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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ASSET INVESTORS CORPORATION
(Exact name of registrant as specified in its certificate of incorporation)
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DELAWARE 6798 84-1500244
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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TERRY CONSIDINE
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
3410 SOUTH GALENA STREET, SUITE 210 1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80231 DENVER, COLORADO 80222
(303) 614-9400 (303) 757-8101
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area
principal executive offices) code, of agent for service)
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Copies to:
MICHAEL V. GISSER
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and if there is compliance
with General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(1)
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Common Stock, par value
$0.01 per share........... 4,224,972 shares $12.91 $54,544,388.52 $15,163.34(2)
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(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, based on the
average of the high and low prices for shares of the Registrant as reported
by the New York Stock Exchange on October 11, 1999.
(2) Fee previously paid in connection with the Registrant's Schedule 14A filed
with the Commission on October 18, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THESE MATERIALS CONSTITUTE PRELIMINARY PROXY MATERIALS FILED WITH RESPECT
TO FUTURE SPECIAL STOCKHOLDER MEETINGS. SOME OF THE INFORMATION IS PRESENTED AS
IT IS EXPECTED TO EXIST WHEN DEFINITIVE PROXY MATERIALS ARE MAILED TO
STOCKHOLDERS, AND WILL BE REVISED TO REFLECT FACTS THAT EXIST AT THAT TIME.
[AIC LOGO] [CAX LOGO]
, 2000
TO THE STOCKHOLDERS OF COMMERCIAL ASSETS, INC. AND ASSET INVESTORS CORPORATION:
Asset Investors and Commercial Assets have agreed to combine in a merger.
In the merger, Commercial Assets will be merged into Asset Investors and Asset
Investors will be the surviving corporation. In order to complete the merger, we
each must obtain the approval of our stockholders. We believe that this merger
will benefit the stockholders of both companies and we ask you for your support
in voting for the merger proposal at our special meetings.
In addition to their vote on the merger, Commercial Assets stockholders are
being asked to elect to receive either .4075 shares of common stock of Asset
Investors or $5.75 for each share of Commercial Assets' common stock they own.
However, the aggregate amount of cash to be paid to Commercial Assets
stockholders in the merger is limited to $20,411,741. If stockholders elect to
receive more than this amount, we will distribute this amount pro rata to
Commercial Assets stockholders electing cash, and these stockholders will
receive Asset Investors' common stock in exchange for the remainder of their
holdings. Following the merger, Asset Investors expects to change its name to
American Land Lease, Inc., and be traded on the New York Stock Exchange under
the symbol "ANL."
Information about the merger is contained in this Joint Proxy
Statement/Prospectus. We urge you to read this material, including the section
describing risk factors that begins on page 23.
After careful consideration the boards of directors of both Asset Investors
and Commercial Assets, including a special committee of independent directors of
Commercial Assets, have approved the merger agreement and determined that the
merger is fair and in the best interests of their stockholders and recommend
that you vote "FOR" the adoption of the merger agreement.
Commercial Assets stockholders will vote at Commercial Assets' special
meeting on , 2000, at : a.m., local time at 2000 S.
Colorado Blvd., 10th Floor, Denver, Colorado. Asset Investors stockholders will
vote at Asset Investors' special meeting on , 2000, at :
a.m., local time at 2000 S. Colorado Blvd., 10th Floor, Denver, Colorado.
We will not complete the merger unless the holders of a majority of the
outstanding shares of Asset Investors' common stock and holders of two-thirds of
the outstanding shares of Commercial Assets' common stock vote to adopt the
merger agreement. Only stockholders who hold shares of Asset Investors' common
stock or Commercial Assets' common stock at the close of business on
, 2000 will be entitled to vote at the special meetings.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE BE SURE YOU ARE
REPRESENTED AT THE APPROPRIATE SPECIAL MEETING BY ATTENDING IN PERSON OR BY
RETURNING YOUR PROXY AS SOON AS POSSIBLE. EVEN IF YOU PLAN TO ATTEND IN PERSON,
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD.
SINCERELY,
TERRY CONSIDINE
Chairman and Chief Executive Officer
ASSET INVESTORS CORPORATION
COMMERCIAL ASSETS, INC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated , 2000 and was
first mailed to stockholders on or about , 2000.
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ASSET INVESTORS CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To Our Stockholders:
We will hold a special meeting of stockholders of Asset Investors
Corporation on , 2000, beginning at 10:00 a.m., local time, at 2000
S. Colorado Blvd., 10th Floor, Denver, Colorado, for the purpose of considering
and voting upon the following:
- A proposal to adopt the Agreement and Plan of Merger, dated as of August
31, 1999, by and between Asset Investors Corporation and Commercial
Assets, Inc. Under the merger agreement, each outstanding share of common
stock of Commercial Assets will be converted into either $5.75 per share
for up to 3,549,868 shares of Commercial Assets' common stock or .4075
shares of common stock of Asset Investors.
- A proposal to adopt an amendment to the Asset Investors' certificate of
incorporation through which
- we will change our name to American Land Lease, Inc.; and
- we will adopt new ownership limit provisions.
- Such other matters as may be properly brought before the special meeting,
or any adjournments or postponements thereof.
Only holders of shares of common stock of Asset Investors reflected in its
records at the close of business on , 2000, are entitled to notice
of, and to vote at, the special meeting and any adjournments or postponements of
the special meeting.
The attached Joint Proxy Statement/Prospectus discusses the merger
agreement and other related matters. A copy of the merger agreement is included
as Annex A to the Joint Proxy Statement/ Prospectus. You are encouraged to read
the Joint Proxy Statement/Prospectus and the documents incorporated by reference
carefully and completely.
Your vote is important and we urge you to complete, sign, date and return
your proxy card as promptly as possible, whether or not you expect to attend the
special meeting. If you are unable to attend in person and you return your proxy
card, your shares will be voted at the special meeting. A return envelope is
included for your convenience. If your shares are held in "street name" by your
broker or other nominee, only that holder can vote your shares. You should
follow the directions provided by your broker or nominee regarding how to
instruct them to vote your shares.
Our principal executive offices are located at 3410 South Galena Street,
Suite 210, Denver, Colorado 80231. Our telephone number is (303) 614-9400.
By Order of the Board of Directors
David M. Becker
Secretary
Denver, Colorado
, 2000
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COMMERCIAL ASSETS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To Our Stockholders:
We will hold a special meeting of stockholders of Commercial Assets, Inc.
on , 2000, beginning at 11:00 a.m. local time, at 2000 S. Colorado
Blvd., 10th Floor, Denver, Colorado, for the purpose of considering and voting
upon the following:
- A proposal to adopt the Agreement and Plan of Merger, dated as of August
31, 1999, by and between Asset Investors Corporation and Commercial
Assets, Inc. Under the merger agreement, each outstanding share of common
stock of Commercial Assets will be converted into either $5.75 per share,
subject to proration, for up to 3,549,868 shares of Commercial Assets'
common stock or .4075 shares of common stock of Asset Investors.
- Such other matters as may be properly brought before the special meeting,
or any adjournments or postponements thereof.
Only holders of shares of common stock of Commercial Assets reflected in
our records at the close of business on , 2000, are entitled to
notice of and to vote at the special meeting and any adjournments or
postponements of the special meeting.
The attached Joint Proxy Statement/Prospectus discusses the merger
agreement and other related matters. A copy of the merger agreement is included
as Annex A. You are encouraged to read the Joint Proxy Statement/Prospectus and
the documents incorporated by reference carefully and completely.
Your vote is important and we urge you to complete, sign, date and return
our proxy card as promptly as possible, whether or not you expect to attend the
special meeting. If you are unable to attend in person and you return your proxy
card, your shares will be voted at the special meeting. A return envelope is
included for your convenience. If your shares are held in "street name" by your
broker or other nominee, only that holder can vote your shares. You should
follow the directions provided by your broker or nominee regarding how to
instruct them to vote your shares.
Our principal executive offices are located at 3410 South Galena Street,
Suite 210, Denver, Colorado 80231. Our telephone number is (303) 614-9410.
By Order of the Board of Directors
David M. Becker
Secretary
Denver, Colorado
, 2000
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS................... 1
SUMMARY................................. 3
The Companies......................... 3
Reasons for the Merger................ 4
Description of the Merger Proposal.... 4
Description of the Proposed Amendment
to Asset Investors' Certificate of
Incorporation...................... 6
Litigation............................ 6
Information Concerning the Commercial
Assets Special Meeting............. 6
Information Concerning the Asset
Investors Special Meeting.......... 7
The Special Committee................. 7
Fairness Opinion...................... 8
Stock Exchange Listing................ 9
No Dissenters' Rights of Appraisal.... 9
Material Federal Income Tax
Consequences....................... 9
Summary Risk Factors.................. 10
Comparative Per Share Information..... 10
Summary Historical Financial
Information of Asset Investors..... 13
Summary Historical Financial
Information of Commercial Assets... 16
Summary Pro Forma Financial and
Operating Information.............. 17
Comparative Stock Prices and
Dividends.......................... 22
RISK FACTORS............................ 23
Risk Factors Relating to the Merger... 23
Some of the directors and executive
officers of Commercial Assets
have a conflict of interest in
considering the merger........... 23
The fairness opinion does not
address the fairness of the cash
consideration being offered to
Commercial Assets stockholders... 23
The fairness opinion does not
address changes in the relative
value of the companies since the
date of the original merger
agreement........................ 23
If you elect to receive cash, you
may not receive the type of
consideration specified in your
election......................... 23
Neither the Commercial Assets board
of directors nor the special
committee has made any
recommendation as to whether or
not Commercial Assets
stockholders should elect cash... 24
Dilution of the Asset Investors'
common stock through the issuance
of shares in the merger.......... 24
Asset Investors pays a lower
dividend than Commercial
Assets........................... 24
The merger consideration is fixed
despite potential changes in
relative stock prices............ 25
Risk Factors Relating to the Business
of the Combined Company............ 25
Stockholders will be restricted
from owning more than 5% of the
outstanding shares of the
combined company's common
stock............................ 25
Asset Investors' certificate of
incorporation contains
anti-takeover provisions, which
may limit the ability of a third
party to acquire control and may
prevent stockholders from
receiving a premium for their
shares........................... 25
There are numerous risks associated
with our acquisition
activities....................... 26
There are numerous risks associated
with our development
activities....................... 27
Our debt service obligations may
leave us with insufficient cash
resources to meet our other
working capital and distribution
needs............................ 27
Increases in interest rates may
increase the combined company's
interest expense................. 27
The combined company's real estate
investments will be subject to
numerous risks that are beyond
our control...................... 27
The combined company's properties
may be subject to environmental
liabilities...................... 28
Laws benefitting disabled persons
may result in unanticipated
expenses......................... 28
The combined company's properties
may become subject to rent
control and other legislation
affecting rents which could
decrease our revenues............ 28
The combined company's directors
and executive officers will have
substantial influence on the
combined company and may use this
influence in ways that are not
consistent with the interests of
other stockholders............... 29
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The combined company's board may
unilaterally implement changes in
its investment and financing
policies which may not fully
serve the interests of all
stockholders..................... 29
The loss of key executive officers
could have an adverse effect on
the combined company............. 29
Our companies have been subject to
conflicts of interest through
various transactions with
affiliates....................... 29
If we fail to qualify as a REIT, we
would be subject to tax at
corporate rates and we would not
be able to deduct distributions
to stockholders for tax
purposes......................... 30
Our distribution requirements may
have the effect of reducing our
available cash................... 31
Potential losses may be
uninsured........................ 31
An increase in market interest
rates could adversely affect the
price of our common stock if
equity investors demand a higher
return........................... 31
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS............ 31
BACKGROUND OF THE MERGER................ 32
OPINION OF FINANCIAL ADVISOR TO THE
SPECIAL COMMITTEE OF COMMERCIAL
ASSETS................................ 36
FINANCIAL PROJECTIONS................... 45
RECOMMENDATION OF THE COMMERCIAL ASSETS
BOARD OF DIRECTORS.................... 46
RECOMMENDATION OF THE ASSET INVESTORS
BOARD OF DIRECTORS.................... 50
ACCOUNTING TREATMENT OF THE MERGER...... 53
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO COMMERCIAL ASSETS
STOCKHOLDERS.......................... 53
DESCRIPTION OF THE MERGER PROPOSAL...... 56
DESCRIPTION OF THE MERGER CONSIDERATION
AND THE CASH ELECTION................. 57
DESCRIPTION OF THE PROPOSED AMENDMENT TO
ASSET INVESTORS' CERTIFICATE OF
INCORPORATION......................... 58
MEMBERS OF MANAGEMENT HAVE INTERESTS
THAT ARE DIFFERENT FROM YOURS......... 60
PURCHASES OF SHARES..................... 62
RELATED TRANSACTIONS.................... 62
THE SPECIAL MEETING OF THE STOCKHOLDERS
OF COMMERCIAL ASSETS.................. 64
Matters to be Considered.............. 64
Proxies............................... 64
Solicitation of Proxies............... 64
Forms of Election..................... 64
Voting Rights and Votes Required...... 65
Voting of Proxies..................... 65
No Dissenters' Rights of Appraisal.... 66
Recommendation of the Commercial
Assets Board and the Special
Committee of the Board............. 66
THE SPECIAL MEETING OF THE STOCKHOLDERS
OF ASSET INVESTORS.................... 66
Matters to be Considered.............. 66
Proxies............................... 66
Solicitation of Proxies............... 67
Voting Rights and Votes Required...... 67
Voting of Proxies..................... 67
No Dissenters' Rights of Appraisal.... 68
Recommendation of the Asset Investors
Board of Directors................. 68
THE MERGER AGREEMENT.................... 69
Form of Merger........................ 69
Closing of the Merger; Effective Time
of the Merger...................... 69
Surviving Corporation Certificate of
Incorporation...................... 69
Surviving Corporation Bylaws.......... 69
Directors and Officers................ 69
Consideration to be Received by
Commercial Assets Stockholders..... 70
Exchange of Certificates.............. 70
No Fractional Shares will be Issued... 70
Representations and Warranties........ 71
Commercial Assets' Employee Benefit
Plans.............................. 71
Conditions to Consummation of
Merger............................. 71
Covenants Relating to the Conduct of
Business........................... 72
Termination........................... 73
Fees and Expenses..................... 74
ASSET INVESTORS' BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS.................... 75
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SECURITY OWNERSHIP OF FIVE PERCENT
BENEFICIAL OWNERS AND MANAGEMENT...... 78
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
COMMERCIAL ASSETS AND ASSET INVESTORS
BEFORE AND AFTER THE MERGER........... 79
Restrictions on Transfer and Ownership
of Shares.......................... 80
Authorized Capital Stock.............. 80
Committees of the Board of
Directors.......................... 81
Duties and Powers of the Board of
Directors.......................... 81
DESCRIPTION OF ASSET INVESTORS' CAPITAL
STOCK................................. 82
Asset Investors' Authorized Capital
Stock.............................. 82
Asset Investors' Common Stock......... 82
Asset Investors' Preferred Stock...... 82
Restrictions on Transfer and Ownership
of Shares.......................... 82
PRO FORMA FINANCIAL INFORMATION......... 83
SELECTED FINANCIAL INFORMATION.......... 99
Selected Historical Financial
Information of Asset Investors........ 99
Selected Historical Financial
Information of Commercial Assets...... 102
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF COMMERCIAL ASSETS....... 104
COMMERCIAL ASSETS' QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.................................. 111
FEDERAL INCOME TAXATION OF ASSET
INVESTORS AND ITS STOCKHOLDERS........ 112
Taxation of Asset Investors........... 112
Tax Aspects of Investments in
Affiliated Entities................ 120
Taxation of Stockholders.............. 122
OTHER TAX CONSIDERATIONS................ 126
Legislative or Other Actions Affecting
REITs.............................. 126
State, Local and Foreign Taxes........ 126
EXPERTS................................. 127
LEGAL MATTERS........................... 127
WHERE YOU CAN FIND MORE INFORMATION..... 127
ANNEX A: AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER.................... A-1
ANNEX B: AMENDED CERTIFICATE OF
INCORPORATION OF AMERICAN LAND LEASE,
INC. ................................. B-1
ANNEX C: OPINION OF JEFFERIES &
COMPANY............................... C-1
ANNEX D: FORM OF PROXY CARD FOR ASSET
INVESTORS, CORPORATION................ D-1
ANNEX E: FORM OF PROXY CARD FOR
COMMERCIAL ASSETS, INC. .............. E-1
ANNEX F: FORM OF ELECTION............... F-1
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QUESTIONS AND ANSWERS
Q. WHAT WILL COMMERCIAL ASSETS STOCKHOLDERS RECEIVE FOR EACH COMMERCIAL
ASSETS' SHARE?
A. Each Commercial Assets stockholder, other than Asset Investors, its
officers and directors and members of their immediate families, will have
the right to elect to receive in exchange for each share of Commercial
Assets' common stock either:
- $5.75 in cash, for up to a total of 3,549,868 shares of Commercial
Assets' common stock; or
- .4075 shares of Asset Investors' common stock.
If stockholders holding greater than 3,549,868 shares of Commercial Assets'
common stock elect to receive cash for their shares, these stockholders
will receive a combination of cash and stock on a pro rata basis. If all
eligible Commercial Assets stockholders elect to receive cash, eligible
Commercial Assets stockholders will receive $2.89 in cash and 0.2029 shares
of Asset Investors' common stock for each share of Commercial Assets'
common stock they own.
Q. HOW WILL THE MERGER AFFECT ME?
A. If all Commercial Assets stockholders elect to receive shares of Asset
Investors' common stock in the merger, current Commercial Assets
stockholders (excluding Asset Investors, which currently owns approximately
26.6% of Commercial Assets' outstanding common stock) will own 36.0% of the
total outstanding common stock of Asset Investors following the merger.
Asset Investors stockholders will continue to hold their shares of Asset
Investors' common stock, which, if all Commercial Assets stockholders elect
to receive stock, will represent 64.0% of the total outstanding common
stock of Asset Investors following the merger. We estimate that, if all
Commercial Assets stockholders, other than Asset Investors and the officers
and directors of Asset Investors and Commercial Assets, elect to receive
cash, current Commercial Assets stockholders will own approximately 23.1%
of the outstanding shares of Asset Investors' common stock after the merger
and current Asset Investors stockholders will own approximately 76.9% of
the outstanding shares of Asset Investors' common stock after the merger.
Q. WHAT DO I NEED TO DO NOW?
A. Please vote your shares as soon as possible so that your shares will be
represented at the special meeting of Commercial Assets or Asset Investors,
as the case may be. You may grant your proxy by signing your proxy card and
mailing it in the enclosed return envelope, or you may vote in person at
the Commercial Assets stockholder meeting or the Asset Investors
stockholder meeting, as appropriate.
Q. WHAT SHOULD I DO IF I WANT TO RECEIVE CASH FOR MY SHARES OF COMMERCIAL
ASSETS' COMMON STOCK IN THE MERGER?
A. To make your election, mail your completed election form to Asset
Investors' exchange agent. We have enclosed a separate envelope in order
for you to return your form of election to the exchange agent. If your
shares are held in "street name" through your broker, your broker will mail
your form of election to you under separate cover, together with a letter
of instructions for making an election. You should read your form of
election together with this Joint Proxy Statement/Prospectus.
Q. DO I NEED TO VOTE IN FAVOR OF THE MERGER TO ELECT TO RECEIVE CASH OR STOCK?
A. No. You may vote against the merger and still submit a form of election. If
you do not submit a form of election, and the merger is approved, you will
receive shares of Asset Investors' common stock in the merger.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, Asset Investors will send written
instructions to Commercial Assets stockholders for sending in their stock
certificates.
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Q. WHAT REMEDY DO I HAVE IF I DO NOT VOTE FOR THE MERGER AND THE MERGER
PROCEEDS ANYWAY?
A. Under Delaware law, you will not be entitled to dissenters' rights of
appraisal for shares of Commercial Assets' common stock.
Q. WHEN IS THE MERGER EXPECTED TO CLOSE?
A. The merger is conditioned upon the Delaware Court of Chancery entering a
final, nonappealable settlement order in connection with litigation brought
by stockholders of Commercial Assets. The settlement hearing is scheduled
for , 2000. If the Delaware Court of Chancery enters a settlement
order at that time, we expect that the merger will close shortly
afterwards.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger, you should contact:
Norwest Shareowner Services
P.O. Box 64854
161 Concord Exchange
St. Paul, MN 55164-0854
800-468-9716
2
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SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. To better understand the merger, and for a more
complete description of the legal terms of the merger, you should carefully read
this entire Joint Proxy Statement/Prospectus and the documents to which we have
referred you. See "Where You Can Find More Information" on page 125. You should
not place undue reliance on forward looking statements in this document or the
documents to which we have referred you. See "Cautionary Statement Concerning
Forward-Looking Statements" at page 20. Throughout this Joint Proxy
Statement/Prospectus, references to "the companies," "we," "our" and "us" refer
to both Commercial Assets and Asset Investors.
THE COMPANIES
COMMERCIAL ASSETS, INC.
3410 S. Galena Street, Suite 210
Denver, Colorado 80231
(303) 614-9410
Commercial Assets is a Delaware corporation which has elected to be treated
for United States Federal income tax purposes as a real estate investment trust
or "REIT." Since the third quarter of 1998, Commercial Assets has been engaged
in the ownership, acquisition and development of manufactured home communities.
At the present time, Commercial Assets has not invested all of its assets
available for investment in manufactured home communities. Prior to December
1997, Commercial Assets was primarily engaged in the investment in commercial
mortgage backed securities. Commercial mortgage backed securities generally are
debt instruments that are backed by mortgage loans on commercial real estate. At
present, in addition to the manufactured home communities it owns, Commercial
Assets retains a residual interest in pools of mortgage backed securities with a
book value of $1.7 million as of September 30, 1999. Initially, Commercial
Assets was owned by Asset Investors. Asset Investors contributed $75 million to
Commercial Assets' initial capital, and in October 1993, Asset Investors
distributed 70% of the common stock of Commercial Assets to Asset Investors
stockholders. Asset Investors currently owns 26.6% of Commercial Assets'
outstanding common stock and provides management services to Commercial Assets.
Shares of Commercial Assets' common stock are listed on the American Stock
Exchange under the symbol "CAX."
As of September 30, 1999, Commercial Assets held interests in 11
manufactured home communities with a total of:
- 1,770 developed homesites (sites with homes in place); and
- 1,370 undeveloped homesites.
Generally, when we refer to Commercial Assets in this Joint Proxy
Statement/Prospectus, we are referring to Commercial Assets, Inc. and its
subsidiaries.
ASSET INVESTORS CORPORATION
3410 S. Galena Street, Suite 210
Denver, Colorado 80231
(303) 614-9400
Asset Investors is a Delaware corporation which has elected to be treated
for United States Federal income tax purposes as a REIT. Asset Investors is a
self-administered and self-managed company in the business of owning, acquiring,
developing and managing manufactured home communities. Asset Investors owns its
assets and conducts its business through its operating partnership, Asset
Investors Operating
3
<PAGE> 11
Partnership, L.P. As of September 30, 1999, Asset Investors held interests in 22
manufactured home communities and two recreational vehicle parks with a total
of:
- 4,490 developed homesites;
- 2,540 undeveloped homesites; and
- 180 recreational vehicle sites.
In addition, Asset Investors manages 15 communities for affiliates and
third-party owners. Commercial Assets has an interest in 11 of the communities
managed by Asset Investors. Shares of Asset Investors' common stock are listed
on the New York Stock Exchange under the symbol "AIC."
Generally, when we refer to Asset Investors in this Joint Proxy
Statement/Prospectus, we are referring to Asset Investors Corporation and its
subsidiaries.
REASONS FOR THE MERGER
Asset Investors and Commercial Assets believe that the merger will be
beneficial to both companies because:
- it will result in a larger REIT with a higher market capitalization that
is closely focused on the ownership, acquisition and development of
manufactured home communities;
- the combined company's investment portfolio would be broadened as a
result of the combination;
- it will result in the elimination of duplicative expenses of
approximately $400,000 per year; and
- it will eliminate the conflict of interest inherent in Asset Investors'
role as Commercial Assets' manager.
In order to meet its REIT distribution requirements, in 1993, Asset
Investors distributed approximately 70% of the stock of Commercial Assets to its
stockholders. Following this spin off, Asset Investors and Commercial Assets
operated as separate companies, each managed by an outside manager. The proposed
merger is essentially a reversal of this spin off transaction. Costs incurred in
connection with the spin off were $1.4 million, and costs incurred in connection
with the merger are expected to be $2 million.
DESCRIPTION OF THE MERGER PROPOSAL
The board of directors of Commercial Assets and the board of directors of
Asset Investors have approved a merger in which Commercial Assets will merge
with and into Asset Investors, and Asset Investors will be the surviving
corporation. We believe that the combined company will benefit from the
complementary real estate portfolios of Commercial Assets and Asset Investors.
At the time of the merger, each outstanding share of common stock of Commercial
Assets will be converted into either:
- $5.75 in cash, subject to proration; or
- .4075 shares of Asset Investors' common stock.
Commercial Assets stockholders are being provided with a form of election
to indicate whether they prefer to receive stock or cash, subject to proration,
for their shares of Commercial Assets' common stock. See "DESCRIPTION OF THE
MERGER CONSIDERATION AND THE CASH ELECTION." Under the terms of the merger
agreement, Asset Investors has agreed to vote the shares of Commercial Assets'
common stock that it owns for the adoption of the merger agreement. In addition,
Asset Investors and the officers and directors of Asset Investors and Commercial
Assets, have agreed to elect to receive stock for their shares in the merger.
The source of the $20,411,741 to be used as merger consideration will be the
existing cash funds and short-term investments of Commercial Assets.
4
<PAGE> 12
We estimate that, if all Commercial Assets stockholders elect to receive
shares of Asset Investors' common stock in the merger, current Commercial Assets
stockholders, other than Asset Investors, will own approximately 36.0% of the
outstanding shares of Asset Investors' common stock after the merger and current
Asset Investors stockholders will own approximately 64.0% of the outstanding
shares of Asset Investors' common stock after the merger. We estimate that if
all Commercial Assets stockholders, other than Asset Investors and the officers
and directors of Asset Investors and Commercial Assets, elect to receive cash,
current Commercial Assets stockholders other than Asset Investors, will own
approximately 23.1% of the outstanding shares of Asset Investors' common stock
after the merger and current Asset Investors stockholders will own approximately
76.9% of the outstanding shares of Asset Investors' common stock after the
merger.
Stockholders of Commercial Assets and Asset Investors are being asked, at
their special meetings of stockholders, to adopt the merger agreement. Both the
board of directors of Commercial Assets and a special committee of independent
directors of Commercial Assets have determined that the merger is advisable and
in the best interest of Commercial Assets stockholders other than Asset
Investors and its affiliates. The board of directors of Asset Investors has also
determined that the merger is advisable and in the best interest of Asset
Investors' stockholders. See "SPECIAL FACTORS -- Recommendation of the
Commercial Assets Board of Directors," and "-- Recommendation of the Asset
Investors Board of Directors."
WHAT YOU WILL RECEIVE IN THE MERGER
For each share of Commercial Assets' common stock owned before the merger,
a Commercial Assets stockholder will be entitled to receive, at his or her
election, $5.75 in cash, subject to proration, or .4075 shares of Asset
Investors' common stock. The total number of shares of Commercial Assets' common
stock that may be exchanged for cash in the merger is 3,549,868. Asset Investors
and the officers and directors of Asset Investors and Commercial Assets, which
own 31.8% of the outstanding common stock of Commercial Assets, have agreed to
elect to receive stock in the merger.
ELECTION PROCEDURES AND PRORATION
Because the total number of shares of Commercial Assets' common stock that
may be exchanged for cash in the merger is limited to 3,549,868, you may not
receive the type of consideration that you elect and will not know at the time
of your vote or election what you will ultimately receive in exchange for your
shares. If Commercial Assets stockholders elect to receive cash for more than
3,549,868 shares in the aggregate in the merger, then Commercial Assets
stockholders will receive cash on a pro rata basis. Consequently, these
stockholders will receive less cash than the amount they elected to receive and
the difference between what they elected to receive in cash and the amount of
cash they actually receive will be satisfied through the issuance of shares of
Asset Investors' common stock at the rate of .4075 shares of Assets Investors'
common stock per share of Commercial Assets' common stock. For example, if all
stockholders, other than Asset Investors and the officers and directors of Asset
Investors and Commercial Assets, elect to receive cash, then each stockholder
electing to receive cash will receive $2.89 in cash and 0.2029 shares of Asset
Investors' common stock for each share of Commercial Assets' common stock they
own. In addition, the cash available to Commercial Assets stockholders may be
reduced if the market price of Asset Investors' common stock experiences a
significant decline prior to the completion of the merger. See "DESCRIPTION OF
THE MERGER CONSIDERATION AND THE CASH ELECTION."
5
<PAGE> 13
DESCRIPTION OF THE PROPOSED AMENDMENT TO ASSET INVESTORS' CERTIFICATE OF
INCORPORATION
In addition to approving the merger, stockholders of Asset Investors are
being asked to approve an amendment to the Asset Investors certificate of
incorporation which will:
- change the name of Asset Investors to American Land Lease, Inc.; and
- change the ownership limitation provisions which help Asset Investors
maintain its qualification as a real estate investment trust and protect
its ability to utilize its net operating losses.
These proposed amendments to Asset Investors' certificate of incorporation
are being offered for approval as a single proposed amendment. Holders of Asset
Investors' common stock entitled to vote at the special meeting will have the
option of voting for or against the proposed amendment as a whole, as opposed to
voting on each amendment individually. The merger and the amendment to the
certificate of incorporation are not conditioned upon one another and we intend
to effect each if passed. If the amendment to the Asset Investors' certificate
of incorporation is approved, Asset Investors will change its ticker symbol on
the New York Stock Exchange to "ANL."
LITIGATION
In September, four Commercial Assets stockholders, individually and as
purported representatives of all of Commercial Assets' stockholders except Asset
Investors and its affiliates, filed three purported class action lawsuits in the
Court of Chancery in the State of Delaware against Commercial Assets, the
members of the board of directors and specified officers of Commercial Assets
and Asset Investors. These lawsuits alleged that the defendants breached their
fiduciary duties to the Commercial Assets' stockholders in connection with the
merger on the terms then proposed and the recent reincorporation of Commercial
Assets from Maryland to Delaware. On November 15, 1999, the Court of Chancery
approved consolidation of these lawsuits as a single action. On October 12,
1999, plaintiffs filed an amended complaint.
On , 2000, the parties entered into a settlement agreement. The
settlement agreement specified that Asset Investors and Commercial Assets would
amend the merger agreement in the following respects:
- to provide for the election by Commercial Assets stockholders, other than
Asset Investors and the officers and directors of Asset Investors and
Commercial Assets, to receive $5.75 in cash, subject to proration, per
share of Commercial Assets' common stock as opposed to .4075 shares of
Asset Investors' common stock, with a maximum of 3,549,868 shares of
Commercial Assets' common stock to receive cash; and
- to increase the percentage of votes of the Commercial Assets' common
stock necessary to adopt the merger agreement from a simple majority to
two-thirds.
The settlement agreement is subject to the approval of the Court of Chancery. If
approved by the Court of Chancery, the settlement agreement will release the
defendants from further liability relating to the merger.
INFORMATION CONCERNING THE COMMERCIAL ASSETS SPECIAL MEETING
The date and time of the special meeting is , 2000, at 11:00
a.m. local time. The meeting will be held at 2000 S. Colorado Blvd., 10th Floor,
Denver, Colorado.
At the Commercial Assets special meeting, the holders of Commercial Assets'
common stock will be asked to adopt the merger agreement. You may vote at the
meeting if you were the record owner of shares of Commercial Assets' common
stock at the close of business on , 2000. As of the date of this
Joint Proxy Statement/Prospectus, directors and executive officers of Commercial
Assets and Asset Investors and their affiliates who collectively own 5.2% of
Commercial Assets' common stock have indicated their intention to vote in favor
of the merger. Asset Investors holds 26.6% of Commercial Assets'
6
<PAGE> 14
common stock and has agreed to vote in favor of the merger. You will have one
vote for each share of Commercial Assets' common stock you own.
Effect of Non-Vote on the Merger
We will not complete the merger unless we receive the affirmative vote of
at least two-thirds of the outstanding shares of common stock of Commercial
Assets. Therefore, abstentions and broker non-votes will have the same effect as
votes against the adoption of the merger agreement.
THE COMMERCIAL ASSETS BOARD OF DIRECTORS AND A SPECIAL COMMITTEE OF
INDEPENDENT DIRECTORS HAVE EACH APPROVED THE MERGER AND RECOMMEND THAT
COMMERCIAL ASSETS STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
HOWEVER, NEITHER THE COMMERCIAL ASSETS BOARD OF DIRECTORS NOR THE SPECIAL
COMMITTEE MAKES ANY RECOMMENDATION WITH RESPECT TO STOCKHOLDERS WHO ELECT TO
RECEIVE CASH FOR THEIR SHARES OF COMMERCIAL ASSETS' COMMON STOCK IN THE MERGER.
INFORMATION CONCERNING THE ASSET INVESTORS SPECIAL MEETING
The date and time of the special meeting is , 2000, 10:00 a.m.
local time. The meeting will be held at 2000 S. Colorado Blvd., 10th Floor,
Denver, Colorado.
At the Asset Investors special meeting, the holders of Asset Investors'
common stock will be asked to adopt the merger agreement and approve the
proposed amendment to the certificate of incorporation. You may vote at the
meeting if you were the record owner of Asset Investors' common stock at the
close of business on , 2000. As of the date of this Joint Proxy
Statement/Prospectus, Commercial Assets and the directors and executive officers
of Asset Investors and Commercial Assets and their affiliates who collectively
own 10.7% of Asset Investors' common stock have indicated their intention to
vote in favor of the merger and the proposed amendment to the certificate of
incorporation. You will have only one vote for each share of Asset Investors'
common stock that you own.
Effect of Non-Vote on the Merger
The adoption of the merger agreement requires the affirmative vote of at
least a majority of the outstanding shares of Asset Investors' common stock.
Therefore abstentions and broker non-votes will have the same effect as votes
against the adoption of the merger agreement.
Effect of Non-Vote on the Proposed Amendment to the Certificate of
Incorporation
The approval of the amendment to the Asset Investors certificate of
incorporation requires the affirmative vote of at least a majority of the
outstanding shares of Asset Investors' common stock. Therefore, abstentions and
broker non-votes will have the same effect as votes against approval of the
amendment to the certificate of incorporation. The merger and the amendment to
the certificate of incorporation are not conditioned upon one another and we
intend to effect each if passed.
THE ASSET INVESTORS BOARD OF DIRECTORS HAS APPROVED THE MERGER AND THE
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT ASSET
INVESTORS STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AND "FOR"
THE APPROVAL OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
THE SPECIAL COMMITTEE
Asset Investors owns 26.6% of the outstanding common stock of Commercial
Assets. In addition, the following persons serve on the board of directors of
both companies: Terry Considine, Thomas L Rhodes, Bruce E. Moore and Bruce D.
Benson. In addition, as of January 7, 2000, the following Commercial
7
<PAGE> 15
Assets directors own the number of shares of stock in Asset Investors and
Commercial Assets opposite their name:
<TABLE>
<CAPTION>
COMMERCIAL ASSETS* ASSET INVESTORS**
------------------ -----------------
<S> <C> <C>
Terry Considine...................................... 161,815 628,432
Thomas L. Rhodes..................................... 72,148 255,857
Bruce E. Moore....................................... -- 229,813
Bruce D. Benson...................................... 133,186 148,492
Raymond T. Baker..................................... 100,418 2,202
Thomas C. Fries...................................... 103,716 --
Donald T. Kortz...................................... 99,316 4,432
Robert J. Malone..................................... 91,982 4,584
</TABLE>
- ---------------
* Includes options exercisable within 60 days.
** Includes options exercisable within 60 days and units of Asset Investors
Operating Partnership, which are redeemable for shares of Asset Investors'
common stock within 60 days.
This creates a conflict of interest for the board of directors of Commercial
Assets in considering the merger. In order to mitigate against this conflict of
interest, the board of directors of Commercial Assets assigned the task of
considering the merger and reporting to the Commercial Assets board of directors
with its recommendation on the merger. See "RISK FACTORS -- Risk Factors
Relating to the Merger -- Some of the directors and executive officers of
Commercial Assets have a conflict of interest in considering the merger."
FAIRNESS OPINION
Before Commercial Assets initially entered into the merger agreement, the
Commercial Assets special committee received an opinion from its financial
advisor, Jefferies & Company, on August 31, 1999 that, subject to the
assumptions and qualifications contained in the opinion, the consideration to be
paid in the merger, which at that time consisted solely of 0.4075 shares of
Asset Investors' common stock for each outstanding share of Commercial Assets'
common stock, is fair from a financial point of view to Commercial Assets
stockholders other than Asset Investors and its affiliates. This opinion is
included in this Joint Proxy Statement/Prospectus as Annex C. We encourage you
to read this opinion carefully. See "OPINION OF FINANCIAL ADVISOR TO THE SPECIAL
COMMITTEE OF COMMERCIAL ASSETS."
You should note that the fairness opinion does not address changes in the
relative value of the companies since the date of the original merger agreement
or as a result of the inclusion of the cash election feature. The Commercial
Assets special committee does not presently intend to obtain an updated fairness
opinion of Jefferies & Company prior to the merger. See "RISK FACTORS -- Risk
Factors Relating to the Merger -- The fairness opinion does not address changes
in the relative value of the companies since the date of the original merger
agreement." In addition, Jefferies & Company did not address the fairness, from
a financial point of view, of the consideration to be received by any holder of
Commercial Assets' common stock who elects to receive cash in the merger. See
"RISK FACTORS -- Risk Factors Relating to the Merger -- The fairness opinion
does not address the fairness of the cash consideration being offered to
Commercial Assets stockholders."
As compensation for its services in connection with the merger and the
rendering of its fairness opinion, Commercial Assets paid Jefferies & Company a
fee of $150,000 and reimbursed some of its expenses totaling approximately
$70,000. Prior to its original engagement in August 1998 by the Commercial
Assets special committee, Jefferies & Company had no prior dealings or
relationships with Commercial Assets, but has had one prior dealing with Asset
Investors. In October 1997, Jefferies & Company delivered an opinion describing
the fairness of a transaction in which Asset Investors purchased a company that
was providing management services to Asset Investors and Commercial Assets. As a
result
8
<PAGE> 16
of this transaction, Asset Investors became a fully integrated,
self-administered and self-managed real estate investment trust and became
Commercial Assets' manager.
STOCK EXCHANGE LISTING
Asset Investors' common stock is listed on the New York Stock Exchange
under the symbol "AIC." Commercial Assets' common stock is listed on the
American Stock Exchange under the symbol "CAX." Following the merger, if the
stockholders of Asset Investors approve the proposed amendment to the
certificate of incorporation of Asset Investors, the combined company will be
listed on the New York Stock Exchange under the symbol "ANL and Commercial
Assets' common stock will be delisted from the American Stock Exchange."
NO DISSENTERS' RIGHTS OF APPRAISAL
Under applicable state law, neither holders of Commercial Assets' common
stock nor holders of Asset Investors' common stock are entitled to dissenters'
rights of appraisal.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
We have received an opinion of counsel that the merger will qualify as a
reorganization for United States federal income tax purposes. Accordingly, no
gain or loss will be recognized for Federal income tax purposes by Asset
Investors or Commercial Assets as a result of the merger. In addition, holders
of Commercial Assets' common stock that exchange their Commercial Assets common
stock in the merger solely for Asset Investors' common stock will not recognize
gain or loss on the exchange. A Commercial Assets stockholder that receives only
cash, and no stock, in the merger, will generally recognize any gain or loss on
its Commercial Assets common stock. If, in connection with the merger, a
Commercial Assets stockholder receives a combination of cash and Asset
Investors' common stock, it will generally recognize gain, if any, but not loss,
up to the amount of cash received. Gain or loss, if any, will be recognized in
connection with cash received instead of fractional shares. Commercial Assets
and Asset Investors will not be obligated to complete the merger unless we
receive a similar opinion of counsel dated the closing date. An opinion of
counsel does not bind the Internal Revenue Service, which could take a different
view. In addition, the tax treatment described above may not apply to all
holders of Commercial Assets' common stock, such as:
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- broker-dealers;
- regulated investment companies;
- holders who receive Commercial Assets' common stock through the exercise
of employee stock options or otherwise as compensation;
- foreign corporations;
- persons who are not citizens or residents of the United States; and
- persons holding Commercial Assets' common stock as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment.
Determining the actual tax consequences of the merger to you can be
complicated, and will depend on your specific situation and on variables not
within our control. We urge you to consult your own tax advisor for a full
understanding of the tax consequences to you of the merger. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO COMMERCIAL ASSETS
STOCKHOLDERS."
9
<PAGE> 17
SUMMARY RISK FACTORS
You should consider carefully the risks relating to the merger. If you
receive any shares of Asset Investors' common stock as merger consideration, you
should consider the following:
- The Commercial Assets board of directors was subject to a conflict of
interest in approving the merger due to Asset Investors' ownership of
26.6% of Commercial Assets' outstanding common stock and the fact that
four of the Commercial Assets directors and all of the Commercial Assets
executive officers are also directors or executive officers of Asset
Investors and own common stock of Asset Investors. See "RISK
FACTORS -- Risk Factors Relating to the Merger -- Some of the directors
and executive officers of Commercial Assets have a conflict of interest
in considering the merger."
- The special committee and the board of directors of Commercial Assets
have made no recommendation with respect to stockholders' election to
receive cash in the merger. See "RISK FACTORS -- Risk Factors Relating to
the Merger -- Neither the Commercial Assets board of directors nor the
special committee has made any recommendation as to whether or not
Commercial Assets stockholders should elect cash.
- The combined companies will remain subject to various risks associated
with investments in and management of real estate. See "RISK
FACTORS -- Risk Factors Relating to the Business of the Combined
Company."
- The $5.625 closing price of Commercial Assets' common stock on August 31,
1999, the date that we announced the merger, was $0.073 higher than the
$5.552 per share implied value of the stock component of the merger
consideration based on the $13.625 closing price of Asset Investors'
common stock on August 31, 1999.
- The fairness opinion does not address changes in the relative value of
the companies since the date of the original merger agreement or as a
result of the inclusion of the cash election feature, and the fairness
opinion will not be updated prior to the consummation of the merger. See
"RISK FACTORS -- Risk Factors Relating to the Merger -- The fairness
opinion does not address changes in the relative value of the companies
since the date of the original merger agreement." In addition, the
fairness opinion does not address the fairness of the cash consideration
of $5.75 per share, subject to proration, that Commercial Assets
stockholders may elect to receive for their shares. See "RISK
FACTORS -- Risk Factors Relating to the Merger -- The fairness opinion
does not address the fairness of the cash consideration being offered to
Commercial Assets stockholders."
- You may not receive the type of consideration specified in your election.
See "Risk Factors -- Risks Relating to the Merger -- You may not receive
the type of consideration specified in your election."
COMPARATIVE PER SHARE INFORMATION
Commercial Assets' common stock is listed on the American Stock Exchange
under the symbol "CAX," and Asset Investors' common stock is listed on the New
York Stock Exchange under the symbol "AIC."
The table below shows the closing prices for Commercial Assets' common
stock on the American Stock Exchange and Asset Investors' common stock on the
New York Stock Exchange on August 31, 1999, the last trading day before the
public announcement of the merger, and , 2000, the latest trading
day for which closing prices were available prior to mailing this document.
Based upon the closing price of Asset Investors' common stock on ,
2000, the value of the Asset Investors' common stock to be received by
Commercial Assets stockholders was $ per Commercial Assets share. On the day
prior to the public announcement of the merger, Commercial Assets' common stock
closed $0.073 higher than the implied value of the Asset Investors' common stock
to be received by Commercial Assets
10
<PAGE> 18
stockholders in the merger. On , 2000, the date that the settlement
agreement was entered into, Asset Investors' common stock closed at $ and
Commercial Assets' common stock closed at $ .
<TABLE>
<CAPTION>
PER SHARE
-------------------------------------------------
IMPLIED VALUE OF
ASSET INVESTORS COMMERCIAL ASSET INVESTORS
PRICE ASSETS PRICE SHARES
--------------- ------------ ----------------
<S> <C> <C> <C>
August 31, 1999.............................. $13.625 $ 5.625 $5.552
, 2000........................... $ $ $
</TABLE>
Set forth below are historical and pro forma earnings per common share,
cash dividends per common share and book value per common share data of Asset
Investors and historical and equivalent pro forma earnings per common share,
cash dividends per common share and book value per common share of Commercial
Assets. The data set forth below should be read in conjunction with the Asset
Investors and Commercial Assets audited financial statements and unaudited
interim financial statements, including the notes, which are incorporated by
reference into this Joint Proxy Statement/Prospectus. The data should also be
read in conjunction with the unaudited pro forma financial statements, including
the notes, which appear in the section "PRO FORMA FINANCIAL INFORMATION." The
pro forma combined per share data for Asset Investors for the year ended
December 31, 1998 and the nine months ended September 30, 1999 have been
prepared as if the merger and a number of transactions completed by Asset
Investors and Commercial Assets prior to the merger had all occurred as of
January 1, 1998. The All Shares pro forma per share data assumes that all
Commercial Assets stockholders elect to receive shares of Asset Investors'
common stock in exchange for their shares of Commercial Assets' common stock at
an exchange ratio of 0.4075 share of Asset Investors' common stock for one share
of Commercial Assets' common stock. The Shares and Cash pro forma per share data
assumes that Commercial Assets stockholders elect to receive cash of $5.75 per
share for 3,549,868 shares of Commercial Assets' common stock, the maximum
number of shares which will be purchased for cash, and the remaining shares of
Commercial Assets' common stock are exchanged for shares of Asset Investors'
common stock at an exchange ratio of 0.4075 share of Asset Investors' common
stock for one share of Commercial Assets' common stock. In addition, the
equivalent pro forma per share amounts of Commercial Assets are calculated by
adjusting pro forma earnings per share, cash dividends per share and book value
per share by the .4075 exchange ratio. The pro forma data are not necessarily
indicative of the actual financial position that would have occurred, or future
operating results that will occur, upon consummation of the merger (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
---------------------- ----------------------
ASSET COMMERCIAL ASSET COMMERCIAL
INVESTORS ASSETS INVESTORS ASSETS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
HISTORICAL:
Basic and diluted earnings per share.............. $ 0.04 $ 0.33 $ 0.33 $ 0.20
Cash dividends paid per share..................... $ 0.75 $ 0.39 $ 0.75 $ 0.39
Book value per share outstanding (end of
period)........................................ $15.68 $ 7.45 $15.20 $ 7.27
Weighted average common shares outstanding........ 5,094 10,357 5,527 10,350
Weighted average common shares and common share
equivalents outstanding........................ 5,113 10,372 5,534 10,350
</TABLE>
11
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------
ALL SHARES SHARES AND CASH
---------------------- ----------------------
ASSET COMMERCIAL ASSET COMMERCIAL
INVESTORS ASSETS INVESTORS ASSETS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PRO FORMA:
Basic and diluted earnings (loss) per share....... $ 0.08 $ 0.03 $(0.06) $ (0.02)
Cash dividends paid per share..................... $ 0.75 $ 0.31 $ 0.75 $ 0.31
Book value per share outstanding (end of
period)........................................ $14.35 $ 5.85 $14.40 $ 5.87
Weighted average common shares outstanding........ 8,194 20,108 6,747 16,557
Weighted average common shares and common share
equivalents outstanding........................ 8,213 20,155 6,766 16,604
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------
ALL SHARES SHARES AND CASH
---------------------- ----------------------
ASSET COMMERCIAL ASSET COMMERCIAL
INVESTORS ASSETS INVESTORS ASSETS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PRO FORMA:
Basic and diluted earnings per share.............. $ 0.30 $ 0.12 $ 0.24 $ 0.10
Cash dividends paid per share..................... $ 0.75 $ 0.31 $ 0.75 $ 0.31
Book value per share outstanding (end of
period)........................................ $14.15 $ 5.77 $14.16 $ 5.77
Weighted average common shares outstanding........ 8,627 21,171 7,180 17,620
Weighted average common shares and common share
equivalents outstanding........................ 8,634 21,188 7,187 17,637
</TABLE>
12
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL INFORMATION OF ASSET INVESTORS
The following table sets forth summary historical financial and operating
information for Asset Investors. The summary historical financial information
for the years ended December 31, 1998, 1997 and 1996 is based on the audited
financial statements of Asset Investors incorporated by reference in this Joint
Proxy Statement/Prospectus. The summary historical financial information for the
years ended December 31, 1995 and 1994 is based on the audited financial
statements of Asset Investors. The summary historical financial information for
the nine months ended September 30, 1999 and 1998 is based on the unaudited
financial statements of Asset Investors incorporated by reference in this Joint
Proxy Statement/Prospectus. The following information should be read in
conjunction with the historical financial statements and notes of Asset
Investors incorporated by reference in this Joint Proxy Statement/ Prospectus
(in thousands, except per share data).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations..................... $ 6,929 $ 1,479 $ -- $ -- $ -- $ 6,559 $ 4,906
Non-agency MBS bonds revenues.... 50 2,966 11,513 8,499 1,531 65 50
Gain on sale of bonds............ -- 6,484 -- -- -- -- --
Net income (loss)................ 212 7,254 9,673 14,440 13,358 1,822 (196)
PER SHARE DATA:
Basic earnings (loss)............ $ 0.04 $ 1.44 $ 1.97 $ 2.97 $ 4.59 $ 0.33 $ (0.04)
Diluted earnings (loss).......... $ 0.04 $ 1.43 $ 1.95 $ 2.96 $ 4.58 $ 0.33 $ (0.04)
Dividends paid................... $ 0.75 $ 1.45 $ 1.85 $ 1.70 $ 1.65 $ 0.75 $ 0.50
Weighted average common shares
outstanding.................... 5,094 5,022 4,919 4,856 2,910 5,527 5,116
Weighted average common shares
and common share equivalents
outstanding.................... 5,113 5,061 4,966 4,883 2,914 5,534 5,116
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation................... $101,941 $ 41,419 $ -- $ -- $ -- $115,748 $101,842
Investments in participating
mortgages and joint ventures... 27,604 25,415 -- -- -- 20,622 29,071
Investment in Commercial
Assets......................... 20,706 20,866 19,361 19,225 21,068 19,741 20,808
Non-agency MBS bonds............. -- -- 68,079 52,753 32,544 -- --
Total assets..................... 158,226 119,161 90,344 79,653 109,539 159,578 160,439
Secured notes payable............ 51,006 10,677 -- -- 30,592 55,456 50,112
Minority interest in Operating
Partnership.................... 25,649 22,362 -- -- -- 15,386 25,903
Stockholders' equity............. 78,636 83,515 86,365 78,759 72,965 84,676 80,593
CASH FLOW DATA:
Cash provided by operating
activities..................... $ 6,841 $ 3,931 $ 11,670 $ 8,423 $ 12,369 $ 5,089 $ 4,586
Cash provided by (used in)
investing activities........... (58,897) 27,479 (10,754) 24,275 (5,034) (4,194) (60,589)
Cash provided by (used in)
financing activities........... 31,680 (10,025) (5,827) (42,331) 86 (717) 34,379
OTHER DATA:
Funds from operations(a)......... $ 8,089 $ 7,307 $ 9,673 $ 14,440 $ 13,358 $ 7,233 $ 5,945
Weighted average common shares
and OP Units outstanding(b).... 6,540 5,254 4,919 4,856 2,910 6,563 6,528
Dividends/Distributions paid to
stockholders/OP Unitholders.... $ 4,916 $ 7,749 $ 9,128 $ 8,255 $ 4,959 $ 4,933 $ 3,275
Ratio of earnings to fixed
charges........................ 1.1 20.5 110.9 230.2 91.3 1.7 0.8
</TABLE>
13
<PAGE> 21
- ---------------
(a) Asset Investors management believes that the presentation of funds from
operations, when considered with the financial data determined in
accordance with generally accepted accounting principles, provides a useful
measure of Asset Investors' performance. However, funds from operations
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to Asset Investors, nor should it be considered as
an alternative to net income as an indicator of operating performance. The
Board of Governors of the National Association of Real Estate Investment
Trusts defines funds from operations as net income (loss), computed in
accordance with generally accepted accounting principles, excluding gains
and losses from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures. Asset Investors calculates funds from operations beginning with
the Board of Governors of the National Association of Real Estate
Investment Trusts definition and includes adjustments for:
- the minority interest in the Operating Partnership;
- costs incurred to become self-managed;
- amortization of property and investment management contracts; and
- nonrecurring income, net.
Asset Investors' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Asset Investors' ability to make required dividend
payments, capital expenditures and principal payments on its debt. Since
funds from operations excludes unusual and nonrecurring expenses as well as
depreciation and other real estate related expenses, funds from operations
may be materially different from net income. Therefore, funds from
operations should not be considered as an alternative to net income or net
cash flows from operating activities, as calculated in accordance with
generally accepted accounting principles, as an indication of Asset
Investors' operating performance or liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Asset Investors' cash needs, including its ability to make
distributions. Asset Investors uses funds from operations in measuring its
operating performance because it believes that the items that result in a
difference between funds from operations and net income do not impact the
ongoing operating performance of a real estate company. Also, Asset
Investors believes that other real estate companies, analysts and investors
utilize funds from operations in analyzing the results of real estate
companies. Asset Investors' basis of computing funds from operations is not
necessarily comparable with that of other REITs.
14
<PAGE> 22
The following is a reconciliation of income (loss) before minority interest
in Operating Partnership to funds from operations (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ---------------
1998 1997 1996 1995 1994 1999 1998
------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
minority interest in
Operating Partnership..... $ 272 $ 7,192 $ 9,673 $14,440 $13,358 $2,163 $ (250)
Gain on sale of bonds....... -- (6,484) -- -- -- -- --
Real estate depreciation,
including joint
ventures.................. 2,685 848 -- -- -- 2,827 1,762
Amortization of management
contracts................. 2,894 744 -- -- -- 2,067 2,205
Costs incurred to acquire
management contract....... 2,092 6,553 -- -- -- -- 2,092
Nonrecurring income, net.... -- -- -- -- (33) --
Equity in Commercial Assets'
adjustments for funds from
operations................ 146 (1,546) -- -- -- 209 136
------ ------- ------- ------- ------- ------ ------
Funds from operations....... $8,089 $ 7,307 $ 9,673 $14,440 $13,358 $7,233 $5,945
====== ======= ======= ======= ======= ====== ======
</TABLE>
(b) Generally, after a one-year holding period, Asset Investors Operating
Partnership units may be tendered for redemption at the option of the
holder and, upon tender, may be acquired by Asset Investors for shares of
Asset Investors' common stock at an exchange ratio of one share of Asset
Investors' common stock for each Asset Investors Operating Partnership
unit, subject to adjustment.
15
<PAGE> 23
SUMMARY HISTORICAL FINANCIAL INFORMATION OF COMMERCIAL ASSETS
The following table sets forth summary historical financial and operating
information for Commercial Assets. The summary historical financial information
for the years ended December 31, 1998, 1997 and 1996 is based on the audited
financial statements of Commercial Assets incorporated by reference in this
Joint Proxy Statement/Prospectus. The summary historical financial information
for the years ended December 31, 1995 and 1994 is based on the audited financial
statements of Commercial Assets. The summary historical financial information
for the nine months ended September 30, 1999 and 1998 is based on the unaudited
financial statements of Commercial Assets incorporated by reference in this
Joint Proxy Statement/Prospectus. The following information should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMERCIAL ASSETS" and the historical financial
statements and notes of Commercial Assets included or incorporated by reference
in this Joint Proxy Statement/Prospectus (in thousands, except per share data).
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property operations.......... $ 537 $ -- $ -- $ -- $ -- $ 1,639 $ 147
Commercial mortgage backed securities bonds
revenues...................................... 161 9,172 9,838 8,980 5,938 115 124
Interest and other income....................... 3,874 945 319 189 1,126 1,570 3,107
Gain on sale of bonds........................... -- 5,786 -- -- -- -- --
Net income...................................... 3,441 13,706 6,959 6,376 4,927 2,124 2,474
PER SHARE DATA:
Basic and diluted earnings...................... $ 0.33 $ 1.32 $ 0.68 $ 0.63 $ 0.49 $ 0.20 $ 0.24
Dividends paid.................................. $ 0.39 $ 1.11 $ 0.72 $ 0.68 $ 0.53 $ 0.39 $ 0.26
Weighted average common shares outstanding...... 10,357 10,332 10,247 10,104 10,047 10,350 10,355
Weighted average common shares and common share
equivalents outstanding....................... 10,372 10,371 10,254 10,108 10,048 10,350 10,378
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated depreciation.... $ 12,678 $ -- $ -- $ -- $ -- $64,089 $ 1,368
Investments in participating mortgages and joint
ventures...................................... 10,608 -- -- -- -- 3,255 8,146
Cash equivalents and short-term investments..... 48,358 74,153 8,277 598 12,367 18,410 62,205
Commercial mortgage backed securities bonds..... 1,739 1,981 61,460 69,503 74,046 1,714 1,795
Total assets.................................... 78,234 78,148 72,406 71,590 87,604 95,953 78,252
Secured notes payable........................... -- -- -- -- 10,295 18,340 --
Stockholders' equity............................ 77,254 77,705 71,919 70,465 74,672 75,032 77,634
CASH FLOW DATA:
Cash provided by operating activities........... $ 3,705 $ 4,428 $ 5,920 $ 6,151 $ 4,432 $ 2,671 $ 2,479
Cash provided by (used in) investing
activities.................................... (70,524) 72,892 9,857 554 (65,347) (6,207) (71,296)
Cash provided by (used in) financing
activities.................................... (4,042) (11,444) (8,098) (18,474) 6,980 5,320 (2,695)
OTHER DATA:
Funds from operations(a)........................ $ 4,115 $ 7,920 $ 6,959 $ 6,376 $ 4,927 $ 3,150 $ 3,039
Weighted average common shares outstanding...... 10,357 10,332 10,247 10,104 10,047 10,350 10,355
Dividends paid to stockholders.................. $ 4,042 $ 11,475 $ 7,398 $ 6,868 $ 5,326 $ 4,049 $ 2,695
Ratio of earnings to fixed charges.............. N/A N/A 3,481.5 26.6 16.5 7.0 N/A
</TABLE>
- ---------------
(a) Commercial Assets management believes that the presentation of funds from
operations, when considered with the financial data determined in
accordance with generally accepted accounting principles, provides a useful
measure of Commercial Assets' performance. However, funds from operations
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to Commercial Assets, nor should it be considered as
an alternative to net income as an indicator of operating performance.
Commercial Assets calculates funds from operations beginning
16
<PAGE> 24
with the Board of Governors of the National Association of Real Estate
Investment Trusts definition and includes adjustments for:
- property acquisition fees paid to Asset Investors which were expensed
under generally accepted accounting principles because Asset Investors
is an affiliate; and
- nonrecurring costs related to abandonment of potential marina
investments.
Commercial Assets' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Commercial Assets' ability to make required dividend
payments, capital expenditures and principal payments on its debt. Since
funds from operations excludes unusual and nonrecurring expenses as well as
depreciation and other real estate related expenses, funds from operations
may be materially different from net income. Therefore, funds from
operations should not be considered as an alternative to net income or net
cash flows from operating activities, as calculated in accordance with
generally accepted accounting principles, as an indication of Commercial
Assets' operating performance or liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Commercial Assets' cash needs, including its ability to make
distributions. Commercial Assets uses funds from operations in measuring
its operating performance because it believes that the items that result in
a difference between funds from operations and net income do not impact the
ongoing operating performance of a real estate company. Also, Commercial
Assets believes that other real estate companies, analysts and investors
utilize funds from operations in analyzing the results of real estate
companies. Commercial Assets' basis of computing funds from operations is
not necessarily comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------
1998 1997 1996 1995 1994 1999 1998
------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income..................................... $3,441 $13,706 $6,959 $6,376 $4,927 $2,124 $2,474
Gain on sale of bonds.......................... -- (5,786) -- -- -- -- --
Real estate depreciation....................... 50 -- -- -- -- 786 4
Real estate acquisition fees................... 124 -- -- -- -- 197 61
Costs related to abandonment of potential
marina investments........................... 500 -- -- -- -- -- 500
Equity in Asset Investors' adjustments for
funds from operations........................ -- -- -- -- -- 43 --
------ ------- ------ ------ ------ ------ ------
Funds from operations.......................... $4,115 $ 7,920 $6,959 $6,376 $4,927 $3,150 $3,039
====== ======= ====== ====== ====== ====== ======
</TABLE>
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary pro forma financial and operating
information of Asset Investors for the year ended December 31, 1998 and the nine
months ended September 30, 1999 giving effect to the merger and a number of
transactions completed by Asset Investors and Commercial Assets prior to the
merger. The All Shares pro forma financial and operating information assumes
that all Commercial Assets stockholders elect to receive shares of Asset
Investors' common stock in exchange for their shares of Commercial Assets'
common stock at an exchange ratio of 0.4075 share of Asset Investors' common
stock for one share of Commercial Assets' common stock. The Shares and Cash pro
forma financial and operating information assumes that Commercial Assets
stockholders elect to receive cash of $5.75 per share for 3,549,868 shares of
Commercial Assets' common stock, the maximum number of shares which will be
purchased for cash, and the remaining shares of Commercial Assets' common stock
are exchanged for shares of Asset Investors' common stock at an exchange ratio
of 0.4075 share of Asset Investors' common stock for one share of Commercial
Assets' common stock. The pro forma financial and
17
<PAGE> 25
operating information set forth below should be read in conjunction with, and is
qualified in its entirety by, the historical and pro forma financial statements
and notes of each of the following:
- Asset Investors;
- Commercial Assets;
- the Salem Farms and Mullica Woods manufactured home communities (as
defined in Note 1 of such financial statements included in Amendment No.
1 to Asset Investors' Current Report on Form 8-K, dated February 28,
1998);
- the Serendipity and Brentwood West manufactured home communities (as
defined in Note 1 of such financial statements included in Amendment No.
1 to Asset Investors' Current Report on Form 8-K, dated May 29, 1998);
- the Gulfstream Harbor manufactured home communities (as defined in Note 1
of such financial statements included in Amendment No. 1 to Asset
Investors' Current Report on Form 8-K, dated July 16, 1998);
- the Moorings of Manatee manufactured home community (as defined in Note 1
to Commercial Assets' Current Report on Form 8-K, dated November 20,
1998);
- the Lakeshore Villas manufactured home community (as defined in Note 1 of
such financial statements included in Amendment No. 1 to Commercial
Assets' Current Report on Form 8-K, dated March 31, 1999);
- the Rancho Mirage manufactured home community (as defined in Note 1 to
Commercial Assets' Current Report on Form 8-K, dated May 7, 1999);
- the La Casa Blanca manufactured home communities (as defined in Note 1 to
Commercial Assets' Current Report on Form 8-K, dated June 30, 1999);
- the Fiesta Village manufactured home communities (as defined in Note 1 of
such financial statements included in Amendment No. 1 to Commercial
Assets' Current Report on Form 8-K, dated August 13, 1999); and
- the Community Acquisition and Development Corporation manufactured home
communities (as defined in Note 1 of such financial statements included
in Amendment No. 1 to Asset Investors' Current Report on Form 8-K dated
January 31, 2000).
See "PRO FORMA FINANCIAL INFORMATION -- Pro Forma Financial Information of
Asset Investors."
18
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------------- ---------------------
ALL SHARES ALL SHARES
SHARES AND CASH SHARES AND CASH
---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property operations......... $ 7,246 $ 7,246 $ 6,527 $ 6,527
Income (loss) before minority interest in
Operating Partnership....................... 767 (468) 2,894 2,007
Net income (loss).............................. 648 (382) 2,572 1,745
PER SHARE DATA:
Basic and diluted earnings (loss).............. $ 0.08 $ (0.06) $ 0.30 $ 0.24
Weighted average common shares outstanding..... 8,194 6,747 8,627 7,180
Weighted average common shares and common share
equivalents outstanding..................... 8,213 6,766 8,634 7,187
CASH FLOW DATA:
Cash provided by operating activities(a)....... $ 9,391 $ 8,156 $ 7,495 $ 6,608
Cash used in investing activities(b)........... (133,050) (119,716) (13,306) (13,306)
Cash provided by financing activities(c)....... 28,457 14,530 5,819 6,905
OTHER DATA:
Funds from operations(d)....................... $ 9,847 $ 8,612 $ 7,745 $ 6,858
Weighted average common shares and Asset
Investors OP Units outstanding(e)........... 9,704 8,257 9,708 8,261
Weighted average common shares, common share
equivalents and Asset Investors OP Units
outstanding(e).............................. 9,723 8,276 9,715 8,268
Dividends/Distributions paid to Stockholders/
OP Unitholders.............................. $ 7,278 $ 6,193 $ 7,281 $ 6,196
Ratio of earnings to fixed charges............. 0.7 0.5 1.2 1.0
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
----------------------
ALL SHARES
SHARES AND CASH
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation.............. $198,599 $198,599
Investments in participating mortgages and joint
ventures............................................... 1,083 1,083
Cash, cash equivalents and short-term investments......... 15,304 292
Total assets.............................................. 227,939 212,927
Total secured notes payable............................... 82,044 87,444
Minority interest in Operating Partnership................ 16,392 16,392
Stockholders' equity...................................... 121,541 101,129
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents pro forma net
income with adjustments for:
- pro forma depreciation, amortization and costs incurred to become
self-managed,
- pro forma minority interest in Operating Partnership,
- pro forma accrued income on participating mortgages and commercial
mortgage backed security bonds, and
- historical changes in other assets and accounts payable and accrued
liabilities of Asset Investors and Commercial Assets.
(b) Pro forma cash used in investing activities represents historical amounts
of Asset Investors and Commercial Assets with the following adjustments:
- the elimination of historical dividends received by Asset Investors
from Commercial Assets; and
19
<PAGE> 27
- pro forma capital replacements and improvements including the minimum
annual provision for capital replacements of $50 per developed
homesite.
Shares and Cash pro forma cash used in investing activities also includes
$13,334 proceeds from the sale of short-term investments in 1998.
(c) Pro forma cash provided by financing activities represents historical
amounts of Asset Investors and Commercial Assets with the following
adjustments:
- the elimination of historical dividends and distributions paid by Asset
Investors and Commercial Assets;
- the inclusion of Asset Investors' pro forma dividends and distributions
based on its historical dividend rates and pro forma outstanding shares
and Asset Investors Operating Partnership units; and
- pro forma principal paydowns on secured long-term notes payable.
Shares and Cash pro forma provided by financing activities also includes
the purchase and cancellation of 3,550 shares of Commercial Assets' common
stock in 1998 by using:
- $1,678 of cash and cash equivalents;
- proceeds from the sale of $13,334 of short-term investments; and
- proceeds from $5,400 of additional long-term secured notes payable.
(d) Asset Investors management believes that the presentation of funds from
operations, when considered with the financial data determined in
accordance with generally accepted accounting principles, provides a useful
measure of Asset Investors' performance. However, funds from operations
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to Asset Investors, nor should it be considered as
an alternative to net income as an indicator of operating performance. The
Board of Governors of the National Association of Real Estate Investment
Trusts defines funds from operations as net income (loss), computed in
accordance with generally accepted accounting principles, excluding gains
and losses from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures. Asset Investors calculates funds from operations beginning with
the Board of Governors of the National Association of Real Estate
Investment Trusts definition and includes adjustments for:
- minority interest in the Operating Partnership;
- amortization of property and investment management contracts;
- costs incurred to become self-managed;
- nonrecurring income, net; and
- nonrecurring costs related to abandonment of potential marina
investments.
Asset Investors' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Asset Investors' ability to make required dividend
payments, capital expenditures and principal payments on its debt. Since
funds from operations excludes unusual and nonrecurring expenses as well as
depreciation and other real estate related expenses, funds from operations
may be materially different from net income. Therefore, funds from
operations should not be considered as an alternative to net income or net
cash flows from operating activities, as calculated in accordance with
generally accepted accounting principles, as an indication of Asset
Investors' operating performance or liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Asset Investors' cash needs, including its ability to make
distributions. Asset Investors uses funds from operations in measuring its
operating performance because it believes that the items that result in a
difference between funds from operations and net income do not impact the
ongoing operating performance of a real estate company. Also, Asset
Investors believes that other real estate companies, analysts and investors
utilize funds from operations in analyzing the results of real estate
companies. Asset
20
<PAGE> 28
Investors' basis of computing funds from operations is not necessarily
comparable with that of other REITs.
The following is a reconciliation of pro forma income (loss) before
minority interest in Operating Partnership to pro forma funds from
operations:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------------- -----------------
ALL SHARES ALL SHARES
SHARES AND CASH SHARES AND CASH
------ -------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) before minority interest in Operating
Partnership........................................ $ 767 $ (468) $2,894 $2,007
Real estate depreciation............................. 5,573 5,573 4,301 4,301
Amortization of management contracts................. 915 915 583 583
Costs incurred to become self-managed................ 2,092 2,092 -- --
Nonrecurring income, net............................. -- -- (33) (33)
Costs related to abandonment of potential marina
investments........................................ 500 500 -- --
------ ------ ------ ------
Funds from operations................................ $9,847 $8,612 $7,745 $6,858
====== ====== ====== ======
</TABLE>
(e) Generally, after a one year holding period, Asset Investors Operating
Partnership units may be tendered for redemption at the option of the
holder and, upon tender, may be acquired by Asset Investors for shares of
Asset Investors common stock at an exchange ratio of one share of Asset
Investors' common stock for each Asset Investors Operating Partnership
unit, subject to adjustment.
