second, the Manager is entitled to receive an additional 600,000 AIOP Units
if at any time during the 24 calendar month period following June 17, 1997:
either (A) at such time as the average closing price of the Shares on the NYSE
over any 90 day period exceeds $4.00 per Share, one or more of the following
events shall have occurred: (i) the Company has executed a plan for the
utilization of the Company's net operating loss carryover that has been approved
by the Board of Directors after receipt of advice from the Company's auditors;
(ii) the Company and CAX shall have completed a business
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combination that has been approved by the Company's Board of Directors as being
in the best interests of Stockholders; (iii) the Company, AIOP or both shall
have raised new financing of debt or equity in the public or private
institutional markets in the aggregate amount of at least $20,000,000 at
prevailing market rates and on terms approved by the Board of Directors as being
in the best interests of the Company; (iv) the Company shall have achieved an
investment grade rating on its debt from a nationally recognized credit rating
agency; or (B) the Company's management shall have executed another business
strategy not referred to in clauses (A) (i) through (iv) above that is approved
by the Board of Directors as being in the best interests of the Company, and the
average closing price of the Shares on the NYSE over any 90-day period during
the 24 calendar month period following June 17, 1997 exceeds $4.25 per share.
The number of AIOP Units issuable and the average closing price of Shares set
forth above shall be adjusted in the event of any changes in the Company's
capital structure, including the Reverse Stock Split.
As of the date of this Proxy Statement, there is no agreement, arrangement
or understanding as to any future business combination with CAX. Any such
transaction would be subject to the negotiation of appropriate terms and
conditions as well as approval of the Company's Board of Directors and the CAX
Board of Directors, and, depending of the structure of any such transaction or
the consideration to be offered, the stockholders of the Company, the
Independent Directors of CAX and the Stockholders of CAX. No assurance can be
given that any such transaction will be proposed, or if proposed, that it will
be consummated.
CLOSING. The Asset Contribution Agreement provides that the Closing will
occur after all of the conditions set forth in the Asset Contribution Agreement
have been satisfied or waived. It is contemplated that the closing will occur on
or after the date of the Meeting (the "Closing Date"). See
"--Conditions to Closing."
CONDUCT OF BUSINESS PRIOR TO THE CLOSING. The Manager has agreed, among
other things, that prior to the Closing Date, unless otherwise agreed in
writing, or except as otherwise may be necessary to effectuate the Acquisition
Proposal, the Manager will not conduct its business, or take any actions, other
than in the ordinary course of business and consistent with past practices.
Except as set forth in the Asset Contribution Agreement, the Manager has agreed
not to permit New FAM, among other things, to: (i) declare, set aside, or make
any distribution with respect to the Interests or redeem, purchase, or otherwise
acquire any of the Interests; (ii) sell, lease, transfer or assign any material
assets, tangible or intangible, outside the ordinary course of business; (iii)
enter into any material agreement, contract, lease, or license outside the
ordinary course of business, (iv) accelerate, terminate, make material
modifications to, or cancel any material agreement, contract, lease, or license
to which Manager is a party or by which it is bound; (v) impose any encumbrance
upon any of its assets, tangible or intangible; (vi) make any material capital
expenditures outside the ordinary course of business; (vii) make any material
capital investment in, or any material loan to, any other person outside the
ordinary course of business; (viii) create, incur, assume, or guaranty any
indebtedness for borrowed money and capitalized lease obligations; (ix) grant
any license or sublicense of any material rights under or with respect to any
intellectual property; (x) make or authorize any change in the governing
instruments of Manager; (xi) issue, sell, or otherwise dispose of any of its
Interests, or grant any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its membership
interests; (xii) make any loan to, or enter into any other transaction with, any
of its directors, officers, and employees outside the ordinary course of
business; (xiii) enter into any employment contract or collective bargaining
agreement, written or oral, or modify the terms of any existing such contract or
agreement; (xiv) grant any increase in the base compensation of any of its
directors, officers, and employees outside the ordinary course of business; (xv)
adopt, amend, modify or terminate any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or take any such action with respect to any
other employee benefit plan); (xvi) make any other material change in employment
terms for any of its directors, officers, and employees outside the ordinary
course of business; (xvii) pay any amount to any third party with respect to any
liability or obligation (including any costs
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and expenses Manager has incurred or may incur in connection with the Asset
Contribution Agreement and the transactions contemplated hereby); or (xviii)
commit to any of the foregoing.
CONDITIONS TO CLOSING. The obligations of the Company, AIOP and the Manager
to consummate the transactions contemplated by the Asset Contribution Agreement
are subject to the fulfillment or waiver at or prior to the closing of certain
conditions, including the following: (i) the representations and warranties of
the parties shall be true and correct in all material respects at and as of the
Closing Date; (ii) the parties shall have performed and complied with all of the
covenants under the Asset Contribution Agreement in all material respects
through the Closing; (iii) the Manager shall have procured all material third
party consents required to consummate the transactions contemplated by the Asset
Contribution Agreement; (iv) the parties shall have received all other material
authorizations, consents, and approvals of governments and governmental agencies
required to consummate the transactions contemplated by the Asset Contribution
Agreement; (v) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by the Asset Contribution Agreement, (B) cause
any of the transactions contemplated by the Asset Contribution Agreement to be
rescinded following consummation, or (C) affect adversely the right of AIOP to
own the Interests or to operate the business of New FAM; (vi) the Company's
independent outside auditors shall have provided to the Company written
confirmation of the amounts of the Manager's cost of acquiring the advisory
business; (vii) the written opinion from Jefferies to the effect that the
transactions contemplated by the Asset Contribution Agreement are fair to the
Public Stockholders from a financial point of view shall not have been
withdrawn; (viii) the transactions contemplated by the Asset Contribution
Agreement shall have been approved and adopted by the vote of the Public
Stockholders and by the owners of the Manager, and (ix) the Manager and the
Company shall have executed a Registration Rights Agreement (the "Registration
Agreement").
REPRESENTATIONS, WARRANTIES AND INDEMNITIES. The Asset Contribution
Agreement contains representations and warranties relating to, among other
things: (i) the due organization, valid existence, good standing and corporate
powers and enforceability of the obligations of the Manager, New FAM, AIOP, and
the Company; (ii) the capitalization of the Manager, New FAM, AIOP and the
Company; (iii) the authorization, execution, delivery, performance and
enforceability of the Asset Contribution Agreement and related matters; (iv) the
Asset Contribution Agreement's noncontravention of any agreement, law or charter
or bylaw provision and the absence of the need (except as specified) for
governmental or third-party consents to the Acquisition Proposal; and (v)
pending or threatened litigation.
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The Manager has made additional representations and warranties relating to,
among other things: (i) the payment of taxes and filing of tax returns; (ii) the
validity of title and leasehold interests in assets; (iii) employee benefits
plans; (iv) intellectual property; (v) insurance; (vi) the absence of
undisclosed liabilities; and (vii) the accuracy of information supplied by the
Manager.
The Company and AIOP have also made certain representations as to, among
other things, the accuracy of its filings with the Commission and that the AIOP
Units to be issued will be validly issued and fully paid.
With certain exceptions, the representations and warranties contained in the
Asset Contribution Agreement will survive the Closing Date for a period of the
later of 24 months thereafter and the expiration of the Earnout. Accordingly,
subject to the limitations contained in the Asset Contribution Agreement, the
Company will be entitled to indemnification by the Manager under the Asset
Contribution Agreement against losses or costs arising out of or resulting from
the inaccuracy of any of such representations and warranties. After the Closing,
the Manager will have no right of contribution from New FAM (as successor to the
Manager) with respect to any claims for indemnification under the Asset
Contribution Agreement. None of the indemnification obligations under the Asset
Contribution Agreement apply until the aggregate amount for which indemnity
would otherwise be payable exceeds $100,000, at which point indemnification
would be required with respect to all claims up to a limit of $3,500,000 in the
aggregate with respect to the obligations of any one party. Both AIOP and New
FAM have assigned and transferred their indemnification rights under the Asset
Contribution Agreement to the Company.
NON-COMPETITION PROVISION. The Asset Contribution Agreement contains a
provision which prohibits Messrs. Considine, Rhodes and Benson for a period of
two years from the closing date of the Asset Contribution Agreement from
engaging in or having any material interest in any business (other than the
Company and AIOP), whether as an employee, officer, director, partner or
otherwise, that directly or indirectly engages in the ownership, management and
operation of manufactured housing communities in the United States.
OTHER TERMS OF THE ASSET CONTRIBUTION AGREEMENT. The Asset Contribution
Agreement contemplates that the Company and the Manager will enter into a
Registration Agreement at Closing, pursuant to which the Company will agree to
grant to the Manager up to three demand registrations of the Shares that may be
converted from the AIOP Units which the Manager will acquire at Closing and the
AIOP Units that the Manager will acquire pursuant to the Earnout along with
unlimited piggyback rights. No demand registration shall be for an amount of
Shares that is less than $2.5 million in market value. The foregoing summary of
the Registration Agreement is qualified by reference to the text of the
agreement which is set forth as an exhibit to Asset Contribution Agreement as
part of Appendix A to this Proxy Statement. The Asset Contribution Agreement
also provides that if, within two years after the Closing Date, the Company
files a shelf registration statement pursuant to which any Shares will be
registered for resale, then the Company shall include the resale of all Shares
then held by the Manager or which the Manager has the right to acquire in
connection with the conversion of AIOP Units into Shares. The rights of the
Manager under the Asset Contribution Agreement and the Registration Agreement to
register the Shares are assignable to the direct and indirect owners of the
Manager, including Messrs. Benson, Considine and Rhodes. See "--Interests of
Certain Persons in the Acquisition Proposal."
The Asset Contribution Agreement contains additional terms and provisions
customary in transactions of this type.
BENEFITS FROM THE ACQUISITION PROPOSAL
As a result of the consummation of the Acquisition Proposal, the Company
will become a fully integrated, self-administered and self-managed REIT,
engaging in not only its current activities but
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also in management activities. The Board believes that the Acquisition Proposal,
if consummated, should result in the following specific benefits to the Company:
- Certain existing conflicts of interest between the Company, the Manager
and its affiliates will be substantially eliminated.
- The Company will be more attractive to institutional and other investors,
improving the Company's ability to raise capital.
- The Company will have within its organization the substantial experience
of Messrs. Considine and Rhodes and the existing management team,
enhancing the Company's ability to manage
its assets, including pursuit of its strategy of growth through
acquisitions of interests in real
estate and to expand its lines of business. If the Acquisition Proposal is
consummated, Messrs. Benson, Considine and Rhodes, although not party to
any employment agreement with the Company, will have obtained a
significant ownership interest in the Company, in the form of AIOP Units
and an opportunity to earn additional equity through the Earnout, thereby
generally aligning their incentives with the interests of Stockholders.
In addition, the Special Committee found that the Acquisition would be
accretive, but there can be no assurance, however, that any of these benefits
will be realized.
As an externally managed REIT, the Company may have interests that are
different from those of the Manager. Though at the time the Company was formed
external management of REITs was common, external management is no longer
prevalent because of perceived conflicts of interest. Some persons in the
investment community involved with REITs believe that, notwithstanding an
adviser's fiduciary obligations, an adviser who is paid primarily on the basis
of assets invested would seek to increase those assets without emphasizing the
profitability. Thus, there is a belief that it is preferable to more closely
align the interests of advisers and their REIT clients. Under the Acquisition
Proposal, fees received by the Manager that were formerly based in part on
assets invested will be replaced by AIOP Units, thereby aligning the interests
of the owners of the Manager with the interests of the Public Stockholders. The
Board and the Special Committee believe that the Acquisition Proposal is the
preferable alternative for reducing certain conflicts of interest.
In recent years, the number of REITs formed and the average size of REITs
have grown dramatically. Institutional investors, including mutual funds and
pension funds, have contributed to this growth. Based upon its review and
consideration of the Acquisition Proposal, the Special Committee and the Board
concluded that self-administered and self-managed REITs are preferred by
institutional and other investors to externally-advised REITs having otherwise
similar characteristics and that therefore self-administered and self-managed
REITs have greater access to equity capital. Though it is not possible to
quantify the benefit, the Board and the Special Committee believe that the
consummation of the Acquisition Proposal will improve the Company's ability to
raise capital.
At the same time, there are possible detriments to the Acquisition Proposal.
Since the number of AIOP Units issuable to the Manager is fixed, the value of
those AIOP Units at the Closing Date may be different from the value placed on
the operations of the Manager by the Special Committee. In addition, although
the Acquisition is expected to be accretive to the Company's funds from
operations, the Acquisition may not result in a corresponding increase in the
price at which Shares trade on the NYSE. Stockholders should carefully consider
each of these factors and should also carefully consider the pro forma financial
information presented under "Unaudited Pro Forma Condensed Consolidated
Financial Statements" and "Dividend Policy" and the potential risks of the
Acquisition Proposal to Stockholders discussed under "Risk Factors Associated
with the Acquisition Proposal." The Acquisition Proposal will also result in
certain benefits that will inure primarily to Messrs. Benson, Considine and
Rhodes. See "--Interests of Certain Persons in the Acquisition Proposal." For
background to the Acquisition Proposal, see "--Background and Reasons for the
Acquisition Proposal."
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ALTERNATIVES TO THE ACQUISITION PROPOSAL
After considering all of the factors it deemed relevant, including the views
of Jefferies, the Special Committee concluded that consummation of the
Acquisition Proposal will better serve the interests of the Company and the
Public Stockholders than any alternative transaction.
The Special Committee believes that continuing to operate the Company with
the services of the Manager under the existing Management Agreement (and
renewals thereof), which would not result in the Company becoming a
self-administered and self-managed REIT, would not resolve the existing
conflicts of interest between the Company and the Manager. As indicated under
"--Benefits from the Acquisition Proposal," some persons in the investment
community involved with REITs believe that an adviser paid primarily on the
basis of assets invested would seek to increase those assets without emphasizing
the profitability of the client. This perception would apply to the Manager and
the Company. In addition, this approach would not make the Company more
attractive to institutional and other investors, or improve the Company's
ability to raise capital. Furthermore, the Special Committee believes that as
the Company continues to increase its holdings of manufactured housing and
related assets, the costs of purchasing the services required thereby would
likely increase. Based on all of the above, in consultation with Jefferies, the
Special Committee did not believe that continuing to operate the Company under
the existing Management Agreement (and renewals thereof) was better for the
Company and its Public Stockholders than the Acquisition Proposal.
This Special Committee also considered the options of replacing the Manager
with an alternative external advisory company or not renewing the Management
Agreement and directly employing persons other than Messrs. Considine and Rhodes
and the existing management team to manage the Company. Neither of these
alternatives were evaluated in significant detail because (a) the Special
Committee had previously determined that they had been impressed with the
expertise and experience of Messrs. Considine and Rhodes and the existing
management team during their tenure as Manager, and (b) the involvement of
either a new outside advisor or a new internal management team would incur
additional costs and risks inherent in attempting to find and assemble such a
team, which would result in the Company being administered by personnel
previously unknown to and unfamiliar with the Company. In particular, the
Special Committee believes that Messrs. Considine and Rhodes are particularly
important to the Company's business objective including completion of the 1997
Strategic Plan and diversifying its investments. In addition, the Special
Committee considered the risks in developing an in-house management team,
particularly whether such an approach would be viewed credibly by institutional
and other investors. In considering an alternative external advisory company,
the Special Committee also viewed negatively the fact that the Company would not
thereby become self-administered and self-managed and would have increased the
likelihood of new conflicts of interest between the Company and a new outside
advisor. Also, because the existing Management Agreement is believed to contain
contract terms comparable to other third-party management contracts, it was
believed that no significant cost saving would inure to the Company upon
non-renewal of the Management Agreement and the engagement of a new advisor.
Based on all of the above, the terms of the Acquisition Proposal and the
Special Committee's consultation with Jefferies, the Special Committee believes
that the Acquisition Proposal better serves the interests of the Company and its
Public Stockholders than the alternatives discussed above.
FAIRNESS OPINION OF JEFFERIES
The Special Committee retained Jefferies to opine on the fairness, from a
financial point of view, to the Public Stockholders of the consideration to be
paid by AIOP in the Acquisition. As part of its investment banking business,
Jefferies is regularly engaged in the evaluation of capital structures, the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. Among the factors considered by the
Special Committee in the selection of Jefferies to render such opinion were
Jefferies' reputation as a nationally recognized investment banking firm and
Jefferies' expertise. Jefferies delivered to the
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Special Committee its written opinion, dated as of September 8, 1997 (the
"Opinion"), to the effect that, as of such date and based on the matters
described therein, the consideration to be paid by AIOP in the Acquisition
Proposal was fair to the Public Stockholders of the Company from a financial
point of view. Jefferies did not recommend to the Special Committee that any
specific consideration would constitute the appropriate consideration to be paid
in the Acquisition Proposal. Except as set forth below, no limitations were
imposed by the Special Committee on the scope of Jefferies' investigations or
the procedures to be followed by it in rendering the Opinion. Jefferies was not
requested to opine as to, and the Opinion did not address, the underlying
business decision of the Special Committee to proceed with or to effect the
Acquisition Proposal.
The consideration to be delivered at Closing is comprised of 3,383,479 AIOP
Units, valued at the book value per Share of Shares at June 30, 1997,
$3.4556143. In addition to the consideration paid at Closing, the Manager will
be entitled to the Earnout, additional payments in the future, contingent upon
the Company's achievement of certain performance goals.
First, the Manager is entitled to receive an additional 600,000 AIOP Units
at such time as the Company's independent auditors confirm to the Special
Committee that substantially all of the proceeds of the Company's
resecuritization of its portfolio of non-agency MBS bonds ($67,673,000), less
cash invested in manufactured housing communities in May 1997, has been invested
by the Company, AIOP or both, in real estate and related assets during the
18-month period (which may be extended up to an additional six months at the
discretion of the Special Committee) subsequent to June 17, 1997 that has
achieved an annualized return over any six month period of at least 9% during
the 24-month period (which may be extended up to an additional six months at the
discretion of the Special Committee) subsequent to June 17, 1997. For purposes
of the preceding sentence, the "return" shall be measured by computing GAAP net
income for the period in question plus depreciation minus reserves for capital
replacements over the total investment cost. As of the date of this Proxy
Statement, the Company has invested cash of $32,871,000 from the proceeds of the
resecuritization, issued $1,566,000 worth of Shares and AIOP Units, and assumed
$4,962,000 of existing debt for a total investment of $39,399,000 in
manufactured housing communities and related assets. The annualized cash returns
to the Company from these assets to date has averaged approximately 9%.
Second, the Manager is entitled to receive an additional 600,000 AIOP Units
if at any time during the 24 calendar month period following June 17, 1997:
either (A) at such time as the average closing price of the Shares on the NYSE
over any 90 day period exceeds $4.00 per Share, one or more of the following
events shall have occurred: (i) the Company has executed a plan for the
utilization of the Company's net operating loss carryover that has been approved
by the Board of Directors after receipt of advice from the Company's auditors;
(ii) the Company and CAX shall have completed a business combination that has
been approved by the Company's Board of Directors as being in the best interests
of Stockholders; (iii) the Company, AIOP or both shall have raised new financing
of debt or equity in the public or private institutional markets in the
aggregate amount of at least $20,000,000 at prevailing market rates and on terms
approved by the Board of Directors as being in the best interests of the
Company; (iv) the Company shall have achieved an investment grade rating on its
debt from a nationally recognized credit rating agency; or (B) the Company's
management shall have executed another business strategy not referred to in
clauses (A) (i) through (iv) above that is approved by the Board of Directors as
being in the best interests of the Company, and the average closing price of the
Shares on the NYSE over any 90-day period during the 24 calendar month period
following June 17, 1997 exceeds $4.25 per share. The number of AIOP Units
issuable and the average closing price of Shares set forth above shall be
adjusted in the event of any changes in the Company's capital structure,
including the Reverse Stock Split.
THE FULL TEXT OF THE OPINION IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO
READ THE OPINION CAREFULLY AND IN ITS ENTIRETY FOR THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW BY
JEFFERIES IN ARRIVING AT THE CONCLUSIONS EXPRESSED THEREIN. THE SUMMARY OF THE
OPINION SET FORTH IN THIS PROXY STATEMENT, WHILE CONTAINING ALL MATERIAL
ELEMENTS OF THE OPINION, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
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FULL TEXT OF SUCH OPINION. THE OPINION IS PROVIDED SOLELY FOR THE USE OF THE
SPECIAL COMMITTEE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF
THE COMPANY (OR ANY OTHER PERSON) AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
MEETING OF THE COMPANY'S STOCKHOLDERS.
In rendering the Opinion, Jefferies notes that the consummation of the
Acquisition Proposal is conditioned upon the approval of the Company's
Stockholders, and that Jefferies is not recommending that the Company, the
Special Committee, the Company's Board of Directors, any Stockholders of the
Company, or any other person, should take any specific action in connection with
the Acquisition Proposal. The Opinion also does not constitute a recommendation
of the Acquisition Proposal over any alternative transactions which may be
available to the Company, and does not address the Company's underlying business
decision to effect the Acquisition Proposal. Furthermore, the Opinion only
considers the Consideration to be paid by AIOP in the Acquisition Proposal and
does not consider any other aspect of the Acquisition Proposal or any agreements
or other matters that may be deemed a part of the Acquisition Proposal. In
addition, the Opinion does not opine as to the market value or the prices at
which any of the securities of the Company may trade at any time.
In connection with the preparation of the Opinion, Jefferies, among other
things: (i) reviewed the Asset Contribution Agreement (including any schedules
and exhibits thereto); (ii) reviewed certain financial and other information
that was publicly available; (iii) reviewed information furnished to them by the
Company and the Manager, including certain internal financial analyses, budgets,
reports and other information prepared by the respective managements of the
companies; (iv) held discussions with various members of senior management of
the Company and the Manager concerning each company's historical and current
operations, financial conditions and prospects, as well as the strategic and
operating benefits anticipated by each company from the Acquisition Proposal;
(v) reviewed the Share price and trading history from August 29, 1996 to August
29, 1997; (vi) reviewed the valuations of publicly traded companies which
Jefferies deemed comparable to the Company; (vii) prepared discounted cash flow
analyses of the Company and the Manager on both stand-alone and combined bases;
(viii) analyzed prior mergers and acquisitions purchase multiples and
characteristics comparable to the Acquisition Proposal; (ix) analyzed the
relative revenue, earnings and cash flow contributions of the Company and the
Manager to the combined company; and (x) analyzed the pro forma CEFS per Share
of the combined company. In addition, Jefferies conducted such other reviews,
analyses and inquiries relating to the Company and the Manager as Jefferies
considered appropriate in rendering its Opinion.
In Jefferies' review and analyses and in rendering the Opinion, Jefferies
relied upon, but did not assume any responsibility to independently investigate
or verify, the accuracy, completeness and fair presentation of all financial and
other information that was provided to it by the Company or the Manager or that
was publicly available (including, without limitation, the information described
above and the financial projections and financial models prepared by the Company
and the Manager regarding the estimated future performance of the respective
companies before and after giving effect to the Acquisition Proposal). The
Opinion was expressly conditioned upon such information (whether written or
oral) being complete, accurate and fair in all respects.
With respect to the financial projections and financial models provided to
and examined by Jefferies, Jefferies noted that projecting future results of any
company is inherently subject to vast uncertainty. Jefferies assumed, with the
permission of the Special Committee, that such projections and models were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of the companies as to
the future performance of each company. In addition, Jefferies noted that
although it has performed sensitivity analyses thereon, in rendering the
Opinion, Jefferies assumed, with the permission of the Special Committee, that
each company will perform in accordance with such projections and models for all
periods specified therein. In addition, although such projections and models did
not form the principal basis for the Opinion, but rather constituted one of many
items that Jefferies employed, changes to such projections and models could
affect the Opinion. Jefferies assumed that the Acquisition Proposal will
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be reported as a tax-free reorganization and will be treated as an "asset
purchase" for accounting purposes.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such opinions are not readily susceptible to
summary description. Accordingly, Jefferies believes its analyses must be
considered as a whole, and that considering any portion of such analyses or any
portion of the factors considered, without considering all analyses and current
factors, could create a misleading or incomplete view of the process underlying
the Opinion. In its analyses, Jefferies made numerous assumptions with respect
to industry performance, general business and other conditions, many of which
are beyond the control of the Company and the Manager. Any estimates contained
in these analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
The following paragraphs summarize the significant financial and comparative
analyses performed by Jefferies in arriving at the conclusions expressed in the
Opinion. The information presented below is based on the financial condition of
the Company and the Manager as of June 30, 1997 and share price information
through the close of the market on August 29, 1997. The following does not
purport to be a complete description of the analyses performed or the matters
considered by Jefferies in rendering the Opinion.
In conducting its analysis, Jefferies utilized certain projected operating
and financial information (including, among other things, rental income,
management fees, total revenue, net operating income, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and CEFS for the Company, the
Manager and the pro forma combined entity). These projections were based on
financial models provided by the managements of the Company and the Manager,
which incorporated numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the Company's and the Manager's control. With respect to industry
performance, general business and economic conditions, the assumptions reflected
modest increases in inflation and economic activity. In particular, the models
assumed that all assets acquired by the Company would sustain a net operating
income growth rate of 3.5% per year. The models assumed that it would take two
years to fully invest the proceeds from the Company's resecuritization of its
non-agency MBS bond portfolio. All proceeds from the resecuritization would be
invested in real estate assets. At the end of two years, when the proceeds from
the resecuritization are assumed to be fully invested, the dollar value of
acquisitions are assumed to increase 10% per year. Acquisitions are assumed to
be purchased using a combination of debt (50%) and AIOP Units (50%). All assets
acquired by the Company are assumed to be acquired at a 9% capitalization rate.
