SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Irvine Apartment Communities, Inc.
(Name of Registrant as Specified in Its Charter)
Irvine Apartment Communities, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
20,175,893 shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $34.00
(4) Proposed maximum aggregate value of transaction: $685,980,362.00
(5) Total fee paid: $137,197.00
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[LOGO]
IRVINE APARTMENT COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, California 92660
_________, 1999
Dear Irvine Apartment Communities, Inc. Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of Irvine Apartment Communities, Inc. (the "Company") to be held
at the , on , 1999, at , local time (the
"Special Meeting").
At this meeting, you will be asked to vote on the merger of the
Company with and into TIC Acquisition LLC (the "Acquiror"), an indirect
wholly-owned subsidiary of The Irvine Company. Currently, The Irvine Company
and its affiliates own approximately 17.9% of the Company's outstanding common
stock. The Chairman of the Board of the Company is the sole shareholder and
Chairman of the Board of The Irvine Company. In addition, two of the other
eight members of the Company's Board of Directors are executive officers and
directors of The Irvine Company.
In the merger, you will have the right to receive $34.00 in cash for
each share of Irvine Apartment Communities, Inc. common stock you own. The
$34.00 per share price represents a 24.2% premium to the closing price of the
Company's common stock on the New York Stock Exchange of $27.375 on December
1, 1998, the day that the Acquiror made its initial merger proposal to the
Company's Board of Directors.
An independent special committee (the "Special Committee") formed by
the Company's Board of Directors negotiated the $34.00 per share price and
other terms of the transaction with the Acquiror. The Special Committee
consists of four Board members who are not employees of the Company or The
Irvine Company and who are not affiliated with The Irvine Company or its
affiliates (other than the Company and its subsidiaries).
The Board of Directors of the Company, acting on the unanimous
recommendation of the Special Committee, has unanimously approved the proposed
merger with the Acquiror (the terms of which are set forth in a merger
agreement between the Company and the Acquiror). The Special Committee and the
full Board of Directors believe that the proposed merger is in the best
interests of the Company's shareholders (other than the Acquiror and its
affiliates). Therefore, the Board of Directors unanimously recommends that you
vote in favor of the merger and the merger agreement.
The attached notice of meeting and proxy statement describe the merger
and the merger agreement and provide specific information concerning the
Special Meeting. Please read these materials carefully.
Whether or not you plan to attend the Special Meeting, I urge you to
complete, date, sign and promptly return the enclosed proxy card to ensure
that your shares will be voted at the meeting. The merger is an important
decision for the Company and its shareholders. The merger will only be
approved upon the affirmative vote of (i) the holders of two-thirds of the
total number of outstanding shares of Irvine Apartment Communities, Inc.
common stock and (ii) the holders of a number of shares of Irvine Apartment
Communities, Inc. common stock (excluding the shares held by the Acquiror and
its affiliates) representing a majority of the total number of outstanding
shares of Irvine Apartment Communities, Inc. common stock. Thus, if you fail
to return your proxy card, the effect will be the same as a vote against the
merger, unless you appear at the Special Meeting and vote in favor of the
merger.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR adoption of the merger and the merger agreement.
Sincerely,
William H. McFarland
President and Chief Executive Officer
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[LOGO]
IRVINE APARTMENT COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, California 92660
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ____________, 1999
To the Shareholders:
Notice is hereby given that a Special Meeting of the Shareholders of
Irvine Apartment Communities, Inc. will be held at the ______________,
_______________, ______________, on __________, 1999, at _______ local time,
for the following purposes:
1. To consider and act upon a proposal to approve and adopt the merger
of Irvine Apartment Communities, Inc. with and into TIC Acquisition LLC
(the "Merger") and an Agreement and Plan of Merger between Irvine
Apartment Communities, Inc. and TIC Acquisition LLC (the "Merger
Agreement"). TIC Acquisition LLC is an indirect wholly-owned subsidiary
of The Irvine Company that was formed with a view to implementing the
Merger. If the Merger and the Merger Agreement are adopted by the
shareholders of Irvine Apartment Communities, Inc. and the other
conditions to the Merger are satisfied or waived, each outstanding share
of Irvine Apartment Communities, Inc.'s common stock will be converted
into the right to receive $34.00 in cash per share, without interest.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The close of business on ________, 1999 has been fixed as the record
date for determination of the shareholders entitled to notice of and to vote
at the Special Meeting or any adjournment thereof. Any shareholder will be
able to examine a list of holders of record, for any purpose related to the
Special Meeting, during the 10-day period before the Special Meeting. The list
will be available at the offices of Irvine Apartment Communities, Inc., 550
Newport Center Drive, Suite 300, Newport Beach, California 92660; telephone
(949) 720-5500.
Shareholders may vote in person or by proxy. The proxy statement,
which explains the merger in detail, and the accompanying proxy card are
included with this notice. Holders of record of common stock at the close of
business on ________, 1999 will be entitled to vote at the Special Meeting or
any adjournment thereof with respect to all matters described above. PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
By Order of the Board of Directors,
Shawn Howie
Interim Chief Financial Officer and Secretary
Newport Beach, California
________, 1999
<PAGE>
[LOGO]
IRVINE APARTMENT COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, California 92660
-----------------------
PROXY STATEMENT
-----------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ____________, 1999
This Proxy Statement is being furnished to the holders of common
stock ("Common Stock") of Irvine Apartment Communities, Inc., a Maryland
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors") for use at
the Special Meeting of Shareholders (the "Special Meeting") to be held on
__________, 1999. The Board of Directors has fixed the close of business on
_________, 1999 as the record date (the "Record Date") for the Special Meeting
with respect to this solicitation.