21
<PAGE> 29
COMPARATIVE STOCK PRICES AND DIVIDENDS
Asset Investors' common stock is listed and traded on the New York Stock
Exchange under the symbol "AIC." Commercial Assets' common stock is listed and
traded on the American Stock Exchange under the symbol "CAX." The following
table sets forth, for the periods indicated, the high and low reported sales
prices per share of Asset Investors' common stock and Commercial Assets' common
stock, as reported on the New York Stock Exchange Composite Tape and the
American Stock Exchange Composite Tape, respectively, and dividends declared on
Asset Investors' common stock and Commercial Assets' common stock for the same
periods. On , 2000, there were shares of Commercial Assets'
common stock outstanding.
<TABLE>
<CAPTION>
ASSET INVESTORS' COMMERCIAL ASSETS'
COMMON STOCK COMMON STOCK
----------------------------- -----------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.............................. $21 1/4 $16 1/4 $.475 $ 7 $6 3/8 $.17
Second Quarter............................. 18 1/8 16 1/4 .30 6 11/16 6 3/16 .17
Third Quarter.............................. 21 7/8 16 7/8 .325 7 3/16 6 5/8 .17
Fourth Quarter............................. 22 1/2 17 .35 7 11/16 6 9/16 .60
1998
First Quarter.............................. $20 7/8 $16 $ -- $ 7 $6 7/16 $ --
Second Quarter............................. 19 5/16 15 7/8 .25 7 6 1/4 .13
Third Quarter.............................. 17 5/16 13 5/16 .25 6 7/8 5 9/16 .13
Fourth Quarter............................. 14 15/16 12 1/8 .25 6 1/4 5 1/8 .13
1999
First Quarter.............................. $15 1/16 $12 $.25 $ 6 1/16 $4 15/16 $.13
Second Quarter............................. 15 5/16 12 1/16 .25 5 13/16 4 7/8 .13
Third Quarter.............................. 14 15/16 12 1/2 .25 5 11/16 4 15/16 .13
Fourth Quarter............................. 13 5/16 10 11/16 .25 5 3/8 4 1/8 .13
2000
First Quarter (through March , 2000)..... $11 7/16 $11 $ -- $ 4 15/16 $4 1/2 $ --
</TABLE>
Set forth below is a table containing, for August 31, 1999, the last
trading day before the announcement that Asset Investors and Commercial Assets
had entered into the merger agreement, for March , 2000, the last trading day
before the announcement that Asset Investors and Commercial Assets had entered
into the amended and restated merger agreement, and , 2000, the most
recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the last reported sale price per share of Asset Investors'
common stock and Commercial Assets' common stock, as reported on the New York
Stock Exchange Composite Tape and American Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
AUGUST 31, 1999 MARCH , 2000 , 2000
--------------- -------------- ----------------
<S> <C> <C> <C>
Asset Investors........................... $13.625 $
Commercial Assets......................... $ 5.625 $
</TABLE>
Because Asset Investors and Commercial Assets have elected to be taxed for
Federal income tax purposes as REITs, they are required to distribute annually
to their stockholders at least 95% (90% after 2000) of their "real estate
investment trust taxable income," which, as defined by the Internal Revenue Code
of 1986, as amended, and the Treasury regulations promulgated under the Internal
Revenue Code, is generally equivalent to net taxable ordinary income. Each of
Asset Investors and Commercial Assets measures its economic profitability and
pays regular dividends to its stockholders based on its operating results during
the relevant period. The future payment of dividends by Asset Investors and
Commercial Assets will be at the discretion of their boards of directors and
will depend on numerous factors, including financial condition, capital
requirements, the annual distribution requirements under the provisions of the
Internal Revenue Code applicable to REITs and other factors that the boards of
directors deem relevant.
22
<PAGE> 30
RISK FACTORS
In addition to the other information included in this Joint Proxy
Statement/Prospectus, holders of Commercial Assets' common stock and holders of
Asset Investors' common stock should consider carefully the risk factors
described below.
RISK FACTORS RELATING TO THE MERGER
SOME OF THE DIRECTORS AND EXECUTIVE OFFICERS OF COMMERCIAL ASSETS HAVE A
CONFLICT OF INTEREST IN CONSIDERING THE MERGER
In considering the recommendation of the board of directors of Commercial
Assets, Commercial Assets stockholders should be aware that members of the board
of directors of Commercial Assets are also members of the board of directors of
Asset Investors and own stock in Asset Investors. In addition, all of the
executive officers of Commercial Assets are also executive officers of Asset
Investors. Persons who are members of the boards of directors of both companies,
own stock in both companies, or who hold executive offices in both companies,
have interests that differ from the interests of Commercial Assets stockholders
generally. Terry Considine, Thomas L. Rhodes, Bruce E. Moore and Bruce D. Benson
are directors of both companies and, with the exception of Mr. Moore, each owns
stock in Commercial Assets. In addition, Messrs. Considine, Rhodes and Moore are
executive officers of both companies. In their capacities as directors and/or
executive officers of Asset Investors, each of these persons has a fiduciary
duty to represent the best interests of the Asset Investors stockholders. To
mitigate these conflicts of interest, the board of directors of Commercial
Assets assigned the task of considering and approving the merger and
recommending that stockholders adopt the merger agreement to its special
committee of independent directors. See "MEMBERS OF MANAGEMENT HAVE INTERESTS
THAT ARE DIFFERENT FROM YOURS."
THE FAIRNESS OPINION DOES NOT ADDRESS THE FAIRNESS OF THE CASH CONSIDERATION
BEING OFFERED TO COMMERCIAL ASSETS STOCKHOLDERS
Stockholders should bear in mind that the fairness opinion of Jefferies &
Company does not apply to any stockholder who elects to receive cash in the
merger. The fairness opinion only addressed the fairness, from a financial point
of view, of the exchange ratio of .4075 shares of Asset Investors' common stock
per share of Commercial Assets' common stock. Furthermore, neither the
Commercial Assets board of directors nor the special committee makes any
recommendation with respect to stockholders who elect to receive cash for their
shares of Commercial Assets' common stock in the merger.
THE FAIRNESS OPINION DOES NOT ADDRESS CHANGES IN THE RELATIVE VALUE OF THE
COMPANIES SINCE THE DATE OF THE ORIGINAL MERGER AGREEMENT
The fairness opinion obtained by the Commercial Assets special committee is
dated as of August 31, 1999 and speaks only as of that date. The Commercial
Assets special committee does not presently intend to obtain an updated fairness
opinion of Jefferies & Company. Changes in the operations and prospects of
Commercial Assets or Asset Investors, including but not limited to, by virtue of
the inclusion of the cash election feature, general market and economic
conditions and other factors on which the opinion of Jefferies & Company is
based, may alter the relative value of the companies. Therefore, the opinion of
Jefferies & Company may not accurately address the fairness of the merger
consideration to be received by Commercial Assets' stockholders, other than
Asset Investors and its affiliates, at the time the merger is completed.
IF YOU ELECT TO RECEIVE CASH, YOU MAY NOT RECEIVE THE TYPE OF CONSIDERATION
SPECIFIED IN YOUR ELECTION
The election of record holders of Commercial Assets' common stock to
receive $5.75 in cash per share is subject to proration procedures. The total
amount of cash available for issuance to Commercial Assets stockholders, other
than Asset Investors and the officers and directors of Asset Investors and
Commercial Assets, is $20,411,741. If the merger is consummated and you elected
to receive cash, you
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will not necessarily receive the type of consideration specified in your
election. For example, if all Commercial Assets stockholders elect to receive
cash for their shares in the merger, each stockholder, other than Asset
Investors and the officers and directors of Asset Investors and Commercial
Assets, would receive $2.89 in cash and 0.2029 shares of Asset Investors' common
stock for each share of Commercial Assets' common stock for which they elected
to receive cash. In addition, in order to maintain the tax-free status of the
merger to Commercial Assets stockholders that elect stock, we must limit the
total cash paid to stockholders. Accordingly, if the total cash paid in the
merger, including cash paid in lieu of fractional shares and cash paid to
plaintiffs' attorneys in connection with the settlement, exceeds 57.5% of the
value of the total merger consideration, the amount of cash available to
electing stockholders will be reduced accordingly. All stockholders who elect to
receive shares of Asset Investors' common stock in the merger will receive the
full amount of their election. See "DESCRIPTION OF THE MERGER CONSIDERATION AND
CASH ELECTION."
NEITHER THE COMMERCIAL ASSETS BOARD OF DIRECTORS NOR THE SPECIAL COMMITTEE HAS
MADE ANY RECOMMENDATION AS TO WHETHER OR NOT COMMERCIAL ASSETS STOCKHOLDERS
SHOULD ELECT CASH
The Commercial Assets special committee has not made any recommendation as
to whether or not stockholders of Commercial Assets should elect to receive cash
in the merger. Similarly, the full board of directors of Commercial Assets, in
agreeing to amend the merger agreement to provide a cash option, did not make
any recommendation as to whether or not stockholders should elect to receive
cash or shares of Asset Investors' common stock.
DILUTION OF THE ASSET INVESTORS' COMMON STOCK THROUGH THE ISSUANCE OF SHARES IN
THE MERGER
The shares of Asset Investors' common stock to be issued to Commercial
Assets stockholders, other than Asset Investors, in the merger are expected to
represent 36.2% of the total number of shares of Asset Investors' common stock
outstanding immediately after the merger. Accordingly, the merger will have the
effect of reducing the ownership interest and the percentage voting interest in
Asset Investors represented by a share of Asset Investors' common stock
immediately prior to the merger. Based on the historical earnings of the
companies, elimination of duplicate expenses totalling approximately $400,000
per year, and assuming that the combined company makes no future acquisitions of
manufactured home communities, we expect the merger to be dilutive, on a
quarterly basis, by approximately $0.04 per share to funds from operations until
the combined company is fully invested in manufactured home communities. See
"PRO FORMA FINANCIAL INFORMATION."
ASSET INVESTORS PAYS A LOWER DIVIDEND THAN COMMERCIAL ASSETS
In deciding whether or not to approve the merger, stockholders of
Commercial Assets should bear in mind that Asset Investors pays a lower dividend
on its common stock than Commercial Assets. Assuming that the merger was
completed on January 1, 1999 and that Asset Investors made no change to its
dividend, as of September 30, 1999, Commercial Assets stockholders would have
received $.31 per share of Commercial Assets' common stock held before the
merger rather than the $.39 per share actually paid to Commercial Assets
stockholders in this period. Had the merger been completed on January 1, 1998
and Asset Investors made no change to its dividend, Commercial Assets
stockholders would have received aggregate distributions of $0.61 per share
through September 30, 1999, instead of the $0.78 per share actually received by
Commercial Assets stockholders during this period. Finally, stockholders of
Asset Investors and Commercial Assets should bear in mind that the board of
directors of Asset Investors determines dividends on a quarterly basis. Unlike
other REITs, Asset Investors is not currently required to make distributions to
maintain its REIT status because Asset Investors has a net operating loss of
approximately $95 million which may be used to offset its taxable income.
However, the ability to utilize net operating losses would be limited in the
event that Asset Investors undergoes an "ownership change." An "ownership
change" generally occurs if one or more large stockholders increase their
aggregate percentage interest in Asset Investors by more than 50 percentage
points over a three-year period. See "FEDERAL INCOME TAXATION OF ASSET INVESTORS
AND ITS STOCKHOLDERS --
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Taxation of Asset Investors -- Loss Carryovers." Based upon available records of
stock ownership, Asset Investors believes that an ownership change has not
occurred in the past, and it anticipates that an ownership change will not
result from the merger. If the proposed amendment to Asset Investors'
certificate of incorporation is approved, Asset Investors' certificate of
incorporation will include stockholder restrictions that are designed to prevent
the unintended occurrence of an ownership change. Nevertheless, no assurance can
be given that an ownership change will not have occurred prior to or in
connection with the merger, and investors are cautioned that Asset Investors'
net operating losses may not be available in their entirety and without
limitation. Although no decision has been made with respect to future dividends,
there can be no assurance that the dividend currently paid on Asset Investors'
common stock will not be reduced.
THE MERGER CONSIDERATION IS FIXED DESPITE POTENTIAL CHANGES IN RELATIVE STOCK
PRICES
Upon completion of the merger, each share of Commercial Assets' common
stock will be converted into the right to receive either .4075 shares of Asset
Investors' common stock or $5.75 in cash, subject to proration. Neither the
exchange ratio relating to the stock election nor the cash election amount will
be adjusted in the event of any increase or decrease in the price of Asset
Investors' or Commercial Assets' common stock. The prices of Asset Investors' or
Commercial Assets' common stock when the merger takes place may be different
than their prices at the date of this Joint Proxy Statement/Prospectus and at
the date of the stockholders meetings. See "SUMMARY -- Comparative Per Share
Information." These differences may be the result of changes in the business,
operations or prospects of Asset Investors and Commercial Assets, market
assessments of the likelihood and timing of the merger, general market and
economic conditions and other factors. At the time of their meeting, Commercial
Assets' stockholders that elect to receive stock in the merger will not know the
exact value of the Asset Investors' common stock that they will receive when the
merger is completed. You are urged to obtain current market quotations for Asset
Investors and Commercial Assets.
RISK FACTORS RELATING TO THE BUSINESS OF THE COMBINED COMPANY
STOCKHOLDERS WILL BE RESTRICTED FROM OWNING MORE THAN 5% OF THE OUTSTANDING
SHARES OF THE COMBINED COMPANY'S COMMON STOCK
Asset Investors' certificate of incorporation places limitations on the
ownership of its common stock. If the merger is completed, the limitations on
ownership of our common stock will become more restrictive. You should carefully
read "DESCRIPTION OF THE MERGER PROPOSAL."
The Asset Investors' certificate of incorporation currently limits direct
or indirect ownership of its common stock by any single stockholder to 9.8% of
the outstanding shares unless the board of directors grants an exemption to a
stockholder. If the merger is approved, this ownership limit will be reduced to
5%. The certificate of incorporation also prohibits anyone from buying shares if
the purchase would result in Asset Investors losing its REIT status. This could
happen if a share transaction results in fewer than 100 persons owning all of
our shares or if five or fewer persons, applying broad attribution rules of the
Internal Revenue Code, own 50% or more of our shares. After the merger, if you
acquire shares in violation of the ownership requirements of the Internal
Revenue Code for REITs, the shares of Asset Investors' stock which caused you to
be in violation of the ownership requirements would be automatically transferred
to a trust for the benefit of a charitable beneficiary and you will be deemed to
never have had an interest in such shares. The trust will sell such shares,
within a designated period, at which time you will receive the lesser of the
price you paid for the shares or the price received by the trustee upon the
sale. If the transfer to the trust should not be effective for any reason, the
transaction, such as a purchase of shares, would be treated as void and you, the
intended owner, would acquire no rights to those shares.
ASSET INVESTORS' CERTIFICATE OF INCORPORATION CONTAINS ANTI-TAKEOVER PROVISIONS
WHICH MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE CONTROL AND MAY PREVENT
STOCKHOLDERS FROM RECEIVING A PREMIUM FOR THEIR SHARES
Ownership limit. The current 9.8% ownership limit, or the 5% ownership
limit that would be applicable following the merger, may have the effect of
precluding acquisition of control of Asset Investors
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by a third party without the consent of its board of directors. Following the
merger, direct or constructive ownership of shares of stock would be limited in
the following situations, subject to the power reserved by the board of
directors to grant specific exemptions:
- if the ownership by any person would exceed 5.0% of the shares of any
class of Asset Investors' stock;
- if Asset Investors would otherwise fail to satisfy either of the
stockholder requirements for REIT qualification as described above;
- if Asset Investors would otherwise undergo an ownership change that would
limit the availability of its net operating losses; and
- if ownership by any person or persons would cause Asset Investors to
receive income of a nature that would prevent it from satisfying the
gross income requirements that apply to REITs, for example, if the
ownership causes Asset Investors to receive, from a related party, rental
income that does not qualify for purposes of the gross income
requirements.
In the event of a violation of the ownership limitations described above,
the shares of Asset Investors' common stock in excess of the ownership limit
would be automatically transferred to a trust for the benefit of a charitable
beneficiary, and the intended owner would acquire no rights in those shares. If
the transfer of Asset Investors' common stock to a trust in the manner described
in the preceding sentence is ineffective for any reason, the certificate of
incorporation would further provide that the transaction, such as a purchase of
shares, which would otherwise cause the violation of an ownership limitation, is
void, and the intended owner would acquire no rights in those shares.
Preferred stock. Asset Investors' certificate of incorporation authorizes
its board of directors to issue up to 15,000,000 shares of preferred stock.
Under the Asset Investors' certificate of incorporation, the board of directors
has the authority to classify, reclassify and issue shares of preferred stock,
including the determination of the preferences, rights, powers and restrictions
of the preferred stock. Although the board of directors of Asset Investors has
no present intention to issue preferred stock, the authorization and issuance of
preferred stock could have the effect of delaying or preventing someone from
taking control of Asset Investors, even if a change of control were in
stockholders' best interests.
THERE ARE NUMEROUS RISKS ASSOCIATED WITH OUR ACQUISITION ACTIVITIES
The selective acquisition of manufactured home communities is one component
of our growth strategy. However, we may be unable to identify suitable
manufactured home communities for acquisition or complete transactions in the
future. In addition, the acquisition of manufactured home communities is subject
to the risks that:
- we may be unable to obtain acquisition financing on satisfactory terms or
at all, in which case we may be unable to sufficiently leverage our
capital to achieve our desired results of operations;
- once acquired, these manufactured home communities may not perform as
projected, and we may be unable to realize projected occupancy and rental
rates, in which case these acquisitions may adversely affect our cash
flow, net income and funds from operations;
- we may assume liabilities in connection with these manufactured home
communities for which adequate indemnification from the seller or our
insurance carriers may not be available; and
- we may be unable to successfully integrate the personnel and operations
of the acquired business, in which case we may be unable to effectively
operate the manufactured home communities, which may, in turn, adversely
affect our returns.
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THERE ARE NUMEROUS RISKS ASSOCIATED WITH OUR DEVELOPMENT ACTIVITIES
The development and expansion of manufactured home communities is one
component of our growth strategy. When we develop or expand properties, we are
subject to the risks that:
- costs may exceed original estimates;
- we may be unable to obtain construction financing on satisfactory terms
or at all, in which case we may be unable to develop or expand our
properties to achieve our growth objectives;
- construction and lease-up may not be completed on schedule, which may
adversely affect our cash flow, net income and funds from operations; and
- we may experience difficulties or delays in obtaining necessary zoning,
land-use, building, occupancy or other governmental permits and
authorizations, which may adversely affect our desired growth rate, cash
flow, net income and funds from operations.
OUR DEBT SERVICE OBLIGATIONS MAY LEAVE US WITH INSUFFICIENT CASH RESOURCES TO
MEET OUR OTHER WORKING CAPITAL AND DISTRIBUTION NEEDS
The combined company's strategy will generally be to incur debt to increase
the return on its equity. The Asset Investors' and Commercial Assets'
organizational documents do not, and the combined company's organizational
documents will not limit the amount of debt that may be incurred. As part of its
strategy, the combined company intends to utilize long-term, fixed-rate, fully
amortizing debt. Payments of principal and interest may leave the combined
company with insufficient cash resources to operate its properties or pay
distributions required to be paid in order to maintain its qualification as a
REIT. The combined company will also be subject to the risk that its cash flow
from operations will be insufficient to make required payments of principal and
interest, and the risk that existing indebtedness will not be refinanced or that
the terms of any refinancing will not be as favorable as the terms of existing
indebtedness. If the combined company fails to make required payments of
principal and interest on any debt, its lenders could foreclose on the
properties securing the debt with a resulting loss of income and asset value to
the combined company. Our aggregate debt as of September 30, 1999 totalled
$73,796,000. Our pro forma debt to equity ratio at September 30, 1999 would be
0.60:1.00. Our pro forma ratio of earnings to fixed charges for the nine months
ended September 30, 1999 would be 2.35:1.00. At September 30, 1999, 90% of our
aggregate debt was fixed rate.
INCREASES IN INTEREST RATES MAY INCREASE THE COMBINED COMPANY'S INTEREST EXPENSE
From time to time the combined company may incur debt that is subject to
variable interest rates. An increase in interest rates could increase the
combined company's interest expense and adversely affect its cash flow and its
ability to service its indebtedness and make distributions. At September 30,
1999, 10.0% of our aggregate debt was variable rate. The base rate for
substantially all of our variable rate debt is the 30-day London Interbank
Offered Rate.
THE COMBINED COMPANY'S REAL ESTATE INVESTMENTS WILL BE SUBJECT TO NUMEROUS RISKS
THAT ARE BEYOND OUR CONTROL
The combined company's ability to make payments to its investors will
depend on its ability to generate cash from operations in excess of required
debt payments and capital expenditures. The combined company's cash from
operations and the value of its properties may be adversely affected by events
or conditions which are beyond its control, including the following material
risks:
- the general economic climate;
- competition from other housing alternatives;
- local conditions, such as increases in unemployment, oversupply of
housing or a reduction in demand, that might adversely affect occupancy
or rental rates;
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- increases in operating costs, including real estate taxes, due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in governmental regulations and the related costs of compliance;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
THE COMBINED COMPANY'S PROPERTIES MAY BE SUBJECT TO ENVIRONMENTAL LIABILITIES
Various federal, state and local laws subject property owners or operators
to liability for the costs of removal or rededication of hazardous substances
released on a property. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the release of
the hazardous substances. The presence of, or the failure to properly remediate,
hazardous substances may adversely affect occupancy at contaminated manufactured
home communities and the combined company's ability to sell, rent or borrow
against contaminated properties. In addition to the costs associated with
investigation and rededication actions brought by governmental agencies, the
presence of hazardous wastes on a property could result in personal injury or
similar claims by private plaintiffs.
Various laws also impose, on persons who arrange for the disposal or
treatment of hazardous or toxic substances, liability for the cost of removal or
rededication of hazardous substances at the disposal or treatment facility.
These laws often impose liability whether or not the person arranging for the
disposal ever owned or operated the disposal facility.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES
Under the Americans with Disabilities Act of 1990 all places of public
accommodation are required to meet federal requirements related to access and
use by disabled persons. Common areas on our properties that are used by our
tenants on the property such as clubhouses are subject to the Americans with
Disabilities Act. A number of additional federal, state and local laws exist
that also may require modifications to the common areas on the combined
company's properties or restrict further renovations of the common areas on our
properties, with respect to access by disabled persons. For example, the Fair
Housing Amendments Act of 1988 requires multifamily residential properties first
occupied after March 13, 1990 to be accessible to the handicapped. Failure to
comply with the Americans with Disabilities Act or the Fair Housing Amendments
Act could result in the imposition of fines or an award of damages to private
litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although the
companies each believe that its properties are substantially in compliance with
present requirements, the combined company may incur unanticipated expenses to
comply with the Americans with Disabilities Act and/or Fair Housing Amendments
Act.
THE COMBINED COMPANY'S PROPERTIES MAY BECOME SUBJECT TO RENT CONTROL AND OTHER
LEGISLATION AFFECTING RENTS WHICH COULD DECREASE OUR REVENUES
While we do not currently operate in jurisdictions that have rent control
laws, enactment of rent control laws has been considered from time to time in
jurisdictions in which we operate. If rent control laws are enacted in
jurisdictions in which the combined company operates or if the combined company
acquires properties in jurisdictions with rent control laws, the combined
company may be unable to increase rents on some of its properties, and thereby,
become limited in our ability to recover increases in operating expenses and
capital improvements.
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THE COMBINED COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS WILL HAVE SUBSTANTIAL
INFLUENCE ON THE COMBINED COMPANY AND MAY USE THIS INFLUENCE IN WAYS THAT ARE
NOT CONSISTENT WITH THE INTERESTS OF OTHER STOCKHOLDERS
If all Commercial Assets stockholders elect to receive stock in the merger,
the executive officers and directors of the combined company will hold in the
aggregate approximately 12.4% of the combined company's common stock after the
merger, assuming that all the units of Asset Investors Operating Partnership
that they own are exchanged for common stock. Furthermore, they could acquire an
additional 8.3% assuming all stock options they have been granted are exercised.
If all Commercial Assets stockholders, other than Asset Investors and the
officers and directors of Asset Investors and Commercial Assets, elect to
receive cash, the executive officers and directors of the combined company will
hold, in the aggregate, approximately 14.7% of the combined company's common
stock after the merger, assuming that the units of Asset Investors Operating
Partnership that they own are exchanged for common stock. Furthermore, they
could acquire an additional 9.5% assuming all stock options they have been
granted are exercised. Accordingly, these persons may have substantial influence
on the combined company in ways that might not be consistent with the interests
of other stockholders. These persons may also have significant influence and
control over the outcome of any matters submitted to the combined company's
stockholders for approval. Although there is no current agreement, understanding
or arrangement for these stockholders to act together on any matter, these
stockholders could be in a position to exercise significant influence over the
combined company's affairs if they were to act together in the future.
THE COMBINED COMPANY'S BOARD MAY UNILATERALLY IMPLEMENT CHANGES IN ITS
INVESTMENT AND FINANCING POLICIES WHICH MAY NOT FULLY SERVE THE INTERESTS OF ALL
STOCKHOLDERS
Our investment and financing policies, and our policies with respect to
other activities, including growth, debt, capitalization, REIT status and
operating policies, are determined by the board of directors. Although the board
of directors has no present intention to do so, these policies may be amended or
revised from time to time at the discretion of the board of directors without
notice to stockholders or a vote of our stockholders. Accordingly, stockholders
have no control over changes in our policies and changes in our policies may not
fully serve the interests of all stockholders.
THE LOSS OF KEY EXECUTIVE OFFICERS COULD HAVE AN ADVERSE EFFECT ON THE COMBINED
COMPANY
We are dependent on the efforts of our Chairman and Chief Executive
Officer, Terry Considine, our Vice Chairman, Thomas L. Rhodes, and our President
and Chief Operating Officer, Bruce E. Moore. The loss of their services could
have an adverse effect on operations. The companies do not currently have
employment agreements with, or maintain or contemplate obtaining any "key man"
life insurance on, our executive officers.
Neither Mr. Considine nor Mr. Rhodes devotes full time to the business of
the companies. Both are employed, and have business interests, outside the
companies. Mr. Moore devotes substantially all of his time to the business of
the companies.
OUR COMPANIES HAVE BEEN SUBJECT TO CONFLICTS OF INTEREST THROUGH VARIOUS
TRANSACTIONS WITH AFFILIATES
Both companies have been, and the combined company will continue to be,
involved in various transactions with a number of affiliates, including
executive officers and directors and entities in which they own interests. See
"Certain Relationships and Related Transactions" in Asset Investors' Annual
Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 1998 and
"Certain Relationships and Related Transactions" in Commercial Assets' Annual
Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 1998.
For example, Messrs. Considine and Rhodes directly or indirectly control Asset
Investors' subsidiary management company, which provides management services to
properties in which Asset Investors holds an interest in the form of a
participating mortgage, ground lease or joint venture. This ownership structure
allows us to comply with the current tax rules governing REITs. As a result, the
subsidiary management company could implement business decisions or policies
that are not in our best interests. See "RELATED TRANSACTIONS."
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IF WE FAIL TO QUALIFY AS A REIT, WE WOULD BE SUBJECT TO TAX AT CORPORATE RATES
AND WE WOULD NOT BE ABLE TO DEDUCT DISTRIBUTIONS TO STOCKHOLDERS FOR TAX
PURPOSES
Adverse consequences of failure to qualify as a REIT. Although each of
Asset Investors and Commercial Assets believes that it operates in a manner that
enables it to meet the requirements for qualification as a REIT for Federal
income tax purposes, the rules regarding REIT qualification are highly technical
and complex, and no assurance can be given that the Internal Revenue Service
will not challenge its qualification, or that the combined company will be able
to operate in accordance with the REIT requirements in the future. In addition,
Asset Investors' or Commercial Assets' ability to qualify depends in part upon
the actions of third parties over which it has or will have no control, or only
limited influence. For instance, each of Asset Investors' and Commercial Assets'
REIT qualification depends upon the conduct of entities with which it has or
will have a direct or indirect relationship as lender, lessor, or holder of a
non-controlling equity interest. Asset Investors' REIT qualification also
depends upon the qualification of Commercial Assets prior to the merger, which
in turn requires that either (1) notes issued by a trust in which Commercial
Assets has held a residual interest are treated for Federal income tax purposes
as indebtedness, or (2) Commercial Assets had reasonable cause for any resultant
failure to satisfy the gross income requirements applicable to REITs.
Ernst & Young LLP has issued an opinion that notes issued by the trust in
which Commercial Assets holds a residual interest are more likely than not
treated as indebtedness for Federal income tax purposes. Some uncertainty exists
as to the proper tax classification of the notes because of the substantial
leverage maintained by the trust, and because principal payments are generally
made pro rata on the different classes of notes and the residual interest in the
trust retained by Commercial Assets, rather than by making principal payments
with respect to only the senior-most outstanding class until that class is
repaid in full. Even if the notes are not classified as indebtedness for Federal
income tax purposes, and, as a result, Commercial Assets fails to satisfy the
gross income requirements that apply to REITs, it may nonetheless maintain its
qualification as a REIT by showing that it had reasonable cause for the failure
and by satisfying other requirements. See "FEDERAL INCOME TAXATION OF ASSET
INVESTORS AND ITS STOCKHOLDERS -- Taxation of Asset Investors -- Tax Opinion"
and "-- Requirements for Qualification -- Income Tests."
If the combined company fails to qualify as a REIT, it would not be allowed
a deduction for distributions to stockholders in computing its taxable income
and it would be subject to Federal income tax at regular corporate rates. Unless
the combined company were entitled to relief under the tax law, it could not
elect to be taxed as a REIT for four years following the year during which it
was disqualified. However, if the combined company loses its REIT qualification,
we expect that Asset Investors' net operating loss of approximately $95 million
would be available to reduce the amount of income that would otherwise be
taxable income. See "FEDERAL INCOME TAXATION OF ASSET INVESTORS AND ITS
STOCKHOLDERS -- Taxation of Asset Investors -- Failure to Qualify" and "-- Loss
Carryovers."
Possible legislative or other acts affecting REITs could have an adverse
effect on us. The rules dealing with Federal income taxation are constantly
under review by persons involved in the legislative process and by the Internal
Revenue Service and the U.S. Treasury Department. Changes to the tax law could
adversely affect our investors. We cannot predict with certainty whether, when,
in what forms, or with what effective dates, the tax laws applicable to us or
our investors will be changed. See "OTHER TAX CONSIDERATIONS -- Legislative or
Other Actions Affecting REITs."
Even if we qualify as a REIT, other tax liabilities could negatively affect
us. Even if the combined company qualifies as a REIT, the combined company and
its subsidiaries may be subject to Federal, state and local taxes on its income
and property that could reduce operating cash flow. See "FEDERAL INCOME TAXATION
OF ASSET INVESTORS AND ITS STOCKHOLDERS -- Taxation of Asset
Investors -- Taxation of REITs in General."
If we experience an ownership change our use of net operating losses would
be limited. Asset Investors has a net operating loss carryover of approximately
$95 million which is scheduled to expire between 2007 and 2009. It also has
capital losses carried forward from prior years, in the amount of approximately
$23.8 million, approximately $23.4 million of which will expire if not used in
2000, and the
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remainder of which will expire if unused by the end of 2001. Under the Internal
Revenue Code, if a corporation experiences an "ownership change," the aggregate
amount of net operating losses and capital losses available to offset otherwise
taxable income is generally limited each year to an amount equal to the value of
the corporation's stock at the time of the ownership change times the long-term
tax-exempt rate. In general, an ownership change occurs if one or more large
stockholders increase their aggregate percentage interest in Asset Investors by
more than 50 percentage points over a three-year period. Asset Investors
anticipates that the merger will not cause an ownership change. It is possible,
however, that the merger or other transactions over which Asset Investors does
not have control, could cause an ownership change, and result in a limitation on
Asset Investors' ability to utilize its net operating losses and capital losses.
See "FEDERAL INCOME TAXATION OF ASSET INVESTORS AND ITS STOCKHOLDERS -- Taxation
of Asset Investors -- Loss Carryovers."
OUR DISTRIBUTION REQUIREMENTS MAY HAVE THE EFFECT OF REDUCING OUR AVAILABLE CASH
As a REIT, we are subject to annual distribution requirements, which limit
the amount of cash we have available for other business purposes, including
amounts to fund our growth. See "FEDERAL INCOME TAXATION OF ASSET INVESTORS AND
ITS STOCKHOLDERS -- Taxation of Asset Investors -- Requirements for
Qualification -- Annual Distribution Requirements."
POTENTIAL LOSSES MAY BE UNINSURED
Asset Investors maintains comprehensive liability, fire, flood, where
appropriate, extended coverage, and rental loss insurance with respect to the
properties that it owns with policy specifications, limits, and deductibles
customarily carried for similar properties. Some types of losses, however, may
be either uninsurable or not economically insurable, such as losses due to
earthquakes, riots, or acts of war. Should an uninsured loss occur, Asset
Investors could lose both its investment in and anticipated profits and cash
flow from affected properties that it owns.
AN INCREASE IN MARKET INTEREST RATES COULD ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK IF EQUITY INVESTORS DEMAND A HIGHER RETURN
One of the factors that may influence the market price of the combined
company's common stock is annual distributions per share. An increase in market
interest rates may lead purchasers of shares of Asset Investors' common stock to
demand a higher return on their investment, which could adversely affect the
market price of the combined company's common stock.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
In this Joint Proxy Statement/Prospectus and in documents that are
incorporated by reference, we have made forward looking statements. These
statements are based on our estimates and assumptions and are subject to a
number of risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of each
of our companies and the combined company. Forward-looking statements also
include those preceded or followed by the words "anticipates," "believes,"
"estimates," "expects," "hopes," "targets," or similar expressions. For each of
these statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The future results of the combined company could be affected by subsequent
events and could differ materially from those expressed in the forward-looking
statements. If further events and actual performance differ from our
assumptions, our actual results could vary significantly from the performance
projected in the forward-looking statements.
The following important factors, along with those discussed elsewhere in
this Joint Proxy Statement/ Prospectus and in the documents which we incorporate
by reference, could affect the future results of the
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<PAGE> 39
combined company, and could cause those results to differ materially from those
expressed in the forward-looking statements:
- general economic and business conditions;
- interest rate changes;
- financing and refinancing risks;
- risks inherent in owning real estate or debt secured by real estate;
- future development rate of homesite;
- competition;
- the availability of real estate assets at prices which meet our
investment criteria; and
- our ability to reduce expense levels, implement rent increases, use
leverage and other risks set forth in our Securities and Exchange
Commission filings.
BACKGROUND OF THE MERGER
The board of directors of Asset Investors first considered the possibility
of combining the operations of Asset Investors with those of Commercial Assets
on June 30, 1998. The Asset Investors board of directors determined that this
combination could, among other things, reduce expenses and alleviate many of the
administrative difficulties of maintaining Commercial Assets as a separate,
publicly traded REIT, such as the need to maintain two boards of directors,
conduct two separate audits and maintain separate financial reporting. The Asset
Investors board of directors also believed that the combination of the companies
would help Asset Investors to acquire a more significant portfolio that would
allow the combined company to use Asset Investors' management structure to
manage a greater number of properties in the geographical areas in which the
combined company made acquisitions.
On July 14, 1998, the board of directors of Asset Investors authorized Mr.
Considine to communicate its interest to the board of directors of Commercial
Assets. On that same day, Mr. Considine met with Commercial Assets' special
committee of independent directors, which had been responsible for reviewing
conflict of interest transactions since Commercial Assets was spun off from
Asset Investors in 1993, and informed it of Asset Investors' proposal.
On July 15, 1998, the special committee and its legal advisors, the law
firm of Paul, Weiss, Rifkind, Wharton & Garrison, met and discussed the details
of the proposal with Mr. Considine. Mr. Considine indicated that the board of
directors of Asset Investors had authorized him to offer an exchange ratio of
0.38 shares of Asset Investors' common stock for each share of Commercial
Assets' common stock outstanding. Following this discussion, the special
committee indicated their interest in further discussions with Mr. Considine,
but indicated that they believed that the exchange ratio would need to be
increased before they could approve any transaction.
On July 20, 1998, the special committee and its legal advisors met again to
discuss the proposed merger. Mr. Considine indicated to the special committee
that he had had informal discussions with the board of directors of Asset
Investors, and believed that there was support for increasing the proposed
exchange ratio to 0.39. In addition, Mr. Considine indicated that the Asset
Investors board may view favorably a "collar" on the exchange ratio. Under this
"collar" arrangement, the exchange ratio would be adjusted upward or downward,
as appropriate, in the event that Asset Investors' common stock traded for more
than $19 per share or less than $16.50 per share. Following Mr. Considine's
presentation, the special committee and its legal advisors met alone to discuss
the retention of a financial advisor. Upon the recommendation of the special
committee's legal advisor, the special committee authorized its legal advisor to
contact Jefferies & Company. The special committee also informed Mr. Considine
that they still did not believe that the proposed exchange ratio was adequate.
On July 21, 1998, the board of directors of Asset Investors met to discuss
the status of the negotiations. Mr. Considine reported that the special
committee had requested that Asset Investors once
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<PAGE> 40
again increase the exchange ratio. Following some discussion, the board of
directors authorized Mr. Considine to offer an exchange ratio of 0.40, but to
indicate that this exchange ratio was the highest that Asset Investors was
willing to offer given current market conditions. The Asset Investors board also
instructed their legal advisors to begin drafting a merger agreement. Shortly
after this meeting, Mr. Considine informed the special committee members of the
proposed 0.40 exchange ratio.
On July 30, 1998, Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel
to Asset Investors, delivered a draft merger agreement to the special committee
and its legal advisors. On August 14, 1998, the special committee engaged
Jefferies & Company as its financial advisor, who began their review of
Commercial Assets' and Asset Investors' proposal. On August 18, 1998, the
special committee and their financial and legal advisors met to discuss the
proposed transaction. The special committee then heard reports from their legal
advisors regarding the draft merger agreement and their financial advisors
regarding their analysis of the proposed 0.40 exchange ratio. Following these
reports, the special committee indicated to Mr. Considine that they were getting
very close to an acceptable exchange ratio, but that they would like him to
explore the possibility of increasing the exchange ratio still more.
On August 28, 1998, Mr. Considine informed the special committee that,
following informal discussions with the Asset Investors board, he was unable to
offer a higher exchange ratio. The special committee thanked Mr. Considine for
his efforts and, following a meeting with their legal and financial advisors,
informed Mr. Considine that the special committee was not prepared to recommend
a merger at the proposed exchange ratio, and that, therefore, the merger
negotiations were being terminated.
On July 6, 1999, the Asset Investors board of directors authorized Asset
Investors to once again approach Commercial Assets with an acquisition proposal.
On that day, Asset Investors delivered a letter to the Commercial Assets board
of directors expressing Asset Investors' interest in acquiring the portion of
Commercial Assets that it did not already own through a merger of Asset
Investors and Commercial Assets. Asset Investors' letter proposed a transaction
in which each outstanding share of Commercial Assets' common stock would be
converted into .38 shares of Asset Investors' common stock.
On July 7, 1999, the Commercial Assets special committee met to discuss the
Asset Investors proposal. The special committee agreed that at an appropriate
exchange ratio, a combination of Asset Investors and Commercial Assets could be
beneficial to the Commercial Assets stockholders. The special committee
concluded, however, that additional study was required before it could evaluate
the proposed exchange ratio. Nevertheless, the special committee decided that it
would be appropriate to proceed with discussions with Asset Investors concerning
a possible merger, with Jefferies & Company acting as financial advisor to the
special committee pursuant to its previous engagement.
On July 23, 1999, the special committee met with representatives of
Jefferies & Company in order to discuss the .38 exchange ratio which had been
proposed by Asset Investors. As a result of this meeting the special committee
determined that the proposed exchange ratio was inadequate. The special
committee authorized Donald Kortz, the Chairman of the special committee, to
contact Terry Considine and inform him of the views of the special committee,
and to indicate that the special committee would be inclined to look more
favorably on an exchange ratio of .41 shares of Asset Investors' common stock
for each outstanding share of Commercial Assets common stock. The independent
directors also asked Mr. Kortz to seek clarifications from Asset Investors as to
certain other aspects of the proposal, including the tax treatment of Commercial
Assets stockholders, and that the transaction would effectively eliminate the
management agreement under which Asset Investors currently is paid a management
fee by Commercial Assets.
In late July, Asset Investors responded to the concerns raised by the
special committee and clarified that the proposed merger would be structured in
a manner intended to be generally tax free to Commercial Assets stockholders,
and that the transaction would effectively eliminate the existing management
relationship. Asset Investors also indicated that it would consider increasing
the exchange ratio from .38 to .40. At the time, Asset Investors also delivered
a draft merger agreement to Commercial Assets for its review.
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<PAGE> 41
On July 29, 1999, the special committee discussed the proposed increase in
the exchange ratio with Jefferies & Company, and determined that the increased
exchange ratio was still inadequate. The special committee authorized Mr. Kortz
to inform Asset Investors that the special committee could not support an
exchange ratio of .40, but that they would be inclined to support an exchange
ratio in the range of .41. At its July 29, 1999 meeting, the special committee
also directed its legal advisors to review the draft merger agreement.
Mr. Kortz reported to Mr. Considine on the views of the special committee,
and, in early August, Mr. Considine informed Mr. Kortz that Asset Investors
believed that an exchange ratio of .41 was too high, but that Asset Investors
would be willing to increase the exchange ratio to .405 shares of Asset
Investors' common stock for each outstanding share of Commercial Assets common
stock.
On August 9, 1999, the special committee again met with Jefferies & Company
to discuss Asset Investors' proposed increased exchange ratio. With Jefferies &
Company's assistance, the special committee determined that the proposed
exchange ratio was within the range of what it would deem to be acceptable. The
special committee authorized Mr. Kortz to propose to Asset Investors an exchange
ratio of .4075. Following the meeting, Mr. Kortz relayed the special committee's
views to Asset Investors' representative.
On August 16, 1999, Mr. Considine informed Mr. Kortz that Mr. Considine was
prepared to propose to the Asset Investors board of directors that Asset
Investors agree to increase the exchange ratio to .4075.
On August 17, 1999, the special committee again met. Mr. Kortz reported
that there appeared to be agreement as to the exchange ratio. At this meeting,
the special committee's legal advisor reported on the status of the draft merger
agreement, and two open issues that remained to be resolved before an agreement
could be signed. The first open issue involved Asset Investors' insistence that
the agreement include a so-called break-up fee of not less than $2 million which
would be payable by Commercial Assets if it were to terminate the merger
agreement in order to accept a more favorable offer from a third party. The
special committee discussed the issue of a break-up fee with its legal and
financial advisors. The special committee's legal advisor informed the special
committee that break-up fees were not unusual in public company mergers. The
special committee's financial advisor informed the members of the committee that
break-up fees were not unusual in the context of REIT merger transactions, and
that, in view of the relatively modest size of the proposed transaction with
Asset Investors, a $2 million break-up fee did not appear to be outside the
norm. The special committee members then discussed the implications of a $2
million break-up fee and determined that this break-up fee was unlikely to deter
a significantly better competing bid for Commercial Assets. Therefore, the
special committee determined that it could accept a $2 million break-up fee.
The second of the open issues discussed at the August 17, 1999 meeting of
the special committee related to the outside date by which the merger would need
to be completed before either Asset Investors or Commercial Assets could
terminate the merger agreement and abandon the transaction. Asset Investors had
originally proposed that June 30, 2000 be the outside, but later indicated that
it could accept March 31, 2000 as the outside date. The special committee was
concerned that these dates were too far in the future, although the special
committee understood that the period required for SEC review of the proxy
statement could not be predicted and that it was necessary that there be some
flexibility to deal with such uncertainties. Therefore, the special committee
instructed its legal counsel to propose to Asset Investors that the outside date
be the later of (a) 60 days following the date on which the SEC declared the
registration statement for the shares of Asset Investors' common stock to be
issued in the merger effective under the Securities Act of 1933, and (b)
December 31, 1999.
On August 27, 1999, the special committee again met to review the proposed
merger agreement. The special committee's legal advisor informed the special
committee members that Asset Investors had responded to the special committee's
proposal in respect of the outside date with a proposal that the outside date be
the earlier of (a) 60 days following the date on which the SEC declared the
registration statement for the shares of Asset Investors' common stock to be
issued in the merger effective under the Securities Act of 1933, and (b) March
31, 2000. The special committee decided that this was an
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<PAGE> 42
acceptable compromise. The members of the special committee noted that the most
recent draft of the merger agreement did not specify who the directors of Asset
Investors would be immediately following the merger. The special committee
members were uncomfortable making a recommendation on the merger when the
surviving corporation's board was unknown. Therefore, the special committee
instructed its legal advisor that the merger agreement should provide that at
least a majority of the directors of the surviving company immediately following
the merger will be individuals who are currently directors of either Asset
Investors or Commercial Assets. Asset Investors subsequently agreed to include
such a provision in the merger agreement. In view of the fact that substantially
all of the remaining issues had been satisfactorily resolved, the special
committee asked Jefferies & Company to once again review the proposed exchange
ratio of .4075 shares of Asset Investors' common stock for each outstanding
share of Commercial Assets' common stock. Jefferies & Company made a detailed
presentation to the special committee and indicated that Jefferies & Company was
prepared to opine that the exchange ratio was fair from a financial point of
view to the Commercial Assets stockholders, other than Asset Investors and its
affiliates. See "THE MERGER -- Opinion of Financial Advisor to the Special
Committee of Commercial Assets."
On August 31, 1999, the special committee met to issue its formal report to
the Commercial Assets board of directors. At this meeting, the special committee
asked Jefferies & Company whether it was still prepared to render its fairness
opinion. Jefferies & Company indicated that it was and the special committee
requested Jefferies & Company to deliver its written fairness opinion. Following
the delivery of the Jefferies & Company fairness opinion, the special committee
approved a report to the Commercial Assets board of directors recommending
approval of the merger agreement. Immediately following the action of the
special committee, the full Commercial Assets board of directors approved the
execution and delivery by Commercial Assets of the merger agreement and
recommended that the Commercial Assets stockholders vote to approve the merger
agreement.
Also on August 31, 1999, the Asset Investors board of directors approved
the execution of the merger agreement and recommended that the merger agreement
be approved by the Asset Investors stockholders.
Following the actions of the Asset Investors and Commercial Assets boards
of directors, the merger agreement was executed and delivered to each of Asset
Investors and Commercial Assets on August 31, 1999.
In September 1999, four Commercial Assets stockholders, individually and as
purported representatives of all of Commercial Assets stockholders, except Asset
Investors and its affiliates, filed three purported class action lawsuits in the
Court of Chancery of the State of Delaware. Following the consolidation of these
actions on November 15, 1999 and the filing by the plaintiffs of an amended
complaint on October 12, 1999, Commercial Assets and Asset Investors engaged in
settlement discussions with the plaintiffs. Settlement discussions took place
over a period of approximately two months. Following numerous discussions,
Commercial Assets, Asset Investors and the plaintiffs executed a memorandum of
understanding with respect to the terms of a settlement on March 7, 2000. On
March 8, 2000, the special committee and the boards of directors of each of
Commercial Assets and Asset Investors, meeting separately, unanimously approved
the terms of the proposed settlement and an amendment to the merger agreement to
effect the terms of the settlement.
The terms of the settlement required Asset Investors and Commercial Assets
to amend the merger agreement to provide for the cash election feature discussed
in this Joint Proxy Statement/Prospectus, and to raise the requisite Commercial
Assets vote from a majority to two-thirds. In addition, the settlement required
Asset Investors and the officers and directors of Asset Investors and Commercial
Assets to agree to elect to receive stock in the merger. On, March 8, the merger
agreement was so amended. The settlement agreement is subject to approval by the
Court of Chancery and the merger will not be implemented without such approval.
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<PAGE> 43
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL
COMMITTEE OF COMMERCIAL ASSETS
FAIRNESS OPINION
Commercial Assets and the special committee of the board of directors of
Commercial Assets engaged Jefferies & Company to deliver a fairness opinion in
connection with the merger. On August 31, 1999, at a meeting of the special
committee, held to evaluate the proposed merger, Jefferies & Company rendered to
the special committee an oral opinion, subsequently confirmed by delivery of a
written opinion dated August 31, 1999, to the effect that, as of that date and
based on and subject to the assumptions made, matters considered and limitations
set forth in such opinion and summarized below, the exchange ratio was fair,
from a financial point of view, to the holders of Commercial Assets' common
stock, other than Asset Investors and its affiliates.
THE FULL TEXT OF JEFFERIES & COMPANY'S WRITTEN OPINION DATED AUGUST 31,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. JEFFERIES & COMPANY'S OPINION IS DIRECTED TO
THE SPECIAL COMMITTEE, ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW STOCKHOLDERS SHOULD VOTE AT THE COMMERCIAL ASSETS SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF JEFFERIES & COMPANY IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN IT IS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
In its review and analysis and in rendering this opinion, Jefferies &
Company has, with Commercial Assets' permission, assumed and relied upon the
accuracy and completeness of all information provided to Jefferies & Company by
Commercial Assets' management, as well as publicly available information, and
has not verified that information. Jefferies & Company has not conducted a
physical inspection of any of the properties or facilities of Commercial Assets
or Asset Investors, nor has it made, been provided with or considered any
independent evaluation or appraisals of any of those properties or facilities.
The merger agreement and the exchange ratio were based on negotiations between
the special committee and Asset Investors during which Jefferies & Company
provided investment banking services to the special committee. In addition,
pursuant to the terms of Jefferies & Company's engagement by Commercial Assets
and the special committee, they have not authorized Jefferies & Company to
solicit, and Jefferies & Company has not solicited, any indications of interest
from any third party with respect to a transaction similar to the proposed
merger. Jefferies & Company's opinion relates only to the proposed merger and
does not address the merits of any other proposal or indication of interest that
might be received. Jefferies & Company is not aware of any proposals or
indications of interest by third parties.
In conducting its analysis and rendering its opinion as expressed herein,
Jefferies & Company has reviewed and considered such financial and other factors
as it has deemed appropriate under the circumstances including the following
material factors:
(1) the original merger agreement;
(2) the historical financial condition and results of operations of
Commercial Assets and Asset Investors, including, among others:
(a) the Annual Reports on Form 10-K of Commercial Assets and Asset
Investors for the years ended December 31, 1997 and 1998, and
(b) the Quarterly Report on Form 10-Q of Commercial Assets and
Asset Investors for the quarter ended June 30, 1999;
(3) internal financial and non-financial information, including, among
other things, estimates, budgets and projections of Commercial Assets
prepared by the management of Commercial Assets, which data was made
available to Jefferies & Company in its role as financial advisor to
Commercial Assets (See "FINANCIAL PROJECTIONS.");
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<PAGE> 44
(4) published information regarding the financial performance and
operating characteristics of a selected group of companies which Jefferies
& Company considered relevant;
(5) the business prospects of Commercial Assets as projected by the
management of Commercial Assets;
(6) the historical and current market prices for Commercial Assets'
common stock and Asset Investors' common stock, and for the equity
securities of other companies with businesses that Jefferies & Company
considered relevant to its inquiry;
(7) publicly available information, including research reports on
Asset Investors and other companies Jefferies & Company considered relevant
to its inquiry;
(8) the nature and terms of other recent acquisition transactions in
the REIT industry that Jefferies & Company considered relevant to its
inquiry; and
(9) publicly available information and reports on the manufactured
home industry.
Jefferies & Company has met with officers and employees of Commercial Assets and
Asset Investors to discuss the foregoing as well as other non-material matters
Jefferies & Company considered relevant to its opinion. With respect to the
estimates, budgets and projections examined by Jefferies & Company, Jefferies &
Company assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the management of
Commercial Assets as to the future performance of Commercial Assets and that
Commercial Assets will perform in accordance with the estimates, budgets and
projections for all periods specified in the estimates, budgets and projections.
Jefferies & Company has also taken into account general economic, monetary,
political, market and other conditions as well as its experience in connection
with similar transactions and securities valuation generally. Jefferies &
Company's opinion was based upon all of those conditions as they existed and
could be evaluated on the date of its fairness opinion. Existing conditions are
subject to rapid and unpredictable changes and those changes could affect
Jefferies & Company's opinion. Jefferies & Company's opinion does not constitute
a recommendation of the merger over any alternative transactions which may be
available to Commercial Assets and does not address Commercial Assets'
underlying business decision to effect the merger. Jefferies & Company is not
obligated to, and is not expected to, update its opinion.
For purposes of rendering the opinion and based on Commercial Assets'
direction and with Commercial Assets' consent, Jefferies & Company has assumed
that, in all respects material to its analysis, the representations and
warranties of Commercial Assets and Asset Investors contained in the merger
agreement are true and correct, Commercial Assets and Asset Investors will each
perform all of the covenants and agreements to be performed by it under the
merger agreement, and all conditions to the obligations of each of Commercial
Assets and Asset Investors to consummate the merger will be satisfied without
being waived.
Set forth below is a summary of the material financial analyses performed
and factors considered by Jefferies & Company in connection with its opinion and
review with the special committee at its meeting on August 31, 1999. Jefferies &
Company's opinion that, as of August 31, 1999, the exchange ratio was fair, from
a financial point of view, to the holders of Commercial Assets' common stock,
other than Asset Investors and its affiliates, was based on Jefferies &
Company's consideration of all of the analyses and factors summarized below.
Jefferies & Company believes that its analyses must be considered as a whole,
that no single analysis or factor is itself determinative of fairness from a
financial point of view, and that selecting a portion of its analyses without
considering all of its analyses could create a misleading or incomplete view of
the process underlying Jefferies & Company's analyses and opinion. The
information presented below is based on the financial condition of Commercial
Assets and Asset Investors as of June 30, 1999, and share price information of
Commercial Assets' common stock and Asset Investors' common stock through the
close of the market on August 24, 1999.
Jefferies & Company reviewed the methodology and calculations of the
proposed conversion of all of the shares of Commercial Assets' common stock into
Asset Investors' common stock pursuant to the
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merger. Based on the exchange ratio of .4075 shares of Asset Investors' common
stock for each share of Commercial Assets' common stock outstanding as of July
31, 1999, Commercial Assets stockholders would receive securities equivalent to
4,224,972 fully-diluted shares of Asset Investors' common stock, or
approximately 39.1% of the Asset Investors' common stock outstanding as of the
date of the merger, excluding outstanding Asset Investors and Commercial Assets
stock options. Jefferies & Company noted that the implied equity purchase price
for Commercial Assets, based on a value of $13.75 per share of Asset Investors'
common stock on August 24, 1999, was approximately $58.1 million.
ANALYSIS OF COMMERCIAL ASSETS AND ASSET INVESTORS
Current Market Valuation. Jefferies & Company reviewed the closing prices
of Commercial Assets' and Asset Investors' common stock over the last year as
reported by the American Stock Exchange and the New York Stock Exchange. The
price per share of Commercial Assets' common stock ranged from $4.875 to $6.312,
and the price per share of Asset Investors' common stock ranged from $11.812 to
$15.562 over the last year. The average ratio of the closing prices for
Commercial Assets' common stock to the closing prices for Asset Investors'
common stock was 0.39, which was compared to the proposed exchange ratio of
0.4075.
Comparable Company Analysis. Jefferies & Company compared financial data
and multiples of financial parameters accorded other publicly traded REITs
comparable to Commercial Assets and Asset Investors. Financial data generally
compared included total revenues, net operating income, historical and projected
funds from operations and dividend yield. Multiples compared included equity
capitalization to funds from operations. Jefferies & Company examined these
parameters because of management's, Commercial Assets' and Jefferies & Company's
reliance upon these measures in analyzing REIT performance. Companies compared
to Commercial Assets and Asset Investors included Chateau Communities, Inc.,
Manufactured Home Communities, Inc., Sun Communities, Inc. and United Mobile
Homes, Inc., each of which is a manufactured housing REIT.
These companies were selected as comparables because they are the only
publicly-traded REITs focused on manufactured housing communities. The table
below depicts the revenue, net operating income and funds from operations of the
comparable companies compared to both Commercial Assets and Asset Investors.
Jefferies & Company noted that both Commercial Assets and Asset Investors are
significantly smaller than the average of the comparable companies.
<TABLE>
<CAPTION>
COMPARABLE COMPANY
------------------------ COMMERCIAL ASSET
HIGH AVERAGE LOW ASSETS INVESTORS
------ ------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Latest Twelve Months
Revenues...................................... $208.9 $133.7 $17.3 $5.4 $19.2
Net Operating Income.......................... 112.8 75.7 9.3 2.0 12.0
Funds From Operations......................... 73.7 51.4 6.6 4.6 9.0
</TABLE>
Jefferies & Company compared the market value of each company, as
determined by the closing price recorded for each company's common stock on
August 24, 1999, with each company's projected funds from operations and current
dividend yield. Jefferies & Company's calculations resulted in the range of
comparable company trading multiples and current dividend yields shown in the
table below. Also shown in the table below are the current trading multiples and
current dividend yield for both Commercial Assets and Asset Investors. Based on
the average of the comparable trading multiples and dividend yields for the
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<PAGE> 46
comparable companies, the implied price per share of Commercial Assets ranges
from $5.18 to $7.76 per share and the implied price for Asset Investors ranges
from $14.93 to $18.90 per share.
<TABLE>
<CAPTION>
IMPLIED VALUE
CURRENT MULTIPLES(2) PER SHARE(3)
COMPARABLE COMPANY(1) ---------------------- ----------------------
----------------------- COMMERCIAL ASSET COMMERCIAL ASSET
HIGH AVERAGE LOW ASSETS INVESTORS ASSETS INVESTORS
---- ------- ---- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Market Capitalization
to:
Projected 1999 Funds From
Operations................. 11.9x 11.5x 11.1x 11.9x 8.8x $5.18 $17.94
Projected 2000 Funds From
Operations................. 10.9x 10.5x 10.2x 8.3x 7.6x $6.83 $18.90
Current Dividend Yield......... 8.0% 6.7% 5.8% 9.7% 7.3% $7.76 $14.93
----- ------
Average $6.59 $17.26
</TABLE>
- ---------------
(1) Based on closing price of comparable companies on August 24, 1999.
(2) Based on Commercial Assets and Asset Investors closing price on August 24,
1999.
(3) Based on average trading multiples and current dividend yield of comparable
companies.
The average ratio of the implied equity values for Commercial Assets and
Asset Investors was 0.382, which was compared to the proposed exchange ratio of
0.4075.
None of the companies used in the above analysis for comparative purposes
is identical to Commercial Assets or Asset Investors. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of those results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and over factors that could affect the value of the
comparable companies as well as that of Commercial Assets and Asset Investors.
In addition, the multiples to projected funds from operations are based on
projections, in the case of the comparable companies, published by research
analysts unrelated to Jefferies & Company and, in the case of Commercial Assets,
provided by management due to a lack of publicly available research analyst
estimates, which may or may not prove to be accurate.
Comparable Merger and Acquisition Transaction Analysis. Jefferies & Company
reviewed the consideration paid in nine recent acquisitions of publicly traded
real estate investment trusts:
(1) ROC Communities, Inc. (target)/Chateau Communities, Inc.
(acquiror) (2/11/97);
(2) Chateau Properties Inc. (target)/Chateau Communities, Inc.
(acquiror) (2/11/97);
(3) Ambassador Apartments Inc. (target)/Apartment Investment &
Management Co. (acquiror) (5/8/98);
(4) ASR Investments Corporation (target)/United Dominion Realty Trust,
Inc. (acquiror) (3/27/98);
(5) Mid-American Realty (target)/Bradley Real Estate Inc. (acquiror)
(8/6/98);
(6) Arbor Property Trust (target)/Vornado Realty Trust (acquiror)
(12/15/97);
(7) American Apartment Communities (target)/United Dominion Realty
Trust, Inc. (acquiror) (12/8/98);
(8) Berkshire Realty Company (target)/Berkshire Realty Company
(acquiror) (4/14/99); and
(9) Lexford Residential Trust (target)/Equity Residential Properties
Trust (acquiror) (7/1/99).
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Jefferies & Company analyzed the consideration paid in those transactions as a
multiple of the target companies' net operating income and funds from operations
for the latest twelve months period prior to the acquisition of the target. The
table below summarizes the range of multiples paid in comparable transactions.
<TABLE>
<CAPTION>
COMPARABLE MERGER AND
ACQUISITION TRANSACTION
MULTIPLES
-----------------------
HIGH AVERAGE LOW
----- -------- ----
<S> <C> <C> <C>
Equity Purchase Price to Latest Twelve Months
Net Operating Income...................................... 10.6x 6.5x 2.6x
Funds From Operations..................................... 14.6x 11.5x 6.2x
</TABLE>
Jefferies & Company compared these multiples with the 29.0x multiple of latest
twelve months net operating income and 12.6x multiple of latest twelve months
funds from operations to be paid by Asset Investors pursuant to the merger to
latest twelve months net operating income and latest twelve months funds from
operations of Commercial Assets.
Commercial Assets' implied equity value per share ranged between
approximately $1.25 and $5.10 based on price to historical acquisition multiples
of 6.5x latest twelve months net operating income and 11.5x latest twelve months
funds from operations. These ranges of equity values for Commercial Assets were
compared to the implied purchase price per share to be paid to Commercial Assets
pursuant to the merger of approximately $5.60. Jefferies & Company did not give
much weight to the comparable merger and acquisition transaction analysis
because Commercial Assets' latest twelve months net operating income and latest
twelve months funds from operations are not meaningful as Commercial Assets did
not begin investing in manufactured home communities until the third quarter of
1998 and its principal asset for most of 1998 was cash. Furthermore, for the
same reason, Jefferies & Company excluded the comparable merger and acquisition
transaction analysis from the average of its valuation methodologies.
Asset Investors' implied equity value per share ranged between
approximately $12.05 and $15.87, with an average of $13.96, based on price to
historical acquisition multiples of 6.5x latest twelve months net operating
income and 11.5x latest twelve months funds from operations. Jefferies & Company
then applied the exchange ratio of .4075 to this range of equity values for
Asset Investors and obtained a range of equity values being paid of $4.91 to
$6.47, with an average of $5.69. This range was compared to the implied purchase
price per share to be paid to Commercial Assets pursuant to the merger of
approximately $5.60.
Discounted Cash Flow Analysis. Jefferies & Company also performed
discounted cash flow analyses for Commercial Assets and Asset Investors based
upon projections of Commercial Assets' and Asset Investors' cash flow from
operations using a range of discount rates and terminal funds from operations
multiples. Terminal funds from operations multiples were based on comparable
company trading multiples and discount rates were chosen based on Commercial
Assets' approximate after-tax weighted average cost of capital. Based on a
five-year analysis, using discount rates ranging from 14.0% to 16.0% and
terminal funds from operations multiples ranging from 11.5x to 12.5x, these
calculations indicated an implied equity value per share ranging from
approximately $6.63 to $7.64 for Commercial Assets, and $18.40 to $21.18 for
Asset Investors. The average ratio of the implied equity values for Commercial
Assets and Asset Investors was 0.36, which was compared to the proposed exchange
ratio of 0.4075.
Net Realizable Value Analysis. Jefferies & Company estimated the net
realizable value for the assets held by Commercial Assets using certain
financial information contained in Commercial Assets' June 30, 1999 Quarterly
Report on Form 10-Q valuing investment in real estate at Commercial Assets' cost
and assuming transaction costs of $1.0 million Jefferies & Company estimated net
realizable value was $7.43 per share for Commercial Assets' common stock.
Jefferies & Company estimated the net realizable value for Asset Investors'
common stock utilizing certain financial information contained in Asset
Investors' June 30, 1999 10-Q, applying an 8.5% capitalization rate to Asset
Investors' investment in real estate and participating mortgages, and assuming
transaction costs of $1.0 million, and determined that the
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<PAGE> 48
estimated net realizable value was $17.39 per share for Asset Investors' common
stock. The average ratio of the estimated net realizable value per share of
Commercial Assets' common stock and Asset Investors' common stock was
0.427 -- which is higher than the 0.4075 exchange ratio. Similarly, the
estimated net realizable value per share for Commercial Assets' common stock
exceeds the implied value based on the exchange ratio in the merger.
Jefferies & Company did not employ an assumed capitalization rate in
valuing Commercial Assets' investments because those investments were all recent
and therefore Jefferies & Company believed that the purchase price, i.e., the
balance sheet value, was the most accurate measure of value. By contrast,
Jefferies & Company employed an assumed capitalization rate in valuing Asset
Investors' investments because those investments had been made earlier and their
associated balance sheet values reflected both depreciation as well as older
values and were therefore less accurate measures of current value. Jefferies &
Company believes that the 8.5% capitalization rate is consistent with current
market valuations for these types of properties.
Premiums Paid Analysis. Jefferies & Company examined the premiums paid in
seven comparable acquisitions of publicly traded REITs announced on or after
July 18, 1996 as screened by Securities Data Company. The mean premiums paid in
these completed transactions based on the target's stock price one day, one week
and one month prior to the announcement were 2.2%, 3.5% and 4.5%. In the
proposed merger, the assumed offer price of $5.60 per share of Commercial
Assets' common stock represents, based on the closing bid prices of $5.375 per
share of Commercial Assets' common stock on August 24, 1999, $5.375 per share on
August 17, 1999, and $5.50 per share on July 27, 1999, an approximate premium of
4.2%, 4.2% and 1.9%, respectively. Applying the premiums paid in completed
transactions to Commercial Assets' closing bid prices shown above implies the
following prices for Commercial Assets' common stock: $5.493, $5.563 and $5.746,
respectively, with an average of $5.60.
Applying the premiums paid in completed transactions to Asset Investors'
closing bid prices of $13.75 per share of Asset Investors' common stock on
August 24, 1999, $13.688 per share on August 17, 1999, and $14.438 per share on
July 27, 1999, implies the following prices for Asset Investors' common stock:
$14.053, $14.167 and $15.088, respectively with an average of $14.36. Jefferies
& Company then applied the exchange ratio of .4075 to these equity values for
Asset Investors and obtained equity values being paid of $5.73, $5.77 and $6.15.
These values were compared to the implied purchase price per share to be paid to
Commercial Assets pursuant to the merger of approximately $5.60.
Jefferies & Company believes that the premiums paid analysis provides
helpful supplemental information by showing what the relative valuation of Asset
Investors' stock would be based on the same average takeover premiums for the
time periods stated above.
Summary of Analyses of Commercial Assets and Asset Investors. Jefferies &
Company noted that the valuation methodologies performed resulted in a range of
average implied equity value per share from approximately $1.25 to $7.76 for
Commercial Assets with an average low and high value, excluding the comparable
merger and acquisition transaction analysis, of $5.921 and $6.979.
Jefferies & Company noted that the implied equity value per share based on
the valuation methodologies performed resulted in a range of approximately
$12.05 to $21.18 for Asset Investors with an average low and high value,
excluding the comparable merger and acquisition transaction analysis, of $14.864
and $18.196.
Jefferies & Company noted that both Commercial Assets and Asset Investors
appear to be undervalued based upon several of the valuation methodologies
discussed above with current market prices, as of August 24, 1999, of $5.375 for
Commercial Assets and $13.75 for Asset Investors below the averages of the low
end of the valuation methodologies of $5.921 for Commercial Assets and $14.864
for Asset Investors. In Jefferies & Company's view, the apparent undervalued
nature of Asset Investors' stock price makes it important to evaluate the
exchange ratio versus the implied value of the consideration paid.
Jefferies & Company noted that the proposed exchange ratio of .4075
represented a premium, of $.25 per share or 4.7%, to the average exchange ratio
of .389 derived from the five valuation methodologies
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<PAGE> 49
outlined above, excluding the comparable merger and acquisition transaction
analysis. Jefferies & Company also noted that the proposed ratio translated into
a 4.2% premium to the current share price of Commercial Assets of $5.375, as of
August 24, 1999. Jefferies & Company compared the premiums based on the exchange
ratio to the mean premiums paid in the completed transactions based on the
target's stock price one day, one week and one month prior to the announcement
of 2.2%, 3.5% and 4.5%.
ANALYSIS OF COMBINED COMPANY
Pro Forma Merger Analysis. Jefferies & Company compared the anticipated
funds from operations per share of Commercial Assets on a stand alone basis to
the funds from operations per share of Commercial Assets and Asset Investors
combined on a pro forma basis after giving effect to the merger. The scenario
was based on the models and projections provided by Commercial Assets and from
Jefferies & Company's previously-published research reports on Asset Investors,
which were not prepared in connection with the proposed transaction. Jefferies &
Company observed that the merger could be expected to be slightly dilutive to
Commercial Assets stockholders on a funds from operations per share basis in
2000. At the proposed exchange ratio of .4075, funds from operations per share
is dilutive by $.01 per share, or .8% in 2000. Jefferies & Company did not give
much weight to the pro forma merger analysis because;
- the relative dilution is immaterial;
- the combined company will have a larger equity market capitalization,
growing from $55.7 million to $148.7 million based on the August 24, 1999
closing price of Asset Investors' shares;
- since research on Commercial Assets was not published by any analysts at
the time, the combined company will most likely benefit from greater
exposure to the investment community; and
- the combined company should realize synergies and economies of scale
beyond the elimination of the management fees and incentive fees such as
the elimination of actual and perceived conflicts of interest and the
elimination of public reporting for two companies, which Jefferies &
Company believes will be of immaterial magnitude and therefore has not
quantified in its analysis.