All corporate and administration expenses are assumed to increase 3.5% per year.
In addition, CAX dividends are assumed to be paid quarterly at $0.17 per share.
For the Manager, the models assumed that, in the absence of external growth, the
Manager will earn all its revenues from the management of the Company and CAX.
Fees earned from the Company are assumed to be based on the existing management
agreement between the Company and the Manager, which calls for a 1% Base Fee on
invested assets of the Company, a 0.5% Acquisition Fee for all asset
acquisitions made by the Company and an Incentive Fee of 20% of CEFS which is in
excess of the return on the Company's "average net worth" equal to 1% over the
"Ten-Year U.S. Treasury Rate." Fees earned from CAX are assumed to grow 3.5% per
year and the models assumed no acquisitions for CAX. The Manager assumes no
additional management relationships (other than those with the Company and CAX)
are consummated. In addition, bond administration fees earned by the Manager
from the Company are assumed to decline 20% per year after the first projected
year.
Jefferies noted that the aggregate implied purchase price for the Manager,
based on a value of $3.46 per share for AIOP Units, was approximately $11.7
million assuming the Earnout is not achieved and $15.8 million assuming the
entire Earnout is achieved. These implied purchase prices
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were determined by the Special Committee pursuant to negotiations of the Asset
Contribution Agreement and did not result from any recommendations from
Jefferies.
ANALYSIS OF THE COMPANY
CURRENT MARKET VALUATION. Jefferies examined the range of implied equity
values of the Company using its trading range over 52 weeks. Based on a August
29, 1997 Share closing price of $3.500, a 52-week high price of $4.250 and a
52-week low price of $3.125, the implied equity values for the Company ranged
from $78.9 million to $107.3 million. Jefferies also noted that the Company's
market valuation may be depressed because (i) the Company is neither
self-managed nor self-administered, (ii) the Company has not finished
redeploying its cash into manufactured housing properties, and (iii) the Company
has recently made a significant change in business strategy.
COMPARABLE COMPANY ANALYSIS FOR THE COMPANY. Jefferies compared certain
financial data and multiples of financial parameters accorded certain other
publicly traded REITs comparable to the Company. Financial data generally
compared included total revenues, net operating income and funds from operations
("FFO"). Multiples compared included equity market capitalization to FFO, equity
market capitalization to book capitalization and current dividend yields.
Jefferies looked at these parameters because of the equity market's reliance
upon these measures in analyzing REIT performance. Companies compared to the
Company included Chateau Properties, Manufactured Home Communities, Sun
Communities and United Mobile Homes, each of which is a self-managed REIT with
assets which are fully deployed into manufactured housing properties. Jefferies
compared the market value of each such company, as determined by the closing
price recorded for each company's common stock on August 29, 1997, with each
company's projected FFO. Jefferies' calculations resulted in the following
ranges of multiples for these companies and the Company: a mean equity market
capitalization to projected 1997 FFO multiple of 14.2x for the comparables (with
the Company at 10.6x); a mean equity market capitalization to projected 1998 FFO
multiple of 13.1x for the comparables (with the Company at 9.7x); a mean equity
market capitalization to equity book capitalization multiple of 2.2x for the
comparables (with the Company at 1.0x); and a mean current dividend yield of
5.7% for the comparables (with the Company at 6.9%). No specific portion of
these multiples for the comparable companies was allocated by Jefferies to the
comparable companies' self-managed status, and no adjustment to any multiples or
values was made as a result of such self-managed status in view of the fact that
the Company would be self-managed following the Acquisition Proposal. Jefferies
recognized that a self-managed structure should generally have a positive impact
on the Company's multiples and values.
Jefferies noted that the equity market capitalization to equity book
capitalization multiple was not meaningful for the Company due to the large,
non-deployed cash component of the Company's current balance sheet. As a result,
this trading multiple was excluded from the valuation of the Company based on
the comparable company analysis. Based on an average of the remaining trading
multiples for the comparables, and not adjusting for such comparables
self-managed status, the Company's stand-alone implied equity value per share
would range between $4.21 and $4.72 per Share.
None of the companies utilized in the above analysis for comparative
purposes is identical to the Company. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative review
of such results and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the value of the comparable
companies as well as that of the Company. In addition, the multiples to
estimated and projected FFO are based on projections prepared, in the case of
the comparable companies, by research analysts unrelated to Jefferies and, in
the case of the Company, using the models provided by its management.
Accordingly, such projections may or may not prove to be accurate.
DISCOUNTED CASH FLOW ANALYSIS OF THE COMPANY. Jefferies performed
discounted cash flow analyses for the Company based upon projections of the
Company's CEFS using a range of discount
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rates and a range of net operating income growth rates. Based on a ten-year
analysis using discount rates ranging from 13% to 15% and net operating income
growth rates ranging from 3% to 4% and assuming a 9.5% terminal capitalization
rate, these calculations indicated an implied net equity value ranging from
approximately $75.3 million to $91.4 million for the Company, or $2.98 to $3.62
per Share.
SUMMARY OF ANALYSES. Jefferies noted that the average implied equity values
based on the valuation methodologies performed resulted in a range of
approximately $86.8 million to $105.9 million for the Company, or between $3.44
and $4.20 per Share.
ANALYSIS OF THE MANAGER
DISCOUNTED CASH FLOW ANALYSIS OF THE MANAGER. Jefferies also performed
discounted cash flow analyses for the Manager based upon projections of the
Manager's cash flow from operations using a range of discount rates and a range
of net operating income growth rates for the Company. Based on a ten-year
analysis using discount rates ranging from 13% to 15% and net operating income
growth rates ranging from 3% to 4% and assuming no terminal value, these
calculations indicated an implied total enterprise value ranging from
approximately $14.2 million to $16.0 million for the Manager. Based on a
ten-year analysis using discount rates ranging from 13% to 15% and net operating
income growth rates ranging from 3% to 4% and assuming a 9.5% terminal
capitalization rate, these calculations indicated an implied total enterprise
value ranging from approximately $23.8 million to $28.6 million for the Manager.
The range of enterprise values for the Manager was compared to the aggregate
consideration to be paid by AIOP to the Manager (approximately $11.7 million
assuming no Earnout and approximately $15.8 million assuming full Earnout).
COMPARABLE MERGER AND ACQUISITION TRANSACTION ANALYSIS. Jefferies reviewed
the consideration paid in nine acquisitions of real estate advisory and
management companies by publicly traded REITs: Burnham Investment Group
(target)/Burnham Pacific Properties (acquiror); BT Venture Corporation/Boddie
Noell Properties, Inc.; R.M. Bradley & Co./Bradley Real Estate, Inc.; Shurgard
Incorporated/Shurgard Storage Centers, Inc.; C.R.I., Inc./CRIIMI MAE Inc.;
R.I.C. Advisor, Inc./Realty Income Corporation; Public Storage Management,
Inc./Storage Equities, Inc.; First Toledo Advisory Company/Health Care REIT,
Inc.; and General Growth Management, Inc./General Growth Properties, Inc.
Jefferies, where available, analyzed the consideration paid in such transactions
as a multiple of the target companies' total revenues, EBITDA and advisory fees
for the latest twelve months ("LTM") period prior to the acquisition of the
target. Such analysis yielded mean multiplies of 4.0x LTM revenues, 9.8x LTM
EBITDA and 7.3x LTM advisory fees. Jefferies compared these multiples with the
multiples of consideration paid by AIOP in the Acquisition Proposal to
annualized revenues and EBITDA of the Manager for the three months ended June
30, 1997 ("Run Rate"). Jefferies believes that Run Rate results are more
appropriate than LTM results when evaluating the Manager's acquisition multiples
due to the recent reinvestment of the Company's assets which significantly
affect the Manager's operating results. With no Earnout, these multiplies were
3.5x Run Rate revenues and advisory fees and 5.7x Run Rate EBITDA. With full
Earnout, these multiplies were 4.7x Run Rate revenues and advisory fees, and
7.8x Run Rate EBITDA.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of the Manager and the companies engaged in the selected
transactions, Jefferies believes that a purely quantitative comparable
transaction analysis is not particularly meaningful. An appropriate use of a
comparable transaction analysis in this instance necessarily involves complex
considerations and qualitative judgments concerning, among other things,
differences between the characteristics of these transactions and the
Acquisition Proposal that could affect the public trading value of the companies
to which the Manager is being compared.
SUMMARY OF ANALYSES. Jefferies noted that the average implied total
enterprise values based on the valuation methodologies performed resulted in a
range of approximately $16.1 million to
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$23.5 million for the Manager. In addition, Jefferies noted that the implied
purchase price of the Manager of approximately $11.7 million (no Earnout) to
approximately $15.8 million (full Earnout) was below the bottom end of the
average valuation range.
ANALYSIS OF COMBINED COMPANY
PRO FORMA ACCRETION/DILUTION ANALYSIS. Jefferies compared the anticipated
CEFS per Share of the Company without giving effect to the Acquisition Proposal
to the (i) CEFS per Share of the Company and the Manager combined on a pro forma
basis after giving effect to the Acquisition Proposal and assuming no Earnout
and (ii) CEFS per Share of the Company and the Manager combined on a pro forma
basis after giving effect to the Acquisition Proposal and assuming the entire
Earnout is achieved. Each scenario was based on the financial models and
projections provided by the Company and the Manager. Jefferies observed that,
under both of these scenarios, the Acquisition Proposal could be expected to be
accretive on a CEFS per Share basis in each year of the projection period from
1997 through 2006. In the initial projected years, in the no Earnout scenario,
CEFS per Share was accretive by $0.047 per Share, or 26.3%, in the first
projected year and accretive by $0.072 per Share, or 33.0%, in 1998. In the
initial projected years, in the full Earnout scenario, CEFS per Share was
accretive by $0.038 per Share, or 21.3%, in the first projected year and
accretive by $0.061 per Share, or 27.6%, in the second projected year. These
figures are based solely on Jefferies' analyses and do not constitute a
prediction of future results, as to which no assurance can be given.
RELATIVE CONTRIBUTION ANALYSIS. Jefferies compared the relative
contribution of the Company and the Manager to projected combined revenues and
CEFS of the combined companies for 1997 through 2006, based on the financial
models provided by the managements of the companies. Jefferies noted that the
Company's contribution was approximately 70.5% and 84.6% of combined revenues
and approximately 69.8% and 66.3% of combined CEFS in the first and second
projected years, respectively. In addition, Jefferies noted that the
contribution by the Company to each of these categories increased on a
percentage basis in each successive year of the projection period. Jefferies
compared these projected contribution percentages with the approximately 84.6%
ownership (assuming the entire Earnout is achieved) that the Stockholders would
have in the combined company. Jefferies considered this analysis relevant to the
fairness to the Stockholders from a financial point of view of the consideration
to be paid by AIOP in the Acquisition Proposal because, to the extent that the
percentage ownership of the Manager owners in the combined company exceeds the
projected contribution by the Manager to the combined operating results, the
proportionate return to the Stockholders would adversely affect the fairness of
the consideration to be paid. Conversely, to the extent that the proportionate
ownership of the Manager owners following the Acquisition Proposal is lower than
the anticipated contribution of the Manager to the combined operating results,
the Acquisition Proposal could be expected to improve per share results of
operations from the perspective of current Stockholders. This would generally
support a conclusion that the transaction is fair. As a result, Jefferies
considered the relative contribution analysis to support its Opinion.
BASED ON THE ANALYSES AND FACTORS SUMMARIZED ABOVE, JEFFERIES RENDERED THE
OPINION; HOWEVER, THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE ANALYSES PERFORMED AND THE FACTORS CONSIDERED BY JEFFERIES IN
RENDERING THE OPINION.
The Special Committee engaged Jefferies by means of an engagement letter
dated March 26, 1997 (the "Engagement Letter"). The Engagement Letter provides
that for its services, Jefferies would be paid an aggregate fee of $175,000 by
the Company. The Company also agreed to reimburse Jefferies for certain expenses
and to indemnify Jefferies against certain liabilities arising out of or in
connection with the performance of its services under the Engagement Letter. In
the ordinary course of Jefferies' business, Jefferies may trade securities of
the Company for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
The Engagement Letter included a consent to disclosure of the Opinion in this
Proxy Statement.
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INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION PROPOSAL
As a result of the Acquisition Proposal and the Earnout, the Manager could
receive up to 4,583,479 AIOP Units (3,383,470 AIOP Units initially, plus up to
1,200,000 potential AIOP Units from the Earnout). Assuming the conversion of
AIOP Units into Shares, the Manager could acquire beneficial ownership of an
aggregate of up to 15% of the issued and outstanding Shares. Payment of the
consideration at Closing under the Asset Contribution Agreement will allow
Messrs. Benson, Considine and Rhodes and the other owners of the Manager to
recoup the entire cost incurred in September 1996 to acquire the Manager. In
addition, through June 30, 1997, management fees of $3,123,000 and $929,000 have
been paid by the Company and CAX, respectively, to the Manager since Messrs.
Benson, Considine and Rhodes and others acquired the Manager. The Manager's
advisory agreements with the Company and CAX are subject to annual renewal at
the option of the Company and CAX, on the one hand, and the Manager, on the
other hand. Under the Acquisition Proposal, the assets being transferred to the
Company include the Management Agreement, the CAX Management Agreement and
certain other assets. The fees received by the Manager under the Management
Agreement and the CAX Management Agreement represent substantially all of the
revenues of the Manager. Thus, if the Acquisition Proposal is consummated,
Messrs. Benson, Considine and Rhodes and the other owners of the Manager will
eliminate the risk of loss of contracts that provide for substantial payments
and, in the case of the CAX Management Agreement, the Company will assume that
risk of loss if the Board of Directors of CAX should terminate the CAX
Management Agreement or remove AICMC as manager under the agreement.
The Manager has advised the Company that, subsequent to the Closing under
the Asset Contribution Agreement, it is anticipated that the Manager will be
dissolved and that the remaining assets and liabilities of the Manager
(primarily the AIOP Units issued at Closing, the rights to the Earnout, the
rights and obligations to indemnify under the Asset Contribution Agreement, the
rights under the Registration Agreement and the obligations of the Manager with
respect to debt, incurred to acquire the business of the Manager in September
1996) will be distributed to the members of the Manager, and subsequently to the
members of such members in such proportions as such members may agree. The
members of the Manager are two limited liability companies, the members of which
include Messrs. Considine and Rhodes, Mr. Considine's wife, a company wholly
owned by Mr. Benson and individual investors who have not taken an active role
in the Manager's business. The number of AIOP Units ultimately distributed to
Messrs. Benson, Considine and Rhodes will be determined prior to Closing and
will depend on the extent to which other members of the Manager's members agree
to assume a portion of the Manager's debt. The Company understands that Messrs.
Considine and Rhodes intend to assume all of such debt if no other member agrees
to assume any. If all members agree to assume such debt, Messrs. Benson,
Considine and Rhodes will have distributed to them 319,196, 1,021,428 and
685,218 AIOP Units, respectively, at Closing. The Company further understands
that the first 600,000 AIOP Units to be received, if at all, upon satisfaction
of the Earnout will be distributed in the same proportions as the AIOP Units
distributed at the Closing, and the second 600,000 AIOP Units to be received, if
at all, upon satisfaction of the Earnout will be distributed 15% to Mr. Benson,
50% to Mr. Considine and 35% to Mr. Rhodes. As a result, the maximum number of
Shares that could be received by Messrs. Benson, Considine and Rhodes pursuant
to the Asset Contribution Agreement assuming that all members assume the
Manager's debt as described above, both portions of the Earnout are satisfied,
and all AIOP Units are converted to Shares is 465,800, 1,502,560, and 1,042,388
Shares, respectively, or Messrs. Benson, Considine and Rhodes would then
beneficially own 2.8%, 7.8% and 3.8% of the Shares then outstanding.
Because of the method that will be elected by AIOP for purposes of
allocating items of income, gain, loss and deduction on the assets to be
contributed to and held by AIOP pursuant to the Acquisition, the Manager will
receive allocations with respect to depreciation on certain assets contributed
to AIOP that will exceed the allocations it would have received if AIOP were to
elect to allocate such items under other permissible methods. Such allocations
of depreciation may be beneficial for income tax purposes to certain of the
owners of the Manager. See "Certain Federal Income Tax
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Consequences--Income Taxation of AIOP and its Partners and --Tax Depreciation
Allocations with Respect to Certain Properties."
Pursuant to the Asset Contribution Agreement, the Shares received by the
Manager upon conversion of the AIOP Units, in which Messrs. Benson, Considine
and Rhodes and the other owners of the Manager will have an interest will be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
and may be sold only pursuant to an effective registration statement under the
Securities Act or an applicable exemption, including an exemption under Rule
144. The Asset Contribution Agreement and the Registration Agreement provide
certain demand and piggyback registration rights as well as the possible
participation in a future shelf registration statement which may be filed by the
Company to provide the Manager with the ability to register Shares which it may
receive. The rights of the Manager under the Asset Contribution Agreement to
register the Shares are assignable to the direct and indirect owners of the
Manager, including Messrs. Benson, Considine and Rhodes.
In connection with the September 30, 1996 sale of the Manager by M.D.C.
Holdings, Inc. ("MDC") to the investor group led by Messrs. Considine, Rhodes
and Benson, $4,450,000 of promissory notes issued to MDC included an option for
MDC to convert the Notes into a 30% ownership interest in the Manager. MDC has
not yet indicated if it will exercise its conversion option prior to the
Acquisition. If MDC exercises its conversion option before the Acquisition is
completed, MDC will be entitled to 30% of the 3,383,479 AIOP Units received by
the Manager and 30% of the first 600,000 Earnout AIOP Units. Accordingly, the
AIOP Units to be allocated to Messrs. Considine, Rhodes and Benson will be
reduced. Any such possible reduction is not reflected in the ownership data in
this Proxy Statement.
CONSEQUENCES OF FAILURE TO APPROVE THE ACQUISITION PROPOSAL
If the Acquisition Proposal is not approved, the Company intends to continue
to conduct its business generally in a manner consistent with past practices.
The Company is unable to predict the exact consequences any rejection of the
Acquisition Proposal will have. The Manager currently provides certain advisory,
asset management and administrative services to the Company. If the Acquisition
Proposal is not completed, there is no assurance that the Company will be able
to continue to obtain such services from the Manager or from other third parties
on favorable terms, after the expiration of the Management Agreement in December
1997. Messrs. Benson, Considine and Rhodes have advised the Company that if the
Acquisition Proposal is not approved, they presently intend to recommend to the
other owners of the Manager that the Manager should continue to conduct its
business consistent with past practice, including seeking renewal of the
Management Agreement and the CAX Management Agreement.
EXPENSES
The Company has agreed to pay the expenses of the solicitation, including
the fees and expenses of the Special Committee, Jefferies and counsel to the
Special Committee, together with the fees and expenses of the Company's counsel
(who also represents the Manager), independent public accountants and costs
related to printing and mailing the proxy and up to $100,000 of fees and
expenses incurred by the Manager. The Company estimates that such expenses will
total approximately $800,000. For services on the Special Committee, each member
was paid $300 for each meeting attended.
ACCOUNTING TREATMENT
The Acquisition Proposal will be treated as a purchase by the Company for
accounting purposes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences in connection with the Acquisition Proposal generally applicable to
a holder of Shares who is a U.S. citizen or resident, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof and certain estates or trusts (a "U.S.
Stockholder"). The discussion is not exhaustive of all possible tax
considerations, nor does the discussion give a detailed description of any
state, local, or foreign tax considerations. This discussion does not describe
all of the aspects of federal income taxation that may be relevant to a U.S.
Stockholder in light of his or her particular circumstances or to certain types
of Stockholders (including, without limitation, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws. This discussion is based on
the Code, applicable Department of Treasury regulations ("Treasury
Regulations"), judicial authority and administrative rulings and practice, all
as of the date of this Proxy Statement.
EACH STOCKHOLDER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISER
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP OF SHARES
IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH OWNERSHIP
AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL. The Company believes that it is organized and has operated in such
a manner as to qualify for taxation as a REIT under the Code and the Company
intends to continue to operate in such a manner. No assurance, however, can be
given that the Company will continue to operate in a manner so as to qualify or
remain qualified as a REIT. The Company has not sought, nor does it intend to
seek a ruling from the Internal Revenue Service or an opinion of counsel with
respect to its status as a REIT under the Code.
The following is a general summary of certain of the Code sections that
affect the Acquisition Proposal. These sections of the Code are highly technical
and complex. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations, and administrative and judicial
interpretations thereof as currently in effect. There is no assurance that there
will not be future changes in the Code, Treasury Regulations or administrative
or judicial interpretation thereof that could adversely affect the Company's
ability to qualify as a REIT or adversely affect the taxation of holders of
Shares. Any of such changes could be applied on a retroactive basis.
TAXATION OF THE COMPANY. A REIT generally is not subject to federal
corporate income taxes on that portion of its ordinary income or capital gains
that is distributed currently to stockholders because the REIT provisions of the
Code generally allow a REIT to deduct dividends paid to its stockholders. This
deduction for dividends paid to stockholders substantially eliminates the
federal "double taxation" on earnings (once at the corporate level and once
again at the stockholder level) that generally results from investment in a
corporation.
However, REITs may be subject to federal income tax in the following
circumstances. First, a REIT will be taxed at regular corporate rates on any
undistributed REIT taxable income and undistributed net capital gains. Second,
under certain circumstances, a REIT may be subject to the "alternative minimum
tax" on its items of tax preference, if any. Third, if the REIT has (i) net
income from the sale or other disposition of "foreclosure property" (generally,
property acquired by reason of a default on a lease or an indebtedness held by a
REIT) that is held primarily for sale to customers in the ordinary course of
business or (ii) other non-qualifying net income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
the REIT has net income from a "prohibited transaction" (generally, a sale or
other disposition of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the REIT should fail to satisfy the 75%
gross income test or the
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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 REIT fails the 75% or 95% test, multiplied by a fraction
intended to reflect the REIT's profitability. Sixth, if the REIT should fail to
distribute with respect to 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 periods,
the REIT will be subject to a four percent excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if a REIT
acquires any asset from a C corporation (i.e., a corporation generally subject
to a full corporate-level tax) in a transaction in which the basis of the asset
in the REIT's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation (a "carryover basis
transaction"), and the REIT recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset was acquired
by the REIT (the "Restriction Period"), then pursuant to guidelines issued by
the Internal Revenue Service (the "IRS") in IRS Notice 88-19 (the "Built-in Gain
Rules"), the excess of the fair market value of such property at the beginning
of the applicable Restriction Period over the REIT's adjusted basis in such
asset as of the beginning of such Restriction Period (the "Built-in Gain") will
be subject to a tax at the highest regular corporate rate. The results described
above with respect to the recognition of Built-in Gain assume that the Company
will make elections pursuant to the Built-in Gain Rules or applicable future
administrative rules or Treasury Regulations.
REQUIREMENTS FOR QUALIFICATION. To qualify as a REIT, a corporation must
elect to be so treated and must meet the requirements, discussed below, relating
to its organization, sources of income, nature of assets, and distributions of
income to stockholders.
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 the REIT provisions 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; and (vi) during the last half of each taxable year not more than
50% in value of the outstanding capital 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). In
addition, certain other tests, described below, regarding the nature of a REIT's
income and assets, also must 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 12
months, or during a proportionate part of a taxable year of less than 12 months.
For taxable years beginning after 1997, if a REIT complies with Treasury
Regulations that provide procedures for ascertaining the actual ownership of
shares of its stock for such taxable year and the REIT did not know (and with
the exercise of reasonable diligence could not have known) that it failed to
meet the requirement of condition (vi) above for such taxable year, the REIT
will be treated as having met the requirement of condition (vi) for such year.
The Company has satisfied the requirements set forth in (i) through (iv)
above and believes that it has previously issued sufficient Shares with
sufficient diversity of ownership to allow it to satisfy conditions (v) and (vi)
above. The Company will not issue any additional Shares in connection with the
Acquisition. To the extent that any of the AIOP Units issued to the Manager
subsequently are converted into Shares, such Shares could result in an increase
in the percentage of the value of Shares owned or considered to be owned by
certain individuals. The Company does not expect that any such increase in the
Shares owned by such individuals would cause the Company to violate the Share
ownership requirements discussed above. In addition, the Articles contain
certain restrictions regarding transfers of Shares that are intended to assist
the Company in satisfying condition (vi) and the OP
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Agreement provides that AIOP Units only will be convertible into Shares to the
extent permitted under the Articles.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company's taxable year is the calendar year.
In the case of a REIT that is a partner in a partnership, the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership will retain the same character in the hands of the REIT for purposes
of the REIT requirements, including satisfying the income and asset tests
described herein. Thus, the Company's proportionate share of the assets,
liabilities and items of income of AIOP are treated as assets, liabilities and
items of income of the Company for purposes of applying the requirements
described herein, provided that AIOP is treated as a partnership for federal
income tax purposes. See "Income Taxation of AIOP and Its Partners."
In addition, Section 856(i) of the Code provides that a corporation that is
a "qualified REIT subsidiary" will not be treated as a separate corporation and
all assets, liabilities and items of income, deduction and credit of a
"qualified REIT subsidiary" will be treated as assets, liabilities and such
items (as the case may be) of the REIT. In applying the requirements described
herein, any "qualified REIT subsidiaries" of the Company will be ignored and all
assets and liabilities, and items of income, deduction and credit of such
subsidiaries will be treated as assets, liabilities and items of the Company.