At the Special Meeting, the holders of Common Stock (the
"Shareholders") will consider and vote upon a proposal to approve and adopt
the proposed merger (the "Merger") of the Company with and into TIC
Acquisition LLC, a Delaware limited liability company (the "Acquiror"), and an
Agreement and Plan of Merger dated as of February 1, 1999 (the "Merger
Agreement") between the Company and the Acquiror. A copy of the Merger
Agreement is attached as Appendix A to this Proxy Statement. Pursuant to the
Merger Agreement and subject to satisfaction of the conditions set forth
therein, (i) the Company would be merged with and into the Acquiror, with the
Acquiror continuing as the surviving company (the "Surviving Company"), and
(ii) each outstanding share of Common Stock would be converted, upon
consummation of the Merger, into the right to receive $34.00 in cash from the
Acquiror. The Merger and the Merger Agreement are collectively referred to as
the "Merger Proposal" in this Proxy Statement. The Acquiror is an indirect
wholly-owned subsidiary of The Irvine Company, which, together with its
affiliates, currently owns approximately 17.9% of the outstanding shares of
Common Stock. In addition, The Irvine Company's sole shareholder and Chairman
of the Board currently serves as Chairman of the Board of Directors of the
Company (which has nine members), and two other individuals who serve as
officers and directors of The Irvine Company serve as directors of the
Company. Directors of the Company are referred to as "Directors" in this Proxy
Statement.
THE BOARD OF DIRECTORS, BASED UPON THE UNANIMOUS RECOMMENDATION OF A
SPECIAL COMMITTEE (THE "SPECIAL COMMITTEE") CONSISTING OF FOUR DIRECTORS WHO
ARE INDEPENDENT OF THE ACQUIROR, THE IRVINE COMPANY AND THEIR AFFILIATES
(OTHER THAN THE COMPANY AND ITS SUBSIDIARIES), HAS UNANIMOUSLY APPROVED THE
MERGER PROPOSAL. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL.
SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND TO CONSULT WITH THEIR PERSONAL FINANCIAL
AND TAX ADVISORS.
This Proxy Statement, the accompanying Notice of Special Meeting and
the accompanying proxy card are first being mailed to Shareholders on or about
_______, 1999. A copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 accompanies this Proxy Statement.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
-----------------------
The date of this Proxy Statement is ________, 1999.
-----------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
-----------------------
TABLE OF CONTENTS
-----------------------
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................1
WHO CAN HELP ANSWER YOUR QUESTIONS...........................................2
SUMMARY......................................................................3
Voting.......................................................................3
Purpose, Structure and Effects of the Merger.................................3
Recommendation of the Board of Directors and the Special Committee...........4
Factors Considered by the Board of Directors and the Special Committee ......4
Morgan Stanley's Fairness Opinion............................................5
Interests of the Company's Management in the Merger..........................5
The Merger Consideration.....................................................5
Conditions to the Merger.....................................................5
Termination of the Merger Agreement..........................................6
Financing; Source of Funds...................................................7
Federal Income Tax Consequences..............................................7
No Appraisal Rights..........................................................7
INFORMATION CONCERNING THE SPECIAL MEETING...................................8
Time, Place, Date............................................................8
Purpose of the Special Meeting...............................................8
Record Date; Quorum; Outstanding Common Stock Entitled to Vote...............8
Vote Required................................................................8
Action to Be Taken Under the Proxy...........................................9
Proxy Solicitation...........................................................9
GENERAL.....................................................................10
The Company.................................................................10
The Acquiror................................................................10
SPECIAL FACTORS.............................................................12
Background of the Merger....................................................12
The Acquiror's Purpose; Structure of the Merger.............................17
Recommendation of the Special Committee and the Board of Directors; Fairness
of the Merger..........................................................18
Opinion of the Financial Advisor for the Special Committee..................19
Position of the Acquiror and The Irvine Company.............................24
Interests of Certain Persons in the Merger; Certain Company Benefit Plans...24
Certain Consequences of the Merger..........................................27
Plans for the Company After the Merger......................................27
Conduct of the Business of the Company If the Merger Is Not Consummated.....28
Certain Tax Considerations..................................................28
Litigation Regarding the Merger.............................................29
Accounting Treatment........................................................29
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THE MERGER..................................................................30
The Merger..................................................................30
Merger Consideration........................................................30
Effective Time..............................................................30
Exchange and Payment Procedures.............................................30
Transfer of Common Stock....................................................31
Additional Agreements.......................................................31
Conduct of Business Pending the Merger......................................32
Representations and Warranties..............................................33
Conditions..................................................................35
Termination; Withdrawal of Recommendations..................................35
Termination Fees and Expenses...............................................37
Amendment and Waiver........................................................37
Letter Agreement with The Irvine Company....................................37
Financing; Source of Funds..................................................37
No Appraisal Rights.........................................................38
Fees and Expenses...........................................................38
Regulatory Requirements.....................................................38
SELECTED FINANCIAL DATA OF THE COMPANY......................................39
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION.................40
CERTAIN FINANCIAL PROJECTIONS OF THE COMPANY................................41
CERTAIN RELATIONSHIPS AND TRANSACTIONS......................................43
Agreement Relating to Thompson Residential Company, Inc.....................43
Special Rights of The Irvine Company Under Certain Agreements...............43
Purchases of Common Stock and Common L.P. Units by The Irvine Company and
Its Affiliates Since January 1, 1997...................................45
Other Transactions..........................................................46
MANAGEMENT OF THE COMPANY...................................................46
MANAGEMENT OF THE ACQUIROR AND ITS MEMBERS..................................47
The Acquiror................................................................47
The Irvine Company..........................................................47
ICDC .......................................................................49
SECURITIES OWNERSHIP........................................................51
PROPOSALS BY SHAREHOLDERS OF THE COMPANY....................................52
INDEPENDENT AUDITORS........................................................53
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ANNUAL REPORT...............................................................53
WHERE YOU CAN FIND MORE INFORMATION.........................................53
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS..................54
OTHER MATTERS...............................................................54
APPENDIX A--MERGER AGREEMENT...............................................A-1
APPENDIX B--OPINION OF MORGAN STANLEY......................................B-1
APPENDIX C--LETTER AGREEMENT BETWEEN THE COMPANY AND THE IRVINE COMPANY....C-1
APPENDIX D--SUMMARY OF THE NATIONSBANC MONTGOMERY REPORTS..................D-1
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will I receive in the Merger?