Relative Contribution Analysis. Jefferies & Company compared the relative
contribution of Commercial Assets and Asset Investors to projected combined
funds from operations of the combined companies, for 1999, based on the
financial models provided by the management of Commercial Assets and from
Jefferies & Company's research on Asset Investors, as well as to projected
combined net realizable value. Jefferies & Company noted that Commercial Assets'
contribution was approximately 36.5% of combined funds from operations and 40.3%
of combined net realizable value. Jefferies & Company compared these projected
contribution percentages with the approximately 39.1% ownership that current
Commercial Assets stockholders would have in the combined company, excluding
outstanding Asset Investors and Commercial Assets stock options. Jefferies &
Company believed that excluding outstanding stock options was appropriate in
view of the fact that the weighted average exercise prices for outstanding Asset
Investors and Commercial Assets stock options are both substantially above
current market prices for each company's common stock. Jefferies & Company
considered this analysis relevant to the fairness to Commercial Assets
stockholders because, to the extent that the percentage ownership of the Asset
Investors stockholders in the combined company exceeds the projected
contribution by Asset Investors to the combined operating results, the
proportionate return to the Asset Investors stockholders would adversely affect
the fairness of the exchange ratio. Conversely, to the extent that the
proportionate ownership of the Asset Investors stockholders following the merger
is lower than the anticipated contribution of Asset Investors to the combined
operating results, the merger could be expected to improve per share results of
operations from the perspective of current Commercial Assets stockholders. This
would generally support a conclusion that the transaction is fair.
No company used in the analysis of comparable companies nor any transaction
used in the analysis of comparable merger and acquisition transactions
summarized above is identical to Commercial Assets or the merger. Accordingly,
these analyses must take into account differences in the financial and operating
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<PAGE> 50
characteristics of the comparable companies and the companies in the comparable
merger and acquisition transactions and other factors that would affect the
public trading value and acquisition value of the comparable companies and the
companies in the comparable merger and acquisition transactions.
Other Factors. Jefferies & Company considered the following additional
factors in reaching its conclusions:
- Both Commercial Assets' common stock and Asset Investors' common stock
trade at discounts to the low end of their implied valuations using
multiple valuation methodologies.
-- The public market assigns a discount to both Commercial Assets' common
stock and Asset Investors' common stock due to their relatively small
market capitalization in relation to the comparables. Commercial
Assets' discount may also be attributable to its lack of research
coverage from Wall Street analysts and the fact that it is not self
managed or self advised.
-- The merger will create a company with an increased asset and capital
base which may be more attractive to investors.
- Multiple qualitative factors support the combination of Commercial Assets
and Asset Investors.
-- Both Commercial Assets and Asset Investors are focused on investing in
manufactured home communities.
-- Both Commercial Assets' and Asset Investors' daily operations are
managed by the same management team.
-- Commercial Assets will no longer have to pay a third party for
management advisory services.
-- The merger will eliminate any perceived ongoing conflicts of interest
between Asset Investors and its executive officers and directors who
are also owners of Commercial Assets' common stock.
- The break-up fee of $2.0 million, or $0.19 per share, is not likely to
prevent unsolicited acquisition proposals.
- Jefferies & Company understands that Asset Investors is not inclined to
liquidate Commercial Assets. Consequently, Asset Investors' 27% ownership
of Commercial Assets' common stock substantially decreases the likelihood
of a liquidation of Commercial Assets.
The summary set forth above discusses all material provisions but does not
purport to be a complete description of the opinion of Jefferies & Company to
the special committee or the financial analyses performed and factors considered
by Jefferies & Company in connection with its opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Jefferies &
Company believes that each method of financial analysis performed in preparation
of the fairness opinion, other than the net realizable value analysis, supports
the conclusion of the fairness opinion. Jefferies & Company believes that its
analyses and the summary set forth above must be considered as a whole, that no
single analysis or factor is itself determinable of fairness from a financial
point of view, and that selecting portions of its analyses, without considering
all analyses, or selecting portions of the above summary, without considering
all factors and analyses, could create a misleading or incomplete view of the
processes underlying the analyses and opinion. In performing its analyses,
Jefferies & Company assumed based on publicly available information moderate
industry growth of 20-25% per year in the delivery of manufactured homes and
stable general business, economic, market and financial conditions and other
matters, many of which are beyond the control of Commercial Assets. No company,
transaction or business used in such analyses as a comparison is identical to
Commercial Assets, the combined company or the proposed merger, nor is an
evaluation of the results of those analyses entirely mathematical; rather, the
analyses involve complex considerations and judgments concerning
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<PAGE> 51
financial and operating characteristics and other factors that could affect the
merger, public trading or other values of the companies, business segments or
transactions being analyzed. The estimates contained in the analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by the analyses. In addition, analyses
and estimates relating to the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which businesses or securities
actually could be sold. Accordingly, the analyses and estimates are inherently
subject to substantial uncertainty.
The type and amount of consideration payable in the merger were determined
through negotiations between Commercial Assets and Asset Investors and were
approved by the special committee. The decision to enter into the merger
agreement was solely that of the special committee. Jefferies & Company's
opinion and financial analyses were only two of a number of factors taken into
consideration by the special committee in its evaluation of the proposed merger
and should not be viewed as determinative of the views of the special committee
or management of Commercial Assets with respect to the merger.
Pursuant to the terms of Jefferies & Company's engagement, Commercial
Assets has agreed to pay $150,000 to Jefferies & Company for rendering its
opinion. In addition, Commercial Assets has agreed to indemnify Jefferies &
Company and its affiliates and their officers, directors, partners, counsel,
employees and agents, and any other persons controlling Jefferies & Company or
any of its affiliates against certain liabilities, including certain liabilities
under the federal securities laws, relating to, or arising out of, its
engagement and to reimburse Jefferies & Company promptly for all out-of-pocket
expenses, including the reasonable fees and expenses of counsel. In the ordinary
course of its business, Jefferies & Company may actively trade the securities of
Commercial Assets and Asset Investors for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short position
in those securities. Jefferies & Company maintains a market in Commercial
Assets' and Asset Investors' common stock and regularly publishes research
reports on the business and securities of Asset Investors and other publicly
owned companies in the REIT industry. Jefferies & Company provided investment
banking advisory services to Asset Investors in 1997 in connection with its
advisor merger transaction for which Jefferies & Company received customary
compensation of $175,000.
See "RISK FACTORS -- The fairness opinion does not address the fairness of
the cash consideration being offered to Commercial Assets stockholders," and
"RISK FACTORS -- The fairness opinion does not address changes in the relative
value of the companies since the date of the original merger agreement."
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FINANCIAL PROJECTIONS
Commercial Assets provided Jefferies & Company with non-public financial
projections for Commercial Assets prepared by its senior management, in
connection with Jefferies & Company's evaluation of the merger. The material
portions of these projections are stated below:
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR
-----------------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues... $18,900 $19,656 $20,442 $21,260 $22,110
Property operating expenses.......... (6,580) (6,712) (6,846) (6,983) (7,122)
Income from rental property
operations......................... 7,920 8,544 9,196 9,877 10,588
Net income........................... 689 1,255 1,843 2,453 3,088
Funds from operations................ 6,529 7,095 7,683 8,294 8,928
Weighted average common shares
outstanding........................ 10,393 10,422 10,450 10,479 10,507
</TABLE>
Commercial Assets does not usually publicly disclose projections of future
revenues, earnings or other financial information. We are not including these
projections in this Joint Proxy Statement/Prospectus to influence your vote with
respect to the merger. Our projections were based on a variety of assumptions,
including our ability to achieve strategic goals, objectives and targets over
the applicable periods. These assumptions involve judgments with respect to
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
Commercial Assets' projections were not prepared with a view to public
disclosure, use in this Joint Proxy Statement/Prospectus or compliance with
published guidelines of the SEC, nor were they prepared in accordance with the
guidelines established by the American Institute of Certified Public Accountants
for preparation and presentation of financial projections. Ernst & Young LLP,
Commercial Assets' accountants, has not examined or compiled these projections
and does not assume any responsibility for them. Stockholders are cautioned not
to rely on the projections.
The following are the material assumptions on which the projections listed
above were based. The information presented under the column entitled "Assumed
Value" states the value of each material assumption that the projections listed
above were based upon. The information presented under the column entitled
"December 31, 1999 Historical" states the actual value of each material
assumption that the projections listed above were based upon at December 31,
1999. You should note that the information presented in the following table has
not been audited and does not include all the information required by generally
accepted accounting principles in a complete set of financial statements (dollar
amounts in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1999
ASSUMPTION ASSUMED VALUE HISTORICAL
- ---------- ------------- -----------------
<S> <C> <C>
Real estate investments at January 1, 2000.................. $140,000 $70,000
Number of leased sites...................................... 5,600 1,800
Participating Mortgages:
Dollar amount of loans.................................... $ 10,000 $ 2,148
Weighted average interest rate............................ 12% 10%
Long term debt:
Dollar amount of loans.................................... $ 75,000 $20,442
Weighted average interest rate............................ 7.0% 7.5%
</TABLE>
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RECOMMENDATION OF THE COMMERCIAL ASSETS BOARD OF DIRECTORS
The Commercial Assets board of directors and its special committee of
independent directors believe that the merger is fair to, and in the best
interests of, Commercial Assets and the Commercial Assets stockholders (other
than Asset Investors and Asset Investors' affiliates). Accordingly, the
Commercial Assets board of directors and its special committee have approved the
merger agreement and recommend that the Commercial Assets stockholders vote
"FOR" the adoption of the merger agreement and the transactions contemplated
thereby, including the merger.
The Commercial Assets board of directors and its special committee based
their decision to approve the merger agreement and recommend its adoption to the
Commercial Assets stockholders on their belief that:
- the expected tax-free nature of the merger to Commercial Assets
stockholders who elect to receive shares of Asset Investors' common
stock, provides an attractive opportunity for the Commercial Assets
stockholders to become part of a larger, better capitalized combined REIT
that is closely focused on the ownership, acquisition and development of
manufactured home communities;
- the Commercial Assets stockholders who elect to receive Asset Investors'
common stock would benefit from the increased liquidity that would result
from holding shares in a New York Stock Exchange listed company with a
better following in the analyst community than Commercial Assets
currently enjoys;
- the Commercial Assets stockholders who elect to receive Asset Investors'
common stock would benefit because the investment portfolio underlying
their Commercial Assets investment would be broadened as a result of the
combination of Commercial Assets and Asset Investors; and
- Commercial Assets stockholders who wish to liquidate a portion of their
investment will have an opportunity to do so at a price per share that is
higher than the closing price of the Commercial Assets' common stock at
all times since the announcement of the original merger agreement up to
and including the trading day immediately preceding the day on which the
amended merger agreement was considered by the Commercial Assets special
committee and the Commercial Assets board of directors.
- effectively eliminating the current intercompany management agreement
under which Asset Investors manages Commercial Assets would reduce some
expenses currently borne by Commercial Assets by approximately $400,000,
thereby benefitting those stockholders who receive shares of Asset
Investors' common stock.
In reaching its decision on August 31, 1999 to recommend approval of the
original merger agreement and recommend its adoption to the Commercial Assets
stockholders, the special committee consulted with Commercial Assets management,
as well as with its financial and legal advisors, and considered the positive
factors listed below:
1. The special committee reviewed historical information concerning
Commercial Assets' and Asset Investors' businesses, prospects, financial
performance and condition and management. The independent committee
considered favorably the fact that Commercial Assets and Asset Investors
are currently under common control, both are REITs and both are closely
focused on the ownership and management of manufactured home communities.
2. The special committee reviewed the consideration to be received by
Commercial Assets stockholders in the merger. The special committee
considered favorably the fact that the merger is expected to qualify as a
tax-free reorganization and that the consideration would not fluctuate even
if the price of Commercial Assets' and/or Asset Investors' common stock
changes.
3. The special committee reviewed the terms of the merger agreement,
including the representations, warranties and covenants and the conditions
to each party's obligation to complete the merger. The special committee
considered favorably that the terms of the merger agreement are
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<PAGE> 54
reasonable and protective of Commercial Assets' interests. In particular,
the special committee considered favorably that:
- the conditions to each party's obligations to complete the merger are
typical or likely to be satisfied;
- Commercial Assets may terminate the merger agreement if Commercial
Assets receives a competing proposal which the Commercial Assets board
of directors determines is more advantageous to Commercial Assets
stockholders;
- the $2 million break-up fee payable by Commercial Assets to Asset
Investors if Commercial Assets were to terminate the merger agreement
to accept a more favorable offer was unlikely to prevent a third party
from making a substantially better offer; and
- Asset Investors would be required to pay a $2 million break-up fee to
Commercial Assets if Asset Investors were to terminate the merger
agreement in order to enter into a more favorable transaction to Asset
Investors with a third party.
4. The special committee considered favorably the expectation that the
combined company should be able to eliminate annual expenditures that are
incurred by Commercial Assets as a result of its being a separate public
company; for example there would be no need to prepare separate Commercial
Assets Securities and Exchange Commission disclosure reports and financial
statements. Such expenses currently total approximately $400,000 per year.
5. The special committee assessed the possibility of being part of a
larger combined company. The special committee considered favorably that
the Commercial Assets stockholders who receive Asset Investors' common
stock, as stockholders of the combined company, would benefit from:
- the fact that the surviving company would be listed on the New York
Stock Exchange, giving it greater exposure in the investment community
than is currently enjoyed by Commercial Assets; and
- the fact that combining Asset Investors and Commercial Assets could
result in a larger company which is in a better position to have its
stock trade at market values more in line with the stock prices of
other REITs involved in the ownership, acquisition and development of
manufactured communities.
6. The special committee considered the potential conflicts of
interest which result from Asset Investors' ownership of approximately 27%
of Commercial Assets' common stock. The special committee considered
favorably the elimination of those potential conflicts as a result of the
merger.
7. The special committee considered favorably the opinion of Jefferies
& Company, including the related financial analyses, to the effect that, as
of the date of the opinion and based upon and subject to the matters stated
in the opinion, the exchange ratio was fair, from a financial point of
view, to the Commercial Assets stockholders, other than Asset Investors and
its affiliates. A copy of the Jefferies opinion is attached as Annex C to
this Joint Proxy Statement/Prospectus and is described in the section
"OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE OF COMMERCIAL
ASSETS."
8. The special committee considered the ability of Commercial Assets
and Asset Investors to complete the merger, and determined that there was a
strong likelihood that the merger would be completed.
9. The special committee considered its efforts to negotiate an
exchange ratio most favorable to the stockholders of Commercial Assets who
are not affiliated with Asset Investors.
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<PAGE> 55
In reaching its decision on August 31, 1999 to recommend approval of the
original merger agreement, the special committee considered also the potentially
negative factors listed below relating to the merger:
1. The special committee considered the fact that some of the analysis
conducted by Jefferies & Company in connection with its fairness opinion
did not, taken alone, support the fairness of the transaction. For example,
the special committee considered the fact that the ratio of the average net
realizable value per share of Commercial Assets to that of Asset Investors
was .427, which is greater than the merger exchange ratio of .4075. The
special committee also considered the fact that the net realizable value
per share of Commercial Assets, according to the analysis prepared by
Jefferies & Company, was significantly greater than the then current market
value of the per share merger consideration.
2. The special committee considered the risk that the price for Asset
Investors' common stock could decrease or the price for Commercial Assets'
common stock could increase significantly prior to completion of the
merger. The special committee recognized that while such risk existed, it
was also possible that the opposite events could occur (i.e., that the
price of Commercial Assets' stock could decrease while the price of Asset
Investors' stock increased), although the special committee believed that
following announcement of the merger, it was likely that the prices of the
Commercial Assets and Asset Investors stock would generally mirror each
other's movements. The special committee also was cognizant of the fact
that if a drop in the price of Asset Investors stock resulted from a
material adverse change relating to Asset Investors, Commercial Assets
would not be obligated to proceed with the merger.
3. The special committee considered the interests of executive
officers and directors in the merger, including the fact that the executive
officers are executive officers and/or directors of Asset Investors. The
special committee recognized that it was because of these conflicts that
the board of directors of Commercial Assets had requested the special
committee to review and report to the board with its recommendations as to
the advisability of the merger. The special committee also recognized that
consummation of the merger would eliminate these conflicts.
4. The special committee considered the risk that the merger would not
be completed. In evaluating this risk, the Commercial Assets board of
directors considered the circumstances under which Asset Investors could
terminate the merger agreement and believed that it was unlikely that such
circumstances would occur.
5. The special committee considered the fact that it would be required
to pay a $2 million break-up fee to Asset Investors if it were to terminate
the merger agreement in order to accept a more favorable transaction, and
that such break-up fee could potentially discourage other potentially
better offers for Commercial Assets. However, the special committee, after
discussing this issue with its legal and financial advisors, recognized
that break-up fees of this kind are common in such transactions, and
believed that the amount of the fee, $2 million, was not so great that it
would discourage a third party from making a substantially better offer.
In reaching its decision on March 8, 2000, to recommend adoption of the
amended merger agreement, which included the cash election feature and the
increase in the vote required for Commercial Assets stockholders' adoption of
the merger from a simple majority to a two-thirds majority, the special
committee considered the following additional positive factors listed below:
1. The cash election option would permit those Commercial Assets
stockholders who wished to liquidate a portion of their investment an
opportunity to do so at a price that is higher than the closing price of
the stock at all times since the announcement of the original merger
agreement up to and including the trading day immediately preceding the day
on which the amended merger agreement was considered by the special
committee; although the special committee noted that such amount is less
than the "net realizable value" per share set forth in the report prepared
by the special committee's financial advisor in connection with its August
31, 1999 fairness opinion.
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2. The increase in the vote required for Commercial Assets
stockholders' adoption of the merger from a simple majority to a two-thirds
majority would give the stockholders of Commercial Assets other than Asset
Investors and its affiliates, greater influence over the decision as to
whether or not they wished to proceed with the merger. In this regard, the
special committee took particular note of the fact that adoption of the
merger would now effectively require that a majority of the shares of
Commercial Assets' common stock held by stockholders other than Asset
Investors and its affiliates would need to be voted in favor of the merger
in order for the merger agreement to be adopted.
3. Amending the merger agreement is required in order to implement the
settlement of the outstanding stockholders litigation and such settlement
will relieve Commercial Assets and the combined company of the expenses
inherent in defending such actions.
4. The amendment of the merger agreement would still permit those
stockholders who did not wish to receive cash for their shares with an
opportunity to enjoy substantially all of the positive factors cited by the
special committee when it originally recommended approval of the merger on
August 31, 1999.
In reaching its decision on March 8, 2000, to recommend adoption of the
amended merger agreement, the special committee considered the following
additional negative factors.
1. The special committee had not been asked to consider, and did not
consider, the fairness or adequacy of the merger consideration which will
be paid to those Commercial Assets stockholders who elect to receive cash
in the merger. The special committee determined that so long as no
Commercial Assets stockholder could be forced to accept cash, and so long
as the presence of the cash election would not interfere with the tax-free
nature of the transaction for Commercial Assets, Asset Investors and those
Commercial Assets stockholders who elected to receive shares of Asset
Investors' common stock, the presence of the cash election was acceptable.
Consistent with this position, the special committee did not ask for or
receive an opinion from its financial adviser as to whether or not the cash
election amount of $5.75 per share of Commercial Assets' common stock was
fair from a financial point of view; although the special committee noted
that such amount is less than the "net realizable value" per share set
forth in the report prepared by the special committee's financial advisor
in connection with its August 31, 1999 fairness opinion.
2. The increase in the vote required for adoption of the merger
agreement by Commercial Assets stockholders from a simple majority to a
two-thirds majority increased the possibility that the merger could be
rejected by the stockholders of Commercial Assets. However, the special
committee determined that this was an acceptable risk in view of the fact
that Asset Investors and its subsidiaries were contractually obligated to
vote their shares of Commercial Assets' common stock for the merger.
Therefore, the outcome of the Commercial Assets stockholder vote would
reflect the decision of the holders of at least a majority of the shares of
Commercial Assets' common stock held by Commercial Assets stockholders
other than Asset Investors and its affiliates.
3. Payment of expenses related to the settlement of the litigation as
well as the possible payment by the combined company of a substantial
amount of cash to those Commercial Assets stockholders electing to receive
cash in the merger, would substantially reduce the combined company's pro
forma cash reserves.
The above discussion of the information and factors considered by the
special committee is not intended to be exhaustive, but includes the material
factors considered by the special committee. In reaching its determination to
approve and recommend the merger, neither the Commercial Assets board nor the
special committee assigned any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors.
The rules of the SEC require Asset Investors, and its executive officers
and directors, to express their belief as to the fairness of the merger to the
holders of Commercial Assets' common stock. Asset Investors and each of its
executive officers and directors have considered the factors noted above, which
were taken
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into account by the Commercial Assets board of directors and its special
committee. In addition, Asset Investors and each of its executive officers and
directors believe that the long-term value of the merger to stockholders of both
Commercial Assets and Asset Investors are significant.
Although Asset Investors and each of its executive officers and directors
did not find it practicable to quantify or otherwise attach relative weight to
the specific factors they considered, they considered particularly important to
their analysis the delivery on August 31, 1999 by Jefferies & Company to the
special committee of Commercial Assets of an opinion that, as of that date, the
stock consideration to be received by the holders of Commercial Assets' common
stock, other than Asset Investors and its affiliates, in the merger was fair,
from a financial point of view to these holders. Additionally, Asset Investors
and each of its executive officers and directors view the option that Commercial
Assets stockholders, other than Asset Investors and the officers and directors
of Asset Investors and Commercial Assets, have to elect to receive $5.75 per
share in cash, subject to proration, as adding additional value in the merger to
Commercial Assets stockholders, other than Asset Investors and its affiliates.
On the basis of these considerations, Asset Investors and each of its
executive officers and directors determined that the merger is both procedurally
and substantively fair to the holders of Commercial Assets' common stock, other
than Asset investors and its affiliates.
The Commercial Assets board and its special committee have determined that
the merger is advisable and in the best interests of Commercial Assets and its
stockholders, other than Asset Investors and its affiliates, and recommend a
vote "FOR" adoption of the merger agreement. However, neither the Commercial
Assets board of directors nor the special committee makes any recommendation
with respect to stockholders who elect to receive cash for their shares of
Commercial Assets' common stock in the merger.
RECOMMENDATION OF THE ASSET INVESTORS BOARD OF DIRECTORS
The Asset Investors board of directors considered a number of factors in
reaching its determination that the merger is fair to and in the best interests
of Asset Investors' stockholders. The factors listed below represent the
material factors considered by the Asset Investors board of directors in
reaching its determination:
- the merger will create a larger, better capitalized combined REIT that is
closely focused on the ownership, acquisition and development of
manufactured home communities;
- the Asset Investors stockholders would benefit because the investment
portfolio underlying their Asset Investors investment would be broadened
as a result of the combination of Commercial Assets and Asset Investors;
- the elimination of the conflict of interest inherent in Asset Investors
role as Commercial Assets' manager would help the combined company more
effectively acquire additional manufactured home communities.
In reaching its decision to approve the original merger agreement on August
31, 1999 and recommend its adoption to the Asset Investors stockholders, the
Asset Investors board of directors consulted with Asset Investors management, as
well as with its legal advisors, and considered the positive factors listed
below:
1. The Asset Investors board considered favorably the fact that the
merger would result in a combined company with a less complex structure and
more streamlined decision making process.
2. The Asset Investors board considered favorably the fact that the
merger is expected to qualify as a tax-free reorganization and that the
consideration would not fluctuate even if the price of Commercial Assets'
and/or Asset Investors' common stock changes.
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3. The Asset Investors board reviewed the terms of the merger
agreement, including the representations, warranties and covenants and the
conditions to each party's obligation to complete the merger. The Asset
Investors board considered favorably:
- the conditions to each party's obligations to complete the merger are
typical or likely to be satisfied;
- Commercial Assets is not permitted to seek alternative transactions to
the merger unless it is required to under applicable law; and
- the $2 million break-up fee payable by Commercial Assets to Asset
Investors if Commercial Assets were to terminate the merger agreement
to accept a more favorable offer was unlikely to prevent a third party
from making a substantially better offer.
4. The Asset Investors board considered favorably the expectation that
the combined company should be able to eliminate annual expenditures
totaling approximately $400,000 that are incurred as a result of
maintaining two separate public companies including the duplication of the
following:
- directors fees and expenses;
- directors and officers insurance;
- stockholder reports;
- legal fees;
- audit fees; and
- stock exchange fees.
5. The Asset Investors board considered the ability of Asset Investors
and Commercial Assets to complete the merger, and determined that there was
a strong likelihood that the merger would be completed.
The Asset Investors board also considered on August 31, 1999 the
potentially negative factors listed below relating to the merger:
1. The Asset Investors board considered the risk that the price for
Commercial Assets' common stock could decrease or the price for Asset
Investors' common stock could increase significantly prior to completion of
the merger.
2. The Asset Investors board considered the risk that the merger would
not be completed. In evaluating this risk, the Asset Investors board
considered the circumstances under which Commercial Asset could terminate
the merger agreement.
3. The Asset Investors board considered the fact that it would be
required to pay a $2 million breakup fee to Commercial Assets if it were to
terminate the merger agreement in order to undertake another transaction.
4. The Asset Investors board also considered the fact that the merger
would dilute Asset Investors' funds from operations per share if the
combined company makes no future acquisitions.
In reaching its decision on March 8, 2000, to recommend adoption of the
amended merger agreement, which included the cash election feature and the
increase in the vote required for Commercial Assets stockholders' adoption of
the merger agreement from a simple majority to a two-thirds majority, the board
of directors considered the following additional positive factors listed below:
1. Amending the merger agreement is required in order to implement the
settlement of the outstanding stockholders litigation and such settlement
will relieve Asset Investors and the combined company of the expenses and
uncertainty inherent in defending such actions.
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2. The amendment of the merger agreement and the implementation of the
settlement of the stockholder litigation will eliminate the potential
future liability represented by the stockholder litigation.
In reaching its decision on March 8, 2000, to recommend the adoption of the
amended merger agreement, the board of directors considered the following
additional negative factors:
1. Payment of expenses related to the settlement of the litigation as
well as the possible payment by the combined company of a substantial
amount of cash to those Commercial Assets stockholders electing to receive
cash in the merger, would substantially reduce the combined company's pro
forma cash reserves.
2. The increase in the vote required for Commercial Assets
stockholders' adoption of the merger agreement from a simple majority to a
two-thirds majority would give the stockholders of Commercial Assets, other
than Asset Investors and its affiliates, greater influence over the
decision as to whether or not they wished to proceed with the merger. In
this regard, the board of directors took particular note of the fact that
adoption of the merger agreement would now effectively require that a
majority of the shares of Commercial Assets' common stock held by
stockholders other than Asset Investors and its affiliates would need to be
voted for adoption of the merger agreement in order for the merger to be
approved.
3. The consummation of the merger would be less certain given the
higher vote required for adoption of the merger agreement by Commercial
Assets stockholders.
4. The Asset Investors board also considered the fact that, if a
significant number of Commercial Assets stockholders elect to receive cash
in the merger, a substantial portion of the combined company's cash
reserves would be depleted.
The above discussion of the information and factors considered by the Asset
Investors board is not intended to be exhaustive, but includes the material
factors considered by the Asset Investors board. In reaching its determination
to approve and recommend the merger, the Asset Investors board did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
The Asset Investors board of directors has approved the merger, has
determined that the merger is in the best interests of Asset Investors and its
stockholders and recommends that Asset Investors stockholders vote "FOR"
adoption of the merger agreement.
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ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for by Asset Investors under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations," as amended. Purchase accounting for a merger is the
same as the accounting treatment used for the acquisition of any group of
assets. The fair market value of the consideration given by Asset Investors in
the merger is considered to be equal to the average closing share price of Asset
Investors' common stock as reported on the New York Stock Exchange for the
period from August 30, 1999 to September 2, 1999 multiplied by the number of
shares of Commercial Assets' common stock outstanding before the merger,
multiplied by the .4075 exchange ratio. Since the calculated purchase price of
the merger is less than the fair market value of Commercial Assets' assets, the
fair market value of Commercial Assets' noncurrent assets will be
proportionately reduced so that the recorded amount of Commercial Assets' assets
at the date of the merger equals the calculated fair market value of the merger
consideration as of the date of the merger. The financial statements of the
combined company will reflect the combined operations of Asset Investors and
Commercial Assets from the date of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
COMMERCIAL ASSETS STOCKHOLDERS
The following is a summary of the material Federal income tax consequences
of the merger to holders of Commercial Assets' common stock. This summary is
based on the Internal Revenue Code, Treasury regulations, administrative rulings
and pronouncements, and judicial decisions, all as of the date of this Joint
Proxy Statement/Prospectus and all of which are subject to change, possibly with
retroactive effect. This summary assumes that Commercial Assets stockholders
hold their common stock as capital assets. Generally, capital assets are
property held for investment. This summary does not address all aspects of
Federal taxation that may be relevant to particular holders of Commercial
Assets' common stock in light of their personal investment circumstances, or to
holders of Commercial Assets' common stock that are subject to special treatment
under the Internal Revenue Code which may be subject to tax rules that differ
significantly from those described below, such as:
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- broker-dealers;
- regulated investment companies;
- holders who received Commercial Assets' common stock through the exercise
of employee stock options or otherwise as compensation;
- foreign corporations;
- persons who are not citizens or residents of the United States; and
- persons holding Commercial Assets' common stock as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment.
This summary also does not discuss any state, local, foreign income or other tax
consequences of the merger. Holders of Commercial Assets' common stock are urged
to consult their tax advisors with respect to the particular tax consequences to
them of the merger, including tax return reporting requirements, the character
of any income recognized, the application and effect of any state, local or
foreign income or other tax laws, and the effect of any proposed changes in
applicable tax laws.
As a condition to their respective obligations to complete the merger,
Commercial Assets and Asset Investors will each receive an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, dated as of the
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closing date, to the effect that, for Federal income tax purposes, the merger
will constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.
It is the opinion of Skadden, Arps, Slate, Meagher & Flom LLP that the
merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. Accordingly, for Federal income tax purposes,
Commercial Assets and Asset Investors will not recognize gain or loss as a
result of the merger.
The opinions of Skadden, Arps, Slate, Meagher & Flom LLP described above
are based upon assumptions, including assumptions regarding the value of the
Asset Investors' common stock received in the merger. The opinions are also
conditioned upon factual representations and covenants made by Commercial Assets
and Asset Investors. These representations and covenants will be reconfirmed
prior to the closing of the merger. An opinion of counsel is not binding on the
IRS or the courts, and no assurance can be given that the IRS will not challenge
the tax treatment of the merger. No ruling has been or will be sought from the
IRS with regard to any of the tax consequences of the merger.
The following discussion addresses the material Federal income tax
consequences of the merger to holders of Commercial Assets' common stock.
ONLY STOCK RECEIVED
Except as discussed below with respect to cash received in lieu of a
fractional share of Asset Investors' common stock, a Commercial Assets
stockholder that receives only shares of Asset Investors' common stock in
exchange for its shares of Commercial Assets' common stock will not recognize
gain or loss. The tax basis of the shares of Asset Investors' common stock
received in the merger will be the same as the tax basis of the shares of
Commercial Assets' common stock exchanged for them, and the holding period of
the shares of Asset Investors' common stock received in the merger will include
the prior holding period of the shares of Commercial Assets' common stock
exchanged.
ONLY CASH RECEIVED
A Commercial Assets stockholder that receives only cash in the merger in
exchange for its shares of Commercial Assets' common stock generally will
recognize capital gain or loss for Federal income tax purposes, measured by the
difference between the amount of cash received with respect to each share of
Commercial Assets' common stock and its tax basis. The capital gain or loss will
be long-term capital gain or loss if the stockholder's holding period with
respect to its Commercial Assets' common stock exceeds one year as of the
effective time of the merger. A stockholder that actually or constructively owns
shares of Asset Investors' common stock after the merger, as a result of
constructive ownership of shares of Commercial Assets' common stock that are
exchanged for shares of Asset Investors' common stock in the merger, or as a
result of prior actual or constructive ownership of shares of Asset Investors'
common stock, may, in limited circumstances, be treated as receiving dividend
income rather than gain from the sale of stock. See "-- Both Stock and Cash
Received," below, for a description of these limited circumstances.
BOTH STOCK AND CASH RECEIVED
A Commercial Assets stockholder that receives both shares of Asset
Investors' common stock and cash in exchange for shares of Commercial Assets'
common stock will realize gain or loss equal to the difference between:
(1) the sum of the cash and the fair market value of the Asset
Investors' common stock received; and
(2) the stockholder's tax basis in its shares of Commercial Assets'
common stock exchanged.
Any gain realized will be recognized, for Federal income tax purposes, only
to the extent of cash received, however, and no loss will be recognized on the
exchange, except as discussed below with respect to cash received in lieu of a
fractional share of Asset Investors' common stock. For this purpose, gain or
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loss must be calculated separately for each identifiable block of shares
surrendered in the exchange, and a loss realized on one block of shares cannot
be used to offset a gain realized on another block of shares. Stockholders are
urged to consult their tax advisors regarding the ability to allocate cash and
Asset Investors' common stock among different blocks of Commercial Assets'
common stock. Except in the circumstances described below, any gain recognized
will generally be capital gain, and any such capital gain will be long-term
capital gain if the stockholder's holding period with respect to its Commercial
Assets' common stock exceeds one year as of the effective time of the merger.
In limited circumstances, recognized gain could be characterized as
dividend income in the hands of a particular stockholder. These circumstances
primarily involve cases where there is overlapping or constructive ownership, or
where the cash election is oversubscribed. Dividend treatment does not apply if
the receipt of cash is not "essentially equivalent to a dividend" within the
meaning of the Internal Revenue Code, which requires a determination based on a
stockholder's particular facts and circumstances. In general, where the receipt
of cash effectively results in any reduction in interest of a small, minority
stockholder in a publicly held corporation, as compared with the interest that
would have been held had the stockholder received only stock in the merger, the
transaction will be treated as not "essentially equivalent to a dividend,"
provided that the stockholder exercises no meaningful control over the
corporation.
In addition, gain resulting from the receipt of cash in the merger will not
be characterized as dividend income if the receipt is "substantially
disproportionate," which is generally the case where the receipt of cash causes
the stockholder to own, directly or constructively, less than 80 percent of the
amount of Asset Investors' common stock that would have been owned had the
stockholder received solely stock in the merger.
Finally, even if the receipt of cash would otherwise cause a stockholder to
recognize dividend income pursuant to the rules described above, the amount of
any gain that is characterized as a dividend is limited to the stockholder's
ratable share of Commercial Assets' accumulated earnings and profits. Commercial
Assets expects to have little, if any, accumulated earnings and profits at the
time of the merger.
The aggregate tax basis of a stockholder's shares of Asset Investors'
common stock received in the merger will be the same as the tax basis of the
shares of Commercial Assets' common stock exchanged in the merger, decreased by
the cash received and increased by the amount of gain recognized, including any
portion of the gain that is treated as a dividend. The holding period of the
shares of Asset Investors' common stock received will include the prior holding
period of the shares of Commercial Assets' common stock exchanged for them.
FRACTIONAL SHARES
Cash received by a Commercial Assets stockholder in lieu of a fractional
share of Asset Investors' common stock will be treated, for Federal income tax
purposes, as if the fractional share was actually received and then redeemed for
cash. In general, gain or loss will be recognized, measured by the difference
between the amount of cash received for the fractional share and the basis of
the Commercial Assets' common stock allocable to the fractional share. This gain
or loss will generally constitute capital gain or loss if the Commercial Assets'
common stock was held as a capital asset at the time of the merger.
MAXIMUM TAX RATES
The maximum Federal income tax rate that applies to individuals on their
ordinary income, including dividends, and gains from the sale or exchange of
capital assets held for one year or less, is 39.6%. The maximum individual
Federal income tax rate on gains from the sale of capital assets held for more
than one year is generally 20%. The maximum corporate Federal income tax rate,
which applies to both ordinary income and capital gains, is 35%.
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DESCRIPTION OF THE MERGER PROPOSAL
The board of directors of Asset Investors and the board of directors of
Commercial Assets have each approved a merger in which Commercial Assets will
merge with and into Asset Investors and Asset Investors will be the surviving
corporation. At the time of the merger, each outstanding share of Commercial
Assets' common stock will be converted into either:
- $5.75 in cash, subject to proration; or
- .4075 shares of Asset Investors' common stock.
Commercial Assets stockholders are being provided with a form of election
to indicate whether they prefer to receive stock or cash, subject to proration,
for their shares of Commercial Assets' common stock. See "DESCRIPTION OF THE
MERGER CONSIDERATION AND THE CASH ELECTION."
Under the terms of the merger agreement, Asset Investors has agreed to vote
the shares of Commercial Assets' common stock that it owns for the adoption of
the merger agreement and to elect to receive stock in the merger. The source of
the $20,411,741 in cash to be used as merger consideration is the existing cash
funds and short-term investments of Commercial Assets.
We estimate that, if all Commercial Assets stockholders elect to receive
shares of Asset Investors' common stock in the merger, current Asset Investors
stockholders will own approximately 64.0% of the Asset Investors' common stock
outstanding after the merger and current Commercial Assets stockholders other
than Asset Investors, which currently owns 26.6% of the outstanding common stock
of Commercial Assets, will own approximately 36.0% of the Asset Investors'
common stock outstanding after the merger. We estimate that if all Commercial
Assets stockholders, other than Asset Investors and the officers and directors
of Asset Investors and Commercial Assets, elect to receive cash, current
Commercial Assets stockholders, other than Asset Investors, will own
approximately 23.1% of the outstanding shares of Asset Investors' common stock
after the merger and current Asset Investors stockholders will own approximately
76.9% of the outstanding shares of Asset Investors' common stock after the
merger.
Stockholders of Asset Investors are being asked, at the Asset Investors
special meeting of stockholders, to adopt the merger agreement. Stockholders of
Commercial Assets are being asked, at the Commercial Assets special meeting of
stockholders, to adopt the merger agreement. Both the board of directors of
Commercial Assets and a special committee of independent directors of Commercial
Assets have determined that the merger is advisable and in the best interest of
Commercial Assets stockholders other than Asset Investors and its affiliates.
The board of directors of Asset Investors has also determined that the merger is
advisable and in the best interest of Asset Investors stockholders.
We estimate that the total expenses incurred in the merger by both
companies will total approximately $3 million. We estimate that:
- printing costs will total approximately $200,000;
- accounting fees will total approximately $400,000;
- legal fees will total approximately $1.4 million, including fees payable
to plaintiffs' counsel in the litigation.
The companies will divide the cost of expenses evenly.
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DESCRIPTION OF THE MERGER CONSIDERATION AND THE CASH ELECTION
Holders of Commercial Assets' common stock have the option to elect to
receive, for each share either:
- $5.75 in cash, subject to proration; or
- .4075 shares of Asset Investors' common stock.
All Commercial Assets stockholders who elect to receive stock will receive the
full amount of their election. If Commercial Assets stockholders in the
aggregate elect to receive cash for greater than 3,549,868 shares, cash will be
paid pro rata to stockholders electing to receive cash. In addition, in order to
maintain the tax-free status of the merger to Commercial Assets stockholders
that elect stock, we must limit the total cash paid to stockholders.
Accordingly, if the total cash paid in the merger, including cash paid in lieu
of fractional shares and cash paid to plaintiffs' attorneys in connection with
the settlement, exceeds 57.5% of the value of the total merger consideration,
the amount of cash available to electing stockholders will be reduced
accordingly. Stockholders for whom an election is not received will receive
stock only.
The merger agreement provides formulas to determine the proration of the
cash consideration among Commercial Assets stockholders electing cash in the
event stockholders in the aggregate elect to receive cash for greater than
3,549,868 shares. If stockholders in the aggregate elect to receive cash for
3,549,868 shares or less, then all stockholders electing to receive cash will
receive the full amount of their election.
If stockholders in the aggregate elect to receive cash for greater than
3,549,868 shares, a proration factor will be determined by dividing 3,549,868 by
the total number of shares for which a valid election to receive cash was made,
which we refer to as the "total cash election amount." The cash election amount
in each form of election will be multiplied by this proration factor to
determine the amount of cash each electing stockholder will receive under his or
her form of election, rounded down to the nearest whole number.
A form of election is being mailed to holders of Commercial Assets' common
stock as of the record date for the special meeting together with this Joint
Proxy Statement/Prospectus. Only stockholders of record on the record date will
have the right to elect to receive either shares of Assets Investors' common
stock or cash in the merger. Stockholders who do not submit a form of election
will receive .4075 shares of Asset Investors' common stock for each share of
Commercial Assets' common stock they hold. If your shares are held in "street
name" through your broker, your broker will mail your form of election to you
under separate cover, together with a letter of instructions for making an
election. You should read your form of election together with this Joint Proxy
Statement/Prospectus.
For a form of election to be effective, you must properly complete the form
of election, and send the form, duly endorsed in blank or by appropriate
guarantee of delivery as described in the form of election, to Norwest
Shareowner Services, Asset Investors' exchange agent. Norwest must receive the
completed form of election by [ ], the business day preceding the date
of the special meeting.
You may revoke your form of election prior to [ ] by sending
written notice executed by you to the exchange agent. In addition, the notice
must specify the person in whose name the Commercial Assets shares to be
withdrawn had been deposited, the number of shares to be withdrawn, the
registered holder of the shares and the serial numbers shown on the certificates
representing shares to be withdrawn.
The determination of the exchange agent as to whether or not elections have
been properly made or revoked, and which of these elections or revocations were
received, will be binding.
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The following examples illustrate the potential effects of the proration
described above assuming that the total cash paid in the merger does not exceed
57.5% of the value of the merger consideration.
- - Example A. Holder A owns 100 shares of Commercial Assets' common stock and
elects to receive cash for all of its shares.
If the stockholders of Commercial Assets in the aggregate elect to receive
cash for 3,549,868 or fewer shares, then Holder A would receive the full amount
of its election, or $575. This amount is calculated by multiplying the number of
shares covered by the election (100) by the cash election price per share of
$5.75.
- - Example B. Holder B owns 100 shares of Commercial Assets' common stock and
elects to receive shares of Asset Investors' common stock for all of its
shares.
Holder B will receive the full amount of its stock election regardless of
the elections of other stockholders. Thus Holder B will receive 40 shares of
Asset Investors' common stock and $3.51 in cash, as payment for the factional
share, assuming a closing price for Asset Investors' common stock on the
effective date of $11.50. This amount is calculated by multiplying the number of
shares covered by the election (100) by the exchange ratio of .4075. Fractional
shares will not be issued in the merger but will be paid in cash.
- - Example C. Holder C owns 100 shares of Commercial Assets' common stock and
elects to receive cash for all 100 shares.
If the stockholders of Commercial Assets, in the aggregate, elect to
receive cash for greater than 3,549,868 shares, then a proration factor will be
applied to each stockholder's cash election, and Holder C will receive a portion
of its consideration in stock and a portion in cash. For example, if the total
number of shares of Commercial Assets' common stock that elect to receive cash
is 4 million, then the proration factor would be determined by dividing
3,549,868 by 4 million, creating a factor of 89%. The 89% proration factor would
then be multiplied by the total number of shares for which Holder C elected to
receive cash, in this example, 100. Thus Holder C would receive:
- $511.75 in cash;
- 4 shares of Asset Investors' common stock; and
- $2.25 as payment for the fractional share, assuming a closing price for
Asset Investors' common stock on the effective date of $11.50.
DESCRIPTION OF THE PROPOSED AMENDMENT TO
ASSET INVESTORS' CERTIFICATE OF INCORPORATION
In addition to approving the merger, stockholders of Asset Investors are
being asked to approve an amendment to the Asset Investors certificate of
incorporation to effect the following changes:
Change of Name. The name of Asset Investors shall be changed to "American
Land Lease, Inc."
Revision and Clarification of the Restrictions on Transfer and Ownership of
Shares. For Asset Investors to qualify as a REIT under the Internal Revenue
Code, among other conditions, not more than 50% in value of its outstanding
stock may be owned, directly or indirectly, by five or fewer individual holders
during the last half of a taxable year, and its common stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a shorter taxable year.
In previous tax years, Asset Investors incurred net operating losses in the
amount of approximately $95 million. In general, a REIT may carry net operating
losses forward to subsequent years to offset income that would otherwise be
taxable in those years, or to reduce the amount of distributions that are
otherwise required to qualify as a REIT. Asset Investors also incurred capital
losses in previous tax years, approximately $20 million of which have been
carried forward to 1999. The ability to use net operating
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<PAGE> 66
losses and capital losses is limited, however, if Asset Investors undergoes an
"ownership change" within the meaning of the Internal Revenue Code and the
Treasury regulations. In general, an ownership change occurs if one or more
large stockholders, known as "5% stockholders," including certain groups of
shareholders that may be aggregated and treated as a single 5% shareholder,
increase their aggregate percentage interest in Asset Investors by more than 50
percentage points over their lowest ownership percentage during the preceding
three-year period. Because the board of directors of Asset Investors believes
that it is desirable for Asset Investors to continue to qualify as a REIT, and
to preserve the availability of its net operating losses, the board of directors
of Asset Investors has approved an amendment to Asset Investors' current
certificate of incorporation that would revise, strengthen, and clarify the
operation of the ownership limitations contained in its certificate of
incorporation.
The current Asset Investors certificate of incorporation limits direct or
indirect ownership of its capital stock by any single stockholder to 9.8% of the
outstanding shares. If the merger is completed, the certificate of incorporation
of the combined company would provide, among other things, that direct or
constructive ownership of shares of stock be limited in the following
situations, subject to the power reserved by the board of directors to grant
specific exemptions:
- if the ownership by any person would exceed 5% of the shares of any class
of Asset Investors' stock;
- if Asset Investors would otherwise fail to satisfy either of the
stockholder requirements for REIT qualification as described above;
- if Asset Investors would otherwise undergo an ownership change that would
limit the availability of its net operating losses; and
- if ownership by any person or persons would cause Asset Investors to
receive income of a nature that would prevent it from satisfying the
gross income requirements that apply to REITs, for example, if the
ownership causes Asset Investors to receive, from a related party, rental
income that does not qualify for purposes of the gross income
requirements.
In the event of a violation of the ownership limitations described above,
the shares of Asset Investors' stock in excess of the ownership limit would be
automatically transferred to a trust for the benefit of a charitable
beneficiary, and the intended owner would acquire no rights in those shares. If
the transfer of Asset Investors' common stock to a trust in the manner described
in the preceding sentence is ineffective for any reason, the certificate of
incorporation would further provide that the transaction, such as a purchase of
shares, which would otherwise cause the violation of an ownership limitation, is
void, and the intended owner would acquire no rights in those shares.
Asset Investors believes that these amended ownership limit provisions will
clarify the ownership limitation provisions and may help Asset Investors
maintain its qualification as a REIT and the availability of its net operating
losses. See "FEDERAL INCOME TAXATION OF ASSET INVESTORS AND ITS
STOCKHOLDERS -- Taxation of Asset Investors -- Loss Carryovers."
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<PAGE> 67
MEMBERS OF MANAGEMENT HAVE INTERESTS
THAT ARE DIFFERENT FROM YOURS
Several members of the board of directors and management of Commercial
Assets are also members of the board of directors and management of Asset
Investors. Additionally, these members of the board of directors and management
of both companies own shares of common stock in both companies. Persons who are
members of the board of directors of both companies or who hold executive
offices in both companies have interests that differ from yours. To mitigate the
conflict of interest, the board of directors of Commercial Assets assigned the
task of considering and approving the merger and recommending that stockholders
adopt the merger agreement to its special committee of independent directors.
The following chart indicates the directors and executive officers who,
because they hold positions in both companies and own shares of common stock of
both companies, have a conflict of interest in the merger. The share ownership
information includes shares of common stock owned outright, Asset Investors
Operating Partnership units that are convertible into common stock of Asset
Investors and options to acquire common stock that are or will become
exercisable within 60 days. The column "Asset Investors' Common Stock Owned"
includes the number of shares of Asset Investors' common stock owned, the number
of Asset Investors Operating Partnership units owned that may be exchanged for
an equal number of shares of Asset Investors' common stock, and the number of
options to acquire shares of Asset Investors' common stock that are or will
become exercisable within 60 days. The column "Commercial Assets' Common Stock
Owned" includes the number of shares of Commercial Assets' common stock owned
and options to acquire shares of Commercial Assets' common stock that are or
will become exercisable within 60 days. All information presented below is as of
January 7, 2000.
<TABLE>
<CAPTION>
ASSET COMMERCIAL
INVESTORS' PERCENT COMMERCIAL ASSETS' PERCENT
ASSET INVESTORS COMMON OF ASSETS COMMON OF
NAME POSITION(S) HELD STOCK OWNED CLASS POSITION(S) HELD STOCK OWNED CLASS
- ---- ---------------- ----------- ------- ---------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Terry Considine(1).......... Chairman of the Board 628,432 10.5% Chairman of the Board 161,815 1.6%
of Directors, Chief of Directors, Chief
Executive Officer Executive Officer
Thomas L. Rhodes(2)......... Vice Chairman of the 255,857 4.4% Vice Chairman of the 72,148 *
Board of Directors Board of Directors
Bruce E. Moore(3)........... Director, President, 229,813 3.9% Director, President 0 --
Chief Operating Chief Operating
Officer Officer
Bruce D. Benson(4).......... Director 148,492 2.6% Director 133,186 1.3%
David M. Becker(5).......... Chief Financial 28,110 * Chief Financial 0 --
Officer, Secretary, Officer, Secretary
Treasurer Treasurer
Raymond T. Baker(6)......... -- 2,202 * Director, Member of 100,418 *
Special Committee
Thomas C. Fries(7).......... -- -- -- Director, Member of 103,716 1.0%
Special Committee
Donald L. Kortz(8).......... -- 4,432 * Director, Chairman of 99,316 *
Special Committee
Robert J. Malone(9)......... -- 4,584 * Director, Member of 91,982 *
Special Committee
* Less than 1%
</TABLE>
- ---------------
(1) Mr. Considine owns 260,854 shares of Asset Investors' common stock, 240,659
Asset Investors Operating Partnership units and 126,919 options to acquire
Asset Investors' common stock that are or will become exercisable within 60
days. Mr. Considine owns 133,571 shares of Commercial Assets' common stock
and options to acquire 28,244 shares of Commercial Assets' common stock that
are or will become exercisable within 60 days. Mr. Considine receives no
salary from either company for his service as a director and executive
officer, however, he does receive stock options.
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<PAGE> 68
(2) Mr. Rhodes owns 41,444 shares of Asset Investors' common stock, 168,037
Asset Investors Operating Partnership units and 44,689 options to acquire
Asset Investors' common stock that are or will become exercisable within 60
days. Mr. Rhodes owns 61,198 shares of Commercial Assets' common stock and
options to acquire 10,950 shares of Commercial Assets' common stock that are
or will become exercisable within 60 days. Mr. Rhodes receives no salary
from either company for his service as a director or executive officer,
however, he does receive stock options.
(3) Mr. Moore owns 37,791 shares of Asset Investors' common stock, 25,355 Asset
Investors Operating Partnership units and 166,667 options to acquire Asset
Investors' common stock that are or will become exercisable within 60 days.
Mr. Moore owns no shares of Commercial Assets' common stock. Mr. Moore
receives no salary from either company for his service as a director and
executive officer, however, he does receive stock options.
(4) Mr. Benson owns 42,509 shares of Asset Investors' common stock, 75,160 Asset
Investors Operating Partnership units and 30,823 options to acquire Asset
Investors' common stock that are or will become exercisable within 60 days.
Mr. Benson owns 64,880 shares of Commercial Assets' common stock and options
to acquire 68,306 shares of Commercial Assets' common stock that are or will
become exercisable within 60 days.
(5) Mr. Becker owns 8,110 shares of Asset Investors' common stock, no Asset
Investors Operating Partnership units and 20,000 options to acquire Asset
Investor's common stock that are or will become exercisable within 60 days.
Mr. Becker owns no shares of Commercial Assets' common stock.
(6) Mr. Baker owns 62,918 shares of Commercial Assets' common stock and 37,500
options to acquire Commercial Assets' common stock that are or will become
exercisable within 60 days.
(7) Mr. Fries owns 56,216 shares of Commercial Assets' common stock and 47,500
options to acquire Commercial Assets' common stock that are or will become
exercisable within 60 days.
(8) Mr. Kortz owns 61,816 shares of Commercial Assets' common stock and 37,500
options to acquire Commercial Assets' common stock that are or will become
exercisable within 60 days.
(9) Mr. Malone owns 54,482 shares of Commercial Assets' common stock and 37,500
options to acquire Commercial Assets' common stock that are or will become
exercisable within 60 days.
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<PAGE> 69
PURCHASES OF SHARES
The following table indicates, with respect to any purchases of Commercial
Assets' common stock made by Asset Investors or affiliates of Asset Investors,
including Commercial Assets, since January 1, 1998, the range of prices paid for
such stock, the amount of shares purchased and the average purchase price for
such shares for each quarterly period since January 1, 1998:
<TABLE>
<CAPTION>
AMOUNT OF RANGE OF AVERAGE
PURCHASER QUARTERLY PERIOD SHARES PURCHASED PRICES PURCHASE PRICE
- --------- ---------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Commercial Assets....... 2nd Quarter 1999 24,500 $7.34 $7.34
Terry Considine......... 2nd Quarter 1999 26,000 $4.94 - $5.50 $5.19
4th Quarter 1999 30,000 $4.81 $4.81
Thomas L. Rhodes........ 2nd Quarter 1999 35,000 $5.00 - $5.63 $5.23
Bruce D. Benson......... 2nd Quarter 1998(1) 4,404 $6.81 $6.81
2nd Quarter 1999(1) 5,700 $5.06 $5.06
Robert J. Malone........ 2nd Quarter 1998(1) 4,404 $6.81 $6.81
2nd Quarter 1999(1) 5,700 $5.06 $5.06
Thomas C. Fries......... 2nd Quarter 1998(1) 4,404 $6.81 $6.81
2nd Quarter 1999(1) 5,700 $5.06 $5.06
Donald L. Kortz......... 2nd Quarter 1998(1) 4,404 $6.81 $6.81
1st Quarter 1999 4,000 $5.75 $5.75
2nd Quarter 1999(2) 7,300 $5.06 - $5.63 $5.18
Raymond T. Baker........ 2nd Quarter 1998(3) 5,536 $6.44 - $6.81 $6.74
2nd Quarter 1999(1) 5,700 $5.06 $5.06
</TABLE>
- ---------------
(1) Represents shares issued as payment of annual directors fees.
(2) 5,700 represent shares issued at $5.06 per share for annual director fees.
Balance represent purchases.
(3) 4,404 represent shares issued at $6.81 per share for annual director fees.
Balance represent purchases.
RELATED TRANSACTIONS
ASSET INVESTORS MANAGEMENT AGREEMENT
Commercial Assets' daily operations are performed by a manager pursuant to
an agreement that is in effect through December 31, 2000. Since November 1997,
Asset Investors has been the manager. For 1999, the management agreement was
amended to provide that the incentive fee would be based on funds from
operations, less an annual capital replacement reserve of at least $50 per
developed homesite. The management agreement is subject to the annual approval
of a majority of Commercial Assets' independent directors and can be terminated
by either party, without cause, with 60 days' notice to the other party.
Asset Investors receives various fees for the advisory and other services
performed in connection with the management agreement. Asset Investors, at its
expense, provides all personnel and some overhead items necessary to conduct
Commercial Assets' regular business. Since Commercial Assets has no employees,
the officers of Asset Investors are also the officers of Commercial Assets.
Commercial Assets has agreed to indemnify Asset Investors 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 Asset
Investors made in good faith and in accordance with the standards of the
management agreement.
Under the management agreement, Asset Investors may receive a base fee, an
acquisition fee, an incentive fee, and an administrative fee. For 1999,
Commercial Assets paid to Asset Investors base fees of $565,000 and acquisition
fees of $205,000. No incentive fees or administrative fees were paid in 1999.
See
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"Organization" in Commercial Assets' Quarterly Report on Form 10-Q/A (Amendment
No. 1) for the quarterly period ended September 30, 1999 and Commercial Assets'
Current Report of Form 8-K filed with the SEC on January 31, 2000.
TRANSACTIONS INVOLVING ASSET INVESTORS AND MR. MOORE
Property management and accounting for Commercial Assets communities is
performed by AIC Community Management Partnership. Asset Investors owns 50% of
AIC Community Management Partnership and Mr. Moore, President, Chief Operating
Officer and a director of both Commercial Assets and Asset Investors, indirectly
owned 17.5% of AIC Community Management Partnership. During 1999, Commercial
Assets communities paid $164,000 in fees to AIC Community Management
Partnership. Effective January 1, 2000, Asset Investors acquired the 50% of AIC
Community Management Partnership that it did not already own for $380,000.
Entities in which Mr. Moore had a 50% ownership interest provide real
estate brokerage services for both new home sales and existing home resales and
maintenance services in Commercial Assets communities and Asset Investors
communities. As such, these companies receive fees for maintenance services
provided and receive commissions from Commercial Assets communities, Asset
Investors communities or the homeowner depending on the circumstances. During
1999, Commercial Assets communities paid $658,000 in fees to these companies for
maintenance services provided. In addition, Commercial Assets communities paid
$46,000 in commissions to these companies during 1999. Effective January 1,
1999, Asset Investors acquired the inventory of homes, the activities and
personnel of these companies for a total price of $687,000.
TRANSACTIONS INVOLVING MR. RHODES
During 1999, Commercial Assets paid finder's fees of $225,000 to Thomas L.
Rhodes II, the adult son of the Vice Chairman of Commercial Assets and Asset
Investors. These fees were paid in connection with Commercial Assets'
acquisition of manufactured home communities and represent 1% of the cost of
acquisition. Commercial Assets' management believes the finder's fees paid to
Thomas L. Rhodes II were consistent with similar arrangements in the industry.
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<PAGE> 71
THE SPECIAL MEETING OF THE STOCKHOLDERS OF COMMERCIAL ASSETS
This Joint Proxy Statement/Prospectus is accompanied by the notice of
special meeting and a form of proxy that is solicited by the Commercial Assets
board of directors for use at the special meeting of Commercial Assets
stockholders to be held on , 2000, at 11:00 a.m., local time, at
2000 S. Colorado Blvd., 10th Floor, Denver, Colorado, and at any postponements
or adjournments of the special meeting. Representatives of Ernst & Young LLP,
independent auditors of Commercial Assets, will be present at the special
meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
MATTERS TO BE CONSIDERED
At the Commercial Assets special meeting, Commercial Assets stockholders
will be asked to consider and vote upon a proposal to adopt the merger
agreement. We anticipate that the merger will occur as promptly as practical
after the Commercial Assets special meeting.
PROXIES
If you are a Commercial Assets stockholder, you may use the accompanying
proxy if you are unable to attend the special meeting in person or wish to have
your shares voted by proxy even if you do attend the special meeting. You may
revoke any proxy given by you at any time before the vote is taken at the
special meeting. You can do this in one of three ways. First, you may send a
written notice dated later than your proxy card stating that you would like to
revoke your current proxy. Second, you may complete and submit a new proxy card
dated later than your original proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy card to the
secretary of Commercial Assets. The secretary must receive the notice or new
proxy card before the vote is taken at the special meeting. Third, you can
attend the special meeting and vote in person. Simply attending the special
meeting, however, will not revoke your proxy. If you have instructed a broker to
vote your shares, you must follow the directions received from your broker as to
how to change your vote.
SOLICITATION OF PROXIES
The enclosed proxy is being solicited by Commercial Assets. In addition to
solicitations by mail, solicitations may be made by personal interview,
telephone and telegram by Commercial Assets directors and officers. No
additional compensation will be paid to the Commercial Assets directors and
officers for the solicitation of proxies. Commercial Assets will employ
Corporate Investor Communications, Inc. to assist it in the solicitation of
proxies. Commercial Assets expects to incur a fee of approximately $20,000, plus
reimbursement of out-of-pocket expenses for this service. All costs of the
solicitation will be paid solely by Commercial Assets. Commercial Assets 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 these shares.
FORMS OF ELECTION
Asset Investors has mailed a form for making an election to receive either
cash or stock with this Joint Proxy Statement/Prospectus to stockholders of
record of Commercial Assets as of the record date for the special meeting. Only
stockholders of record on the record date will have the right to elect to
receive cash or stock in the merger. If you do not submit a form of election
indicating your preference to receive cash for your shares of Commercial Assets'
common stock, you will receive .4075 shares of Asset Investors' common stock for
each share of Commercial Assets' common stock you own. If your shares are held
in "street name" through your broker, your broker will mail your form of
election to you under separate cover, together with a letter of instructions for
making an election. Since the total amount of cash available for payment to
Commercial Assets stockholders is limited, you may not receive the full amount
of cash you elect. All stockholders electing to receive shares of Asset
Investors' common stock will receive shares of Asset Investors' common stock at
an exchange rate of .4075 shares of Asset Investors' common
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<PAGE> 72
stock per share of Commercial Assets' common stock. You should read your form of
election together with this Joint Proxy Statement/Prospectus. See "DESCRIPTION
OF THE MERGER CONSIDERATION AND CASH ELECTION."
For a form of election to be effective, holders of Commercial Assets'
common stock must properly complete the form of election, and send the form,
duly endorsed in blank or otherwise in a form which is acceptable for transfer
on the books of Commercial Assets or by appropriate guarantee of delivery as
described in the form of election, to Norwest Shareowner Services, Asset
Investors' exchange agent. Norwest must receive the completed form of election
by 5:00 p.m. Eastern time, on [ ], the business day preceding the
date of the special meeting.
The determination of the exchange agent as to whether or not elections have
been properly made or revoked, and which of these elections or revocations were
received, will be binding.
VOTING RIGHTS AND VOTES REQUIRED
Holders of record of shares of Commercial Assets' common stock at the close
of business on , 2000, the record date for the special meeting, are
entitled to notice of, and to vote at, the special meeting. On the record date,
, , shares of Commercial Assets' common stock were outstanding
and held by stockholders of record. The presence, in person or by proxy, of
shares of Commercial Assets' common stock representing a majority of the
outstanding shares of Commercial Assets' common stock entitled to vote on the
record date is necessary to constitute a quorum at the special meeting. Shares
represented by proxies that reflect abstentions or "broker non-votes," i.e.,
shares held by a broker or nominee which are represented at the special meeting,
but with respect to which the broker or nominee is not empowered to vote on a
particular proposal, will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum.
Each share of Commercial Assets' common stock outstanding on the record
date is entitled to one vote on each matter presented at the special meeting. If
you are voting by proxy, for your vote to be counted, your properly completed
proxy must be received by the secretary of Commercial Assets prior to the time
the vote is taken at the special meeting. If your shares are held by your broker
or other nominee in "street name," your broker will vote your shares only if you
provide instructions as to how to vote your shares. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares. Without instructions, your shares may not be voted by that broker.
We will not complete the merger unless we receive the affirmative vote of
two-thirds of the outstanding shares of Commercial Assets' common stock. Asset
Investors, which holds approximately 26.6% of the outstanding shares of
Commercial Assets' common stock, has agreed to vote all of its shares of
Commercial Assets' common stock "FOR" adoption of the merger agreement. In
addition, the executive officers and directors of Asset Investors and Commercial
Assets, who hold 5.2% of the outstanding shares of Commercial Assets' common
stock collectively, have each indicated their intention to vote "FOR" adoption
of the merger agreement and have agreed to elect to receive stock in the merger.
Therefore, adoption of the merger agreement will require the affirmative vote of
stockholders holding approximately 51% of the outstanding shares of Commercial
Assets' common stock not held by Asset Investors or the executive officers and
directors of Asset Investors and Commercial Assets.
BECAUSE APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF TWO-THIRDS
OF THE OUTSTANDING SHARES OF COMMERCIAL ASSETS' COMMON STOCK, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
VOTING OF PROXIES
Shares of Commercial Assets' common stock represented by all properly
executed proxies received prior to the vote at the special meeting will be voted
as specified in the proxy. Unless contrary instructions are indicated on the
proxy, the shares of Commercial Assets' common stock represented by the proxy
will be voted "FOR" adoption of the merger agreement. Commercial Assets
currently knows of no other
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<PAGE> 73
business to be brought before the special meeting other than as described
herein. If any other matters are presented properly to the stockholders for
action at the special 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 of Commercial Assets' common stock represented
by the proxy are entitled to vote.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Delaware General Corporation Law, holders of Commercial Assets'
common stock are not entitled to dissenters' rights of appraisal in the merger.
RECOMMENDATION OF THE COMMERCIAL ASSETS BOARD AND THE SPECIAL COMMITTEE OF THE
BOARD
The special committee has recommended that the Commercial Assets board of
directors approve the merger, and the Commercial Assets board of directors has
approved the merger agreement. Both the special committee and the board of
directors of Commercial Assets have determined that the merger agreement is
advisable and in the best interests of Commercial Assets and its stockholders
other than Asset Investors and its affiliates and recommend that Commercial
Assets stockholders vote "FOR" adoption of the merger agreement.
Whether or not you are able to attend the Commercial Assets special
meeting, your vote by proxy is very important. Commercial Assets stockholders
are encouraged to mark, sign and date the enclosed proxy and mail it promptly in
the enclosed return envelope.
THE SPECIAL MEETING OF THE STOCKHOLDERS OF ASSET INVESTORS
This Joint Proxy Statement/Prospectus is accompanied by the notice of
special meeting and a form of proxy that is solicited by the Asset Investors
board of directors for use at the special meeting of Asset Investors
stockholders to be held on , 2000, at 10:00 a.m., local time, at
2000 S. Colorado Blvd., 10th Floor, Denver, Colorado, and at any postponements
or adjournments of the special meeting. Representatives of Ernst & Young LLP,
independent auditors of Asset Investors, will be present at the special meeting,
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
MATTERS TO BE CONSIDERED
At the Asset Investors special meeting, Asset Investors stockholders will
be asked to consider and vote upon a proposal to adopt the merger agreement and
a proposal to amend the certificate of incorporation of Asset Investors. We
anticipate that the merger will occur as promptly as practical after the Asset
Investors special meeting.
PROXIES
If you are an Asset Investors stockholder, you may use the accompanying
proxy if you are unable to attend the special meeting in person or wish to have
your shares voted by proxy even if you do attend the special meeting. You may
revoke any proxy given by you at any time before the vote is taken at the
special meeting. You can do this in one of three ways. First, you may send a
written notice dated later than your proxy card stating that you would like to
revoke your current proxy. Second, you may complete and submit a new proxy card
dated later than your original proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy card to the
secretary of Asset Investors. The secretary must receive the notice or new proxy
card before the vote is taken at the special meeting. Third, you can attend the
special meeting and vote in person. Simply attending the special meeting,
however, will not revoke your proxy. If you have instructed a broker to vote
your shares, you must follow the directions received from your broker as to how
to change your vote.
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<PAGE> 74
SOLICITATION OF PROXIES
The enclosed proxy is being solicited by Asset Investors. In addition to
solicitations by mail, solicitations may be made by personal interview,
telephone and telegram by Asset Investors directors and officers. No additional
compensation will be paid to the Asset Investors directors and officers for the
solicitation of proxies. Asset Investors will employ Corporate Investor
Communications, Inc. to assist it in the solicitation of proxies. Asset
Investors expects to incur a fee of approximately $20,000, plus reimbursement of
out-of-pocket expenses for this service. All costs of the solicitation will be
paid solely by Asset Investors. Asset Investors 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 the shares.
VOTING RIGHTS AND VOTES REQUIRED
Holders of record of shares of Asset Investors' common stock at the close
of business on , 2000, the record date for the special meeting, are
entitled to notice of, and to vote at, the special meeting. On the record date,
, , shares of Asset Investors' common stock were outstanding and
held by stockholders of record. The presence, in person or by proxy, of
shares of Asset Investors' common stock representing a majority of the
outstanding shares of Asset Investors' common stock entitled to vote on the
record date is necessary to constitute a quorum at the special meeting. Shares
represented by proxies that reflect abstentions or "broker non-votes," i.e.,
shares held by a broker or nominee which are represented at the special meeting,
but with respect to which the broker or nominee is not empowered to vote on a
particular proposal, will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum.
Each share of Asset Investors' common stock outstanding on the record date
is entitled to one vote on each matter presented at the special meeting. If you
are voting by proxy, for your vote to be counted, your properly completed proxy
must be received by the secretary of Asset Investors prior to the time the vote
is taken at the special meeting. If your shares are held by your broker or other
nominee in "street name," your broker will vote your shares only if you provide
instructions as to how to vote your shares. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares. Without instructions, your shares may not be voted by that broker.
Under applicable state law, adoption of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of Asset
Investors' common stock entitled to vote on the merger agreement. Under
applicable state law, the proposed amendment to the Asset Investors certificate
of incorporation requires the affirmative vote of a majority of the outstanding
shares of Asset Investors' common stock entitled to vote on the proposed
amendment.
BECAUSE APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY
OF THE OUTSTANDING SHARES OF ASSET INVESTORS' COMMON STOCK, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER. BECAUSE
APPROVAL OF THE PROPOSED AMENDMENT TO THE ASSET INVESTORS CERTIFICATE OF
INCORPORATION REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING
SHARES OF ASSET INVESTORS' COMMON STOCK, ABSTENTIONS AND BROKER NON-VOTES WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED AMENDMENT.
VOTING OF PROXIES
Shares of Asset Investors' common stock represented by all properly
executed proxies received prior to the vote at the special meeting will be voted
as specified in the proxy. Unless contrary instructions are indicated on the
proxy, the shares of Asset Investors' common stock represented by the proxy will
be voted "FOR" the adoption of the merger agreement. Asset Investors currently
knows of no other business to be brought before the special meeting other than
as described herein.
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<PAGE> 75
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Delaware General Corporation Law, holders of Asset Investors'
common stock are not entitled to dissenters' rights of appraisal in the merger.
RECOMMENDATION OF THE ASSET INVESTORS BOARD OF DIRECTORS
The Asset Investors board of directors has approved the merger, has
determined that the merger is fair to and in the best interests of Asset
Investors and its stockholders and recommends that Asset Investors stockholders
vote "FOR" adoption of the merger agreement.