INCOME TESTS. For the Company to maintain qualification as a REIT, there
are two gross income requirements that it must satisfy annually. First, at least
75% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property," dividends from qualified REITs and, in certain
circumstances, interest) or from "qualified temporary investment income"
(generally, income attributable to the temporary investment of new capital
received by the REIT). Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments and from dividends, interest, and
gain from the sale or disposition of stock or securities or from any combination
of the foregoing. In addition, for taxable years prior to 1998, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year.
The Company believes that its real estate investments will give rise to
income that will enable it to satisfy all of the income tests described above.
All or substantially all of the Company's gross income is expected to be derived
from its interest in AIOP, which income will, for the most part, qualify as
income derived from investments in real property for purposes of the 75% test
and as dividends, interest and qualifying real property income for purposes of
the 95% test.
AIOP will own less than 5% of the voting stock of AICMC, a corporation that
will be taxable as a regular corporation if the Acquisition is approved. Upon
the Closing of the Acquisition, the Company anticipates that the CAX Management
Agreement and certain other assets acquired in the Acquisition will be
contributed by AIOP to AICMC. The income earned by and taxed to AICMC in respect
of the CAX Management Agreement would be nonqualifying income if earned by the
Company or through AIOP. As a result of the corporate structure, the income
related to the CAX Management Agreement will be earned by and taxed to AICMC and
will be received by AIOP only indirectly as dividends and interest that qualify
under the 95% but not under the 75% test.
If the Company 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 it is entitled to relief under certain
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provisions of the Code. These relief provisions generally will be available if
the Company's failure to meet such tests was due to reasonable cause and not due
to willful neglect, if the Company attaches a schedule of the sources of its
income to its return, and if any incorrect information on the schedules was not
due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. Even if these relief provisions apply, a tax would be
imposed with respect to the excess net income.
ASSET TESTS. In order for the Company to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by real estate assets
(which for this purpose include (i) its allocable share of real estate assets
held by partnerships in which the Company owns an interest, (ii) stock or debt
instruments purchased with the proceeds of a stock offering or a long-term (at
least five years) debt offering of the Company and held for not more than one
year from the date the Company receives such proceeds and (iii) shares in
qualified REIT(s) and cash, cash items and government securities. Second, not
more than 25% of the Company's total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by the
Company may not exceed five percent of the value of the Company's total assets,
and the Company may not own more than ten percent of any one issuer's
outstanding voting securities (excluding securities of a qualified REIT
subsidiary or another REIT).
The Company anticipates that it will be able to comply with these asset
tests. The Company is presently deemed to and will continue to be deemed to hold
directly its proportionate share of all real estate and other assets of AIOP. As
a result, the Company plans to hold more than 75% of its assets as real estate
assets. In addition, the Company does not plan to hold any securities
representing more than ten percent of any one issuer's voting securities, other
than any qualified REIT subsidiary, nor securities of any one issuer exceeding
five percent of the value of the Company's gross assets (determined in
accordance with GAAP).
Upon the Closing of the Acquisition, a new company will be formed, AICMC.
AIOP intends to contribute the CAX Management Agreement and certain other assets
to AICMC in exchange for less than 5% of the voting common stock of AICMC,
nonvoting preferred stock of AICMC and notes. The Company believes that the
value of its proportionate share of the securities of AICMC to be held by AIOP
after such contribution will not exceed five percent of the value of the total
assets of the Company, but no independent appraisals have been or will be
obtained, and there can no assurance that the IRS will agree with the Company's
valuation.
After initially meeting the asset tests at the close of any quarter, the
Company will not 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. It is intended that the Company will maintain adequate records of
the value of its assets to ensure compliance with the asset tests, and will take
such other action within 30 days after the close of any quarter as may be
required to cure any noncompliance. However, there can be no assurance that such
other action always will be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to be taxed as a REIT, the
Company is required to meet certain annual distribution requirements. The
Company will have to distribute dividends (other than capital gain dividends) to
its Stockholders in an amount at least equal to (1) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income, if
any, from foreclosure property in excess of the special tax on income from
foreclosure property, minus (2) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration.
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To the extent that the 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 portion, at
regular ordinary and capital gains corporate tax rates. Furthermore, if the
Company fails to distribute for each calendar year at least the sum of (a) 85%
of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net
income for such year, and (c) any undistributed ordinary income and capital gain
net income from prior periods, the Company will be subject to a four percent
excise tax on the excess of such required distribution over the amounts actually
distributed. The Company intends to make timely distributions sufficient to
satisfy this annual distribution requirement. In addition, the Company has a net
operating loss carryover of approximately $98 million that generally can be used
to reduce its taxable income required to be distributed.
Under certain circumstances in which an adjustment is made that affects the
amount that should have been distributed for a prior taxable year, the Company
may be able to rectify the failure to meet such distribution requirement by
paying "deficiency dividends" to Stockholders in the later year, which may be
included in the Company's deduction for dividends paid for the earlier year.
Thus, the Company may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, the Company will be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable corporate alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to Stockholders in
any year in which the Company fails to qualify will not be deductible by the
Company, 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 to them as ordinary income, and, subject to certain limitations
of the Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company 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 the Company would be entitled to such
statutory relief.
TAXATION OF U.S. STOCKHOLDERS. For any taxable year for which the Company
qualifies for taxation as a REIT, amounts distributed to taxable U.S.
Stockholders will be taxed as follows:
DISTRIBUTIONS GENERALLY. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will be taxable as ordinary income to
such holders up to the amount of the Company's current or accumulated earnings
and profits. Such distributions are not eligible for the dividends-received
deduction for corporations. To the extent that the Company makes distributions
in excess of its current or accumulated earnings and profits, such distributions
will first be treated as a tax-free return of capital, reducing the tax basis in
the U.S. Stockholders' Shares, and distributions in excess of the U.S.
Stockholders' tax basis in their respective Shares will be taxable as gain
realized from the sale of such Shares. Dividends declared by the Company in
October, November, or December of any year payable to a Stockholder of record on
a specified date in any such month will be treated as both paid by the Company
and received by the Stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include on their own income tax returns any
tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the greater of its
current or accumulated earnings and profits. As a result, Stockholders may be
required to treat certain distributions that would otherwise result in a
tax-free return of capital as taxable dividends. Moreover, any "deficiency
dividend" will be treated as a "dividend" (an ordinary dividend or a capital
gain dividend, as the case may be), regardless of the Company's earnings and
profits.
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CAPITAL GAIN DIVIDENDS. Dividends to U.S. Stockholders that are properly
designated by the Company as capital gain dividends will be treated as gain from
the sale or exchange of a capital asset held for more than one year (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 his stock.
Corporate Stockholders, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Although a REIT is taxed on its undistributed net capital gains, for taxable
years beginning after 1997, a REIT may elect to include all or a portion of such
undistributed net capital gains in the income of its stockholders. In such
event, the stockholder will receive a credit or refund for the amount of tax
paid by the REIT on such undistributed net capital gains.
PASSIVE ACTIVITY AND LOSS; INVESTMENT INTEREST LIMITATIONS. Distributions
from the Company and gain from the disposition of the Shares ordinarily will not
be treated as passive activity income, and therefore, U.S. Stockholders
generally will not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) generally will be treated as investment income for purposes of the
investment interest limitation. Net capital gain from the disposition of Shares
and capital gain dividends generally will be excluded from investment income
unless the taxpayer elects to have the gain taxed at ordinary rates.
DISPOSITIONS OF SHARES OF COMMON STOCK. A U.S. Stockholder will recognize
gain or loss on the sale or exchange of Shares to the extent of the difference
between the amount realized on such sale or exchange and the holder's tax basis
in such shares. Such gain or loss generally will constitute long-term capital
gain or loss if the holder has held such shares for more than one year and in
the case of an individual, will be taxed at a lower rate if the shares have been
held for more than 18 months. Losses incurred on the sale or exchange of Shares
held for six months or less (after applying certain holding period rules),
however, generally will be deemed long-term capital loss to the extent of any
long-term capital gain dividends received by the U.S. Stockholder with respect
to such shares.
INCOME TAXATION OF AIOP AND ITS PARTNERS. The following discussion
summarizes certain federal income tax considerations applicable to the Company's
investment in AIOP.
CLASSIFICATION OF AIOP AS A PARTNERSHIP. The Company will be entitled to
include in its income its distributive share of the income and to deduct its
distributive share of the losses of AIOP only if AIOP is classified for federal
income tax purposes as a partnership rather than as an association taxable as a
corporation. With certain exceptions, an unincorporated domestic organization
formed on or after January 1, 1997 that has two or more members will be treated
as a partnership for federal income tax purposes absent an election by such
organization to be treated as an association taxable as a corporation.
The Company expects that AIOP will have two or more members at all times and
that it will not elect to be treated as an association taxable as a corporation.
However, AIOP has not and does not intend to request a ruling from the IRS that
it will be treated as a partnership for federal income tax purposes.
PARTNERS, NOT PARTNERSHIPS, SUBJECT TO TAX. A partnership is not a taxable
entity for federal income tax purposes. Rather, a partner is required to take
into account its allocable share of a partnership's income, gains, losses,
deductions, and credits for any taxable year of the partnership ending within or
with the taxable year of the partner, without regard to whether the partner has
received or will receive any distributions from the partnership.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Code if they do
not comply with the provisions of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder as to substantial economic effect.
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If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The allocations of taxable income and loss
of AIOP are intended to comply with the requirements of section 704(b) of the
Code and the Treasury Regulations promulgated thereunder.
TAX DEPRECIATION ALLOCATIONS WITH RESPECT TO CERTAIN PROPERTIES. Pursuant
to section 704(c) of the Code, items of income, gain, loss and deduction
attributable to property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner that takes into account the variation between the fair market value and
tax basis of the property contributed. AIOP will elect to use the "traditional
method" provided in Treasury Regulations for purposes of allocating such items
of income, gain, loss and deduction with respect to properties to be contributed
to AIOP by the Manager (other than those properties to be contributed by AIOP to
AIC Manufactured Housing Corporation and AICMC). As a result, the Company will
receive allocations with respect to depreciation on such properties that will be
less (and the Manager will receive allocations with respect to depreciation on
such properties that will be greater) than would have been allocated if AIOP
were to elect to use another method under such Treasury Regulations for purposes
of allocating items of income, gain, loss and deduction with respect to such
properties.
SALE OF PARTNERSHIP PROPERTY. Generally, any gain realized by a partnership
on the sale of property held by the partnership for more than one year and
allocated to a corporate partner will be long-term capital gain, except for any
portion of such gain that is treated as depreciation or cost recovery recapture.
However, under the REIT requirements imposed by the Code, the Company's share,
as a partner, of any gain realized by AIOP on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of a trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "--Taxation of the
Company." For taxable years of the Company prior to 1998, such prohibited
transaction income also will have an adverse effect upon the Company's ability
to satisfy the income tests for REIT status. See "--Requirements for
Qualification Income Tests."
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX. The Company
will report to its U.S. Stockholders and the IRS the amount of distributions
paid during each calendar year and the amount of tax withheld, if any. Under
certain circumstances, U.S. Stockholders may be subject to backup withholding at
a rate of 31% with respect to distributions paid. Backup withholding will apply
only if the Stockholder (i) fails to furnish its taxpayer identification number
("TIN") (which, for an individual, would be such individual's Social Security
number), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it
has failed properly to report payments of interest and dividends, or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments.
Backup withholding will not apply with respect to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations. U.S.
Stockholders should consult their own tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption. Backup withholding is not an additional tax. Rather, the amount of
any backup withholding with respect to a payment to a U.S. Stockholder will be
allowed as a credit against such U.S. Stockholder's United States federal income
tax liability and may entitle such U.S. Stockholder to a refund, provided that
the required information is furnished to the IRS.
STATE AND LOCAL TAX CONSIDERATIONS. The Company is, and its Stockholders
may be, subject to state or local taxation in various state or local
jurisdictions, including those in which the Company, its Stockholders or AIOP
transact business or reside. The state and local tax treatment of the Company,
AIOP and the Stockholders may not conform to the federal income tax consequences
discussed above.
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Consequently, Stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on their investment in the Company.
NO APPRAISAL RIGHTS
Under the Maryland General Corporation Law, holders of the Shares will not
be entitled to rights of appraisal in connection with the Acquisition Proposal.
INFORMATION CONCERNING THE COMPANY
GENERAL. The Company owns and manages a portfolio of manufactured housing
communities. In manufactured housing communities, residents own their own
detached, single-family, manufactured homes and lease the home sites on which
they are placed. The communities are residential subdivisions with centralized
entrances, paved streets, curbs, gutters and parkways. They generally have
amenities available for resident use such as swimming pools, shuffleboard and
clubhouses. Utilities are provided or arranged for by the owner of the
community. Community lifestyles, promoted by resident managers, include a wide
array of social activities that serve to promote a sense of neighborhood. The
communities provide an attractive and affordable housing alternative for
retirees, empty nesters and start-up or single-parent families.
Manufactured housing communities, once fully occupied, tend to achieve a
stable rate of occupancy. The cost and effort in moving a home once it is
located in a community encourages the owner of the home to resell it within the
community, rather than remove it from the community. Manufactured housing
communities generally produce stable and predictable revenues and provide the
opportunity for long-term price appreciation if they are well maintained and
suitably located.
The Company has entered into agreements under which the Company manages
certain manufactured housing communities by subcontracting the services of
community management personnel. Management fees are generally a percentage of
gross revenues from the properties up to a maximum of 6%.
50
<PAGE>
The following is a list of the manufactured housing communities in which the
Company has an ownership interest in or serves as the manager of the community:
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
EXISTING RENT
COMMUNITY LOCATION HOME SITES OCCUPANCY PER SITE
- -------------------------------------- -------------------------------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
OWNED COMMUNITIES
Park Royale Pinellas Park, FL 258(1) 97% $ 322
Sun Valley Tarpon Springs, FL 261 100% 319
Westwind I Dunedin, FL 195 99% 333
Westwind II Dunedin, FL 189 99% 330
Cardinal Court Largo, FL 138 98% 245
Forest View Homosassa, FL 175(2) 100% 208
Stonebrook Homosassa, FL 116(3) 99% 221
----- --- -----
Subtotal 1,332 99% 292
----- --- -----
JOINT VENTURE COMMUNITIES
Royal Palm Haines City, FL 214(4) 99% 193
Lost Dutchman Apache Junction, AZ 229(5) 71% 226
Apache Acres Apache Junction, AZ 131(5) 54% 197
Blue Star Apache Junction, AZ 136(5) 51% 201
Sun Valley Apache Junction, AZ 264(5) 99% 217
----- --- -----
Subtotal 974 80% 209
----- --- -----
TOTAL OWNED AND JOINT VENTURE COMMUNITIES 2,306 91% 257
----- --- -----
MANAGED COMMUNITIES
Golden Crest Dunedin, FL 176 98% 321
Roth Associates Egg Harbor City, NJ 90 100% 406
Salem Farms Bensalem, PA 28 100% 387
Windward Spring Hill, FL 254 73% 222
----- --- -----
TOTAL MANAGED COMMUNITIES 548 96% 302
----- --- -----
</TABLE>
- ------------------------
(1) The community has an additional 51 home sites with infrastructure in place,
but they have not yet been absorbed.
(2) The community has an additional 136 home sites with infrastructure in place,
but they have not yet been absorbed.
(3) The community has an additional 102 home sites with infrastructure in place,
but they have not yet been absorbed.
(4) The community has an additional 72 home sites with infrastructure in place
which have not yet been absorbed into the community and has 175 home sites
with no infrastructure in place.
(5) The Company plans to reconfigure the four communities, increasing the total
number of home sites among the four contiguous communities by 53 home sites.
51
<PAGE>
BUSINESS OBJECTIVES AND OPERATING STRATEGIES. The Company seeks to maximize
both current income and long-term growth in income. The Company focuses on
manufactured home communities that have strong cash flow growth potential and
expects to hold such properties for long-term investment and capital
appreciation. These business objectives and their implementation are determined
by the Company's Board of Directors and may be changed at any time. The
Company's investment and operating approach includes:
- Selectively acquiring manufactured housing communities that have potential
long-term appreciation of value through, among other things, rent
increases, expense efficiencies and in-park home site absorption and
development;
- Improve the profitability of the owned and joint venture communities
through aggressive management of occupancy, community development and
maintenance and expense control;
- Develop and maintain resident satisfaction and a reputation for quality
communities through maintenance of the physical condition of the
communities and providing numerous activities that improve the community
lifestyle; and
- Recruit and retain quality community management personnel.
FUTURE ACQUISITIONS. The Company believes that acquisition opportunities
for manufactured housing communities are particularly attractive at this time
because of increasing acceptability of and demand for manufactured homes, the
increasing need for affordable housing alternatives, and the continued
constraints on development of new manufactured home communities. The Company is
actively seeking to acquire additional communities and currently is engaged in
various stages of negotiations relating to the possible acquisition of a number
of communities.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) the replacement cost of the property; (ii) the geographic area
and type of property; (iii) the location, construction quality, condition and
design of the property; (iv) the current and projected cash flow of the property
and the ability to increase cash flow; (v) the potential for capital
appreciation of the property; (vi) the terms of tenant leases, including the
potential for rent increases; (vii) the potential for economic growth and the
tax and regulatory environment of the community in which the property is
located; (viii) the potential for expansion of the physical layout of the
property and/or the number of sites; (ix) the occupancy and demand by residents
for properties of a similar type in the vicinity and the residents profile; (x)
the prospects for liquidity through sale, financing or refinancing of the
property; and (xi) competition from existing manufactured home communities and
the potential for the construction of new communities in the area. The company
expects to purchase manufactured home communities with physical and market
characteristics similar to the properties in its current portfolio.
The Company will seek to increase the number of home sites and earnings
generated from its portfolio of manufactured housing communities and from future
acquisitions by expanding the number of sites available to be leased to
residents if justified by local market conditions and permitted by zoning and
other applicable laws. At August 31, 1997, the Company had 414 home sites in
eight communities with infrastructure in place, available to be absorbed and 175
home sites available to be developed.
LEASES. The typical lease entered into between the tenant and one of the
Company's manufactured home communities for the rental of a site is
month-to-month or year-to-year, renewable upon the consent of both parties or,
in some instances, as provided by statute. These leases are cancelable,
depending on state law, for non-payment of rent, violation of community rules
and regulations or other specified defaults. Generally, market rate adjustments
are made on an annual basis.
52
<PAGE>
REGULATIONS AND INSURANCE.
GENERAL. Manufactured home communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, clubhouses and other common areas. The
Company believes that each property has the necessary permits and approvals to
operate.
AMERICANS WITH DISABILITIES ACT ("ADA"). The properties and any newly
acquired manufactured home communities must comply with the ADA. The ADA has
separate compliance requirements for "public accommodations" and "commercial
facilities", but generally requires that public facilities such as clubhouses,
pools and recreation areas be made accessible to people with disabilities.
Compliance with the ADA requirements has required removal of access barriers and
other capital improvements at the properties. Noncompliance could result in
imposition of fines or an award of damages to private litigants. The Company has
taken into account an estimate of funds required to make any changes required by
the ADA in determining the appropriate level of reserves and the expected level
of distributions and believes that such costs can be covered by funds from the
operations of the properties or established reserves without any material
adverse effect on the Company's financial condition or results of operations. If
ongoing changes involve a greater expenditure than the Company currently
anticipates, or if the changes must be made on a more accelerated basis than it
anticipates, the Company's ability to make expected distributions could be
adversely affected. The Company believes that its competitors face similar costs
to comply with the requirements of the ADA.
RENT CONTROL LEGISLATION. State and local rent control laws, principally in
Florida, limit the Company's ability to increase rents and to recover increases
in operating expenses and the costs of capital improvements. Enactment of such
laws has been considered from time to time in other jurisdictions. The Company
presently expects to continue to maintain manufactured housing communities, and
may purchase additional properties, in markets that are either subject to rent
control or in which rent-limiting legislation exists or may be enacted. For
example, Florida has enacted a law which generally provides that rental
increases must be reasonable.
INSURANCE. Management believes that the properties are covered by adequate
fire, flood and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits. The Company believes its
insurance coverage is adequate based on the Company's assessment of the risks to
be insured, the probability of loss and the relative cost of available coverage.
The Company has obtained title insurance insuring fee title to the properties in
an aggregate amount which the Company believes to be adequate.
RESULTS OF OPERATIONS. A discussion of the financial position of the
Company and the results of operations of its manufactured housing communities
and other portfolio assets are included in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, which accompanies this Proxy
Statement.
CERTAIN INFORMATION CONCERNING THE MANAGER
The Manager is a successor to a limited liability company formed in April
1996 that succeeded to the business and operations of a corporation wholly-owned
by subsidiaries of MDC that previously provided management services to the
Company and CAX. On September 30, 1996, the current owners of the Manager, which
include Messrs. Benson, Considine and Rhodes, who are currently directors,
executive officers or both, of the Company, acquired the Manager.
The Manager's business primarily consists of providing advisory services to
the Company and CAX; and includes to a lesser extent bond administration
services for over 20 issuances of CMO's and loss mitigation advisory services
and tax administration on the Company's behalf for the trust that acquired the
Company's non-agency MBS bond portfolio in March 1997. The Company and the
Manager have discussed the possible disposition of the bond administration, loss
mitigation advisory, and tax administration services, as they are no longer
strategically related to the Company's current
53
<PAGE>
principle operations. The Company may pursue disposition of these businesses
subsequent to the completion of the Acquisition Proposal.
The Manager conducts no other business and holds no major assets other than
the contracts pursuant to which it renders the advisory services described
above. The Manager leases office space from an affiliate of Mr. Considine at
rates that the Company believes are no less favorable than those which could be
obtained from an unrelated entity. The Manager holds no real property. The
Manager employs twelve persons (including Messrs. Considine and Rhodes, who
currently receive no compensation) in providing the advisory services referred
to above on an at-will basis.
Prior to the Closing, the Manager is obligated under the Asset Contribution
Agreement to contribute to New FAM all of the assets of the Manager related to
the advisory services described above and only specified liabilities,
principally the obligation to perform the advisory contracts and employ the
employees referred to above.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE MANAGER'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management fees from the Company increased $1,681,000 during the six months
ended June 30, 1997 to $2,598,000 compared to the same period in 1996. The
primary reason for the increase was the one-time fee of $2,072,000 the Manager
earned from the resecuritization of the non-agency MBS bonds in March 1997.
Subsequent to the resecuritization, fees from the Company were lower because the
proceeds from the resecuritization were initially invested in short-term cash
instruments, on which the Manager does not earn Base Fees, before they were
reinvested in manufactured housing communities.
Management fees from CAX decreased $185,000 during the six months ended June
30, 1997 to $631,000, compared to the same period in 1996. The decrease was
primarily the result of lower incentive fees from CAX in 1997 compared to 1996.
Incentive fees are based upon the REIT earnings of CAX. REIT earnings of CAX
were higher in the first half of 1996 compared to 1997 due to: (i) prepayments
on certain of the mortgages that collateralized the commercial mortgage backed
securities causing higher amortization of the pricing discount; and (ii) the
gain from the redemption of two of the commercial mortgage backed securities.
The Manager also earns fees from bond administration services it provides
for CMO bond issuances held by unrelated parties. Bond administration revenues
declined $94,000 to $269,000 during the six months ended June 30, 1997, compared
to the same period of the prior year. Bond administration revenues are declining
as the number of CMO issuances for which the Manager provides these services has
reduced due to paydowns and redemptions. The Manager is not adding new CMO
issuances to its bond administration portfolio. Accordingly, bond administration
revenues are expected to continue to decline into the future.
In connection with the resecuritization of the non-agency MBS bonds of the
Company, the Manager was engaged to provide loss mitigation services on behalf
of the Company into the future. The Manager earned $164,000 of loss mitigation
fees in the second quarter of 1997. The fees are a percentage of the outstanding
balance of the bonds and will decline over time as the bonds are repaid.
Effective July 1, 1997, the Manager subcontracted the performance of the loss
mitigation servicing and also reduced its costs related to such services.
Operating expenses of the Manager during the six months ended June 30, 1997
reduced $763,000 to $646,000 compared to the six months ended June 30, 1996. A
significant portion of the Manager's expenses is personnel related costs. During
the six months ended June 30, 1996, the Manager employed 20 people. During the
six months ended June 30, 1997, the Manager employed an average of 13 people.
Additionally, in 1996, the Manager was allocated costs from its prior owner,
MDC, that were higher than the actual costs incurred in 1997 to replace such
goods and services. These allocated costs included rent, computer services,
legal services and internal auditing services.
54
<PAGE>
During the six months ended June 30, 1997, the Manager incurred $247,000 of
interest expense related to the $9,450,000 of debt assumed as a result of the
acquisition of the Manager in September 1996 and $389,000 of amortization of the
$11,692,000 acquisition cost of the Manager. During the six months ended June
30, 1996, the Manager incurred no interest or amortization costs because it had
no debt or capitalized business costs.
MARKET PRICE DATA
The Shares are listed on the NYSE. The following table sets forth, for the
calendar quarters indicated, the high and low closing prices per Share as
reported on the NYSE Composite Tape and the dividends paid per Share.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
--------- --------- -----------
<S> <C> <C> <C>
CALENDAR 1995
First Quarter......................................................................... $ 2 3/8 $ 1 5/8 $ .080
Second Quarter........................................................................ 2 5/8 2 1/4 .080
Third Quarter......................................................................... 2 7/8 2 3/8 .090
Fourth Quarter........................................................................ 3 3/8 2 5/8 .090
CALENDAR 1996
First Quarter......................................................................... 3 3/8 2 3/4 .090
Second Quarter........................................................................ 3 3/4 3 1/8 .090
Third Quarter......................................................................... 3 3/4 3 3/8 .095
Fourth Quarter........................................................................ 4 3 1/2 .095
CALENDAR 1997
First Quarter......................................................................... 4 1/4 3 1/4 .095
Second Quarter........................................................................ 3 5/8 3 1/4 .060
Third Quarter......................................................................... .065
Fourth Quarter through October , 1997............................................... N/A
--------- ---------
</TABLE>
As of October , 1997, [25,239,217] Shares were outstanding and were held
by Stockholders of record. The Company estimates that there were an
additional 12,000 beneficial owners on that date whose Shares were held by
banks, brokers and other nominees.