A: You will receive $34.00 in cash in exchange for each share of Irvine
Apartment Communities, Inc. Common Stock owned by you at the time of the
Merger. The Special Committee formed by the Company's Board of Directors
negotiated this price with the Acquiror. The record date for the Special
Meeting is earlier than the expected date of the Merger -- therefore,
transferors of shares of Common Stock after the record date but prior to
the Merger will retain their right to vote at the Special Meeting but the
right to receive the $34.00 in cash per share will transfer with the
shares of Common Stock.
Q: What will happen to my dividends?
A: The Merger Agreement permits the continued declaration and payment of
regular quarterly dividends of $.385 per share on the Common Stock, in
accordance with past practice, but also requires that the record dates
for the second and third quarter 1999 quarterly dividends not be earlier
than June 15, 1999 and September 15, 1999, respectively.
Such dates are later than the record dates in prior years. The Company
currently intends to set the close of business on June 15, 1999 as the
record date for the second quarter 1999 quarterly dividend. Therefore, if
the Merger is consummated on or before June 15, 1999, you will not
receive any additional dividends on your Common Stock.
Q: Why is the Board of Directors recommending that I vote for the Merger
Proposal?
A: In the opinion of the Board of Directors and the Special Committee, the
Merger is in the best interests of the holders (other than the Acquiror
and its affiliates) of shares of Common Stock (the "Nonaffiliated
Shareholders") and the price of $34.00 per share is fair to the
Nonaffiliated Shareholders. The Merger will only be approved upon the
affirmative vote of (i) the holders of two-thirds of the total number of
outstanding shares of Common Stock and (ii) the holders of a number of
shares of Common Stock (excluding the shares held by the Acquiror and its
affiliates) representing a majority of the total number of outstanding
shares of Common Stock.
Q: What do I need to do now?
A: Please complete, date and sign your proxy card and then mail it in the
enclosed postage-paid envelope as soon as possible, so that your shares
may be represented at the Special Meeting.
Q: Should I send in my stock certificates now?
A: No. After the Merger is completed, we will send you written instructions
for exchanging your stock certificates.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide your broker with
instructions on how to vote. Any failure to instruct your broker to vote
in favor of the Merger will have the effect of a NO vote. You should
follow the directions provided by your broker regarding how to instruct
your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Just send in a later dated, signed proxy card before the Special
Meeting or attend the Special Meeting and
vote.
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Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger as quickly as possible. We expect
to complete the Merger (if it is approved) within several days of the
Special Meeting.
Q: What are the tax consequences of the Merger?
A: The exchange of Common Stock for cash by a Shareholder in the Merger will
be a taxable transaction for federal income tax purposes and may also be
a taxable transaction under state and local and other tax laws. See
"Special Factors--Certain Tax Considerations."
Q: What other matters will be voted on at the Special Meeting?
A: We do not expect to ask you to vote on any other matters at the Special
Meeting.
Q: What will happen to the existing public and tax-exempt debt securities and
preferred equity of Irvine Apartment Communities, L.P. and IAC Capital
Trust?
A: By itself, the Merger will not have any effect on these securities --
they will remain obligations of Irvine Apartment Communities, L.P. and
IAC Capital Trust, as applicable. The Company has been advised by the
Acquiror that the Acquiror's present intention is to retain all such
existing debt securities and preferred equity.
The Acquiror's plans could be revised, however.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Merger or would like additional
copies of this Proxy Statement, you should contact Georgeson & Company Inc. as
follows:
Georgeson & Company Inc.
88 Pine Street, 30th Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
FAX: (212) 440-9009
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SUMMARY
This summary highlights selected information included in this Proxy
Statement. This summary may not contain all of the information that is
important to you. To understand the Merger fully and for a more complete
description of the legal terms of the Merger, you should read carefully this
entire document and the other documents to which we have referred you. See
"Where You Can Find More Information." The actual terms of the Merger are
contained in the Merger Agreement, a copy of which is attached as Appendix A
to this Proxy Statement.
All information contained in this Proxy Statement relating to the
Acquiror, The Irvine Company and their affiliates (other than the Company and
its subsidiaries) or to their respective actions, purposes, beliefs,
intentions or plans has been supplied by the Acquiror for inclusion herein and
has not been independently verified by the Company. This information includes,
without limitation, certain information set forth under the captions
"--Purpose, Structure and Effects of the Merger," "--Financing; Source of
Funds," "General -- The Acquiror," "Special Factors -- Background of the
Merger," "--The Acquiror's Purpose; Structure of the Merger," "--Position of
the Acquiror and The Irvine Company," "--Plans for the Company After the
Merger," "The Merger -- Financing; Source of Funds," "--Regulatory
Requirements," "Certain Relationships and Transactions," "Securities
Ownership" and "Appendix D -- Summary of the NationsBanc Montgomery Reports."
The Company makes no representation or warranty as to the accuracy or
completeness of any such information.
Voting
At the Special Meeting, the Shareholders will vote on a proposal to
approve and adopt the Merger Proposal. Each share of Common Stock is entitled
to one vote. Maryland law and the Company's Articles of Incorporation provide
that the Merger must be approved by the holders of two-thirds of the total
number of outstanding shares of Common Stock. The Merger Agreement also
requires that the holders of a number of shares of Common Stock (excluding the
shares held by the Acquiror and its affiliates) representing a majority of the
total number of outstanding shares of Common Stock vote to approve the Merger.