The Asset Investors board of directors has approved the proposed amendment
to the Asset Investors certificate of incorporation and recommends that Asset
Investors stockholders vote "FOR" the approval of the proposed amendment to the
Asset Investors certificate of incorporation.
Whether or not you are able to attend the Asset Investors special meeting,
your vote by proxy is very important. Asset Investors stockholders are
encouraged to mark, sign and date the enclosed proxy and mail it promptly in the
enclosed return envelope.
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THE MERGER AGREEMENT
This section of the Joint Proxy Statement/Prospectus describes material
provisions of the merger agreement. Because this description of the merger
agreement is a summary, it does not contain all the information that may be
important to you. You should read carefully the entire copy of the merger
agreement, which is included in this Joint Proxy Statement/Prospectus as Annex
A.
FORM OF MERGER
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, Commercial Assets will merge with and into Asset
Investors, with Asset Investors being the surviving corporation.
CLOSING OF THE MERGER; EFFECTIVE TIME OF THE MERGER
Unless another time or date is agreed to by the parties, the closing will
take place at 10:00 am, Los Angeles time, on the fifth business day after
satisfaction or waiver of the conditions set forth in the merger agreement. The
merger will become effective when a certificate of merger is filed with and
accepted by the Secretary of State of the State of Delaware or a later date if
the certificate of merger specifies a later date.
SURVIVING CORPORATION CERTIFICATE OF INCORPORATION
Asset Investors will be the surviving corporation of the merger. The
certificate of incorporation of Asset Investors will be amended to read as set
forth in Annex B.
SURVIVING CORPORATION BYLAWS
The bylaws of Asset Investors, in effect immediately prior to the time of
the merger, shall become the bylaws of the surviving corporation.
DIRECTORS AND OFFICERS
The officers of Asset Investors at the time of the merger will become the
officers of the surviving corporation. The directors of the surviving
corporation will be:
- Terry Considine;
- Thomas L. Rhodes;
- Bruce Moore;
- Bruce D. Benson;
- Elliot H. Kline;
- Richard L. Robinson;
- Tim Schultz; and
- William J. White.
These directors shall serve until their successors have been elected,
appointed or qualified or until their earlier death, resignation or removal in
accordance with the certificate of incorporation and the bylaws of the surviving
corporation. See "ASSET INVESTORS' BOARD OF DIRECTORS FOLLOWING THE MERGER."
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CONSIDERATION TO BE RECEIVED BY COMMERCIAL ASSETS STOCKHOLDERS
On the date the merger becomes effective, each outstanding share of
Commercial Assets' common stock shall be converted, based on each stockholder's
election, into the right to receive either:
- $5.75 in cash, subject to proration; or
- .4075 shares of Asset Investors' common stock.
To the extent that Commercial Assets stockholders elect to receive, in the
aggregate, cash for greater than 3,549,868 shares, cash will be distributed pro
rata among stockholders electing to receive cash. In the event the cash election
is oversubscribed, the merger agreement provides for the calculation of a
proration factor by dividing 3,549,868 by the total cash election amount, and
applying the resulting factor to each stockholders' cash election. In addition,
in order to maintain the tax-free status of the merger to Commercial Assets
stockholders that elect stock, we must limit the total cash paid to
stockholders. Accordingly, if the total cash paid in the merger, including cash
paid in lieu of fractional shares and cash paid to plaintiffs' attorneys in
connection with the settlement, exceeds 57.5% of the value of the total merger
consideration, the amount of cash available to electing stockholders will be
reduced accordingly. For a discussion of the mechanics of the election see
"DESCRIPTION OF THE MERGER CONSIDERATION AND THE CASH ELECTION." Holders of
Commercial Assets' common stock will receive cash in lieu of fractional shares
of Asset Investors' common stock.
Each issued and outstanding share of Asset Investors' common stock will
remain outstanding and will not be affected by the merger except that 114,200
shares of Asset Investors' common stock currently held by Commercial Assets will
be cancelled.
EXCHANGE OF CERTIFICATES
At the time of the merger, Asset Investors will designate an exchange agent
with whom Asset Investors will deposit certificates representing shares of Asset
Investors' common stock along with an amount of cash necessary for the payment
of any dividends and distributions set forth in the merger agreement and for
payment of fractional shares.
Soon after the completion of the merger, the exchange agent will mail to
each holder of Commercial Assets' common stock a letter stating the conditions
and instructions for the exchange of Commercial Assets' common stock for the
consideration to which they are entitled. Once the Commercial Assets' common
stock is surrendered to the exchange agent, the Commercial Assets' stockholder
will receive a certificate representing that whole number of shares of Asset
Investors' common stock that the Commercial Assets stockholder is entitled to,
and any distributions or dividends paid on these shares, and cash in lieu of any
fractional shares of Asset Investors' common stock.
Commercial Assets stockholders will not be entitled to receive any
dividends or other distributions payable by Asset Investors until they exchange
their Commercial Assets' stock certificates for certificates representing shares
of Asset Investors' common stock. Once they deliver their Commercial Assets'
stock certificates to the exchange agent, the Commercial Assets stockholders
will receive any accumulated dividends and distributions to which they are
entitled. No interest shall be paid or will accrue on any amounts payable to
Commercial Assets stockholders.
NO FRACTIONAL SHARES WILL BE ISSUED
No certificates representing fractional shares of Asset Investors' common
stock resulting from the conversion will be issued. Instead of receiving
fractional shares of Asset Investors' common stock, each former holder of
Commercial Assets' common stock will receive cash. The amount of that cash that
will be paid in place of fractional shares will be equal to the fractional
percentage of the share to which a holder was entitled, multiplied by the
closing price of a share of Asset Investors' common stock on the New York Stock
Exchange Composite Transaction Tape on the closing date of the merger.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains the following material representations and
warranties of Asset Investors and Commercial Assets:
1. each company is duly organized and in good standing under the laws
of the jurisdiction in which it is organized;
2. the capitalization of each company including number of shares
authorized and outstanding;
3. each company has the requisite corporate power to enter into the
merger agreement;
4. absence of any breach of organizational documents or material
agreements as a result of the contemplated transactions;
5. accuracy of all filings with the Securities and Exchange Commission
and financial statements;
6. the lack of any material undisclosed liabilities;
7. the lack of any material misstatement contained in information
supplied for use in this Joint Proxy Statement/Prospectus;
8. absence of certain changes or events affecting either company which
could have a material adverse effect on either company;
9. each company's REIT status;
10. each company's tax matters and compliance with relevant tax laws;
11. required vote of stockholders of each company to approve the
merger; and
12. the lack of any brokers entitled to fees or commissions in
connection with the merger.
COMMERCIAL ASSETS' EMPLOYEE BENEFIT PLANS
Employee stock options to acquire shares of Commercial Assets' common stock
will be converted into employee stock options to acquire shares of Asset
Investors. The terms of the Asset Investors stock options will be substantially
the same as the terms currently applicable to the Commercial Assets stock
options.
CONDITIONS TO CONSUMMATION OF MERGER
The merger agreement contains conditions to complete the merger. Neither
Asset Investors nor Commercial Assets will be obligated to complete the merger
unless the following conditions are satisfied or waived:
- Governmental and Regulatory Approvals: All consents, approvals, and
actions of, filings with and notices to any governmental entity have been
obtained or made;
- Settlement Order: The Delaware Chancery Court shall have entered a final
and nonappealable settlement order on substantially the terms set forth
in the memorandum of understanding;
- No Injunctions or Restraints are in Effect: No legal restraint or
prohibition shall be in effect preventing the consummation of the merger
or which may likely have a material adverse effect on Asset Investors or
Commercial Assets;
- Joint Proxy Statement/Prospectus Form S-4: The Joint Proxy
Statement/Prospectus Form S-4 shall be effective under the Securities Act
of 1933 prior to the mailing of this Joint Proxy Statement/Prospectus to
the stockholders of Asset Investors and Commercial Assets and no stop
order or pending stop order shall be entered by the Securities and
Exchange Commission;
- Stockholder Approval: The stockholders of Asset Investors and Commercial
Assets have approved their respective merger proposals, as described in
this Joint Proxy Statement/Prospectus;
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- NYSE Listing: The shares of Asset Investors' common stock issuable in the
merger have been approved for listing on the New York Stock Exchange.
Asset Investors will not be required to complete the merger unless the
following conditions are satisfied or waived:
- Representations and Warranties are True and Correct: The representations
and warranties made by Commercial Assets in the merger agreement are true
and correct on the date that the merger is completed, unless the failure
to be true and correct does not, or would not reasonably be expected to,
result in a Material Adverse Effect on Asset Investors;
- Performance of Obligations of Commercial Assets: Commercial Assets has
performed all obligations required under the merger agreement at or prior
to the closing date of the merger;
- No Material Adverse Change: At any time after the date of the merger
agreement there is not a Material Adverse Change relating to Commercial
Assets;
- Receipt of Tax Opinion: Asset Investors has received an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP that the merger will constitute
a tax-free reorganization under the Internal Revenue Code, Asset
Investors and Commercial Assets are each parties to the reorganization,
and Commercial Assets qualifies as a REIT.
Commercial Assets will not be required to complete the merger unless the
following conditions are satisfied or waived:
- Representations and Warranties are True and Correct: The representations
and warranties made by Asset Investors in the merger agreement are true
and correct on the date that the merger is completed, unless the failure
to be true and correct does not, or would not reasonably be expected to,
result in a Material Adverse Effect on Commercial Assets;
- Performance of Obligations of Asset Investors: Asset Investors has
performed all obligations required under the merger agreement at or prior
to the closing date of the merger;
- No Material Adverse Change: At any time after the date of the merger
agreement there is not a Material Adverse Change relating to Asset
Investors;
- Receipt of Tax Opinion: Commercial Assets has received an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP that the merger will constitute
a tax-free reorganization under the Internal Revenue Code, Asset
Investors and Commercial Assets are each parties to the reorganization,
and Asset Investors qualifies as a REIT.
Under the merger agreement, "Material Adverse Effect" or "Material Adverse
Change" means any change, effect, event, occurrence or state of facts that is or
would reasonably be expected to be, materially adverse to the business,
financial conditions or results of operations of either Asset Investors or
Commercial Assets. "Material Adverse Effect" or "Material Adverse Change" does
not include the effects of changes relating to the United States economy or the
United States securities markets, the manufactured housing community in general,
changes in GAAP, the merger agreement and any contemplated transactions, and the
resignation of officers or employees of Commercial Assets or Asset Investors.
In the event that any material condition is waived by the parties, we
intend to resolicit approval of our stockholders to the merger.
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
The merger agreement provides that, until the merger has been completed,
Commercial Assets and Asset Investors will conduct their respective businesses
in the ordinary course and consistent with past
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practice and in compliance in all material respects with all applicable laws and
regulations and use reasonable efforts to:
- preserve intact their current business organizations;
- keep available the services of their current officers and other
employees; and
- preserve their relationships with those persons having business dealings
with them.
From the date of the merger agreement to the time the merger occurs,
Commercial Assets and Asset Investors have agreed that neither party will take
the following actions without the consent of the other party:
- the declaration, set aside or payment of any dividends or other
distributions, other than regular quarterly dividends not significantly
in excess of past dividends, or the entry into any agreement relating to
the voting of any capital stock;
- the split, combination or reclassification of any of its capital stock;
- the purchase, redemption or acquisition of any shares of capital stock or
any of its subsidiaries' capital stock, other than in the ordinary course
of business;
- the issuance, delivery, sale, pledge or other encumbrance of any shares
of its capital stock;
- the amendment of its certificate of incorporation, bylaws or other
comparable organizational documents (except that Asset Investors may
amend its certificate of incorporation in a manner consistent with Annex
B);
- the authorization or commitment to agree to take any of these actions;
and
- the solicitation of an alternative transaction or acceptance of an
alternate proposal made by another party.
In addition, Asset Investors has agreed to vote its shares of Commercial
Assets' common stock in favor of the merger. Furthermore, Asset Investors, its
officers and directors and the officers and directors of Commercial Assets have
agreed to elect to receive stock in the merger.
TERMINATION
The merger agreement may be terminated at any time before the date the
merger becomes effective in any of the following circumstances:
- by mutual written consent of Asset Investors and Commercial Assets;
- by either party if any of the required approvals of the stockholders of
Asset Investors or Commercial Assets are not obtained at a stockholders
meeting of either company, including any postponements or adjournments
thereof;
- by either party if a court or governmental entity has issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the merger, and the order, decree,
ruling or other action has become final and nonappealable;
- by either party if the other party breaches any of its representations,
warranties, covenants or other agreements contained in the merger
agreement, and the breach is incapable of being cured or renders a
condition incapable of being satisfied prior to the applicable
termination date or if a condition to that party's obligation to complete
the merger cannot be performed;
- by either party if prior to its stockholder meeting, its board of
directors determines in good faith, after consultation with outside
counsel, that in light of a proposal that is more favorable to such
party's stockholders than the merger, its failure to enter into the more
favorable proposal could reasonably be seen as a breach of fiduciary duty
to its stockholders;
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- by either party if the board of directors of the other party (1)
withdraws or materially modifies its approval of the merger or (2)
recommends or approves any alternative transaction set forth in the
merger agreement with a third party or (3) resolves to take any such
actions;
- by either party if the other party or any of its officers, directors,
representatives or agents (1) solicits or takes any other action designed
to facilitate any inquiries from third parties about alternative
transactions or (2) participates in any substantive discussion or
negotiations regarding any alternative transactions; or
- if the merger is not completed by the earlier of June 15, 2000 or 60 days
after the Joint Proxy Statement/Prospectus is declared effective by the
SEC. This termination right is not available to any party whose failure
to fulfill any obligation has been the cause of, or resulted in, the
failure of any condition to be satisfied.
FEES AND EXPENSES
Except as provided below, regardless of whether the merger is completed,
Commercial Assets and Asset Investors will pay their own fees and expenses
incurred in connection with the merger and each party will be responsible for
one-half of any and all filing fees required to be paid to the Securities and
Exchange Commission in connection with the merger.
Pursuant to the merger agreement:
- the terminating party is obligated to pay the other party a termination
fee of $2 million if the merger agreement is terminated by the
terminating party because the board of directors of the terminating party
determines in good faith, after consultation with outside counsel, that
in light of a proposal that is more favorable to its stockholders than
the merger, its failure to enter into the more favorable proposal could
reasonably be seen as a breach of fiduciary duty to its stockholders;
- Upon Asset Investors' request, Commercial Assets is obligated to pay the
reasonable out-of-pocket expenses incurred by Asset Investors in
connection with the merger agreement if a public announcement of an
alternative transaction with a third party involving Commercial Assets is
made and after the announcement, the merger agreement is terminated by
either Commercial Assets or Asset Investors because the Commercial Assets
stockholder approval was not obtained, or by Asset Investors because (1)
the Commercial Assets board of directors withdraws or materially modifies
its approval of the merger or recommends or approves any alternative
transaction with a third party or resolves to take any such actions, or
(2) Commercial Assets or any of its officers, directors, representatives
or agents solicits or takes any other action not permitted under the
merger agreement designed to facilitate any inquiries from third parties
about alternative transactions set forth in the merger agreement or
participates in any substantive discussion or negotiations regarding any
alternative transactions;
- In addition, if, within 12 months following any such termination
Commercial Assets enters into an agreement to proceed with an alternative
transaction with a third party, and that transaction is later completed,
Commercial Assets will be required to pay Asset Investors a fee of $2
million, less the amount of any out-of-pocket fees previously reimbursed
by Commercial Assets to Asset Investors.
- Upon Commercial Assets' request, Asset Investors is obligated to pay the
reasonable out-of-pocket expenses incurred by Commercial Assets in
connection with the merger agreement if a public announcement of an
alternative transaction with a third party is made and after the
announcement, the merger agreement is terminated by either Asset
Investors or Commercial Assets because the Asset Investors stockholder
approval was not obtained, or by Commercial Assets because (1) the Asset
Investors board of directors withdraws or materially modifies its
approval of the merger or recommends or approves any alternative
transaction with a third party or resolves to take any such actions, or
(2) Asset Investors or any of its officers, directors, representatives or
agents solicits or takes any other action not permitted under the merger
agreement designed to facilitate any inquiries
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from third parties about alternative transactions set forth in the merger
agreement or participates in any substantive discussion or negotiations
regarding any alternative transactions; and
- In addition, if, within 12 months following any such termination Asset
Investors enters into an agreement to proceed with an alternative
transaction with a third party, and that transaction is later completed,
Asset Investors will be required to pay Commercial Assets a fee of $2
million, less the amount of any out-of-pocket fees previously reimbursed
by Asset Investors to Commercial Assets.
- payment of the fees described above may be delayed or eliminated as
necessary to permit compliance by the recipient with the gross income
requirements that apply to REITs.
ASSET INVESTORS' BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following persons are the current executive officers and directors of
Asset Investors. The merger agreement provides that, after the merger, the
directors and executive officers of Asset Investors shall be the current
directors and executive officers of Asset Investors. Furthermore, with respect
to the following persons:
- all are citizens of the United States;
- none have been convicted in a criminal proceeding during the past five
years;
- none have been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final
order enjoining the person from future violations of, or prohibiting
activities subject to, Federal or state securities laws, or a finding of
any violation of Federal or state securities laws; and
- none have familial relationships with each other.
Unless otherwise noted, the principal business address of each person or entity
listed below is the address of Asset Investors, 3410 South Galena Street, Suite
210, Denver, Colorado 80231.
Terry Considine (age 52) has been chairman of the board of directors and
chief executive officer of Asset Investors and Commercial Assets since April
1998. From September 1996 to April 1998, Mr. Considine served as co-chairman of
the board of directors and co-chief executive officer of Asset Investors and
Commercial Assets. He is the sole owner of Considine Investment Co. and has
since July 1994 been the chairman of the board of directors and chief executive
officer of Apartment Investment and Management Company.
Thomas L. Rhodes (age 60) has been vice chairman of the board of directors
of Commercial Assets and Asset Investors since April 1998. From September 1996
to April 1998, Mr. Rhodes served as co-chairman of the board of directors and
co-chief executive officer of Commercial Assets and Asset Investors. Mr. Rhodes
has also been a director of Apartment Investment and Management Company since
July 1994. 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 currently
serves as a director of Delphi Financial Group, Inc. and its subsidiaries,
Delphi International, Ltd., Oracle Reinsurance and The Lynde and Harry Bradley
Foundation. Mr. Rhodes is a trustee of The Heritage Foundation.
Bruce Moore (age 57) was appointed president and chief operating officer of
Asset Investors in February 1998 and president and chief operating officer of
Commercial Assets in October 1998. Mr. Moore is the founder and was the chief
executive officer of Brandywine Financial Services Corporation and its
affiliates, or "Brandywine," a private real estate firm specializing in various
aspects of the real estate industry, including asset management, consulting,
development, property management, brokerage and capital formation. He is a
certified public accountant, holds a Masters in Accounting and a Bachelor of
Science in Economics from the Wharton School of the University of Pennsylvania.
Mr. Moore is a director and past president of the Media Youth Center, and a past
advisory-board member for the Department of Recreation and Intercollegiate
Athletics for the University of Pennsylvania. In addition,
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Mr. Moore is a member of the National Association of Real Estate Investment
Trusts and the Internation Council of Shopping Centers.
Bruce D. Benson (age 61) has served as a Director of Asset Investors and
Commercial Assets since October 1996 and previously served as a Director of
Asset Investors from February 1992 through November 1993. In February 1998, Mr.
Benson became the Chairman of Asset Investors' compensation committee. 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 listed on the American Stock Exchange.
He serves on numerous Boards of Trustees and Boards of Directors, including
Chairman, Denver Zoological Foundation; Past Chairman and Past President and a
current Director of Boy Scouts of America, Denver Area Council; Trustee Emeritus
and Past President of the Board of Trustees, Berkshire School, Sheffield,
Massachusetts and Trustee of Colorado UpLIFT. He is also a Past President and
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 Total Learning Environmental Capital
Campaign of the University of Colorado. In 1994, he was the Republican nominee
for the Governor of Colorado.
Elliot H. Kline(age 59) has served as a Director of Asset Investors since
September 1988, as a member of its compensation committee since February 1998,
as a member of its audit committee since December 1988 and as Chairman of the
audit committee since November 1990. 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 (age 70) has served as a Director of Asset Investors
since January 1990, as a member of its audit committee since August 1993 and as
a member of its compensation committee since February 1998. 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 US Exploration. 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 (age 51) has served as Director of Asset Investors and as a
member of its audit committee since July 1994. In February 1998, Mr. Schultz
became a member of Asset Investors' compensation committee. He is President and
Executive Director of the Boettcher Foundation, a Colorado not-for-profit,
charitable cooperation, 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.
William J. White (age 61) has served as Director of Asset Investors and
member of its audit committee since December 1996, and became a member of its
compensation committee in February 1998. 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,
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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 served in various
positions culminating as Chairman of Kirchner Moore and Company, an investment
banking firm. Mr. White serves on the Board of Directors of Guaranty Bank and
Trust Company.
David M. Becker (age 40) has functioned as Asset Investors' chief financial
officer, treasurer and secretary since December 1997 and was appointed to such
position in April 1998. From September 1995 until joining Asset Investors, he
was both the chief financial officer of Westfield Development Company, Inc. and
vice president-finance of the Frederick Ross Co., related companies involved in
commercial real estate development, brokerage and management. Prior to September
1995, he held various executive positions with CONCORD Services, Inc., a
privately-held company involved in multiple businesses, including trading,
manufacturing and finance. CONCORD Services, Inc. declared bankruptcy in
February 1995.
Upon completion of the merger, the board of directors of Asset Investors
will consist of eight members divided into three classes serving staggered
terms, with one class of directors elected annually. The terms of the directors
constituting Class I will expire in 2000. The terms of the directors
constituting Class II extend through 2001, and the terms of the directors in
Class III extend through 2002. The table below indicates the names of the
directors in each class and the expiration of the terms of the directors in each
Class.
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
- ---------------------------- ---------------------------- ----------------------------
(TERMS EXPIRING IN 2000) (TERMS EXPIRING IN 2001) (TERMS EXPIRING IN 2002)
<S> <C> <C>
Elliot H. Kline Terry Considine Thomas L. Rhodes
Tim Schultz Bruce D. Benson William J. White
Richard L. Robinson Bruce Moore
</TABLE>
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SECURITY OWNERSHIP OF FIVE PERCENT BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information as of January 7, 2000 regarding
the beneficial ownership of Asset Investors' and Commercial Assets' common stock
by each person who is known by Asset Investors to beneficially own more than 5%
of the outstanding shares of Asset Investors' and Commercial Assets' common
stock, each director of Asset Investors and Commercial Assets, specified
executive officers of Asset Investors and Commercial Assets, and all directors
and executive officers as a group.
ASSET INVESTORS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER(1) OWNERSHIP CLASS(2)
- --------------------------- ---------- ----------
<S> <C> <C>
Terry Considine(3).......................................... 628,432 10.5%
Thomas L. Rhodes(4)......................................... 255,857 4.4%
Bruce E. Moore(5)........................................... 229,813 3.9%
Bruce D. Benson(6).......................................... 148,492 2.6%
Elliot H. Kline(7).......................................... 52,318 *
Richard L. Robinson(8)...................................... 55,502 1.0%
Tim Schultz(9).............................................. 32,536 *
William J. White(10)........................................ 18,500 *
David M. Becker(11)......................................... 28,110 *
Robert G. Blatz............................................. 40,000 *
The Wilder Corporation of Delaware(12)...................... 601,891 10.6%
3000 Gulf-to-Bay Blvd., 6th Floor
Clearwater, Florida 34619
All directors and executive officers as a group (10
persons).................................................. 1,489,560 22.6%
</TABLE>
- ---------------
* Denotes ownership of less than 1% of the outstanding shares of Asset
Investors' common stock.
(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 and such person's address is 3410 South Galena Street, Suite
210, Denver, Colorado 80231. Excludes units of limited partnership of Asset
Investors Operating Partnership that are not redeemable within 60 days.
(2) All shares which a person had the right to acquire within 60 days after the
record date 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 October 15, 1999, 5,632,569 shares were outstanding.
(3) Includes 178,354 shares held by Titahotwo Limited Partnership and
Titahothree Limited Partnership in which Mr. Considine serves as general
partner. Includes 126,919 options exercisable and 240,659 Asset Investors
Operating Partnership units redeemable within 60 days.
(4) Includes 44,689 options exercisable and 168,037 Asset Investors Operating
Partnership units redeemable within 60 days.
(5) Includes 8,721 shares of Asset Investors' common stock owned by Brandywine
Real Estate Management Services Corporation, an entity in which the
stockholder owns a 50% interest, and 166,667 options exercisable and 25,355
Asset Investors Operating Partnership units redeemable within 60 days.
(6) Includes 30,823 options exercisable and 75,160 Asset Investors Operating
Partnership units redeemable within 60 days.
(7) Includes 17,600 options exercisable within 60 days.
(8) Includes 17,600 options exercisable within 60 days.
(9) Includes 17,600 options exercisable within 60 days.
(10) Includes 12,100 options exercisable within 60 days.
(11) Includes 20,000 options exercisable within 60 days.
(12) Includes 56,960 Asset Investors Operating Partnership units redeemable
within 60 days.
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<PAGE> 86
COMMERCIAL ASSETS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS(3)
- --------------------------- -------------------- ----------
<S> <C> <C>
Asset Investors Operating Partnership, L.P.................. 2,761,126 26.6%
Terry Considine(4).......................................... 161,815 1.6%
Thomas L. Rhodes(5)......................................... 72,148 *
Bruce E. Moore.............................................. 0 *
Raymond T. Baker(6)......................................... 100,418 1.0%
Bruce D. Benson(7).......................................... 133,186 1.3%
Thomas C. Fries(8).......................................... 103,716 1.0%
Donald L. Kortz(6).......................................... 99,316 1.0%
Robert J. Malone(6)......................................... 91,982 *
All directors and executive officers as a group (8
persons).................................................. 762,581 7.2%
</TABLE>
- ---------------
* Denotes ownership of less than 1% of the outstanding shares of Commercial
Assets' common stock.
(1) Unless otherwise indicated, the address for each stockholder is 3410 South
Galena Street, Suite 210, Denver, Colorado 80231.
(2) Includes, where applicable, shares of Commercial Assets' common stock 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.
(3) All shares of Commercial Assets' common stock which a person had the right
to acquire within 60 days after the record date, 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. On January 7,
2000, 10,368,029 shares of Commercial Assets' common stock were outstanding.
(4) Includes 107,571 shares of Commercial Assets' common stock held by Titahotwo
Limited Partnership, in which Mr. Considine serves as general partner, and
28,244 options exercisable within 60 days which are held by Titahotwo.
(5) Includes 10,950 options exercisable within 60 days.
(6) Includes 37,500 options exercisable within 60 days.
(7) Includes 68,306 options exercisable within 60 days.
(8) Includes 47,500 options exercisable within 60 days.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF COMMERCIAL
ASSETS AND ASSET INVESTORS BEFORE AND AFTER THE MERGER
The rights of Asset Investors stockholders are currently governed by the
Delaware General Corporation Law, the Amended and Restated Certificate of
Incorporation of Asset Investors and the By-Laws of Asset Investors. The rights
of Commercial Assets stockholders are currently governed by the Delaware General
Corporation Law, the Amended and Restated Certificate of Incorporation of
Commercial Assets and the By-Laws of Commercial Assets. In accordance with the
merger agreement, at the time the merger becomes effective, each outstanding
share of Commercial Assets' common stock will be converted based on each
stockholder's election, into either:
- $5.75 in cash, subject to proration; or
- .4075 shares of Asset Investors' common stock.
Treasury shares of Commercial Assets' common stock, shares of Asset Investors'
common stock held by Commercial Assets and treasury shares of Asset Investors
shall be canceled. In the merger, the Asset Investors Amended and Restated
Certificate of Incorporation will be amended. Accordingly, upon
79
<PAGE> 87
completion of the merger, the rights of Asset Investors stockholders and
Commercial Assets stockholders who become Asset Investors stockholders as a
result of the merger will be governed by the Delaware General Corporation Law,
the Second Amended and Restated Certificate of Incorporation of Asset Investors
and the By-Laws of Asset Investors. The following is a comparison of rights of
Commercial Assets stockholders and Asset Investors stockholders before and after
the merger.
The following discussion includes and is limited to all material provisions
and changes, is not intended to be complete and is qualified by reference to the
Amended and Restated Certificate of Incorporation and By-Laws of Asset Investors
and the Amended and Restated Certificate of Incorporation and By-Laws of
Commercial Assets. Copies of these documents are exhibits to Asset Investors'
and Commercial Assets' Annual Reports on Form 10-K, which are incorporated by
reference and will be sent to stockholders of Asset Investors and Commercial
Assets, upon request.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES
Before the Merger. Under the Commercial Assets and Asset Investors
certificates of incorporation before the merger, no person may acquire in the
aggregate, greater than 9.8% of any class of stock of Commercial Assets or Asset
Investors. In addition, the Commercial Assets and Asset Investors boards of
directors are empowered to refuse to transfer any shares of Commercial Assets or
Asset Investors if the ownership of shares by that person would result in the
imposition of a tax on Commercial Assets or Asset Investors or another holder of
shares of Commercial Assets or Asset Investors.
After the Merger. Under the Amended Certificate of Incorporation of Asset
Investors after the merger, no person will be permitted to acquire more than 5%
of the aggregate value of the outstanding shares of any class of stock of Asset
Investors, unless this restriction is waived by the Asset Investors board of
directors. If any unpermitted transfer of shares of stock of Asset Investors
would result in a person owning greater than 5% of the aggregate value of the
outstanding shares of any class of stock of Asset Investors, all shares that are
in excess of the 5% limit will be transferred in trust for the benefit of a
charitable beneficiary. Within 90 days of receiving notice from Asset Investors
that shares of its stock have been transferred to the trust, the trustee of the
trust shall sell the shares held in trust and distribute the proceeds from the
sale of the shares in the following manner:
- the prohibited owner whose shares were transferred to the trust will
receive the lesser of the amount that the prohibited owner paid for the
shares or the amount the trustee receives for shares; and
- any amounts remaining from the sale will be transferred to a charitable
beneficiary.
At the end of each year, every owner of more than a prescribed percentage,
generally 5%, of the outstanding shares of Asset Investors stock will be
required to provide Asset Investors with written notice stating the name and
address of the owner, the number of shares held and a description of the manner
of ownership.
AUTHORIZED CAPITAL STOCK
Before the Merger. The authorized capital stock of Commercial Assets
consists of 75,000,000 shares of common stock, par value $.01 per share, and
25,000,000 shares of preferred stock, par value $.01 per share. As of
, 2000, 10,368,029 shares of common stock were outstanding and no
shares of preferred stock were outstanding.
After the Merger. The authorized capital stock of Asset Investors after the
merger will consist of 35,000,000 shares of common stock, par value $.01 per
share, and 15,000,000 shares of preferred stock, par value $.01 per share. At
the time the merger is completed, if all Commercial Assets stockholders elect to
receive stock we expect that 8,574,818 shares of Asset Investors' common stock
and no shares of preferred stock will be outstanding. If all Commercial Assets
stockholders elect to receive cash we expect that 7,128,247 shares of Asset
Investors' common stock will be outstanding.
80
<PAGE> 88
COMMITTEES OF THE BOARD OF DIRECTORS
Before the Merger. Under the Commercial Assets By-Laws, the Commercial
Assets board of directors may appoint from its members an executive committee,
an audit committee and other committees composed of two or more directors,
provided that a majority of the members shall be independent directors. The
board of directors may delegate any powers to any committee to the extent
permitted by law.
After the Merger. Under the Asset Investors By-Laws, the Asset Investors
board of directors may appoint from its members an executive committee, an audit
committee and other committees composed of two or more directors, provided that
a majority of the members shall be independent directors. The board of directors
may delegate to any committee any power of the board except the power to declare
dividends or distributions on stock, recommend to the stockholders any action
which requires stockholder approval, amend the by-laws, approve any merger or
share exchange which does not require stockholder approval, or issue stock.
However, if the board of directors has given general authorization for the
issuance of stock, a committee of the board, in accordance with a general
formula or method specified by the board of directors by resolution or by
adoption of a stock plan, may fix the terms of stock subject to classification
or reclassification and the terms on which any stock may be issued. These
provisions are unchanged for the Asset Investors stockholders by virtue of the
merger.
DUTIES AND POWERS OF THE BOARD OF DIRECTORS
Before the Merger. Under the Commercial Assets By-Laws, the business of the
company shall be managed by or under the direction of the board of directors,
which may exercise all powers of the company and do all lawful acts and things
as are not required by statute, the certificate of incorporation or the by-laws
to be exercised or done by the stockholders.
The board of directors shall be responsible for establishing the investment
policies of the company. In addition, action by the majority of the directors,
including a majority of the independent directors, is required to establish or
approve modifications to the policies of the company with respect to: the
content, frequency and stockholder review of annual reports; changes to the
contract with the company's advisor; and compensation of the advisor.
After the Merger. Under the Asset Investors By-Laws, the business of the
company shall be managed by or under the direction of the board of directors,
which may exercise all the powers of the company and do all lawful acts and
things that are not required by statute, the certificate of incorporation or the
by-laws to be exercised or done by the stockholders.
The board of directors shall be responsible for establishing the investment
policies of the company. In addition, action by the majority of the directors,
including a majority of the independent directors, is required to establish or
approve modifications to the policies of the company with respect to: the
content, frequency and stockholder review of annual reports; changes to the
contract with the company's advisor; and compensation of the advisor; the
maximum operating expenses to be borne by the company in connection with a
public offering of the common stock of the company; the commissions and fees the
company will pay in acquiring investment properties; the appraisal of properties
to be purchased by the company; and the establishment of an amendment to any
dividend reinvestment plan. These provisions are unchanged for Asset Investors
stockholders by virtue of the merger.
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<PAGE> 89
DESCRIPTION OF ASSET INVESTORS' CAPITAL STOCK
ASSET INVESTORS' AUTHORIZED CAPITAL STOCK
Asset Investors' authorized capital stock consists of 35,000,000 shares of
common stock, par value $.01 per share, and 15,000,000 shares of preferred
stock, par value $.01 per share. As of , 2000, shares of
Asset Investors' common stock and no shares of Asset Investors' preferred stock
were issued and outstanding. This discussion of Asset Investors' common stock
does not describe changes to the Asset Investors certificate of incorporation
that Asset Investors stockholders are being asked to adopt in this Joint Proxy
Statement/Prospectus. If the merger agreement is adopted by the Asset Investors
stockholders, the changes to the Asset Investors certificate of incorporation
would change the rights of holders of Asset Investors' common stock. You should
read the section "DESCRIPTION OF THE MERGER PROPOSAL."
ASSET INVESTORS' COMMON STOCK
Holders of Asset Investors' common stock are entitled to one vote per share
for the election of directors and for all other matters to be voted on by the
stockholders of Asset Investors. Holders of Asset Investors' common stock have
no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Asset Investors' common stock are
subject to the prior rights of the holders of any series of Asset Investors'
preferred stock, whether currently outstanding or designated and issued in the
future. All outstanding shares of Asset Investors' common stock are duly
authorized, validly issued, fully paid and nonassessable.
Asset Investors' common stock is currently listed on the New York Stock
Exchange.
Norwest Shareowner Services of Minnesota is the stock transfer agent and
registrar for the Asset Investors common stock.
ASSET INVESTORS' PREFERRED STOCK
The Asset Investors board of directors has the authority to issue shares of
preferred stock in one or more classes or series. The board of directors also
has the authority to set the designations, powers, preferences and rights of the
shares of each class or series of preferred stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES
The ownership and transfer of shares of Asset Investors' common stock and
preferred stock, if issued and outstanding, is restricted. No person may own an
aggregate of more than 9.8% of the outstanding shares of Asset Investors' stock.
Additionally, the Asset Investors board of directors is authorized to require
that any person who intends to receive shares of Asset Investors' stock from a
stockholder of Asset Investors, file an affidavit with Asset Investors declaring
the amount of shares of Asset Investors' stock already owned by such person. The
Asset Investors board of directors is authorized to refuse to transfer any
shares of Asset Investors' stock that would result in the ownership by any
stockholder of greater than 9.8% of the outstanding shares of Asset Investors'
stock.
Any acquisition of shares of Asset Investors' stock that would cause Asset
Investors to be disqualified as a real estate investment trust for Federal tax
purposes shall be void. Furthermore, any person who attempts to acquire shares
of Asset Investors' stock in a transaction that would cause Asset Investors to
be disqualified as a REIT is deemed never to have had an interest in the shares.
The Asset Investors board of directors is authorized to take any other action it
deems necessary or advisable to protect the status of Asset Investors as a REIT
for Federal income tax purposes.
In the merger, Asset Investors' certificate of incorporation will be
amended to, among other things, change the restrictions on transfer and
ownership of Asset Investors' shares. If the merger agreement is adopted, the
restrictions on transfer and ownership of Asset Investors' shares after the
merger will differ from current restrictions. See "DESCRIPTION OF THE MERGER
PROPOSAL."
82
<PAGE> 90
PRO FORMA FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION OF ASSET INVESTORS
On August 31, 1999, Asset Investors and Commercial Assets agreed to merge
as follows:
- Asset Investors will issue 4,224,972 shares of its common stock to
holders of Commercial Assets' common stock at an exchange ratio of 0.4075
share of Asset Investors' common stock for each share of Commercial
Assets' common stock; and
- the 114,200 shares of Asset Investors' common stock that Commercial
Assets currently owns will be cancelled.
On , 2000, Asset Investors and Commercial Assets agreed to amend the
terms of the merger agreement to provide that holders of Commercial Assets'
common stock could elect to sell up to 3,549,868 shares of Commercial Assets'
common stock for cash at a price of $5.75 per share. All other shares of
Commercial Assets' common stock will be exchanged for shares of Asset Investors'
common stock at the same exchange ratio as agreed upon on August 31, 1999.
During 1998, (a) Asset Investors acquired interests in seven manufactured
home communities for aggregate purchase consideration of $60.2 million, of which
$58.1 million was paid in cash and $2.1 million was paid in the form of 123,000
Asset Investors Operating Partnership units and (b) Commercial Assets acquired
interests in one manufactured home community for aggregate purchase
consideration of $11.3 million paid in cash.
During the nine months ended September 30, 1999, Commercial Assets acquired
interests in seven manufactured home communities and adjoining land for
aggregate purchase consideration of $46.4 million, of which:
- $29.6 million was paid in cash;
- $9.0 million was paid by cancellation of participating mortgages;
- $4.5 million was paid in the form of a non-interest bearing note payable;
- $3.0 million was paid by the assumption of a note payable; and
- $0.3 million is in the form of estimated initial capital expenditures.
In January 2000, Asset Investors acquired four manufactured home
communities and undeveloped homesites in three additional manufactured home
communities for aggregate purchase consideration of $36.8 million, of which:
- $24.8 million was paid by cancellation of participating mortgages and
other loans;
- $10.7 million was paid by the assumption of notes payable and other
liabilities;
- $0.8 million was paid in cash; and
- $0.5 million was paid by the issuance of 44,572 Asset Investors Operating
Partnership units.
The following Pro Forma Condensed Consolidated Balance Sheet of Asset
Investors as of September 30, 1999 has been prepared as if the merger had
occurred as of September 30, 1999.
The following Pro Forma Condensed Consolidated Statements of Operations of
Asset Investors for the year ended December 31, 1998 and nine months ended
September 30, 1999 have been prepared as if the 1998 property acquisitions, the
1999 property acquisitions and the merger had occurred as of January 1, 1998.
The All Shares pro forma financial information of Asset Investors assumes that
all Commercial Assets stockholders elect to receive shares of Asset Investors'
common stock in exchange for their shares of Commercial Assets' common stock at
an exchange ratio of 0.4075 share of Asset Investors' common stock for one share
of Commercial Assets' common stock. The Shares and Cash pro forma financial
information of Asset Investors assumes that Commercial Assets stockholders elect
to receive cash of $5.75 per share for 3,549,868 shares of Commercial Assets'
common stock, the maximum number of
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<PAGE> 91
shares which will be purchased for cash, and the remaining shares of Commercial
Assets' common stock are exchanged for shares of Asset Investors' common stock
at an exchange ratio of 0.4075 share of Asset Investors' common stock for one
share of Commercial Assets' common stock.
The following Pro Forma Financial Information is based, in part, on the
following historical financial statements, which have been previously filed by
Asset Investors or Commercial Assets:
- the audited Consolidated Financial Statements of Asset Investors for the
year ended December 31, 1998;
- the unaudited Condensed Consolidated Financial Statements of Asset
Investors for the nine months ended September 30, 1999;
- the audited Consolidated Financial Statements of Commercial Assets for
the year ended December 31, 1998;
- the unaudited Condensed Consolidated Financial Statements of Commercial
Assets for the nine months ended September 30, 1999;
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the three months ended March 31, 1998 for each of the
following manufactured home communities:
- Serendipity,
- Brentwood West, and
- Gulfstream Harbor;
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the nine months ended September 30, 1998 for the Moorings of
Manatee manufactured home community;
- the audited Statement of Excess of Revenues Over Specific Operating
Expenses for the year ended September 30, 1998 for the Lakeshore Villas
manufactured home community;
- the audited Statement of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1998 for each of the following
manufactured home communities:
- Rancho Mirage,
- La Casa Blanca and La Casa Blanca East,
- Fiesta Village, and
- Community Acquisition and Development Corporation;
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the two months ended February 28, 1999 for the Rancho Mirage
manufactured home community;
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the three months ended March 31, 1999 for the La Casa Blanca
manufactured home communities;
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the six months ended June 30, 1999 for the Fiesta Village
manufactured home communities; and
- the unaudited Statement of Excess of Revenues Over Specific Operating
Expenses for the nine months ended September 30, 1999 for the Community
Acquisition and Development Corporation manufactured home communities.
The unaudited Pro Forma Financial Information has been prepared using the
purchase method of accounting whereby the assets of Commercial Assets are
adjusted to estimated fair market value. The excess of such fair market values
over the calculated purchase price of Commercial Assets is then used to
proportionately reduce the value of Commercial Assets' noncurrent assets and
minority interest in consolidated subsidiaries until the amounts allocated equal
the calculated purchase price. The allocations of the purchase price are subject
to final determination based upon estimates, the amount of Commercial Assets'
noncurrent assets and other evaluations of fair market value. Therefore, the
allocations reflected in
84
<PAGE> 92
the following unaudited Pro Forma Financial Information may differ from the
amounts ultimately determined.
The following unaudited Pro Forma Financial Information is presented for
informational purposes only and is not necessarily indicative of the financial
position or results of operations of Asset Investors that would have occurred if
such transactions had been completed on the dates indicated, nor does it purport
to be indicative of future financial positions or results of operations. In the
opinion of Asset Investors' management, all material adjustments necessary to
reflect the effects of these transactions have been made.
85
<PAGE> 93
ASSET INVESTORS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS COMMERCIAL
PREVIOUSLY ASSETS COMPLETED MERGER ALL SHARES
REPORTED HISTORICAL(A) TRANSACTIONS(B) ADJUSTMENTS PRO FORMA
---------- ------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net.......................... $ 109,543 $63,253 $29,618 $(10,020)(C) $192,394
Investments in participating mortgages.... 20,622 1,951 (20,622) 197(I)
(2,148)(J) --
Investment in real estate joint venture... -- 1,304 -- (221)(C) 1,083
Cash and cash equivalents................. 1,604 5,076 (1,513) (1,500)(C)
(1,500)(D)
(197)(I) 1,970
Short-term investments.................... -- 13,334 -- -- 13,334
Investment in Commercial Assets........... 19,741 -- -- (19,741)(E) --
Investment in Asset Investors............. -- 1,417 -- (1,417)(F) --
Other assets, net......................... 8,068 9,618 5,529 (1,614)(C)
(2,259)(G)
(184)(H) 19,158
--------- ------- ------- -------- --------
Total Assets....................... $ 159,578 $95,953 $13,012 $(40,604) $227,939
========= ======= ======= ======== ========
LIABILITIES
Secured long-term notes payable........... $ 54,456 $18,128 $ 2,607 $ -- $ 75,191
Secured long-term notes payable to
Commercial Assets........................ -- -- 2,148 (2,148)(J) --
Secured short-term financing.............. 1,000 212 5,641 -- 6,853
Accounts payable and accrued
liabilities.............................. 4,060 1,966 2,120 (184)(H) 7,962
--------- ------- ------- -------- --------
59,516 20,306 12,516 (2,332) 90,006
--------- ------- ------- -------- --------
MINORITY INTEREST IN ASSET INVESTORS
OPERATING PARTNERSHIP AND SUBSIDIARIES... 15,386 615 496 (105)(C) 16,392
STOCKHOLDERS' EQUITY
Preferred stock........................... -- -- -- -- --
Common stock.............................. 56 104 -- (104)(C)
41(C) 97
Additional paid-in capital................ 239,381 77,018 -- 42,000(C)
19,741(C)
(77,018)(C)
(1,417)(F) 299,705
Notes receivable on common stock
purchases................................ (588) -- -- -- (588)
Dividends in excess of accumulated
earnings................................. (153,723) (1,649) -- (2,259)(G)
(1,500)(D)
1,649(C) (157,482)
Treasury stock............................ (450) (441) -- (19,741)(E)
441(C) (20,191)
--------- ------- ------- -------- --------
84,676 75,032 -- (38,167) 121,541
--------- ------- ------- -------- --------
Total Liabilities and Stockholders'
Equity............................ $ 159,578 $95,953 $13,012 $(40,604) $227,939
========= ======= ======= ======== ========
<CAPTION>
SHARES SHARES
AND CASH AND CASH
ADJUSTMENTS(K) PRO FORMA
-------------- ---------
<S> <C> <C>
ASSETS
Real estate, net.......................... $ -- $ 192,394
Investments in participating mortgages....
-- --
Investment in real estate joint venture... -- 1,083
Cash and cash equivalents.................
(1,678) 292
Short-term investments.................... (13,334) --
Investment in Commercial Assets........... -- --
Investment in Asset Investors............. -- --
Other assets, net.........................
-- 19,158
-------- ---------
Total Assets....................... $(15,012) $ 212,927
======== =========
LIABILITIES
Secured long-term notes payable........... $ 5,400 $ 80,591
Secured long-term notes payable to
Commercial Assets........................ -- --
Secured short-term financing.............. -- 6,853
Accounts payable and accrued
liabilities.............................. -- 7,962
-------- ---------
5,400 95,406
-------- ---------
MINORITY INTEREST IN ASSET INVESTORS
OPERATING PARTNERSHIP AND SUBSIDIARIES... -- 16,392
STOCKHOLDERS' EQUITY
Preferred stock........................... -- --
Common stock..............................
(14) 83
Additional paid-in capital................
(20,398) 279,307
Notes receivable on common stock
purchases................................ -- (588)
Dividends in excess of accumulated
earnings.................................
-- (157,482)
Treasury stock............................
-- (20,191)
-------- ---------
(20,412) 101,129
-------- ---------
Total Liabilities and Stockholders'
Equity............................ $(15,012) $ 212,927
======== =========
</TABLE>
- ---------------
(A) Represents the condensed consolidated financial position of Commercial
Assets as of September 30, 1999, as reported in Commercial Assets'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
Some reclassifications have been made to Commercial Assets' historical
consolidated balance sheet to conform to Asset Investors' historical
consolidated balance sheet presentation.
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<PAGE> 94
(B) Reflects Asset Investors purchase in January 2000 of the Community
Acquisition and Development Corporation manufactured home communities as if
the purchase had occurred on September 30, 1999:
<TABLE>
<CAPTION>
ASSETS PRO FORMA
ACQUIRED CONSIDERATION ADJUSTMENTS
-------- ------------- -----------
<S> <C> <C> <C>
Real estate................................ $29,618 $ -- $ 29,618
Cancellation of participating mortgages.... -- 20,622 (20,622)
Cash and cash equivalents.................. 205 1,718 (1,513)
Other assets............................... 6,993 1,464 5,529
Liabilities assumed:
Secured long-term notes payable.......... -- 2,607 2,607
Secured long-term notes payable to
Commercial Assets..................... -- 2,148 2,148
Secured short-term financing............. -- 5,641 5,641
Other liabilities........................ -- 2,120 2,120
Issuance of 44,572 OP Units at $11.125..... -- 496 496
------- ------- --------
$36,816 $36,816 $ --
======= ======= ========
</TABLE>
(C) Asset Investors currently has an investment in Commercial Assets' common
stock of $19,741, comprised of 2,761 shares of Commercial Assets' common
stock, or 27% of the shares outstanding. In connection with the merger,
Asset Investors will issue 3,100 shares of Asset Investors' common stock
valued at $42,041 (based on $13.5625 per share). The total purchase price
of Commercial Assets is $84,203, as follows:
<TABLE>
<S> <C>
Recorded cost of Asset Investors' existing investment in
2,761 shares of Commercial Assets' common stock........... $19,741
Issuance of 3,100 shares of Asset Investors' common stock in
connection with the merger, at $13.5625 per share......... 42,041
Assumption of Commercial Assets liabilities and minority
interest.................................................. 20,921
Merger costs paid by Asset Investors........................ 1,500
-------
Total....................................................... $84,203
=======
</TABLE>
This amount was allocated to the various assets of Commercial Assets to be
acquired in the merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $ 84,203
Historical basis of Commercial Assets' assets acquired...... (95,953)
--------
Reduction to record Commercial Assets' assets at Asset
Investors' cost basis as a result of the merger........... $(11,750)
========
</TABLE>
The reduction was applied to Commercial Assets' assets based on their
relative fair values, as follows:
<TABLE>
<S> <C>
Real estate................................................. $(10,020)
Investment in real estate joint venture..................... (221)
Other assets................................................ (1,614)
Minority interest........................................... 105
--------
Total....................................................... $(11,750)
========
</TABLE>
The reduction in the assets of Commercial Assets results from the excess of
the historical net assets acquired over the consideration given in the
merger due to the fair value of Commercial Assets' common stock trading
below the net book value of Commercial Assets. The write-down required by
purchase accounting in the pro forma balance sheet has been applied to all
noncurrent assets of Commercial Assets, excluding its investment in Asset
Investors' common stock. Management of
87
<PAGE> 95
Commercial Assets does not believe there has been an impairment of the
assets held by Commercial Assets in its historical financial statements
under generally accepted accounting principles.
As of September 30, 1999, Commercial Assets' stockholders' equity was
$75,032, which is detailed as follows:
<TABLE>
<S> <C>
Common stock................................................ $ 104
Additional paid-in capital.................................. 77,018
Dividends in excess of accumulated earnings................. (1,649)
Treasury stock.............................................. (441)
-------
Total stockholders' equity.................................. $75,032
=======
</TABLE>
Upon completion of the merger, the entire amount of Commercial Assets'
stockholders' equity is eliminated.
(D) Represents payment of Commercial Assets' share of the merger costs, which
are expensed and presented as a reduction to dividends in excess of
accumulated earnings.
(E) Represents the reclassification of Asset Investors' previous investment in
Commercial Assets to treasury stock as a result of the merger.
(F) Represents the elimination of Commercial Assets' previous investment in
Asset Investors by canceling 114 shares of Asset Investors' common stock
and reclassifying such amount to additional paid-in capital as a result of
the merger.
(G) Represents the expensing of the net book value of Asset Investors' contract
to manage Commercial Assets, which is presented as a reduction to dividends
in excess of accumulated earnings.
(H) Represents the elimination of Commercial Assets' payable to Asset
Investors.
(I) Represents additional advances under participating mortgages made by
Commercial Assets between September 30, 1999 and January 1, 2000, when
Asset Investors assumed the liability to Commercial Assets related to the
participating mortgages.
(J) Represents the elimination of Commercial Assets' investment in
participating mortgages and Asset Investors' related long-term note
payable.
(K) Represents the purchase and cancellation of 3,550 shares of Commercial
Assets' common stock for cash at a per share price of $5.75 and, therefore,
a 1,447 decrease in the number of shares of Asset Investors' common stock
issued to holders of Commercial Assets' common stock. The $20,412 cash
purchase price is paid by using $15,012 of cash and short-term investments
on hand at September 30, 1999 plus the borrowing of $5,400 of secured
long-term notes payable. The pro forma purchase of the shares of Commercial
Assets' common stock is as follows:
<TABLE>
<S> <C>
1,447 decrease in number of shares of Asset Investors'
common stock
issued due to purchase and cancellation of 3,550 shares of
Commercial Assets' common stock at $5.75 per share........ $20,412
=======
Detail of funds used to purchase shares:
Cash and cash equivalents................................. $ 1,678
Short-term investments.................................... 13,334
Proceeds from secured long-term notes payable............. 5,400
-------
$20,412
=======
</TABLE>
88
<PAGE> 96
ASSET INVESTORS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMERCIAL
ASSETS COMPLETED
HISTORICAL(A) HISTORICAL(B) TRANSACTIONS
------------- ------------- ------------
<S> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property
revenues..................... $10,479 $ -- $ 4,192(c)
3,282(d)
Income from participating
mortgages and leases......... 3,174 587 (1,352)(e)
Property operating expenses.... (4,039) -- (1,565)(c)
(1,724)(d)
Depreciation................... (2,685) (50) (3,130)(f)
------- ------ -------
Income from rental property
operations................... 6,929 537 (297)
------- ------ -------
Equity in earnings of
Commercial Assets............ 975 -- --
Commercial Assets management
fees......................... 155 (211) --
General and administrative
expenses..................... (1,393) (420) --
Selling and marketing
expenses..................... -- -- (395)(c)
Property management income,
net.......................... 156 -- --
Interest and other income...... 921 4,035 (141)(g)
(2,936)(g)
Interest expense............... (2,485) -- (368)(h)
Amortization of management
contracts.................... (2,894) -- --
Costs incurred to acquire
management contract.......... (2,092) -- --
Costs related to potential
marina investments........... -- (500) --
------- ------ -------
Income (loss) before minority
interest in Operating
Partnership.................. 272 3,441 (4,137)
Minority interest in Operating
Partnership.................. (60) -- 463(i)
------- ------ -------
Net income (loss).............. $ 212 $3,441 $(3,674)
======= ====== =======
Basic and diluted earnings
(loss) per share............. $ 0.04
=======
Weighted average common shares
outstanding.................. 5,094
=======
Weighted average common shares
and common share equivalents
outstanding.................. 5,113
=======
<CAPTION>
SHARES SHARES
MERGER ALL SHARES AND CASH AND CASH
ADJUSTMENTS PRO FORMA ADJUSTMENT(Q) PRO FORMA
----------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property
revenues.....................
$ -- $17,953 $ -- $17,953
Income from participating
mortgages and leases......... (215)(j) 2,194 -- 2,194
Property operating expenses....
-- (7,328) -- (7,328)
Depreciation................... 292(k) (5,573) -- (5,573)
------- ------- ------- -------
Income from rental property
operations................... 77 7,246 -- 7,246
------- ------- ------- -------
Equity in earnings of
Commercial Assets............ (975)(l) -- -- --
Commercial Assets management
fees......................... 56(l) -- -- --
General and administrative
expenses..................... -- (1,813) -- (1,813)
Selling and marketing
expenses..................... -- (395) -- (395)
Property management income,
net.......................... -- 156 -- 156
Interest and other income......
(161)(m) 1,718 (803) 915
Interest expense............... 215(j) (2,638) (432) (3,070)
Amortization of management
contracts.................... 1,979(n) (915) -- (915)
Costs incurred to acquire
management contract.......... -- (2,092) -- (2,092)
Costs related to potential
marina investments........... -- (500) -- (500)
------- ------- ------- -------
Income (loss) before minority
interest in Operating
Partnership.................. 1,191 767 (1,235) (468)
Minority interest in Operating
Partnership.................. (522)(i) (119) 205 86
------- ------- ------- -------
Net income (loss).............. $ 669 $ 648(o) $(1,030) $ (382)
======= ======= ======= =======
Basic and diluted earnings
(loss) per share............. $ 0.08 $ (0.06)
======= =======
Weighted average common shares
outstanding.................. 8,194(p) 6,747(p)
======= =======
Weighted average common shares
and common share equivalents
outstanding.................. 8,213(p) 6,766(p)
======= =======
</TABLE>
- ---------------
(a) Represents Asset Investors' audited consolidated statement of income for
the year ended December 31, 1998.
(b) Represents Commercial Assets' audited consolidated statement of income for
the year ended December 31, 1998. Some reclassifications have been made to
Commercial Assets' historical consolidated statement of income to conform
to Asset Investors' historical consolidated statement of income
presentation.
89
<PAGE> 97
(c) Represents adjustments to reflect the 1998 and 2000 property acquisitions
completed by Asset Investors as if they had occurred on January 1, 1998
based on historical results of the properties as follows:
<TABLE>
<CAPTION>
RENTAL AND SELLING
OTHER PROPERTY AND
PROPERTY OPERATING MARKETING
REVENUES EXPENSES EXPENSES
---------- --------- ---------
<S> <C> <C> <C>
Salem Farm................................. $ 22(1) $ 11(1) --(1)
Mullica Woods.............................. 77(1) 29(1) --(1)
Serendipity................................ 473(2) 177(2) --(2)
Brentwood West............................. 485(3) 129(3) --(3)
Gulfstream Harbor.......................... 1,861(4) 561(4) --(4)
Community Acquisition and Development
Corporation.............................. 1,274(5) 658(5) 395(5)
------- ------ ----
Total............................ $ 4,192 $1,565 $395
======= ====== ====
</TABLE>
(1) Represents the operations of the property for the period from January
1, 1998 to February 27, 1998.
(2) Represents operations of the property as follows:
<TABLE>
<S> <C> <C> <C>
For the three months ended March 31, 1998 as
reported in the unaudited Statement of Excess of
Revenues over Specific Operating Expenses for the
three months ended March 31, 1998 included in
Amendment No. 1 to Asset Investors' Form 8-K
dated May 29, 1998. ............................. $ 284 $106 $ --
Estimate for the period from April 1, 1998 to May
29, 1998 based on the unaudited Statement of
Excess of Revenues over Specific Operating
Expenses for the three months ended March 31,
1998 included in Amendment No. 1 to Asset
Investors' Form 8-K dated May 29, 1998. ......... 189 71 --
------ ---- ----
$ 473 $177 $ --
====== ==== ====
</TABLE>
(3) Represents operations of the property as follows:
<TABLE>
<S> <C> <C> <C>
For the three months ended March 31, 1998 as
reported in the unaudited Statement of Excess of
Revenues over Specific Operating Expenses for the
three months ended March 31, 1998 included in
Amendment No. 1 to Asset Investors' Form 8-K
dated May 29, 1998. ............................. $ 291 $ 66 $ --
Estimate for the period from April 1, 1998 to May
29, 1998 based on the unaudited Statement of
Excess of Revenues over Specific Operating
Expenses for the three months ended March 31,
1998 included in Amendment No. 1 to Asset
Investors' Form 8-K dated May 29, 1998. ......... 194 44 --
Additional property management fees under the
management agreement executed by Asset
Investors. ...................................... -- 19 --
------ ---- ----
$ 485 $129 $ --
====== ==== ====
</TABLE>
90
<PAGE> 98
(4) Represents operations of the properties as follows:
<TABLE>
<S> <C> <C> <C>
For the three months ended March 31, 1998 as
reported in the unaudited Statement of Excess of
Revenues over Specific Operating Expenses for the
three months ended March 31, 1998 included in
Amendment No. 1 to Asset Investors' Form 8-K
dated July 16, 1998. ............................ $ 859 $221 $ --
Estimated for the period from April 1, 1998 to
July 16, 1998 based on the unaudited Statement of
Excess of Revenues over Specific Operating
Expenses for the three months ended March 31,
1998 included in Amendment No. 1 to Asset
Investors' Form 8-K dated July 16, 1998. ........ 1,002 258 --
Additional property management fees under the
management agreement executed by Asset
Investors. ...................................... -- 82 --
------ ---- ----
$1,861 $561 $ --
====== ==== ====
</TABLE>
(5) Represents operations of the properties for the year ended December
31, 1998 based on the audited Statement of Excess of Revenues over
Specific Operating Expenses for the year ended December 31, 1998,
included in Amendment No. 1 to Asset Investors' Form 8-K dated
January 31, 2000.
(d) Represents adjustments to reflect the 1998 property acquisitions and the
1999 property acquisitions completed by Commercial Assets as if they had
occurred on January 1, 1998 based on historical results of the properties
as follows:
<TABLE>
<CAPTION>
RENTAL AND
OTHER PROPERTY
PROPERTY OPERATING
REVENUES EXPENSES
---------- ---------
<S> <C> <C>
Lakeshore Villas...................................... $1,047(1) $ 518(1)
Rancho Mirage......................................... 553(2) 275(2)
La Casa Blanca........................................ 560(3) 295(3)
Fiesta Village........................................ 1,122(4) 636(4)
------ ------
Total....................................... $3,282 $1,724
====== ======
</TABLE>
(1) Represents operations of the property for the year ended September
30, 1998 based on the audited Statement of Excess of Revenues over
Specific Operating Expenses for the year ended September 30, 1998
included in Amendment No. 1 to Commercial Assets' Form 8-K dated
March 31, 1999.
(2) Represents operations of the property for the year ended December 31,
1998 based on the audited Statement of Excess of Revenues over
Specific Operating Expenses for the year ended December 31, 1998
included in Commercial Assets' Form 8-K dated May 7, 1999.
(3) Represents operations of the property for the year ended December 31,
1998 based on the audited Statement of Excess of Revenues over
Specific Operating Expenses for the year ended December 31, 1998
included in Commercial Assets' Form 8-K dated June 30, 1999.
(4) Represents operations of the property for the year ended December 31,
1998 based on the audited Statement of Excess of Revenues over
Specific Operating Expenses for the year ended December 31, 1998
included in Amendment No. 1 to Commercial Assets' Form 8-K dated
August 13, 1999.
91
<PAGE> 99
<TABLE>
<S> <C> <C>
(e) Represents adjustments for the following:
Adjustment to Commercial Assets related to ground lease
income on The Moorings of Manatee (a/k/a Riverside) as if it
had been acquired on January 1, 1998. Commercial Assets
filed the historical financial statements for the property
in a Form 8-K dated November 20, 1998. Subsequent to the
acquisition of the property, Commercial Assets leased the
property under an operating lease to a third party. The pro
forma statement of income presents the results of operations
under the lease agreement. ................................. $ 762
Elimination of participating mortgage income on Fiesta
Village as a result of Commercial Assets' acquisition of the
property (see note (d) above), as if Commercial Assets owned
the property as of January 1, 1998 instead of owning a
participating mortgage secured by the property. ............ (443)
Elimination of participating mortgage income on Community
Acquisition and Development Corporation properties as a
result of Asset Investors' acquisition of the properties
(see note (c) above), as if Asset Investors owned the
properties as of January 1, 1998 instead of owning a
participating mortgage secured by the properties............ (1,671)
-------
$(1,352)
=======
</TABLE>
(f) Reflects depreciation of $1,355 based on Asset Investors' investment in
properties and $1,775 based on Commercial Assets' investment in properties.
Depreciation was calculated on the straight-line basis over an estimated
useful life of 25 years for land improvements and buildings.
(g) Eliminates (1) interest income of $141 on other loans made to Community
Acquisition and Development Corporation and its affiliates as a result of
Asset Investors' acquisition of the properties (see note (c) above) and (2)
interest income on short-term investments of $2,936 related to $71,078 used
to acquire properties at a weighted average interest rate of 5.35% for a
weighted average period of 9.3 months.
(h) Reflects the adjustment for $2,858 of interest expense on $56,874 of
long-term secured notes payable and secured short-term financing incurred
as a result of property acquisitions at a weighted average interest rate of
7.3% for a weighted average period of 8.1 months net of capitalization of
$2,490 of interest on development projects.
(i) Represents adjustments to minority interest in Operating Partnership
assuming the 1998 property acquisitions, the 1999 property acquisitions,
the 2000 property acquisitions and the merger had occurred as of January 1,
1998, as follows:
<TABLE>
<S> <C>
Loss before minority interest in Operating Partnership...... $ 4,137
Less loss before minority interest in Operating Partnership
from Commercial Assets' completed transactions. .......... (2,110)
-------
Loss before minority interest in Operating Partnership from
Asset Investors' completed transactions................... 2,027
Minority interest percentage after completed transactions... 22.86%
-------
Adjustment relating to completed transactions............... $ 463
=======
Pro forma income before minority interest in Operating
Partnership............................................... $ 767
Minority interest percentage assuming the 1998 property
acquisitions, the 1999 property acquisitions, the 2000
property acquisitions and the merger had occurred as of
January 1, 1998........................................... 15.57%
-------
Pro forma minority interest in Operating Partnership........ 119
Plus adjustment relating to completed transactions.......... 463
Less historical minority interest in Operating
Partnership............................................... (60)
-------
Pro forma merger adjustment................................. $ 522
=======
</TABLE>
92
<PAGE> 100
(j) Represents the elimination of participating mortgage interest income and
interest expense between Commercial Assets and Asset Investors.
(k) Adjusts for reduction of pro forma depreciation related to the reduction in
real estate of $10,020 as a result of the merger.
(l) Eliminates equity in the earnings of Commercial Assets recorded by Asset
Investors and management fees paid by Commercial Assets to Asset Investors
based upon historical amounts as presented.
(m) Eliminates interest income related to $3,000 used to pay for the estimated
costs of the merger at a weighted average interest rate of 5.35% for the
full year.
(n) Eliminates amortization expense recorded during 1998 by Asset Investors due
to writing off the net book value of Asset Investors' contract to manage
Commercial Assets as a result of the merger.
(o) Pro forma net income does not include the write off Asset Investors'
contract to manage Commercial Assets which would occur as a result of the
merger. As of December 31, 1998, Asset Investors' net book value of the
contract was $3,743. This balance will be further amortized prior to
completion of the merger.
(p) The pro forma weighted average common shares outstanding and pro forma
weighted average common shares and common share equivalents outstanding
were determined as follows:
<TABLE>
<CAPTION>
ASSET ALL SHARES
INVESTORS' SHARES AND CASH
HISTORICAL SHARES PRO FORMA PRO FORMA
FOR ASSET ISSUED FOR ASSET SHARE FOR ASSET
INVESTORS IN MERGER INVESTORS PURCHASES INVESTORS
---------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding.................... 5,094 3,100 8,194 (1,447) 6,747
Weighted average common shares
and common share equivalents
outstanding.................... 5,113 3,100 8,213 (1,447) 6,766
</TABLE>
(q) Represents adjustments to reflect the purchase of $20,412 of Commercial
Assets' common stock at $5.75 per year as follows:
(1) Elimination of $803 of interest and other income based on $15,012 of
short-term investments and cash and cash equivalents used to fund purchase
at 5.35% for the year; (2) addition of $432 of interest expense based on
$5,400 of additional secured long-term notes payable at 8% for the year;
and (3) adjustment to minority interest is calculated as:
<TABLE>
<S> <C>
Pro forma loss before minority interest in Operating
Partnership........................................... $ 468
Minority interest percentage after stock purchase...... 18.30%
------
Pro forma minority interest in Operating Partnership... 86
Plus adjustment from All Shares pro forma.............. 119
------
Pro forma Shares and Cash adjustment................... $ 205
======
</TABLE>
93
<PAGE> 101
ASSET INVESTORS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMERCIAL SHARES SHARES
ASSETS COMPLETED MERGER ALL SHARES AND CASH AND CASH
HISTORICAL(A) HISTORICAL(B) TRANSACTIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS(R) PRO FORMA
------------- ------------- ------------ ----------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property
revenues................. $11,075 $1,382 $ 1,652(c)
1,043(d) $ -- $15,152 $ -- $15,152
Income from participating
mortgages and leases..... 2,302 1,645 (2,151)(e) (161)(i) 1,635 -- 1,635
Property operating
expenses................. (3,991) (602) (791)(c)
(589)(d) 14(j) (5,959) -- (5,959)
Depreciation............... (2,827) (786) (919)(f) 231(k) (4,301) -- (4,301)
------- ------ ------- ------ ------- ----- -------
Income from rental property
operations............... 6,559 1,639 (1,755) 84 6,527 -- 6,527
------- ------ ------- ------ ------- ----- -------
Equity in earnings of
Commercial Assets........ 714 -- -- (714)(l) -- -- --
Equity in earnings of Asset
Investors................ -- 15 -- (15)(l) -- -- --
Commercial Assets
management fees.......... 418 (572) -- 154(l) -- -- --
General and administrative
expenses................. (1,098) (404) -- -- (1,502) -- (1,502)
Selling and marketing
expenses................. -- -- (686)(d) -- (686) -- (686)
Property management income,
net...................... 158 -- -- (14)(j) 144 -- 144
Interest and other
income................... 227 1,685 (96)(g)
(624)(g) (113)(m) 1,079 (563) 516
Interest expense........... (2,853) (119) 741(h) 161(i) (2,070) (324) (2,394)
Amortization of management
contracts................ (2,067) -- -- 1,484(n) (583) -- (583)
Income tax benefit......... 250 -- -- -- 250 -- 250
Reincorporation expenses... (70) (120) -- -- (190) -- (190)
Loss from early
extinguishment of debt... (75) -- -- -- (75) -- (75)
------- ------ ------- ------ ------- ----- -------
Income before minority
interest in Operating
Partnership.............. 2,163 2,124 (2,420) 1,027 2,894 (887) 2,007
Minority interest in
Operating Partnership.... (341) -- 222(o) (203)(o) (322) 60 (262)
------- ------ ------- ------ ------- ----- -------
Net income................. $ 1,822 $2,124 $(2,198) $ 824 $ 2,572(p) $(827) $ 1,745
======= ====== ======= ====== ======= ===== =======
Basic and diluted earnings
per share................ $ 0.33 $ 0.30 $ 0.24
======= ======= =======
Weighted average common
shares outstanding....... 5,527 8,627(q) 7,180(q)
======= ======= =======
Weighted average common
shares and common share
equivalents
outstanding.............. 5,534 8,634(q) 7,187(q)
======= ======= =======
</TABLE>
- ---------------
(a) Represents Asset Investors' unaudited condensed consolidated statement of
income for the nine months ended September 30, 1999.