On September 8, 1997, the last full trading day preceding the initial public
announcement by the Company of the Acquisition Proposal, the high and low sale
prices of the Shares as reported on the NYSE Composite Tape were $3 11/16 and
$3 13/16 per Share, respectively, and the closing price of the Shares was
$3 3/4. As of October , 1997, the last full trading day preceding the mailing
of this Proxy Statement, the high and low sale prices of the Shares as reported
on the NYSE Composite Tape were $ and $ per share, respectively, and
the closing price of the shares was $ .
DIVIDEND POLICY
Dividends are determined at the discretion of the Board of Directors. In
general, REITs are required to distribute 95% of their taxable earnings. The
Company has a net operating loss carryover of approximately $98,000,000 that
generally can be used to reduce its taxable income required to be distributed.
In determining dividends, the Board considers, among other things, the liquidity
of the Company, results of operations and CEFS. The Company reports CEFS to its
Stockholders as a measurement of the performance of the Company. CEFS should not
be considered as an alternative to net or operating performance or as an
alternative to cash flows from operating, investing or financing activities as a
measure of liquidity. The Company believes that CEFS is helpful to a reader as a
measure of the performance of a REIT because, along with cash flow from
operating activities, financing activities and investing activities, CEFS
provides an indication of the ability of the Company to incur and service debt,
to declare dividends, to make capital expenditures and to fund other cash needs.
55
<PAGE>
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The By-laws of the Company provide for three classes of Directors with
staggered terms of office. Directors elected to each class serve for terms of
three years and until the election and qualification of their successors or
until their earlier resignation, death, disqualification or removal from office.
The Company's Board of Directors consists of seven members, including two Class
I Directors whose terms expire in 1999, three Class II Directors whose term
expires in 1997 and two Class III Directors whose terms expire in 1998. The
By-laws of the Company require that the Board of Directors of the Company be
comprised of a number of Independent Directors that is not less than four if the
number of directors is eight or greater; not less than three if the number of
directors is six or seven; and not less than two if the number of directors is
less than six.
An Independent Director is defined in the Company's By-laws as a person "who
is not affiliated, directly or indirectly, with the person or entity responsible
for directing or performing the day-to-day business affairs of the corporation
(the advisor), including a person or entity to which the advisor subcontracts
substantially all of such functions, whether by ownership of, ownership interest
in, employment by, any material business or professional relationship with, or
by serving as an officer or Director of, the advisor or an affiliated business
entity of the advisor." The Independent Directors of the Company are Messrs.
Kline, Schultz and White.
Vacancies on the Board of Directors may be filled by a majority of the
remaining members; provided, however, that the Independent Directors must
nominate the replacements for vacancies among the Independent Directors. Each
Director appointed to fill a vacancy serves until the next annual meeting of
Stockholders at which time the Stockholders shall elect a Director to serve the
remaining term of the class into which such Director is elected.
At the Meeting, three Class II Directors and one Class III Director will be
elected to terms expiring in 2000 and 1998, respectively. Unless otherwise
specified, the enclosed proxy will be voted "FOR" the election of Messrs.
Considine, Benson and White, the Board of Directors' slate of nominees as Class
II Directors of the Company and Mr. Rhodes as a Class III Director of the
Company. Neither management nor the Board of Directors of the Company is aware
of any reason why any nominee would be unable to serve as a Director.
Discretionary authority may be exercised by the proxy holders named in the
enclosed proxy to vote for a substitute nominee proposed by the Board of
Directors if any nominee becomes unavailable for election.
The Board of Directors held nine meetings in 1996. During 1996, no Director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and any committee thereof on which he served.
The audit committee of the Board of Directors (the "Audit Committee") held
six meetings during 1996. Messrs. Kline (Chairman), Robinson, Schultz and White
are the current members of the Audit Committee. Among other things, the Audit
Committee reviews and approves the scope of the annual audit undertaken by the
Company's independent auditors and meets with them as necessary to review the
progress and results of their work as well as their recommendations. The Audit
Committee also reviews internal audit procedures and reporting systems of the
Company.
The nominating committee of the Board of Directors (the "Nominating
Committee"), which held one meeting during 1996, is made up of the Independent
Directors plus Mr. Robinson. The Nominating Committee was formed to review the
qualifications of candidates and recommend candidates to the Board of Directors
for selection as nominees for election as Directors. There is no established
procedure for submission of nominations by Stockholders.
The Company does not have a compensation committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS.
CONSIDINE, BENSON, WHITE AND RHODES TO THE BOARD OF DIRECTORS OF THE COMPANY.
56
<PAGE>
Certain information with respect to the nominees for election as Directors,
the continuing Directors and the executive officer of the Company, as of October
, 1997, appears below and was furnished in part by each such person.
Each executive officer of the Company serves for a term of one year and
until his or her successor has been elected and qualified or until his or her
earlier resignation or removal by the Board of Directors. There are no family
relationships among any of the Directors and the executive officer of the
Company.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD WITH THE COMPANY
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Terry Considine.............................. 50 Co-Chairman of the Board of Directors (Class II) and
Co-Chief Executive Officer
Thomas L. Rhodes............................. 58 Co-Chairman of the Board of Directors (Class III) and
Co-Chief Executive Officer
Kevin J. Nystrom............................. 38 Senior Vice President and Chief Financial Officer
Elliot H. Kline.............................. 56 Independent Director (Class III) and Chairman of the Audit
Committee and Member of the Nominating Committee
Richard L. Robinson.......................... 67 Director (Class I) and Member of the Audit and Nominating
Committees
Tim Schultz.................................. 48 Independent Director (Class I) and Member of the Audit and
Nominating Committees
Bruce D. Benson.............................. 59 Director (Class II)
William J. White............................. 59 Independent Director (Class II) and Member of the Audit and
Nominating Committees
</TABLE>
TERRY CONSIDINE was elected Co-Chairman of the Board and Co-Chief Executive
Officer of the Company and of CAX on October 1, 1996. Since July 1994, Mr.
Considine has also been Chairman of the Board of Directors, President and Chief
Executive Officer of Apartment Investment and Management Company ("AIMCO"), a
REIT that owns and manages multi-family housing complexes. He is the sole owner
of Considine Investment Co. and prior to July 1994, was owner of approximately
75% of Property Asset Management, L.L.C., a Colorado limited liability company,
and its related entities (collectively, "PAM"), one of the AIMCO predecessors.
Mr. Considine also became an owner of the Manager, Financial Asset Management
LLC, on October 1, 1996. He served as a Colorado State Senator from 1987-1992
and in 1992 was the Republican nominee for election to the United States Senate
from Colorado.
THOMAS L. RHODES was elected Co-Chairman of the Board and Co-Chief Executive
Officer of the Company and of CAX on October 1, 1996. Mr. Rhodes has also been a
Director of AIMCO since July 1994. Mr. Rhodes also became an owner and Director
of the Manager on October 1, 1996. Mr. Rhodes has served as the President and a
Director of NATIONAL REVIEW magazine since 1992. From 1976 to 1992, he held
various positions at Goldman, Sachs & Co. and was elected a General Partner in
1986. He also served as a Director of Underwriters Reinsurance Corporation from
1987 to 1993 and was a member of the Advisory Board of TransTerra Co. during
1993. He currently serves as a Director of Delphi Financial Group, Inc. and its
subsidiaries and The Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman
of the Empire Foundation for Policy Research, a Trustee of The Heritage
Foundation, a Trustee of The Manhattan Institute, and a Member of the Council on
Foreign Relations.
KEVIN J. NYSTROM has served as Senior Vice President and Chief Financial
Officer of the Company and CAX since October 1, 1996, and served as Vice
President and Chief Accounting Officer of the Company from January 1993 through
September 1996 and of CAX from its organization through September 1996. He has
been employed by the Manager since September 1992. Prior to joining the
57
<PAGE>
Manager, Mr. Nystrom held a series of positions, most recently as a Senior
Manager with Deloitte & Touche from January 1985 to August 1992.
ELLIOT H. KLINE has served as a Director of the Company since September
1988, as a member of the Audit Committee since December 1988, Chairman of the
Audit Committee since November 1990 and as a member of the Nominating Committee
since April 1989. Dr. Kline has served as Executive-in-Residence at Arizona
State University-West since August 1993. Dr. Kline served as President of IN THE
INTERIM MANAGEMENT CONSULTING, a firm specializing in consulting to
universities, from 1989 to 1993. Dr. Kline served as the Dean of the College of
Business Administration at the University of Denver from 1987 to 1989; as the
Dean and a Professor of the School of Business and Public Administration at the
University of the Pacific from 1977 to 1987; and as the Director and an
Associate Professor of the Institute of Public Affairs and Administration at
Drake University from 1970 to 1977.
RICHARD L. ROBINSON has served as a Director of the Company and as a member
of the Nominating Committee since January 1990 and a member of the Audit
Committee since August 1993. Mr. Robinson has served as Chairman of the Board of
Directors and Chief Executive Officer of Robinson Dairy, Inc., a Denver-based
institutional dairy products manufacturer and distributor, since 1975 and prior
thereto served in various executive positions with that company for 20 years.
Mr. Robinson also serves as a Director of First Bank System, Minneapolis,
Minnesota. He is active in numerous civic and charitable organizations, is past
Chairman of the Greater Denver Chamber of Commerce and a past President of the
State Board of Agriculture, the governing body for the Colorado State University
System.
TIM SCHULTZ has been a Director of the Company since July 1994 and is a
member of the Audit and Nominating Committees. He is President and Executive
Director of the Boettcher Foundation, a Colorado not-for-profit, charitable
corporation, and from August 1994 until November 1995, he was Chairman and
President of Colorado Open Lands, a Colorado not-for-profit corporation. From
1990 until August 1994, he was employed by the law firm of Arnold & Porter as a
Consultant-Corporate/ Government Relations with responsibilities ranging from
serving as Chairman of a large land trust to representing clients' needs in
connection with state and local government issues. From May 1987 to July 1990,
Mr. Schultz served as Executive Director of the State of Colorado Department of
Local Affairs and from November 1983 to May 1987, as Commissioner of Agriculture
for the State of Colorado Department of Agriculture, both cabinet level
positions. From 1987 to 1991, he served as Chairman of the Colorado Economic
Development Commission.
BRUCE D. BENSON has served as a Director of the Company and CAX since
October 1, 1996 and previously served as a Director of the Company and a member
of the Nominating Committee from February 1992 through November 1993. Effective
October 1, 1996, Mr. Benson became an owner of the Manager. For the past 32
years, he has been President and owner of Benson Mineral Group, Inc., a domestic
oil and gas production company located in Denver, Colorado. He is also Chairman,
Chief Executive Officer and President of United States Exploration, Inc., an oil
and gas exploration company. He serves on numerous Boards of Trustees and Boards
of Directors, including President, Denver Zoological Foundation; Chairman and
Past President, Boy Scouts of America, Denver Area Council; Past President of
the Board of Trustees, Berkshire School, Sheffield, Massachusetts; Past Trustee,
Smith College, Northampton, Massachusetts; past Chairman, Colorado Commission on
Higher Education; and past member, Board of Directors, University of Colorado
Foundation and Chairman of the major capital campaign for the University of
Colorado. In 1994, he was the Republican nominee for the Governor of Colorado.
WILLIAM J. WHITE has served as Director of the Company since December 1996.
Mr. White has served as Chairman of Bigelow and Co., an investment banking firm
located in Denver, Colorado that specializes in municipal and corporate finance,
since 1995. From 1992 through 1995, Mr. White was President and owner of First
Denver Financial Corporation and in 1991 and 1992, was President of Affiliated
Capital Markets, a division of Affiliated National Bank. Prior to these
positions, Mr. White
58
<PAGE>
served in various positions culminating as Chairman of Kirchner Moore and
Company, a stock brokerage firm.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's executive officers and Directors are required under the
Exchange Act to file reports of ownership and changes in ownership of securities
of the Company with the Commission and the NYSE. Copies of those reports also
must be furnished to the Company. Based solely upon a review of the copies of
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended December
31, 1996, all required reports were filed on a timely basis.
COMPENSATION
SUMMARY COMPENSATION TABLE
The Company does not pay a salary, bonus or any other compensation to its
executive officers, other than stock options and prior to May 28, 1996, dividend
equivalent rights ("DERs") related to stock options granted to officers and
others from time to time under the Company's stock option plan (the "Stock
Option Plan"). The Company does not have any long-term incentive programs. The
Manager provides (at its expense) all personnel necessary to conduct the regular
business of the Company. The Manager receives various fees for advisory and
other services performed under the Management Agreement. All salaries, bonuses
and other compensation (except stock options and DERs) received by the executive
officers of the Company are paid by the Manager. The Manager has not allocated
any portion of the compensation paid by it to the Company's executive officers
specifically for their services to the Company.
It is anticipated that, if the Acquisition Proposal is approved, the
Company's executive officers will be compensated directly by the Company. The
amount of compensation as to Messrs. Considine and Rhodes has not yet been
determined.
The following table sets forth information regarding compensation paid to
the Company's Chief Executive Officers:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(1)
AWARDS-SECURITIES
UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITIONS(2) YEAR (SHARES)
- ------------------------------------------------------------------------------ --------- --------------------------
<S> <C> <C>
Spencer I. Browne, President and Chief Executive Officer through September 30,
1996........................................................................ 1996 200,000
1995 70,000
1994 99,977
Terry Considine, Co-Chief Executive Officer, effective
October 1, 1996............................................................. 1996 --
Thomas L. Rhodes, Co-Chief Executive Officer, effective October 1, 1996....... 1996 --
</TABLE>
- ------------------------
(1) All options granted under the Stock Option Plan have an exercise price equal
to 100% of the market price of the Shares on the date of grant, are
exercisable for a five-year term and, prior to May 28, 1996, automatically
accrued DERs related to dividends declared on the outstanding Shares between
the date the option was granted and the date the option was exercised.
Options granted to Mr. Browne are fully vested. Amounts do not reflect
9,023, 49,241 and 28,861 Shares related to DERs that accrued during 1996,
1995 and 1994, respectively. Additionally, on May 28, 1996, Mr. Browne
received 82,987 Shares in exchange for the elimination of the accrual of
DERs on stock options held by him.
59
<PAGE>
(2) Messrs. Considine and Rhodes were not granted any options; however, on June
20, 1997, along with Mr. Benson, Messrs. Considine and Rhodes purchased Mr.
Browne's stock options, as discussed in Note 3 to the table concerning
Aggregate Option Exercises during 1996.
OPTION GRANTS IN 1996
The following table reflects information regarding the options granted to
the Company's previous Chief Executive Officer during 1996.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE
NUMBER OF OPTIONS/SARS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) 1996(2) ($/SHARE)(1) DATE 5% 10%
- -------------------------------------- ------------------ ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Spencer I. Browne..................... 110,000 17.4% $ 3.125 4/8/01 $ 94,972 209,863
90,000 14.3% $ 3.375 7/29/01 $ 3,921 185,442
There were no Stock Appreciation Rights ("SARs") granted by the Company during the year ended December 31, 1996.
</TABLE>
- ------------------------
(1) See footnote 1 to the "Summary Compensation Table" above.
(2) The Company subcontracts the services of community management personnel and
has no employees. The percentage reflected relates to all options granted to
employees of the Manager who are officers of the Company or to employees of
the Manager whose time is devoted substantially to the Company. See "Summary
Compensation Table" above.
AGGREGATE OPTION EXERCISES DURING 1996 AND FISCAL YEAR-END OPTION VALUE TABLE
The following table reflects the options exercised by the Company's Chief
Executive Officers during the year ended December 31, 1996, and the number of
Shares covered by exercisable stock options as of December 31, 1996 (all stock
options were exercisable at December 31, 1996).
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED(1) AT 12/31/96(3) AT 12/31/96(2,3)
- -------------------------------- --------------- ---------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Spencer I. Browne............... 89,296 $ 180,491 304,135 $ 205,595
Terry Considine................. -- -- -- --
Thomas L. Rhodes................ -- -- -- --
</TABLE>
- ------------------------
(1) The value was computed from the closing price of the Shares on June 6, 1996,
the date the options were exercised, or $3.375 per Share.
(2) The closing price of the Shares on December 31, 1996, was $3.625 per Share.
(3) On June 20, 1997, Messrs. Considine, Rhodes and Benson acquired from Mr.
Browne 367,102 Shares and non-qualified stock options to purchase up to
304,135 Shares at prices ranging from $1.682 per Share to $3.375 per Share
that expire from August 9, 1998 through July 29, 2001, for a total purchase
price of $1,519,599.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OF THE COMPANY'S
FILINGS WITH THE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, THE FOLLOWING BOARD REPORT ON EXECUTIVE COMPENSATION SHALL
NOT BE INCORPORATED INTO ANY FUTURE FILINGS WITH THE COMMISSION AND SHALL NOT BE
DEEMED FILED WITH THE COMMISSION.
60
<PAGE>
BOARD REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company has not established a compensation
committee. The Board is responsible for determining grants of stock options
under the Company's Stock Option Plan. The Board believes that stock options
link management and Stockholder interests and motivate executives to make
long-term business and operating decisions that will serve to increase the long-
term total return to Stockholders.
The Board awarded stock options to the executive officers of the Company
during 1996 as an incentive for the executive officers with respect to, among
other things, implementation of the Company's business plan and as compensation
for attaining performance goals as determined by the Board. Specifically, when
granting these options, the Board considered the following specific
accomplishments of management: (i) the significant increase in the Company's
stock price during 1996; (ii) the acquisition of approximately $60 million par
value at acquisition of high-yield, non-agency bonds backed by home mortgage
loans in 1996; (iii) increasing the Company's net income from ongoing operations
and distributions to Stockholders during 1996; and (iv) through its ownership of
approximately 27% of CAX participating in the market for commercial real estate
securitizations.
Except with respect to compensation paid under the Stock Option Plan, the
Board has no role in setting the compensation policies of or the levels of
compensation paid to the Company's executive officers whether in the form of
salaries, bonuses or other annual compensation. Pursuant to the Management
Agreement, such compensation is paid by the Manager. See "Summary Compensation
Table" above.
THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
TERRY CONSIDINE, CO-CHAIRMAN TIM SCHULTZ
THOMAS L. RHODES, CO-CHAIRMAN BRUCE D. BENSON
ELLIOT H. KLINE WILLIAM J. WHITE
RICHARD L. ROBINSON
</TABLE>
COMPENSATION PAID TO DIRECTORS
During 1996, each Independent Director of the Company and Mr. Robinson
received a fee of $2,500 a month plus $300 for each meeting of the Board of
Directors or committee thereof attended. In addition, all Directors are
reimbursed for expenses related to their attendance at Board of Directors and
committee meetings.
The Company's former Chairman of the Board was granted five-year,
non-qualified stock options under the Stock Option Plan to purchase 110,000
Shares for $3.125 per Share on April 9, 1996, and to purchase 90,000 Shares for
$3.375 per Share on July 30, 1996. These options are fully vested. Options
granted to Mr. Browne, former Director of the Company, are shown in the above
Summary Compensation Table.
The non-officer Directors of the Company automatically receive grants of
stock options under the Stock Option Plan as they are elected to the Board and
concurrent with the annual meeting of Stockholders and are also eligible for
awards of stock options under the Stock Option Plan. During the year ended
December 31, 1996, Messrs. Kline, Robinson and Schultz each were granted
non-qualified stock options to purchase up to 20,000 Shares for $3.125 per Share
on April 9, 1996, and to purchase 25,000 Shares for $3.375 per Share on July 30,
1996, Mr. Benson was granted non-qualified stock options to purchase up to
25,000 Shares for $3.625 per Share on October 29, 1996, and Mr. White was
granted non-qualified stock options to purchase up to 25,000 Shares for $3.625
per Share on December 20, 1996. The options granted are exercisable as to 50% on
the date of grant and as to 25% on each of the two succeeding anniversaries of
the date of grant. See Note 1 to the Summary Compensation Table above for the
other material terms of these stock options.
61
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table and notes below set forth, as of August 31, 1997, the
number of Shares beneficially owned by each Director and each executive officer
of the Company, individually, and the number of Shares beneficially owned by all
of the Company's Directors and executive officers as a group, which information
was furnished in part by each such person.
<TABLE>
<CAPTION>
PERCENT OF CLASS(3)
-----------------------------------------------------
PRO FORMA(4)
AMOUNT AND --------------------------------
NATURE OF ASSUMING THE ASSUMING THE
BENEFICIAL AS OF AUGUST 31, ACQUISITION IS EARNOUT IS
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2) 1997 COMPLETED COMPLETED
- ----------------------------------------------------- ------------ ------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Terry Considine(5)................................... 680,332 2.7% 5.4% 7.8%
Kevin J. Nystrom..................................... 14,204 * * *
Thomas L. Rhodes..................................... 113,382 * 2.8% 3.8%
Elliot H. Kline...................................... 199,347 * * *
Richard L. Robinson.................................. 211,265 * * *
Tim Schultz.......................................... 100,428 * * *
Bruce D. Benson...................................... 277,924 1.1% 2.1% 2.8%
William J. White..................................... 22,500 * * *
All directors and executive officers as a group
(eight persons).................................... 1,619,382 6.3% 12.7% 15.4%
</TABLE>
- ------------------------
* Denotes ownership of less than 1% of the outstanding Shares.
(1) Includes, where applicable, Shares owned by such person's minor children and
spouse and by other related individuals and entities. Unless otherwise
indicated, such person has sole voting and investment power as to the Shares
listed.
(2) Includes the following Shares which such persons had the right to acquire
within 60 days after August 31, 1997, through the exercise of stock options
granted under the Stock Option Plan: Terry Considine--119,627 Shares; Kevin
J. Nystrom--8,500 Shares; Thomas L. Rhodes--46,383 Shares; Bruce D.
Benson--100,626 Shares; William J. White--12,500 Shares; Elliot H. Kline--
115,973 Shares; Richard L. Robinson--115,973 Shares; and Tim Schultz--66,885
Shares. All Directors and executive officers as a group--586,467 Shares.
(3) All Shares which a person had the right to acquire within 60 days after
August 31, 1997, were deemed to be outstanding for the purpose of computing
the "Percent of Class" owned by such person but were not deemed to be
outstanding for the purpose of computing the "Percent of Class" owned by any
other person. At August 31, 1997, 25,239,217 Shares were outstanding.
(4) Shows the percent of class that would be held if the Acquisition Proposal is
approved by the Stockholders and closes, if all AIOP Units issuable in
connection with the Earnout are issued and if all AIOP Units held by such
persons have been converted to Shares. The conversion of the AIOP Units into
Shares cannot take place for at least one year.
(5) Mr. Considine's Shares are held by a partnership in which he is the sole
general partner.
As of August 31, 1997, no person or group was known to the Company to be a
beneficial owner of more than 5% of the Shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Considine and Rhodes each serve as Co-Chief Executive Officer and
Co-Chairman of the Board of the Company and Mr. Benson serves as a Director of
the Company. Messrs. Considine, Rhodes and Benson hold a combined beneficial
ownership interest of approximately 60% in the Manager, which receives
management fees from the Company under the Management Agreement.
62
<PAGE>
PERFORMANCE GRAPHS
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OF THE COMPANY'S
FILINGS WITH THE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, THIS SECTION ENTITLED "PERFORMANCE GRAPHS" SHALL NOT BE
INCORPORATED INTO ANY FUTURE FILINGS WITH THE COMMISSION AND SHALL NOT BE DEEMED
FILED WITH THE COMMISSION.
The first performance graph below compares the yearly change in the
cumulative total return of the Shares over the five-year period ended December
31, 1996, with (i) the cumulative total return of the Standard & Poor's 500
Stock Index; and (ii) a peer group consisting of all Mortgage REITs as defined
by the National Association of Real Estate Investment Trusts.
During 1993, the Company initiated a plan to redeploy its assets that was
substantially completed in 1995. A second performance graph has been provided
that reflects the implementation of that plan. The second graph compares the
cumulative total return of the Shares over the three years ended December 31,
1996, to the cumulative total return over the same period of the Standard and
Poor's 500 Stock Index and the same peer group as in the first performance
graph.
The performance graphs were prepared based on the following assumptions: (a)
an initial investment of $100 invested in (i) the Shares; (ii) the shares of the
companies in the Standard & Poor's 500 Index; and (iii) the shares of the
companies in the peer group; and (b) all dividends received were reinvested in
the month in which they were received. On October 12, 1993, the Company
distributed to its Stockholders one share of CAX common stock for every two
Shares held. For purposes of the performance graph, the shares of CAX common
stock were treated as being sold on the date of the distribution and the
proceeds from the sale invested in Shares of the Company.
63
<PAGE>
THE STOCK PRICE PERFORMANCE SHOWN ON THE PERFORMANCE GRAPHS ARE NOT NECESSARILY
INDICATIVE OF FUTURE PRICE PERFORMANCE.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET INVESTORS
CORPORATION
<S> <C> <C> <C>
Performance Since 1991
AIC Mortgage REITs S&P 500
12/31/91 $100 $100 $100
12/31/92 $57 $102 $108
12/31/93 $38 $117 $118
12/31/94 $44 $88 $120
12/31/95 $78 $144 $165
12/31/96 $109 $218 $203
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET INVESTORS
CORPORATION
<S> <C> <C> <C>
Performance Since 1993
AIC Mortgage REITs S&P 500
12/31/93 $100 $100 $100
12/31/94 $114 $76 $101
12/31/95 $202 $124 $139
12/31/96 $284 $187 $171
</TABLE>
In March 1997, the Company resecuritized its portfolio of non-agency MBS
bonds, and in May 1997, the Company began the acquisition of manufactured
housing communities. In 1997, the Company will change its peer group from
mortgage REITs to manufactured housing REITs.