The Record Date for determining who is entitled to vote at the Special
Meeting has been fixed as the close of business on ________, 1999. On the
Record Date, there were __________ shares of Common Stock outstanding, held of
record by approximately ____ registered holders. Of such shares, 3,613,738
shares are beneficially owned by the Acquiror and its affiliates.
Purpose, Structure and Effects of the Merger
The purpose of the Merger is for the Acquiror to acquire the assets of
the Company, while providing the Nonaffiliated Shareholders with the
opportunity to liquidate their investment in the Company for cash at a
significant premium to market prices for the Common Stock prior to the
announcement of the Acquiror's acquisition offer. The Acquiror and The Irvine
Company believe that the Merger will result in certain benefits to the
Acquiror and The Irvine Company, including: (i) simplifying their ownership
structure; (ii) enabling The Irvine Company to manage directly its interest in
apartment communities as a single enterprise; (iii) providing enhanced tax
benefits; (iv) enhancing their ability to retain capital for future
development of apartment communities; (v) reducing overall operational and
administrative costs; (vi) enhancing operating flexibility; and (vii)
streamlining decision-making.
Pursuant to the Merger Agreement, following approval and adoption of
the Merger Proposal and subject to the fulfillment or waiver of certain
conditions, the Company will be merged with and into the Acquiror, and the
Acquiror will continue as the Surviving Company in the Merger.
Upon completion of the Merger, holders of shares of Common Stock will
have the right to receive $34.00 in cash per share. Also, upon completion of
the Merger, Nonaffiliated Shareholders will cease to have any ownership
interest in the Company and will cease to participate in future earnings and
growth, if any, of the Company or benefit from any increases, if any, in the
value of the Company. Moreover, upon completion of the Merger, the Common
Stock will be
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canceled, public trading of the Common Stock will cease and the Common Stock
will be delisted from the New York Stock Exchange (the "NYSE").
Pursuant to the terms of the Merger, the Acquiror will pay $34.00 in
cash per share of Common Stock, or an aggregate of approximately $563 million,
to the Nonaffiliated Shareholders.
Recommendation of the Board of Directors and the Special Committee
The Board of Directors, acting on the unanimous recommendation of the
Special Committee, has unanimously approved the Merger Proposal and recommends
that you vote to adopt the Merger Proposal. The Board of Directors and the
Special Committee believe that the Merger is in the best interests of the
Nonaffiliated Shareholders, and that the $34.00 per share price is fair to the
Nonaffiliated Shareholders.
Factors Considered by the Board of Directors and the Special Committee
In reaching their decision to recommend, approve and adopt the Merger
Proposal, the Board of Directors and the Special Committee considered a number
of factors. These include the following:
o the opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as to the fairness from a financial point of view to the
Nonaffiliated Shareholders of the $34.00 per share to be received by
the Nonaffiliated Shareholders, and the analyses presented to the
Special Committee and the Board of Directors by Morgan Stanley (see
"Special Factors--Opinion of the Financial Advisor for the Special
Committee");
o the view that $34.00 per share was a superior alternative for the
Nonaffiliated Shareholders as compared to continuing to hold shares
of Common Stock;
o the structural impediments contained in the Company's Articles of
Incorporation and by-laws, as well as The Irvine Company's stated
desire not to consider offers to sell its position in the Company,
making it impracticable for the Company to solicit a third-party
bidder;
o the fact that, from the time of the Acquiror's initial acquisition
proposal which was publicly announced on December 1, 1998 through
the approval of the Merger by the Special Committee and the Board of
Directors on February 1, 1999, neither the Company nor the Special
Committee received any alternative offers;
o the fact that $34.00 per share was within the range of net asset
value valuations for real estate transactions presented by Morgan
Stanley (see "Special Factors--Opinion of the Financial Advisor for
the Special Committee--Net Asset Value");
o the history of the negotiations with respect to the Merger Proposal
that, among other things, led to an increase in the Acquiror's offer
from $32.50 to $34.00 per share, and the belief of the Special
Committee that $34.00 per share was the best price that could be
obtained from the Acquiror;
o the fact that the $34.00 per share to be received by Nonaffiliated
Shareholders in the Merger represented a premium of approximately
24.2% to the closing price of the Common Stock on the NYSE of
$27.375 on December 1, 1998, the day the Acquiror made its initial
merger proposal to the Company's Board of Directors, and that $34.00
per share exceeds the all-time high price of the Common Stock
($33.50 per share);
o the fact that the Company could continue to declare regular quarterly
dividends;
o the terms and conditions of the Merger Agreement, including the
price of $34.00 in cash per share, the scope of the parties'
representations, warranties, covenants and agreements, the limited
number of conditions to the obligations of the Acquiror and the
rights of the Special Committee and the Board of Directors,
consistent with their duties, to withdraw or modify their respective
recommendations; and
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o the Shareholder approval condition to the consummation of the Merger
that effectively requires the affirmative vote of approximately
60.9% of the shares held by the Nonaffiliated Shareholders in favor
of the Merger Proposal.
Morgan Stanley's Fairness Opinion
Morgan Stanley delivered to the Board of Directors a written opinion,
dated February 1, 1999, that the consideration the Acquiror is paying is fair
to the Nonaffiliated Shareholders from a financial point of view. Morgan
Stanley's opinion is attached as Appendix B to this Proxy Statement. Please
read this opinion.
Interests of the Company's Management in the Merger
Some of the officers and Directors of the Company have interests in
the Merger that are different from your interests as a Shareholder or
relationships that may present conflicts of interest. See "Special
Factors--Interests of Certain Persons in the Merger; Certain Company Benefit
Plans" and "Certain Relationships and Transactions."
The Merger Consideration
If the Merger is completed, you will receive $34.00 in cash per share
for your Common Stock (the "Merger Consideration"). In the Merger, the Acquiror
will pay approximately $563 million to the Nonaffiliated Shareholders.