(b) Represents Commercial Assets' unaudited condensed consolidated statement of
income for the nine months ended September 30, 1999. Some reclassifications
have been made to Commercial Assets'
94
<PAGE> 102
historical condensed consolidated statement of income to conform to Asset
Investors' historical condensed consolidated statement of income
presentation.
(c) Represents adjustments to reflect the 1999 property acquisitions completed
by Commercial Assets as if they had occurred on January 1, 1998 based on
historical results of the properties as follows:
<TABLE>
<CAPTION>
RENTAL AND
OTHER PROPERTY
PROPERTY OPERATING
REVENUES EXPENSES
---------- ---------
<S> <C> <C>
Lakeshore Villas....................................... $ 266(1) $112(1)
Rancho Mirage.......................................... 212(2) 126(2)
La Casa Blanca......................................... 346(3) 184(3)
Fiesta Village......................................... 828(4) 369(4)
------ ----
Total............................................. $1,652 $791
====== ====
</TABLE>
(1) Represents operations of the property for the three months ended
December 31, 1998 based on the unaudited Statement of Excess of
Revenues over Specific Operating Expenses for the three months ended
December 31, 1998 included in Amendment No. 1 to Commercial Assets'
Form 8-K dated March 31, 1999.
(2) Represents operations of the property as follows:
<TABLE>
<S> <C> <C>
For the two months ended February 28, 1999 based on the
unaudited Statement of Excess of Revenues over Specific
Operating Expenses for the two months ended February
28, 1999 included in Commercial Assets' Form 8-K dated
May 7, 1999. .......................................... $108 $ 54
</TABLE>
<TABLE>
<S> <C> <C>
For the period from March 1, 1999 to May 7, 1999 . .... 104 72
---- ----
$212 $126
==== ====
</TABLE>
(3) Represents operations of the property as follows:
<TABLE>
<S> <C> <C>
For the three months ended March 31, 1999 based on the
unaudited Statement of Excess of Revenues over Specific
Operating Expenses for the three months ended March 31,
1999 included in Commercial Assets' Form 8-K dated June
30, 1999. ............................................. $172 $ 88
For the period from April 1, 1999 to June 30, 1999. ... 174 96
---- ----
$346 $184
==== ====
</TABLE>
(4) Represents operations of the property as follows:
<TABLE>
<S> <C> <C>
For the six months ended June 30, 1999 based on the
unaudited Statement of Excess of Revenues over Specific
Operating Expenses for the six months ended June 30,
1999 included in Amendment No. 1 to Commercial Assets'
Form 8-K dated August 13, 1999. ....................... $639 $267
</TABLE>
<TABLE>
<S> <C> <C>
For the period from July 1, 1999 to August 13,
1999. ................................................. 189 102
---- ----
$828 $369
==== ====
</TABLE>
(d) Represents adjustments to reflect the acquisition by Asset Investors of the
Community Acquisition and Development Corporation properties based on
operations of the properties as reported in the unaudited Statement of
Excess of Revenues over Specific Operating Expenses for the nine months
ended September 30, 1999 included in Amendment No. 1 to Asset Investors'
Form 8-K dated January 31, 2000.
95
<PAGE> 103
(e) Represents adjustments for the following:
<TABLE>
<S> <C>
Elimination of participating mortgage income on Fiesta
Village as a result of Commercial Assets' acquisition of the
property (see note (c) above), as if Commercial Assets owned
the property as of January 1, 1998 instead of owning a
participating mortgage secured by the property.............. $ (757)
Elimination of participating mortgage income on Community
Acquisition and Development Corporation properties as a
result of Asset Investors' acquisition of the properties
(see note (d) above), as if Asset Investors owned the
properties as of January 1, 1998 instead of owning a
participating mortgage secured by the properties............ (1,394)
$(2,151)
-------
</TABLE>
(f) Reflects depreciation of $264 based on Asset Investors' investment in
properties and $655 based on Commercial Assets' investment in properties.
Depreciation was calculated on the straight-line basis over an estimated
useful life of 25 years for land improvements and buildings.
(g) Eliminates (1) interest income of $96 on other loans made to Community
Acquisition and Development Corporation and its affiliates as a result of
Asset Investors' acquisition of the properties (see note (d) above) and (2)
interest income on short-term investments of $624 related to $31,117 used
to acquire properties at a weighted average interest rate of 5.0% for a
weighted average period of 4.8 months.
(h) Reflects the adjustment for (1) $974 of interest expense on $17,874 of
long-term secured notes payable incurred as a result of property
acquisitions at an effective weighted average interest rate of 8.1% for a
weighted average period of 8.0 months net of (2) capitalization of $1,715
of interest on development projects.
(i) Represents the elimination of participating mortgage interest income and
interest expense between Commercial Assets and Asset Investors.
(j) Eliminates Asset Investors' profit from property management fees paid by
Commercial Assets to an affiliate of Asset Investors based upon historical
results.
(k) Adjusts for reduction of pro forma depreciation related to the reduction in
real estate of $10,020 as a result of the merger.
(l) Eliminates equity in the earnings of Commercial Assets recorded by Asset
Investors, equity in the earnings of Asset Investors recorded by Commercial
Assets, and management fees paid by Commercial Assets to Asset Investors
based upon historical amounts as presented.
(m) Eliminates interest income related to $3,000 used to pay for the estimated
costs of the merger at a weighted average interest rate of 5.0% for nine
months.
(n) Eliminates amortization expense recorded during the 1999 period by Asset
Investors due to writing off the net book value of Asset Investors'
contract to manage Commercial Assets as a result of the merger.
96
<PAGE> 104
(o) Represents adjustments to minority interest in Operating Partnership
assuming the 1998 property acquisitions, the 1999 property acquisitions,
the 2000 property acquisitions and the merger had occurred as of January 1,
1998, as follows:
<TABLE>
<S> <C>
Loss before minority interest in Operating Partnership...... $2,420
Less loss before minority interest in Operating Partnership
from Commercial Assets' completed transactions............ (987)
------
Loss before minority interest in Operating Partnership from
Asset Investors' completed transactions................... 1,433
Minority interest percentage after completed transactions... 15.49%
Adjustment relating to completed transactions............... $ 222
======
Pro forma income before minority interest in Operating
Partnership............................................... $2,894
Minority interest percentage assuming the 1999 property
acquisitions, the 2000 property acquisitions and the
merger had occurred as of January 1, 1998................. 11.14%
------
Pro forma minority interest in Operating Partnership........ 322
Plus adjustment relating to completed transactions.......... 222
Less historical minority interest in Operating
Partnership............................................... (341)
------
Pro forma merger adjustment................................. $ 203
======
</TABLE>
(p) Pro forma net income does not include the write off of Asset Investors'
contract to manage Commercial Assets which would occur as a result of the
merger. As of September 30, 1999, Asset Investors' net book value of the
contract was $2,259. This balance will be further amortized prior to
completion of the merger.
(q) The pro forma weighted average common shares outstanding and pro forma
weighted average common shares and common share equivalents outstanding
were determined as follows:
<TABLE>
<CAPTION>
ASSET ALL SHARES
INVESTORS' SHARES AND CASH
HISTORICAL SHARES PRO FORMA PRO FORMA
FOR ASSET ISSUED IN FOR ASSET SHARES FOR ASSET
INVESTORS MERGER INVESTORS PURCHASED INVESTORS
---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding........................... 5,527 3,100 8,627 (1,447) 7,180
Weighted average common shares and
common share equivalents
outstanding........................... 5,534 3,100 8,634 (1,447) 7,187
</TABLE>
(r) Represents adjustments to reflect the purchase of $20,412 of Commercial
Assets' common stock at $5.75 per share as follows:
(1) Elimination of $563 of interest and other income based on $15,012 of
short-term investments and cash and cash equivalents used to fund purchase
at 5.00% for the nine months; (2) addition of $324 of interest expense
based on $5,400 of additional secured long-term notes payable at 8% for the
nine months; and (3) adjustment to minority interest is calculated as:
<TABLE>
<S> <C>
Pro forma income before minority interest in Operating
Partnership............................................... $2,007
Minority interest percentage after stock purchase........... 13.08%
------
Pro forma minority interest in Operating Partnership........ 262
Less adjustment from All Shares pro forma................... 322
------
Pro forma Shares and Cash adjustment........................ $ 60
======
</TABLE>
97
<PAGE> 105
PRO FORMA CAPITALIZATION OF ASSET INVESTORS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization of Asset Investors at
September 30, 1999 on a historical basis and on a pro forma basis to reflect the
merger as if it occurred on September 30, 1999, applying the assumptions
described above with respect to the Pro Forma Financial Information. The All
Shares pro forma capitalization of Asset Investors assumes that all Commercial
Assets stockholders elect to receive shares of Asset Investors' common stock in
exchange for their shares of Commercial Assets' common stock at an exchange
ratio of 0.4075 share of Asset Investors' common stock for one share of
Commercial Assets' common stock. The Shares and Cash pro forma capitalization of
Asset Investors assumes that Commercial Assets stockholders elect to receive
cash of $5.75 per share for 3,549,868 shares of Commercial Assets' common stock,
the maximum number of shares which will be purchased for cash, and the remaining
shares of Commercial Assets' common stock are exchanged for shares of Asset
Investors' common stock at an exchange ratio of 0.4075 share of Asset Investors'
common stock for one share of Commercial Assets' common stock. The information
in the following table should be read in connection with the financial
statements and notes thereto incorporated by reference and the pro forma
financial information and notes included in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
----------------------
ALL SHARES
HISTORICAL SHARES AND CASH
---------- ---------- ---------
<S> <C> <C> <C>
Secured short-term financing.............................. $ 1,000 $ 6,853 $ 6,853
Secured long-term notes payable........................... 54,456 75,191 80,591
Minority interest in Operating Partnership................ 15,386 16,392 16,392
Common stock, $.01 par value, 35,000 shares authorized,
5,633 issued and 5,572 outstanding on a historical
basis, 9,713 issued and 8,588 outstanding on a pro forma
All Shares basis, 8,266 issued and 7,141 outstanding on
a pro forma Shares and Cash basis....................... 56 97 83
Additional paid-in capital................................ 239,381 299,705 279,307
Notes receivable on common stock purchases................ (588) (588) (588)
Dividends in excess of accumulated earnings............... (153,723) (157,482) (157,482)
Treasury stock, at cost, 30 shares on a historical basis
and 1,125 shares on a pro forma basis................... (450) (20,191) (20,191)
--------- --------- ---------
Total Capitalization............................ $ 155,518 $ 219,977 $ 204,965
========= ========= =========
</TABLE>
98
<PAGE> 106
SELECTED FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL INFORMATION OF ASSET INVESTORS
The following table sets forth selected historical financial and operating
information for Asset Investors. The selected historical financial information
for the years ended December 31, 1998, 1997 and 1996 is based on the audited
financial statements of Asset Investors incorporated by reference in this Joint
Proxy Statement/Prospectus. The selected historical financial information for
the years ended December 31, 1995 and 1994 is based on the audited financial
statements of Asset Investors. The selected historical financial information for
the nine months ended September 30, 1999 and 1998 is based on the unaudited
financial statements of Asset Investors incorporated by reference in this Joint
Proxy Statement/ Prospectus. The following information should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMERCIAL ASSETS" and the historical financial
statements and notes of Asset Investors incorporated by reference in this Joint
Proxy Statement/Prospectus (in thousands, except per share data).
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other property revenues.............. $ 10,479 $ 3,104 $ -- $ -- $ -- $ 11,075 $ 7,132
Interest on participating mortgages............. 3,174 -- -- -- -- 2,302 2,348
Equity in earnings of rental property joint
ventures...................................... -- 466 -- -- -- -- --
Property operating expenses..................... (4,039) (1,398) -- -- -- (3,991) (2,812)
Depreciation.................................... (2,685) (693) -- -- -- (2,827) (1,762)
-------- -------- -------- -------- -------- -------- --------
6,929 1,479 -- -- -- 6,559 4,906
-------- -------- -------- -------- -------- -------- --------
SERVICE OPERATIONS:
Property management income, net................. 156 69 -- -- -- 158 122
Commercial Assets management fees............... 155 -- -- -- -- 418 75
Amortization of management contracts............ (2,894) (744) -- -- -- (2,067) (2,205)
-------- -------- -------- -------- -------- -------- --------
(2,583) (675) -- -- -- (1,491) (2,008)
-------- -------- -------- -------- -------- -------- --------
Non-agency MBS bonds revenues................... 50 2,966 11,513 8,499 1,531 65 50
Equity in earnings of Commercial Assets......... 975 3,663 1,875 1,742 1,354 714 688
General and administrative expenses............. (1,393) (1,042) (1,970) (1,895) (1,586) (1,098) (1,031)
Interest and other income....................... 871 1,808 136 630 563 162 627
Interest expense................................ (2,485) (368) (88) (63) (148) (2,853) (1,390)
Management fees to former manager............... -- (570) (1,793) (980) (253) -- --
Earnings from liquidating operations............ -- -- -- 6,507 11,897 -- --
Costs incurred to acquire management contract... (2,092) (6,553) -- -- -- -- (2,092)
Income tax benefit.............................. -- -- -- -- -- 250 --
Reincorporation expenses........................ -- -- -- -- -- (70) --
Loss from early extinguishment of debt.......... -- -- -- -- -- (75) --
Gain on sale of bonds........................... -- 6,484 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest in
Operating Partnership......................... 272 7,192 9,673 14,440 13,358 2,163 (250)
Minority interest in Operating Partnership...... (60) 62 -- -- -- (341) 54
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................... $ 212 $ 7,254 $ 9,673 $ 14,440 $ 13,358 $ 1,822 $ (196)
======== ======== ======== ======== ======== ======== ========
Per Share Amounts:
Basic earnings (loss)......................... $ 0.04 $ 1.44 $ 1.97 $ 2.97 $ 4.59 $ 0.33 $ (0.04)
Diluted earnings (loss)....................... $ 0.04 $ 1.43 $ 1.95 $ 2.96 $ 4.58 $ 0.33 $ (0.04)
Weighted average common shares outstanding...... 5,094 5,022 4,919 4,856 2,910 5,527 5,116
Weighted average common shares and common share
equivalents outstanding....................... 5,113 5,061 4,966 4,883 2,914 5,534 5,116
</TABLE>
99
<PAGE> 107
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated depreciation.... $101,941 $ 41,419 $ -- $ -- $ -- $115,748 $101,842
Investments in participating mortgages and joint
ventures...................................... 27,604 25,415 -- -- -- 20,622 29,071
Investment in Commercial Assets................. 20,706 20,866 19,361 19,225 21,068 19,741 20,808
Total assets.................................... 158,226 119,161 90,344 79,653 109,539 159,578 160,439
Secured notes payable........................... 51,006 10,677 -- -- 30,592 55,456 50,112
Minority interest in Operating Partnership...... 25,649 22,362 -- -- -- 15,386 25,903
Stockholders' equity............................ 78,636 83,515 86,365 78,759 72,965 84,676 80,593
CASH FLOW DATA:
Cash provided by operating activities........... $ 6,841 $ 3,931 $ 11,670 $ 8,423 $ 12,369 $ 5,089 $ 4,586
Cash provided by (used in) investing
activities.................................... (58,897) 27,479 (10,754) 24,275 (5,034) (4,194) (60,589)
Cash provided by (used in) financing
activities.................................... 31,680 (10,025) (5,827) (42,331) 86 (717) 34,379
OTHER DATA:
Funds from operations(a)........................ $ 8,089 $ 7,307 $ 9,673 $ 14,440 $ 13,358 $ 7,233 $ 5,945
Weighted average common shares and OP Units
outstanding(b)................................ 6,540 5,254 4,919 4,856 2,910 6,563 6,528
Dividends/Distributions paid to stockholders/OP
Unitholders................................... $ 4,916 $ 7,749 $ 9,128 $ 8,255 $ 4,959 $ 4,933 $ 3,275
Ratio of earnings to fixed charges.............. 1.1 20.5 110.9 230.2 91.3 1.7 0.8
</TABLE>
- ---------------
(a) Asset Investors management believes that the presentation of funds from
operations, when considered with the financial data determined in
accordance with generally accepted accounting principles, provides a useful
measure of Asset Investors' performance. However, funds from operations
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to Asset Investors, nor should it be considered as
an alternative to net income as an indicator of operating performance. The
Board of Governors of National Association of Real Estate Investment Trusts
defines funds from operations as net income (loss), computed in accordance
with generally accepted accounting principles, excluding gains and losses
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs),
and after adjustments for unconsolidated partnerships and joint ventures.
Asset Investors calculates funds from operations beginning with the Board
of Governors of the National Association of Real Estate Investment Trusts
definition and includes adjustments for:
- minority interest in the Operating Partnership;
- costs incurred to become self-managed;
- amortization of property and investment management contracts; and
- nonrecurring income, net.
Asset Investors' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Asset Investors' ability to make required dividend
payments, capital expenditures and principal payments on its debt. Since
funds from operations excludes unusual and nonrecurring expenses as well as
depreciation and other real estate related expenses, funds from operations
may be materially different from net income. Therefore, funds from
operations should not be considered as an alternative to net income or net
cash flows from operating activities, as calculated in accordance with
generally accepted accounting principles, as an indication of Asset
Investors' operating performance or liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Asset Investors' cash needs, including its ability to make
distributions. Asset Investors uses funds from operations in measuring its
operating performance because it believes that the items that result in a
difference between funds from operations and net income do not impact the
ongoing operating performance of a real estate company. Also, Asset
Investors believes that other real estate companies, analysts and investors
utilize funds from operations in analyzing the results of real estate
companies. Asset
100
<PAGE> 108
Investors' basis of computing funds from operations is not necessarily
comparable with that of other REITs.
The following is a reconciliation of income or loss before minority
interest in Operating Partnership to funds from operations (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ----------------
1998 1997 1996 1995 1994 1999 1998
------ ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before minority interest in Operating
Partnership............................................ $ 272 $ 7,192 $ 9,673 $14,440 $13,358 $ 2,163 $ (250)
Gain on sale of bonds.................................... -- (6,484) -- -- -- -- --
Real estate depreciation, including joint ventures....... 2,685 848 -- -- -- 2,827 1,762
Amortization of management contracts..................... 2,894 744 -- -- -- 2,067 2,205
Costs incurred to acquire management contract............ 2,092 6,553 -- -- -- -- 2,092
Nonrecurring income, net................................. -- -- -- -- -- (33) --
Equity in Commercial Assets' adjustments for funds from
operations............................................. 146 (1,546) -- -- -- 209 136
------ ------- ------- ------- ------- ------- ------
Funds from operations.................................... $8,089 $ 7,307 $ 9,673 $14,440 $13,358 $ 7,233 $5,945
====== ======= ======= ======= ======= ======= ======
</TABLE>
(b) Generally, after a one-year holding period, Asset Investors Operating
Partnership units may be tendered for redemption at the option of the
holder and, upon tender, may be acquired by Asset Investors for shares of
Asset Investors' common stock at an exchange ratio of one share of Asset
Investors' common stock for each Asset Investors Operating Partnership
unit, subject to adjustment.
101
<PAGE> 109
SELECTED HISTORICAL FINANCIAL INFORMATION OF COMMERCIAL ASSETS
The following table sets forth selected historical financial and operating
information for Commercial Assets. The selected historical financial information
for the years ended December 31, 1998, 1997 and 1996 is based on the audited
financial statements of Commercial Assets incorporated by reference in this
Joint Proxy Statement/Prospectus. The selected historical financial information
for the years ended December 31, 1995 and 1994 is based on the audited financial
statements of Commercial Assets. The selected historical financial information
for the nine months ended September 30, 1999 and 1998 is based on the unaudited
financial statements of Commercial Assets incorporated by reference in this
Joint Proxy Statement/Prospectus. The following information should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMERCIAL ASSETS" and the historical financial
statements and notes of Commercial Assets included or incorporated by reference
in this Joint Proxy Statement/Prospectus (in thousands, except per share data).
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other property revenues.......... $ -- $ -- $ -- $ -- $ -- $ 1,382 $ --
Income from participating mortgages and
leases.................................... 587 -- -- -- -- 1,645 151
Property operating expenses................. -- -- -- -- -- (602) --
Depreciation................................ (50) -- -- -- -- (786) (4)
-------- -------- ------- -------- -------- ------- --------
537 -- -- -- -- 1,639 147
-------- -------- ------- -------- -------- ------- --------
Interest and other income................... 3,874 945 319 189 1,126 1,570 3,107
Interest expense............................ -- -- (2) (249) (319) (119) --
General and administrative expenses......... (420) (519) (1,771) (1,393) (1,220) (404) (303)
Management fees paid to manager............. (87) (1,678) (1,425) (1,151) (598) (375) (40)
Equity in earnings of Asset Investors....... -- -- -- -- -- 15 --
CMBS bonds revenue.......................... 161 9,172 9,838 8,980 5,938 115 124
Acquisition fees paid to manager............ (124) -- -- -- -- (197) (61)
Reincorporation expenses.................... -- -- -- -- -- (120) --
Costs related to potential marina
acquisition............................... (500) -- -- -- -- -- (500)
Gain on sale of bonds....................... -- 5,786 -- -- -- -- --
-------- -------- ------- -------- -------- ------- --------
Net income.................................. $ 3,441 $ 13,706 $ 6,959 $ 6,376 $ 4,927 $ 2,124 $ 2,474
======== ======== ======= ======== ======== ======= ========
Basic and diluted earnings per share........ $ 0.33 $ 1.32 $ 0.68 $ 0.63 $ 0.49 $ 0.20 $ 0.24
Weighted average common shares
outstanding............................... 10,357 10,332 10,247 10,104 10,047 10,350 10,355
Weighted average common shares and common
share equivalents outstanding............. 10,372 10,371 10,254 10,108 10,048 10,350 10,378
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation.............................. $ 12,678 $ -- $ -- $ -- $ -- $64,089 $ 1,368
Investments in participating mortgages and
joint ventures............................ 10,608 -- -- -- -- 3,255 8,146
Cash equivalents and short-term
investments............................... 48,358 74,153 8,277 598 12,367 18,410 62,205
CMBS bonds.................................. 1,739 1,981 61,460 69,503 74,046 1,714 1,795
Total assets................................ 78,234 78,148 72,406 71,590 87,604 95,953 78,252
Secured notes payable....................... -- -- -- -- 10,295 18,340 --
Total stockholders' equity.................. 77,254 77,705 71,919 70,465 74,672 75,032 77,634
CASH FLOW DATA:
Cash provided by operating activities....... $ 3,705 $ 4,428 $ 5,920 $ 6,151 $ 4,432 $ 2,671 $ 2,479
Cash provided by (used in) investing
activities................................ (70,524) 72,892 9,857 554 (65,347) (6,207) (71,296)
Cash provided by (used in) financing
activities................................ (4,042) (11,444) (8,098) (18,474) 6,980 5,320 (2,695)
OTHER DATA:
Funds from operations(a).................... $ 4,115 $ 7,920 $ 6,959 $ 6,376 $ 4,927 $ 3,150 $ 3,039
Weighted average common shares
outstanding............................... 10,357 10,332 10,247 10,104 10,047 10,350 10,355
Dividends paid to stockholders.............. $ 4,042 $ 11,475 $ 7,398 $ 6,868 $ 5,326 $ 4,049 $ 2,695
Ratio of earnings to fixed charges.......... N/A N/A 3,481.5 26.6 16.5 7.6 N/A
</TABLE>
- ---------------
(a) Commercial Assets management believes that the presentation of funds from
operations, when considered with the financial data determined in
accordance with generally accepted accounting principles, provides a useful
measure of Commercial Assets' performance. However, funds from operations
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity
102
<PAGE> 110
available to Commercial Assets, nor should it be considered as an
alternative to net income as an indicator of operating performance. The
Board of Governors of the National Association of Real Estate Investment
Trusts defines funds from operations as net income (loss), computed in
accordance with generally accepted accounting principles, excluding gains
and losses from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures. Commercial Assets calculates funds from operations beginning with
the Board of Governors of the National Association of Real Estate
Investment Trusts definition and includes adjustments for:
- property acquisition fees paid to Asset Investors which were expensed
under generally accepted accounting principles because Asset Investors
is an affiliate; and
- nonrecurring costs related to abandonment of potential marina
investments.
Commercial Assets' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Commercial Assets' ability to make required dividend
payments, capital expenditures and principal payments on its debt. Since
funds from operations excludes unusual and nonrecurring expenses as well as
depreciation and other real estate related expenses, funds from operations
may be materially different from net income. Therefore, funds from
operations should not be considered as an alternative to net income or net
cash flows from operating activities, as calculated in accordance with
generally accepted accounting principles, as an indication of Commercial
Assets' operating performance or liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Commercial Assets' cash needs, including its ability to make
distributions. Commercial Assets uses funds from operations in measuring
its operating performance because it believes that the items that result in
a difference between funds from operations and net income do not impact the
ongoing performance of a real estate company. Also, Commercial Assets
believes that other real estate companies, analysts and investors utilize
funds from operations in analyzing the results of real estate companies.
Commercial Assets' basis of computing funds from operations is not
necessarily comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------
1998 1997 1996 1995 1994 1999 1998
------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $3,441 $13,706 $6,959 $6,376 $4,927 $2,124 $2,474
Gain on sale of bonds... -- (5,786) -- -- -- -- --
Real estate
depreciation.......... 50 -- -- -- -- 786 4
Real estate acquisition
fees.................. 124 -- -- -- -- 197 61
Costs related to
abandonment of
potential marina
investments........... 500 -- -- -- -- -- 500
Equity in Asset
Investors' adjustments
for funds from
operations............ -- -- -- -- -- 43 --
------ ------- ------ ------ ------ ------ ------
Funds from operations... $4,115 $ 7,920 $6,959 $6,376 $4,927 $3,150 $3,039
====== ======= ====== ====== ====== ====== ======
</TABLE>
103
<PAGE> 111
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMERCIAL ASSETS
You should read the following discussion and analysis of Commercial Assets'
consolidated results of operations and financial condition in conjunction with
Commercial Assets' consolidated financial statements filed annually and
quarterly with the Securities and Exchange Commission and incorporated by
reference into this Joint Proxy Statement/Prospectus. See "WHERE YOU CAN FIND
MORE INFORMATION."
In 1998, Commercial Assets decided to change its business from the
ownership of high-risk commercial mortgaged backed securities to the ownership,
acquisition and development of manufactured home communities. This decision
helped Commercial Assets to avoid the volatility incurred by other owners of
these securities following the capital market crisis in the third quarter of
1998. Since Commercial Assets' capital has not yet been entirely invested in
this new business, its financial performance, and consequently its stock price,
has been adversely affected during this period. During the past year Commercial
Assets has been focused on the investment of its capital in the acquisition of
interests in manufactured home communities.
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE AND NINE
MONTHS ENDED
SEPTEMBER 30, 1998
Rental Property Operations
Income from rental property operations totaled $507,000 and $1,639,000
during the three and nine months ended September 30, 1999 compared to $147,000
and $147,000 during the same periods in 1998. Commercial Assets' first
investment in manufactured home communities was in August 1998. As of September
30, 1999, Commercial Assets had invested approximately $65 million in 11
communities.
Interest and Other Income
Interest and other income during the three and nine months ended September
30, 1999 was $349,000 and $1,570,000 compared to $1,012,000 and $3,107,000
during the three and nine months ended September 30, 1998. The decrease is due
to a reduction in cash and short-term investments used to fund investments in
manufactured home communities beginning in August 1998. The average interest
rate earned on these funds was 5.0% during the nine months ended September 30,
1999 and 5.4% during the nine months ended September 30, 1998.
Interest Expense
Interest expense was $61,000 and $119,000 for the three and nine months
ended September 30, 1999 due to long-term notes payable secured by Commercial
Assets' communities. Commercial Assets had no interest expense during the same
periods in 1998 as it did not have any debt on manufactured home communities
until May 1999. Commercial Assets anticipates borrowing additional amounts in
the future in the form of secured long-term notes payable.
General and Administrative Expenses
Commercial Assets' general and administrative expenses were $131,000 and
$404,000 for the three and nine months ended September 30, 1999 compared to
$129,000 and $303,000 for the three and nine months ended September 30, 1998.
These expenses increased for the 1999 periods compared to 1998 primarily due to
increased costs related to shareholder relations and due diligence costs on
potential acquisitions that were not completed.
Management Fees
During the three and nine months ended September 30, 1999, Commercial
Assets' management fees were $181,000 and $375,000 compared to $23,000 and
$40,000 during the three and nine months ended
104
<PAGE> 112
September 30, 1998. The increase in management fees is primarily due to
Commercial Assets' acquisitions of manufactured home communities during this
period. Commercial Assets began to make these acquisitions during the third
quarter of 1998 and such fees are not paid on cash and short-term investments,
which is what Commercial Assets primarily held during the 1998 periods.
Commercial Mortgage Backed Securities Bonds Revenue
Income from commercial mortgage backed securities bonds during the three
and nine months ended September 30, 1999 was $38,000 and $115,000 and is
comparable to the same periods in 1998. This income is from Commercial Assets'
retained residual interest in two commercial mortgage backed securities bonds.
Acquisition Fees
During the three and nine months ended September 30, 1999, Commercial
Assets expensed acquisition fees paid to Asset Investors of $3,000 and $197,000
compared to $61,000 and $61,000 during the same periods in 1998. The change in
fees is a result of the amount Commercial Assets invested in manufactured home
communities during these periods. These fees would be capitalized if they had
been paid to an unrelated third party. Because they are paid to Asset Investors,
an affiliate, these fees are expensed by Commercial Assets under generally
accepted accounting principles.
Reincorporation Costs
In 1999, Commercial Assets reincorporated in Delaware from Maryland. It
incurred $120,000 of nonrecurring costs in connection with the incorporation.
Costs Related to Abandonment of Potential Marina Investments
During the third quarter of 1998, Commercial Assets decided that it would
no longer seek to acquire marinas and expensed $500,000 for costs related to the
abandonment of potential marina investments.
Dividend Distributions
During the three and nine months ended September 30, 1999, Commercial
Assets paid dividends totaling $1,350,000 ($0.13 per share) and $4,049,000
($0.39 per share) compared to $1,348,000 ($0.13 per share) and $2,695,000 ($0.26
per share) during the three and nine months ended September 30, 1998. Commercial
Assets did not pay dividends during the first quarter of 1998.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
In 1997, Commercial Assets decided to cease to invest in commercial
mortgage backed securities bonds. In November 1997, Commercial Assets
re-securitized, sold or redeemed its existing portfolio of commercial mortgage
backed securities bonds and had substantially ceased to be involved in the
investment in commercial mortgage backed securities bonds. In August 1998,
Commercial Assets decided to invest in manufactured home communities. In the
interim period, Commercial Assets temporarily invested its cash resources in
money market and other short-term investments while it was determining which
real estate asset class it would re-deploy its capital into. Results of 1998 are
not comparable to 1997 results because during 1997, Commercial Assets was in the
business of investing in commercial mortgage backed securities bonds. During
1998, Commercial Assets' operations were primarily the result of investments in
money market accounts and other short-term investments. During the latter half
of 1998, Commercial Assets began to invest in manufactured home communities.
Accordingly, 1998 activities were unrelated to 1997 activities.
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Rental Property
During 1998, income from rental properties totaled $537,000, arising from
Commercial Assets' initial investments in manufactured home communities.
Inflation
Commercial Assets does not believe that changes in inflation rates would
have a material adverse effect on its business.
Interest and Other Income
Interest and other income during 1998 was $3,874,000 compared to $945,000
for 1997. The increase is due to Commercial Assets' temporary investment of the
$77.7 million of cash proceeds received in November 1997 from the restructuring
of the commercial mortgage backed securities bonds. The average interest rates
earned on these short-term investments were 5.40% during 1998 and 5.44% during
1997.
Commercial Mortgage Backed Securities Bonds Revenue
Income from commercial mortgage backed securities bonds was $161,000 during
1998 compared to $9,172,000 for 1997. The earnings figures for 1998 represent
the income from the retained residual interest of the resecuritization of two
commercial mortgage backed securities bonds. All other income from the
commercial mortgage backed securities bonds ceased after the sale of the
commercial mortgage backed securities bonds in November 1997.
General and Administrative Expenses
Commercial Assets' general and administrative expenses were $420,000 in
1998 compared to $519,000 in 1997. General and administrative expenses decreased
in 1998 compared to 1997 primarily due to lower accounting and other expenses
related to the ownership of commercial mortgage backed securities bonds.
Management Fees
During 1998, Commercial Assets incurred base management fees of $87,000 on
investments in manufactured home communities, the retained equity interest from
the commercial mortgage backed securities bond resecuritization and the
investment in Westrec Marina Management, Inc. Commercial Assets incurred no
incentive management fees or administrative management fees in 1998. During
1997, Commercial Assets incurred management fees of $1,678,000, consisting of
base management fees of $598,000, incentive management fees of $1,024,000 and
administrative management fees of $56,000. Commercial Assets experienced a large
decrease in management fees during 1998 because it does not incur management
fees on cash equivalents and short-term investments of its cash resources.
Acquisition Fees
During 1998, Commercial Assets incurred acquisition management fees of
$124,000 as a result of its investments in manufactured home communities. During
1997, Commercial Assets incurred acquisition management fees of $23,000 on
acquisitions of commercial mortgage backed securities bonds. The acquisition
management fees incurred in 1997 were capitalized as part of the cost of
acquiring commercial mortgage backed securities bonds. Acquisition management
fees were expensed in 1998 because the manager is Asset Investors, owner of 27%
of the Commercial Assets' common stock. If these fees had been paid to an
unrelated third party, then they would have been capitalized under generally
accepted accounting principles.
Costs Related to Potential Marina Investments
During the third quarter of 1998, Commercial Assets decided that it would
no longer seek to acquire marinas, and it expensed $500,000 of costs related to
previously considered marina investments.
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COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Interest Income
Interest income in 1997 was $945,000 and in 1996 it was $319,000. The
increase in interest income in 1997 as compared to 1996 is due to Commercial
Assets' investment of the proceeds from the restructuring of the commercial
mortgage backed securities bonds in short-term investments. The average interest
rate earned on these funds was 5.44% in 1997 and 5.14% in 1996.
Commercial Mortgage Backed Securities Bonds Revenue
Income from commercial mortgage backed securities bonds was $9,172,000
during 1997 compared to $9,838,000 in 1996. Earnings from commercial mortgage
backed securities bonds decreased by $1,138,000 because there were no earnings
in November or December 1997 after the sale of the commercial mortgage backed
securities bond portfolio. This decrease was partially offset by higher income
prior to the sale. The income from the commercial mortgage backed securities
bonds prior to the sale was higher due to the prepayments made in August 1997 on
one bond and the earnings on bonds acquired in March 1997 offset by income from
the early redemption of two bonds in May 1996 and prepayments made on another
bond in 1996.
General and Administrative Expenses
Commercial Assets' general and administrative expenses were $519,000 for
1997 and $805,000 for 1996. General and administrative expenses decreased in
1997 compared to 1996 primarily due to lower stockholder relations expenses,
lower consulting and accounting expenses and the elimination of expenses from
dividend equivalent rights under the amendment to Commercial Assets' stock
option plan.
Management Fees
Management fee expenses were $1,678,000 for 1997 and $1,425,000 for 1996.
The increase in management fees during 1997 compared with 1996 was due to an
increase of $311,000 in incentive management fees, offset by a decrease of
$58,000 in base management fees and administrative management fees. Prior to the
restructuring of the commercial mortgage backed securities bond portfolio, our
manager received an administrative management fees of up to $10,000 per year for
each commercial mortgage backed securities bond. The increase in incentive
management fees was due to higher REIT income before incentive management fees
partially offset by an increase in the average Ten-Year U.S. Treasury Rate
between 1996 and 1997. The increase in REIT income was primarily a result of
gains associated with the restructuring of the commercial mortgage backed
securities bonds and nonrecurring expenses incurred in 1996, while the increase
in the average Ten-Year U.S. Treasury Rate had the effect of raising the
threshold above which incentive management fees are paid. The decrease in base
management fees was due to the decrease in average invested assets as a result
of the restructuring of Commercial Assets' commercial mortgage backed securities
bonds.
Dividend Distributions
During 1998, Commercial Assets declared regular dividends of $.39 per
share. During each of 1997 and 1996, Commercial Assets declared regular
dividends of $.68 per share. In addition, Commercial Assets declared special
dividends of $.26 per share in 1997 and $.04 per share in 1996, and a capital
gains dividend of $.17 per share in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, Commercial Assets had cash and cash equivalents
of $5,076,000 and short-term investments of $13,334,000. Commercial Assets'
principal activities that demand liquidity include its normal operating
activities, payments of principal and interest on outstanding debt, acquisitions
of or additional investments in properties and payments of dividends to
stockholders.
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During the nine months ended September 30, 1999, the net cash provided by
operating activities was $2,671,000 compared to $2,479,000 during the same
period in 1998. The increase during the first nine months of 1999 was primarily
due to investments in manufactured home communities. Higher income from rental
property operations before depreciation was only partially offset by lower
interest and other income on funds used for such investments.
Net cash used in investing activities was $6,207,000 during the nine months
ended September 30, 1999 compared to uses of $71,296,000 during the same period
in 1998. The net cash used in the 1999 period was primarily due to acquisitions
of interests in manufactured home communities, net of sales of short-term
investments used to fund these acquisitions, whereas the funds used in the 1998
period were for the purchase of short-term investments.
Net cash provided by financing activities was $5,320,000 during the nine
months ended September 30, 1999 compared to uses of $2,695,000 during the same
period in 1998. The net cash provided in the 1999 period was due to $10,300,000
in proceeds from long-term borrowings, net of dividends paid of $4,049,000. The
net cash used in the 1998 period was due to dividends paid. The increase in
dividends between the periods occurred primarily because Commercial Assets did
not pay a quarterly dividend during the first quarter of 1998.
Commercial Assets had long-term debt of $17,039,000 at September 30, 1999
and expects to meet its long-term liquidity requirements in excess of 12 months
through its cash balances, short-term investments, long-term, secured
borrowings, cash generated by operations and issuance of equity securities.
FUNDS FROM OPERATIONS
Commercial Assets measures its economic profitability based on funds from
operations, less an annual capital replacement reserve of at least $50 per
developed homesite. Commercial Assets believes that funds from operations, less
this annual capital replacement reserve, provides investors with an
understanding of its ability to incur and service debt and make capital
expenditures. The Board of Governors of the National Association of Real Estate
Investment Trusts defines funds from operations as net income (loss), computed
in accordance with generally accepted accounting principles, excluding gains and
losses from debt restructuring and sales of property, plus real estate related
depreciation and amortization, excluding amortization of financing costs, and
after adjustments for unconsolidated partnerships and joint ventures. Commercial
Assets calculates funds from operations beginning with the Board of Governors of
the National Association of Real Estate Investment Trusts definition and
includes adjustments for:
- property acquisition fees paid to Asset Investors, which are expensed
under generally accepted accounting principles because Asset Investors is
an affiliate; and
- nonrecurring costs related to abandonment of potential marina
investments.
Commercial Assets' management believes that the presentation of funds from
operations provides investors with measurements which help facilitate an
understanding of Commercial Assets' ability to make required dividend payments,
capital expenditures and principal payments on its debt. Since funds from
operations excludes unusual and nonrecurring expenses as well as depreciation
and other real estate related expenses, funds from operations may be materially
different from net income. Therefore, funds from operations should not be
considered as an alternative to net income or net cash flows from operating
activities, as calculated in accordance with generally accepted accounting
principles, as an indication of Commercial Assets' operating performance or
liquidity.
Funds from operations is not necessarily indicative of cash available to
fund Commercial Assets' cash needs, including its ability to make distributions.
Commercial Assets uses funds from operations in measuring its operating
performance because it believes that the items that result in a difference
between funds from operations and net income do not impact the ongoing operating
performance of a real estate company. Also, Commercial Assets believes that
other real estate companies, analysts and investors utilize
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funds from operations in analyzing the results of real estate companies.
Commercial Assets' basis of computing funds from operations is not necessarily
comparable with that of other REITs.
For the three and nine months ended September 30, 1999 and 1998, Commercial
Assets' funds from operations was (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income................................... $ 408 $ 486 $ 2,124 $ 2,474
Real estate depreciation..................... 465 4 786 4
Real estate acquisition fees................. 3 61 197 61
Costs related to abandonment of potential
marina investments......................... -- 500 -- 500
Equity in Asset Investors' adjustments for
funds from operations...................... 29 -- 43 --
------- ------- ------- -------
Funds from operations........................ $ 905 $ 1,051 $ 3,150 $ 3,039
======= ======= ======= =======
Weighted average common shares outstanding... 10,325 10,364 10,350 10,355
======= ======= ======= =======
</TABLE>
For the nine months ended September 30, 1999 and 1998, net cash flows were
as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------- --------
<S> <C> <C>
Cash provided by operating activities....................... $ 2,671 $ 2,479
Cash used in investing activities........................... (6,207) (71,296)
Cash provided by (used in) financing activities............. 5,320 (2,695)
</TABLE>
YEAR 2000 COMPLIANCE
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of Commercial Assets' Year 2000 compliance program.
Commercial Assets' hardware and software systems are currently Year 2000
compliant. Upon failure of any system, data included in critical software, such
as rent-rolls and record-keeping systems, could be transferred to alternative
commercially available software at a reasonable cost and within a reasonable
time period. Consequently, Commercial Assets would be able to continue its
business operations without any material interruption or material effect on its
business, results of operations or financial condition.
Disruptions in the economy generally resulting from Year 2000 issues could
also materially adversely affect Commercial Assets. Moreover, because a large
number of Commercial Assets' tenants may be dependent on social security
payments to pay their rents, a failure of the Social Security Administration to
cause their systems to be Year 2000 compliant may result in a material adverse
effect on Commercial Assets' operations. The Social Security Administration has
announced that their systems are Year 2000 compliant before January 1, 2000. We
have received oral representations from our third party vendors indicating that
they are substantially Year 2000 compliant.
Commercial Assets believes that the cost of modification or replacement of
its less essential accounting and reporting software and hardware that is not
currently compliant with Year 2000 requirements, if any, will not be material to
its financial position or results of operations.
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Our worst case scenario would be in the event that the U.S. Social Security
Administration were unable to process their payments to our tenants, in which
case large numbers of our tenants may be unable to pay their rent when due. If
this were to occur, we may be unable to continue to service our debt as it
becomes due and foreclosure proceedings on our affected properties could be
commenced by our lenders. We have no contingency plan with respect to potential
Year 2000 related problems. We note, however, that on December 28, 1998,
President Clinton publicly announced that the U.S. Social Security
Administration would be fully Year 2000 compliant before the end of 1999.
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COMMERCIAL ASSETS' QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Commercial Assets' principal exposure to market risk is through its
short-term investments and its various debt instruments and borrowings. The
following is a list of these short-term investments, debt instruments and
borrowing arrangements:
- Commercial Assets invests funds primarily in government securities and
other short-term investments with interest rates of approximately 0.25%
above the London Interbank Offered Rate. Accordingly, changes in interest
rates could affect the returns from such investments. At September 30,
1999, Commercial Assets had $13,334,000 of short-term investments. If the
London Interbank Offered Rate were to immediately decrease by 1%,
Commercial Assets' annual net income would decrease by $133,000. Because
Commercial Assets intends to redeploy its short-term investments by
acquiring manufactured home communities during 1999 and 2000, Commercial
Assets' primary objective with respect to its short-term investments is
to minimize the risk that the principal amount of these investments could
decrease. Therefore, Commercial Assets has short-term investments, the
principal amount of which is expected to be less affected by changes in
interest rates than other potential investments. The timing and amount of
future investments in manufactured home communities will depend on a
number of factors.
- Commercial Assets has $10.6 million of fixed rate, non-recourse, secured
long-term notes payable that mature in 2019. The interest rates on these
notes range from 6.7% to 7.1%. Commercial Assets does not have
significant exposure to changing interest rates on these notes because
the rates are fixed and the notes are fully amortizing.
- Commercial Assets has a $4.6 million fixed rate, recourse, secured
long-term note payable that is repayable in three annual installments.
The implied interest rate on this note is 7.0%. Commercial Assets does
not have significant exposure to changing interest rates on this note
because the rate is fixed and the note is fully amortizing. In the
future, Commercial Assets intends to borrow additional non-recourse,
secured, fixed rate, fully amortizing debt in connection with the
refinancing of the existing note payable. While changes in interest rates
would affect the cost of funds borrowed in the future to refinance the
existing debt, we believe that the effect, if any, of near-term changes
in interest rates on Commercial Assets' financial position, results of
operations or cash flows would not be material because the existing debt
is fixed rate until June 2002.
We have a $3.0 million, 7.67% nonrecourse, partially amortizing, secured
long-term note payable that matures in 2007. We do not have significant
exposure to changing interest rates on this note as the rate is fixed and
the balance due at maturity is only $2.6 million.
- Commercial Assets intends to borrow additional non-recourse, secured,
fixed rate, fully amortizing debt in connection with acquisitions of
communities. Accordingly, changes in interest rates will affect the cost
of future borrowings incurred in connection with future acquisitions.
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FEDERAL INCOME TAXATION OF ASSET INVESTORS
AND ITS STOCKHOLDERS
The following is a summary of the material Federal income tax consequences
relating to the acquisition, holding, and disposition of common stock of Asset
Investors. This discussion is based upon the Internal Revenue Code, the
regulations promulgated by the U.S. Treasury Department, rulings and other
administrative pronouncements issued by the Internal Revenue Service, and
judicial decisions, all as currently in effect. You should note that all of
these sources of tax law are subject to change, possibly with retroactive
effect. The summary is also based upon the assumption that the operation of
Asset Investors and its subsidiaries and affiliated entities will be in
accordance with its applicable organizational documents or partnership
agreement. This summary is for general information only and does not purport to
discuss all aspects of Federal income taxation that may be important to a
particular investor in light of its investment or tax circumstances, or to
investors subject to special tax rules, such as:
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- broker-dealers;
- regulated investment companies;
- holders who receive Commercial Assets' common stock through the exercise
of employee stock options or otherwise as compensation;
- foreign corporations;
- persons who are not citizens or residents of the United States; and
- persons holding Commercial Assets' common stock as part of a "straddle,"
"hedge" "conversion transaction," "synthetic security" or other
integrated investment.
This summary assumes that investors will hold their common stock of Asset
Investors as "capital assets" which generally means as property held for
investment.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF ASSET INVESTORS' COMMON
STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING
THE FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF ASSET INVESTORS'
COMMON STOCK, AND OF THE ELECTION OF ASSET INVESTORS TO BE TREATED FOR FEDERAL
INCOME TAX PURPOSES AS A REIT.
TAXATION OF ASSET INVESTORS
Asset Investors elected to be taxed as a REIT commencing with its initial
taxable year ended December 31, 1986. Asset Investors believes that it was
organized and has operated in such a manner as to qualify for taxation as a
REIT, and intends to continue to operate in such a manner. No assurance can be
given, however, that it was organized and has operated in each year in such a
manner as to qualify as a REIT.
Tax Opinion
Qualification and taxation as a REIT depends on the ability of Asset
Investors to meet on a continuing basis, through actual operating results,
distribution levels, and diversity of stock ownership, various qualification
tests imposed upon REITs by the Internal Revenue Code. In addition, Asset
Investors' ability to qualify as a REIT depends in part upon the operating
results, organizational structure and entity classification for Federal income
tax purposes of certain affiliated entities, including the qualification of
Commercial Assets as a REIT prior to the merger. See "-- Tax Aspects of
Investments in
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Affiliated Entities -- Commercial Assets." The ability of Commercial Assets to
qualify as a REIT requires, among other things, that either (a) notes issued by
a trust in which Commercial Assets has held an indirect interest are classified
for Federal income tax purposes as indebtedness, or (b) notwithstanding any
failure of the trust notes to be treated as indebtedness for Federal income tax
purposes, Commercial Assets had reasonable cause for any resultant failure to
satisfy the income tests applicable to REITs. In addition, the ability of Asset
Investors to qualify as a REIT depends in part upon the operating results,
organizational structure and entity classification for Federal income tax
purposes of certain affiliated entities. See "-- Requirements for
Qualification -- Income Tests" and "-- Tax Aspects of Investments in Affiliated
Entities."
Ernst & Young LLP has issued an opinion substantially to the effect that
the trust notes issued by the trust in which Commercial Assets holds an indirect
interest are more likely than not to be treated as indebtedness for Federal
income tax purposes. If the notes issued by the trust are treated as
indebtedness for Federal income tax purposes, then Commercial Assets, which
established the trust, would have continued to be treated as the owner of all of
the trust's assets, notwithstanding the issuance of the notes. Commercial Assets
would also be treated, for Federal income tax purposes, as deriving all of the
items of gross income earned by the trust, consisting of mortgage interest that
qualifies for purposes of the REIT gross income tests described below, and as
having made the largely offsetting interest payments with respect to the notes.
This amount of qualifying gross income in the hands of Commercial Assets, in
combination with its qualifying income from other sources, would have enabled
Commercial Assets to satisfy the REIT gross income requirements for 1998. Some
uncertainty exists as to the proper tax classification of the notes because of
the substantial leverage maintained by the trust, and because principal payments
are generally made pro rata on the different classes of notes and the residual
interest in the trust retained by Commercial Assets, rather than by making
principal payments with respect to only the senior-most outstanding class until
that class is repaid in full. Even if the notes are not classified as
indebtedness for Federal income tax purposes, and, as a result, Commercial
Assets fails to satisfy the gross income requirements that apply to REITs, it
may nonetheless maintain its qualification as a REIT by showing that it had
reasonable cause for the failure and by satisfying other requirements.
Based in part upon the conclusion that either (a) the notes described above
are treated as indebtedness for Federal income tax purposes, or that, in the
alternative, (b) Commercial Assets had reasonable cause, on the basis of, among
other things, the opinion of Ernst & Young described above, for any resultant
failure to satisfy the gross income requirements applicable to REITs, Skadden,
Arps, Slate, Meagher & Flom LLP has issued an opinion substantially to the
effect that each of Asset Investors and Commercial Assets has been organized in
conformity with the requirements for qualification as a REIT, and its actual and
proposed method of operation has enabled and will enable it to meet the
requirements for qualification and taxation as a REIT under the Internal Revenue
Code, commencing with its 1998 taxable year and including 1999, as well as 2000
through the date of the opinion. A condition to the respective obligations of
Commercial Assets and Asset Investors to complete the merger is that this
opinion is reconfirmed by Skadden, Arps as of the time of the merger. Skadden,
Arps has not rendered an opinion as to whether the trust notes constitute
indebtedness for Federal income tax purposes.
It must be emphasized that the opinions of Skadden, Arps and of Ernst &
Young, as described above, are based on various assumptions relating to the
organization and operation of Asset Investors and Commercial Assets, and are
conditioned upon representations made by the management of Asset Investors and
Commercial Assets as to relevant factual matters, and covenants as to future
operations. While Asset Investors intends to operate so that it will qualify as
a REIT, given the highly complex nature of the rules governing REITs, the
ongoing importance of factual determinations, and the possibility of future
changes in the circumstances of Asset Investors, no assurance can be given by
Skadden, Arps, Ernst & Young or Asset Investors that Asset Investors will so
qualify for any particular year. The opinions are expressed as of their
respective dates, and Skadden, Arps and Ernst & Young have no obligation to
advise holders of Asset Investors' common stock of any subsequent change in the
matters stated, represented or assumed, or of any subsequent change in the
applicable law. Opinions of Skadden, Arps and Ernst & Young are not binding on
the Internal Revenue Service, and no assurance can be given that the Internal
Revenue Service
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will not challenge the conclusions set forth in such opinions. In addition,
Skadden, Arps has not historically represented Asset Investors, and its opinion
does not cover taxable years ended prior to 1998, or periods subsequent to its
issuance.
Taxation of REITs in General
As indicated above, qualification and taxation as a REIT depends upon the
ability of Asset Investors to meet, on a continuing basis, various qualification
requirements imposed upon REITs by the Internal Revenue Code. The material
qualification requirements are summarized below. While Asset Investors intends
to operate so that it qualifies as a REIT, no assurance can be given that the
Internal Revenue Service will not challenge its qualifications, or that it will
be able to operate in accordance with the REIT requirements in the future. See
"-- Failure to Qualify."
Provided that Asset Investors qualifies as a REIT, it will generally not be
subject to Federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" at the corporate and stockholder levels that generally results
from investment in a corporation. Rather, income generated by a REIT generally
is taxed only at the stockholder level upon a distribution of dividends by the
REIT. Net operating losses, foreign tax credits and other tax attributes of a
REIT generally do not pass through to the stockholders of the REIT, subject to
special rules relating to capital gains recognized by a REIT and distributions
by REITs, as described in "-- Taxation of Stockholders -- Taxation of Taxable
Domestic Stockholders -- Distributions."
If Asset Investors qualifies as a REIT, it may nonetheless be subject to
Federal tax in the following circumstances:
- Asset Investors will generally be taxed at regular corporate rates on any
undistributed income, including undistributed net capital gains, except to the
extent that its income may be offset by net operating losses.
- Asset Investors may be subject to the "alternative minimum tax" on its
items of tax preference, including any deductions of net operating losses.
- If Asset Investors has net income from prohibited transactions, which
are, in general, sales or other dispositions 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.
- If Asset Investors should fail to satisfy the 75% gross income test or
the 95% gross income test, as discussed below, but nonetheless maintains its
qualification as a REIT because other requirements are met, it will be subject
to a 100% tax on an amount equal to (a) the greater of the amount by which Asset
Investors fails the 75% or the 95% gross income test, as the case may be,
multiplied by (b) a fraction intended to reflect the profitability of Asset
Investors.
- If Asset Investors should fail to distribute during 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 (other than long-term capital
gains that Asset Investors elects to retain and pay the tax thereon), and (c)
any undistributed taxable income from prior periods, Asset Investors would be
subject to a 4% excise tax on the excess of the required distribution over the
amounts actually distributed.
- Asset Investors may be required to pay monetary penalties to the Internal
Revenue Service in certain circumstances, including if it fails to meet record
keeping requirements intended to monitor its compliance with rules relating to
the composition of a REIT's stockholders, as described below in "-- Requirements
for Qualification."
- For tax years beginning after 2000, a 100% excise tax may be imposed on
some items of income and expense that are directly or constructively paid
between a REIT and a taxable REIT subsidiary if and to the extent that the IRS
successfully adjusts the reported amounts of these items.
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- If Asset Investors acquires assets from a corporation that was taxable
under subchapter C of the Internal Revenue Code in a transaction in which the
adjusted tax basis of the assets in the hands of Asset Investors is determined
by reference to the adjusted tax basis of the assets in the hands of the
subchapter C corporation, under recently issued Treasury Department regulations,
the subchapter C corporation would generally be required to recognize any net
built-in gain that would have been realized if it had liquidated on the day
before the date of the transfer. The regulations provide, however, that in lieu
of taxation of the transferor subchapter C corporation as described immediately
above, Asset Investors may elect to be subject to tax at the highest corporate
income tax rate then applicable if it subsequently recognizes gain on the
disposition of any such assets during the ten-year period following their
acquisition from the subchapter C corporation. In addition, Asset Investors
could also be subject to tax in situations and on transactions not presently
contemplated.
Requirements for Qualification
The Internal Revenue Code defines a REIT as a corporation, trust or
association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
(3) which would be taxable as a domestic corporation but for the
special Internal Revenue Code provisions applicable to REITs;
(4) that is neither a financial institution nor an insurance company
subject to specific provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than
50% in value of the outstanding stock is owned, directly or indirectly, by
five or fewer "individuals" (as defined in the Internal Revenue Code to
include specific entities); and
(7) which meets other tests described below, including with respect to
the nature of its income and assets.
The Internal Revenue Code provides that conditions (1) through (4) must be
met during the entire taxable year, and that condition (5) 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. The Asset Investors Amended and Restated
Certificate of Incorporation provides restrictions regarding transfers of its
shares, which are intended to assist Asset Investors in satisfying the share
ownership requirements described in conditions (5) and (6) above.
To monitor compliance with the share ownership requirements, Asset
Investors is generally required to maintain records regarding the actual
ownership of its shares. To do so, Asset Investors must demand written
statements each year from the record holders of significant percentages of its
stock in which the record holders are to disclose the actual owners of the
shares, i.e., the persons required to include in gross income the dividends paid
by Asset Investors. A list of those persons failing or refusing to comply with
this demand must be maintained as part of the records of Asset Investors.
Failure by Asset Investors to comply with these record keeping requirements
could subject it to monetary penalties, but would not, effective with respect to
the 1998 taxable year and thereafter, affect its qualification as a REIT. A
stockholder who fails or refuses to comply with the demand is required by
Treasury regulations to submit a statement with its tax return disclosing the
actual ownership of the shares and other information.
In addition, a corporation generally may not elect to become a REIT unless
its taxable year is the calendar year. Asset Investors satisfies this
requirement.
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Ownership of Partnership Interests. In the case of a REIT that is a partner
in a partnership, Treasury regulations provide that the REIT is deemed to own
its proportionate share of the partnership's assets, and to earn its
proportionate share of the partnership's income, for purposes of the asset and
gross income tests applicable to REITs as described below. In addition, the
assets and gross income of the partnership are deemed to retain the same
character in the hands of the REIT. Thus, the proportionate share of Asset
Investors of the assets, liabilities and items of income of its subsidiary
partnerships, which includes the partnerships and limited liability companies in
which it has a direct or indirect ownership interest, including Asset Investors
Operating Partnership, will be treated as assets, liabilities and items of
income of Asset Investors for purposes of applying the REIT requirements
described herein. A summary of rules governing the Federal income taxation of
partnerships and their partners is provided below in "--Tax Aspects of
Investments in Affiliated Entities -- Partnerships."
Wholly-Owned Subsidiaries. If a REIT owns a corporate subsidiary that is a
"qualified REIT subsidiary," that subsidiary is disregarded for Federal income
tax purposes, and all assets, liabilities and items of income, deduction and
credit of the subsidiary are treated as assets, liabilities and items of income,
deduction and credit of the REIT itself, including for purposes of the gross
income and asset tests applicable to REITs as described below. A qualified REIT
subsidiary is any corporation wholly owned by a REIT, or by other qualified REIT
subsidiaries, or by a combination of the two. Asset Investors has several such
wholly-owned corporate subsidiaries. Similarly, a single member limited
liability company owned by Asset Investors or by Asset Investors Operating
Partnership would also generally be disregarded as a separate entity for Federal
income tax purposes. Recently enacted legislation will allow REITs, beginning in
2001, to elect to treat corporate subsidiaries that are wholly-owned as either
separate taxable REIT subsidiary corporations, or as transparent qualified REIT
subsidiaries. See "OTHER TAX CONSIDERATIONS -- Legislative or Other Actions
Affecting REITs."
Income Tests. In order to maintain qualification as a REIT, Asset Investors
annually must satisfy two gross income requirements. First, at least 75% of
Asset Investors' gross income, excluding gross income from sales of inventory or
dealer property in "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
received from other REITs, and interest income derived from mortgage loans
secured by real property, or from some kinds of temporary investments. Second,
at least 95% of Asset Investors' gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from some
combination of such income from investments in real property, as well as other
dividends, interest and gain from the sale or disposition of stock or
securities.
Rents received by Asset Investors directly or through subsidiary entities
will qualify as "rents from real property" in satisfying the gross income
requirements described above, only if several conditions are met, including the
following. If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to this personal property will not
qualify as "rents from real property." Moreover, for rents received to qualify
as "rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" from which the REIT derives no revenue.
However, Asset Investors and its affiliates are permitted to directly perform
services that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered rendered to
the occupant of the property. In addition, effective in 1998, Asset Investors
and its affiliates may provide non-customary services to tenants of its
properties without disqualifying all of the rent from the property if the
payment for such services does not exceed 1% of the total gross income from the
property. For purposes of this test, the income received from such non-customary
services is deemed to be at least 150% of the direct cost of providing the
services. Moreover, pursuant to recent legislation, Asset Investors will be
permitted, beginning in 2001, to provide services to tenants or others through
an electing taxable REIT subsidiary corporation without disqualifying the rental
income received from tenants for purposes of the REIT income requirements.
Rental income derived from any lessee that is an entity will also qualify as
rents
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from real property only to the extent that Asset Investors does not directly or
constructively hold a 10% or greater interest, as measured by vote or value, in
the lessee's equity.
To the extent that a REIT derives interest income from a mortgage loan or
income from the rental of real property where all or a portion of the amount of
interest or rental income payable is contingent, such income generally will
qualify for purposes of the gross income tests only if it is based upon the
gross receipts or sales, and not the net income or profits, of the borrower or
lessee. This limitation does not apply, however, where the borrower or lessee
leases substantially all of its interest in the property to tenants or
subtenants, to the extent that the rental income derived by the borrower or
lessee, as the case may be, would qualify as rents from real property had it
been earned by a REIT. Asset Investors has made mortgage loans and entered into
ground leases, as lessor, in reliance upon the exception described in the
preceding sentence. Accordingly, the ability of Asset Investors to treat the
income derived from these arrangements as income that qualifies for purposes of
the REIT gross income tests will depend, in part, upon the character of the
income generated by a particular borrower or lessee, which may not be within the
control of Asset Investors.
Asset Investors indirectly receives distributions from taxable corporations
that are not REITs or qualified REIT subsidiaries. These distributions will be
classified as dividend income to the extent of the earnings and profits of the
distributing taxable corporation. Such distributions will generally constitute
qualifying income for purposes of the 95% gross income test, but not under the
75% gross income test.
If Asset Investors fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for the year
if it is entitled to relief under provisions of the Internal Revenue Code. These
relief provisions will be generally available if the failure of Asset Investors
to meet these tests was due to reasonable cause and not due to willful neglect,
Asset Investors attaches to its tax return a schedule of the sources of its
income, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. The tax opinion of Skadden, Arps, relating to the
qualification of Asset Investors as a REIT, is based upon the application of
these relief provisions in the event that notes issued by a trust in which
Commercial Assets holds a residual interest are not treated as indebtedness for
Federal income tax purposes. See "-- Taxation of Asset Investors -- Tax
Opinion." It is not possible to state whether Asset Investors would be entitled
to the benefit of these relief provisions in all circumstances. If these relief
provisions are inapplicable to a particular set of circumstances involving Asset
Investors, Asset Investors will not qualify as a REIT. As discussed above under
"-- Taxation of Asset Investors -- Taxation of REITs in General," even where
these relief provisions apply, a tax would be imposed upon the amount by which
Asset Investors fails to satisfy the particular gross income test.
Asset Tests. Asset Investors, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the total assets of Asset Investors must be
represented by some combination of real estate assets, including its allocable
share of real estate assets held by subsidiary partnerships, and stock of other
corporations that qualify as REITs, cash, cash items, U.S. government
securities, and, under some circumstances, stock or debt instruments purchased
with new capital. For this purpose, real estate assets include interests in real
property, and some kinds of mortgage backed securities and mortgage loans.
Second, not more than 25% of the total assets of Asset Investors 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 Asset Investors may not exceed 5% of the value of the total
assets of Asset Investors, and Asset Investors may not own more than 10% of any
one issuer's outstanding voting securities. Recent legislation adds, effective
in 2001, the requirement that Asset Investors generally not own more than 10% of
the total value of the outstanding securities of any one corporate issuer. The
5% and 10% asset limitations described above do not apply to wholly-owned
qualified REIT subsidiary corporations, or, effective in 2001, to electing
taxable REIT subsidiary corporations. The value of the stock held by a REIT in
taxable REIT subsidiary corporations, may not, however, exceed, in the
aggregate, 20% of the value of a REIT's total assets. See "-- Wholly-Owned
Subsidiaries" and "OTHER TAX CONSIDERATIONS -- Legislative or Other Actions
Affecting REITs."
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Asset Investors indirectly owns interests in taxable corporations. Except
as set forth above, and prior to the 2001 effective date of recently enacted
legislation, the ownership of more than 10% of the voting securities of any one
issuer by a REIT, or the investment of more than 5% of the REIT's total assets
in any one issuer's securities, is prohibited by the asset tests. Asset
Investors believes that its indirect ownership interests in the taxable
corporations qualify under these rules. However, no independent appraisals have
been obtained to support the conclusions of Asset Investors as to the value of
its total assets or the value of its interests in the taxable corporations, and
these values are subject to change in the future. Accordingly, there can be no
assurance that the Internal Revenue Service will not contend that Asset
Investors' ownership interests in the taxable corporations disqualifies it from
treatment as a REIT.
Annual Distribution Requirements. Asset Investors, in order to qualify as a
REIT, is required to distribute dividends, other than capital gain dividends, to
its stockholders in an amount at least equal to
(a) the sum of
(1) 95% of the "REIT taxable income" of Asset Investors (computed
without regard to the deduction for dividends paid and net capital gain of
Asset Investors) and
(2) 95% of the net income (after tax), if any, from foreclosure
property, minus
(b) the sum of specified items of noncash income.
Recent legislation reduces the distribution requirement from 95% to 90%,
effective in 2001. These distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before Asset Investors
timely files its tax return for the year and if paid with or before the first
regular dividend payment after such declaration. To the extent that Asset
Investors distributes at least 95% (or 90% after 2000), but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax at ordinary
corporate tax rates. Asset Investors may elect to retain, rather than
distribute, its net long-term capital gains and pay tax on such gains. In this
case, Asset Investors could elect to have its stockholders include their
proportionate share of such undistributed long-term capital gains in income, and
to receive a corresponding credit for their share of the tax paid by Asset
Investors. Stockholders of Asset Investors would then increase the adjusted
basis of their Asset Investors shares by the difference between the designated
amounts included in their long-term capital gains and the tax deemed paid with
respect to their shares. To the extent that a REIT has available net operating
losses and capital losses carried forward from prior tax years, such losses may,
in part, reduce the amount of distributions that it must make in order to comply
with the REIT distribution requirements described in this paragraph. However,
such losses generally will not affect the character, in the hands of
stockholders, of any distributions that are actually made by the REIT, which are
generally taxable to stockholders to the extent that the REIT has current or
accumulated earnings and profits. See "-- Taxation of Stockholders -- Taxation
of Taxable Domestic Stockholders -- Distributions." As described below in
"-- Loss Carryovers," Asset Investors has net operating losses and capital
losses carried forward from previous taxable years.
If Asset Investors should fail to distribute during each calendar year,
without regard to distributions made in the following tax year but prior to the
filing of the tax return of Asset Investors, 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, excluding retained long-term capital gains, and (c) any
undistributed taxable income from prior periods, Asset Investors would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Asset Investors believes that it has made, and
intends to make, timely distributions sufficient to satisfy this annual
distribution requirement.
It is possible that Asset Investors, from time to time, may not have
sufficient cash to meet the distribution requirement due to timing differences
between (a) the actual receipt of cash, including receipt of distributions from
its subsidiary partnerships, and (b) the inclusion of items in income by Asset
Investors for Federal income tax purposes. In the event that such timing
differences occur, in order to meet the distribution requirement, it might be
necessary to arrange for short-term, or possibly long-term, borrowings, or to
pay dividends in the form of taxable in-kind distributions of property.
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Asset Investors may be able to rectify a failure to meet the distribution
requirement for a year by paying "deficiency dividends" to stockholders in a
later year, which may be included in the deduction for dividends paid of Asset
Investors for the earlier year. In this case, Asset Investors may be able to
avoid losing its REIT status or being taxed on amounts distributed as deficiency
dividends. However, Asset Investors will be required to pay interest and a
penalty based on the amount of any deduction taken for deficiency dividends.
Failure to Qualify
If Asset Investors fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, Asset Investors will be subject to
tax, including any applicable alternative minimum tax, on its taxable income at
regular corporate rates. In this case, however, taxable income may be reduced by
available net operating losses. Distributions to stockholders in any year in
which Asset Investors fails to qualify will not be deductible by Asset Investors
nor will they be required to be made. In this situation, to the extent of
current and accumulated earnings and profits, all distributions to stockholders
will be taxable as ordinary income, and, subject to limitations of the Internal
Revenue Code, corporate distributees may be eligible for the dividends received
deduction. Unless Asset Investors is entitled to relief under specific statutory
provisions, Asset Investors would also 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 Asset Investors
would be entitled to this statutory relief.
Loss Carryovers
In previous tax years, Asset Investors incurred net operating losses in the
amount of approximately $95 million. In general, a REIT may carry its net
operating losses forward for up to 20 years -- 15 years for losses incurred in
years in which Asset Investors' losses arose -- to offset income that would
otherwise be taxable in those years, or to reduce the amount of distributions
that are otherwise required in order to qualify as a REIT. Asset Investors' net
operating losses will expire during the period from 2007 to 2009 if they are not
used in the intervening years.
REITs generally pay little Federal income tax because of the distribution
requirements, and because of the deduction for dividends paid to which REITs are
generally entitled. A REIT's net operating losses are not deductible by its
stockholders, and, in general, do not affect the tax treatment to stockholders
of distributions received from the REIT. If a REIT uses its net operating losses
to offset its taxable income and thus reduce its distribution requirements, it
may nonetheless be subject to alternative minimum tax because a portion of the
deduction for net operating losses is denied for that purpose.
If Asset Investors undergoes an "ownership change" within the meaning of
the Internal Revenue Code and the Treasury regulations, its ability to
subsequently use its pre-existing net operating losses in any year is limited.
In that case, the amount of the net operating losses that may be used by Asset
Investors in any year would generally be limited to the product of the value of
Asset Investors' stock at the time of the ownership change, multiplied by the
long-term tax-exempt rate, which is a measure of interest rates on long-term
tax-exempt bonds.