64
<PAGE>
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
The following summary of the proposed amendment to the Articles is qualified
in its entirety by reference to the full text of the proposed amendment to
Article V of the Articles, which is annexed to this Proxy Statement as Appendix
C. The affirmative vote of the holders of two-thirds of the outstanding Shares
will be required to amend the Articles. The persons designated as agents in the
proxy, unless otherwise specified, will vote the Shares covered thereby at the
Meeting "FOR" approval of the amendment to the Articles.
GENERAL
The Board of Directors has approved and is recommending to the Stockholders
approval a proposal to amend the Articles to effect the Reverse Stock Split of
the issued and outstanding Shares on a basis of one (1) post-split Share for
each five (5) Shares currently outstanding.
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
As a result of the Reverse Stock Split, all issued and outstanding Shares on
the Effective Date of the Reverse Stock Split will be reconstituted on the basis
of one (1) post-split Share for each five (5) Shares then-outstanding, thereby
decreasing the number of outstanding Shares from approximately 25,000,000 Shares
to approximately 5,000,000 Shares. The Company believes that the Reverse Stock
Split will result in a market price for the Shares that is more attractive to
the financial community and investing public. There is no assurance, however,
that the trading market for the Shares will be improved, nor can the Board of
Directors predict what effect, if any, the Reverse Stock Split will have on the
market price of the Shares. As of October , 1997, the closing price of the
Shares on the NYSE Composite Tape was per Share.
As a result of the Reverse Stock Split, each Stockholder holding a
fractional interest, including Stockholders owning less than five pre-split
Shares, will have the right to either (i) receive the cash payment set forth
below, or (ii) subject to certain limitations described below, elect to purchase
an additional fractional Share interest in order to "round-up" to a full Share.
See "--Fractional Shares." The Company believes that a significant number of
holders of less than five Shares will find the cash election to be an economical
way to dispose of their Shares and will accept the cash payment for their
Shares, thereby saving such holders the disproportionate brokerage fees which
would be incurred in disposing of their Shares in the open market. The Company
believes that such dispositions will decrease the number of holders of Shares,
thereby relieving the Company of the administrative costs associated with such
Stockholders.
The Reverse Stock Split is not intended to change the proportionate equity
interests of the Company's Stockholders; however, some incidental change can be
expected to occur in connection with the elimination of fractional Shares. Any
increase that does occur in Stockholders' proportionate equity interest as a
result of the Reverse Stock Split is not expected to exceed 1%. Voting rights
and other rights of Stockholders will not be altered by the Reverse Stock Split.
The par value per Share will not be increased. Thus, the Company's stated
capital, which is calculated by multiplying the par value per Share by the
number of Shares outstanding, will be reduced to approximately one-fifth of its
current value. The Reverse Stock Split will not affect the registration of the
Shares under the Exchange Act, and the Company has no present intention of
taking any action that would result in termination of such registration under
the Exchange Act.
The Company currently has 50,000,000 authorized Shares, and the proposed
amendment and Reverse Stock Split would not reduce the number of authorized
shares. Thus, the proposed amendment will have the effect of making more shares
available for issuance than would be the case if the Reverse Stock Split had not
occurred. As of the date of this Proxy Statement, there is currently reserved
for issuance an aggregate of 1,328,750 Shares for exercise of stock options and
conversion of AIOP Units. Therefore, following the Reverse Stock Split, there
will be 44,686,407 authorized Shares of common stock unreserved and available
for future issuance from time to time for various corporate
65
<PAGE>
purposes, as determined by the Board of Directors, which could include stock
options and issuance of Shares or AIOP Units for other compensatory purposes and
the making of acquisitions.
No further action or authorization by the Stockholders will be necessary
prior to the issuance of additional Shares unless required for a particular
transaction by applicable law or regulatory agencies or by the rules of any
stock exchange on which the Company's securities may then be listed. The holders
of Shares do not have any pre-emptive rights to acquire additional securities of
any class of the Company.
One of the effects of an increase in the number of authorized Shares may be
to deter or prevent a change in control of the Company. The issuance of the
additional Shares could have the effect of diluting the stock ownership or
voting rights of persons seeking to obtain control of the Company. The Company
is not aware of any anticipated change of control of the Company.
The Reverse Stock Split will be effected by the filing of articles of
amendment to the Articles with the Department of Assessments and Taxation of the
State of Maryland. The Company plans to file the articles of amendment as soon
as practicable if the Reverse Stock Split is approved at the Meeting. Under the
Maryland General Corporation Law, the amendment to the Certificate will become
effective on the date the Department of Assessments and Taxation of the State of
Maryland accepts the filing, unless the Company specifies a later date (such
date being referred to as the Effective Date).
CONVERSION OF STOCK OPTIONS
If the Reverse Stock Split is approved at the Meeting and becomes effective,
the Company's Board of Directors will take such action as it deems necessary to
make equitable adjustments to any outstanding stock options.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates formerly representing pre-split
Shares to be used in forwarding their certificates for surrender in exchange for
(i) certificates representing the whole number of post-split Shares to which he
or she is entitled and (ii) any cash which may be payable in lieu of any
fractional Share interest to which he or she would otherwise be entitled.
Stockholders may also use the same transmittal form to elect to "round-up" their
fractional post-split Shares. See "--Fractional Shares." Such transmittal forms
will be accompanied by instructions specifying other details of the exchange and
the "round-up" feature. The Reverse Stock Split will occur at the Effective Date
without any further actions on the part of Stockholders of the Company and
without regard to the date or dates on which certificates formerly representing
pre-split Shares are physically surrendered.
On the Effective Date, each certificate formerly representing pre-split
Shares, until surrendered and exchanged as described above, will be deemed for
all corporate purposes to evidence ownership of the resulting number of
post-split Shares and the right to receive an amount of cash for any fractional
Share interests. See "--Fractional Shares."
Until Stockholders have surrendered their stock certificates for reissuance,
such Stockholders will not be entitled to receive: (i) dividends, if any,
declared or payable to holders of record of post-split Shares; (ii) certificates
representing the post-split Shares to which such Stockholders are entitled; or
(iii) cash payments in lieu of fractional Share interests. Any such dividends
and payments will be remitted to the Stockholders entitled thereto, without
interest, at the time such pre-split Share certificates are surrendered for
exchange, subject to applicable state laws relating to abandoned property. No
service charges, brokerage commissions or transfer taxes will be payable by
Stockholders in connection with the Reverse Stock Split. The Company estimates
that payments for fractional Shares resulting from the Reverse Stock Split will
aggregate less than $50,000, which the Company intends to pay from internally
generated funds. HOLDERS SHOULD NOT SUBMIT CERTIFICATES UNTIL THEY RECEIVE
TRANSMITTAL FORMS.
66
<PAGE>
FRACTIONAL SHARES
No scrip or fractional Shares will be issued as a result of the Reverse
Stock Split, and fractional Share interests will not entitle the holder thereof
to exercise any right of a Stockholder with respect thereto. In lieu of issuing
certificates evidencing fractional Shares, each Stockholder whose holdings on
the Effective Date are not evenly divisible by 5 will be given the option,
exercisable within 60 days, of either: (i) selling to other Stockholders of the
Company through the Company's transfer agent, Norwest Shareowner Services
("Norwest") his or her fractional Share interest at a price in cash equal to the
average of the reported closing prices for the Shares on the NYSE Composite Tape
for the ten trading days immediately preceding the Effective Date (the "Average
Selling Price") per each 1/5 of a Share of post-split Shares; or (ii) purchasing
from other Stockholders through Norwest, at a price in cash equal to the Average
Selling Price per each 1/5 of a Share of post-split Shares, a sufficient
fractional Share interest to "round-up" to a full post-split Share (and thereby
receive certificates representing whole post-split Shares in exchange for such
fractional Share interests).
Norwest will act as agent for the Stockholders in connection with the
purchase and sale of fractional Share interests for the purpose of combining
such interest into whole Shares. The Company will not solicit purchase or sale
orders for fractional Share interests. The transmittal form, which will be sent
to Stockholders after the Reverse Stock Split becomes effective, will ask
Stockholders to designate whether he or she wishes to (i) sell any fractional
Share interest or (ii) purchase a sufficient fractional Share interest from
other Stockholders to round-up his or her fractional Share interest to a whole
post-split Share.
Norwest will, based on the order of receipt, match the transmittal forms of
Stockholders wishing to purchase fractional Share interests with those of
Stockholders wishing to sell their fractional Share interests. Accordingly, if
Stockholders wish to purchase more fractional Share interest than those that
have been offered for sale, the desire of some Stockholders to purchase
additional fractional Share interest will not be met. Although no assurances can
be given, the Company believes it likely that all requests to purchase a
fractional Share interest will be satisfied. Stockholders will not be permitted
to purchase a larger fractional Share interest than is necessary to round-up to
the next highest whole number of post-split Shares.
The period during which Stockholders will be able to make the aforementioned
election will expire 60 days after the transmittal forms are mailed to
Stockholders. Any Stockholder whose transmittal form is not received by Norwest
within such period will be deemed to have elected to sell any fractional Share
interest held by him or her. Any fractional Share interests not purchased by
other Stockholders will be purchased by the Company.
FEDERAL INCOME TAX CONSEQUENCES
A Stockholder's receipt of post-split Shares in the Reverse Stock Split will
be a tax-free transaction, and the holding period and tax basis of the pre-split
Shares will be transferred to the post-split Shares received in exchange
therefor. Generally, cash received in lieu of fractional Shares will be treated
as a sale of the fractional Shares, and Stockholders will recognize gain or loss
based upon the difference between the amount of cash received and the basis in
the surrendered fractional Shares. Likewise, any cash paid to round-up a
fractional Share will generally be treated as a purchase and such amount will be
added to the basis of the fractional Share.
THE FOREGOING SHOULD NOT BE CONSIDERED TAX OR INVESTMENT ADVICE, AND THE TAX
CONSEQUENCES OF THE REVERSE-SPLIT MAY NOT BE THE SAME FOR ALL STOCKHOLDERS.
STOCKHOLDERS DESIRING TO KNOW THEIR INDIVIDUAL FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES SHOULD CONSULT THEIR OWN TAX ADVISORS.
APPRAISAL AND DISSENTERS' RIGHTS
The Maryland General Corporation Law does not provide appraisal or similar
dissenters' rights to the holders of Shares in connection with the Reverse Stock
Split.
67
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation" under the
section entitled "Ownership of Common Stock and AIOP Units" above.
COMPANY'S RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors of the Company appointed the firm of Ernst & Young
LLP to audit the financial statements of the Company for the year ended December
31, 1996. A representative of Ernst & Young LLP is expected to be present at the
Meeting and available to respond to appropriate questions. Ernst & Young LLP has
indicated that it will not make a statement, although an opportunity for a
statement will be provided. Stockholders are not being requested to ratify this
appointment.
OTHER MATTERS
In addition to solicitations by mail, solicitations may be made by personal
interview, telephone and telegram by Directors and officers of the Company. No
compensation will be paid to the Directors and officers of the Company for the
solicitation of proxies. The Company will employ Corporate Investor
Communications, Inc., to assist the Company in the solicitation of proxies. The
Company expects to incur a fee of approximately $10,000, plus reimbursement of
out of pocket expenses for this service. The costs of solicitation of proxies
will be paid solely by the Company. The Company will reimburse banks, brokers
and others holding Shares in their names or the names of nominees or otherwise
for reasonable out-of-pocket expenses incurred in sending proxies and proxy
materials to the beneficial owners of such Shares.
Management and the Board of Directors of the Company know of no matters to
be brought before the Meeting other than as set forth in this Proxy Statement.
However, if any such other matters properly are presented to the Stockholders
for action at the Meeting and any adjournments or postponements thereof, it is
the intention of the proxy holders named in the enclosed proxy to vote in their
discretion on all matters on which the Shares represented by such proxy are
entitled to vote.
STOCKHOLDER PROPOSALS
It is anticipated that the 1998 Annual Meeting of Stockholders will be held
in May 1998 and that a proxy statement relating to the 1998 Annual Meeting of
Stockholders will be mailed to Stockholders in early April, 1998. Accordingly,
any proposal that a Stockholder may desire to present at the 1998 Annual Meeting
of Stockholders must be received in writing by the Secretary of the Company not
later than November 30, 1997.
APPENDICES
Annexed to this Proxy Statement (i) as Appendix A is the Asset Contribution
Agreement, (ii) as Appendix B is the fairness opinion by Jefferies dated as of
the date of this Proxy Statement, and (iii) as Appendix C is the proposed
amendment to Article V of the Articles to effect the Reverse Stock Split.
BY ORDER OF THE BOARD OF DIRECTORS,
[LOGO]
John C. Singer
SECRETARY
68
<PAGE>
ASSET INVESTORS CORPORATION
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pro Forma Condensed Consolidated Balance Sheets as of June 30, 1997 (Unaudited)............................ F-2
Pro Forma Condensed Consolidated Balance Sheets for the Six Months Ended June 30, 1997 (Unaudited)......... F-3
Pro Forma Condensed Consolidated Balance Sheets for the Year Ended December 31, 1996 (Unaudited)........... F-4
Notes to Pro Forma Condensed Consolidated Financial Statements............................................. F-5
</TABLE>
F-1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
The accompanying pro forma condensed consolidated financial data have been
derived from the unaudited consolidated financial statements of the Company
accompanying or incorporated by reference in this Proxy Statement. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, necessary
for the fair presentation of the results of operations for the periods
presented.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the notes thereto, in the
Company's annual report on Form 10-K for the year ended December 31, 1996 and
the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1997
accompanying this Proxy Statement.
Pro forma adjustments are detailed in the "Notes to Pro Forma Condensed
Consolidated Financial Statements" below.
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS
PREVIOUSLY PRO FORMA PRO FORMA
REPORTED ADJUSTMENTS RESULTS
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Investment in rental properties, net............................ $ 26,442 $ -- $ 26,442
Investment in rental property joint ventures.................... -- 10,256 )(B 10,256
Cash and cash equivalents....................................... 42,943 (10,800) (C) 32,143
Investment in Commercial Assets................................. 19,895 -- 19,895
Goodwill........................................................ -- 14,982 )(C 14,982
Other assets, net............................................... 4,724 (2,746)(B) 1,978
------------ ----------- ------------
Total Assets.................................................. $ 94,004 $ 11,692 $ 105,696
------------ ----------- ------------
------------ ----------- ------------
LIABILITIES
Mortgage notes payable.......................................... $ 4,940 $ -- $ 4,940
Accounts payable and accrued liabilities........................ 1,276 -- 1,276
Management fees payable......................................... 249 -- 249
------------ ----------- ------------
Total Liabilities............................................. 6,465 -- 6,465
------------ ----------- ------------
Minority interest in operating partnership........................ 322 11,692(C) 12,014
------------ ----------- ------------
STOCKHOLDERS' EQUITY
Common stock.................................................... 252 -- 252
Additional paid-in capital...................................... 230,112 -- 230,112
Cumulative dividends............................................ (242,241) -- (242,241)
Cumulative net income........................................... 99,476 -- 99,476
------------ ----------- ------------
Dividends in excess of net income............................. (142,765) -- (142,765)
Unrealized holding losses on debt securities.................... (382) -- (382)
------------ ----------- ------------
Total Stockholders' Equity.................................... 87,217 -- 87,217
------------ ----------- ------------
Total Liabilities and Stockholders' Equity.................... $ 94,004 $ 11,692 $ 105,696
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-3
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------
ACQUISITION OF
INTERESTS IN
RESECURITIZATION MANUFACTURED
AS PREVIOUSLY OF NON-AGENCY HOUSING ACQUISITION PRO FORMA
REPORTED MBS BONDS COMMUNITIES OF MANAGER RESULTS
------------- ------------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income................................ $ 568 $ -- $ 1,752(G) $ -- $ 2,320
Equity in earnings of rental property joint
ventures................................... -- -- 359(H) -- 359
Property management income................... 23 -- 75(I) -- 98
REIT management income....................... -- -- -- 1,359(N) 1,359
Non-agency MBS bonds......................... 2,450 (2,000)(D) -- -- 450
Equity in earnings of Commercial Assets...... 948 -- -- -- 948
Interest and other income.................... 847 830(E) (672)(J) -- 1,005
------------- ------- ------- ------------ -----------
Total revenues............................. 4,836 (1,170) 1,514 1,359 6,539
------------- ------- ------- ------------ -----------
EXPENSES
Property operations and maintenance.......... 174 -- 618(G) -- 792
Real estate taxes............................ 53 -- 167(G) -- 220
Property management expenses................. 31 -- 90(I) -- 121
REIT management expenses..................... -- -- -- 591(N) 591
Management fees.............................. 374 (248)(F) 240(K) (366)(O) --
General and administrative................... 423 (42)(D) -- 372(N) 753
Depreciation and amortization................ 149 -- 447(L) 625(P) 1,221
Interest..................................... 81 (26)(E) 153(M) -- 208
Minority interest............................ -- -- -- 1,211(Q) 1,211
------------- ------- ------- ------------ -----------
Total expenses............................. 1,285 (316) 1,715 2,433 5,117
------------- ------- ------- ------------ -----------
NET INCOME BEFORE GAIN ON RESECURITIZATION OF
NON-AGENCY MBS BONDS......................... 3,551 (854) (201) (1,074) 1,422
Gain on resecuritization of non-agency MBS
bonds........................................ 7,359 -- -- 7,359
Management fees on resecuritization of non-
agency MBS bonds............................. (2,072) 145(F) -- 1,927(O) --
------------- ------- ------- ------------ -----------
NET INCOME..................................... $ 8,838 $ (709) $ (201) $ 853 $ 8,781
------------- ------- ------- ------------ -----------
------------- ------- ------- ------------ -----------
NET INCOME PER SHARE........................... $ 0.35 $ 0.35
------------- -----------
------------- -----------
Weighted-average shares outstanding............ 24,952 24,952
OTHER DATA--FUNDS FROM OPERATIONS:
NET INCOME..................................... $ 8,838 $ (709) $ (201) $ 853 $ 8,781
Amortization of discounts on non-agency MBS
bonds........................................ 469 (469)(D) -- -- --
Depreciation of rental properties.............. 130 -- 397(L) -- 527
Amortization of goodwill on management
contracts.................................... 19 -- 50(L) 625(P) 694
------------- ------- ------- ------------ -----------
FUNDS FROM OPERATIONS.......................... $ 9,456 $ (1,178) $ 246 $ 1,478 $ 10,002
------------- ------- ------- ------------ -----------
------------- ------- ------- ------------ -----------
FUNDS FROM OPERATIONS PER SHARE................ $ 0.38 $ 0.40
------------- -----------
------------- -----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-4
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------
ACQUISITION OF
RESECURITIZATION INTERESTS IN
OF MANUFACTURED
AS PREVIOUSLY NON-AGENCY MBS HOUSING ACQUISITION OF PRO FORMA
REPORTED BONDS COMMUNITIES MANAGER RESULTS
------------- ----------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income.............................. $ -- $ -- $ 4,419(G) $ -- $ 4,419
Equity in earnings of rental property joint
ventures................................. -- -- 573(H) -- 573
Property management income................. -- -- 198(I) -- 198
REIT management income..................... -- -- -- 2,498(N) 2,498
Non-agency MBS bonds....................... 11,513 (11,513)(D) -- -- --
Equity in earnings of Commercial Assets.... 1,875 -- -- -- 1,875
Interest and other income.................. 136 3,329(E) (1,622)(J) -- 1,843
------------- -------- ------- ------- -----------
Total revenues........................... 13,524 (8,184) 3,568 2,498 11,406
------------- -------- ------- ------- -----------
EXPENSES
Property operations and maintenance........ -- -- 1,545(G) 1,545
Real estate taxes.......................... -- -- 438(G) 438
Property management expenses............... -- -- 240(I) 240
REIT management expenses................... -- -- -- 1,182(N) 1,182
Management fees............................ 1,793 (1,664)(F) 541(K) (670)(O) --
General and administrative................. 1,145 (82)(D) -- 744(N) 1,807
Elimination of DERs........................ 825 -- -- -- 825
Depreciation and amortization.............. -- -- 1,059(L) 1,249(P) 2,308
Interest................................... 88 (88)(E) 408(M) -- 408
Minority interest.......................... -- -- -- 1,224(Q) 1,224
------------- -------- ------- ------- -----------
Total expenses........................... 3,851 (1,834) 4,231 3,729 9,977
------------- -------- ------- ------- -----------
NET INCOME BEFORE GAIN ON RESECURITIZATION
OF NON-AGENCY MBS BONDS.................. 9,673 (6,350) (663) (1,231) 1,429
Gain on resecuritization of non-agency MBS
bonds...................................... -- 7,359 -- -- 7,359
Management fees on resecuritization of non-
agency MBS bonds........................... -- (1,466)(F) -- 1,466(O) --
------------- -------- ------- ------- -----------
NET INCOME................................... $ 9,673 $ (457) $ (663) $ 235 $ 8,788
------------- -------- ------- ------- -----------
------------- -------- ------- ------- -----------
NET INCOME PER SHARE......................... $ 0.39 $ 0.35
------------- -----------
------------- -----------
Weighted-average shares outstanding.......... 24,595 24,958
OTHER DATA--FUNDS FROM OPERATIONS:
NET INCOME................................... $ 9,673 $ (457) $ (663) $ 235 $ 8,788
Amortization of discounts on non-agency MBS
bonds...................................... 2,998 (2,998)(D) -- -- --
Depreciation of rental properties............ -- -- 920(L) -- 920
Amortization of goodwill on management
contracts.................................. -- -- 139(L) 1,249(P) 1,388
------------- -------- ------- ------- -----------
FUNDS FROM OPERATIONS........................ $ 12,671 $ (3,455) $ 396 $ 1,484 $ 11,096
------------- -------- ------- ------- -----------
------------- -------- ------- ------- -----------
FUNDS FROM OPERATIONS PER SHARE.............. $ 0.52 $ 0.44
------------- -----------
------------- -----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-5
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
The pro forma condensed consolidated balance sheet of the Company as of June 30,
1997, is presented as if the July 30, 1997, acquisition of an interest in
manufactured housing communities and the proposed acquisition of the Manager had
occurred on June 30, 1997. The pro forma condensed consolidated statements of
income are presented as if the March 27, 1997 resecuritization of the non-agency
MBS bonds, the May 14, 1997 and July 30, 1997, manufactured housing acquisition
transactions and the proposed acquisition of the Manager had occurred: (i) on
January 1, 1997, for the statement of income for the six months ended June 30,
1997; and (ii) on January 1, 1996, for the statement of income for the year
ended December 31, 1996. In management's opinion, all adjustments necessary to
reflect the resecuritization of the Company's non-agency MBS bond portfolio, the
acquisition of interests in manufactured housing communities and related assets
and the proposed acquisition of the Manager have been made. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1996, the Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, which accompany this Proxy Statement, and the Company's Current Report on
Form 8-K dated July 30, 1997, which is incorporated by reference.
"Funds from operations" as defined by the national Association of Real
Estate Investment Trusts represents net income computed in accordance with
generally accepted accounting principles ("GAAP") plus depreciation and
amortization. Funds from operations should not be considered as an alternative
to net or operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. The
Company believes that funds from operations is helpful to a reader as a measure
of the performance of a REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides an
indication of the ability of the Company to incur and service debt, to declare
dividends, to make capital expenditures and to fund other cash needs.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been assuming the transactions had been completed as of
the dates indicated, nor does it purport to represent the future financial
position or results of operations of the Company.
(a) Reflects $10,000,000 of cash advanced under notes receivable secured by four
manufactured housing communities.
(b) Reflects reclassification of $256,000 in advances and other costs for the
acquisition of the 50% joint venture interest in a manufactured housing
community and $2,490,000 in unamortized goodwill paid for the acquisition of
manufactured housing community management contracts reflected in other
assets at June 30, 1997.
(c) Reflects consideration for the acquisition of the Manager of $11,692,000 in
AIOP Units and the cash payment of $800,000 of related transaction costs.
(d) Eliminates income from and expenses directly attributable to the non-agency
MBS bonds as a result of the resecuritization.
(e) Reflects the assumption that a portion of the proceeds from the
resecuritization of the non-agency MBS bonds is used to repay outstanding
debt and the remaining proceeds are invested in short-term investments
earning 5% per annum.
(f) Eliminates base fees and administrative fees on the non-agency MBS bonds and
adjusts incentive fees based upon adjusted net income and cash earned for
Stockholders ("CEFS").
F-6
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(g) Reflects adjustment for the rental income and property expenses of seven
acquired manufactured housing communities.
(h) Reflects the equity in the earnings from the joint venture interests in
manufactured housing communities.
(i) Reflects expenses of the manufactured housing community management business
and income earned from the four managed communities not owned by the
Company.
(j) Eliminates the short-term investment income at 5% per annum on the cash
used to acquire the interests in manufactured housing communities and
management operations.
(k) Reflects base fees on assets acquired and additional incentive fees on
improved earnings as a result of the acquisition of the manufactured housing
communities and management operations (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 1997 31, 1996
------------------- -------------------
<S> <C> <C>
Base fees............................................... $ 165 $ 407
Incentive fees.......................................... 75 234
----- -----
Total Adjustment...................................... $ 240 $ 641
----- -----
----- -----
</TABLE>
(l) Reflects depreciation and amortization of acquired assets on the
straight-line basis over the estimated useful lives of the assets. The
estimated useful lives are 25 years for land improvements and buildings and
10 years for the cost of management contracts on communities not owned by
the Company.