Conditions to the Merger
There are a number of conditions that must be satisfied before either
the Company or the Acquiror is obligated to complete the Merger. These
conditions are:
o the holders of two-thirds of the total number of outstanding shares
of Common Stock must approve the Merger;
o the holders of a number of shares of Common Stock (excluding the
shares held by the Acquiror and its affiliates) representing a
majority of the total number of outstanding shares of Common Stock
must approve the Merger; and
o there can be no legal restraints or prohibitions that prevent
completion of the Merger.
There are additional conditions that the Company must meet before the
Acquiror is obligated to complete the Merger. These conditions are:
o the representations and warranties the Company made in the Merger
Agreement must be true and correct in all material respects;
o the Company must comply in all material respects with the terms of
the Merger Agreement;
o the Acquiror must have received a tax opinion (as to certain real
estate investment trust-related matters) from the Company's counsel,
Davis Polk & Wardwell ("Davis Polk"); and
o all awards under any Company stock option plan must be canceled in
accordance with the terms of the Merger Agreement.
There are additional conditions that the Acquiror must meet before
the Company is obligated to complete the Merger. These conditions are:
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o the representations and warranties the Acquiror made in the Merger
Agreement must be true and correct in all material respects; and
o the Acquiror must comply in all material respects with the terms of
the Merger Agreement.
The mutual conditions can be waived if waiver is legally permitted
and both parties agree (in the case of the Company, the determination as to
the waiver may be made only by the Special Committee on behalf of the
Company). The conditions the Company must meet can be waived by the Acquiror,
and the conditions the Acquiror must meet can be waived by the Special
Committee on behalf of the Company.
Termination of the Merger Agreement
Either the Special Committee (on behalf of the Company) or the
Acquiror may terminate the Merger Agreement and abandon the Merger, generally
whether before or after approval by the Shareholders:
o by mutual written consent;
o if the Merger has not been completed by October 1, 1999;
o if a law or final order prohibits the Merger; or
o if the Merger Proposal is not approved by either (i) the holders of
two-thirds of the total number of outstanding shares of Common Stock
or (ii) the holders of a number of shares of Common Stock (excluding
the shares held by the Acquiror and its affiliates) representing a
majority of the total number of outstanding shares of Common Stock
at the Special Meeting.
The Special Committee (on behalf of the Company) may terminate the
Merger Agreement:
o upon a material breach of any covenant or agreement contained in the
Merger Agreement on the part of the Acquiror or if any
representation or warranty of the Acquiror becomes untrue in any
material respect and the Acquiror is not in good faith attempting to
cure such breach; or
o if, prior to the approval of the Merger Proposal by the
Shareholders, the Special Committee determines to accept a superior
acquisition proposal from a third party (subject to payment of a
$19,250,000 break-up fee to the Acquiror).
The Acquiror may terminate the Merger Agreement:
o upon a material breach of any covenant or agreement contained in the
Merger Agreement on the part of the Company or if any representation
or warranty of the Company becomes untrue in any material respect
and the Company is not in good faith attempting to cure such breach;
or
o upon any of the following (each of which will obligate the Company to
pay a $19,250,000 break-up fee to the Acquiror):
o the Company receives an acquisition proposal from a third party
and, thereafter, the Special Committee or the Board of
Directors (including a majority of the members of the Special
Committee) withdraws or modifies its recommendation of the
Merger or the Merger Agreement;
o the Company receives an acquisition proposal from a third party
and, thereafter, the Acquiror requests in writing that the
Special Committee or the Board of Directors publicly reconfirm
its recommendation of the Merger Proposal to the Shareholders
and the Special Committee or the Board of Directors
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(including a majority of the members of the Special Committee)
fails to do so within 5 business days after receipt of the
Acquiror's request;
o the Special Committee or the Board of Directors (including a
majority of the members of the Special Committee) recommends to
the Shareholders an alternative transaction;
o a tender offer or exchange offer for 20% or more of the
outstanding shares of Common Stock is commenced (other than by
the Company or an affiliate of the Company) and the Special
Committee or the Board of Directors (including a majority of
the members of the Special Committee) recommends that the
Shareholders tender their shares in such tender offer or
exchange offer; or
o the Company fails to call and hold the Special Meeting by
October 1, 1999.
Financing; Source of Funds
The total amount of funds required to pay the Merger Consideration to
the Nonaffiliated Shareholders and fees and expenses related to the Merger is
estimated to be approximately $581 million. These funds will be obtained from
$150 million of cash on hand of the Acquiror and two irrevocable and
unconditional letters of credit from Bank of America National Trust and
Savings Association ("Bank of America") in the amounts of $350 million and $88
million, respectively, which were entered into on _________, 1999
(collectively, the "Letters of Credit"). The Letters of Credit require the
Acquiror to certify to Bank of America that the proceeds obtained upon draw
down of the Letters of Credit will be applied only to the payment of the Merger
Consideration to the Nonaffiliated Shareholders.
Federal Income Tax Consequences
You will be taxed on your receipt of the $34.00 per share to the
extent that the amount you receive exceeds your tax basis in your Common Stock.
Because determining the tax consequences of the Merger can be complicated, you
should consult your tax advisor in order to understand fully how the Merger
will affect you.
No Appraisal Rights
Holders of Common Stock are not entitled to dissenting shareholders'
appraisal rights under the Maryland General Corporation Law ("the MGCL"). The
MGCL does not provide appraisal rights to shareholders of a corporation in
connection with a merger if their shares are listed on a national securities
exchange, such as the NYSE, on the record date for determining shareholders
entitled to vote on such merger. All of the shares of Common Stock outstanding
on the record date for determining Shareholders entitled to vote on the Merger
were listed on the NYSE.
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INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place, Date
This Proxy Statement is being furnished to the holders of the
outstanding Common Stock of the Company in connection with the solicitation of
proxies by the Board of Directors for use at the Special Meeting of
Shareholders of the Company to be held on _____________, 1999 at ________
local time, at the , including any adjournments or postponements thereof.