In general, an ownership change occurs if one or more large stockholders,
known as "5% stockholders," including groups of stockholders that may be
aggregated and treated as a single 5% stockholder, increase their aggregate
percentage interest in Asset Investors by more than 50 percentage points over
their lowest ownership percentage during the preceding three-year period. The
holders of Commercial Assets' common stock who receive Asset Investors' common
stock in the merger will be treated as a single 5% stockholder for this purpose,
which will account for a significant percentage, but less than 50%, of Asset
Investors' stock. Based upon available records of stock ownership, Asset
Investors believes that an ownership change has not occurred in the past, and it
anticipates that an ownership change will not result from the merger. It is
possible, however, that the merger, or other transactions over which Asset
Investors does not have control, could cause an ownership change, particularly
if a significant portion of Commercial Assets stockholders elect not to receive
cash in the merger. After the merger, Asset Investors' certificate of
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incorporation will include stockholder restrictions that are designed to prevent
the subsequent unintended occurrence of an ownership change. See "DESCRIPTION OF
THE MERGER PROPOSAL." Nevertheless, no assurance can be given that an ownership
change will not have occurred prior to or in connection with the merger, and
Asset Investors will not obtain an opinion of counsel as to whether an ownership
change has occurred or will occur. Investors are therefore cautioned that Asset
Investors' net operating losses may not be available in their entirety and
without limitation.
Asset Investors also has capital losses that were incurred in prior years,
approximately $23.8 million of which were carried forward. Approximately $23.4
million of these losses will expire if not used in 2000, with the remainder
expiring after 2001 if not used. Capital losses are generally available to
offset only Asset Investors' gains, if any, from the sale or disposition of
capital assets and assets, other than inventory, used in its trade or business.
In the event of an ownership change, the availability of capital losses are
limited in a manner similar to the limitation that applies to net operating
losses, as described above, and capital losses used by Asset Investors in a year
following an ownership change would reduce the amount of its net operating
losses that may be used in that year.
TAX ASPECTS OF INVESTMENTS IN AFFILIATED ENTITIES
Partnerships
Background. Substantially all of Asset Investors' investments are held
indirectly through Asset Investors Operating Partnership. In general,
partnerships are "pass-through" entities that are not subject to Federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax on these items, without regard to whether the partners receive a
distribution from the partnership. Asset Investors will include in its income
its proportionate share of these partnership items for purposes of the various
REIT income tests and in the computation of its REIT taxable income. Moreover,
for purposes of the REIT asset tests, Asset Investors will include its
proportionate share of assets held by Asset Investors Operating Partnership and
the other subsidiary partnerships. See "-- Taxation of Asset
Investors -- Requirements for Qualification -- Ownership of Partnership
Interests."
Entity Classification. The direct and indirect investment of Asset
Investors in partnerships involves special tax considerations, including the
possibility of a challenge by the Internal Revenue Service of the status of any
of Asset Investors' subsidiary partnerships as a partnership, as opposed to an
association taxable as a corporation, for Federal income tax purposes. If any of
these entities were treated as an association for Federal income tax purposes,
it would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the assets of Asset
Investors and items of gross income of Asset Investors would change and could
preclude Asset Investors from satisfying the REIT asset tests and/or the gross
income tests discussed in "-- Taxation of Asset Investors -- Requirements for
Qualification -- Asset Tests" and "-- Income Tests," and in turn could prevent
Asset Investors from qualifying as a REIT. See "Taxation of Asset
Investors -- Failure to Qualify," above, for a discussion of the effect of the
failure of Asset Investors to meet these tests for a taxable year. In addition,
any change in the status of any of Asset Investors' subsidiary partnerships for
tax purposes might be treated as a taxable event, in which case Asset Investors
might incur a tax liability without any related cash distributions.
Tax Allocations with Respect to the Properties. Under the Internal Revenue
Code and the Treasury regulations, income, gain, loss and deduction attributable
to appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for tax purposes
in a manner such that the contributing partner is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of the unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution, or a "book-tax difference." Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. Asset
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Investors Operating Partnership has acquired its interest in some properties by
way of contributions of appreciated property and may acquire additional
properties in that manner in the future. Consequently, allocations must be made
in a manner consistent with these requirements. Where a partner contributes cash
to a partnership that holds appreciated property, the Treasury regulations
provide for a similar allocation of these items to the other, i.e.,
non-contributing, partners. These rules apply to the contribution by Asset
Investors to Asset Investors Operating Partnership of the cash proceeds received
in any offerings of its stock.
In general, holders of interests in Asset Investors Operating Partnership
may be allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on the sale by Asset Investors Operating
Partnership or other Asset Investors subsidiary partnerships of contributed
properties. This will tend to eliminate the book-tax difference over the life of
these partnerships. However, the special allocations do not always entirely
rectify the book-tax difference on an annual basis or with respect to a specific
taxable transaction such as a sale. Thus, the carryover basis of the contributed
properties in the hands of the Asset Investors Operating Partnership or other
Asset Investors subsidiary partnerships may cause Asset Investors to be
allocated lower depreciation and other deductions, and possibly greater amounts
of taxable income in the event of a sale of these contributed assets in excess
of the economic or book income allocated to it as a result of such sale. This
may cause Asset Investors to recognize taxable income in excess of cash
proceeds, which might adversely affect Asset Investors' ability to comply with
the REIT distribution requirements. See "-- Taxation of Asset
Investors -- Requirements for Qualification -- Annual Distribution
Requirements."
With respect to any property purchased or to be purchased by any of Asset
Investors subsidiary partnerships, other than through the issuance of interests
in the acquiring partnership, subsequent to the formation of Asset Investors,
this property will initially have a tax basis equal to its fair market value,
and the special allocation provisions described above will not apply.
Sale of the Properties. The share of Asset Investors of any gain realized
by Asset Investors Operating Partnership or any other Asset Investors'
subsidiary partnership on the sale of any property held as inventory or
primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Taxation of Asset Investors -- Taxation of REITs in
General." Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends upon all of the facts and circumstances of the
particular transaction. Asset Investors Operating Partnership and the other
Asset Investors' subsidiary partnerships generally intend to hold their
interests in properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, operating, financing
and leasing the properties, and to make occasional sales of the properties,
including peripheral land, as are consistent with the investment objectives of
Asset Investors.
Taxable Corporations
A portion of the amounts to be used to fund distributions to stockholders
of Asset Investors is expected to come from dividend distributions and interest
payments made by taxable corporations. In general, taxable corporations pay
Federal, state and local income taxes on their taxable income at normal
corporate rates. Any Federal, state or local income taxes that the taxable
corporations are required to pay may reduce the cash flow of Asset Investors
from operating activities and its ability to make payments to holders of its
common stock.
In order for Asset Investors to qualify as a REIT, as of the end of each
calendar quarter, the value of its direct or indirect interest in any taxable
corporation generally may not exceed 5% of the value of its total assets, and
Asset Investors may not directly or indirectly own more than 10% of the
outstanding voting securities of any taxable corporation. See "-- Taxation of
Asset Investors -- Requirements for Qualification -- Asset Tests." Asset
Investors believes that it has satisfied both the 5% and the 10% asset
requirements as they relate to its interests in taxable corporations, and Asset
Investors intends to monitor these interests so that the value of securities of
any one issuer do not exceed 5% of Asset Investors' total
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assets. However, no assurance can be given that the relative values of the
assets of Asset Investors will not change, or that they will be accepted by the
Internal Revenue Service. Effective in 2001, the 5% and 10% asset limits
described above will not apply to stock of electing taxable REIT subsidiary
corporations, although the stock of such corporations owned by Asset Investors
must not, in the aggregate, exceed 20% of the value of Asset Investors' total
assets. See "OTHER TAX CONSIDERATIONS -- Legislative or Other Actions Affecting
REITs."
Wholly-Owned Corporations
As described above at "-- Taxation of Asset Investors -- Requirements for
Qualification -- Wholly-Owned Subsidiaries," a corporation that is wholly-owned
by a REIT and constitutes a qualified REIT subsidiary is generally disregarded
for Federal income tax purposes. In the event that a qualified REIT subsidiary
of Asset Investors ceases to be wholly owned, for example if any equity interest
in the subsidiary is acquired by a person other than Asset Investors or another
qualified REIT subsidiary of Asset Investors, the subsidiary could no longer be
treated as a qualified REIT subsidiary. Such an event could, in turn, adversely
affect Asset Investors' ability to satisfy the various asset and gross income
requirements applicable to REITs, including the current requirement that a REIT
may not own, directly or indirectly, more than 10% of the voting securities of a
taxable corporation. See "-- Taxation of Asset Investors -- Requirements for
Qualification -- Asset Tests" and "-- Income Tests."
Commercial Assets
Stock of a corporation that qualifies as a REIT is treated, in the hands of
a stockholder that is a REIT, as a qualifying interest in real property for
purposes of the asset tests applicable to the stockholder REIT, and any dividend
income derived from this stock is treated as qualifying income of the
stockholder for purposes of the 95% and 75% gross income requirements described
above. See "-- Taxation of Asset Investors -- Requirements of
Qualification -- Asset Tests" and "-- Income Tests." Asset Investors currently
holds approximately 27% of the outstanding stock of Commercial Assets.
Commercial Assets, as a separate REIT prior to the merger, is subject to
all of the same REIT qualification requirements that apply to Asset Investors,
as described above. See "-- Taxation of Asset Investors -- Requirements for
Qualification." In the event that Commercial Assets were to fail to qualify as a
REIT, or were to terminate its election to be taxed as a REIT, during a period
prior to the merger, this would alter the composition of Asset Investors' income
and assets, and would preclude Asset Investors from qualifying as a REIT. The
qualification of Commercial Assets, and hence Asset Investors, as a REIT,
depends upon either (1) the trust notes issued by a trust in which Commercial
Assets holds an interest qualifying as indebtedness for Federal income tax
purposes, or (2) the availability of relief on the basis of reasonable cause in
the event of any resultant failure of Commercial Assets to satisfy the gross
income tests applicable to REITs. See "-- Taxation of Asset Investors -- Tax
Opinion," and "-- Taxation of Asset Investors -- Requirements for
Qualification -- Income Tests."
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders
Distributions. Provided that Asset Investors qualifies as a REIT,
distributions made to its taxable domestic stockholders out of current or
accumulated earnings and profits, and not designated as capital gain dividends,
will be taken into account by them as ordinary income and will not be eligible
for the dividends received deduction for corporations. Distributions that are
designated as capital gain dividends will be taxed to stockholders as long-term
capital gains, to the extent that they do not exceed the actual net capital gain
of Asset Investors for the taxable year, without regard to the period for which
the stockholder has held its stock. A similar treatment will apply to long-term
capital gains retained by Asset Investors, to the extent that Asset Investors
elects the application of provisions of the Internal Revenue Code that treat
stockholders of a REIT as having received, for Federal income tax purposes,
undistributed capital gains of the REIT, while passing through to stockholders a
corresponding credit for taxes paid by
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the REIT on such retained capital gains. Corporate stockholders may be required
to treat up to 20% of some capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares in respect of which the distributions
were made, but rather, will reduce the adjusted basis of these shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares, they will be included in income as long-term capital gain, or short-term
capital gain if the shares have been held for one year or less, provided that
the shares are a capital asset in the hands of the stockholder. In addition, any
dividend declared by Asset Investors in October, November or December of any
year and payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by Asset Investors and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by Asset Investors before the end of January of the following calendar
year.
To the extent that a REIT has available net operating losses and capital
losses carried forward from prior tax years, such losses may reduce the amount
of distributions that must be made in order to comply with the REIT distribution
requirements. See "-- Taxation of Asset Investors -- Requirements for
Qualification -- Annual Distribution Requirements." Asset Investors has losses
carried forward from prior tax years. See "-- Taxation of Asset
Investors -- Loss Carryovers." These losses, however, are not passed through to
stockholders and do not offset income of stockholders from other sources, nor
would they affect the character of any distributions that are actually made by a
REIT, which are generally subject to tax in the hands of stockholders to the
extent that the REIT has current or accumulated earnings and profits.
Dispositions of Asset Investors Stock. In general, capital gains recognized
by individuals and other non-corporate stockholders upon the sale or disposition
of shares of Asset Investors stock will be subject to a maximum Federal income
tax rate of 20% if the Asset Investors stock is held for more than 12 months,
and will be taxed at ordinary income rates of up to 39.6% if the Asset Investors
stock is held for 12 months or less. Gains recognized by stockholders that are
corporations are subject to Federal income tax at a maximum rate of 35%, whether
or not classified as long-term capital gains. Capital losses recognized by a
stockholder upon the disposition of Asset Investors stock held for more than one
year at the time of disposition will be considered long-term capital losses, and
are generally available only to offset capital gain income of the stockholder
but not ordinary income (except in the case of individuals, who may offset up to
$3,000 of ordinary income each year). In addition, any loss upon a sale or
exchange of shares of Asset Investors stock by a stockholder who has held the
shares for six months or less, after applying holding period rules, will be
treated as a long-term capital loss to the extent of distributions received from
Asset Investors that are required to be treated by the stockholder as long-term
capital gain.
Taxation of Foreign Stockholders
The following is a discussion of selected United States Federal income and
estate tax consequences of the ownership and disposition of Asset Investors
stock applicable to non-U.S. holders of Asset Investors stock. A "non-U.S.
holder" is any person other than
(a) a citizen or resident of the United States,
(b) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state thereof or
the District of Columbia,
(c) an estate whose income is includable in gross income for U.S.
Federal income tax purposes regardless of its source, or
(d) a trust if a United States court is able to exercise primary
supervision over the administration of such trust and one or more United
States fiduciaries have the authority to control all substantial decisions
of the trust. The discussion is based on current law and is for general
information only. The discussion addresses only selective and not all
aspects of United States Federal income and estate taxation.
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Ordinary Dividends. The portion of dividends received by non-U.S. holders
payable out of the earnings and profits of Asset Investors which are not
attributable to capital gains of Asset Investors and which are not effectively
connected with a U.S. trade or business of the non-U.S. holder will be subject
to U.S. withholding tax at the rate of 30%, unless reduced by treaty. In
general, non-U.S. holders will not be considered engaged in a U.S. trade or
business solely as a result of their ownership of Asset Investors' stock. In
cases where the dividend income from a non-U.S. holder's investment in Asset
Investors stock is, or is treated as, effectively connected with the non-U.S.
holder's conduct of a U.S. trade or business, the non-U.S. holder generally will
be subject to U.S. tax at graduated rates, in the same manner as domestic
stockholders are taxed with respect to such dividends, and may also be subject
to the 30% branch profits tax in the case of a non-U.S. holder that is a
corporation.
Non-Dividend Distributions. Unless Asset Investors stock constitutes a U.S.
real property interest, distributions by Asset Investors which are not dividends
out of the earnings and profits of Asset Investors will not be subject to U.S.
income tax. In general, except as described below in "Taxation of
Stockholders -- Taxation of Foreign Stockholders -- Dispositions of Asset
Investors Stock," a U.S. real property interest includes the stock of a
corporation if 50% or more of the corporation's assets, by value, at any time
within a prescribed testing period, consist of certain direct or indirect
interests in real property located within the United States. If it cannot be
determined at the time at which a distribution is made whether or not such
distribution will exceed current and accumulated earnings and profits, the
distribution will be subject to withholding at the rate applicable to dividends.
However, the non-U.S. holder may seek a refund of such amounts from the Internal
Revenue Service if it is subsequently determined that such distribution was, in
fact, in excess of current and accumulated earnings and profits of Asset
Investors. If Asset Investors stock constitutes a U.S. real property interest,
as described below, distributions by Asset Investors in excess of the sum of its
earnings and profits plus and the stockholder's basis in its Assets Investors
stock will be taxed under the Foreign Investment in Real Property Tax Act of
1980 at the rate of tax, including any applicable capital gains rates, that
would apply to a domestic stockholder of the same type, e.g., an individual or a
corporation, as the case may be, and the collection of such tax will be enforced
by a refundable withholding at a rate of 10% of the amount by which the
distribution exceeds the stockholder's share of Asset Investors' earnings and
profits.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act, a distribution made by Asset Investors to a non-U.S. holder, to the extent
attributable to gains from dispositions of U.S. real property interests such as
the properties beneficially owned by Asset Investors, or "U.S. real property
interest capital gains," will be considered effectively connected with a U.S.
trade or business of the non-U.S. holder and subject to U.S. income tax at the
rates applicable to U.S. individuals or corporations, without regard to whether
such distribution is designated as a capital gain dividend. In addition, Asset
Investors will be required to withhold tax equal to 35% of the amount of
dividends to the extent such dividends constitute U.S. real property interest
capital gains. Distributions subject to the Foreign Investment in Real Property
Tax Act may also be subject to a 30% branch profits tax in the hands of non-U.S.
holder that is a corporation.
Dispositions of Asset Investors Stock. Unless Asset Investors' stock
constitutes a U.S. real property interest, a sale of such stock by a non-U.S.
holder generally will not be subject to U.S. taxation under the Foreign
Investment in Real Property Tax Act. The stock will not constitute a U.S. real
property interest if Asset Investors is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times during a specified
testing period, less than 50% in value of its shares is held directly or
indirectly by non-U.S. holders. Asset Investors believes that it is, and it
expects to continue to be, a domestically controlled REIT and, therefore, the
sale of Asset Investors stock should not be subject to taxation under the
Foreign Investment in Real Property Tax Act. Because Asset Investors' common
stock is publicly traded, however, no assurance can be given that Asset
Investors is or will continue to be a domestically controlled REIT.
Even if Asset Investors does not constitute a domestically controlled REIT,
a non-U.S. holder's sale of stock nonetheless will generally not be subject to
tax under the Foreign Investment in Real Property Tax Act as a sale of a U.S.
real property interest, provided that (a) the stock is "regularly traded," as
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defined by applicable Treasury Department regulations on an established
securities market, and (b) the selling non-U.S. holder held 5% or less of Asset
Investors' outstanding stock at all times during a specified testing period.
If gain on the sale of stock of Asset Investors were subject to taxation
under the Foreign Investment in Real Property Tax Act, the non-U.S. holder would
be subject to the same treatment as a U.S. stockholder with respect to such
gain, subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals, and the purchaser of
the stock could be required to withhold 10% of the purchase price and remit such
amount to the Internal Revenue Service.
Gain from the sale of Asset Investors stock that would not otherwise be
subject to the Foreign Investment in Real Property Tax Act will nonetheless be
taxable in the United States to a non-U.S. holder in two cases: (a) if the
non-U.S. holder's investment in the Asset Investors stock is effectively
connected with a U.S. trade or business conducted by such non-U.S. holder, the
non-U.S. holder will be subject to the same treatment as a U.S. stockholder with
respect to such gain, or (b) if the non-U.S. holder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, the nonresident alien
individual will be subject to a 30% tax on the individual's capital gain.
Estate Tax. Asset Investors stock owned or treated as owned by an
individual who is not a citizen or resident, as specially defined for U.S.
Federal estate tax purposes, of the United States at the time of death will be
includable in the individual's gross estate for U.S. Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. Federal estate tax on the property
includable in the estate for U.S. Federal estate tax purposes.
Information Reporting Requirements and Backup Withholding
Asset Investors will report to its U.S. stockholders and to the Internal
Revenue Service the amount of distributions paid during each calendar year, and
the amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to distributions paid unless such holder (a) is a corporation or comes within
other specific exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the applicable
requirements of the backup withholding rules. A stockholder who does not provide
Asset Investors with its correct taxpayer identification number also may be
subject to penalties imposed by the Internal Revenue Service. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability.
In addition, Asset Investors may be required to withhold a portion of
capital gain distributions to any non-U.S. holders who fail to certify their
foreign status to Asset Investors. Recently issued final Treasury Department
regulations regarding the backup withholding rules as applied to non-U.S.
holders alter backup withholding compliance mechanics and will be effective for
payments made after December 31, 2000.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts, generally are exempt from
Federal income taxation. However, they are subject to taxation upon their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
ruled that dividend distributions from a REIT to an exempt employee pension
trust do not constitute unrelated business taxable income, provided that the
shares of the REIT are not otherwise used in an unrelated trade or business of
the exempt employee pension trust. Based on that ruling, amounts distributed by
Asset Investors to tax-exempt entities should generally not constitute unrelated
business taxable income. However, if a tax-exempt entity finances its
acquisition of the Asset Investors stock with debt, a portion of its income from
Asset Investors may constitute unrelated business taxable income under the
"debt-financed property" rules.
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OTHER TAX CONSIDERATIONS
LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
Congress recently enacted legislation, generally effective in 2001, that
will, among other things:
- allow REITs to own and control taxable REIT subsidiary corporations that
could provide services to REIT tenants and others without disqualifying
the rents that the REIT receives from its tenants for purposes of the
REIT income tests;
- add a requirement that a REIT generally can not own securities having a
value of more than 10% of the total value of the outstanding securities
of any one corporate issuer (other than a qualified REIT subsidiary or an
electing taxable REIT subsidiary);
- limit the value of securities issued by one or more taxable REIT
subsidiaries that a REIT may own, directly or indirectly, to an amount
that does not exceed 20% of the value of the REIT's gross assets; and
- reduce from 95% to 90% the percentage of income that REITs are required
to distribute annually. In order to conform its operations and structure
to these legislative changes, Asset Investors may convert subsidiaries of
which it owns more than 10% of the total value (other than qualified REIT
subsidiaries) into taxable REIT subsidiaries. Such a restructuring would
permit Asset Investors to provide services and engage in other activities
through taxable REIT subsidiaries in which it holds a greater economic
interest, and over which it has greater control, than is currently the
case with existing subsidiaries.
In February 2000, President Clinton released his proposed budget for fiscal
year 2001. Provisions contained in the proposal would, if enacted into law:
- generally extend the 4% excise tax on delayed distributions by REITs to
cases where the REIT timely distributes less than 98% of its ordinary
income or capital gain net income for a tax year during that year. As
discussed above, the excise tax does not apply under current law if the
REIT timely distributes at least 85% of its ordinary income and 95% of
its capital gain net income. See "FEDERAL INCOME TAXATION OF ASSET
INVESTORS AND ITS STOCKHOLDERS -- Taxation of Asset Investors -- Taxation
of REITs in General" and " -- Taxation of Asset Investors -- Requirements
for Qualification -- Annual Distribution Requirements."
- provide an additional requirement that an entity will not qualify as a
REIT if one person, including an entity, directly or constructively owns
stock possessing 50% or more of the voting power or value of its stock.
The current 50% shareholder requirement, which is not affected by the
proposal, generally looks to direct and constructive ownership by five or
fewer persons who are individuals. See "FEDERAL INCOME TAXATION OF ASSET
INVESTORS AND ITS STOCKHOLDERS -- Taxation of Asset
Investors -- Requirements for Qualification."
The rules dealing with Federal income taxation are constantly under review
by persons involved in the legislative process and by the Internal Revenue
Service and the Treasury Department. Changes to the Federal tax laws and
interpretations of Federal tax laws could adversely affect an investment in
Asset Investors.
STATE, LOCAL AND FOREIGN TAXES
Asset Investors and its stockholders may be subject to state, local or
foreign taxation in various jurisdictions, including those in which it or they
transact business, own property or reside. Asset Investors owns properties
located in a number of states and local jurisdictions, and may be required to
file tax returns in some or all of those jurisdictions. The state, local or
foreign tax treatment of Asset Investors and its stockholders may not conform to
the Federal income tax treatment discussed above. Consequently, prospective
investors should consult their own tax advisors regarding the application and
effect of state, local and foreign income and other tax laws on an investment in
Asset Investors' common stock.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited (1) Asset Investors'
consolidated financial statements (and schedule) included in Asset Investors'
Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31,
1998; (2) Commercial Assets' consolidated financial statements (and schedule)
included in Commercial Assets' Annual Report on Form 10-K/A (Amendment No. 1)
for the year ended December 31, 1998; (3) Lakeshore Villas Manufactured Home
Community's statement of excess of revenues over specific operating expenses for
the year ended September 30, 1998 included in Commercial Assets' Current Report
on Form 8-K dated March 31, 1999; (4) Rancho Mirage Manufactured Home
Community's statement of excess of revenues over specific operating expenses for
the year ended December 31, 1998 included in Commercial Assets' Current Report
on Form 8-K dated May 7, 1999; (5) La Casa Blanca Manufactured Home Community's
statement of excess of revenues over specific operating expenses for the year
ended December 31, 1998 included in Amendment No. 1 to Commercial Assets'
Current Report on Form 8-K dated June 30, 1999; (6) Fiesta Village Manufactured
Home Communities combined statement of excess of revenues over specific
operating expenses for the year ended December 31, 1998 included in Amendment
No. 1 to Commercial Assets' Current Report on Form 8-K dated August 13, 1999;
and (7) Community Acquisition and Development Corporation Manufactured Home
Communities combined statement of excess of revenues over specific operating
expenses for the year ended December 31, 1998 included in Amendment No. 1 to
Asset Investors' Current Report on Form 8-K dated January 31, 2000; as set forth
in their reports, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. These financial statements are incorporated by reference
in this Joint Proxy Statement/Prospectus in reliance on their reports, given on
their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Asset Investors' common stock being issued in the
merger and material Federal income tax matters is being passed upon for Asset
Investors by Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles, California,
counsel to Asset Investors.
WHERE YOU CAN FIND MORE INFORMATION
Commercial Assets and Asset Investors file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that the companies file at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Asset Investors' and Commercial
Assets' public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Asset Investors also may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. Reports, proxy statements and other information concerning
Commercial Assets also may be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, NY 10006.
Asset Investors has filed a Registration Statement to register with the
Securities and Exchange Commission the shares of Asset Investors' common stock
to be issued to Commercial Assets stockholders in the merger. This Joint Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Asset Investors and a proxy statement of Asset Investors for the
Asset Investors special meeting, in addition to being a proxy statement of
Commercial Assets for the Commercial Assets special meeting.
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As permitted by the Securities and Exchange Commission rules, this Joint
Proxy Statement/ Prospectus does not contain all the information that
stockholders can find in the Registration Statement or the exhibits to the
Registration Statement.
The Securities and Exchange Commission permits Commercial Assets and Asset
Investors to "incorporate by reference" information into this Joint Proxy
Statement/Prospectus, which means that we can disclose important information to
you by referring you to other documents filed separately with the Securities and
Exchange Commission. The information incorporated by reference is considered
part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information contained directly in the Joint Proxy
Statement/Prospectus or in later filed documents incorporated by reference in
this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference the
documents set forth below that Commercial Assets and Asset Investors have
previously filed with the Securities and Exchange Commission. These documents
contain important information about the companies and their financial condition.
<TABLE>
<CAPTION>
COMMERCIAL ASSETS SEC ASSET INVESTORS SEC
FILINGS (FILE NO. 1-12262) PERIOD FILINGS (FILE NO. 1-0360) PERIOD
- -------------------------- -------------------- ------------------------- --------------------
<S> <C> <C> <C>
Annual Report on Form
10-K.................. Year ended December Annual Report on Form
31, 1998 10-K.................... Year ended December
31, 1998
Quarterly Reports on Form
10-Q.................. Quarters ended March Quarterly Reports on Form
31, 1999 and June 10-Q.................... Quarters ended March
30, 1999 31, 1999 and June
30, 1999
Current Reports on Form
8-K................... Dated April 13, Current Reports on Form
1999, April 21, 8-K..................... Dated May 26, 1999;
1999, April 30, September 3, 1999;
1999, May 19, 1999, January 31, 2000;
June 10, 1999, July February 15, 2000;
14, 1999, August 30, and February 24,
1999 and September 2000
3, 1999
Registration Statement on
Form S-3................ Dated September 29,
1998 (amended on
December 31, 1998)
</TABLE>
Commercial Assets and Asset Investors incorporate by reference additional
documents that may be filed with the Securities and Exchange Commission under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934 between the date
of this Joint Proxy Statement/Prospectus and the date of the special meeting.
These include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Commercial Assets has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Commercial
Assets, and Asset Investors has supplied all such information relating to Asset
Investors.
If you are a stockholder, Commercial Assets or Asset Investors may have
sent you some of the documents incorporated by reference, but you can obtain any
of them through the companies, the Securities and Exchange Commission or the
Securities and Exchange Commission's Internet web site as
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described above. Documents incorporated by reference are available from the
companies without charge, excluding all exhibits, except that if the companies
have specifically incorporated by reference an exhibit in this Joint Proxy
Statement/Prospectus, the exhibit will also be provided without charge.
Stockholders may obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
following addresses:
Commercial Assets, Inc.
3410 South Galena Street, Suite 210
Denver, Colorado 80231
(303) 614-9410
Asset Investors Corporation
3410 South Galena Street, Suite 210
Denver, Colorado 80231
(303) 614-9400
If you would like to request documents from either company, please do so by
, 2000 to receive them before the Commercial Assets and Asset
Investors special meetings.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus. We have not authorized
anyone to provide you with information that is different from what is contained
in this Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus
is dated , 2000. You should not assume that the information contained
in this Joint Proxy Statement/Prospectus is accurate as of any date other than
that date. Neither the mailing of this Joint Proxy Statement/Prospectus to
stockholders nor the issuance of Asset Investors' common stock in the merger
creates any implication to the contrary.
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ANNEX
A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMMERCIAL ASSETS, INC.
AND
ASSET INVESTORS CORPORATION
DATED AS OF MARCH 8, 2000
<PAGE> 138
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of March 8,
2000, by and between COMMERCIAL ASSETS, INC., a Delaware corporation ("CAX") and
ASSET INVESTORS CORPORATION, a Delaware corporation ("AIC").
WHEREAS, on August 31, 1999, the respective Board of Directors of AIC and
CAX each determined that a merger of CAX with and into AIC pursuant to which
each issued and outstanding share of CAX common stock, par value $.01 per share
(the "CAX Common Stock"), other than shares owned, directly or indirectly, by
CAX, would be converted into the right to receive 0.4075 shares of AIC common
stock, par value $.01 per share (the "AIC Common Stock"), was advisable and in
the best interest of their respective corporations and their stockholders;
WHEREAS, in furtherance of the transaction described above (the "Original
Merger Proposal"), AIC and CAX entered into an Agreement and Plan of Merger,
dated as of August 31, 1999 (the "Original Merger Agreement"), setting forth the
terms and conditions of the Original Merger Proposal, including a provision
providing for the Certificate of Incorporation of AIC, as the surviving
corporation of the merger, to be amended and restated as part of such
transaction;
WHEREAS, on February , 2000, the respective Boards of Directors of each
of AIC and CAX approved the terms of a proposed settlement (the "Proposed
Settlement") of certain legal actions filed in the Delaware Court of Chancery
following the announcement of the Original Merger Proposal and brought by the
plaintiffs named therein (the "Plaintiffs") purportedly on behalf of the
stockholders of CAX (other than AIC and the other defendants named therein)
against AIC, CAX and their respective officers and directors, which Proposed
Settlement is contained in a Memorandum of Understanding, dated February ,
2000 (the "MOU"), among AIC, CAX and the named Plaintiffs;
WHEREAS, in connection with and in order to implement the Proposed
Settlement, the respective Board of Directors of each of AIC and CAX has agreed
to amend the terms of the Original Merger Agreement to (i) provide each CAX
stockholder with the right to elect to receive, for each share of CAX Common
Stock held by such stockholder immediately prior to the merger of CAX with and
into AIC, either (x) $5.75 in cash, subject to certain limitations, or (y)
0.4075 shares of AIC Common Stock, and (ii) increase from a simple majority to a
two-thirds majority, the number of outstanding shares of CAX Common Stock
entitled to vote thereon that must be voted in favor of the merger of CAX with
and into AIC in order for such merger to be approved by the CAX stockholders;
WHEREAS, AIC and CAX wish to amend and restate the Original Merger
Agreement in its entirety in order to provide for the merger of CAX with and
into AIC (the "Merger") under terms and conditions which (i) incorporate the
separate consideration by the AIC stockholders of the amendments to the AIC
Certificate of Incorporation, (ii) incorporate the further changes to the
Original Merger Proposal required by the Proposed Settlement, and (iii) extend
from March 31, 2000 to June 15, 2000 as the outside date after which either AIC
or CAX may terminate this Agreement if the Merger has not theretofore been
completed; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that, immediately
following the Merger, the Surviving Corporation (as defined in Section 1.1) will
qualify as a real estate investment trust ("REIT") within the meaning of the
Code.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
A-1
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the provisions of the Delaware
General Corporation Law (the "DGCL"), at the Effective Time (as defined in
Section 1.3), CAX shall be merged with and into AIC and the separate corporate
existence of CAX shall cease. Following the Effective Time, AIC shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of CAX in accordance with the provisions
of the DGCL.
SECTION 1.2 Closing. Subject to the satisfaction or waiver of all the
conditions to closing with respect to the Merger contained in Article VI hereof,
the closing of the Merger (the "Closing") will take place at 5:00 p.m., New York
City time, on the fifth business day after satisfaction or waiver of the
conditions set forth in Article VI, unless another time or date is agreed to by
the parties hereto (the "Closing Date"). The Closing will be held at the offices
of Skadden, Arps, Slate, Meagher & Flom, LLP, 300 South Grand Avenue, Suite
3400, Los Angeles, California 90071 or such other location as is agreed to by
the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties shall cause the Merger
to be consummated by filing a certificate of merger or other appropriate
documents (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL with the Secretary of State of the State of Delaware and
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with and accepted by the Secretary of State of the State of Delaware, or at such
subsequent date or time as AIC and CAX shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation of AIC, at the Effective Time,
shall become the certificate of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein and by applicable law. The
by-laws of AIC, as in effect immediately prior to the Effective Time, shall
become the by-laws of the Surviving Corporation until thereafter changed and
amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The officers of AIC immediately prior
to the Effective Time, shall become the officers of the Surviving Corporation
until their successors shall have been duly appointed or qualified or until
their earlier death, resignation or removal in accordance with the certificate
of incorporation and the by-laws of the Surviving Corporation. The directors of
the Surviving Corporation shall be designated in writing by AIC at least 10 days
prior to the date that AIC and CAX mail the Proxy Statement (as defined below)
to their, respective stockholders; provided, that a majority of such directors
shall consist of current directors of AIC or CAX. Such directors shall serve
until their successors shall have been duly elected, appointed or qualified or
until their earlier death, resignation or removal in accordance with the
certificate of incorporation and the by-laws of the Surviving Corporation.
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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on CAX Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of CAX capital stock:
(a) Cancellation of CAX Treasury Stock. Each share of CAX Common Stock
that is owned directly or indirectly by CAX or held in the treasury of CAX
or by any Subsidiary of CAX shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
(b) Conversion of CAX Common Stock. Each issued and outstanding share
of CAX Common Stock (other than shares to be canceled in accordance with
Section 2.1(a)) shall be converted into the following (the "Merger
Consideration"):
(i) subject to the provisions of Section 2.3 hereof, for each share
of CAX Common Stock with respect to which an election to receive cash
from AIC has been effectively made and not revoked or lost ("Cash
Election Shares"), the right to receive from AIC an amount equal to
$5.75 in cash (the "Cash Election Price"); or
(ii) for each share of CAX Common Stock (other than Cash Election
Shares), the right to receive 0.4075 fully paid and nonassessable shares
(the "Stock Consideration") of AIC Common Stock (a "Non-Cash Election
Share").
(c) Cancellation and Retirement of CAX Common Stock. Subject to
Section 2.1(a), as of the Effective Time, all such shares of CAX Common
Stock shall no longer be outstanding and shall automatically be canceled
and shall cease to exist, and each holder of a certificate representing any
such shares of CAX Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration and any cash
in lieu of fractional shares of AIC Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 2.5 and any dividends or distributions to which such holder is
entitled pursuant to Section 2.5(c), in each case without interest and less
any required withholding taxes.
SECTION 2.2 Merger Consideration Elections.
(a) Each person who, on or prior to the Election Date referred to in
(c) below, is a record holder of shares of CAX Common Stock will be
entitled, with respect to all or any portion of such holder's shares, to
make an unconditional election (the "Election") on or prior to such
Election Date to receive either Non-Cash Election Shares or the Cash
Election Price, on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.2(c)), AIC shall appoint a bank or trust company to act as exchange agent
(the "Exchange Agent") for the payment of the Merger Consideration.
(c) AIC shall, subject to any required clearance by the Securities and
Exchange Commission ("SEC"), prepare and mail a form of election, which
form shall be subject to the reasonable approval of CAX (the "Form of
Election"), with the Proxy Statement to the record holders of CAX Common
Stock as of the record date for the Stockholders Meeting (as defined in
Section 5.1(b)), which Form of Election shall be used by each record holder
of shares of CAX Common Stock to elect to receive either Cash Election
Shares or the Cash Election Price upon conversion of any or all of such
holder's shares of CAX Common Stock in the Merger, subject to the
provisions of Section 2.3 hereof. AIC will use its best efforts to make the
Form of Election and the Proxy Statement available to all persons who
become holders of CAX Common Stock during the period between such record
date and the Election Date referred to below. Any such holder's election to
receive the Cash Election Price shall
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have been properly made only if the Exchange Agent shall have received at
its designated office, by 5:00 p.m. New York City time, on the business day
(the "Election Date") preceding the date of the Stockholders Meeting, a
Form of Election properly completed and signed. Any holder of CAX Common
Stock who shall have failed to submit a Form of Election by the Election
Date, or shall have failed to properly complete such Form of Election to
elect to receive the Cash Election Price, shall be deemed to have elected
to receive the Stock Consideration.
(d) Any Form of Election may be revoked by the stockholder submitting
it to the Exchange Agent only by written notice received by the Exchange
Agent prior to 5:00 p.m. New York City time, on the Election Date. In
addition, all Forms of Election shall automatically be revoked if the
Exchange Agent is notified in writing by AIC and CAX that the Merger has
been abandoned.
(e) The determination of the Exchange Agent shall be binding whether
or not elections to receive the Cash Election Price have been properly made
or revoked pursuant to this Section 2.2 and when elections and revocations
were received by it. If the Exchange Agent determines that any election to
receive the Cash Election Price was not properly made with respect to
shares of CAX Common Stock, such shares shall be treated by the Exchange
Agent as shares which were not Cash Election Shares at the Effective Time
of the Merger, and such shares shall be converted in the Merger into the
right to receive the shares of AIC Common Stock pursuant to Section
2.1(b)(ii). The Exchange Agent shall also make all computations as to the
allocation and proration contemplated by Section 2.3, and any such
computations shall be conclusive and binding on the holders of shares of
CAX Common Stock. The Exchange Agent may, with the mutual agreement of AIC
and CAX, make such rules as are consistent with this Section 2.2 for the
implementation of the elections provided for herein as shall be necessary
or desirable fully to effect such elections.
SECTION 2.3 Proration.
(a) The cash available to pay the Cash Election Price shall in the
aggregate consist of no more than $20,411,741 at the Effective Time of the
Merger (the "Total Cash Amount").
(b) In the event that the sum of the Total Cash Amount, plus cash paid
in lieu of fractional shares, plus $600,000 (such sum, the "Adjusted Cash
Amount") is greater than 57.5% of the aggregate value of the Merger
Consideration (for purposes hereof only, the value of the Non-Cash Election
Shares shall be determined by reference to the average of the intra day
high and low trading prices of AIC's Common Stock on the New York Stock
Exchange on the Closing Date and the Merger Consideration shall be deemed
to include the Adjusted Cash Amount), then the Total Cash Amount shall be
reduced as necessary, such that the Adjusted Cash Amount does not exceed
57.5% of the value of the Merger Consideration.
(c) If the aggregate Cash Election Price representing the aggregate
Cash Election Shares (the "Aggregate Cash Election Amount") exceeds the
Total Cash Amount, then each Cash Election Share shall be converted into
the right to receive Non-Cash Election Shares and cash in accordance with
the terms of Section 2.1(b) in the following manner:
(i) A proration factor (the "Cash Proration Factor") shall be
determined by dividing the Total Cash Amount by the Aggregate Cash
Election Amount.
(ii) The number of Cash Election Shares of each stockholder
electing to receive cash to be converted into the right to receive the
Cash Election Price shall be determined by multiplying the Cash
Proration Factor by the total Cash Election Shares of such stockholder,
rounded down to the nearest whole number.
(iii) All Cash Election Shares, other than those shares already
converted into the right to receive the Cash Election Price in
accordance with Section 2.3(c)(ii), shall be converted into the right to
receive Non-Cash Election Shares as if such shares were not Cash
Election Shares.
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(d) If the Aggregate Cash Election Amount is less than or equal to the
Total Cash Amount, then:
(i) All Cash Election Shares shall be converted into the right to
receive the Cash Election Price in accordance with the terms of Section
2.1(b)(i);
(ii) Shares of CAX Common Stock other than Cash Election shares
shall be converted into the right to receive Non-Cash Election Shares in
accordance with the terms of 2.1(b)(ii).
SECTION 2.4 Effect on AIC Capital Stock. As of the Effective Time, each
issued and outstanding share of AIC Common Stock shall remain outstanding and
shall represent one share of common stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.5 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, AIC shall enter into an
agreement with such bank or trust company as may be designated by AIC and
reasonably satisfactory to CAX (the "Exchange Agent"), which shall provide
that AIC shall deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of shares of CAX Common Stock, for exchange
in accordance with this Article II, through the Exchange Agent,
certificates representing shares of AIC Common Stock together with cash in
an amount necessary to permit the Exchange Agent to satisfy its obligations
under Section 2.3(e)(iii) (such shares of AIC Common Stock, together with
any dividends or distributions with respect thereto with a record date
after the Effective Time, and any cash payable in lieu of any fractional
shares of AIC Common Stock being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Section 2.1(b) in exchange for outstanding
shares of CAX Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of CAX Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.1(b), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as CAX and AIC may reasonably specify) and (ii)
instructions for use in surrendering the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that number of whole shares
of AIC Common Stock, if any, which such holder has the right to receive
pursuant to the provisions of this Article II, including dividends or other
distributions on such shares of AIC Common Stock which such holder has the
right to receive pursuant to Section 2.1(b)(ii) and/or the amount of cash,
if any, which the holder has the right to receive pursuant to this Article
II and cash in lieu of any fractional share of AIC Common Stock pursuant to
Section 2.5(e), and the Certificate so surrendered shall forthwith be
canceled. In the event of a surrender of a Certificate representing shares
of CAX Common Stock which are not registered in the transfer records of CAX
under the name of the person surrendering such Certificate, a certificate
representing the proper number of shares of AIC Common Stock or cash may be
issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such
issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of AIC Common Stock or cash to a person other than the
registered holder of such Certificate or establish to the satisfaction of
AIC that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.5, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration which the holder thereof has the
right to receive in respect of such Certificate pursuant
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to the provisions of this Article II, dividends or other distributions in
respect of such Merger Consideration which such holder has the right to
receive pursuant to Section 2.1(b), and cash in lieu of any fractional
share of AIC Common Stock pursuant to Section 2.5(e). No interest shall be
paid or will accrue on any amounts payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to AIC Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of AIC Common Stock issuable
hereunder in respect thereof, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.5(e), and all
such dividends, other distributions and cash in lieu of fractional shares
of AIC Common Stock shall be paid by AIC to the Exchange Agent and shall be
included in the Exchange Fund, in each case until the surrender of such
Certificate in accordance with this Article II, subject to Section 2.5(f).
Subject to the effect of applicable escheat or similar laws, following
surrender of any such Certificate there shall be paid to the holder of the
Certificate representing whole shares of AIC Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of AIC
Common Stock and the amount of any cash payable in lieu of a fractional
share of AIC Common Stock to which such holder is entitled pursuant to
Section 2.5(e) and (ii) at the appropriate payment date, the amount of
dividends or other distributions payable with respect to such whole shares
of AIC Common Stock with a record date after the Effective Time and with a
payment date subsequent to such surrender date.
(d) No Further Ownership Rights in CAX Common Stock. All shares of AIC
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid
pursuant to this Article II) shall be deemed to have been issued (and paid)
in full satisfaction of all rights pertaining to the shares of CAX Common
Stock theretofore represented by such Certificates, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which
may have been declared or made by CAX on such shares of CAX Common Stock,
as the case may be, which remain unpaid at the Effective Time, and
following the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of CAX Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Exchange Agent for any reason, they shall
be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of AIC Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution of AIC shall
relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of AIC.
(ii) The Surviving Corporation shall, in lieu of the issuance of
fractional share interests, pay each former holder of CAX Common Stock
an amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such former holder (after taking into
account all shares of CAX Common Stock held of record at the Effective
Time by such holder) would otherwise be entitled by (B) the closing
price of the AIC Common Stock as reported on the New York Stock Exchange
(the "NYSE") Composite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported therein, any other authoritative source) on
the Closing Date.
(iii) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Certificates with respect to
any fractional share interests, the Exchange Agent shall
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make available such amounts to such holders of Certificates subject to
and in accordance with the terms of Section 2.5(b).
(f) Withholding. AIC or the Exchange Agent shall be entitled to deduct
and withhold from the Merger Consideration and any dividends or
distributions otherwise payable pursuant to this Agreement to any holder of
shares of CAX Common Stock such amounts as AIC or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent amounts are so withheld by AIC or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of CAX Common Stock in respect of which
such deduction and withholding was made by AIC or the Exchange Agent.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to the Surviving
Corporation, upon demand, and any holders of the Certificates who have not
theretofore complied with this Article II thereafter shall look only to the
Surviving Corporation for payment of their claim for Merger Consideration,
any dividends or distributions with respect to AIC Common Stock and any
cash in lieu of fractional shares of AIC Common Stock.
(h) No Liability. None of CAX, AIC, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares of
AIC Common Stock, any dividends or distributions with respect thereto, any
cash in lieu of fractional shares of AIC Common Stock or any cash from the
Exchange Fund, in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(i) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund on a daily basis, as directed by AIC.
Any interest and other income resulting from such investments shall be paid
to AIC. If, as a result of any loss resulting from such investments, the
amount of cash remaining in the Exchange Fund is insufficient to pay the
full amount to which holders of certificates formerly representing CAX
Common Stock are entitled, AIC, promptly upon demand by the Exchange Agent,
shall deposit additional cash into the Exchange Fund in an amount
sufficient to satisfy its obligations to such holders.
(j) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting
by such person of a bond in such reasonable amount as AIC may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration, any unpaid
dividends and distributions on shares of AIC Common Stock deliverable in
respect thereof and any cash in lieu of fractional shares of AIC Common
Stock, in each case pursuant to this Agreement.
SECTION 2.6 Certain Adjustments. If, after the date of this Agreement and
on or prior to the Closing Date, the outstanding shares of AIC Common Stock or
CAX Common Stock shall be changed into a different number of shares by reason of
any reclassification, recapitalization, stock split, reverse stock split,
combination or exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within such period, or
any similar event shall occur (any such action, an "Adjustment Event"), the
Exchange Ratio shall be adjusted accordingly to provide to the holders of CAX
Common Stock the same economic effect as contemplated by this Agreement prior to
such reclassification, recapitalization, stock split, reverse stock split,
combination, exchange, dividend or similar event.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Schedules. Prior to the execution of this
Agreement, CAX has delivered to AIC a schedule (the "CAX Disclosure Schedule")
and AIC has delivered to CAX a schedule (the "AIC Disclosure Schedule" and,
together, the "Disclosure Schedules") each setting forth, among other things,
certain items or exceptions relating to any or all of their respective
representations and warranties; provided, however, that notwithstanding anything
in this Agreement to the contrary, the inclusion of an item in a Disclosure
Schedule shall not be deemed an admission by the disclosing party that such item
represents a material exception or fact, event or circumstance or that such item
constitutes or is reasonably likely to result in a Material Adverse Effect or
Material Adverse Change (each as defined in Section 8.3).
SECTION 3.2 Representations and Warranties of CAX. Except as disclosed in
the CAX SEC Documents (as defined in Section 3.2(d)) filed prior to the date of
this Agreement (the "CAX Filed SEC Documents") or as set forth on the CAX
Disclosure Schedule, CAX represents and warrants to AIC as follows:
(a) Organization, Standing and Corporate Power. (i) Each of CAX and
its Subsidiaries (as defined in Section 8.3) is a corporation or other
legal entity duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on its
business as now being conducted, except, as to Subsidiaries, for those
jurisdictions where the failure to be duly organized, validly existing and
in good standing individually or in the aggregate would not have a Material
Adverse Effect on CAX. Each of CAX and its Subsidiaries is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of
its properties makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not have a
Material Adverse Effect on CAX.
(ii) CAX has made available to AIC prior to the execution of this
Agreement complete and correct copies of its certificate of
incorporation and by-laws, as in effect on the date of this Agreement.
(b) Capital Structure. The authorized capital stock of CAX consists of
75,000,000 shares of CAX Common Stock and 25,000,000 shares of preferred
stock, par value $.01 per share, of CAX (the "CAX Preferred Stock"). At the
close of business on June 30, 1999: (i) 10,392,529 shares of CAX Common
Stock were issued and outstanding; (ii) 395,000 shares of CAX Common Stock
were reserved for issuance pursuant to outstanding employee or director
stock options granted under CAX's employee stock option plans (the "CAX
Stock Options"); and (iii) no shares of CAX Preferred Stock had been
designated or issued. All outstanding shares of capital stock of CAX are
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as set forth in this Section 3.2(b)
and except for changes since June 30, 1999 resulting from the issuance of
shares of CAX Common Stock upon exercise of CAX Stock Options outstanding
as of June 30, 1999, or as permitted by Section 4.1(a), (i) there are not
issued, reserved for issuance or outstanding (A) any shares of capital
stock or other voting securities of CAX, (B) any securities of CAX or any
CAX Subsidiary convertible into or exchangeable or exercisable for shares
of capital stock or voting securities of CAX, (C) any warrants, calls,
options or other rights to acquire from CAX or any CAX Subsidiary, and any
obligation of CAX or any CAX Subsidiary to issue, any capital stock, voting
securities or securities convertible into or exchangeable or exercisable
for capital stock or voting securities of CAX or any CAX Subsidiary, and
(ii) there are no outstanding obligations of CAX or any CAX Subsidiary to
repurchase, redeem or otherwise acquire any such securities or to issue,
deliver or sell, or cause to be issued, delivered or sold, any such
securities. There are no outstanding (A) securities of CAX or any CAX
Subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities in any CAX Subsidiary, (B)
warrants, calls, options or other rights to acquire from CAX or any CAX
Subsidiary, and any obligation of
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CAX or any CAX Subsidiary to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any CAX Subsidiary or (C) obligations of CAX or any
CAX Subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of CAX Subsidiaries or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. Other than
rights granted to AIC and as set forth in the certificate of incorporation
of CAX, neither CAX nor any CAX Subsidiary is a party to any agreement
restricting the transfer of, relating to the voting of, requiring
registration of, or granting any preemptive or, except as provided by the
terms of the CAX Stock Options, antidilutive rights with respect to, any
securities of the type referred to in the two preceding sentences.
(c) Authority; Noncontravention. CAX has all requisite corporate power
and authority to enter into this Agreement and, subject to receipt of the
CAX Stockholder Approval (as defined in Section 3.2(i)), to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by CAX and the consummation by CAX of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of CAX, subject to the receipt of the CAX
Stockholder Approval. This Agreement has been duly executed and delivered
by CAX, and assuming the due authorization, execution and delivery by AIC,
constitutes the legal, valid and binding obligation of CAX, enforceable
against CAX in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, reorganization, insolvency and similar
laws affecting creditors' rights generally and by general principles of
equity (whether considered at law or in equity). The execution and delivery
of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of CAX or any of its Subsidiaries
under, (i) the certificate of incorporation or by-laws of CAX or the
comparable organizational or governing documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease to which CAX or any of its Subsidiaries is a party or
other agreement, instrument, permit, concession, franchise, license or
similar authorization applicable to CAX or any of its Subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, injunction, order, decree, statute, law, ordinance, rule or
regulation applicable to CAX or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a Material Adverse
Effect on CAX or (y) materially impair the ability of CAX to perform their
respective obligations under this Agreement or materially delay or prevent
the consummation of the transactions contemplated hereby. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or
foreign government, any court, administrative, regulatory or other
governmental agency, commission or authority or any nongovernmental
self-regulatory agency, commission or authority (a "Governmental Entity")
is required by or with respect to CAX or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by CAX or the
consummation by CAX of the transactions contemplated by this Agreement,
except for (1) the filing with the SEC of (A) a joint proxy
statement/prospectus relating to the CAX Stockholders Meeting (as defined
in Section 5.1(b)) and the AIC Stockholders Meeting (as defined in Section
5.1(c)) (such proxy statement, as amended or supplemented from time to
time, the "Proxy Statement") and (B) such reports under Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (2) any filings with
Governmental Entities to satisfy (A) the applicable requirements of the
laws of states in which CAX and its Subsidiaries are qualified or licensed
to do business or state securities or "blue sky" laws or (B) any filing
required by foreign Governmental Entities; (3) the filing of a certificate
of merger with the Secretary of State of the state
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of Delaware; (4) such applications and filings as may be required by the
American Stock Exchange or the SEC in connection with the delisting by CAX
of the CAX Common Stock from the American Stock Exchange; and (5) such
consents, approvals, orders or authorizations the failure of which to be
made or obtained, individually or in the aggregate, would not (x) have a
Material Adverse Effect on CAX or (y) materially impair the ability of CAX
to perform its obligations under this Agreement or materially delay or
prevent the consummation of the transactions contemplated hereby.
(d) SEC Documents; Undisclosed Liabilities. Since December 31, 1997,
CAX has filed with the SEC all required reports, schedules, forms,
statements and other documents (including exhibits and all other
information incorporated therein) required to be filed with the SEC (such
documents being referred to herein as the "CAX SEC Documents"). As of their
respective dates, the CAX SEC Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder applicable to such CAX SEC Documents, and no
CAX SEC Document when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of CAX included in the CAX SEC Documents complied as to form, as
of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (as defined in Section 8.3) (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position
of CAX and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected in such
financial statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, neither CAX nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether contingent or otherwise, which,
individually or in the aggregate, would have a Material Adverse Effect on
CAX.
(e) Information Supplied. None of the information supplied or to be
supplied by CAX specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act of 1933, as amended (the "Securities Act"), contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy Statement will, at the date it is first
mailed to CAX's or AIC's stockholders or at the time of the CAX
Stockholders Meeting or the AIC Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by CAX with respect to
statements made or incorporated by reference therein based on information
supplied by AIC specifically for inclusion or incorporation by reference in
the Proxy Statement.
(f) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby and except as permitted by Section 4.1(a), since June 30, 1999, CAX
and its Subsidiaries have conducted their business only in the ordinary
course, and there has not been (i) any Material Adverse Change, or any
development which may result in a Material Adverse Change, in CAX,
including, but not limited to, any Material Adverse Change arising from or
relating to fraudulent or unauthorized activity, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of CAX's capital stock, other
than regular quarterly cash dividends on CAX Common Stock and any dividends
which may be required under the Code to maintain CAX's status as a REIT (as
defined in Section 3.2(g)), (iii) any split, combination or
reclassification of any of CAX's capital stock or any
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issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of CAX's capital
stock, except for issuances of CAX Common Stock upon the exercise of CAX
Stock Options awarded prior to the date of this Agreement in accordance
with their present terms, (iv) (A) except pursuant to agreements in effect
on such date, any granting by CAX or any of its Subsidiaries to any current
or former director, officer or other employee of CAX or its Subsidiaries of
any CAX Stock Options or any material increase in compensation, bonus or
other benefits, (B) any granting by CAX or any of its Subsidiaries to any
such current or former director, executive officer or employee of any
increase in severance or termination pay, or (C) any entry by CAX or any of
its Subsidiaries into, or any amendment of, any employment, deferred
compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, executive officer or
employee, (v) except insofar as may have been required by a change in GAAP
or law or regulation, any material change in accounting methods, principles
or practices by CAX affecting its assets, liabilities or business, (vi) any
material tax election by CAX or any of its Subsidiaries or any settlement
or compromise of any material income tax liability by CAX or any of its
Subsidiaries, or (vii) any new capital commitment or increase in existing
capital commitments, in excess of $1,000,000, individually or in the
aggregate.
(g) REIT Status. For its taxable year ended December 31, 1995 and at
all times thereafter CAX has qualified to be treated as a real estate
investment trust within the meaning of Sections 856-860 of the Code.
(h) Taxes. (i) Each of CAX and its Subsidiaries has timely filed (or
has had filed on its behalf) all material tax returns and reports required
to be filed by it and all such returns and reports are true, complete and
correct in all material respects, or requests for extensions to file such
returns or reports have been timely filed, granted and have not expired.
CAX and each of its Subsidiaries has timely paid (or CAX has paid on its
behalf) all taxes (as defined herein) shown as due on such returns and
required to be paid prior to the date hereof and has made provision in
accordance with GAAP for all taxes owed or accrued through the date hereof,
and the most recent financial statements contained in the CAX Filed SEC
Documents reflect an adequate reserve in accordance with GAAP for all taxes
payable by CAX and its Subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes with respect to which CAX or any
of its Subsidiaries has received a notice in writing have been proposed,
asserted or assessed against CAX or any of its Subsidiaries. Except as
indicated in Schedule 3.2(k) of the CAX Disclosure Schedule, CAX has not
extended the statute of limitations for the assessment or collection of
taxes with respect to any taxable year and no requests for such
extension are pending. No written claim has been made by a taxing
authority in a jurisdiction where CAX or a Subsidiary of CAX does not
file tax returns that CAX or such Subsidiary, as the case may be, is or
may be subject to taxation by that jurisdiction. There are no Liens on
any of the assets of CAX or its Subsidiaries that arose in connection
with any failure or alleged failure to pay any taxes. For taxable years
ending December 31, 1995 and thereafter, the United States federal
income tax returns of CAX and each CAX Subsidiary have not been audited
by any governmental authority responsible for tax matters. Neither CAX
nor any of its Subsidiaries has received written notice of any audit of
any tax return filed by CAX or such Subsidiary, no such audit is
currently being conducted and to the knowledge of the senior management
of CAX neither CAX nor any of its Subsidiaries has been notified that
any such audit is contemplated or pending. Neither CAX nor any of its
Subsidiaries has entered into any closing agreement pursuant to Section
7121 of the Code. For taxable years ending December 31, 1995 and
thereafter, CAX has incurred no material liability for taxes under
Sections 857(b), 857(f), 860(c) or 4981 of the Code, or IRS Notice
88-19, and neither CAX nor any CAX Subsidiary has incurred any liability
for taxes other than in the ordinary course of business. Neither CAX nor
any CAX Subsidiary holds any asset the disposition of which would be
subject to Section 1374 of the Code as announced in IRS Notice 88-19. To
CAX's knowledge, no event has occurred, and no condition or circumstance
exists,
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which could reasonably be expected to result in any material tax
described in the preceding sentence being imposed upon CAX or any CAX
Subsidiary.
(iii) Neither CAX nor any of its Subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is
likely to prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x)
Federal, state, local or foreign income, property, sales, excise and
other taxes or similar governmental charges, including any interest,
penalties or additions with respect thereto, (y) liabilities for the
payment of any amounts of the type described in (x) as a result of being
a member of an affiliated, consolidated, combined or unitary group, and
(z) liabilities for the payment of any amounts as a result of being
party to any tax sharing agreement or as a result of any express or
implied obligation to indemnify any other person with respect to the
payment of any amounts of the type described in clause (x) or (y).
(i) Voting Requirements. Except as otherwise required by Section
6.1(e) hereof, the affirmative vote at the CAX Stockholders Meeting of the
holders of a majority of the outstanding shares of CAX Common Stock (the
"CAX Stockholder Approval") is the only vote of the holders of any class or
series of CAX's capital stock necessary to approve (i) the Merger and (ii)
Amended and Restated Certificate of Incorporation.
(j) Brokers. Other than Jefferies & Company, Inc., a complete and
accurate copy of the engagement letter of which has been provided to AIC,
no broker, investment banker, financial advisor or other person is entitled
to any broker's, financial advisor's or other finder's fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CAX.
(k) Fairness Opinion. In connection with its approval of the Original
Merger Agreement, the Board of Directors of CAX has received the opinion of
Jefferies & Company, Inc., CAX's financial advisor, to the effect that the
Stock Consideration is fair to the holders of the CAX Common Stock, other
than AIC, from a financial point of view.
(l) Absence of Changes in Benefit Plans. (i) CAX has provided to AIC a
true and complete list of (i) all severance and employment agreements of
CAX or its Subsidiaries with any current or former employee, officer,
agent, independent contractor, or director, (ii) all severance programs,
policies and practices of each of CAX and each of its Subsidiaries, and
(iii) all plans or arrangements of CAX and each of its Subsidiaries
relating to its current or former employees, officers, agents, independent
contractors, or directors which contain change in control provisions,
including in all cases any and all amendments entered on or prior to the
date hereof, and (iv) all CAX Benefit Plans. Since June 30, 1999, there has
not been any adoption or amendment in any respect by CAX or any of its
Subsidiaries of any CAX Benefit Plan, nor has there been any change in any
actuarial or other assumptions used to calculate funding obligations with
respect to any CAX Benefit Plan, or any change in the manner in which
contributions to any CAX Benefit Plan are made or the basis on which such
contributions are determined which, individually or in the aggregate, would
result in a material increase in CAX's or its Subsidiaries' liabilities
thereunder.
(ii) All of the CAX Stock Options have been granted in compliance
with the terms and provisions of the relevant CAX Benefit Plan, any
awards made thereunder and all applicable law.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not, either
alone or in combination with another event undertaken by CAX or any of
its Subsidiaries prior to the date hereof, (A) entitle any current or
former employee, agent, independent contractor, director or officer of
CAX or any trade or business, whether or not incorporated, which
together with CAX or any of its wholly owned Subsidiaries, to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement, (B) accelerate the time of payment or
vesting, or increase
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the amount of compensation due any such employee, officer, agent or
independent contractor, or (C) constitute a "change in control" under
any CAX Benefit Plan, and CAX and its board of directors have taken all
required actions to effect the foregoing.
(m) Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action,
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose on CAX or any of its
Subsidiaries, or that reasonably could be expected to result in the
imposition on CAX or any of its Subsidiaries of, any liability or
obligation arising under applicable statutory or common law standards
relating to pollution or protection of the environment, human health or
safety, or under any local, state or federal environmental statute,
regulation, ordinance, decree, judgment or order relating to pollution,
protection of the environment or human health and safety including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (collectively, the "Environmental Laws"),
pending or, to the knowledge of CAX, threatened, against CAX or any of its
Subsidiaries, with such exceptions as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CAX.
Each of CAX and each of its Subsidiaries is, and each former Subsidiary of
CAX was, for so long as such Subsidiary was a Subsidiary of CAX, in
compliance with all Environmental Laws and has or at such time had all
permits required under Environmental Laws, with such exceptions as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on CAX and there is no basis for any proceeding,
claim, action or governmental investigation under any Environmental Law
that would impose any liability or obligation on CAX or its Subsidiaries
based on any failure to have, obtain or comply with such permits or failure
to comply with any Environmental Laws, with such exceptions as would not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on CAX. Neither CAX nor any of its Subsidiaries is subject
to any agreement (including any indemnification agreement), order,
judgment, decree, letter or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any material liability
or obligation pursuant to or under any Environmental Law that would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on CAX.
(n) Certain Contracts. Except for (x) agreements listed on Schedule
3.2(n) of the CAX Disclosure Schedule, (y) contracts filed as exhibits to
CAX Filed SEC Documents, and (z) agreements entered into after the date
hereof as permitted pursuant to Section 4.1(a), neither CAX nor any of its
Subsidiaries is party to or bound by (i) any agreement relating to the
incurring of indebtedness (including sale and leaseback and capitalized
lease transactions and other similar financing transactions) providing for
payment or repayment in excess of $1,000,000, (ii) any agreements relating
to capital commitments in excess of $1,000,000 in the aggregate, (iii) any
agreement involving annual payments in excess of $1,000,000 with "change of
control" or "event risk" provisions relating to CAX, (iv) any "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC), or (v) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which CAX and its Subsidiaries, taken as a
whole, may conduct business.
(o) Compliance with Applicable Laws; Litigation. (i) CAX and its
Subsidiaries hold all material permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
necessary for the lawful operation of the businesses of CAX and its
Subsidiaries, considered as a whole (the "CAX Permits"), and are not in
default under the CAX Permits or under applicable statutes, laws,
ordinances, rules and regulations, except where the failure to hold such
CAX Permits or to comply with such statutes, laws, ordinances, rules or
regulations or the CAX Permits would not, individually or in the aggregate,
have a Material Adverse Effect on CAX.
(ii) As of the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity and no suit,
action or proceeding by any person, in each case with respect to CAX or
any of its Subsidiaries or any of their respective properties, is
pending or, to
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the knowledge (as defined in Section 8.3) of CAX, threatened, other
than, in each case, those the outcome of which individually or in the
aggregate would not have a Material Adverse Effect on CAX or materially
impair the ability of CAX to perform its obligations under this
Agreement or prevent the consummation of the transactions contemplated
by this Agreement.
(iii) Neither CAX nor any of its Subsidiaries is subject to any
outstanding order, injunction or decree or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any
supervisory letter from or has adopted any resolutions at the request of
any Governmental Entity that restricts the conduct of its business or
that in any manner relates to its management or its business except as
would not individually or in the aggregate have a Material Adverse
Effect on CAX (each, a "Regulatory Agreement"), and neither CAX nor any
of its Subsidiaries (A) has been advised since January l, 1997 by any
Governmental Entity that it is considering issuing or requesting any
such Regulatory Agreement or (B) has knowledge of any pending or
threatened regulatory investigation.
SECTION 3.3 Representations and Warranties of AIC. Subject to Section 3.1
and except as disclosed in the AIC SEC Documents (as defined in Section 3.3(d))
filed prior to the date of this Agreement (the "AIC Filed SEC Documents") or as
set forth on the AIC Disclosure Schedule, AIC represents and warrants to CAX as
follows:
(a) Organization, Standing and Corporate Power. (i) Each of AIC and
its Subsidiaries is a corporation or other legal entity duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate or other power, as
the case may be, and authority to carry on its business as now being
conducted, except, as to Subsidiaries, for those jurisdictions where the
failure to be duly organized, validly existing and in good standing
individually or in the aggregate would not have a Material Adverse Effect
on AIC. Each of AIC and its Subsidiaries is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not have a
Material Adverse Effect on AIC.
(ii) AIC has made available to CAX prior to the execution of this
Agreement complete and correct copies of its certificate of
incorporation and by-laws, as in effect on the date of this Agreement.
(b) Capital Structure. The authorized capital stock of AIC consists of
35,000,000 shares of AIC Common Stock and 15,000,000 shares of AIC
Preferred Stock. At the close of business on June 30, 1999: (i) 5,585,697
shares of AIC Common Stock were issued and outstanding; (ii) 868,869 shares
were reserved for issuance pursuant to outstanding employee or director
stock options granted under the AIC's employee stock option plans (the "AIC
Stock Options"); (iii) 1,000,067 shares were reserved for issuance upon the
exchange of units of limited partnership (the "OP Units") in Asset
Investors Operating Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"); and (iv) no shares of AIC Preferred Stock had
been designated or issued. All outstanding shares of capital stock of AIC
are, and all shares thereof which may be issued without violating this
Agreement (including, without limitation, all shares of AIC Common Stock to
be issued pursuant to the Merger) will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in this Section 3.3(b), and except for changes
since June 30, 1999 resulting from the issuance of shares of AIC Common
Stock (x) upon the exercise of AIC Stock Options outstanding as of June 30,
1999 or (y) upon the redemption of OP Units outstanding as of June 30, 1999
(i) there are not issued, reserved for issuance or outstanding (A) any
shares of capital stock or other voting securities of AIC, (B) any
securities of AIC or any AIC Subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of AIC, (C)
any warrants, calls, options or other rights to acquire
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from AIC or any AIC Subsidiary, and any obligation of AIC or any AIC
Subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of AIC or any AIC Subsidiary, and (ii) there are no outstanding
obligations of AIC or any AIC Subsidiary to repurchase, redeem or otherwise
acquire any such securities or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. There are no outstanding
(A) securities of AIC or any AIC Subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities in any AIC Subsidiary, (B) warrants, calls, options or other
rights to acquire from AIC or any AIC Subsidiary, and any obligation of AIC
or any AIC Subsidiary to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any AIC Subsidiary or (C) obligations of AIC or any
AIC Subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of AIC Subsidiaries or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. Other than as
set forth in the certificate of incorporation of AIC and the Agreement of
Limited Partnership of the Operating Partnership, neither AIC nor any AIC
Subsidiary is a party to any agreement restricting the transfer of,
relating to the voting of or granting any preemptive or, except as provided
by the terms of the AIC Stock Options, antidilutive rights with respect to,
any securities of the type referred to in the two preceding sentences.