(m) Reflects interest expense on the assumed debt at 8.25% per annum.
(n) Reflects the costs assumed for the administration of the Company plus fees
earned from the CAX Management Agreement and other assets and the related
costs of providing these services.
(o) Eliminates fees from the Management Agreement paid to the Manager.
(p) Reflects amortization of the cost of the assets acquired on the
straight-line basis over estimated life of 10 years.
(q) Reflects minority interest in net income allocated to the owners of AIOP
Units.
F-7
<PAGE>
APPENDIX A
69
<PAGE>
ASSET CONTRIBUTION AGREEMENT
Agreement entered into on September 8, 1997, by and among Asset Investors
Operating Partnership, L.P., a Delaware limited partnership ("AIOP"), Asset
Investors Corporation, a Maryland corporation ("Parent"), and Financial Asset
Management LLC, a Colorado limited liability company ("FAM"). AIOP, Parent and
FAM are referred to individually in this Agreement as a "Party" and collectively
as the "Parties."
This Agreement contemplates a transaction in which FAM will contribute, and
AIOP will acquire, all of the membership interests in New FAM LLC, a Delaware
limited liability company ("NEW FAM") in return for AIOP Units, as defined
below.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AIOP" has the meaning set forth in the preface above.
"AIOP Units" means the units of limited partnership interest in AIOP issued
pursuant to AIOP's Agreement of Limited Partnership dated as of April 30, 1997,
as amended from time to time.
"Auditors" has the meaning set forth in Section 2(d) below.
"Business Combination" means a transaction in which AIC and CAX have
combined their businesses through a merger, consolidation, plan of exchange or
securities purchase, sale of all or substantially all of their respective
assets, or otherwise.
"CAX" means Commercial Assets, Inc., a Maryland corporation.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Closing Price" on any date means the last sale price, regular way, of the
Parent Shares or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, of the Parent Shares in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or if the Parent Shares are not then listed or admitted to trading on
the New York Stock Exchange, as reported in the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the Parent
Shares are not then listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over the counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System for
the Parent Shares or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Parent Shares are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker in the Parent Shares who is
selected from time to time by the Board of Directors of the Parent.
"Commission" has the meaning set forth in Section 4(i) below.
"Code" means the Internal Revenue Code of 1986, as amended or any
corresponding provisions of succeeding law.
70
<PAGE>
"Confidential Information" means any information concerning the businesses
and affairs of FAM or NEW FAM that is not already generally available to the
public.
"Defense Counsel" has the meaning set forth in Section 8(b) below.
"Defense Notice" has the meaning set forth in Section 8(b) below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Earnout" has the meaning given it in Section 2(d) below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity that is treated as a single employer
with FAM for purposes of Code Section 414.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FAM" has the meaning set forth in the preface above.
"FAM's Cost of Acquiring the Advisory Business" means the amount specified
on Schedule 1.
"Financial Statement" has the meaning set forth in Section 3(h) below.
"Form 10-K" has the meaning set forth in Section 4(i) below.
"Form 10-Q" has the meaning set forth in Section 4(i) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Holders" has the meaning set forth in Section 6(e) below.
"Indemnified Party" has the meaning set forth in Section 8(b) below.
"Indemnifying Party" has the meaning set forth in Section 8(b) below.
"Interests" means all of the member's interests in NEW FAM.
"Knowledge" means actual knowledge after reasonable investigation, which in
the case of an entity shall mean the actual knowledge of its executive officers
after reasonable investigation, In the case of FAM, such persons shall be Terry
Considine, Thomas L. Rhodes, Bruce D. Benson and Kevin J. Nystrom for purposes
of this definition.
"Loss" or "Losses" means any loss, liability, damage or expense (including
reasonable attorneys' fees and expenses) that the subject Person may suffer or
sustain, including interest, fines and penalties, if any.
"Maryland Law" means the Maryland Business Corporation Act, as amended.
"Material Adverse Change" or "Material Adverse Effect" means any change or
effect that is materially adverse to the business, financial condition or
results of operations of NEW FAM taken as a whole, other than changes or effects
generally affecting the real estate industry or the economy generally.
71
<PAGE>
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section 3(h)
below.
"Most Recent Fiscal Quarter End" has the meaning set forth in Section 3(h)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(h)
below.
"Multi-employer Plan" has the meaning set forth in ERISA Section 3(37).
"NEW FAM" has the meaning set forth in the preface above.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent" has the meaning set forth in the preface above.
"Parent Shares" means the shares of Common Stock, $.01 par value per share
of Parent, including, for all purposes other than Section 2(b), all Parent
Shares into which AIOP Units may be converted.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Proxy Statement" has the meaning set forth in Section 5(i) below.
"Purchase Price" has the meaning set forth in Section 2(b) below.
"Registration Rights Agreement" means the registration rights agreement
substantially in the form attached to this Agreement as Exhibit B.
"REIT Advisory Business" means all of the business activities of FAM as
heretofore conducted, including, but not limited to, the business of advising
Parent and Commercial Assets, Inc.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller Group" means Bruce D. Benson, Terry Considine and Thomas L. Rhodes.
"Special Committee" means the committee of Parent's Board of Directors
constituted on January 24, 1997 to evaluate the possible acquisition of FAM or
FAM's business by the Parent, as the composition of such committee may be
changed from time to time through the resignation or removal of members of the
committee and their subsequent replacement by duly appointed successors in
accordance with the by-laws of the Company.
"Tax" means any federal, state, local, or foreign tax, including any
interest, penalty, or addition thereto, whether disputed or not.
72
<PAGE>
"Tax Return" means any return, declaration, report, and claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(b) below.
2. Basic Transaction.
(a) Contribution. On and subject to the terms and conditions of this
Agreement, FAM agrees to contribute to AIOP and AIOP agrees to accept and
acquire from FAM the Interests at the Closing in exchange for the consideration
specified below in this Section 2.
(b) Purchase Price. AIOP agrees to issue and deliver to FAM for the
Interests the following: (i) 3,383,479 AIOP Units at the Closing which, when
valued at the book value per share of Parent Shares at June 30, 1997 ($3.455614
per share), AIOP, Parent, and FAM agree is an amount equal to FAM's Cost of
Acquiring the Advisory Business held by NEW FAM, as confirmed by the Auditors,
and (ii) subsequent to the Closing, any Earnout payments required pursuant to
Section 2(d) below (in the aggregate, the "Purchase Price").
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Parent in Denver,
Colorado, commencing at 9:00 a.m, local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated by this Agreement (other
than conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"Closing Date").
(d) Earnout. Subsequent to the Closing, FAM or its successors will be
entitled to receive contingent consideration (the "Earnout") in accordance with
the provisions of this Section 2(d).
(i) FAM shall be entitled to receive an additional 600,000 AIOP Units at
such time as the Parent's independent outside auditors (the "Auditors")
confirm to the Special Committee that substantially all of the proceeds of
Parent's 1997 resecuritization of its portfolio of Non-Agency MBS Bonds have
been invested by Parent, AIOP or both in real estate and related assets (of
the same standard and quality as has been the custom historically of Parent)
during the 18 month period (which may be extended up to an additional six
months at the discretion of the Special Committee) subsequent to June 17,
1997 that have achieved an annualized return over any six month period of at
least 9% during the 24 month period (which may be extended up to an
additional six months at the discretion of the Special Committee) subsequent
to June 17, 1997. For purposes of the preceding sentence, the "return" shall
be measured by (A) computing GAAP net income before minority interest in
AIOP for the period in question plus non-cash charges for depreciation and
goodwill associated with acquisition of property management companies minus
a provision for capital replacements divided by (B) total investment cost.
(ii) FAM shall be entitled to receive an additional 600,000 AIOP Units
if at any time during the 24 calendar month period following June 17, 1997:
(A) the average Closing Price of Parent Shares over any 90-day period
exceeds $4.00 per share, and one or more of the following events
shall have occurred:
(1) Parent has executed a plan for the utilization of Parent's
operating loss carryovers that has been approved by Parent's Board
of Directors after receipt of advice from the Auditors;
(2) Parent and CAX shall have completed a Business Combination that
has been approved by the Board of Directors of Parent as being in
the best interests of the holders of Parent Shares;
(3) Parent, AIOP or both shall have raised new financing of debt or
equity in the public or
73
<PAGE>
private institutional markets in the aggregate amount of at least
$20,000,000 at prevailing market rates and on terms approved by the
Board of Directors of Parent as being in the best interests of
Parent; or
(4) Parent shall have achieved an investment grade rating on its debt
from a nationally recognized credit rating agency;
or
(B) management shall have executed another business strategy not
referred to in paragraphs (A) (1) through (4) above that is approved
by the Board of Directors of Parent as being in the best interests
of Parent, and the average Closing Price of Parent Shares over any
90-day period during the 24 calendar month period following June 17,
1997 exceeds $4.25 per share.
(iii) If on or after the date of this Agreement, Parent should split,
combine or otherwise change the Parent Shares or its capitalization, the
number of AIOP Units or Parent Shares specified in paragraphs (i) and (ii)
above, and the Closing Price specified in paragraph (ii) above shall be
adjusted as appropriate to reflect such split, combination or other change.
(e) Deliveries at the Closing. At the Closing: (i) FAM will deliver to AIOP
the various certificates, instruments, and documents referred to in Section 7(a)
below; (ii) FAM will contribute to AIOP the Interests pursuant to duly executed
transfer documents; (iii) AIOP will deliver to FAM the consideration specified
in Section 2(b) above, (iii) AIOP and Parent will deliver or cause to be
delivered to FAM the various certificates, instruments, and documents referred
to in Section 7(b) below; (iv) FAM will execute, acknowledge (if appropriate),
and deliver to AIOP such other instruments of sale, transfer, conveyance, and
assignment as AIOP reasonably may request; and (v) AIOP will execute,
acknowledge (if appropriate), and deliver such other instruments of assumption
as FAM reasonably may request.
3. Representations and Warranties of FAM. FAM represents and warrants to
AIOP and Parent that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the disclosure schedule accompanying this Agreement (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3. For the purposes of all representations, warranties, covenants and other
agreements of FAM, any reference to NEW FAM (i) shall be deemed to give effect
to the formation of NEW FAM, the contribution of FAM's assets to NEW FAM, and
the assumption by NEW FAM of certain of FAM's liabilities, despite the fact that
as of the date of this Agreement such formation, contribution and assumption
have not yet taken place.
(a) Organization. Each of FAM and NEW FAM is a limited liability company
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization.
(b) Authorization of Transaction. FAM has the power and authority to
execute and deliver this Agreement and, subject to the receipt of consent of its
members, to perform its obligations under this Agreement. Subject to the receipt
of the consent of the members of FAM and of FAM's members' members, the
Management Committee of FAM has duly authorized the execution, delivery and
performance of this Agreement by FAM. This Agreement constitutes the valid and
legally binding obligation of FAM, enforceable in accordance with its terms.
Each officer of the Parent who is also indirectly a holder of an interest in FAM
through FAM's members has agreed in his capacity as such to consent to the
transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute,
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regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which FAM or NEW
FAM is subject or any provision of the governing instruments of FAM or NEW FAM
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which FAM or NEW FAM is a party or
by which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets), except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
Material Adverse Effect on FAM or NEW FAM or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement. None of FAM or NEW FAM needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
Material Adverse Effect on FAM or NEW FAM or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
(d) Title to Interests. FAM owns beneficially and in its own name the
entire Interests and has good title to the Interests, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Security Interests, claims, and demands, FAM is not a
party to any option, warrant, or purchase right, or other contract or commitment
that could require FAM to sell, transfer, or otherwise dispose of the Interests
(other than this Agreement). Except as provided in the governing instrument of
NEW FAM. FAM is not a party to or bound by any voting trusts, proxies, or other
agreements or understandings with respect to the voting of the Interests.
(e) Brokers' Fees. Neither FAM nor NEW FAM has any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which NEW FAM, AIOP or
Parent could become liable or obligated. None of FAM or NEW FAM has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(f) Title to Assets. NEW FAM has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, located on their
premises, or shown on the Most Recent Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet.
(g) Equity Ownership. None of FAM or NEW FAM controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association, except that FAM
holds the Interests.
(h) Financial Statements. Attached to this Agreement as Exhibit A are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheet and statements of income and members' equity and cash flow
as of and for the three months ended December 31, 1996 (the "Most Recent Fiscal
Year End") for FAM; (ii) unaudited consolidated balance sheets and statements of
income, changes in shareholders' equity, and cash flow (the "Most Recent
Financial Statements") as of and for the six months ended June 30, 1997 (the
"Most Recent Fiscal Quarter End") for FAM; and (iii) an unaudited pro forma
schedule of assets and liabilities as of June 30, 1997 for NEW FAM (the "NEW FAM
Statement"). The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of FAM as of
such dates and the results of operations of FAM or NEW FAM for such periods;
provided, however, that the Most Recent Financial Statements and the NEW FAM
Statement are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other presentation
items.
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(i) Events Subsequent to the Date of the NEW FAM Statement. Since the date
of the NEW FAM Statement, there has not been any material adverse change in the
business, financial condition, operations, or results of operations of NEW FAM
taken as a whole. Without limiting the generality of the foregoing, since that
date:
(i) NEW FAM has not sold, leased, transferred, or assigned any material
assets, tangible or intangible, outside the Ordinary Course of Business;
(ii) NEW FAM has not entered into any material agreement, contract,
lease, or license outside the Ordinary Course of Business;
(iii) no party (including NEW FAM) has accelerated, terminated, made
material modifications to, or cancelled any material agreement, contract,
lease, or license to which any of NEW FAM is a party or by which any of them
is bound outside the Ordinary Course of Business;
(iv) NEW FAM has not imposed any Security Interest upon any of its
assets, tangible or intangible;
(v) NEW FAM has not made any material capital expenditures outside the
Ordinary Course of Business;
(vi) NEW FAM has not made any material capital investment in, or any
material loan to, any other Person outside the Ordinary Course of Business;
(vii) NEW FAM has not created, incurred, assumed, or guaranteed any
indebtedness for borrowed money and capitalized lease obligations;
(viii) NEW FAM has not granted any license or sublicense of any material
rights under or with respect to any Intellectual Property;
(ix) there has been no change made or authorized in the governing
instruments of NEW FAM;
(x) NEW FAM has not issued, sold, or otherwise disposed of any of its
membership interests, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of
its membership interests;
(xi) NEW FAM has not declared, set aside, or paid any dividend or made
any distribution with respect to its membership interests (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
membership interests;
(xii) NEW FAM has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xiii) NEW FAM has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xiv) NEW FAM has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any existing
such contract or agreement;
(xv) NEW FAM has not granted any increase in the base compensation of any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(xvi) NEW FAM has not adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan, contract, or commitment
for the benefit of any of its directors, officers, and employees (or taken
any such action with respect to any other Employee Benefit Plan);
(xvii) NEW FAM has not made any other material change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
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(xviii) NEW FAM has not paid any amount to any third party with respect to
any liability or obligation (including any costs and expenses NEW FAM has
incurred or may incur in connection with this Agreement and the transactions
contemplated hereby); and
(xix) NEW FAM has not committed to any of the foregoing.
(j) Undisclosed Liabilities. NEW FAM has no material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto), (ii) liabilities, individually of no more than
$25,000 and in the aggregate of no more than $250,000, which have arisen after
the Most Recent Fiscal Quarter End in the Ordinary Course of Business, (iii)
executory liabilities under the agreements, contracts, leases, licenses and
other arrangements to which the NEW FAM is a party and which are listed on
Section 3(p) of the Disclosure Schedule, and (iv) liabilities reflected on the
Disclosure Schedule.
(k) Legal Compliance. NEW FAM has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply, except
where the failure to comply would not have a Material Adverse Effect on NEW FAM.
(l) Tax Matters. There is no material dispute or claim concerning any Tax
liability of any of FAM or NEW FAM (A) claimed or raised by any authority in
writing or (B) as to which FAM or NEW FAM has Knowledge based upon any inquiry
or communication received by either FAM or NEW FAM. NEW FAM was formed after
January 1, 1997. At all times since its formation, NEW FAM has had only one
member. NEW FAM is not and has not been required to be treated as an association
taxable as a corporation for income tax purposes and NEW FAM has not elected to
be treated as an association for federal income tax purposes or under any
similar provisions of state or local law. Each of FAM and NEW FAM has prepared
and filed all Tax Returns required to be filed by them and all such Tax Returns
are true and correct and complete. Each of FAM and NEW FAM has paid all Taxes
shown as due on such Tax Returns.
(m) Real Property.
(i) NEW FAM owns no real property.
(ii) Section 3(m)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased to NEW FAM. With respect to each material
lease listed in Section 3(m)(ii) of the Disclosure Schedule:
(A) the lease is legal, valid, binding, enforceable, and in full
force and effect in all material respects;
(B) no party to the lease is in material breach or default, and no
event has occurred which, with notice or lapse of time, would constitute
a material breach or default or permit termination, modification, or
acceleration thereunder;
(C) no party to the lease has repudiated any material provision
thereof;
(D) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease;
(E) NEW FAM has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold; and
(F) all facilities leased thereunder have received all approvals of
governmental authorities (including material licenses and permits)
required in connection with the operation
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thereof, and have been operated and maintained in accordance with
applicable laws, rules, and regulations in all material respects.
(n) Tangible Assets. Section 3(n) of the Disclosure Schedule lists the
furniture, equipment, and other tangible assets that NEW FAM owns or leases. All
of the assets listed on Section 3(n) are free from material defects (patent and
latent), have been maintained in accordance with normal industry practice, and
are in good operating condition and repair (subject to normal wear and tear).
(o) NEW FAM Permits(j) Company Permits. NEW FAM holds all permits,
licenses, variances, exemptions, orders and approvals of all governmental
authorities necessary for the lawful conduct of its business (the "NEW FAM
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals that would not reasonably be expected to have a
Material Adverse Effect. NEW FAM is in compliance with the terms of the NEW FAM
Permits, except where the failure so to comply would not reasonably be expected
to have a Material Adverse Effect.
(p) Contracts. Section 3(p) of the Disclosure Schedule lists all written
contracts and agreements to which NEW FAM is a party. FAM has delivered to AIOP
a correct and complete copy of each contract and agreement listed in Section
3(p) of the Disclosure Schedule (as amended to date). With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable, and in full
force and effect in all material respects; (B) to the Knowledge of FAM, no party
is in material breach or default, and no event has occurred which with notice or
lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) to the
Knowledge of FAM, no party has repudiated any material provision of the
agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of NEW
FAM are reflected properly on their books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of NEW FAM.
(r) Powers of Attorney. To the Knowledge of FAM, there are no material
outstanding powers of attorney executed on behalf of any of NEW FAM.
(s) Litigation. NEW FAM (i) is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is not a party or, to the
Knowledge of any of FAM, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
(t) Employees. Section 3(t) of the Disclosure Schedule lists all employees
of NEW FAM. To the Knowledge of FAM, no executive, key employee, or significant
group of employees plans to terminate employment with NEW FAM during the next 12
months. NEW FAM is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strike or material grievance, claim of
unfair labor practices, or other collective bargaining dispute. FAM has no
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of NEW FAM.
(u) Employee Benefits.
(i) Section 3(u) of the Disclosure Schedule lists each Employee Benefit
Plan that NEW FAM maintains or to which NEW FAM contributes or has any
obligation to contribute.
(ii) With respect to each Employee Benefit Plan:
(A) each such Employee Benefit Plan (and each related trust,
insurance contract or fund) complies in form and, to the Knowledge of
FAM, in operation with the applicable requirements of ERISA and the Code
in all material respects;
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(B) all contributions (including all employer contributions and
employee salary reduction contributions, if any) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan or accrued on the Financial Statements of NEW FAM, and there
are no accumulated funding deficiencies with respect to any such Employee
Pension Benefit Plan;
(C) each such Employee Benefit Plan that is an Employee Pension
Benefit Plan has received a favorable determination letter from the IRS
as to its qualification under Section 401(a) of the Code;
(D) no "prohibited transaction" (as such term is defined in Section
406 of ERISA or Section 4975 of the Code) has occurred with respect to
any such Employee Benefit Plan which is an Employee Pension Benefit Plan
(or its related trust) which could subject NEW FAM or any officer,
director or employee of NEW FAM, to any Tax or penalty imposed under
Section 4975 of the Code or liability under Section 406 of ERISA which
would have a Material Adverse Effect;
(E) NEW FAM has delivered or made available to the AIOP and Parent
true and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the IRS,
the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and other funding arrangements which
implement each such Employee Benefit Plan;
(F) no such Employee Benefit Plan which is an Employee Pension
Benefit Plan has been completely or partially terminated or has been the
subject of a "reportable event" (as defined in Section 4043 of ERISA) as
to which notices would be required to be filed with the PBGC which would
have a material adverse effect. To the Knowledge of NEW FAM, no
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than a Multiemployer Plan) has been instituted;
(G) NEW FAM has not incurred any liability to the PBGC (except for
required premium payments, if any) under Title IV of ERISA (including any
withdrawal liability) with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan; and
(H) no action, suit, proceeding, hearing or investigation with
respect to the administration or the investment of assets of any such
Employee Benefit Plan (other than routine claims for benefits) is, to the
Knowledge of NEW FAM, pending or threatened.
(iii) NEW FAM does not contribute to any Multi-employer Plan or have any
liability (including withdrawal liability) under any Multi-employer Plan.
(iv) NEW FAM does not have any obligation to provide health or other
welfare benefits to former, retired or terminated employees, except as
specifically required under Section 4980B of the Code. With respect to all
of its past and present employees, NEW FAM has complied in all material
respects with the notice and continuation requirements of Part 6 of Subtitle
B of Title I of ERISA and of Section 4980B of the Code.
(v) Guaranties. NEW FAM is not a guarantor or otherwise responsible for any
liability or obligation (including indebtedness) of any other Person.
(w) Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
(x) Investment Company Status. Neither FAM nor NEW FAM is an "investment
company" within the meaning of Section 721(b) of the Code and the Treasury
regulations thereunder.
(y) Investment. FAM (i) understands that the AIOP Units and Parent Shares
to be issued to it have not been, and will not be, registered under the
Securities Act or under any state securities laws
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except pursuant to the procedures specified in Section 6(e) and (f), and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring AIOP Units and
Parent Shares solely for its own account for investment purposes, and not with a
view to the distribution thereof (except to FAM's members), (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning AIOP and Parent and
has had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding AIOP Units and Parent
Shares, (v) is able to bear the economic risk and lack of liquidity inherent in
holding AIOP Units and Parent Shares, and (vi) is an Accredited Investor. FAM
shall not distribute the AIOP Units or Parent Shares to FAM's members unless
each such member is an "accredited investor" as defined in Section 2(15) of the
Securities Act, and each such member agrees to make the representations and
warranties contained in this Section 3(y).
(z) REIT Advisory Business.
(i) The assets (tangible and intangible) owned or leased by NEW FAM or
which it (x) otherwise has the right to use or (y) will own, lease or
otherwise have the right to use together constitute all of the assets of FAM
held for use or used primarily in connection with the REIT Advisory Business
and constitutes all assets held by FAM that are necessary to conduct the
REIT Advisory Business in the manner conducted by FAM prior to the date
hereof and the Closing Date.
(ii) NEW FAM does not own any material assets (tangible or intangible)
other than those used primarily in, or held primarily in connection with,
the REIT Advisory Business.
(iii) Upon consummation of the transactions contemplated by this
Agreement, (x) AIOP will obtain, indirectly through direct ownership of the
Interests, all of the properties and assets (tangible or intangible) that
are used in and necessary to the conduct of the REIT Advisory Business as
conducted by FAM, including necessary contractual rights, and (y) there will
be no significant properties, assets, services or arrangements used in the
operation of the REIT Advisory Business acquired on such date and owned by
any Person that will not be leased or licensed or provided to NEW FAM under
current leases, licenses, contracts and other arrangements that will be
valid and legally binding and enforceable by NEW FAM against the other
parties in accordance with their terms.
(aa) Charter Documents and Corporate Records. FAM has heretofore delivered
to AIOP and Parent true and complete copies of the (i) certificate of limited
liability company (certified by the Secretary of State of the jurisdiction of
its organization) and (ii) limited liability company governing agreements of FAM
and NEW FAM (certified by the respective entity's secretary or an assistant
secretary or other equivalent officer), or comparable instruments, of FAM and
NEW FAM as in effect on the date hereof. The minute books, or comparable
records, of FAM and NEW FAM heretofore have been made available to AIOP and
Parent for their inspection and contain true and complete records of all
meetings and consents in lieu of meeting of the Board of Directors, or any
comparable corporate body, (and any committee thereof) and shareholders or
interest holders of FAM or NEW FAM since the time of such entity's organization
or any such Subsidiary's organization, as the case may be, and accurately
reflect all transactions referred to in such minutes and consents in lieu of
meeting. The stock books, or comparable records, of FAM and NEW FAM heretofore
have been made available to AIOP and Parent for its inspection and are true and
complete.
(bb) Potential Conflicts of Interest. (a) No member of the Seller Group, (b)
no relative or spouse (or relative of such spouse) of any member of the Seller
Group and (c) no entity controlled by one or more of the foregoing:
(i) owns, directly or indirectly, any interest in (excepting less than
1% stock holdings for investment purposes in securities of publicly held and
traded companies), or is an officer, director, employee or consultant of,
any person which is, or is engaged in business as, a competitor, lessor,
lessee, supplier, distributor, sales agent or customer of FAM or NEW FAM;
(ii) owns, directly or indirectly, in whole or in part, any property
that FAM or NEW FAM uses in the conduct of its business; or
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(iii) has any claim whatsoever against, or owes any amount to, FAM or NEW
FAM, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under Benefit Plans, and similar
matters and agreements existing on the date hereof.