Purpose of the Special Meeting
At the Special Meeting, holders of Common Stock will consider and vote
upon a proposal to approve and adopt the Merger and the Merger Agreement and
to transact such other business as may properly come before the meeting.
Additional information concerning the Special Meeting and the Merger Agreement
is set forth below and a copy of the Merger Agreement is attached as Appendix
A to this Proxy Statement. The Special Committee has unanimously determined
that the terms of the Merger Proposal are fair to, and in the best interests
of, the Nonaffiliated Shareholders, and has recommended that the Shareholders
and the Board of Directors vote for approval and adoption of the Merger
Proposal and the transactions contemplated thereby. Acting on the unanimous
recommendation of the Special Committee, the Board of Directors has
unanimously approved and adopted the Merger and the Merger Agreement. THE
SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL. HOWEVER,
SHAREHOLDERS SHOULD BE AWARE THAT CERTAIN OF THE MEMBERS OF THE BOARD OF
DIRECTORS HAVE CONFLICTS OF INTEREST WITH RESPECT TO THE MERGER. See "Special
Factors--Interests of Certain Persons in the Merger; Certain Company Benefit
Plans" and "Certain Relationships and Transactions."
Record Date; Quorum; Outstanding Common Stock Entitled to Vote
The Record Date for the Special Meeting has been fixed as the close
of business on __________, 1999. Only holders of record of Common Stock on the
Record Date are entitled to notice of and to vote at the Special Meeting.
Holders of Common Stock on the Record Date are entitled to one vote on matters
properly presented at the Special Meeting for each share of Common Stock held.
A list of Shareholders will be available for examination by holders of Common
Stock, for any purpose related to the Special Meeting, during the 10-day
period preceding the Special Meeting, at the offices of Irvine Apartment
Communities, Inc., 550 Newport Center Drive, Suite 300, Newport Beach,
California, 92660; telephone (949) 720-5500.
On the Record Date, there were ____________ shares of Common Stock
outstanding, held of record by approximately ______ registered holders. The
presence in person or by proxy of a majority of the shares of Common Stock
entitled to vote will constitute a quorum for the transaction of business at
the Special Meeting.
Vote Required
Pursuant to the MGCL and the Company's Articles of Incorporation, the
Merger must be approved and adopted by the affirmative vote of the holders of
two-thirds of the total number of outstanding shares of Common Stock. The
Merger Agreement also requires that the holders of a number of shares of
Common Stock (excluding the shares held by the Acquiror and its affiliates)
representing a majority of the total number of outstanding shares of Common
Stock vote to approve the Merger. The Irvine Company has advised the Company
that it and its affiliates will vote their shares of Common Stock for approval
and adoption of the Merger Proposal. As of the Record Date, The Irvine Company
and its affiliates beneficially owned 3,613,738 shares of Common Stock
(approximately 17.9% of the outstanding Common Stock). The Merger is also
subject to other conditions. See "The Merger--Conditions."
Failure to return an executed proxy card or to vote in person at the
Special Meeting or voting to abstain (or broker non-votes) will constitute, in
effect, a vote against approval and adoption of the Merger Proposal for
purposes of both the two-thirds vote requirement and the additional
Nonaffiliated Shareholder vote requirement specified in the Merger Agreement.
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Action to Be Taken Under the Proxy
All proxy cards in the enclosed form that are properly executed and
returned to the Exchange Agent, EquiServe, L.P., on or before the
date of the Special Meeting, and not revoked, will be voted at the Special
Meeting or any adjournments or postponements thereof in accordance with any
instructions thereon, or, if no instructions are provided, will be voted FOR
adoption and approval of the Merger Proposal. Any Shareholder who has given a
proxy pursuant to this solicitation may revoke it by attending the Special
Meeting and giving oral notice of his or her intention to vote in person,
without compliance with any other formalities. In addition, any proxy given
pursuant to this solicitation may be revoked prior to the Special Meeting by
delivering an instrument revoking it or a duly executed proxy bearing a later
date.
Management of the Company does not know of any matters other than
those set forth herein which may come before the Special Meeting. If any other
matters are properly presented at the Special Meeting for action, it is
intended that the persons named in the enclosed form of proxy and acting
thereunder will vote in accordance with their discretion on such matters. Such
matters could include an adjournment or postponement of the Special Meeting
from time to time in the event that the Board of Directors or the Special
Committee determines that Shareholders have not had sufficient time to
consider the Merger Proposal. If any such determination is made, additional
proxies may be solicited during such adjournment or postponement period.
Proxy Solicitation
The expense of preparing, printing and mailing this Proxy Statement
and the proxies solicited hereby will be borne by the Company. In addition to
the use of the mails, proxies may be solicited by officers and Directors and
regular employees of the Company, without additional remuneration, by personal
interviews, written communication, telephone, telegraph or facsimile
transmission. The Company also will request brokerage firms, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of Common Stock held of record by such brokerage firms, nominees, custodians
and fiduciaries and will provide reimbursement for the cost of forwarding the
material in accordance with customary charges. In addition, the Company has
retained Georgeson & Company Inc. to assist in the solicitation of proxies at
an estimated fee of $15,000 plus reimbursement of reasonable expenses.
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GENERAL
The Company
Formed in 1993, the Company operates as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). In
connection with the Company's initial public offering of Common Stock (the
"Offering"), the Company obtained a general partnership interest in and became
the sole managing general partner of Irvine Apartment Communities, L.P., a
Delaware limited partnership (the "Operating Partnership"). The Operating
Partnership was formed on November 15, 1993 and began operations as of
December 8, 1993, the date of the Offering. At December 31, 1998, the Company
had a 44.6% general partnership interest in and was the sole managing general
partner of the Operating Partnership. At December 31, 1998, the common limited
partners had a 55.4% common limited partnership interest in the Operating
Partnership, with The Irvine Company and its subsidiaries owning a 54.5% common
limited partnership interest in the Operating Partnership. In addition, at
December 31, 1998, The Irvine Company and certain of its affiliates owned
approximately 17.9% of the outstanding shares of Common Stock. The Operating
Partnership's management and operating decisions are under the unilateral
control of the Company. The Company was originally incorporated in Delaware,
but on May 2, 1996, changed its state of incorporation to Maryland.