(c) Authority; Noncontravention. AIC has all requisite corporate power
and authority to enter into this Agreement and, subject to the receipt of
the AIC Stockholder Approval (as defined in Section 3.3(i)), to consummate
the transactions contemplated by this Agreement. The execution and delivery
of this Agreement by AIC and the consummation by AIC of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of AIC, subject to the receipt of the AIC
Stockholder Approval. This Agreement has been duly executed and delivered
by AIC and, assuming the due authorization, execution and delivery by CAX,
constitutes the legal, valid and binding obligation of AIC, enforceable
against AIC in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, reorganization, insolvency and similar
laws affecting creditors' rights generally and by general principles of
equity (whether considered at law or in equity). The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of AIC or any of its Subsidiaries
under, (i) the certificate of incorporation or by-laws of AIC or the
comparable organizational or governing documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement to which AIC or any of its Subsidiaries
is a party or any other instrument, permit, concession, franchise, license
or similar authorization applicable to AIC or any of its Subsidiaries or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to AIC or any of its Subsidiaries or their respective properties
or assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a Material Adverse Effect on AIC or
(y) materially impair the ability of AIC to perform its obligations under
this Agreement or materially delay or prevent consummation of any of the
transactions contemplated hereby. No consent, approval, order or
authorization of, action by, or in respect of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to
AIC or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by AIC or the consummation by AIC of the
transactions contemplated by this Agreement, except for (l) the filing with
the SEC of (A) the Proxy Statement, (B) a registration statement on Form
S-4 to be filed with the SEC in connection with the issuance of AIC Common
Stock in the Merger, and (C) such reports under Section 13(a) or 15(d) of
the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated by this
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Agreement; (2) the filing of the AIC Certificate of Merger with the
Secretary of State of the State of Delaware; (3) any filings with
Governmental Entities to satisfy (A) the applicable requirements of the
laws of states in which AIC and its Subsidiaries are qualified or licensed
to do business or state securities or "blue sky" laws or (B) any filings
required by foreign governmental entities; (4) such applications and
filings as may be required by the New York Stock Exchange in connection
with listing the shares of AIC Common Stock to be issued in the Merger; and
(5) such consents, approvals, orders or authorizations the failure of which
to be made or obtained, individually or in the aggregate, would not (x)
have a Material Adverse Effect on AIC or (y) materially impair the ability
of AIC to perform its obligations under this Agreement or materially delay
or prevent the consummation of any of the transactions contemplated hereby.
(d) SEC Documents; Undisclosed Liabilities. Since December 31, 1997,
AIC has filed with the SEC all reports, schedules, forms, statements and
other documents (including exhibits and all other information incorporated
therein) required to be filed with the SEC (the "AIC SEC Documents"). As of
their respective dates, the AIC SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to such AIC SEC
Documents, and none of the AIC SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of AIC included in the AIC SEC
Documents complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position
of AIC and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected in such
financial statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, neither AIC nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether contingent or otherwise, which,
individually or in the aggregate, would have a Material Adverse Effect on
AIC.
(e) Information Supplied. None of the information supplied or to be
supplied by AIC specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Proxy Statement will, at
the date it is first mailed to CAX's or AIC's stockholders or at the time
of the CAX Stockholders Meeting or the AIC Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Form S-4 and the Proxy Statement will comply as to form in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by AIC with respect to statements made
or incorporated by reference therein based on information supplied by CAX
specifically for inclusion or incorporation by reference in the Form S-4 or
the Proxy Statement.
(f) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, since December 31, 1997, AIC and its Subsidiaries have conducted
their business only in the ordinary course, and there has not been (i) any
Material Adverse Change, or any development which may result in a Material
Adverse Change, in AIC, including, but not limited to, any Material Adverse
Change arising from or relating to fraudulent or unauthorized activity,
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
AIC's capital stock,
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other than regular quarterly cash dividends on the AIC Common Stock and any
dividends which may be required under the Code to maintain AIC's status as
a REIT, (iii) any split, combination or reclassification of any of AIC's
capital stock, or any issuance of the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
AIC's capital stock, except for issuances of AIC Common Stock upon (x) the
exercise of AIC Stock Options awarded prior to the date of this Agreement
or (y) the redemption of OP Units outstanding prior to the date of this
Agreement, in either such case in accordance with their present terms, (iv)
(A) any material increase in compensation, bonus or other benefits of any
officer, director or other employee of AIC, (B) any granting by AIC or any
of its Subsidiaries to any such current or former director, executive
officer or employee of any increase in severance or termination pay, or (C)
any entry by AIC or any of its Subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, (v) except insofar as may have been required
by a change in GAAP or law or regulation, any material change in accounting
methods, principles or practices by AIC affecting its assets, liabilities
or business (vi) any material tax election by AIC or any of its
Subsidiaries or any settlement or compromise of any material income tax
liability by AIC or any of its Subsidiaries or (vii) any new capital
commitment or increase in existing capital commitments, in excess of
$1,000,000 individually or in the aggregate.
(g) REIT Status. For its taxable year ended December 31, 1995 and at
all times thereafter, AIC has qualified to be treated as a real estate
investment trust within the meaning of Sections 856-860 of the Code.
(h) Taxes. (i) Each of AIC and its Subsidiaries has timely filed (or
has had filed on its behalf) all material tax returns and reports required
to be filed by it and all such returns and reports are true, complete and
correct in all material respects, or requests for extensions to file such
returns or reports have been timely filed, granted and have not expired.
AIC and each of its Subsidiaries has paid (or AIC has paid on its behalf)
all taxes shown as due on such returns and required to be paid prior to the
date hereof and has made provision in accordance with GAAP for all taxes
owed or accrued through the date hereof, and the most recent financial
statements contained in the AIC Filed SEC Documents reflect an adequate
reserve in accordance with GAAP for all taxes payable by AIC and its
Subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes with respect to which AIC or any
of its Subsidiaries has received a notice in writing have been proposed,
asserted or assessed against AIC or any of its Subsidiaries. Except as
indicated in Schedule 3.3(j) of the AIC Disclosure Schedule, AIC has not
extended the statute of limitations for the assessment or collection of
taxes with respect to any taxable year and no requests for such
extension are pending. No written claim has been made by a taxing
authority in a jurisdiction where AIC or a Subsidiary of AIC does not
file tax returns that AIC or such Subsidiary, as the case may be, is or
may be subject to taxation by that jurisdiction. There are no Liens on
any of the assets of AIC or its Subsidiaries that arose in connection
with any failure or alleged failure to pay any taxes. For taxable years
ending December 31, 1995 and thereafter, the United States federal
income tax returns of AIC and each AIC Subsidiary have not been audited
by any governmental authority responsible for tax matters. Neither AIC
nor any of its Subsidiaries has received written notice of any audit of
any tax return filed by AIC or such Subsidiary, no such audit is
currently being conducted and to the knowledge of the senior management
of AIC neither AIC nor any of its Subsidiaries has been notified that
any such audit is contemplated or pending. Except as previously
disclosed to CAX or its counsel, neither AIC nor any of its Subsidiaries
has entered into any closing agreement pursuant to Section 7121 of the
Code. For taxable years ending December 31, 1995 and thereafter, AIC has
incurred no material liability for taxes under Sections 857(b), 857(f),
860(c) or 4981 of the Code, or IRS Notice 88-19, and neither AIC nor any
AIC Subsidiary has incurred any liability for taxes other than in the
ordinary course of business. Neither AIC nor
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any AIC Subsidiary holds any asset the disposition of which would be
subject to Section 1374 of the Code as announced in IRS Notice 88-19. To
AIC's knowledge, no event has occurred, and no condition or circumstance
exists, which could reasonably be expected to result in any material tax
described in the preceding sentence being imposed upon AIC or any AIC
Subsidiary.
(iii) Neither AIC nor any of its Subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is
likely to prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
(i) Voting Requirements. The affirmative vote at the AIC Stockholders
Meeting (the "AIC Stockholder Approval") of the holders of a majority of
the outstanding shares of AIC Common Stock is the only vote of the holders
of any class or series of AIC's capital stock necessary to approve (i) the
Merger and (ii) Amended and Restated Certificate of Incorporation.
(j) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, financial advisor's or other finder's
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of AIC.
(k) AIC Benefit Plans. (i) AIC has provided to CAX a true and complete
list of (i) all severance and employment agreements of AIC or its
Subsidiaries with any current or former employee, officer, agent,
independent contractor, or director, (ii) all severance programs, policies
and practices of each of AIC and each of its Subsidiaries, and (iii) all
plans or arrangements of AIC and each of its Subsidiaries relating to its
current or former employees, officers, agents, independent contractors, or
directors which contain change in control provisions, including in all
cases any and all amendments entered on or prior to the date hereof, and
(iv) all AIC Benefit Plans.
(ii) No AIC Stock Options will become exercisable solely as a
result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not, either
alone or in combination with another event undertaken by AIC or any of
its Subsidiaries prior to the date hereof, (A) entitle any current or
former employee, agent, independent contractor, director or officer of
AIC or any trade or business, whether or not incorporated, which
together with AIC or any of its wholly owned Subsidiaries, to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement, (B) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee,
officer, agent or independent contractor, or (C) constitute a "change in
control" under any AIC Benefit Plan, and AIC and its board of directors
have taken all required actions to effect the foregoing.
(l) Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action,
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose on AIC or any of its
Subsidiaries, or that reasonably could be expected to result in the
imposition on AIC or any of its Subsidiaries of, any liability or
obligation arising under any Environmental Laws, pending or, to the
knowledge of AIC, threatened, against AIC or any of its Subsidiaries, with
such exceptions as would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on AIC. Each of AIC and each
of its Subsidiaries is, and each former Subsidiary of AIC was, for so long
as such Subsidiary was a Subsidiary of AIC, in compliance with all
Environmental Laws and has or at such time had all permits required under
Environmental Laws, with such exceptions as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
AIC and there is no basis for any proceeding, claim, action or governmental
investigation under any Environmental Law that would impose any liability
or obligation on AIC or its Subsidiaries based on any failure to have,
obtain or comply with such permits or failure to comply with any
Environmental Laws, with such exceptions as would not individually or in
the aggregate reasonably be expected to have a Material Adverse Effect on
AIC. Neither AIC nor any of its Subsidiaries is subject to any agreement
(including any
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indemnification agreement), order, judgment, decree, letter or memorandum
by or with any court, governmental authority, regulatory agency or third
party imposing any material liability or obligation pursuant to or under
any Environmental Law that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on AIC.
(m) Certain Contracts. Except for (x) agreements listed on Schedule
3.3(m) of the AIC Disclosure Schedule, (y) contracts and agreements filed
as exhibits to CAX Filed SEC Documents, and (z) agreements entered into
after the date hereof which are not prohibited by Section 4.1(b), neither
AIC nor any of its Subsidiaries is a party to or bound by (i) any agreement
relating to the incurring of indebtedness (including sale and leaseback and
capitalized lease transactions and other similar financing transactions)
providing for payment or repayment in excess of $1,000,000, (ii) any
agreements relating to capital commitments in excess of $1,000,000 in the
aggregate, (iii) any agreement involving annual payments in excess of
$1,000,000 with "change of control" or "event risk" provisions relating to
AIC, (iv) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), or (v) any non-competition
agreement or any other agreement or obligation which purports to limit in
any material respect the manner in which, or the localities in which AIC
and its Subsidiaries, taken as a whole, may conduct business.
(n) Compliance with Applicable Laws; Litigation. (i) AIC and its
Subsidiaries hold all material permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
necessary for the lawful operation of the businesses of AIC and its
Subsidiaries (the "AIC Permits"), and are not in default under the AIC
Permits or under applicable statutes, laws, ordinances, rules and
regulations, except where the failure to hold such AIC Permits or to comply
with such statutes, laws, ordinances, rules or regulations or AIC Permits
would not, individually or in the aggregate, have a Material Adverse Effect
on AIC.
(ii) As of the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity and no suit,
action or proceeding by any person, in each case with respect to AIC or
any of its Subsidiaries or any of their respective properties, is
pending or, to the knowledge of AIC, threatened, other than, in each
case, those the outcome of which individually or in the aggregate would
not have a Material Adverse Effect on AIC or materially impair the
ability of AIC to perform its obligations under this Agreement or
prevent the consummation of the transactions contemplated by this
Agreement.
(iii) Neither AIC nor any of its Subsidiaries is subject to any
Regulatory Agreement, and neither AIC nor any of its Subsidiaries (A)
has been advised since January 1, 1997 by any Governmental Entity that
it is considering issuing or requesting any such Regulatory Agreement or
(B) has knowledge of any pending or threatened regulatory investigation.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 (a) Conduct of Business by CAX. Except as set forth in the CAX
Disclosure Schedule or the CAX Filed SEC Documents, as otherwise expressly
contemplated by this Agreement or as consented to by AIC in writing during the
period from the date of the Original Merger Agreement to the Effective Time, CAX
shall, and shall cause its Subsidiaries to, carry on their respective businesses
in the ordinary course consistent with past practice and in compliance in all
material respects with all applicable laws and regulations and, to the extent
consistent therewith, use reasonable efforts to preserve intact their current
business organizations and CAX's status as a REIT, use reasonable efforts to
keep available the services of their current officers and other employees and
use reasonable efforts to preserve their relationships with those persons having
business dealings with them. Without limiting the generality of the foregoing
(but subject to the above exceptions), during the period from the date of this
Agreement
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to the Effective Time, unless consented to by AIC in writing, CAX shall not, and
shall not permit any of its Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned Subsidiary of CAX to its parent, or regularly scheduled
dividends by a Subsidiary that is partially owned by CAX or any of its
Subsidiaries, provided that CAX or any such Subsidiary receives or is to
receive its proportionate share thereof, (x) declare, set aside or pay
any dividends on, make any other distributions in respect of, or enter
into any agreement with respect to the voting of, any of its capital
stock (except for regular quarterly cash dividends on CAX Common Stock
not significantly in excess of the dividends declared in the first and
second quarters of 1999 and any dividends which may be required under
the Code to maintain CAX's status as a REIT ), (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of CAX Common Stock
upon the exercise of CAX Stock Options that are outstanding as of the
date of this Agreement in accordance with their present terms, or (z)
other than in the ordinary course of business, purchase, redeem or
otherwise acquire any shares of capital stock of CAX or any of its
Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; provided,
however, that CAX shall be permitted to issue CAX Stock Options under
CAX Benefit Plans, exercisable for up to 100,000 shares of CAX Common
Stock with exercise prices equal to or greater than the market price for
CAX Common Stock on the date of issuance;
(ii) other than in the ordinary course of business, issue, deliver,
sell, pledge or otherwise encumber or subject to any Lien any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of CAX Common Stock upon the exercise of CAX Stock Options that
are outstanding as of the date of this Agreement or issued in accordance
with this Agreement);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational or governing documents; and
(iv) authorize, or commit or agree to take, any of the foregoing
actions; provided, that the limitations set forth in this Section 4.1(a)
shall not apply to any transaction between CAX and any wholly owned
Subsidiary or between any wholly owned Subsidiaries of CAX.
(b) Conduct of Business of AIC. Except as set forth in the AIC
Disclosure Schedule or the AIC Filed SEC Documents, as otherwise expressly
contemplated by this Agreement or as consented to by CAX in writing during
the period from the date of the Original Merger Agreement to the Effective
Time, AIC shall, and shall cause its Subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice
and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use reasonable efforts
to preserve intact their current business organizations and AIC's status as
a REIT, use reasonable efforts to keep available the services of their
current officers and other employees and use reasonable efforts to preserve
their relationships with those persons having business dealings with them.
Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement to the
Effective Time, unless consented to by CAX in writing, AIC shall not, and
shall not permit any of its Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned Subsidiary of AIC to its parent, or regularly scheduled
dividends by a Subsidiary that is partially owned by AIC or any of its
Subsidiaries, provided that AIC or any such Subsidiary receives or is to
receive its proportionate share thereof, (x) declare, set aside or pay
any dividends on, make any other distributions in respect of, or enter
into any agreement with respect to the voting of, any of its capital
stock (except for regular quarterly cash dividends on AIC Common Stock
not significantly in excess of the dividends declared in the first and
second quarters of 1999 and any
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dividends which may be required under the Code to maintain AIC's status
as a REIT), (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, except
for issuances of AIC Common Stock upon the exercise of AIC Stock Options
or the exchange of OP Units that are, in each case, outstanding as of
the date of this Agreement in accordance with their present terms, or
(z) other than in the ordinary course of business, purchase, redeem or
otherwise acquire any shares of capital stock of AIC or any of its
Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; provided,
however, that AIC shall be permitted to issue AIC Stock Options under
AIC Benefit Plans, exercisable for up to 100,000 shares of AIC Common
Stock with exercise prices equal to or greater than the market price for
AIC Common Stock on the date of issuance;
(ii) other than in the ordinary course of business, issue, deliver,
sell, pledge or otherwise encumber or subject to any Lien any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than the
issuance of AIC Common Stock (x) upon the exercise of AIC Stock Options
outstanding as of the date of this Agreement or issued in accordance
with this Agreement or (y) upon the redemption of OP Units that are
outstanding as of the date of this Agreement, in either such case in
accordance with their present terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational or governing documents other than in a manner
consistent with Exhibit A hereto (the "Amended and Restated Certificate
of Incorporation");
(iv) other than in the ordinary course of business consistent with
past practice, acquire any business (whether by merger, consolidation,
purchase of assets or otherwise) or acquire any equity interest in any
person not an affiliate (whether through a purchase of stock,
establishment of a joint venture or otherwise);
(v) other than in the ordinary course of business consistent with
past practice, sell, lease, joint venture, license, mortgage or
otherwise encumber or subject to any Lien or otherwise dispose of any of
its properties or assets that are material in relation to AIC and its
Subsidiaries, taken as a whole (including securitizations), other than
the sale of inventory in the ordinary course of business and except in
connection with borrowings under existing credit facilities or lines of
credit in accordance with the terms of such facilities or lines as of
the date hereof;
(vi) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise become
responsible for the obligations of any person, or make any loans,
advances or capital contributions to, any person other than its wholly
owned Subsidiaries, except in the ordinary course of business consistent
with past practice or except as attributable to the execution of this
Agreement and the transactions contemplated hereby;
(vii) change its methods of accounting (or underlying assumptions)
in effect at June 30, 1999, except as required by changes in GAAP or law
or regulation or as discussed in the AIC Filed SEC Documents, or change
any of its methods of reporting income and deductions for Federal income
tax purposes from those employed in the preparation of the Federal
income tax returns of AIC for the taxable years ending December 31,
1998, except as required by changes in law or regulation;
(viii) make any material tax election inconsistent with past
practice or settle or compromise any material Federal, state, local or
foreign tax liability;
(ix) create, renew, amend, terminate or cancel or take any other
action that could reasonably be expected to result in the creation,
renewal, amendment, termination or cancellation of any material contract
of AIC in a manner which would reasonably be expected to be materially
adverse to AIC;
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(x) enter into any new capital commitments or increase any existing
capital commitments in an aggregate amount in excess of $1,000,000;
(xi) except (A) pursuant to agreements or arrangements in effect on
the date hereof which have been disclosed in the AIC Disclosure
Schedule, (B) for dividends paid in accordance with Section 4.1(b)(i) or
(C) other than transactions with "preferred stock" subsidiaries of AIC
which are in the ordinary course of business consistent with past
practice and for the primary benefit of AIC, pay, loan or advance any
amount to, or sell, transfer or lease any properties or assets (real,
personal or mixed, tangible or intangible) to, or purchase any
properties or assets, or enter into any agreement or arrangement with,
any of its officers or directors or any affiliate or the immediate
family members or associates of any of its officers or directors, other
than payment of compensation at current salary, incentive compensation
and bonuses and other than properly authorized business expenses in the
ordinary course of business, in each case consistent with past practice;
(xii) other than as set forth in clause (i) hereto (A) grant AIC
Stock Options, (B) grant to any current or former director, executive
officer or other key employee of AIC or its Subsidiaries any increase in
compensation, bonus or other benefits (other than increases in base
salary in the ordinary course of business consistent with past practice
or arising due to a promotion or other change in status and consistent
with generally applicable compensation practices), (C) grant to any such
current or former director, executive officer or other employee any
increase in severance or termination pay, (D) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, or (E) amend, adopt or terminate any AIC
Benefit Plan, except as may be required to retain qualification of any
such plan under Section 401(a) of the Code; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions; provided, that the limitations set forth in this Section 4.1(b)
shall not apply to any transaction between AIC and any wholly owned
Subsidiary or between any wholly owned Subsidiaries of AIC.
(c) Other Actions. Except as required by law or as permitted by this
Agreement, CAX and AIC shall not, and shall not permit any of their
respective Subsidiaries to, voluntarily take any action that would, or that
could reasonably be expected to, result in (i) any of the representations
and warranties of such party set forth in this Agreement that are qualified
as to materiality becoming untrue at the Effective Time, (ii) any of such
representations and warranties that are not so qualified becoming untrue in
any material respect at the Effective Time, or (iii) any of the conditions
to the Merger set forth in Article VI not being satisfied.
(d) Advice of Changes. CAX and AIC shall promptly advise the other
party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming
untrue or inaccurate in any material respect, (ii) the failure by it to
comply in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
under this Agreement, (iii) any actual or, to the knowledge of CAX or AIC,
threatened disputes involving an amount in excess of $1,000,000 with any
customer, supplier or service provider, and (iv) any change or event
having, or which, insofar as can reasonably be foreseen, could reasonably
be expected to have, a Material Adverse Effect on such party or on the
truth of their respective representations and warranties or the ability of
the conditions set forth in Article VI to be satisfied; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto)
or the conditions to the obligations of the parties under this Agreement;
and provided, further, that no such notice shall be deemed an admission by
the disclosing party that such item represents a material exception or
fact, event or circumstance or that such item constitutes or is reasonably
likely to result in a Material Adverse Effect or Material Adverse Change.
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SECTION 4.2 No Solicitation. (a) CAX and AIC shall not, nor shall they
permit any of their Subsidiaries to, nor shall they authorize or permit any of
their directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by either of them
or any of their, respective, Subsidiaries to, directly or indirectly through
another person, (i) solicit, initiate or encourage (including by way of
furnishing nonpublic information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes a
Takeover Proposal (as defined below) or (ii) participate in any substantive
discussions or negotiations regarding any Takeover Proposal; provided, however,
that if and to the extent that, at any time prior to the time of the adoption of
this Agreement by a party's stockholders, the Board of Directors of such party
determines in good faith, after consultation with outside counsel, that its
failure to do so could reasonably be expected to result in a breach of its
fiduciary duties to its stockholders under applicable law, such party may, in
response to any Takeover Proposal which was not solicited by it and which did
not otherwise result from a breach of this Section 4.2(a), (x) furnish
information with respect to such party and its Subsidiaries to any person making
a Takeover Proposal pursuant to a customary confidentiality agreement (as
determined by such party based on the advice of its outside counsel) and (y)
participate in discussions or negotiations regarding such Takeover Proposal. For
purposes of this Agreement, "Takeover Proposal" means with respect to the party
that is the subject of such Takeover Proposal any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of a
business that constitutes 10% or more of the net revenues, net income or assets
of such party and its Subsidiaries, taken as a whole, or 10% or more of any
class of equity securities of such party, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 10% or more
of any class of any equity securities of such party, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party (or any of such party whose business
constitutes 10% or more of the net revenues, net income or assets of such party
and its Subsidiaries, taken as a whole), other than the transactions
contemplated by this Agreement or listed on Schedule 4.1(b) of the AIC
Disclosure Schedule.
(b) Except as expressly permitted by this Section 4.2, neither of the
Boards of Directors of CAX or AIC nor any committees thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to the other party, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) approve
or recommend, or propose publicly to approve or recommend, any Takeover
Proposal, or (iii) cause such party to enter into any letter of intent,
agreement in principle, acquisition agreement or other agreement (each, an
"Acquisition Agreement") related to any Takeover Proposal. Notwithstanding
the foregoing, in the event that prior to the adoption of this Agreement by
CAX's or AIC's stockholders, as the case may be, the Board of Directors of
either such party determines in good faith, after consultation with outside
counsel, that, in light of a Superior Proposal (as defined below) its
failure to do so could reasonably be expected to result in a breach of
fiduciary duties to its stockholders under applicable law, may terminate
this Agreement solely in order to concurrently enter into an Acquisition
Agreement with respect to any Superior Proposal. Such termination shall not
take place prior to the third business day following the receipt by the
non-terminating party of written notice advising such party that the Board
of Directors of the terminating party is prepared to accept a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal, all of
which information will be kept confidential by the non-terminating party.
If, prior to entering into an Acquisition Agreement with respect to any
Superior Proposal, the Board of Directors of the terminating party receives
a counter offer by the non-terminating party, it shall, in good faith,
consider such counter offer in light of the terms of the Superior Proposal.
For purposes of this Agreement, a "Superior Proposal," in the case of AIC,
means any proposal with respect to a transaction which the AIC Board of
Directors determines in its good faith judgment, to be more favorable to
AIC's stockholders than the Merger, and, in the case of CAX, means any
proposal with respect to a transaction which the CAX Board of Directors
determines in its good faith judgment to be more favorable to CAX's
stockholders than the Merger without considering any benefit to be received
by AIC as a result of the Merger.
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(c) In addition to the obligations set forth in paragraphs (a) and (b)
of this Section 4.2, CAX and AIC shall promptly advise each other orally
and in writing of any request for information by a party that indicates it
may make a Takeover Proposal or of any Takeover Proposal, the material
terms and conditions of such request or Takeover Proposal and the identity
of the person making such request or Takeover Proposal. CAX and AIC will
keep each other reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or Takeover
Proposal.
(d) Nothing contained in this Section 4.2 shall prohibit CAX or AIC
from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act if, in the good faith
judgment of the Board of Directors of either CAX or AIC, after consultation
with counsel, failure to so disclose could reasonably be expected to result
in a breach of its fiduciary duties to its stockholders under applicable
law; provided, however, that, neither CAX, AIC nor their respective Boards
of Directors nor any committees thereof shall, except in connection with a
termination permitted by Section 4.2(b), withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to this Agreement
or the Merger or approve or recommend, or propose publicly to approve or
recommend, a Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, CAX and AIC shall prepare and file with the SEC the Proxy Statement
and AIC shall prepare and file with the SEC the Form S-4, in which the Proxy
Statement will be included as a prospectus. Each of CAX and AIC shall use
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing, including without
limitation, the delivery of customary representation letters in form and
substance reasonably satisfactory to counsel with respect to the issuance of any
requisite tax opinions. CAX and AIC shall use reasonable best efforts to obtain
opinions of tax counsel necessary for the Form S-4 to be declared effective,
including, to the extent applicable, opinions as to the qualification of each of
AIC and CAX as a REIT. CAX and AIC will use all their respective reasonable
efforts to cause the Proxy Statement to be mailed to the holders of CAX Common
Stock and the holders of AIC Common Stock as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. AIC shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of the AIC Common Stock in the Merger and AIC shall furnish
all information concerning the holders of AIC Common Stock as may be reasonably
requested in connection with any such action. No filing of, or amendment or
supplement to, the Form S-4 or the Proxy Statement will be made by CAX or AIC
without providing the other with the opportunity to review and comment thereon.
AIC will advise CAX, promptly after it receives notice thereof, of the time when
the Form S-4 has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the AIC
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Proxy Statement or
the Form S-4 or comments thereon and responses thereto or requests by the SEC
for additional information. If at any time prior to the Effective Time any
information relating to CAX or AIC, or any of their respective affiliates,
officers or directors, should be discovered by CAX or AIC which should be set
forth in an amendment or supplement to any of the Form S-4 or the Proxy
Statement, so that any of such documents would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and
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an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of CAX and AIC.
(b) CAX shall, as promptly as reasonably practicable after the date of
this Agreement duly call, give notice of, convene and hold a meeting of its
stockholders (the "CAX Stockholders Meeting") in accordance with the DGCL
for the purpose of obtaining CAX Stockholder Approval and, subject to its
rights under Section 4.2(b), shall, through its Board of Directors,
recommend to its stockholders the approval and adoption of this Agreement
and the Merger.
(c) AIC shall, as promptly as reasonably practicable after the date of
this Agreement give notice of, convene and hold a meeting of its
stockholders (the "AIC Stockholders Meeting") in accordance with the DGCL
for the purpose of obtaining the AIC Stockholder Approval for the Merger
and the Amended and Restated Certificate of Incorporation and shall,
through its Board of Directors, recommend to its stockholders the approval
and adoption of this Agreement and the Merger and the Amended and Restated
Certificate of Incorporation.
SECTION 5.2 Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
and the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
or any Restraint (as defined in Section 6.1(b)) vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Nothing set forth in this Section 5.2(a) will limit or affect actions
permitted to be taken pursuant to Section 4.2.
(b) In connection with and without limiting the foregoing, CAX and AIC
shall use reasonable best efforts (i) to take all action necessary to
ensure that no state takeover statute or similar statute or regulation
(other than Section 251, et seq. of the DGCL) is or becomes applicable to
this Agreement or the Merger or any of the other transactions contemplated
hereby or thereby and (ii) if any state takeover statute or similar statute
or regulation becomes applicable to this Agreement or the Merger or any
other transaction contemplated hereby or thereby, to take all action
necessary to ensure that the Merger and the other transactions contemplated
by this Agreement may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger and the other transactions
contemplated by this Agreement.
(c) Each of CAX and AIC shall cooperate with each other in obtaining
the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, dated as of the
Effective Time, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. In
connection therewith, each of CAX and AIC shall deliver to such counsel
customary representation letters in form and substance reasonably
satisfactory to such counsel (the representation letters referred to in
this sentence are collectively referred to as the "Tax Certificates").
SECTION 5.3 Stock Options and Warrants. At the Effective Time, each
outstanding CAX Stock Option, which has not been exercised, shall remain
outstanding and shall be deemed to constitute an option or right to acquire or
exchange, as the case may be, on the same terms and conditions as were
applicable under such CAX Stock Option, .4075 shares of AIC Common Stock and
cash in lieu of any
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fractional shares in accordance with Section 2.3(e), subject to such further
adjustments as may be necessary or appropriate to preserve the status of any
such options as incentive stock options under Section 422 of the Code.
SECTION 5.4 Indemnification, Exculpation and Insurance. (a) All rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors, officers, employees or agents of CAX and its Subsidiaries as provided
in their respective certificates of incorporation or by-laws (or comparable
organizational or governing) and any indemnification agreements or arrangements
of CAX the existence of which does not cause a breach of this Agreement shall
survive the Merger and shall continue in full force and effect, without
amendment, after the Effective Time and all obligation of CAX and/or its
Subsidiaries shall, from and after the Effective Time be assumed by and become
obligations of the Surviving Corporation; provided, however, that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. AIC agrees from and
after the Effective Time, to pay any expenses of any indemnified person under
this Section 5.4 in advance of the final disposition of any action, proceeding
or claim relating to any such act or omission to the fullest extent permitted
under the DGCL upon receipt from the applicable indemnified person to whom
advances are to be advanced of any undertaking to repay such advances required
under the DGCL. AIC shall, from and after the Effective Time, cooperate in the
defense of any such matter.
(b) From and after the Effective Time, AIC shall, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof,
or who becomes prior to the Effective Time, a director, officer, employee
or agent of CAX or of any Subsidiary of CAX or of any predecessor to CAX or
any of its Subsidiaries (each an "Indemnified Party" and collectively, the
"Indemnified Parties)" against all expenses (including reasonable
attorney's fees and expenses), judgments, claims, damages or liabilities
or, subject to the proviso of the next succeeding sentence, amounts paid in
settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after
the Effective Time) that are, in whole or in part, based on or arising out
of the fact that such person is or was a director, officer, employee or
agent of CAX or any Subsidiary of CAX or of any predecessor to CAX or any
of its Subsidiaries (the "Indemnified Liabilities"), including, without
limitation, all Indemnified Liabilities to the extent they are based on or
arise out of or pertain to the transactions contemplated by this Agreement.
In the event of any such loss, expense, claim, damage or liability (whether
or not arising before the Effective Time), (i) AIC agrees to pay the
reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to AIC, promptly
after statements therefor are received and otherwise advance to such
Indemnified Party, upon request, reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by the
DGCL, and (ii) AIC agrees to cooperate in the defense of any such matter;
provided, however, that AIC shall not be liable for any settlement effected
without AIC's written consent (which consent shall not be unreasonably
withheld or unreasonably delayed).
(c) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person
and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such
case, proper provision will be made so that the successors and assigns of
the Surviving Corporation, as applicable, will assume the obligations
thereof set forth in this Section 5.4.
(d) The provisions of this Section 5.4 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not
in substitution for, any other rights to indemnification or contribution
that any such person may have by contract or otherwise.
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(e) For six years after the Effective Time, AIC shall maintain in
effect CAX's current directors' and officers' liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to
those persons who are currently covered by CAX's directors' and officers'
liability insurance policy on terms with respect to such coverage and
amount no less favorable in the aggregate to CAX's directors and officers,
as the case may be, currently covered by such insurance than those of such
policy in effect on the date of this Agreement; provided, that in the event
that the aggregate premiums for insurance for the benefit of persons
currently covered by CAX's officers' and directors' insurance policy under
this Section 5.4(e) are in excess of 150% of the aggregate premiums paid by
CAX in 1998 on an annualized basis for such purpose then AIC shall only be
obligated to maintain such insurance coverage as is reasonably available
for such amount.
SECTION 5.5 Fees and Expenses. (a) Except as provided in this Section 5.5,
all fees and expenses incurred in connection with the Merger, this Agreement,
and the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
(b) Subject to the provisions of Section 5.5(c), (i) in the event that
this Agreement is terminated by CAX pursuant to Section 7.1(e), then,
concurrently with any such termination, CAX shall pay AIC a fee equal to $2
million by wire transfer of same day funds.
(ii) In the event that this Agreement is terminated by AIC pursuant
to Section 7.1(e), then, concurrently with any such termination, AIC
shall pay CAX a fee equal to $2 million by wire transfer of same day
funds.
(iii) In the event that (A) a CAX Pre-Termination Takeover Proposal
Event (as defined below) shall occur and thereafter this Agreement is
terminated by either CAX or AIC pursuant to Section 7.1(b) (ii), or by
AIC pursuant to Section 7.1(f) or 7.1(g) and (B) prior to the date that
is 12 months after the date of such termination CAX enters into an
Acquisition Agreement or an acquisition of CAX is consummated, then CAX
shall promptly, but in no event later than two business days after the
date the consummation of the transactions set forth in such Acquisition
Agreement (or any other Acquisition Agreement entered into within 12
months after the date of such termination of this Agreement) (or, in the
case of a tender offer, the date that shares of CAX are purchased), pay
AIC a fee equal to $2 million by wire transfer of same day funds.
(iv) In the event that (A) an AIC Pre-Termination Takeover Proposal
Event (as defined below) shall occur and thereafter this Agreement is
terminated by either CAX or AIC pursuant to Section 7.1(b) (iii), or by
CAX pursuant to Section 7.1(f) or 7.1(g) and (B) prior to the date that
is 12 months after the date of such termination AIC enters into an
Acquisition Agreement or an acquisition of AIC is consummated, then AIC
shall promptly, but in no event later than two business days after the
date the consummation of the transactions set forth in such Acquisition
Agreement (or any other Acquisition Agreement entered into within 12
months after the date of such termination of this Agreement) (or, in the
case of a tender offer, the date that shares of AIC are purchased), pay
CAX a fee equal to $2 million by wire transfer of same day funds.
(v) In the event that this Agreement is terminated under the
circumstances contemplated by Section 5.5(b) (iii), CAX shall pay, upon
AIC's request, the reasonable out-of-pocket expenses (including
reasonable attorney's fees) incurred by AIC in connection with this
Agreement and the transactions contemplated hereby, which shall be
credited against any fee payable pursuant to Section 5.5(b) (iii).
(vi) In the event that this Agreement is terminated under the
circumstances contemplated by Section 5.5(b) (iv), AIC shall pay, upon
CAX's request, the reasonable out-of-pocket expenses (including
reasonable attorney's fees) incurred by CAX in connection with this
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Agreement and the transactions contemplated hereby, which shall be
credited against any fee payable pursuant to Section 5.5(b) (iv).
(vii) For purposes of this Section 5.5(b), a CAX "Pre-Termination
Takeover Proposal Event" shall be deemed to occur if a Takeover Proposal
for CAX shall have been made public or any person shall have publicly
announced an intention (whether or not conditional) to make a Takeover
Proposal for CAX and shall have not withdrawn such Takeover Proposal for
CAX at the time of the action giving rise to the termination of this
Agreement.
(viii) For purposes of this Section 5.5(b), an "AIC Pre-Termination
Takeover Proposal Event" shall be deemed to occur if a Takeover Proposal
for AIC shall have been made public or any person shall have publicly
announced an intention (whether or not conditional) to make a Takeover
Proposal for AIC and shall have not withdrawn such Takeover Proposal for
AIC at the time of the action giving rise to the termination of this
Agreement.
(ix) The parties acknowledge that the agreements contained in this
Section 5.5(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the other parties
would not enter into this Agreement. Accordingly, if CAX or AIC, as the
case may be, fails promptly to pay the amount due to be paid by it
pursuant to this Section 5.5(b), and, in order to obtain such payment,
the other party commences a suit which results in a judgment against the
defaulting party for any of the fees set forth in this Section 5.5(b),
the defaulting party shall pay to the non-defaulting party its costs and
expenses (including attorneys' fees and expenses) in connection with
such suit.
(c) Payment of the Break-Up Fee (as defined below) shall be
compensation and liquidated damages for the loss suffered by AIC or CAX, as
the case may be, as the result of the failure of the Merger to be
consummated and to avoid the difficulty of determining damages under the
circumstances, and CAX or AIC, as the case may be, shall have no other
liability to the other party, other than the payment of the Break-Up Fee.
The "Break-Up Fee" shall be an amount equal to the lesser of (i) the
aggregate amount of all fees due to a party under Section 5.5(b) (the "Base
Amount") and (ii) the sum of (A) the maximum amount that can be paid to
such party in the year in which this Agreement is terminated (the
"Termination Year") and in all relevant taxable years thereafter without
causing it to fail to meet the requirements of Sections 856(c) (2) and (3)
of the Code (the "REIT Requirements") for such year, determined as if the
payment of such amount did not constitute income described in Section
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to such party, and (B) in the event
such party receives an opinion of counsel (a "Break-Up Fee Opinion") to the
effect that its receipt of the Base Amount would either constitute
Qualifying Income or would be excluded from gross income within the meaning
of the REIT Requirements, the Base Amount less the amount payable under
clause (A) above. If the amount payable for the Termination Year under the
preceding sentence is less than the Base Amount, the receiving party shall
notify paying party in writing, and paying party shall place the remaining
portion of the Base Amount in escrow and shall not release any portion
thereof to the receiving party and the receiving party shall not be
entitled to any such amount unless and until paying party receives either
of the following: (i) a letter from the receiving party's independent
accountants indicating the maximum amount that can be paid at that time to
the receiving party without causing the receiving party to fail to meet the
REIT Requirements for any relevant taxable year, in which event paying
party shall pay such maximum amount, or (ii) a Break-Up Fee Opinion, in
which event paying party shall pay to the receiving party the unpaid Base
Amount. Paying party's obligation to pay any unpaid portion of the Break-Up
Fee shall terminate ten years from the date of this Agreement and paying
party shall have no obligation to make any further payments notwithstanding
that the entire Base Amount has not been paid as of such date.
(d) AIC and CAX each shall be responsible for one-half of any and all
filing fees required to be paid to the SEC in connection with the
transactions contemplated hereby.
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SECTION 5.6 Public Announcements. CAX and AIC will consult with each other
before issuing, and provide each other the opportunity to review, comment upon
and concur with and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as either
party may determine is required by applicable law or court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
SECTION 5.7 Affiliates. Concurrently with the execution of this Agreement
(or with respect to relevant persons who are not available on the date of this
Agreement, as soon as practicable after the date of this Agreement), CAX shall
deliver to AIC a written agreement substantially in the form attached as Exhibit
B hereto of all of the persons who are "affiliates" of CAX for purposes of Rule
145 under the Securities Act, all of whom are, as of the date of this Agreement,
identified in Section 5.7 of the CAX Disclosure Schedule. Section 5.7 of the CAX
Disclosure Schedule shall be updated by CAX as necessary to reflect changes from
the date of this Agreement and CAX shall use all reasonable efforts to cause
each person added to such schedule after the date of this Agreement to deliver a
similar agreement.
SECTION 5.8 Stock Exchange Listing. AIC shall use reasonable best efforts
to cause the AIC Common Stock issuable pursuant to the Merger, to be approved
for listing on the NYSE, subject to official notice of issuance, in each case as
promptly as practicable after the date of this Agreement, and in any event prior
to the Closing Date.
SECTION 5.9 Stockholder Litigation. Each of CAX and AIC shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against CAX or AIC, as applicable, and its directors
relating to the transactions contemplated by this Agreement.
SECTION 5.10 Tax Treatment. Each of CAX and AIC shall use reasonable best
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368(a) of the Code and to obtain the opinion of counsel referred to
in Sections 6.2(d) and 6.3(d) and each of CAX and AIC agrees that it shall take
no action that would cause such tax treatment not to be obtained. Each of CAX
and AIC shall also use reasonable best efforts to qualify, and to maintain its
qualification, as a REIT under the Code during the period from the date of this
Agreement to the Closing Date, and to obtain the opinion of counsel referred to
in Sections 6.2(e) and 6.3(e).
SECTION 5.11 Conveyance Taxes. CAX and AIC shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable in
connection with, and are solely and directly related to, the transactions
contemplated by this Agreement ("Transfer Taxes") that are required or permitted
to be filed on or before the Effective Time. AIC and CAX shall pay or cause to
be paid, without deduction or withholding any amounts otherwise payable to their
respective stockholders, all Transfer Taxes (other than any such taxes that are
solely the liability of such stockholders under applicable state law).
SECTION 5.12 Certain Contracts. The Surviving Corporation shall expressly
assume the obligations of CAX or any of its Subsidiaries under contracts,
indentures, guarantees, securities, leases and other instruments thereof in
accordance with their respective terms, as and to the extent necessary to avoid
any breach, penalty, termination, default, payment or prepayment that would
otherwise result from the execution of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 5.13 Voting of shares of CAX owned by AIC. AIC shall vote any and
all shares of CAX Common Stock it owns and shall cause its Subsidiaries to vote
any and all shares of CAX Common Stock they own in favor of the Merger.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver by each of CAX and AIC on or prior to the Closing
Date of the following conditions:
(a) Governmental and Regulatory Approvals. Other than the filing
provided for under Section 1.4, all consents, approvals and actions of,
filings with and notices to any Governmental Entity required of CAX, AIC or
any of their Subsidiaries to consummate the Merger and the other
transactions contemplated hereby shall have been obtained or made, the
failure of which to be obtained or taken is reasonably expected to have a
Material Adverse Effect on the Surviving Corporation and its prospective
Subsidiaries, taken as a whole.
(b) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger, or (ii) which otherwise is reasonably likely to have a Material
Adverse Effect on CAX or AIC, as applicable; provided, however, the party
relying upon this condition shall have complied with Section 5.2(a) (iii).
(c) Form S-4. The Form S-4 shall have become effective under the
Securities Act prior to the mailing of the Proxy Statement by CAX and AIC
to their respective stockholders and no stop order or proceedings seeking a
stop order shall have been entered or be pending by the SEC.
(d) NYSE Listing. The shares of AIC Common Stock issuable to CAX's
stockholders pursuant to the Merger shall have been approved for listing on
the NYSE, subject to official notice of issuance.
(e) Stockholder Approval. The AIC Stockholder Approval shall have been
obtained and two-thirds of the outstanding shares of CAX Common Stock on
the Record Date shall have been voted in favor of the Merger Agreement.
(f) The Delaware Court of Chancery shall have entered an order
approving the Proposed Settlement on substantially the terms set forth in
the MOU, and such order shall have become final and nonappealable.
SECTION 6.2 Conditions to Obligations of AIC. The obligation of AIC to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of CAX set forth herein shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality", "Material Adverse Effect" or "Material Adverse Change" set
forth therein) does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on CAX.
(b) Performance of Obligations of CAX. CAX shall have performed all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date in all material respects, it being agreed that a
failure to comply with the provisions of Section 4.1(a) in any respect
shall be deemed to be a material breach with the effect that AIC shall not
be obligated to complete the Merger.
(c) No Material Adverse Change. At any time after the date of this
Agreement there shall not have been a Material Adverse Change relating to
CAX.
(d) Tax Opinion. AIC shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP an opinion to the effect that the Merger will constitute
a "reorganization" within the meaning of
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Section 368(a) of the Code, and CAX and AIC will each be a party to such
reorganization within the meaning of Section 368(b) of the Code.
(e) REIT Qualification. AIC shall have received an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP, in form and substance reasonably
satisfactory to AIC, dated as of the Closing Date, substantially to the
effect that, commencing with the taxable year that began on January 1,
1998, CAX was organized in conformity with the requirements for
qualification as a REIT under the Code, and its actual method of operation
from January 1, 1998 through the Closing Date has enabled, and its proposed
method of operation will enable it to meet the requirements for
qualification and taxation as a REIT. In rendering the tax opinions
described in Sections 6.2(d), 6.2(e), 6.3(d) and 6.3(e), counsel may
require delivery of and rely upon customary representations.
SECTION 6.3 Conditions to Obligations of CAX. The obligation of CAX to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of AIC set forth herein shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality", "Material Adverse Effect" or "Material Adverse Change" set
forth therein) does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on AIC.
(b) Performance of Obligations of AIC. AIC shall have performed all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date in all material respects, it being agreed that a
failure to comply with the provisions of Section 4.1(b) in any respect
shall be deemed to be a material breach with the effect that CAX shall not
be obligated to complete the Merger.
(c) No Material Adverse Change. At any time after the date of this
Agreement there shall not have been a Material Adverse Change relating to
AIC.
(d) Tax Opinion. CAX shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP an opinion to the effect that the Mergers will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and CAX and AIC will each be a party to such reorganization within
the meaning of Section 368(b) of the Code.
(e) REIT Qualification. CAX shall have received an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP, in form and substance reasonably
satisfactory to CAX, dated as of the Closing Date, substantially to the
effect that, commencing with the taxable year that began on January 1,
1998, AIC was organized in conformity with the requirements for
qualification as a REIT under the Code, and its actual method of operation
from January 1, 1998 through the Closing Date has enabled, and its proposed
method of operation will enable it to meet the requirements for
qualification and taxation as a REIT.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, and (except as otherwise provided in Section
4.2(b)) whether before or after the CAX Stockholder Approval, NewCo Stockholder
Approval or the AIC Stockholder Approval:
(a) by mutual written consent of CAX and AIC;
(b) by either CAX or AIC:
(i) if the Merger shall not have been consummated by the earlier to
occur of (i) 60 days following the date that the SEC declares the S-4
effective, and (ii) June 15, 2000; provided,
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however, that the right to terminate this Agreement pursuant to this
Section 7.1(b) (i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time.
(ii) if the CAX Stockholder Approval shall not have been obtained
at the CAX Stockholders Meeting duly convened therefor at which a vote
thereon is taken or at any adjournment or postponement thereof at which
a vote thereon is taken;
(iii) if the AIC Stockholder Approval shall not have been obtained
at the AIC Stockholders Meeting duly convened therefor at which a vote
thereon is taken or at any adjournment or postponement thereof at which
a vote thereon is taken;
(iv) if any Restraint having any of the effects set forth in
Section 6.1(b) shall be in effect and shall have become final and
nonappealable;
(c) by AIC, if CAX shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.2(a) or (b), and (B) is incapable of being cured by CAX or is not cured
within 30 days of written notice thereof (a "CAX Material Breach")
(provided that AIC is not then in AIC Material Breach (as defined in
Section 7.1(d)) of any representation, warranty, covenant or other
agreement contained in this Agreement;
(d) by CAX, if AIC shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.3(a) or (b), and (B) is incapable of being cured by AIC or is not cured
within 30 days of written notice thereof (a "AIC Material Breach")
(provided that CAX is not then in CAX Material Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement;
(e) by CAX or AIC, as applicable in accordance with Section 4.2(b);
(f) by AIC or CAX if (i) the Board of Directors of the other party or
any committee thereof shall have withdrawn or modified its approval or
recommendation of the Merger or this Agreement, or approved or recommended
any Takeover Proposal or (ii) the Board of Directors of such party shall
have resolved to do any of the foregoing; or
(g) by AIC or CAX, as applicable, if the other party or any of its
officers, directors, representatives or agents (other than, in the case of
CAX, any officer, director, representative or agent of CAX who is also an
officer, director, representative or agent of AIC) shall take any of the
actions proscribed by Section 4.2 (but for the exceptions therein allowing
certain actions to be taken pursuant to the proviso to the first sentence
of Section 4.2(a), the second sentence of Section 4.2(b) or Section
4.2(d)).
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either CAX or AIC as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of CAX or AIC, other than as contemplated by the provisions of Section
3.2(m) or as provided in Section 5.5, this Section 7.2 and Article VIII, which
provisions survive such termination, and except to the extent that such
termination results from the willful and material breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after the CAX Stockholder Approval or the AIC Stockholder
Approval; provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders of
CAX or AIC without the further approval of such stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of all of the
parties.
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SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to AIC, to
Asset Investors Corporation
3410 South Galena Street, Suite 210
Denver, Colorado 80231
Telecopy No.: (303) 614-9301
Attention: Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90021
Telecopy No.: (213) 687-5600
Attention: Michael V. Gisser
(b) if to CAX, to
Commercial Assets, Inc.
3410 South Galena Street, Suite 210
Denver, Colorado 80231
Telecopy No.: (303) 614-9301
Attention: Chief Executive Officer
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Telecopy No.: (212) 757-3990
Attention: Judith R. Thoyer, Esq.
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SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except as otherwise provided for in this Agreement, an "affiliate"
of a specified person, is a person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common
control with, the person specified, where "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise; provided, however, that AIC
and its directors, officers and controlling persons are not considered
affiliates of CAX for the purposes of the representations and warranties
and covenants;
(b) "Benefit Plan" means collective bargaining agreement, employment
agreement, consulting agreement, severance agreement or any bonus, pension,
post-Retirement benefit, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical, dental or other plan, arrangement or
understanding providing benefits to any current or former employee,
officer, agent, independent contractor, or director of any person or any of
its Subsidiaries.
(c) "GAAP" means generally accepted accounting principles and
practices which are recognized as such on the date of this Agreement by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board
or through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date of this Agreement so as
to properly reflect the financial conditions, and the results of
operations, stockholders' equity and cash flows, of the subject thereof,
and its consolidated subsidiaries;
(d) "Liens" means any pledges, claims, liens, charges, encumbrances
and security interests securing indebtedness or similar obligations
(collectively, "Liens")
(e) "Material Adverse Change" or "Material Adverse Effect" means, when
used in connection with CAX or AIC, any change, effect, event, occurrence
or state of facts that is, or would reasonably be expected to be
individually or in the aggregate materially adverse to the business,
financial condition or results of operations of such party and its
Subsidiaries taken as a whole, other than any change, effect, event or
occurrence constituting or relating to any of the following:
(i) the United States economy or securities markets in general;
(ii) this Agreement or the transactions contemplated hereby or the
announcement thereof;
(iii) the manufactured housing community industry in general, and
not specifically relating to CAX or AIC or their respective
Subsidiaries;
(iv) the resignation of officers or employees of CAX or AIC or
their respective Subsidiaries; and
(v) changes in GAAP;
(f) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(g) a "Subsidiary" any person means (a) a corporation in which such
person, a subsidiary of such person, or such person and one or more
subsidiaries of such person, directly or indirectly, at the date of
determination, has either (i) a majority ownership interest or (ii) the
power, under ordinary circumstances, to elect, or to direct the election
of, a majority of the board of directors of such corporation, or (b) a
partnership in which such person, a subsidiary of such person, or such
person and one or more subsidiaries of such person (i) is, at the date of
determination, a general partner of such partnership, or (ii) has a
majority ownership interest in such partnership or the right to elect, or
to direct the election of, a majority of the governing body of such
partnership, or (c) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person, or such
person and one or more subsidiaries of such person has either (i) at least
a majority ownership
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interest or (ii) the power to elect, or to direct the election of, a
majority of the directors or other governing body of such person;
(h) "belief" of any person which is not an individual means the actual
belief of such person's executive officers; and
(i) "knowledge" of any person which is not an individual means the
actual knowledge of such person's executive officers.
SECTION 8.4 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Article II, Sections 5.4 and 5.5,
is not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.10 Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this
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Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, AIC and CAX each have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
ASSET INVESTORS CORPORATION
By /s/ DAVID M. BECKER
-----------------------------------
Name: David M. Becker
Title: Chief Financial Officer
COMMERCIAL ASSETS, INC.
By /s/ DAVID M. BECKER
-----------------------------------
Name: David M. Becker
Title: Chief Financial Officer
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ANNEX B
AMENDED
CERTIFICATE OF INCORPORATION
OF
AMERICAN LAND LEASE, INC.
(FORMERLY NAMED ASSET INVESTORS CORPORATION)
---------------------
PURSUANT TO SECTIONS 242 AND 245 OF
THE DELAWARE GENERAL CORPORATION LAW
---------------------
The undersigned, David M. Becker, certifies that he is the Secretary of
Asset Investors Corporation, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), and does hereby further certify as
follows:
(1) The name of the Corporation is Asset Investors Corporation
(2) The name under which the Corporation was originally incorporated was
Asset Investors Corporation, and the original Certificate of Incorporation of
the Corporation was filed with the Secretary of State on March 11, 1999.
(3) This Amended Certificate of Incorporation was duly adopted by the Board
of Directors of the Corporation and by the holders of all of the outstanding
shares of the Corporation's common stock, par value $.01 per share (the "Common
Stock"), in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
(4) Effective immediately upon filing this Amended Certificate of
Incorporation, each 2.5 shares of Common Stock outstanding shall be converted,
without further action by the Corporation or any stockholder, into one share of
Common Stock authorized by this Amended Certificate of Incorporation.
(5) The text of the Certificate of Incorporation of the Corporation as
amended hereby is restated to read in its entirety as follows:
FIRST: Name. The name of the Corporation is American Land Lease, Inc.
(hereinafter the "Corporation").
SECOND: Address. The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is Corporation
Service Company.
THIRD: Purpose. The purposes for which the Corporation is formed are to
engage in any lawful act or activity (including, without limitation or
obligation, engaging in business as a real estate investment trust under the
Code (as defined in Article SEVENTH)) for which corporations may be organized
under the General Corporation Law of the State of Delaware as set forth in Title
8 of the Delaware Code (the "GCL"). For purposes of this Certificate, "REIT"
means a real estate investment trust as defined in Section 856 of the Code.
FOURTH: Stock.
4.1 The total number of shares of stock which the Corporation shall have
authority to issue is 50,000,000 shares of capital stock, consisting of
35,000,000 shares of Common Stock, each having a par value of $.01 (the "Common
Stock"), and 15,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock").
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4.2 Shares of Preferred Stock may be issued from time to time in one or
more classes or series as may be determined from time to time by the Board of
Directors of the corporation, each such class or series to be distinctly
designated. Except in respect of the particulars fixed by the Board of Directors
for classes or series provided for by the Board of Directors as permitted
hereby, all shares of Preferred Stock shall be of equal rank and shall be
identical. All shares of any one series of Preferred Stock so designated by the
Board of Directors shall be alike in every particular, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative. The voting rights, if any, of each such
class or series and the preferences and relative, participating, optional and
other special rights of each such class or series and the qualifications,
limitations and restrictions thereof, if any, may differ from those of any and
all other classes or series at any time outstanding; and the Board of Directors
of the Corporation is hereby expressly granted authority to fix, by resolutions
duly adopted prior to the issuance of any shares of a particular class or series
of Preferred Stock so designated, preferences and relative, participating,
optional and other special rights and the qualifications, limitations and
restrictions of such class or series, including but without limiting the
generality of the foregoing, the following:
(A) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute, such class or series, and such
number may be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of Directors;
(B) The rate and time at which, and the terms and conditions upon
which, dividends, if any, on Preferred Stock of such class or series shall
be paid, the extent of the preferences or relation, if any, of such
dividends to the dividends payable on any other class or classes, or series
of the same or other classes of stock and whether such dividends shall be
cumulative or non-cumulative;
(C) The right, if any, of the holders of Preferred Stock of such class
or series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock and the terms and conditions of such conversion or
exchange;
(D) Whether or not Preferred Stock of such class or series shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions upon which, Preferred Stock of
such class or series may be redeemed;
(E) The rights, if any, of the holders of Preferred Stock of such
class or series upon the voluntary or involuntary liquidation of the
Corporation;
(F) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock or such class or services;
and
(G) The voting powers, if any, of the holders of such class or series
of Preferred Stock.
4.3 Except as otherwise provided in the Certificate of Incorporation of
the Corporation, the Board of Directors of the Corporation shall have authority
to authorize the issuance, from time to time without any vote or other action by
the stockholders, of any or all shares of stock of the Corporation of any class
or series at any time authorized, and any securities convertible into or
exchangeable for any such shares, and any options, rights and warrants to
purchase or acquire any such shares, in each case to such persons and on such
terms (including as a dividend or distribution on or with respect to, or in
connection with a split or combination of, the outstanding shares of stock of
the same or any other class) as the Board of Directors from time to time in its
discretion lawfully may determine; provided, however, that the consideration for
the issuance of shares of the Corporation having par value (unless issued as
such a dividend or distribution or in connection with such a split of
combination) shall not be less than such par value. Shares so issued shall be
fully paid stock, and the holders of such stock shall not be liable for any
further call or assessments thereon. No holder of stock of any class shall have
the preemptive right to subscribe to or purchase any additional shares of any
class, or any bonds, notes, debentures or other obligations convertible into
stock; provided, however, that the Board of Directors may, in authorizing the
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issuance of stock or any class, confer any preemptive right that the Board of
Directors may deem advisable in connection with such issuance.
4.4 Except as may otherwise be provided in the Certificate of
Incorporation of the Corporation, each holder of Common Stock shall be entitled
to one vote for each share of Common Stock held by him.
4.5 All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of this Certificate and By-Laws of the
Corporation.
4.6 The Board of Directors may classify or reclassify any unissued stock,
whether now or hereafter authorized, by setting or changing the preferences,
conversion or other rights, voting powers, dividends, qualifications or terms or
conditions of redemption of such stock.
FIFTH: Incorporator. The name and mailing address of the Sole Incorporator
is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
- ---- -------
<S> <C>
Mary E. Keogh.................... P.O. Box 636
Wilmington, DE 19899
</TABLE>
SIXTH: Board of Directors and Management of Corporation. The following
provisions are inserted for the management of the business and the conduct of
the affairs of the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its directors and
stockholders:
6.1 The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
6.2 The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
6.3 The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the Bylaws of the Corporation. The
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors. The
names and classes of the initial directors are:
[TO COME]
Class I directors shall be elected to serve until the first Annual Meeting of
Stockholders, Class II directors to serve until one year thereafter and Class
III directors to serve until two years thereafter. At each succeeding annual
meeting of stockholders, successors to the class of directors whose term expires
at that annual meeting shall be elected for a three-year term. If the number of
directors is changed in accordance with the terms of the Certificate of
Incorporation of the Corporation, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to the director's prior death, resignation,
disqualification or removal from office. A director may be removed for cause
only, and not without cause, and only by action of the stockholders taken by
holders of at least 75% of all shares of stock then entitled to vote for the
election of directors. Any vacancy on the Board of Directors that results from a
newly created directorship may be filled by the affirmative vote of a majority
of the Board of Directors then in office, and any other vacancy occurring on the
Board of Directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. Any vacancy on the
Board of Directors that results from the removal of a director also may be
filled by the stockholders by the affirmative vote of holders of a majority of
all shares of stock then entitled to vote for the election of
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directors. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his
predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation of the Corporation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to
Section 6.3 of this Article SIXTH unless expressly provided by such terms.
Election of directors need not be by written ballot unless the Bylaws so
provide.
6.4 To the fullest extent permitted by Delaware law, no director shall be
personally liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article SIXTH by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
6.5 In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, the
Certificate of Incorporation and any Bylaws adopted by the stockholders;
provided, however, that no Bylaws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
Bylaws had not been adopted.
6.6 The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) in connection with
a proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors. The
right to indemnification conferred by this Article SIXTH shall include the right
to be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
6.7 The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article SIXTH to directors and officers of the Corporation.
6.8 The rights to indemnification and to the advance of expenses conferred
in this Article SIXTH shall not be exclusive of any other right which any person
may have or hereafter acquire under this Certificate of Incorporation, the
Bylaws of the Corporation, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
6.9 Any repeal or modification of this Article SIXTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
6.10 The Corporation shall seek to elect and maintain status as a REIT
under Sections 856-860 of the Code. The Board of Directors shall use its
reasonable best efforts to cause the Corporation to satisfy the requirements for
qualification as a REIT under the Code, including, but not limited to, the
ownership of its outstanding stock, the nature of its assets, the sources of its
income, and the amount and timing of
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its distributions to its stockholders; however, if the Board of Directors
determines that it is no longer in the best interests of the Corporation to
continue to be qualified as a REIT, the Board of Directors may revoke or
otherwise terminate the Corporation's REIT election pursuant to Section 856(g)
of the Code. The Board of Directors also may determine that compliance with any
restriction or limitation on stock ownership and transfers set forth in Article
SEVENTH is no longer required for REIT qualification.
SEVENTH: Restriction on Transfer and Ownership of Shares
7.1 Definitions. For the purpose of this Article SEVENTH and Section 6.6,
the following terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership Limit"
shall mean not more than 5.0 percent(1) of the aggregate value of the
outstanding shares of any class or series of Capital Stock of the Corporation.
In applying this Article SEVENTH, any questions as to value shall be resolved by
the Board of Directors of the Corporation in good faith, which determination
shall be conclusive for all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership
of Capital Stock by a Person, whether the interest in the shares of Capital
Stock is held directly or indirectly (including indirect ownership through a
nominee), and shall include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section 856(h) of the
Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or series of
stock of the Corporation, including, without limitation, Common Stock and
Preferred Stock.
Certificate of Incorporation. The term "Certificate of Incorporation" shall
mean the Certificate of Incorporation of the Corporation, as amended, as that
term is defined in Section 104 of the DGCL.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one or
more beneficiaries of a Trust as determined pursuant to Section 7.3.6, provided
that each such organization must be described in Section 501(c)(3) of the Code
and contributions to each such organization must be eligible for deduction under
each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. References herein to particular sections of the Code
shall be deemed to include applicable successor provisions to such sections.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including indirect ownership
through a nominee), and shall include interests that would be treated as owned
through the application of Section 318(a) of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a Beneficial Owner
or Constructive Owner of the Corporation for whom an Excepted Holder Limit is
created by the Board of Directors pursuant to Section 7.2.7.
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(1) This percentage is the same as the percentage used for the "Section 382
Limit" in order to preserve the NOLs, although the Board will also have the
ability to grant exemptions from both the REIT 5- percent ownership limit
and the Section 382 Limit.
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Excepted Holder Limit. The term "Excepted Holder Limit" shall mean, with
respect to an Excepted Holder, and provided that the affected Excepted Holder
agrees to and does comply with the requirements established by the Board of
Directors pursuant to Section 7.2.7, the percentage limit or limits established
by the Board of Directors for such Excepted Holder pursuant to Section 7.2.7.
Initial Date. The term "Initial Date" shall mean the date upon which the
Certificate of Incorporation of the Corporation containing this Article SEVENTH
becomes effective in accordance with Delaware law.
Market Price. The term "Market Price" on any date shall mean, with respect
to any class or series of outstanding shares of Capital Stock, the Closing Price
for such Capital Stock on such date. The "Closing Price" on any date shall mean
the last sale price for such Capital Stock, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, for such Capital Stock, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the NYSE or, if such Capital Stock is not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such Capital Stock is listed or admitted
to trading or, if such Capital Stock is not listed or admitted or 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 or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if such Capital Stock is
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
Capital Stock selected by the Board of Directors of the Corporation or, in the
event that no trading price is available for such Capital Stock, the fair market
value of the Capital Stock, as determined in good faith by the Board of
Directors of the Corporation.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Ownership Change. The term "Ownership Change" shall mean an "ownership
change" with respect to the Corporation, as that term is used in Section 382(g)
of the Code and Treasury Regulations Section 1.382-2T(a)(1).
Person. The term "Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust (including a trust
qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, an association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity, and
also includes a group as that term is used for purposes of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect to
any purported Transfer, any Person who, but for the provisions of Section 7.2.1,
would directly or indirectly own, or Beneficially or Constructively Own, shares
of Capital Stock.
REIT. The term "REIT" shall mean a real estate investment trust within the
meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date" shall
mean the first day after the Initial Date on which the Board of Directors
determines pursuant to Section 6.6 of this Certificate of Incorporation that it
is no longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT, or that compliance with each of the restrictions and
limitations on Beneficial Ownership, Constructive Ownership and Transfers of
shares of Capital Stock as set forth herein is no longer required.
Section 382 Limit. The term "Section 382 Limit" shall mean the ownership of
any direct or indirect interest in Capital Stock that would cause a Person to be
a "5-percent shareholder" of the Corporation within the meaning of Treasury
Regulations Section 1.382-2T(g)(1)(i) or (ii). For this purpose, whether a
Person would be a "5-percent shareholder" shall be determined (v) without giving
effect to the following
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provisions: Treasury Regulations Sections 1.382-2T(g)(2), 1.382-2T(g)(3),
1.382-2T(h)(2)(iii) and 1.382-2T(h)(6)(iii), (w) by treating every Person which
owns Capital Stock, whether directly or by attribution, as directly owning such
Capital Stock notwithstanding any further attribution of such Capital Stock to
other Persons and notwithstanding Treasury Regulations Section
1.382-2T(h)(2)(i)(A), (x) by substituting the term "Person" in place of
"individual" in Treasury Regulations Section 1.382-2T(g)(1)(i), (y) by taking
into account ownership of Stock at any time during the "testing period" as
defined in Treasury Regulations Section 1.382-2T(d)(1), and (z) by treating each
day during the testing period as if it were a "testing date" as defined in
Treasury Regulations Section 1.382-2(a)(4).
Transfer. The term "Transfer" shall mean any issuance, redemption, sale,
distribution, transfer, gift, assignment, devise or other disposition, as well
as any other event that causes any Person to acquire Beneficial Ownership or
Constructive Ownership, or a direct or indirect interest in any shares, or any
agreement to take any such actions or cause any such events, of Capital Stock or
the right to vote or receive dividends on Capital Stock including (a) the
granting or exercise of any option (or any disposition of any option), (b) any
disposition of any securities or rights convertible into or exchangeable for
Capital Stock or any interest in Capital Stock or any exercise of any such
conversion or exchange right, and (c) Transfers of interests in other entities
that result in changes in Beneficial or Constructive Ownership or direct or
indirect ownership of Capital Stock, in each case, whether voluntary or
involuntary, whether owned of record, Constructively Owned or Beneficially Owned
and whether by operation of law or otherwise. The terms "Transferring" and
"Transferred" shall have the correlative meanings.
Treasury Regulations. The term "Treasury Regulations" shall mean the
regulations promulgated by the Secretary of the Treasury under the Code. Any
reference to a particular Treasury Regulation or section or provision thereof
shall be deemed to also refer to any successor Regulation or section or
provision having similar effect.
Trust. The term "Trust" shall mean any trust provided for in Section 7.3.
Trustee. The term "Trustee" shall mean a Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of a Trust.
7.2 Restrictions on Ownership of Capital Stock.
SECTION 7.2.1 Ownership Limitations. During the period commencing on the
Initial Date and ending upon the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall
Beneficially Own or directly or indirectly own shares of Capital Stock
equal to or in excess of either the Aggregate Stock Ownership Limit or
the Section 382 Limit, and (2) no Excepted Holder shall Beneficially Own
or directly or indirectly own shares of Capital Stock in excess of any
applicable Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own shares of Capital Stock to
the extent that such Beneficial Ownership of Capital Stock would result
in the Corporation being "closely held" within the meaning of Section
856(h) of the Code (without regard to whether the ownership interest is
held during the last half of a taxable year), or otherwise failing to
qualify as a REIT.
(iii) No Person shall Constructively Own shares of Capital Stock to
the extent that such Constructive Ownership would result in the
Corporation owning (actually or Constructively) an interest in a tenant
that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would cause the Corporation
to fail to satisfy any of the gross income requirements of Section
856(c) of the Code).
(iv) No Person shall Transfer any Beneficial Ownership or
Constructive Ownership of, or any direct or indirect interest in Capital
Stock if, as a result of such Transfer, the Capital Stock
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would be beneficially owned by less than 100 Persons (determined under
the principles of Section 856(a)(5) of the Code).
(v) No Person shall Transfer any Beneficial Ownership or
Constructive Ownership of, or any direct or indirect interest in Capital
Stock if, as a result of such Transfer, the Corporation would undergo an
Ownership Change.
(b) Transfer in Trust. If any Transfer of shares of Capital Stock
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system) occurs which, if
effective, would result in any Person Beneficially Owning or Constructively
Owning, or otherwise having any direct or indirect interest in shares of
Capital Stock in violation of any provision of Section 7.2.1(a):
(i) then that number of shares of Capital Stock the Beneficial or
Constructive Ownership of, or direct or indirect interest in, would
otherwise cause such violation (rounded to the nearest whole share)
shall be automatically transferred to one or more Trusts for the benefit
of a Charitable Beneficiary, as described in Section 7.3, effective as
of the close of business on the Business Day prior to the date of such
Transfer, and such Person shall acquire no rights in such shares; or
(ii) if the transfer to the Trust or Trusts described in clause (i)
of this sentence would not be effective for any reason to prevent the
violation of Section 7.2.1(a), then the Transfer of that number of
shares of Capital Stock that otherwise would cause a violation of any
provision of Section 7.2.1(a) shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Capital Stock.
(iii) In determining which shares of Capital Stock are to be
transferred to a Trust in accordance with this Section 7.2.1(b) and
Section 7.3 hereof, shares shall be so transferred to a Trust in such
manner as minimizes the aggregate value of the shares that are
transferred to the Trust (except to the extent that the Board of
Directors determines that the shares transferred to the Trust shall be
those directly or indirectly held or Beneficially Owned or
Constructively Owned by a Person or Persons that caused or contributed
to the application of this Section 7.2.1(b)), and to the extent not
inconsistent therewith, on a pro rata basis.