4. Representations and Warranties of AIOP and Parent. AIOP and Parent
jointly and severally represent and warrant to FAM that the statements contained
in this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule. The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) Organization. AIOP is a limited partnership and Parent is a
corporation, each duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its organization.
(b) Authority Relative to this Agreement. AIOP and Parent each has the
requisite power and authority to enter into this Agreement and to perform
its obligations under this Agreement. The execution and delivery of this
Agreement by AIOP and Parent and the consummation by AIOP and Parent of the
transactions contemplated by this Agreement have been duly authorized by the
general partners of AIOP and Board of Directors of Parent, respectively,
and, except for the approval of the holders of the Parent Shares as set
forth in Section 5(h), no other proceedings on the part of AIOP or Parent
are necessary to authorize this Agreement and the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by
AIOP and Parent and constitutes a valid and binding obligation of AIOP and
Parent, respectively, enforceable in accordance with its terms.
(c) Noncontravention. Neither AIOP or Parent is subject to or obligated
under any provision of (a) its governing instruments, (b) any contract, (c)
any license, franchise or permit, or (d) any law, regulation, order,
judgment or decree, which would be breached or violated or in respect of
which a right of termination or acceleration or any encumbrance on any of
its assets could be created by its execution, delivery and performance of
this Agreement and the consummation by it of the transactions contemplated
by this Agreement, other than any such breaches, violations, rights or
encumbrances which will not, individually or in the aggregate, have a
Material Adverse Effect on AIOP or Parent. Other than in connection with or
in compliance with the provisions of Maryland Law, or the Exchange Act, no
authorization, consent or approval of, or filing with, any public body,
court or authority is necessary for the consummation by AIOP or Parent of
the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals and filings as to which the failure to
make or obtain would not, individually or in the aggregate, have a Material
Adverse Effect on AIOP or Parent.
(d) Brokers' Fees. Neither AIOP or Parent has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
FAM could become liable or obligated.
(e) Litigation. Neither AIOP nor Parent (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the Knowledge of either AIOP or Parent, is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator.
(f) Organizational Documents. AIOP and Parent have delivered to FAM a
complete and correct copy of (a) the Articles of Incorporation and Bylaws of
Parent and (b) the Agreement of Limited Partnership of AIOP.
(g) AIOP Units and Parent Shares. The AIOP Units and Parent Shares, if
and when issued to FAM in accordance with this Agreement, will be duly
authorized and validly issued; and the
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Parent Shares will be fully paid and non-assessable. Upon receiving AIOP
Units, FAM will be duly admitted on and as of the Closing Date as a limited
partner of AIOP with all the rights of limited partners of AIOP under the
Agreement of Limited Partnership of AIOP or otherwise.
(h) Capitalization. The authorized capital stock of Parent consists of
50,000,000 Parent Shares. As of the date of this Agreement, 25,239,217
Parent Shares were issued and outstanding, and 93,214 Parent Shares were
reserved for issuance upon conversion of AIOP Units. As of the date of this
Agreement, 93,214 AIOP Units were issued and outstanding. Except for
issuance of AIOP Units and Parent Shares in connection with acquisitions of
properties, interests in properties and interests in entities that own
properties, and pursuant to this Agreement, there are no options, warrants
or other rights, agreements or commitments obligating Parent to issue shares
of its capital stock or obligating AIOP to issue AIOP Units.
(i) Commission Filings. Parent has delivered to FAM copies of Parent's
(a) Annual Report on Form 10-K for the year ended December 31, 1996 (the
"Form 10-K"), (b) Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (the "Form 10-Q"), and (c) proxy statement relating to Parent's
annual meeting of shareholders during 1996, in each case as filed with the
Securities and Exchange Commission (the "Commission"). Parent has made
available to FAM all other reports, registration statements and other
documents filed by Parent with the Commission under the Exchange Act since
January 1, 1992. Parent has filed all reports, registration statements and
other documents required to be filed with the Commission under the rules and
regulations of the Commission since January 1, 1992, and all such Commission
filings complied as to form with the requirements of the Exchange Act. As of
their respective dates, the Form 10-K and Form 10-Q (including in all cases
any exhibits or schedules or documents incorporated therein by reference)
did not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(j) Financial Statements and Related Data. Parent's audited
consolidated financial statements included in the Form 10-K and the Parent's
unaudited financial statements included in the Form 10-Q have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes to such
statements) and fairly present Parent's financial position as of the date of
such statements and Parent's results of operations and changes in financial
position for the period then ended (except, in the case of the unaudited
financial statements, for normal year-end adjustments and for the
condensation or omission of footnote disclosures in accordance with the
requirements of the Commission).
(k) Absence of Material Adverse Changes. Since the filing of the Form
10-Q with the Commission, neither Parent nor AIOP has undergone or suffered
any Materially Adverse Change.
(l) Partnership Status. AIOP is treated as a partnership, and not as an
association taxable as a corporation, for federal income tax purposes.
(m) Investment Company Status. AIOP is not an "investment company"
within the meaning of Section 721(b) of the Code and the Treasury
regulations thereunder.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in ss.7 below).
(b) Notices and Consents. FAM will give any notices to third parties,
and FAM will use its reasonable best efforts to obtain any third party
consents, that AIOP reasonably may request in connection with the matters
referred to in ss.3(c) above. Each of the Parties will give any notices
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to, make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in ss.3(c) and ss.4(c)
above.
(c) Operation of Business. FAM will not cause or permit NEW FAM to
engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of
the foregoing, FAM will not cause or permit NEW FAM to (i) declare, set
aside, or make any distribution with respect to the Interests or redeem,
purchase, or otherwise acquire any of the Interests, or (ii) otherwise
engage in any practice, take any action, or enter into any transaction of
the sort described in ss.3(i) above.
(d) Preservation of Business. FAM will, and will cause NEW FAM to, keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. FAM will, and will cause NEW FAM to, permit
representatives of AIOP and Parent to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of FAM and NEW FAM, to all premises, properties, personnel,
books, records (including tax records), contracts, and documents of or
pertaining to FAM and NEW FAM. AIOP and Parent will treat and hold as such
any Confidential Information it receives from FAM or NEW FAM in the course
of the reviews contemplated by this ss.5(e); will not use any of the
Confidential Information except in connection with this Agreement; and, if
this Agreement is terminated for any reason whatsoever, will return to FAM
or NEW FAM all tangible embodiments (and all copies) of the Confidential
Information which are in its possession.
(f) Notice of Developments. Each Party will give prompt written notice
to the other Party of any material adverse development causing a breach of
any of its own representations and warranties in ss.3 and ss.4 above. No
disclosure by any Party pursuant to this ss.5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) No Additional Representations and Warranties. AIOP, Parent and FAM
acknowledges that none of them nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding AIOP, Parent or NEW FAM, except as
expressly set forth in this Agreement or the Disclosure Schedule, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN Section 3 and 4,
NEITHER AIOP, PARENT NOR FAM MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF AIOP, PARENT OR NEW FAM,
RESPECTIVELY OR ANY OF THE ASSETS, LIABILITIES OR OPERATIONS OF ANY OF THEM,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED REPRESENTATION OR WARRANTY AS TO
THE CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AND EACH EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY.
(h) Action of Shareholders. The Parties shall take all action necessary
in accordance with Maryland Law and Parent's governing instruments to
convene a meeting of Parent's shareholders as soon as practicable following
the execution of this Agreement to consider and vote the transactions
contemplated by this Agreement. Subject to the exercise of applicable
fiduciary duties upon the advice of counsel, the Special Committee and
Parent's Board of Directors shall recommend that the Parent's shareholders
vote to approve the transactions contemplated by this Agreement. Parent
shall use reasonable efforts to solicit proxies from Parent's shareholders
with respect to such approval.
(i) Proxy Statement. The Parties shall, as soon as practicable after
the execution of this Agreement, file with the Commission under the Exchange
Act, and use all reasonable efforts to have processed by the Commission, a
proxy statement (the "Proxy Statement") with respect to
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the approval of the transactions contemplated by this Agreement by Parent's
shareholders. The Proxy Statement shall be in form and substance reasonably
satisfactory to FAM, AIOP and Parent. The Parties agree to cause the Proxy
Statement to be mailed to Parent's shareholders as soon as practicable after
the Commission processes it. Each of Parent, AIOP and FAM agrees that the
information it provides for use in the Proxy Statement shall be true and
correct in all material respects and shall not omit to state any material
fact necessary in order to make such information and the Proxy Statement not
misleading as of its date. FAM agrees promptly to seek the written consent
of its members to consummate the transactions contemplated by this
Agreement.
(j) Action by FAM's Members. FAM will use its best efforts to obtain
the approval of its members and its members' members to the contemplated
transaction.
6. Post-Closing Covenants.
(a) GeneralGeneral. In the event that at any time after the Closing any
further action is necessary to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as any other Party
may reasonably request, all at the sole cost and expense of the requesting
Party.
(b) Public Information. Parent will file all reports required to be
filed by it pursuant to the requirements of the Exchange Act and the rules
and regulations adopted by the Commission under such Act, and will take such
further action as necessary to enable FAM to sell the Parent Shares pursuant
to (a) Rule 144 adopted by the Commission under the Securities Act (as such
rule may be amended from time to time) or any similar rule or regulation
hereafter adopted by the Commission or (b) the Registration Rights
Agreement. Upon written request, Parent will deliver to FAM a written
statement as to whether it has complied with these requirements.
(c) Litigation Support(d) Litigation Support. In the event and for so
long as any Party actively is contesting or defending against any action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
in connection with (i) any transaction contemplated by this Agreement, or
(ii) any fact, situation, circumstance, status, condition, activity,
practice, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving NEW FAM, each of the
Parties will cooperate with the contesting or defending Party and its
counsel in the contest or defense, all at the sole cost and expense of the
contesting or defending Party, except to the extent that the contesting or
defending party is entitled to indemnification therefor under this
Agreement.
(d) Registration Rights. Parent shall provide FAM registration rights
pursuant to the Registration Rights Agreement attached as Exhibit B. In
addition, if at any time within the two-year period following the Closing
Date, Parent shall file with the Commission a registration statement for the
purpose of sale or resale of Parent Shares held by any person on a delayed
or continuous basis, Parent shall include in such registration statement all
Parent Shares held by FAM or which it has the right to acquire in connection
with the Earnout or the conversion of AIOP Units into Parent Shares. If FAM
sells or otherwise transfers any of the Parent Shares in a sale or other
transfer that is not registered under the Securities Act, FAM may assign
along with such Parent Shares its rights under this paragraph (d) with
respect to such Parent Shares to the purchaser or other transferee of such
Parent Shares. Upon executing and delivering to Parent a document assuming
FAM's obligations under this Agreement, such purchaser or other transferee
of Parent Shares shall be entitled to such rights. No subsequent purchasers
or transferees of any Parent Shares shall be entitled to such rights.
(e) Non-competition. Each member of the Seller Group (severally and not
jointly) agrees that for a period of two years from and after the Closing
Date, such Person will not engage in or have any material interest in any
sole proprietorship, partnership, corporation, limited liability company or
business or any other Person (other than Parent and AIOP), whether as an
employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise, that directly or
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indirectly is engaged in the ownership, management and operation of
manufactured housing communities in the United States of America; provided,
however, that nothing herein shall be deemed to prevent any member of the
Seller Group from acquiring through market purchases and owning, solely as
an investment, less than five percent in the aggregate of the equity or debt
securities of any class of any issuer whose shares are registered under
ss.12(b) or 12(g) of the Exchange Act, and are listed or admitted for
trading on any United States national securities exchange or are quoted on
the National Association of Securities Dealers Automated Quotations System,
or any similar system of automated dissemination of quotations of securities
prices in common use, so long as neither of them is a member of any "control
group" (within the meaning of the rules and regulations of the Commission)
of any such issuer. To the extent that the covenant provided for in this
ss.6(e) may later be deemed by a court to be too broad to be enforced with
respect to its duration or with respect to any particular activity or
geographic area, the court making such determination shall have the power to
reduce the duration or scope of the provision, and to add or delete specific
words or phrases to or from the provision. The provision as modified shall
then be enforced.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of AIOP and Parent. The obligations of AIOP
and Parent to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) FAM shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) FAM shall have procured all of the material third party consents
specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of AIOP to own the
Interests or to operate the business of NEW FAM;
(v) FAM shall have delivered to AIOP a certificate from an executive
officer of FAM to the effect that each of the conditions specified above in
Section 7(a)(i)-(iv) and 7(b)(viii) is satisfied in all respects;
(vi) FAM, AIOP and Parent shall have received all other material
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vii) the Auditors shall have provided to Parent written confirmation of
the amounts of FAM's Cost of Acquiring the Advisory Business;
(viii) prior to the date on which the Proxy Statement is first mailed to
the holders of Parent Shares, the Special Committee shall have received the
a written opinion from Jefferies & Co., Inc. to the effect that the
transactions contemplated by this Agreement are fair to the holders of the
Parent Shares from a financial point of view, and such opinion shall not
have been withdrawn;
(ix) the transactions contemplated by this Agreement shall have been
approved and adopted by the vote of Parent's shareholders at the 1997 annual
meeting of shareholders;
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(x) all actions to be taken by FAM in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
AIOP; and
(xi) FAM shall have furnished AIOP with a certificate that FAM is not a
foreign person within the meaning of Section 1445 of the Code, which
certificate shall meet the requirements of, and be executed in accordance
with, Treasury Regulation Section 1.1445-2(b).
AIOP and Parent may waive any condition specified in this Section 6(a) if
it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of FAM. The obligation of FAM to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) AIOP and Parent shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(iv) AIOP and Parent shall have delivered to FAM certificates to the
effect that each of the conditions specified above in Section 7(b)(i)-(iii)
and 7(a)(ix) is satisfied in all respects;
(v) FAM, AIOP and Parent shall have received all other material
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vi) FAM and Parent shall have executed the Registration Rights
Agreement; and
(vii) all actions to be taken by AIOP and Parent in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to FAM; and
(viii) FAM will have obtained the written consent of FAM's members to
consummate the transactions contemplated in this Agreement.
FAM may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. The representations and
warranties of FAM contained in Section 3, and of AIOP and Parent contained in
Section 4 shall survive the Closing and continue in full force and effect for a
period of the later of 24 months thereafter and the expiration of the Earnout;
provided, however that the representations and warranties contained in Section
3(l) shall survive until the expiration of the applicable statute of
limitations. Any claim for which any Party shall have given proper notice in
accordance with the terms of this Agreement on or prior to the expiration of the
applicable survival period shall survive until such claim is resolved pursuant
to the terms of this Agreement. To preserve any claim for breach of any such
representation or warranty, the Party claiming a breach shall be obligated to
notify the Party claimed to be in breach in writing of any such breach, or facts
that can reasonably be expected to give rise to such breach, before termination
of
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the applicable survival period in respect of such representation or warranty;
otherwise, such party's claim for breach or indemnity shall be forever barred.
(b) Indemnification.
(i) Subject to Section 8(a) above and the conditions set forth in this
Section 8(b), subsequent to the Closing Date FAM shall indemnify, defend and
hold harmless Parent (as assignee of AIOP and NEW FAM pursuant to Section
8(e) hereof), and AIOP and NEW FAM shall jointly and severally indemnify,
defend and hold harmless FAM from, against and in respect of any Losses
which AIOP or Parent, on the one hand, and FAM, on the other hand, shall
suffer, sustain or become subject to by virtue of or which arise out of, or
result from, any breach of the respective covenants, representations and
warranties set forth in this Agreement; provided, however, that: (A) any
Person or Persons entitled to indemnification under this Section 8(b) (the
"Indemnified Party or Parties") shall not be entitled to indemnification
with respect to any Losses under this Section 8(b)(i) until all such Losses
exceed, in the aggregate, $100,000 in which case the Indemnified Party shall
be entitled to indemnification as to all Losses, and (B) the indemnification
obligations of the Indemnifying Party to the Indemnified Party under this
Section 8(b) shall not exceed $3,500,000 in the aggregate.
(ii) Promptly after the assertion by any third party of any claim,
demand or notice (a "Third Party Claim") against any Indemnified Party that
results or may result in the incurrence by such Indemnified Parties of any
Losses for which such Indemnified Parties would be entitled to
indemnification pursuant to this Agreement, such Indemnified Parties shall
promptly notify the Indemnifying Parties of such Third Party Claim.
Thereupon, the Indemnifying Parties shall have the right, upon written
notice (the "Defense Notice") to the Indemnified Parties within 30 days
after receipt by the Indemnifying Parties of notice of the Third Party Claim
(or sooner if such claim so requires) to conduct, at their own expense, the
defense against the Third Party Claim in their own names or, if necessary,
in the names of the Indemnified Parties. The Defense Notice shall specify
the counsel the Indemnifying Parties shall appoint to defend such Third
Party Claim (the "Defense Counsel") and the Indemnified Parties shall have
the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld. In the event the Indemnified Parties and the
Indemnifying Parties cannot agree on such counsel within 10 days after the
Defense Notice is given, then the Indemnifying Parties shall propose an
alternate Defense Counsel, which shall be subject again to the Indemnified
Parties' approval which approval shall not be unreasonably withheld. Any
Indemnified Party shall have the right to employ separate counsel in any
such Third Party Claim and/or to participate in the defense thereof, but the
fees and expenses of such counsel shall not be included as part of any
Losses incurred by the Indemnified Party unless (A) the Indemnifying Parties
shall have failed to give the Defense Notice within the prescribed period,
(B) such Indemnified Party shall have received an opinion of counsel,
reasonably acceptable to the Indemnifying Parties, to the effect that the
interests of the Indemnified Party and the Indemnifying Parties with respect
to the Third Party Claim are sufficiently adverse to prohibit the
representation by the same counsel of both parties under applicable ethical
rules, or (C) the employment of such counsel at the expense of the
Indemnifying Parties has been specifically authorized by the Indemnifying
Parties. The party or parties conducting the defense of any Third Party
Claim shall keep the other parties apprised of all significant developments
and shall not enter into any settlement, compromise or consent to judgment
with respect to such Third Party Claim unless the party not conducting the
defense consents, such consent not to be unreasonably withheld.
(c) Determination of Losses. The Parties shall make appropriate adjustments
for tax benefits and insurance coverage and proceeds and take into account the
time cost of money (using any annual interest rate of 8.0%) in determining
Losses for purposes of Section 8. Except as otherwise required by law, all
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.
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(d) Exclusive Remedy. The Parties acknowledge and agree that the foregoing
indemnification provisions in this Section 8 shall be the exclusive remedies of
AIOP, Parent, NEW FAM and FAM with respect to transactions contemplated by this
Agreement.
(e) Assignment by AIOP. Provided that the Closing shall occur, AIOP and NEW
FAM hereby assign and transfer to Parent, effective as of the Closing, all
benefits and rights of AIOP and NEW FAM pursuant to this Section 8, and AIOP and
NEW FAM shall retain no residual rights to enforce or recover under either of
such sections.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) AIOP, Parent (by action of the Special Committee) and FAM may
terminate this Agreement by mutual written consent at any time prior to the
Closing;
(ii) AIOP and Parent (by action of the Special Committee) may terminate
this Agreement by giving written notice to FAM at any time prior to the
Closing (A) in the event FAM has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect,
AIOP has notified FAM of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before December 31, 1997, by reason of
the failure of any condition precedent under Section 7(a) hereof (unless the
failure results primarily from AIOP or Parent itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iii) FAM may terminate this Agreement by giving written notice to AIOP
and Parent at any time prior to the Closing (A) in the event AIOP has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, FAM has notified AIOP of the breach,
and the breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred on or before
December 31, 1997, by reason of the failure of any condition precedent under
Section 7(b) hereof (unless the failure results primarily from FAM itself
breaching any representation, warranty, or covenant contained in this
Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(e) above shall survive
termination.
10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior approval of all other Parties; provided, however,
that any Party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
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(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Except as otherwise provided in this Agreement, no Party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Party; provided,
however, that (A) AIOP may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
AIOP nonetheless shall remain responsible for the performance of all of its
obligations hereunder) and (B) FAM may distribute to its members, and such
members may distribute to their members, the right to receive the Earnout when
and if payable by notice to AIOP and Parent.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to FAM:
Financial Asset Management LLC
1873 South Bellaire Street
17th Floor
Denver, CO 80222
Attention: Terry Considine
Copy to:
James L. Palenchar
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, CO 80202
If to AIOP:
Asset Investors Operating Partnership, L.P.
3600 South Yosemite Street
Suite 350
Denver, CO 80237
Attention: Kevin J. Nystrom
If to Parent:
Asset Investors Corporation
3600 South Yosemite Street
Suite 350
Denver, CO 80237
Attention: Kevin J. Nystrom
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Copy to:
William White, Chairman of Special Committee
Appointed by the Board of Directors
c/o Asset Investors Corporation
3600 South Yosemite Street
Suite 350
Denver, CO 80237
And:
Matthew Nimetz
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Colorado or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Colorado.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in a writing referring to this Agreement
signed by AIOP, Parent and FAM. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Parent will bear all costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby; provided, however, that (i) FAM shall bear all of its costs
and expenses in excess of $100,000.00 and (ii) all sales, recording, transfer,
use or similar Taxes or fees shall be borne by FAM.
(l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
ASSET INVESTORS OPERATING PARTNERSHIP, L.P.
By: Asset Investors Corporation,
its General Partner
By:
- ---------------------------------------------
Title:
- -------------------------------------------
FINANCIAL ASSET MANAGEMENT, LLC
By: The Management Committee
- -------------------------------------------------
Terry Considine
- -------------------------------------------------
Thomas L. Rhodes
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made as of , 1997, by and
between Asset Investors Corporation, a Maryland corporation (the "Company") and
the holders of shares and rights to acquire shares of the Company whose names
are set forth on the signature page of this Agreement (the "Holders").
The Company and the initial Holders are parties to that certain Asset
Contribution Agreement dated September 8, 1997 pursuant to which the initial
Holders are acquiring or will acquire interests in Asset Investors Operating
Partnership, L.P., a Delaware limited partnership (the "Partnership"). Such
Partnership interests are convertible under certain circumstances into shares of
the Company's common stock, par value $.01 per share (the "Common Shares").
Certain capitalized terms used in this Agreement are defined in paragraph 9 of
this Agreement.
The parties hereto agree as follows:
1. Demand Registrations.
a. Requests for Registration. Subject to the limitations contained in
this Agreement, at any time and from time to time on or before the
termination of this Agreement, the holders of a majority of the Registrable
Securities may request registration under the Securities Act of all or part
of their Registrable Securities on Form S-2 or S-3 or any similar short-form
registration if available. All registrations requested pursuant to this
paragraph 1(a) are referred to in this Agreement as "Demand Registrations".
Each request for a Demand Registration shall specify the approximate number
of Registrable Securities requested to be registered. Within 10 business
days after receipt of any such request, the Company will give written notice
of such requested registration to all other holders of Registrable
Securities and, except as provided in paragraphs 1(c) below, will include in
such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 5
business days after the receipt of the Company's notice.
b. Number and Size of Requests. The holders of Registrable Securities
will be entitled to request an aggregate of three (3) Demand Registrations.
No underwritten Demand Registration shall be requested for less than
$2,500,000 market value of Registrable Securities.
c. Priority on Demand Registrations. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company and
the holders of Registrable Securities participating in such registration
that in such underwriter's opinion the aggregate number of securities
requested to be included in such offering exceeds the number of securities
which can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities
requesting registration, the Company will include in such registration,
prior to the inclusion of any other securities, the maximum number of
Registrable Securities requested to be included by the holders requesting
such Demand Registration, which in the opinion of such underwriters can be
sold in an orderly manner within such price range, pro rata among the
respective holders thereof on the basis of the amount of Registrable
Securities owned by each such holder.
d. Restrictions on Demand Registrations. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration or Piggyback Registration.
The Company may postpone for up to 90 days the filing or the effectiveness
of a registration statement for a Demand Registration if such Demand
Registration would reasonably be expected to have a material adverse effect
on any plan by the Company or any of its Subsidiaries to engage in any
material acquisition of assets outside the ordinary course of business, any
material merger, consolidation, or tender offer, or any other transaction;
provided that in such event, the holders of Registrable Securities
requesting such Demand Registration will be entitled to withdraw such
request and, if such request is withdrawn, such Demand
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Registration will not count as one of the permitted Demand Registrations and
the Company will pay all registration expenses in connection with such
registration.
e. Effective Registration Statement. A Demand Registration shall not
be deemed to have been requested if a registration statement with respect
thereto shall not have become effective (unless such Demand Registration has
not become effective due solely to the refusal of the holders requesting
registration to proceed, provided such refusal is not due to the advice of
their counsel that the registration statement, or the prospectus contained
therein, or other documents incorporated by reference therein, contain or
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing),
regardless of whether any Registrable Securities are sold pursuant to such
registration.