The Company is a self-administered equity REIT engaged in the
operation and development (through the Operating Partnership) of apartment
communities in California. As of December 31, 1998, the Operating Partnership
owned 65 apartment communities representing 16,439 operating apartment units
and 3,039 apartment units under construction or development (collectively, the
"Properties"). Until July 31, 2020, the Operating Partnership has the
exclusive right, but not the obligation, to acquire land from The Irvine
Company for development of additional apartment communities on the Irvine
Ranch. The Irvine Company has no obligation to designate any land for sale and
development of additional apartment communities. Since 1997, the Company has
acquired or developed two off-Ranch properties (with 1,265 units) and is in the
process of developing six additional off-Ranch properties (with 1,346 units).
In March 1998, the Operating Partnership and Western National Property
Management ("WNPM") announced the formation of a strategic alliance that, in
April 1998, assumed all property management responsibilities for the Operating
Partnership's Southern California portfolio. The new entity, Irvine Apartment
Management Company ("IAMC"), is owned 51% by the Operating Partnership and 49%
by WNPM.
The address of the principal business and the principal executive
offices of the Company is 550 Newport Center Drive, Suite 300, Newport Beach,
California 92660; telephone (949) 720-5500.
The Acquiror
The Acquiror in the Merger is TIC Acquisition LLC. The principal
business of the Acquiror is to merge with the Company and to be the surviving
company following the Merger. The Acquiror is capitalized with $150 million in
cash and cash equivalents. The Acquiror will obtain the balance of the Merger
Consideration to the Nonaffiliated Shareholders at or before the consummation
of the Merger. See "The Merger--Financing; Source of Funds." The address of
the principal business and the principal executive offices of the Acquiror is
550 Newport Center Drive, Suite 900, Newport Beach, California 92660;
telephone (949) 720-2000.
The Irvine Company is the managing member (holding the sole managing
member interest) of the Acquiror. The Irvine Company is a century old,
privately held real estate investment company primarily engaged in the
long-term development of its land in Orange County, California, and elsewhere
in California. Following a comprehensive master plan created in the 1960s, The
Irvine Company is building a series of large-scale communities on the Irvine
Ranch, a 90 square mile parcel of land located in central Orange County in
Southern California. The Irvine Company's principal business consists of the
ownership, development, management and leasing of real estate on the Irvine
Ranch. In connection with the Merger, The Irvine Company has entered into a
letter agreement with the Company. See "The Merger--Letter Agreement with The
Irvine Company" and Appendix C to this Proxy Statement.
The Irvine Company, including its affiliates, is the largest
Shareholder of the Company, with beneficial ownership of approximately 17.9%
of the outstanding shares of Common Stock. The Irvine Company also
beneficially owns a
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54.5% common limited partnership interest in the Operating Partnership.
Pursuant to the Miscellaneous Rights Agreement dated March 20, 1996, as
amended, among the Company, the Operating Partnership and The Irvine Company
(the "Miscellaneous Rights Agreement"), The Irvine Company has certain rights
with respect to the nomination of Directors of the Company so long as The
Irvine Company and its related parties meet certain beneficial ownership
tests. The Company's Articles of Incorporation provide The Irvine Company
additional rights with respect to the Company's Board of Directors, including
the requirement that certain types of transactions, such as the Merger, be
approved by more than 75% of the entire Board of Directors, which effectively
requires the consent of at least one of The Irvine Company's Director
nominees. See "Certain Relationships and Transactions." The address of the
principal business and the principal executive offices of The Irvine Company
is 550 Newport Center Drive, Suite 900, Newport Beach, California 92660;
telephone (949) 720-2000.
Irvine Community Development Company, a Delaware corporation and
wholly-owned subsidiary of The Irvine Company ("ICDC"), holds the sole
non-managing member interest in the Acquiror. The principal business of ICDC
is land development and sales. The address of the principal business and the
principal executive offices of ICDC is 550 Newport Center Drive, Suite 900,
Newport Beach, California 92660; telephone (949) 720-2000.
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SPECIAL FACTORS
Background of the Merger
In mid-November 1998, The Irvine Company requested Latham & Watkins
and NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery") to analyze
The Irvine Company's investment alternatives. After initial consultations with
Latham & Watkins and NationsBanc Montgomery, The Irvine Company decided to
pursue more intensive analysis of its investment alternatives, including
possible business combination transactions with the Company. NationsBanc
Montgomery presented its preliminary financial analyses as well as a
discussion of issues related to potential third-party offers to The Irvine
Company in connection with a possible business combination with the Company in
the form of a report dated November 25, 1998 (the "First NationsBanc
Montgomery Report"). During the period from November 25, 1998 to December 1,
1998, The Irvine Company consulted from time to time with Latham & Watkins and
NationsBanc Montgomery regarding various courses of action. During this
period, The Irvine Company also discussed with Bank of America the
availability of a special funding facility for a potential transaction. On
December 1, 1998, The Irvine Company entered into an engagement letter with
NationsBanc Montgomery (the "Acquiror Engagement Letter").
On December 1, 1998, after the close of trading on the NYSE, the
Acquiror delivered a letter (the "December 1 Letter") to the Company, the text
of which follows:
TIC Acquisition LLC
550 Newport Center Drive
Newport Beach, CA 92660
December 1, 1998
Board of Directors
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660
Gentlemen:
This letter is a proposal from TIC Acquisition LLC, a wholly owned
subsidiary of The Irvine Company, to acquire all of the outstanding common
shares of Irvine Apartment Communities, Inc. in a business combination for
$32.50 per share in cash. This represents a 21% premium to yesterday's closing
price and one of the highest cash premiums ever paid for a REIT. We are
prepared, at the earliest possible time, to enter into a binding agreement
which would contain standard terms and conditions for transactions of this
nature. There will be no financing contingency.