(iv) To the extent that, upon a transfer of shares of Capital Stock
pursuant to this Section 7.2.1(b), a violation of any provision of
Section 7.2.1(a) would nonetheless be continuing (for example where the
ownership of shares of Capital Stock by a single Trust would exceed the
Section 382 Limit), then shares of Capital Stock shall be transferred to
that number of Trusts, each having a distinct Trustee and a Charitable
Beneficiary or Beneficiaries that are distinct from those of each other
Trust, such that there is no violation of any provision of Section
7.2.1(a).
SECTION 7.2.2 Remedies for Breach. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time determine
in good faith that a Transfer or other event has taken place that results in a
violation of Section 7.2.1 or that a Person intends to acquire or has attempted
to acquire Beneficial or Constructive Ownership of, or any direct or indirect
interest in, any shares of Capital Stock in violation of Section 7.2.1(a)
(whether or not such violation is intended), the Board of Directors or a
committee thereof shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or other event, including, without
limitation, causing the Corporation to redeem shares, refusing to give effect to
such Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer or other event; provided, however, that any Transfer or
attempted Transfer or other event in violation of Section 7.2.1(a) shall
automatically result in the transfer to the Trust described above, and, where
applicable, such Transfer (or other event) shall be void ab initio as provided
above irrespective of any action (or non-action) by the Board of Directors or a
committee thereof.
SECTION 7.2.3 Notice of Restricted Transfer. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive Ownership
of, or any direct or indirect interest in any shares of Capital Stock that will
or may violate Section 7.2.1(a), and any Person who would have owned shares
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of Capital Stock that resulted in a transfer to the Trust pursuant to the
provisions of Section 7.2.1(b), shall in each such case immediately give written
notice to the Corporation of such event, or in the case of such a proposed or
attempted transaction, give at least 15 days' prior written notice, and shall
provide to the Corporation such other information as the Corporation may request
in order to determine the effect, if any, of such Transfer on the Corporation's
status as a REIT.
SECTION 7.2.4 Owners Required to Provide Information. From the Initial
Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower percentage as
required by the Code or the Treasury Regulations) of the outstanding shares
of Capital Stock, within 30 days after the end of each taxable year, shall
give written notice to the Corporation stating the name and address of such
owner, the number of shares of Capital Stock Beneficially Owned and a
description of the manner in which such shares are held. Each such owner
shall provide to the Corporation such additional information as the
Corporation may request in order to determine the effect, if any, of such
Beneficial Ownership on the Corporation's status as a REIT and to ensure
compliance with the Aggregate Stock Ownership Limit, and
(b) each Person who is a Beneficial or Constructive Owner of Capital
Stock and each Person (including the stockholder of record) who is holding
Capital Stock for a Beneficial or Constructive Owner shall provide to the
Corporation such information as the Corporation may request, in good faith,
in order to determine the Corporation's status as a REIT or for other tax
or compliance reasons.
SECTION 7.2.5 Remedies Not Limited. Subject to Section 6.6 of this
Certificate of Incorporation, nothing contained in this Section 7.2 shall limit
the authority of the Board of Directors of the Corporation to take such other
action as it deems necessary or advisable to protect the Corporation and the
interests of its stockholders in preserving the Corporation's status as a REIT.
SECTION 7.2.6 Ambiguity. In the case of an ambiguity in the interpretation
of any of the provisions of this Article SEVENTH, the Board of Directors of the
Corporation shall have the power to determine the application of the provisions
of this Article SEVENTH with respect to any situation based on the facts known
to it. In the event that this Article SEVENTH requires an action by the Board of
Directors and the Certificate of Incorporation fails to provide specific
guidance with respect to such action, the Board of Directors shall have the
power to determine the action to be taken. Any references contained in this
Article SEVENTH to the Corporation's Board of Directors shall include any duly
authorized committee thereof.
SECTION 7.2.7 Exceptions.
(a) The Board of Directors of the Corporation may, subject to such terms,
conditions, representations and undertakings as it shall determine in its sole
discretion, exempt a Person from the application of any one or more of the
provisions of Section 7.2.1(a). Any violation or deemed violation of such
representations or undertakings (or other action which is contrary the
restrictions contained in Sections 7.2.1 through 7.2.6) will result in such
Person, and any Capital Stock that such person may Beneficially or
Constructively Own, or in which it may otherwise hold any direct or indirect
interest, being subject to the provisions of Section 7.2.1(b).
(b) Prior to granting any exception pursuant to Section 7.2.7(a), the Board
of Directors of the Corporation may require a ruling from the Internal Revenue
Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in its sole discretion, as it may deem
necessary or advisable.
(c) The Board of Directors may only reduce the Excepted Holder Limit for an
Excepted Holder (1) with the written consent of such Excepted Holder at any
time, or (2) pursuant to the terms and conditions of the agreements and
undertakings entered into with such Excepted Holder in connection with the
establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted
Holder Limit
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with respect to a class or series of Capital Stock shall be reduced to a
percentage equal to or less than the Aggregate Stock Ownership Limit, or the
Section 382 Limit, as applicable.
SECTION 7.2.8. Legend. Except as provided below, each certificate issued
after the Initial Date for shares of Capital Stock shall bear substantially the
following legend:
The shares represented by this certificate are subject to certain
ownership limitations and restrictions on transfer, as provided in the
Corporation's Certificate of Incorporation, and subject to such terms,
conditions and exceptions as set forth therein. A copy of the
Certificate of Incorporation may be obtained from the Corporation
without charge. A violation of these provisions could result in the
shares represented hereby being transferred to a trust for the benefit
of a charitable beneficiary, or in a purported sale or other transfer of
these shares being void.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
7.3 Transfer of Capital Stock in Trust.
SECTION 7.3.1 Ownership in Trust. Upon any purported Transfer or other
event described in Section 7.2.1(b) that would result in a transfer of shares of
Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have
been transferred to a Trustee as trustee of such Trust for the exclusive benefit
of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be
deemed to be effective as of the close of business on the Business Day prior to
the purported Transfer or other event that results in the transfer to the Trust
pursuant to Section 7.2.1(b). The Trustee shall be appointed by the Board of
Directors of the Corporation and shall be a Person unaffiliated with the
Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be
designated by the Board of Directors of the Corporation as provided in Section
7.3.6.
SECTION 7.3.2 Status of Shares Held by the Trustee. Shares of Capital
Stock held by the Trustee shall be issued and outstanding shares of Capital
Stock of the Company. The Prohibited Owner shall have no rights in the shares
held by the Trustee. Except to the extent expressly provided herein, the
Prohibited Owner shall not benefit economically from ownership of any shares
held in trust by the Trustee, shall have no rights to dividends or other
distributions, and shall not possess any rights to vote or other rights
attributable to the shares held in the Trust.
SECTION 7.3.3 Dividend and Voting Rights. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Delaware
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Owner prior to the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote in accordance
with the desires of the Trustee acting for the benefit of the Charitable
Beneficiary; provided, however, that if the Corporation has already taken
irreversible corporate action, then the Trustee shall not have the authority to
rescind and recast such vote. Notwithstanding the provisions of this Article
SEVENTH, until the Corporation has received notification that shares of Capital
Stock have been transferred into a Trust, the Corporation shall be entitled to
rely on its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
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SECTION 7.3.4 Sale of Shares by Trustee. Within 90 days of receiving
notice from the Corporation that shares of Capital Stock have been transferred
to the Trust, the Trustee of the Trust shall sell the shares held in the Trust
to a person, designated by the Trustee, whose ownership of the shares will not
violate any of the ownership restrictions set forth in Section 7.2.1(a). Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this Section
7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by
the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in a Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be held
in the Trust and (2) the price per share received by the Trustee from the sale
or other disposition of the shares held in the Trust. Any net sales proceeds in
excess of the amount payable to the Prohibited Owner shall be immediately paid
to the Charitable Beneficiary. If, prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee, such shares
are sold by a Prohibited Owner, then (i) such shares shall be deemed to have
been sold on behalf of the Trust and (ii) to the extent that the Prohibited
Owner received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to this Section 7.3.4, such
excess shall be paid to the Trustee upon demand.
SECTION 7.3.5 Purchase Right in Stock Transferred to the Trustee. Shares
of Capital Stock transferred to the Trustee shall be deemed to have been offered
for sale to the Corporation, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price at
the time of such devise or gift) and (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have the
right to accept such offer until the Trustee has sold the shares held in the
Trust pursuant to Section 7.3.4. Upon such a sale to the Corporation, the
interest of the Charitable Beneficiary in the shares sold shall terminate and
the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
SECTION 7.3.6 Designation of Charitable Beneficiaries. By written notice
to the Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in any Trust
created pursuant to this Section 7.3 such that (i) the shares of Capital Stock
held in the Trust would not violate the restrictions set forth in Section
7.2.1(a) in the hands of such Charitable Beneficiary, and (ii) each such
organization must be described in Section 501(c)(3) of the Code and
contributions to each such organization must be eligible for deduction under
each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
7.4 NYSE Transactions. Nothing in this Article SEVENTH shall preclude the
settlement of any transaction entered into through the facilities of the NYSE or
any other national securities exchange or automated inter-dealer quotation
system. The fact that the settlement of any transaction is so permitted shall
not negate the effect of any other provision of this Article SEVENTH and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article SEVENTH.
7.5 Enforcement. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article SEVENTH.
7.6 Non-Waiver. No delay or failure on the part of the Corporation or the
Board of Directors in exercising any right hereunder shall operate as a waiver
of any right of the Corporation or the Board of Directors, as the case may be,
except to the extent specifically waived in writing.
EIGHTH: Meetings. Meetings of stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
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NINTH: Amendment. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
TENTH: Business Combination. The Corporation elects not to be governed by
Section 203 of the GCL relating to business combinations with interested
stockholders.
ELEVENTH: Stockholder Action by Unanimous Written Consent. The Corporation
elects, pursuant to Section 228 of the GCL, to permit stockholder action in lieu
of a meeting upon the unanimous written consent of all stockholders entitled to
take such action at a meeting.
TWELFTH: This Amended Certificate of Incorporation has been duly adopted
pursuant to Sections 242 and 245 of the GCL.
I, THE UNDERSIGNED, being an authorized officer of the Corporation, do make
this Certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set my hand
this day of , 1999.
------------------------------------
David M. Becker
Secretary
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ANNEX C
[JEFFERIES & COMPANY, INC. LETTERHEAD]
August 31, 1999
The Special Committee of the Board of Directors
COMMERCIAL ASSETS, INC.
3410 South Galena Street, Suite 210
Denver, CO 80231
To the Members of the Special Committee of the Board of Directors:
We understand that Commercial Assets, Inc., a Delaware corporation ("CAX"),
and Asset Investors Corporation, a Delaware corporation ("AIC"), propose to
enter into an Agreement and Plan of Merger dated as of August 31, 1999 (the
"Merger Agreement"). The Merger Agreement provides, among other things, for the
merger of CAX with and into AIC (the "Merger") pursuant to which each share of
CAX common stock, par value $.01 per share ("CAX Common Stock"), outstanding
immediately prior to the effective time of the Merger will be converted into the
right to receive .4075 (the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of AIC ("AIC
Common Stock") (the consideration to be issued to holders of CAX Common Stock in
the Merger is referred to as the "Merger Consideration"). You have requested
Jefferies & Company, Inc.'s ("Jefferies") opinion as investment bankers as to
whether the Exchange Ratio is fair, from a financial point of view, to the
holders other than AIC and its affiliates of CAX Common Stock.
In our review and analysis and in rendering this opinion, we have with your
permission assumed and relied upon the accuracy and completeness of all
information provided to us by CAX's management, as well as publicly available
information and have not verified such information. We have not conducted a
physical inspection of any of the properties or facilities of CAX or AIC, nor
have we made, been provided with or considered any independent evaluation or
appraisals of any of such properties or facilities. The Merger Consideration and
the Exchange Ratio were based on negotiations between CAX and AIC during which
Jefferies provided investment banking services to the Special Committee of the
Board of Directors of CAX. In addition, pursuant to the terms of our engagement
by CAX and the Special Committee of the Board of Directors of CAX, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to a transaction similar to the Merger. Our
opinion relates only to the Merger and does not address the merits of any other
proposal or indication of interest that has been or might be received.
In conducting our analysis and rendering our opinion as expressed herein,
we have reviewed and considered such financial and other factors as we have
deemed appropriate under the circumstances including, among others, the
following (i) the Merger Agreement; (ii) the historical financial condition and
results of operations of CAX and AIC, including, among others (a) the Annual
Reports on Form 10-K of CAX and AIC for the years ended December 31, 1997 and
1998, and (b) the Quarterly Report on Form 10-Q of CAX and AIC for the quarter
ended June 30, 1999; (iii) certain internal financial and non-financial
information, including, among other things, estimates, budgets and projections,
prepared by the management of CAX, which data was made available to us in our
role as financial advisor to CAX; (iv) published information regarding the
financial performance and operating characteristics of a selected group of
companies which we deemed comparable; (v) business prospects of CAX as projected
by the management of CAX; (vi) the historical and current market prices for CAX
Common Stock and AIC Common Stock, and for the equity securities of certain
other companies with businesses that we consider relevant to our inquiry; (vii)
publicly available information, including research reports on AIC and other
companies we considered relevant to our inquiry; and (viii) the nature and terms
of other recent acquisition transactions in the real estate investment trust
("REIT") industry. We have met with certain officers and employees of CAX and
AIC to discuss the foregoing as well as other matters we believed
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The Special Committee of the Board of Directors
COMMERCIAL ASSETS, INC.
August 31, 1999
Page 2
relevant to our opinion. With respect to the estimates, budgets and projections
examined by us, we assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the management of CAX as to the future performance of CAX and that CAX will
perform in accordance with such estimates, budgets and Projections for all
periods specified therein. We have also taken into account general economic,
monetary, political, market and other conditions as well as our experience in
connection with similar transactions and securities valuation generally. Our
opinion is based upon all of such conditions as they exist currently and can be
evaluated on the date hereof. Existing conditions are subject to rapid and
unpredictable changes and such changes could impact our opinion. Our opinion
does not constitute a recommendation of the Merger over any alternative
transactions which may be available to CAX and does not address CAX's underlying
business decision to effect the Merger.
For purposes of rendering this opinion and based on your direction and with
your consent, Jefferies has assumed that, in all respects material to its
analysis, the representations and warranties of CAX and AIC contained in the
Merger Agreement are true and correct, CAX and AIC will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement, and
all conditions to the obligations of each of CAX and AIC to consummate the
Merger will be satisfied without any waiver thereof.
Jefferies is a registered broker-dealer. Jefferies has acted as financial
advisor to the Special Committee of the Board of Directors of CAX in connection
with the Merger and will receive a cash fee upon rendering of the opinion.
Jefferies maintains a market in CAX Common Stock and regularly publishes
research reports regarding the REIT industry and the businesses and securities
of AIC and other publicly owned companies in such industry. In the ordinary
course of business, Jefferies and its affiliates may actively trade or hold the
securities of both CAX and AIC for their own account and the accounts of
customers and, accordingly, may at any time hold a long or short position in
securities of CAX and AIC. Jefferies provided investment banking advisory
services to AIC in 1997 in connection with its advisor merger transaction for
which Jefferies received customary compensation.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to the holders other than AIC and its affiliates of CAX Common Stock.
It is understood and agreed that this opinion is provided for the use and
benefit of the Special Committee of the Board of Directors of CAX as one element
in the Special Committee of the Board's consideration of the Merger; provided,
however, that this letter may be reproduced in full in the Joint Proxy
Statement/Prospectus to be provided to CAX's stockholders in connection with the
Merger. Without limiting the foregoing, this opinion does not constitute a
recommendation to any shareholder of CAX as to how such person should vote with
respect to the proposed Merger.
Sincerely,
JEFFERIES & COMPANY, INC.
/s/ JEFFERIES & COMPANY, INC.
------------------------------------
C-2
<PAGE> 188
P
R
O
X
Y
ANNEX D
PROXY ASSET INVESTORS CORPORATION
PROXY FOR COMMON STOCK
PROXY SOLICITED BY THE FOR THE SPECIAL MEETING OF STOCKHOLDERS
( , 2000).
The undersigned hereby appoints Terry Considine and Thomas L. Rhodes, and
each of them the undersigned's true and lawful attorneys and proxies (with full
power of substitution in each) to vote all shares of common stock ("Common
Stock") of Asset Investors Corporation (the "Corporation"), standing in the
undersigned's name at the Special Meeting of Stockholders (the "Stockholders'
Meeting") of the Corporation to be held at 2000 South Colorado Boulevard, 10th
Floor, Denver, Colorado on , 2000 at 10:00 a.m., local time, upon
those matters as described in the Proxy Statement/Prospectus for the meeting and
such other matters as may properly come before such meeting or any postponements
or adjournments thereof. The Board of Directors of the Corporation has reserved
the right, pursuant to Delaware law, to abandon the proposals even if the
Corporation's Stockholders authorize the proposals.
If any other business is transacted at the Stockholders' Meeting, the Proxy
shall be voted in accordance with the best judgment of the above-named attorneys
and proxies.
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THESE PROPOSALS.
PLEASE NOTE THAT ABSTAINING FROM THE VOTE ON THE PROPOSALS WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE PROPOSALS.
(Continued and to be signed and dated on reverse side)
D-1
<PAGE> 189
<TABLE>
<S> <C>
Please Mark
vote as this
[X] example.
</TABLE>
A VOTE "FOR" THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS FOR THE
STOCKHOLDERS MEETING IS RECOMMENDED:
<TABLE>
<S> <C> <C> <C> <C>
1. Adoption of the Agreement and Plan of Merger, dated as of FOR AGAINST ABSTAIN
August 31, 1999, by and between Asset Investors Corporation [ ] [ ] [ ]
and Commercial Assets, Inc.
2. Adoption of an amendment to the Asset Investors' certificate FOR AGAINST ABSTAIN
of incorporation. [ ] [ ] [ ]
</TABLE>
Dated: ________ , 2000
--------------------------
(Signature of Stockholder)
--------------------------
(Signature of Stockholder)
Please sign your name
exactly as it appears
hereon. If acting as
attorney, executor,
trustee, or in other
representative capacity,
please sign name and
title. If Units are held
jointly, each joint owner
should sign.
PLEASE SIGN, DATE AND
RETURN
PROMPTLY IN THE ENCLOSED
ENVELOPE.
D-2
<PAGE> 190
P
R
O
X
Y
ANNEX E
PROXY COMMERCIAL ASSETS, INC.
PROXY FOR COMMON STOCK
PROXY SOLICITED BY THE PARTNERSHIP FOR THE SPECIAL MEETING OF STOCKHOLDERS
( , 2000).
The undersigned hereby appoints Terry Considine and Thomas L. Rhodes, and
each of them the undersigned's true and lawful attorneys and proxies (with full
power of substitution in each) to vote all shares of common stock ("Common
Stock") of Commercial Assets, Inc. (the "Corporation"), standing in the
undersigned's name at the Special Meeting of Stockholders (the "Stockholders'
Meeting") of the Corporation to be held at 2000 South Colorado Boulevard, 10th
Floor, Denver, Colorado on , 2000 at 11:00 a.m., local time, upon
those matters as described in the Proxy Statement/Prospectus for the meeting and
such other matters as may properly come before such meeting or any postponements
or adjournments thereof. The Board of Directors of the Corporation has reserved
the right, pursuant to Delaware law, to abandon the proposal even if the
Corporation's Stockholders authorize the proposal.
If any other business is transacted at the Stockholders' Meeting, the Proxy
shall be voted in accordance with the best judgment of the above-named attorneys
and proxies.
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
PLEASE NOTE THAT ABSTAINING FROM THE VOTE ON THE PROPOSAL WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE PROPOSAL.
(Continued and to be signed and dated on reverse side)
E-1
<PAGE> 191
<TABLE>
<S> <C>
Please mark
vote as this
[X] example.
</TABLE>
A VOTE "FOR" THE PROPOSAL DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS FOR THE
STOCKHOLDERS' MEETING IS RECOMMENDED:
<TABLE>
<S> <C> <C> <C> <C>
1. Adoption of the Agreement and Plan of Merger, dated as of FOR AGAINST ABSTAIN
August 31, 1999, by and between Asset Investors Corporation [ ] [ ] [ ]
and Commercial Assets, Inc.
</TABLE>
Dated: ________ , 2000
--------------------------
(Signature of Stockholder)
--------------------------
(Signature of Stockholder)
Please sign your name
exactly as it appears
hereon. If acting as
attorney, executor,
trustee, or in other
representative capacity,
please sign name and
title. If Units are held
jointly, each joint owner
should sign.
PLEASE SIGN, DATE AND
RETURN
PROMPTLY IN THE ENCLOSED
ENVELOPE.
E-2
<PAGE> 192
ANNEX F
FORM OF ELECTION
To accompany certificates representing shares
of common stock ("CAX Common Stock"),
$.01 par value per share, of
COMMERCIAL ASSETS, INC., A DELAWARE CORPORATION ("CAX")
when submitted pursuant to an election ("Cash Election") to receive,
subject to proration as described in the Proxy Statement (as defined below),
$5.75 in cash (the "Cash Election Price") per share of CAX Common Stock (such
shares, the "Cash Election Shares") in connection with the proposed merger (the
"Merger") of CAX with and into Asset Investors Corporation ("AIC").
The Exchange Agent for the Merger is:
[ ]
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
[ ] (for Eligible Institutions [ ]
only)
[ ]
</TABLE>
For Confirmation Telephone:
[ ]
The Information Agent for the Merger is:
[ ]
[address]
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
BOX I: ELECTION AND DESCRIPTION OF SHARES OF CAX COMMON STOCK ENCLOSED
(ATTACH ADDITIONAL SHEETS IF NECESSARY)
SEE "SPECIAL ELECTION INSTRUCTIONS" AND INSTRUCTION 3.
- ------------------------------------------------------------------------------------------------------------
NUMBER OF
NAME AND ADDRESS OF REGISTERED HOLDER(S) SHARES NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) REPRESENTED SHARES FOR
APPEARS CERTIFICATE BY EACH WHICH A CASH
ON CERTIFICATE(S)* NUMBER CERTIFICATE ELECTION IS MADE
- ------------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL NUMBER
OF SHARES
- ------------------------------------------------------------------------------------------------------------
* Only certificates registered in a single form may be deposited with this Form of Election. If
certificates are registered in different forms (e.g., John R. Doe and J.R. Doe), it will be necessary to
fill in, sign and submit as many separate Forms of Election as there are different registrations of
certificates. Unless otherwise indicated, it will be assumed that all shares listed in Box I are to be
treated as having made a Cash Election.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY OF THIS FORM OF ELECTION TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
FOR THE EXCHANGE AGENT DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY. COMPLETE THE
F-1
<PAGE> 193
SUBSTITUTE FORM W-9 INCLUDED WITH THIS FORM OF ELECTION AND SIGN IN BOX IV OF
THIS FORM OF ELECTION.
[ ] Check here if you cannot locate certificates. Upon receipt of this Form of
Election, the Exchange Agent will contact you directly with replacement
instructions. You cannot submit an effective Form of Election without
attaching your stock certificate(s) (or a guarantee of delivery) to this
Form of Election. Therefore, if you wish to make an effective Cash Election,
it is critical that you act immediately to obtain replacement stock
certificates. If you submit a guarantee of delivery, the certificates
representing shares of CAX Common Stock in respect of which a Cash Election
is being made must be delivered within three trading days thereafter.
F-2
<PAGE> 194
HOLDERS OF CAX COMMON STOCK WHO DO NOT WISH TO MAKE A CASH ELECTION (ANY
SUCH HOLDER, A "NON-ELECTING HOLDER") SHOULD NOT SUBMIT THIS FORM OF ELECTION.
EACH SHARE OF CAX COMMON STOCK OWNED BY ANY SUCH NON-ELECTING HOLDER WILL
AUTOMATICALLY, BE CONVERTED INTO .0475 SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE, OF AIC ("NON-CASH ELECTION SHARES") FOLLOWING THE MERGER.
TO BE EFFECTIVE, THIS FORM OF ELECTION, TOGETHER WITH YOUR STOCK
CERTIFICATES (OR GUARANTEE OF DELIVERY OF SUCH STOCK CERTIFICATES) MUST BE
RECEIVED BY THE EXCHANGE AGENT BEFORE THE ELECTION DEADLINE SPECIFIED IN THE
INSTRUCTIONS.
In connection with the Merger, the undersigned hereby submits the
certificate(s) for shares of CAX Common Stock listed in BOX I and elects,
subject to proration and other conditions as set forth below, to have all or a
portion of the shares of CAX Common Stock represented by such certificates
converted into the right to receive $5.75 per share of CAX Common Stock (for up
to an aggregate of 3,549,868 shares of CAX Common Stock) following the Merger.
By delivering certificates for shares of CAX Common Stock, the registered
holder of such certificates releases CAX, AIC and their respective affiliates,
directors, officers, employees, partners, agents, advisors and representatives,
and their respective successors and assigns, from any and all claims arising
from or in connection with the purchase or ownership of such CAX Common Stock or
the exchange of such CAX Common Stock pursuant to the Merger Agreement.
It is understood that this Form of Election and the following election are
subject to (i) the terms, conditions and limitations set forth in the Proxy
Statement-Prospectus dated , 2000, relating to the Merger
(including all annexes thereto, and as it may be amended or supplemented from
time to time, the "Proxy Statement"), receipt of which is acknowledged by the
undersigned, (ii) the terms of the Amended and Restated Agreement and Plan of
Merger, dated as of March 8, 2000 (as the same may be amended or supplemented
from time to time, the "Merger Agreement"), a conformed copy of which appears as
Appendix A to the Proxy Statement, and (iii) the accompanying Instructions.
Capitalized terms not otherwise defined in this Form of Election shall have the
meanings given to such terms in the Merger Agreement.
The undersigned understands that a Cash Election is subject to certain
terms, conditions and limitations that have been set forth in the Merger
Agreement including, but not limited to, the fact that only $20,411,741 (the
"Total Cash Amount") will be available to pay the Cash Election Price for all
Cash Election Shares in connection with the Merger and that the remaining
outstanding shares of CAX Common Stock will be converted into the right to
receive Non-Cash Election Shares in the Merger. If the aggregate Cash Election
Price representing the aggregate Cash Election Shares (the "Aggregate Cash
Election Amount") exceeds the Total Cash Amount, then each Cash Election Share
shall be converted into the right to receive Non-Cash Election Shares and cash
in accordance with the terms of the Merger Agreement. Cash Election Shares will
be issued in the Merger and the remaining outstanding shares of CAX Common Stock
will be converted into the right to receive cash in the Merger. THE UNDERSIGNED
ACKNOWLEDGES THAT THE MERGER AGREEMENT PROVIDES FOR PRORATION, WITH THE RESULT
THAT THE UNDERSIGNED MAY RECEIVE A MIX OF CASH AND NON-CASH ELECTION SHARES THAT
DIFFERS FROM THE CASH ELECTION MADE HEREBY.
If the undersigned is acting in a representative or fiduciary capacity for
a particular beneficial owner, the undersigned hereby certifies that this Form
of Election covers all of the shares of CAX Common Stock owned by the
undersigned in a representative or fiduciary capacity for such particular
beneficial owner.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of CAX Common Stock to CAX and to receive on behalf of the
undersigned, in exchange for the shares of CAX Common Stock represented thereby,
any check for cash or certificate for Non-Cash Election Shares issuable in the
Merger pursuant to the Merger Agreement. If certificates of CAX Common Stock are
not
F-3
<PAGE> 195
delivered herewith, there is furnished below a guarantee of delivery of such
certificates representing shares of CAX Common Stock from a member of a national
securities exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office in the United
States.
The undersigned hereby represents and warrants that the undersigned is as
of the date hereof, and will be as of the Closing Dates, the registered holder
of the shares of CAX Common Stock represented by the certificate(s) for CAX
Common Stock surrendered herewith, with good title to such shares of CAX Common
Stock and full power and authority (i) to sell, assign and transfer such shares,
free and clear of all liens, claims and encumbrances, and not subject to any
adverse claims and (ii) to make the Cash Election indicated herein. All
authority conferred or agreed to be conferred in this Form of Election shall be
binding upon the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned.
F-4
<PAGE> 196
- --------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATE
(PLEASE REFER TO ACCOMPANYING GUIDELINES)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PART 1 -- PLEASE ENTER YOUR
SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PART 2 -- CERTIFICATION
Please check the box a the right if you have applied for, and are awaiting receipt of, your Taxpayer
Identification Number. [ ]
UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report
all interest or dividends, or the IRS has notified me that I am no longer subject to backup
withholding.
Certificate Instructions -- You may cross out item (2) in Part 2 above if you have been notified
by the IRS that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
</TABLE>
SIGNATURE: Date:
------------------------------------ ------------------------------------
- --------------------------------------------------------------------------------
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate IRS Center or
Social Security Administration Office (or I intend to mail or deliver an
application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the payer, 31% of all payments made to me
pursuant to this Merger shall be retained until I provide a Taxpayer
Identification Number to the payer and that, if I do not provide my Taxpayer
Identification Number within 60 days, such retained amounts shall be remitted
to the IRS as backup withholding and 31% of all reportable payments made to me
thereafter will be withheld and remitted to the IRS until I provide a Taxpayer
Identification Number.
SIGNATURE: Date:
------------------------------------ ------------------------------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.
- --------------------------------------------------------------------------------
F-5
<PAGE> 197
Unless otherwise indicated under Special Payment Instructions below, please
issue any check and/or any certificate for Non-Cash Election Shares issuable in
exchange for the shares of CAX Common Stock represented by the certificates
submitted hereby in the name of the registered holder(s) of such CAX Common
Stock. Similarly, unless otherwise indicated under Special Delivery
Instructions, please mail any checks for cash and/or any certificate for
Non-Cash Election Shares issuable in exchange for the shares of CAX Common Stock
represented by the certificates submitted hereby to the registered holder(s) of
the CAX Common Stock at the address or addresses shown above.
BOX II
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS)
TO BE COMPLETED ONLY if check(s) are to be made payable to, or the
certificate(s) for Non-Cash Election Shares are to be registered in the name of,
someone other than the registered holder(s) of shares of CAX Common Stock.
Name: --------------------------------------------------------------------------
Address: -----------------------------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
EMPLOYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER
------------------------------------
BOX III
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS)
TO BE COMPLETED ONLY if the check(s) are to be made payable to, or the
certificate(s) for Non-Cash Election Shares are to be registered in the name of,
the registered holder(s) of shares of CAX Common Stock, but are to be sent to
someone other than the registered holder(s) or to an address other than the
address of the registered holder(s) set forth above.
Name: --------------------------------------------------------------------------
Address: -----------------------------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
F-6
<PAGE> 198
BOX IV: PLEASE SIGN HERE
(SEE INSTRUCTIONS)
The undersigned represents and warrants that the undersigned has full power and
authority to transfer the shares of CAX Common Stock surrendered hereby and that
the transferee will acquire good and unencumbered title thereto, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim when the shares are accepted for exchange by the Exchange Agent.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent to be necessary and desirable to complete the
transfer of the shares of CAX Common Stock surrendered hereby.
- --------------------------------------------------------------------------------
Signature of Owner
Name:
- --------------------------------------------------------------------------------
(Please Print)
Dated:
- --------------------------------------------------------------------------------
Telephone Number (Including Area Code):
- ------------------------------------------------------------------------
Tax Identification or Social Security Number:
- ----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Owner
Name:
- --------------------------------------------------------------------------------
(Please Print)
Dated:
- --------------------------------------------------------------------------------
Telephone Number (Including Area Code):
- ------------------------------------------------------------------------
Tax Identification or Social Security Number:
- ----------------------------------------------------------------------
Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or a security position listing or by person(s) authorized
to become registered holder(s) by certificates and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or any other person acting in a
fiduciary or representative capacity, please set forth the following information
and see Instructions.
Name(s):
- --------------------------------------------------------------------------------
Capacity (Full Title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Telephone Number (Including Area Code):
- ------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS)
The undersigned hereby guarantees the signature(s) which appear(s) on this form
of Election.
Names of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Telephone Number (Including Area Code):
- ------------------------------------------------------------------------
F-7
<PAGE> 199
BOX V: GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
(SEE INSTRUCTIONS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
The undersigned is: (1) a member of a national securities exchange; (2) a member of the National Association of Securities
Dealers, Inc.; or (3) a commercial bank or trust company having an office in the United States; and guarantees to deliver
to the Exchange Agent the certificates for shares of CAX Common Stock to which this Form of Election relates, duly endorsed
in blank or otherwise in form acceptable for transfer on the books of CAX, no later than 5:00 P.M., New York City time, on
the third New York Stock Exchange trading day after the date of execution of this guarantee of delivery.
- -----------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------
- ----------------------------------------------------------- (Address)
(Firm -- Please Print) ---------------------------------------------------------
---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
(Authorized Signature) (Telephone Number including area code)
---------------------------------------------------------
- ----------------------------------------------------------- (Contact Name)
(Date)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 200
INSTRUCTIONS FOR FORM OF ELECTION
A. SPECIAL CONDITIONS
1. Time in Which to Elect. To be effective, a Cash Election pursuant to the
terms and conditions set forth herein on this Form of Election or a facsimile
hereof, accompanied by the above-described certificates representing shares of
CAX Common Stock or a proper guarantee of delivery thereof, must be received by
the Exchange Agent, at the address set forth above, no later than 5:00 P.M., New
York City time, on , 2000 (the "Election Date"). Holders of CAX
Common Stock whose stock certificates are not immediately available may also
make an effective Cash Election by completing this Form of Election or a
facsimile hereof and having the Guarantee of Delivery box (BOX V) properly
completed and duly executed (subject to the condition that the certificates for
which delivery is thereby guaranteed are in fact delivered to the Exchange
Agent, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of CAX, no later than 5:00 P.M., New York City time, on the third New
York Stock Exchange trading day after the date of execution of such guarantee of
delivery). Each share of CAX Common Stock with respect to which the Exchange
Agent shall have not received an effective Cash Election prior to the Election
Date, outstanding at the Effective Time of the Acquisition Merger will be
converted into the right to receive .0475 Non-Cash Election Shares following the
Merger. See Instruction C.
2. Revocation of Cash Election. Any Cash Election may be revoked by the
person who submitted this Form of Election to the Exchange Agent and the
certificate(s) for shares withdrawn by written notice duly executed and received
by the Exchange Agent prior to the Election Date. Such notice must specify the
person in whose name the shares of CAX Common Stock to be withdrawn had been
deposited, the number of shares to be withdrawn, the name of the registered
holder thereof, and the serial numbers shown on the certificate(s) representing
the shares to be withdrawn. If a Cash Election is revoked, and the
certificate(s) for shares withdrawn, the CAX Common Stock certificate(s)
submitted therewith will be promptly returned by the Exchange Agent to the
person who submitted such certificate(s).
3. Termination of Right to Elect. If for any reason the Merger is not
consummated or is abandoned, all Forms of Election will be void and of no
effect. Certificate(s) for CAX Common Stock previously received by the Exchange
Agent will be returned promptly by the Exchange Agent to the person who
submitted such stock certificate(s).
B. ELECTION AND PRORATION PROCEDURES
A description of the election and proration procedures is set forth in the
Proxy Statement under "DESCRIPTION OF THE MERGER CONSIDERATION AND THE CASH
ELECTION." A full statement of the election and proration procedures is
contained in the Merger Agreement and all Cash Elections are subject to
compliance with such procedures. IN CONNECTION WITH MAKING ANY CASH ELECTION, A
HOLDER OF CAX COMMON STOCK SHOULD READ CAREFULLY, AMONG OTHER MATTERS, THE
AFORESAID DESCRIPTION AND STATEMENT AND THE INFORMATION CONTAINED IN THE PROXY
STATEMENT UNDER "MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO CAX
STOCKHOLDERS."
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF CAX COMMON STOCK MAY
RECEIVE CASH AND/OR NON-CASH ELECTION SHARES IN AMOUNTS WHICH VARY FROM THE
AMOUNTS SUCH HOLDERS ELECT TO RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE
THE AMOUNT OF CASH OR NUMBER OF NON-CASH ELECTION SHARES ALLOCATED TO THEM
PURSUANT TO SUCH PROCEDURES.
C. RECEIPT OF CHECKS OR NON-CASH ELECTION SHARES
As soon as practicable after the Effective Time of the Merger and after the
Election Date, the Exchange Agent will mail cash payments by check and/or
certificate(s) for Non-Cash Election Shares to the holders of CAX Common Stock
with respect to each share of CAX Common Stock which is included in any
effective Cash Election. Holders of CAX Common Stock who declined to make a Cash
Election, or failed to make an effective Cash Election, with respect to any or
all of their shares will receive, for each such share, .0475 Non-Cash Election
Shares, as soon as practicable after the certificate(s) representing such share
or shares have been submitted.
F-9
<PAGE> 201
No fractional Non-Cash Election Shares will be issued in connection with
the Merger. In lieu thereof, each fractional share shall be exchanged for an
amount in cash (without interest) equal to the product of such fraction
multiplied by the closing price, per share of AIC common stock as reported on
the New York Stock Exchange Composite Transaction Tape on the Closing Date as
set forth in Section 2.5(e) of the Merger Agreement.
D. GENERAL
1. Execution and Delivery. This Form of Election or a facsimile hereof must
be properly filled in, dated and signed in BOX IV, and must be delivered
(together with stock certificate(s) representing the shares of CAX Common Stock
as to which the Cash Election is made or with a duly signed guarantee of
delivery of such certificate(s)) to the Exchange Agent at the address set forth
above for the Exchange Agent.
THE METHOD OF DELIVERY OF CERTIFICATE(S) AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE OPTION AND RISK OF THE STOCKHOLDER, BUT IF SENT BY MAIL, IT IS
RECOMMENDED THAT THEY BE SENT BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED.
2. Inadequate Space. If there is insufficient space on this Form of
Election to list all your stock certificates being submitted to the Exchange
Agent, please attach a separate list.
3. Guarantee of Signatures. Signatures on all Forms of Election must be
guaranteed by a financial institution that is a member of a Securities Transfer
Association approved medallion program such as STAMP, SEMP or MSP (an "Eligible
Institution"), except in cases where securities are surrendered (i) by a
registered holder of the securities who has not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Form of Election or (ii) for the account of an Eligible
Institution. See Instruction D.4.
4. Book-Entry Transfer of Shares. The Exchange Agent has established an
account with respect to the shares of CAX Common Stock at The Depository Trust
Company (the "Book-Entry Transfer Facility"). Any financial institution that is
a participant in the Book-Entry Transfer Facility system may make book-entry
delivery of shares of CAX Common Stock by causing the Book-Entry Transfer
Facility to transfer such shares of CAX Common Stock into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedure for such transfer. However, although delivery of
such shares of CAX Common Stock may be effected through book-entry transfer at
the Book-Entry Transfer Facility, a properly completed and duly executed Form of
Election with any required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the Exchange Agent at one
of its addresses set forth on the first page of the Form of Election no later
than 5:00 p.m. New York City time on the Election Date. In addition, for such
Form of Election to be effective, confirmation of book-entry transfer of such
shares of CAX Common Stock into the Exchange Agent's account at the Book-Entry
Transfer Facility must be received by the Exchange Agent no later than 5:00 p.m.
New York City time on the Election Date.
5. Signatures. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Form of Election should correspond
exactly with the name(s) as written on the face of the certificate(s) submitted,
unless shares of CAX Common Stock described on this Form of Election have been
assigned by the registered holder(s), in which event this Form of Election
should be signed in exactly the same form as the name(s) of the last
transferee(s) indicated on the transfers attached to or endorsed on the
certificates.
If this Form of Election is signed by a person or persons other than the
registered owner(s) of the certificates listed, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered owner(s) appear on the certificates.
If this Form of Election or any stock certificate(s) or stock power(s) are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or any other person acting in a fiduciary or
representative capacity, the person signing must give such person's full title
in such capacity, and appropriate evidence of authority to act in such capacity
must be forwarded with this Form of Election.
6. Partial Exchanges. If fewer than all the shares represented by any
certificate delivered to the Exchange Agent are to be submitted for exchange,
fill in the number of shares which are to be submitted in the box entitled
F-10
<PAGE> 202
"Number of Shares For Which a Cash Election Is Made" (BOX I). In such case, a
new certificate for the remainder of the shares represented by the old
certificate will be sent to the registered owner(s) as soon as practicable
following the Election Date. All shares represented by certificates submitted
hereunder will be deemed to have been submitted unless otherwise indicated.
7. Lost, Stolen or Destroyed Certificates. If your stock certificate(s) has
been either lost or destroyed, please check the box on the front of the Form of
Election and the appropriate forms for replacement will be sent to you. You will
then be instructed as to the steps you must take in order to receive any checks
and/or any a stock certificate(s) representing Non-Cash Election Shares in
accordance with the Merger Agreement.
8. Stock Transfer Taxes. If payment for securities is to be made to any
person other than the registered holder, or if surrendered certificates are
registered in the name of any person other than the person(s) signing the Form
of Election, the amount of any stock transfer taxes (whether imposed on the
registered holder or such person) payable as a result of the transfer to such
person will be deducted from the payment for such securities if satisfactory
evidence of the payment of such taxes, or exemption therefrom, is not submitted.
9. Checks and/or New Certificates in Same Name. If any check(s) in respect
of Cash Election Shares or any stock certificate(s) representing Non-Cash
Election Shares are to be made payable to the order of, or to be registered in,
exactly the same name(s) that appears on the certificate(s) representing shares
of CAX Common Stock submitted with the Form of Election, no endorsement of
certificate(s) or separate stock power(s) are required.
10. Checks and New Certificates in Different Name. If any check(s) in
respect of Cash Election Shares or any stock certificate(s) representing
Non-Cash Election Shares are to be registered in, or made payable to the order
of, other than exactly the same name(s) that appear on the certificate(s)
representing shares of CAX Common Stock submitted with the Form of Election,
such exchange shall not be made by the Exchange Agent unless the certificates
submitted are endorsed, BOX II is completed, and the signature is guaranteed in
BOX IV by a member of a national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank (not a savings bank
or a savings & loan association) or trust company in the United States which is
a member in good standing of the Exchange Agent's Medallion Program.
11. Special Delivery Instructions. If the checks are to be payable to the
order of, or the certificates for Non-Cash Election Shares are to be registered
in, the name of the registered holder(s) of shares of CAX Common Stock, but are
to be sent to someone other than the registered holder(s) or to an address other
than the address of the registered holder(s), it will be necessary to indicate
such person or address in BOX III.
12. Miscellaneous. A single check and/or a single stock certificate
representing Non-Cash Election Shares will be issued in exchange for shares of
CAX Common Stock submitted herewith.
13. Backup Federal Income Tax Withholding and Substitute Form W-9. Under
the "backup withholding" provisions of Federal income tax law, the Exchange
Agent may be required to withhold 31% of the amount of any payment made to
holders of CAX Common Stock pursuant to the Merger. To prevent backup
withholding, each holder should complete and sign the Substitute Form W-9
included in the Form of Election and either: (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct (or that such holder is awaiting a TIN), and that (i)
the holder has not been notified by the Internal Revenue Service ("IRS") that
the holder is subject to backup withholding as a result of failure to report all
interest or dividends, or (ii) the IRS has notified the holder that the holder
is no longer subject to backup withholding; or (b) provide an adequate basis for
exemption. If the box in Part 2 of the Substitute Form W-9 is checked, the
Exchange Agent shall retain 31% of payments made to a holder during the sixty
(60) day period following the date of the Substitute Form W-9. If the holder
furnishes the Exchange Agent with his or her TIN within sixty (60) days of the
date of the Substitute Form W-9, the Exchange Agent shall remit such amounts
retained during the sixty (60) day period to the holder and no further amounts
shall be retained or withheld from payments made to the holder thereafter. If,
however, the holder has not provided the Exchange Agent with his or her TIN
within such sixty (60) day period, the Exchange Agent shall remit such
previously retained amounts to the IRS as backup withholding and shall withhold
31% of all payments to the holder thereafter until the holder furnishes a TIN to
the Exchange Agent. In general, if a holder is an individual, the TIN is the
Social Security number of such individual. If the certificates for CAX Common
Stock are registered in more than one name or are not in the name of the actual
F-11
<PAGE> 203
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 ("Guidelines") for additional
guidance on which number to report. If the Exchange Agent is not provided with
the correct TIN or an adequate basis for exemption, the holder may be subject to
a $50 penalty imposed by the IRS and backup withholding at a rate of 31%.
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement
(generally, IRS Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. A form for such statements can be obtained from the
Exchange Agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if CAX Common Stock is held
in more than one name), consult the enclosed Guidelines.
Failure to complete the Substitute Form W-9 will not, by itself, cause CAX
Common Stock to be deemed invalidly tendered, but may require the Exchange Agent
to withhold 31% of the amount of any payments made pursuant to the Merger.
Backup withholding is not an additional Federal income tax. Rather, the Federal
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained.
14. Additional Copies. Additional copies of the Form of Election may be
obtained from [NAME OF EXCHANGE AGENT] at the address listed above.
All questions with respect to this Form of Election, the Cash Elections
(including, without limitation, questions relating to the timeliness or
effectiveness of revocation of any Cash Election and computations as to
proration), and the validity, form and eligibility of any surrender of
certificates will be determined by CAX and AIC and such determination shall be
final and binding. CAX and AIC reserve the right to waive any irregularities or
defects in the surrender of any certificates. A surrender will not be deemed to
have been made until all irregularities have been cured or waived.
F-12
<PAGE> 204
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
1. An individual's account. The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or valid
trust under State law
8. Sole proprietorship account The owner(4)
- -----------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
<CAPTION>
- -----------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- -----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a Social Security Number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your Social Security number or
Employer Identification Number (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
F-13
<PAGE> 205
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form r, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number (for business and all other
entities), at the local office of the Social Security Administration or the
Internal Revenue Service (the "IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan, or a
custodial account under section 403(b)(7) of the Code, if the account
satisfies the requirements of section 401(f)(2) of the Code.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust or a non-exempt trust described in
section 4947Aa)(l) of the Code.
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
- A middleman known in the investment community as a nominee or who is listed
in the most recent publication or the American Society of Corporate
Secretaries, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Section 401(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A and the Code and the Treasury regulations promulgated thereunder.
PRIVACY ACT NOTICE. -- Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give taxpayer identification numbers to
payers who must report the payments to the IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE IRS
F-14
<PAGE> 206
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Asset Investors is empowered by Section 145 of the Delaware General
Corporation Law ("DGCL"), subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in the defense of any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of his or her
being or having been a director or officer of the registrant. The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The Commercial Assets' Certificate of Incorporation ("Certificate") provides
that Commercial Assets shall indemnify its directors and officers substantially
to the fullest extent permitted by the DGCL.
Asset Investors is also empowered by Section 102(b) of the DGCL to include
a provision in its certificate of incorporation to limit a director's liability
to Asset Investors or its stockholders for monetary damages for breaches of
fiduciary duty as a director. Article Sixth of the Asset Investors' Certificate
states that directors of Asset Investors shall not be liable for monetary
damages for breach of fiduciary duty as a director except for liability (i) for
any breach of the director's duty of loyalty to the registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit.
Policies of insurance are maintained by the registrant under which the
directors and officers of the registrant are insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits
The exhibits to the Registration Statement are listed in the Exhibit Index
and are incorporated herein by reference.
b. Reports, Opinions or Appraisals
Opinion of Jefferies & Company, Inc. (included as Annex C to the Joint
Proxy Statement/ Prospectus).
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through the use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 (the "Act")
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and will
not be used until
II-1
<PAGE> 207
such amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 208
POWER OF ATTORNEY
Each person whose signature appears below authorizes Terry Considine,
Thomas L. Rhodes and David M. Becker, and each of them, each of whom may act
without joinder of the other, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to execute in the name of each
such person who is then an officer or director of Asset Investors Corporation,
and to file any amendments (including post-effective amendments) under the
Securities Act of 1933, and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Denver, state of Colorado,
on March 8, 2000.
ASSET INVESTORS CORPORATION
(REGISTRANT)
<TABLE>
<S> <C>
Date: March 8, 2000 By /s/ TERRY CONSIDINE
-----------------------------------------
Terry Considine
Chairman and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<C> <S> <C>
/s/ TERRY CONSIDINE Director, Chairman and Chief March 8, 2000
- ----------------------------------------------------- Executive Officer
Terry Considine
/s/ THOMAS L. RHODES Director, Vice Chairman March 8, 2000
- -----------------------------------------------------
Thomas L. Rhodes
/s/ BRUCE E. MOORE Director, President and March 8, 2000
- ----------------------------------------------------- Chief Operating Officer
Bruce E. Moore
/s/ BRUCE D. BENSON Director March 8, 2000
- -----------------------------------------------------
Bruce D. Benson
/s/ ELLIOT H. KLINE Director March 8, 2000
- -----------------------------------------------------
Elliot H. Kline
/s/ RICHARD L. ROBINSON Director March 8, 2000
- -----------------------------------------------------
Richard L. Robinson
</TABLE>
II-3
<PAGE> 209
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<C> <S> <C>
/s/ TIM SCHULTZ Director March 8, 2000
- -----------------------------------------------------
Tim Schultz
/s/ WILLIAM J. WHITE Director March 8, 2000
- -----------------------------------------------------
William J. White
/s/ DAVID M. BECKER Chief Financial Officer March 8, 2000
- ----------------------------------------------------- (principal financial and
David M. Becker accounting officer)
</TABLE>
II-4
<PAGE> 210
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger, dated
as of March 8, 2000, by and between Commercial Assets,
Inc., and Asset Investors Corporation (the "Registrant")
(included as Annex A to the Joint Proxy
Statement-Prospectus which forms a part of this
Registration Statement).
3.1 -- Certificate of Incorporation of the Registrant, as
amended (included as Annex B to the Joint Proxy
Statement-Prospectus which forms a part of this
Registration Statement).
3.2 -- By-laws of the Registrant, as amended and restated
(incorporated herein by reference to Exhibit 3.3 to the
Annual Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1993, Commission File No.
1-9360 filed March 31, 1994).
3.2(a) -- June 21, 1994 Amendment to the By-laws of the Registrant
(incorporated herein by reference to Exhibit 3.3(b) to
the Annual Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1994, Commission File No.
1-9360, filed on March 30, 1995).
3.2(b) -- March 15, 1995 Amendment to the By-laws of the Registrant
(incorporated herein by reference to Exhibit 3.3(c) to
the Annual Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1994, Commission File No.
1-9360 filed March 30, 1995).
3.2(c) -- January 14, 1997, Amendment to the By-laws of the
Registrant (incorporated herein by reference to Exhibit
3.2(c) to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1996,
Commission File No. 1-9360, filed on March 24, 1997).
4 -- Form of certificate representing Common Stock of the
Registrant (incorporated herein by reference to Exhibit
10.15 to the Annual Report on Form 10-K of the Registrant
for the fiscal year ended December 31, 1988, Commission
File No. 1-9360, filed on April 5, 1989).
4.1 -- Automatic Dividend Reinvestment Plan relating to the
Common Stock of the Registrant, as amended (incorporated
herein by reference to Exhibit 28 to the Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1991, Commission File No. 1-9360, filed on
March 30, 1992).
4.2 -- Revolving Credit and Term Loan Agreement, dated as of
July 24, 1996, by and between the Registrant and First
Bank National Association (incorporated herein by
reference to Exhibit 4.1 to the Quarterly Report on Form
10-Q of the Registrant for the quarter ended June 30,
1996, Commission File No. 1-9360, filed on August 14,
1996).
4.2(a) -- Pledge Agreement, dated as of July 24, 1996, by and
between the Registrant and First Bank National
Association (incorporated herein by reference to Exhibit
4.1(a) to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended June 30, 1996,
Commission File No. 1-9360, filed on August 14, 1996).
5 -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom
LLP regarding the legality of the common shares.
8 -- Forms of Opinion of Skadden, Arps, Slate, Meagher & Flom
LLP regarding tax matters.
23.1 -- Independent Auditors' Consent-Ernst & Young LLP.
</TABLE>
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5 and Exhibit 6).
23.3 -- Consent of Jeffries & Company, Inc.
24 -- Power of Attorney (included on page II-3).
99.1 -- Opinion of Jeffries & Company, Inc. (included as Annex C
to the Joint Proxy Statement-Prospectus which forms a
part of this Registration Statement)
99.2 -- Form of Proxy (included as Annex D to the Joint Proxy
Statement-Prospectus which forms a part of this
Registration Statement).
99.3 -- Form of Cash Election (included as Annex F to the Joint
Proxy Statement-Prospectus which forms a part of this
Registration Statement).
</TABLE>
<PAGE> 1
EXHIBIT 5
March __, 2000
Asset Investors Corporation
3410 South Galena Street
Suite 210
Denver, Colorado 80231
Re: Asset Investors Corporation Registration
Statement on Form S-4
Gentlemen:
We have acted as special counsel to Asset Investors Corporation, a
Delaware corporation (the "Company"), in connection with the issuance by the
Company of up to 4.224,972 shares (the "Shares") of its Common Stock, par value
$.01 per share (the "Common Stock"), in exchange for all of the outstanding
common stock, par value $.01 per share, of Commercial Assets. Inc., a Delaware
corporation ("CAX") through a merger of CAX with and into the Company (the
"Merger"). This opinion is being furnished in accordance with the requirements
of Item 601 (b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of(i) the Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission (the
"Commission") on March, 8, 2000 under the Securities Act of 1933, as amended,
(such Registration Statement being hereinafter referred to as the "Registration
Statement"); (ii) the Certificate of Incorporation of the Company, as presently
in effect; (iii) the form of Amended and Restated Certificate of Incorporation
of the Company to be filed prior to the consummation of the Merger, (iv) the
By-Laws of the Company, as presently in effect; (v) the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of August 31, 1999, by and between the
Company and CAX, as amended; (vi) a specimen certificate representing the Common
Stock; (vii) the form of certificate of merger to be filed at the effective time
of the Merger; and (viii) certain resolutions of the Boards of Directors
<PAGE> 2
Asset Investors Corporation
March 8, 2000
Page 2
of the Company and CAX relating to the Merger. We have also examined originals
or copies, certified or otherwise identified to our satisfaction. of such
records of the Company and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company and CAX, we have assumed that such parties had or will have the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Company and others.
We do not express any opinion as to the laws of any jurisdiction other
than the Delaware General Corporation Law.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that, when the Merger is
consummated in accordance with the terms of the Merger Agreement, the issuance
of the Shares will have been duly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement, In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
<PAGE> 1
EXHIBIT 8.1
- FORM OF TAX OPINION REGARDING THE MERGER -
_________ ___ , 2000
Asset Investors Corporation
3410 South Galena Street
Suite 210
Denver, Colorado 80231
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to Asset Investors Corporation, a
Delaware corporation ("AIC"), in connection with the merger (the "Merger") under
the laws of the State of Delaware, of Commercial Assets, Inc., a Delaware
corporation ("CAX"), with and into AIC, pursuant to the Agreement and Plan of
Merger dated as of August 31, 1999, by and between CAX and AIC, as amended
through the date hereof (the "Merger Agreement"). We have also acted as counsel
to AIC in the preparation, in connection with the Merger, of the Joint Proxy
Statement/Prospectus as initially filed with the Securities and Exchange
Commission on October 18, 1999, which, as subsequently amended through the date
hereof, is included in the Registration Statement on Form S-4, File No.
333-_____ (the "Registration Statement"). This opinion is being delivered at
your request in connection with the filing of the Registration Statement.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of the
Registration Statement and such other documentation and information provided by
you as we have deemed necessary or appropriate as a basis for the opinion set
forth herein. In addition, you have provided us with, and we are relying upon,
the initial and continuing accuracy of certificates containing certain
representations and covenants of officers of AIC and CAX (the "Officers'
Certificates"), without regard to any qualification as to knowledge and belief.
For purposes of our opinion, we have not made an independent investigation of
the facts and representations set forth in the Officers' Certificates, the
Registration Statement, or in any other document. We have, consequently, assumed
and relied on your representations that the information
<PAGE> 2
Asset Investors Corporation
_________ ___ , 2000
Page 2
presented in such documents, or otherwise furnished to us, accurately and
completely describes all material facts relevant to our opinion.
In our review of certain documents in connection with our
opinion as expressed below, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such copies. Where documents have been provided
to us in draft form, we have assumed that the final executed versions of such
documents will not differ materially from such drafts. We also have assumed that
the transactions related to the Merger or contemplated by the Merger Agreement
will be consummated in accordance with the Merger Agreement and as described in
the Registration Statement, and that none of the terms and conditions contained
therein will have been waived or modified in any respect prior to the closing of
the Merger. Finally, we have assumed that the Merger qualifies as a statutory
merger under the laws of the State of Delaware.
In rendering our opinion, we have considered and relied upon
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder ("Regulations"), administrative rulings and other
interpretations of the Code and the Regulations by the courts and the Internal
Revenue Service ("IRS"), all as they exist at the date hereof. It should be
noted that the Code, Regulations, judicial decisions, and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. A material change that is made after the date hereof in
any of the foregoing bases for our opinion could affect our conclusions herein.
In this regard, an opinion of counsel with respect to an issue represents
counsel's best judgment as to the outcome on the merits with respect to such
issue, is not binding on the IRS or the courts, and is not a guarantee that the
IRS will not assert a contrary position with respect to such issue or that a
court will not sustain such a position if asserted by the IRS.
We express no opinion as to the laws of any jurisdiction other
than the Federal laws of the United States of America to the extent specifically
referred to herein.
Based on the foregoing, we are of the opinion that, under
current law, the Merger will be treated as a "reorganization" within the meaning
of Section 368(a) of the Code, and that CAX and AIC will each be a party to such
reorganization,
<PAGE> 3
Asset Investors Corporation
_____ __, 2000
Page 3
within the meaning of Section 368(b) of the Code, and that, accordingly, for
Federal income tax purposes:
a. no gain or loss will be recognized by CAX or AIC as a result of the
Merger;
b. no gain or loss will be recognized by the shareholders of CAX who
exchange all of their CAX Common Stock solely for AIC Common Stock
pursuant to the Merger (except with respect to cash received in lieu
of a fractional share interest in AIC Common Stock);
c. the aggregate tax basis of the AIC Common Stock received by share
holders who exchange all of their CAX Common Stock solely for AIC
Common Stock pursuant to the Merger will be the same as the
aggregate tax basis of the CAX stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share
interest for which cash is received); and
d. the holding period of AIC Common Stock received by Commercial Assets
stockholders in the Merger will include the holding period of the
CAX Common Stock surrendered in exchange therefor, provided that
such CAX Common Stock was held as a capital asset.
Although the discussion set forth in the Registration
Statement under the caption "Material Federal Income Tax Consequences of the
Merger to Commercial Assets Stockholders" does not purport to discuss all
possible United States Federal income tax consequences of the Merger, such
discussion, though general in nature, constitutes, in all material respects, a
fair and accurate summary under current law of certain material United States
Federal income tax consequences of the Merger, subject to the qualifications set
forth therein. The United States Federal income tax consequences of the Merger
to a Commercial Assets stockholder will depend upon that stockholder's
particular situation, and we express no opinion as to the completeness of the
discussion set forth in "Material Federal Income Tax Consequences of the Merger
to Commercial Assets Stockholders" as applied to any particular stockholder.
Other than as expressly stated above, we express no opinion on
any
<PAGE> 4
Asset Investors Corporation
_____ __, 2000
Page 4
issue relating to the Merger or AIC or CAX, or any investment therein. This
opinion is intended for the exclusive use of the person to whom it is addressed
and, except as set forth herein, it may not be used, circulated, quoted or
relied upon for any other purpose without our prior written consent. We consent
to the filing of this opinion as an exhibit to the Registration Statement, and
to the references to Skadden, Arps, Slate, Meagher & Flom LLP under the caption
"Material Federal Income Tax Consequences of the Merger to Commercial Assets
Stockholders" in the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
or regulations of the Securities and Exchange Commission thereunder. This
opinion is expressed as of the date hereof, and we disclaim any undertaking to
advise you of any subsequent changes in the matters stated, represented, or
assumed herein, or of any subsequent changes in applicable law.
Very truly yours,
<PAGE> 1
EXHIBIT 8.2
- FORM OF TAX OPINION RE REIT STATUS -
____________ , 2000
Asset Investors Corporation
3410 South Galena Street
Suite 210
Denver, Colorado 80231
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to Asset Investors Corporation, a
Delaware corporation ("AIC"), in connection with the merger (the "Merger") under
the laws of the State of Delaware, of Commercial Assets, Inc., a Delaware
corporation ("CAX"), with and into AIC, pursuant to the Agreement and Plan of
Merger dated as of August 31, 1999, by and between CAX and AIC, as amended
through the date hereof (the "Merger Agreement"). We have also acted as counsel
to AIC in the preparation, in connection with the Merger, of the Joint Proxy
Statement/Prospectus as initially filed with the Securities and Exchange
Commission on October 18, 1999, which, as subsequently amended through the date
hereof, is included in the Registration Statement on Form S-4, File No.
333-_____ (the "Registration Statement"). This opinion is being delivered at
your request in connection with the filing of the Registration Statement.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of the
Registration Statement and such other documentation and information provided by
you as we have deemed necessary or appropriate as a basis for the opinion set
forth herein. In addition, you have provided us with, and we are relying upon,
the initial and continuing accuracy of certificates containing certain
representations and covenants of officers of AIC and CAX (the "Officers'
Certificates") relating to, among other things, the actual and proposed
operations of AIC and CAX and the entities in which they hold, or have held, a
direct or indirect interest (collectively, the "Company"). For purposes of our
opinion, we have not made an independent investigation of the facts and
representations
<PAGE> 2
Asset Investors Corporation
______ ___, 2000
Page 2
set forth in the Officers' Certificates, the Registration Statement, or in any
other document. We have, consequently, assumed and relied on your
representations that the information presented in such documents (including
representations as to the nature of the Company's assets and operations in prior
years), or otherwise furnished to us, accurately and completely describes all
material facts relevant to our opinion. We have not historically represented the
Company, and representations upon which we are relying relate, in part, to
periods during which we were not engaged by the Company. We have also relied
upon conclusions 1., 2., and 3., and the analysis corresponding thereto,
contained in the opinion of Ernst & Young LLP dated December 31, 1998, as
delivered to CAX.
In our review of certain documents in connection with our
opinion as expressed below, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such copies. Where documents have been provided
to us in draft form, we have assumed that the final executed versions of such
documents will not differ materially from such drafts. We also have assumed that
the transactions related to the Merger or contemplated by the Merger Agreement
will be consummated in accordance with the Merger Agreement and as described in
the Registration Statement, and that none of the terms and conditions contained
therein will have been waived or modified in any respect prior to the closing of
the Merger.
Our opinion is also based on the correctness of the following
assumptions: (i) AIC, CAX, and each of the entities comprising the Company has
been and will continue to be operated in accordance with the laws of the
jurisdiction in which it was formed and in the manner described in the relevant
partnership agreement or other organizational documents, (ii) there will be no
changes in the applicable laws of the State of Delaware or of any other state
under the laws of which any of the entities comprising the Company have been
formed, (iii) each of the written agreements to which the Company is a party,
including, without limitation, the Merger Agreement, will be implemented,
construed and enforced in accordance with its terms, without regard to any parol
evidence, and (iv) any representation or statement of intent as to events
occurring in the future, or made on the basis of knowledge or belief, or
similarly qualified, is correct and accurate without such qualification.
<PAGE> 3
Asset Investors Corporation
______ ___, 2000
Page 3
In rendering our opinion, we have considered and relied upon
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder ("Regulations"), administrative rulings and other
interpretations of the Code and the Regulations by the courts and the Internal
Revenue Service ("IRS"), all as they exist at the date hereof. It should be
noted that the Code, Regulations, judicial decisions, and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. A material change that is made after the date hereof in
any of the foregoing bases for our opinion could affect our conclusions herein.
In this regard, an opinion of counsel with respect to an issue represents
counsel's best judgment as to the outcome on the merits with respect to such
issue, is not binding on the IRS or the courts, and is not a guarantee that the
IRS will not assert a contrary position with respect to such issue or that a
court will not sustain such a position if asserted by the IRS.
We express no opinion as to the laws of any jurisdiction other
than the Federal laws of the United States of America to the extent specifically
referred to herein.
Based on the foregoing, we are of the opinion that:
1. Commencing with the taxable year that began on January 1,
1998, AIC was organized in conformity with the requirements for
qualification as a real estate investment trust ("REIT") under the
Code, and its actual method of operation from January 1, 1998 through
the date of this letter has enabled, and its proposed method of
operation will enable it to meet the requirements for qualification and
taxation as a REIT.
2. Commencing with the taxable year that began on January 1,
1998, CAX was organized in conformity with the requirements for
qualification as a REIT under the Code, and its actual method of
operation from January 1, 1998 through the date of this letter has
enabled, and its proposed method of operation during the remainder of
the tax year that will end upon the closing of the Merger will enable
it to meet the requirements for qualification and taxation as a REIT.
<PAGE> 4
Asset Investors Corporation
______ ___, 2000
Page 4
We express no opinion with respect to any taxable year of AIC or CAX
ended prior to 1998, or any period after the date hereof. As noted in
the Registration Statement, qualification and taxation as a REIT depend
upon the ability to meet, through actual annual operating results,
certain requirements, including requirements relating to distribution
levels and diversity of stock ownership, and various other
qualification requirements imposed by the Code, compliance with which
will not be reviewed by us. Accordingly, no assurance can be given that
the actual results of operation for any one taxable year will satisfy
the requirements for qualification and taxation as a REIT under the
Code.
Although the discussion set forth in the Registration
Statement under the caption "Federal Income Taxation of Asset Investors and its
Stockholders" does not purport to discuss all possible United States Federal
income tax consequences of the ownership and disposition of common stock of AIC,
such discussion, though general in nature, constitutes, in all material
respects, a fair and accurate summary under current law of certain material
United States Federal income tax consequences of the ownership and disposition
of AIC common stock, subject to the qualifications set forth therein. The United
States Federal income tax consequences of the owner ship and disposition of AIC
common stock by an investor will depend upon that holder's particular situation,
and we express no opinion as to the completeness of the discussion set forth in
"Federal Income Taxation of Asset Investors and its Stock holders" as applied to
any particular holder.
Other than as expressly stated above, we express no opinion on
any issue relating to AIC, CAX, the Company, or any investment therein. This
opinion is intended for the exclusive use of the person to whom it is addressed
and, except as set forth herein, it may not be used, circulated, quoted or
relied upon for any other purpose without our prior written consent. We consent
to the filing of this opinion as an exhibit to the Registration Statement, and
to the references to Skadden, Arps, Slate, Meagher & Flom LLP under the caption
"Federal Income Taxation of Asset Investors and its Stockholders" in the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules or regulations of the
Securities and Exchange Commission thereunder. This opinion is expressed as of
the date hereof, and we disclaim any undertaking to advise you of any
<PAGE> 5
Asset Investors Corporation
______ ___, 2000
Page 5
subsequent changes in the matters stated, represented, or assumed herein, or of
any subsequent changes in applicable law.
Very truly yours,
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Asset Investors
Corporation for the registration of 4,224,972 shares of its common stock and to
the incorporation by reference therein of our reports (i) dated January 29,
1999, with respect to the consolidated financial statements and schedules of
Asset Investors Corporation included in its Annual Report (Form 10-K/A Amendment
No. 1) for the year ended December 31, 1998; (ii) dated January 29, 1999, with
respect to the consolidated financial statements and schedules of Commercial
Assets, Inc. included in its Annual Report (Form 10-K/A Amendment No. 1) for the
year ended December 31, 1998; (iii) dated December 3, 1998, with respect to the
statement of excess of revenues over specific operating expenses for the year
ended September 30, 1998 of Lakeshore Villas Manufactured Home Community
included in Commercial Assets, Inc.'s Current Report on Form 8-K dated March 31,
1999; (iv) dated May 4, 1999, with respect to the statement of excess of
revenues over specific operating expenses for the year ended December 31, 1998
of Rancho Mirage Manufactured Home Community included in Commercial Assets,
Inc.'s Current Report on Form 8-K dated May 7, 1999; (v) dated June 15, 1999,
with respect to the statement of excess of revenues over specific operating
expenses for the year ended December 31, 1998 of La Casa Blanca Manufactured
Home Communities included in Amendment No. 1 to Commercial Assets, Inc.'s
Current Report on Form 8-K dated June 30, 1999; (vi) dated September 27, 1999,
with respect to the combined statement of excess of revenues over specific
operating expenses for the year ended December 31, 1998 of Fiesta Village
Manufactured Home Communities included in Amendment No. 1 to Commercial Assets,
Inc.'s Current Report on Form 8-K dated August 13, 1999; and (vii) dated
December 24, 1999, with respect to the combined statement of excess of revenues
over specific operating expenses for the year ended December 31, 1998 of
Community Acquisition and Development Corporation Manufactured Home Communities
included in Amendment No. 1 to Asset Investors Corporations' Current Report on
Form 8-K dated January 31, 2000; all filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Denver, Colorado
March 1, 2000
<PAGE> 1
EXHIBIT 23.3
[Jefferies & Company Consent Letter]
We hereby consent to the inclusion in Asset Investors Corporation's
Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 dated March 9, 2000, relating to the merger of Commercial
Assets, Inc. with and into Asset Investors Corporation, of our Fairness Opinion
dated August 31, 1999, addressed to the Special Committee of the Board of
Directors of Commercial Assets, Inc. with respect to the fairness of the
consideration to be paid in the merger of Commercial Assets, Inc. and Asset
Investors Corporation as Annex C and to the references to such opinion in such
Joint Proxy Statement/Prospectus under the captions "SUMMARY-Fairness Opinion,"
"SUMMARY-Summary Risk Factors," "RISK FACTORS," "BACKGROUND OF THE MERGER,"
"OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE OF COMMERCIAL ASSETS,"
and "FINANCIAL PROJECTIONS." In giving such consent, we do not hereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations adopted by the
Securities and Exchange Commission thereunder nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
March 8, 2000 Sincerely,
/s/ Jefferies & Company
Jefferies & Company