2. Piggyback Registrations.
a. Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (whether such registration is a
primary registration on behalf of the Company or a secondary registration on
behalf of other holders of the Company's securities) and the registration
form to be used may be used for the registration of Registrable Securities
(a "Piggyback Registration"), the Company will give prompt written notice to
all holders of Registrable Securities of its intention to effect such a
registration and the estimated price range of such offering and, except as
provided in paragraph 2(b) below, will include in such registration all
Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 5 business days after the
receipt of the Company's notice.
b. Priority on Piggyback Registrations. If a Piggyback Registration is
an underwritten registration and the managing underwriters advise the
Company that in their opinion the number of securities requested to be
included in any Piggyback Registration exceeds the aggregate number which
can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such registration (i)
first, the securities the Company proposes to sell which, in the opinion of
such underwriters, can be sold in an orderly manner within such price range,
(ii) second, the maximum number of securities requested to be included in
such registration by any person pursuant to any demand registration which in
the opinion of such underwriters can be sold in an orderly manner within
such price range, pro rata among the holders of such securities on the basis
of the number of shares owned by each such holder and (iii) third, the
Registrable Securities and any other securities requested to be included in
such registration which in the opinion of such underwriters can be sold in
an orderly manner within such price range, pro rata among the holders of
such securities on the basis of the number of shares owned by each such
holder.
3. Holdback Agreement and Other Registrations.
a. Holders of Registrable Securities. Each holder of Registrable
Securities agrees not to effect any public sale or distribution (including
sales pursuant to Rule 144) of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning
on the effective date of any underwritten registration, unless the
underwriters managing the registered public offering otherwise agree.
b. The Company. The Company agrees (i) not to effect any public sale
or distribution of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, during the seven days
prior to and during the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to
registrations on Forms S-8, S-4
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or any successor forms), unless the underwriters managing the registered
public offering otherwise agree; provided that the provisions of this
paragraph 3(b) shall not prevent the conversion or exchange of any
securities pursuant to their terms into or for other securities.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company will use reasonable efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof. Pursuant to such
registration, the Company will as expeditiously as possible:
a. as soon as practicable but in any event within 60 days of a request
for registration of Registrable Securities, prepare and file with the
Commission a registration statement with respect to such Registrable
Securities and use its reasonable efforts to cause such registration
statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, if
requested the Company will furnish, to the counsel selected by the holders
of a majority of the Registrable Securities covered by such registration
statement, copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel);
b. prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
for a period of either (A) 90 days (subject to extension pursuant to the
last paragraph of this paragraph 4) or, if such registration statement
relates to an underwritten offering, such period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered
in connection with sales of Registrable Securities by an underwriter or
dealer, or (B) such shorter period as will terminate when all of the
securities covered by such registration statement have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement (but in any event not
before the expiration of any longer period required under the Securities
Act), and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by
the sellers thereof set forth in such registration statement;
c. furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits), the prospectus included in such
registration statement (including each preliminary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act and such other
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
d. if required, use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller or underwriter reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable
to enable such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller (provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such jurisdiction
or (iii) consent to general service of process in any such jurisdiction);
e. furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and the underwriters, if any) of:
(i) an opinion of counsel for the Company, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance to
such seller, and
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(ii) a "cold comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who
have certified the Company's financial statements included in such
registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of accountants'
letter, such other financial matters, and, in the case of the legal opinion,
such other legal matters, as such seller (or the underwriters, if any) may
reasonably request;
f. notify each seller of such Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading, and, at the request of any underwriter or any such seller,
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
g. cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be quoted on the NASD-NMS automated
quotation system;
h. enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
i. make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter, all relevant financial and other
records, corporate documents and properties of the Company, and use
reasonable efforts to cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement;
j. otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission.
Each holder of Registrable Securities agrees that upon receipt of any notice
from the Company of the happening of any event of the kind described in
subparagraph (f) above, such holder will forthwith discontinue such holder's
distribution of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subparagraph
(f) above. In the event the Company shall give any such notice, the applicable
time period mentioned in subparagraph (b) above during which a Registration
Statement is to remain effective shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
subparagraph (f) above, to and including the date when each seller of a
Registrable Security covered by such registration statement shall have received
the copies of the supplemented or amended prospectus contemplated by
subparagraph (f) above.
5. Registration Expenses.
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a. Expenses Paid by the Company. All expenses incident to any Demand
Registration or Piggyback Registration effected pursuant to this Agreement
and the Company's performance of or compliance with this Agreement will be
borne by the Company, including without limitation all registration and
filing fees (excluding fees relating solely to the registration of
Registrable Securities), fees and expenses of compliance with securities or
blue sky laws, duplicating and printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts
and commissions) and other persons retained by the Company. In addition, in
connection with any Demand Registration or Piggyback Registration, the
Company will bear the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses
and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed
or quoted on the NASD automated quotation system. In connection with each
Demand Registration, the Company will reimburse the holders of Registrable
Securities covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities included in such registration.
b. Expenses Paid by the Holders of Registrable Securities. Each holder
of securities included in any registration pursuant to this Agreement will
pay any underwriters' discount or commission and registration fees
applicable to such holder's securities, and any other expenses incurred by
such holder which are not borne by the Company as provided above, including
any fees and expenses of counsel retained by such holder.
6. Indemnification.
a. Indemnification by the Company. The Company agrees to indemnify, to
the extent permitted by law, each person selling Registrable Securities
pursuant to any registration statement, such person's officers and
directors, each other person who participates as an underwriter in the
offering or sale of such Registrable Securities, and each person who
controls such person or underwriter (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses caused by
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such
seller, and each such officer, director, underwriter and controlling person
for reasonable legal or any other expenses incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding, except insofar as the same arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission, made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
in reliance upon and in conformity with written information prepared and
furnished to the Company by such seller specifically for use in the
preparation thereof which information contained any untrue statement of any
material fact or omitted to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and provided that the Company shall not be liable to any person who
participates as an underwriter in any such registration or any other person
who controls such underwriter within the meaning of the Securities Act, in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of such
person's failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of the securities to such
person if such statement or omission was corrected in such final prospectus.
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b. Indemnification by the Holders of Registrable Securities. In
connection with any registration statement in which a holder of Registrable
Securities is participating, each such participating holder of Registrable
Securities will furnish to the Company in writing such information regarding
such holder and, if such registration is not an underwritten registration,
such information regarding the distribution of such securities, as the
Company reasonably requests for use in connection with any such registration
statement or prospectus. If such registration statement or prospectus or any
preliminary prospectus or any amendment thereof or supplement thereto
contains any untrue or alleged untrue statement of material fact contained
in any information or affidavit so furnished in writing by such
participating holder, or if such information or affidavit omits or allegedly
omits a material fact required to be stated therein or necessary to make the
statements therein not misleading, such holder, to the extent permitted by
law, will indemnify the Company, its directors and officers and each person
who controls the Company (within the meaning of the Securities Act) and all
other holders of Registrable Securities against any losses, claims, damages,
liabilities and expenses resulting from such untrue or alleged untrue
statement of material fact or omission; provided that the obligation to
indemnify will be individual and not joint or joint and several with any
other seller or prospective seller of securities to each participating
holder and will be limited to the net amount of proceeds received by such
participating holder from the sale of Registrable Securities pursuant to
such registration statement.
c. Defense of Claims. Any person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
provisions of this paragraph 6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. If such defense
is assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without the indemnifying
party's consent (but such consent will not be unreasonably withheld).
d. Survival; Contribution. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person of such indemnified party and will survive
the transfer of securities and the termination of this Agreement. The
Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the
Company's indemnification is unavailable for any reason.
e. Registration and Qualification under Other Securities
Laws. Indemnification similar to that specified above in this paragraph 6
(with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration
or other qualification of securities under any Federal or state law or
regulation of any governmental authority, other than the Securities Act.
f. Advancement of Expenses. The indemnification required by this
paragraph 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received
or expense, loss, damage or liability is incurred, subject to refund if it
is determined the party incurring such expenses is not entitled to be
indemnified under this Agreement.
7. Underwritten Registrations.
a. Demand Underwritten Registrations. If requested by the underwriters
for any underwritten offering of Registrable Securities pursuant to a Demand
Registration, the Company will enter into an underwriting agreement with
such underwriters for such offering. Such agreement
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shall be reasonably satisfactory in substance and form to each holder of
Registrable Securities being registered and the underwriters and shall
contain such representations and warranties by the Company and such other
terms as are generally prevailing in agreements of this type, including,
without limitation, indemnities substantially as provided in paragraph 6.
b. Demand or Piggyback Underwritten Registrations. The holders of
Registrable Securities to be distributed by underwriters of any underwritten
offering of Registrable Securities pursuant to paragraphs 1 or 2 shall be
parties to the Company's underwriting agreement. No underwriting agreement
(or other agreement in connection with such offering) shall require any
holder of Registrable Securities to make any representations or warranties
to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities, such holder's intended method of
distribution and any other representation required by law.
c. Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled
hereunder to approve such arrangements.
8. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the reasonable opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
9. Definitions.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Registrable Securities" means an aggregate of all Common Shares received or
receivable by the Holders in connection with conversion of Partnership
interests, Common Shares held by the Holders that are not freely transferable
under Rule 144 under the Securities Act, and any other securities received on
account of the Common Shares referred to above in any stock split, stock
dividend, recapitalization or similar event; provided, however, that such
securities will cease to be Registrable Securities when they have been (i)
distributed to the public pursuant to an offering registered under the
Securities Act or pursuant to a transaction exempt from registration under Rule
144 under the Securities Act (or any similar rule then in force), or (ii)
eligible for resale under the provisions of Rule 144(k) under the Securities Act
(or any similar rule then in force). For purposes of this Agreement, a person
will be deemed to be a holder of Registrable Securities whenever such person has
the right to acquire such Registrable Securities from the Company (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
10. Termination. This Agreement, other than the provisions of paragraph 6
insofar as they relate to completed offerings, shall terminate when all
Registrable Securities have become eligible for sale in compliance with Rule
144(k) under the Securities Act (or any similar rule then in force), except with
respect to registrations previously requested or in process.
11. Miscellaneous.
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a. Current Public Information. The Company shall use its best efforts to
file all reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
adopted by the Commission thereunder and shall take such further action as any
holder or holders of Restricted Securities may reasonably request, all to the
extent required to enable such holders to sell Restricted Securities pursuant to
(i) Rule 144 adopted by the Commission under the Securities Act (as such rule
may be amended from time to time) or any similar rule or regulation hereafter
adopted by the Commission or (ii) short-form registrations. Upon request, the
Company shall deliver to any holder of Restricted Securities a written statement
as to whether it has complied with such requirements.
b. Selection of Underwriters. The Company will select the investment
banker(s) and manager(s) to administer any offering effected pursuant to a
Demand Registration or Piggyback Registration.
c. Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
d. Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of a majority of the Registrable
Securities.
e. Successors and Assigns. Except as otherwise provided, all covenants and
agreements in this Agreement by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. Except as otherwise provided in any
express assignment of this Agreement by a holder of Registrable Securities, the
provisions of this Agreement which are for the benefit of holders of Registrable
Securities are also for the benefit of, and enforceable by, any subsequent
holder of Registrable Securities. The Company consents to the distribution of
the rights under this Agreement to the members of Financial Management, LLC, and
the distribution in turn by such members to their members, subject to such
transferees assuming the obligations of a Holder hereunder.
f. Additional Holders. The parties agree than any person acquiring Common
Shares or Partnership interests from a Holder may become a party to this
Agreement, and, upon acquisition of Common Shares or a Partnership interest and
execution of a counterpart signature page to this Agreement, such person shall
be deemed to be a Holder for all purposes under this Agreement.
g. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
h. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
i. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
j. Governing Law. The corporate law of Maryland will govern all issues
concerning the relative rights of the Company and its stockholders. All
questions concerning the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto will be governed by the internal
law, and not the law of conflicts, of Colorado.
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k. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by facsimile or by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications will be sent to each party to this Agreement at the address
indicated on the signature pages hereto, or to such other address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
"COMPANY" ASSET INVESTORS CORPORATION
By
--------------------------------------
Its
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Address: 3600 S. Yosemite
Denver, Colorado 80237
"HOLDERS" FINANCIAL ASSET MANAGEMENT, LLC
By
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Its
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Address: 1873 South Bellaire Street
17th Floor
Denver, CO 80222
By
--------------------------------------
Its
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Address:
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APPENDIX B
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JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard, 10th Floor
Los Angeles, California 90025
Telephone (310) 575-5200 (800) 933-6656
Fax (310)575-5165
CORPORATE FINANCE
September 8, 1997
Special Committee of the Board of Directors
ASSET INVESTORS CORPORATION
3600 South Yosemite Street
Suite 350
Denver, CO 80237
To the Members of the Special Committee of the Board of Directors:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the public holders (the "AIC Shareholders")
of the outstanding common shares, par value $.01 per share (the "AIC Common
Shares"), of Asset Investors Corporation, a Maryland corporation, ("AIC" or the
"Company") of the Consideration (as defined below) to be paid by Asset Investors
Operating Partnership, L.P. ("AIOP"), a partnership controlled by AIC, pursuant
to the Proposed Transaction (as defined below). Under the terms of the Agreement
(as defined below), (i) Financial Asset Management LLC ("FAM") will contribute
all of its advisory business-related assets and liabilities to New FAM LLC ("New
FAM") and (ii) AIOP will acquire all of the membership interests in New FAM
(collectively, the "Proposed Transaction"). As consideration for the Proposed
Transaction (the "Consideration"), AIOP will issue to the shareholders of FAM
(i) fixed consideration of 3,383,479 AIOP operating partnership units (the
"Fixed Consideration") and (ii) contingent consideration (as defined below). The
contingent consideration (the "Earnout") will consist of (i) 600,000 AIOP
operating partnership units when and if the Company deploys substantially all of
its remaining proceeds from the resecuritization of its portfolio of non-agency
MBS bonds into investments in real estate and related assets by June 17, 1999
and achieves an annualized return on the assets over any six month period of at
least 9%, and (ii) 600,000 AIOP operating partnership units when and if, by June
17, 1999, either (A) the average closing price of the Company's common stock
over any 90-day period exceeds $4.00 and at least one of (a) through (d) occur;
(a) AIC executes a plan for the utilization of AIC's operating loss
carryforwards, (b) AIC and Commercial Assets, Inc. complete a business
combination, (c) AIC or AIOP complete a capital markets transaction in excess of
$20 million, or (d) AIC achieves an investment grade rating on its debt from a
nationally recognized rating agency or (B) the average closing price of AIC's
common stock over any 90-day period exceeds $4.25 per share. The affirmative
vote of holders of a majority of outstanding common shares of AIC is necessary
for approval of the Proposed Transaction. The terms and conditions of the
Proposed Transaction are more fully set forth in the Asset Contribution
Agreement (the "Agreement").
Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures, the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. We are currently acting as
financial advisor to the Company in connection with the Proposed Transaction and
received a fee for delivering this opinion. AIC has agreed to indemnify
Jefferies against certain liabilities arising out of or in connection with the
services rendered by Jefferies under such engagement. In the ordinary course of
our business, we may trade the securities of AIC for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in those securities.
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Special Committee of the Board of Directors
ASSET INVESTORS CORPORATION
September 8, 1997
Page 2
In conducting our analysis and arriving at the opinion expressed herein, we
have, among other things, (i) reviewed the Agreement (including any schedules
and exhibits thereto); (ii) reviewed certain financial and other information
that was publicly available; (iii) reviewed information furnished to us by AIC
and FAM, including certain internal financial analyses, budgets, reports and
other information prepared by the respective managements of the companies; (iv)
held discussions with various members of senior management of AIC and FAM
concerning each company's historical and current operations, financial
conditions and prospects, as well as the strategic and operating benefits
anticipated by each company from the Proposed Transaction; (v) reviewed the
share price and trading history of AIC's publicly traded securities from August
27, 1996 to August 27, 1997; (vi) reviewed the valuations of publicly traded
companies which we deemed comparable to AIC; (vii) prepared discounted cash flow
analyses of AIC and FAM on both stand-alone and combined bases; (viii) analyzed
prior mergers and acquisitions purchase multiples and characteristics comparable
to the Proposed Transaction; (ix) analyzed the relative revenue, earnings and
cash flow contributions of AIC and FAM to the combined company; and (x) analyzed
the cash earned for stockholders per share of the combined company. In addition,
we have conducted such other reviews, analyses and inquiries relating to AIC and
FAM as we considered appropriate in rendering this opinion.
In our review and analysis and in rendering this opinion, we have relied
upon, but have not assumed any responsibility to independently investigate or
verify, the accuracy, completeness and fair presentation of all financial and
other information that was provided to us by AIC and FAM or that was publicly
available to us (including, without limitation, the information described above
and the financial projections and financial models prepared by AIC and FAM
regarding the estimated future performance of the respective companies before
and after giving effect to the Proposed Transaction). This opinion is expressly
conditioned upon such information (whether written or oral) being complete,
accurate and fair in all respects.
With respect to the financial projections and financial models provided to
and examined by us, we note that projecting future results of any company is
inherently subject to vast uncertainty. AIC and FAM have informed us, however,
and we have assumed that such projections and models were reasonably prepared on
bases reflecting the best currently available estimates and good faith judgments
of the respective managements of the companies as to the future performance of
each company. In addition, although we have performed sensitivity analyses
thereon, in rendering this opinion we have assumed that each company will
perform in accordance with such projections and models for all periods specified
therein. Although such projections and models did not form the principal basis
for our opinion, but rather constituted one of many items that we employed,
changes to such projections and models could affect the opinion rendered herein.
We have assumed that the Proposed Transaction will be reported as a tax-free
reorganization and will be treated as an "asset purchase" for accounting
purposes.
In our review, we did not obtain any independent evaluation or appraisal of
the assets or liabilities of, or conduct a comprehensive physical inspection of
any of the assets of, FAM, nor have we been furnished with any such evaluations
or appraisals for FAM or reports of such physical inspections for FAM, nor have
we assumed any responsibility to obtain any such evaluations, appraisals or
inspections for FAM. In addition, we have not assumed any responsibility for
conducting a physical inspection of the properties or facilities that are the
subject of the Proposed Transaction or for making or obtaining an independent
valuation or appraisal of such assets. Our opinion is based on economic,
monetary, political, regulatory, market and other conditions existing and which
can be evaluated as of the date hereof (including, without limitation, current
market prices of the AIC Common Shares); HOWEVER, such conditions are subject to
rapid and unpredictable change and such changes could
103
<PAGE>
Special Committee of the Board of Directors
ASSET INVESTORS CORPORATION
September 8, 1997
Page 3
affect the conclusions expressed herein. We have made no independent
investigation of any legal or accounting matters affecting AIC and FAM, and we
have assumed the correctness of all legal and accounting advice given to such
parties and their respective boards of directors, including, without limitation,
advice as to the accounting and tax consequences (including the effect of the
Proposed Transaction on AIC's continuing status as a "real estate investment
trust" under the Internal Revenue Code of 1986, as amended) of the Proposed
Transaction to AIC, FAM and their respective shareholders.
In rendering this opinion we have also assumed that: (i) the Proposed
Transaction will be consummated on the terms described in the Agreement without
any waiver of any material terms or conditions and that the conditions to the
consummation of the Proposed Transaction set forth in the Agreement will be
satisfied without material expense; (ii) there is not now, and there will not as
a result of the consummation of the transactions contemplated by the Agreement
be, any default, or event of default, under any indenture, credit agreement or
other material agreement or instrument to which AIC, FAM or any of their
respective subsidiaries or affiliates is a party; and (iii) all material assets
and liabilities (contingent or otherwise, known or unknown) of AIC and FAM are
as set forth in their respective consolidated financial statements.
Moreover, in rendering the opinion set forth below we note that the
consummation of the Proposed Transaction is conditioned upon the approval of the
shareholders of AIC, and we are not recommending that AIC, its Special Committee
of the Board of Directors, its Board of Directors, any of its security holders
or any other person should take any specific action in connection with the
Proposed Transaction. Our opinion does not constitute a recommendation of the
Proposed Transaction over any alternative transactions which may be available to
AIC, and does not address AIC's underlying business decision to effect the
Proposed Transaction. Furthermore, our opinion only considers the Consideration
(as defined herein) to be paid by AIOP and does not consider any other aspect of
the Proposed Transaction or any agreements or other matters that may be deemed a
part of the Proposed Transaction. Finally, we are not opining as to the market
value or the prices at which any of the securities of AIC may trade at any time.
Based upon and subject to the foregoing, and upon such other matters as we
consider relevant, it is our opinion as investment bankers that, as of the date
hereof, the Consideration, taken as a whole, is fair to the AIC Shareholders
from a financial point of view.
It is understood and agreed that this opinion is provided solely for the use
of the Special Committee of the Board of Directors of AIC as one element in the
Special Committee's consideration of the Proposed Transaction, and may not be
used for any other purpose, or otherwise referred to, relied upon, quoted,
summarized or circulated, without our prior written consent. Without limiting
the foregoing, this opinion does not constitute a recommendation to any
shareholder of AIC (or any other person) as to how such person should vote with
respect to the Proposed Transaction or any other matter, including any proposed
amendment to the articles of incorporation or by-laws of AIC. We expressly
disclaim any undertaking or obligation to advise any person of any change in any
fact or matter affecting our opinion of which we become aware after the date
hereof. This opinion may be reproduced in full in any proxy statement or
prospectus mailed to shareholders of AIC in connection with the Proposed
Transaction but may not otherwise be disclosed publicly in any manner without
our prior written approval. In furnishing this opinion, we do not admit that we
are experts within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Sincerely,
<TABLE>
<S> <C> <C>
JEFFERIES & COMPANY, INC.
By: /s/ ROBERT M. WERLE
-----------------------------------------
Name: Robert M. Werle
Title: MANAGING DIRECTOR
</TABLE>
104
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APPENDIX C
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF ASSET INVESTORS CORPORATION
RESOLVED, that a new Section 4 of Article V of the Articles of Incorporation
of Asset Investors Corporation be added to read in its entirety as follows:
"Section 4. REVERSE STOCK SPLIT. On the effective date of this Amendment,
the number of outstanding shares of Common Stock of the Corporation shall be
reduced so that each five (5) shares of Common Stock issued and outstanding will
be automatically reclassified, combined, and converted into one (1) share of
Common Stock. No fractions of shares will be issued, and on the effective date
of this Amendment, stockholders otherwise entitled to receive fractions of
shares, unless and until such fractions of shares are combined with other
fractions of shares resulting in full shares within a period of time to be set
by the Corporation's Board of Directors, shall have no further interest as a
stockholder in respect of such fractions of shares and shall be entitled to
receive from the Corporation in cash the fair value, as determined by the Board
of Directors, of such fractions of shares."
105
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APPENDIX D
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports (a) dated February 28, 1997, with
respect to the consolidated financial statements of Asset Investors Corporation
and (b) dated February 10, 1997 with respect to the financial statements of
Commercial Assets, Inc., both of which are included in the Annual Report (Form
10-K) for the year ended December 31, 1996 of Asset Investors Corporation which
is attached to the Proxy Statement of Asset Investors Corporation. In addition,
we consent to the incorporation by reference of our reports (a) dated April 23,
1997 with respect to The Brandywine Manufactured Home Communities and (b) dated
July 3, 1997 with respect to The Andrus Manufactured Home Communities, which
were included in Current Reports on Form 8-K filed with the Securities and
Exchange Commission on May 30, 1997 and August 14, 1997, respectively.
Ernst & Young LLP
Phoenix, Arizona
September 25, 1997
106
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[LOGO]
ASSET INVESTORS CORPORATION
1873 SOUTH BELLAIRE STREET, SUITE 1700
DENVER, COLORADO 80222
---------------------------------------------------
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------------------------------------
November , 1997
The undersigned hereby appoints Terry Considine and Thomas L. Rhodes, and
each of them, proxy and attorney-in-fact for the undersigned, with full power of
substitution, to vote on behalf of the undersigned at the 1997 Annual Meeting of
Stockholders (the "Meeting") of Asset Investors Corporation, a Delaware
corporation ("AIC"), to be held at 1873 South Bellaire Street, Suite 1700,
Denver, Colorado on , November , 1997, at 10:00 a.m., local time, and
at any adjournment or postponement of the Meeting, all of the shares of Common
Stock ($.01 par value) of AIC standing in the name of the undersigned or which
the undersigned may be entitled to vote on the matters described on the reverse
side of this card.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ASSET
INVESTORS CORPORATION. PLEASE COMPLETE, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on the reverse side) SEE REVERSE SIDE
<PAGE>
/X/ Please mark your votes as in this example.
This proxy, if properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR approval of the
proposed acquisition of Financial Asset Management LLC ("Acquisition Proposal")
as set forth in Item 1 below, FOR the election all nominees named in Items 2(a)
and (b) below, and FOR approval of a proposed amendment to the Company's
articles of incorporation ("Proposed Amendment") as set forth in Item 3 below.
The Board of Directors recommends a vote FOR each of the director nominees
named in Items 2(a) and 2(b) below and FOR the proposals set forth in Items 1
and 3 below.
<TABLE>
<C> <S> <C> <C> <C>
1. Approval of the Acquisition Proposal: FOR AGAINST ABSTAIN
/ / / / / /
2.(a) Election of three Class II Directors: Nominees:
Terry Considine
Bruce D. Benson
William J. White
FOR ALL WITHHELD
(except as marked below) AS TO ALL
/ / / /
Vote withheld as to the following
nominee(s):
2.(b) Election of one Class III Director: Nominee:
Thomas L. Rhodes
FOR WITHHELD
/ / / /
3. To approve a proposed amendment to the FOR AGAINST ABSTAIN
Company's articles of incorporation: / / / / / /
4. In their discretion, the proxies are authorized to vote upon such other business as
may properly come before the Meeting and any adjournment of postponement thereof;
hereby revoking any proxy or proxies heretofore given by the undersigned.
</TABLE>
Please sign exactly as your name appears on this card. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign full
corporate name and sign authorized officer s name and title. If a partnership,
please sign in partnership name and sign authorized person s name and title.
The undersigned hereby revokes all proxies heretofore given by the
undersigned to vote at the Meeting and any adjournment or postponements thereof.
___________________________________________
___________________________________________
SIGNATURE(S) DATE