We believe that our proposal presents an excellent opportunity for
shareholders of Irvine Apartment Communities to achieve liquidity for their
shares at a significant premium to current market value. We are confident that
you will conclude that our proposal is fair and in the best interests of the
public shareholders.
Attached is a press release to be issued immediately which briefly
describes our reasons for making this proposal. We look forward to your
response at your earliest convenience but in any event no later than December
31, 1998.
We look forward to your careful consideration of this important
proposal and are prepared to work closely with you over the coming weeks.
Very truly yours,
TIC Acquisition LLC
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By: /s/ Michael D. McKee
---------------------------
Michael D. McKee
Authorized Officer
Also on December 1, 1998, after the close of trading on the NYSE, the
Acquiror issued a press release stating that the Acquiror proposed to acquire
all of the outstanding shares of Common Stock at a price of $32.50 per share.
The Company's Articles of Incorporation and by-laws contain provisions
establishing an Independent Directors Committee of the Board of Directors,
which must approve all transactions (including transactions under the
Exclusive Land Rights and Non-Competition Agreement dated as of November 21,
1993 by and between The Irvine Company, the Operating Partnership, the Company
and Donald Bren, as amended (the "Land Rights Agreement")) between the
Company, on the one hand, and The Irvine Company and its affiliates, on the
other. The Independent Directors Committee consists of five of the nine
members of the Board of Directors.
On December 3, 1998, the Independent Directors Committee met to
consider what action the Board of Directors should take in response to the
offer from the Acquiror. At the meeting, Anthony M. Frank, Chairman of the
Independent Directors Committee, outlined the terms and conditions of the
December 1 Letter. Mr. Frank then indicated that it would be appropriate for
the committee to hire an investment banker to assist it in reviewing the
proposal set forth in the December 1 Letter and in formulating a response.
After discussion, the Independent Directors Committee authorized Mr. Frank and
Bowen H. McCoy (another member of the Independent Directors Committee) to
interview a number of candidates.
On December 4, 1998, Messrs. Frank and McCoy met with Davis Polk, who
had acted as counsel to the Company, the Board of Directors and the Independent
Directors Committee since the Offering, for the purpose of interviewing
candidates for investment banker to the Board of Directors. Presentations were
made by four investment banks invited by the Independent Directors Committee
based upon their general reputation and experience in REIT mergers and
acquisitions, "going private" transactions and similar matters.
Also on December 4, 1998, Mr. Frank, on behalf of the Independent
Directors Committee, delivered to the Acquiror a letter acknowledging receipt
of the December 1 Letter and stating that the Board of Directors and the
Independent Directors Committee intended to review the Acquiror's proposal and
respond in due course.
On December 8, 1998, by unanimous written consent, the Board of
Directors established a Special Committee consisting of Messrs. Frank, McCoy,
John F. Grundhofer and John F. Seymour, Jr., four Directors of the Company who
are not employees of the Company or The Irvine Company and are not affiliates
of The Irvine Company or its affiliates (other than the Company and its
subsidiaries). The Special Committee was delegated the full power and
authority of the Board of Directors to determine what actions with respect to
the proposal set forth in the December 1 Letter would be in the best interests
of the Nonaffiliated Shareholders, including whether to consummate or reject
the proposal set forth in the December 1 Letter or seek modification of any of
its terms. The Board of Directors authorized the Special Committee to evaluate
and negotiate, if appropriate, the terms of the proposal set forth in the
December 1 Letter with the Acquiror and its representatives, to consider and
negotiate the terms of transactions other than the proposal set forth in the
December 1 Letter as it deemed appropriate, and to make a recommendation to
the full Board of Directors concerning the proposal set forth in the December
1 Letter. The Special Committee was also authorized to retain legal advisors
and investment bankers to assist it in discharging these duties and to
determine appropriate compensation for its members.
Also on December 8, 1998, the Special Committee held its initial
meeting. At the meeting, the Special Committee elected Messrs. Frank and McCoy
as Co-Chairmen of the Special Committee and retained Davis Polk as legal
counsel in connection with the Special Committee's evaluation and negotiation
of the proposal set forth in the December 1 Letter and any alternative
transactions. The Special Committee also retained Piper & Marbury L.L.P. and
Morris, James, Hitchens & Williams for the purpose of consultation with regard
to Maryland and Delaware law, respectively. The Special Committee, along with
Davis Polk, reviewed the presentations received from the four investment banks
and discussed their relative merits. After further deliberations, the Special
Committee engaged Morgan Stanley as its
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investment banker to analyze and provide advice with respect to the proposal
set forth in the December 1 Letter and with respect to any other strategic
transaction or decision which might be considered by the Special Committee
whether or not involving the Acquiror and to assist in any negotiations with
respect to such transactions. For descriptions of the terms of the engagement
of Morgan Stanley, see "Special Factors--Opinion of the Financial Advisor for
the Special Committee." The Special Committee also determined compensation for
its members as follows: In addition to the Company's normal fees for
attendance at meetings and reimbursement of expenses, Messrs. Grundhofer and
Seymour will each receive $20,000 for their service as members of the Special
Committee through March 31, 1999 and Messrs. Frank and McCoy will each receive
$50,000 for their service as Co-Chairmen of the Special Committee through
March 31, 1999.
On December 22, 1998, the Compensation Committee of the Board of
Directors (consisting of Messrs. McCoy and Seymour) met with its employee
benefits consultant, Frederic W. Cook & Co., Inc., to discuss appropriate
arrangements for preventing the loss of key employees in light of uncertainty
as to the Company's future status. The Compensation Committee's employee
benefits consultant analyzed the Company's current compensation arrangements
for senior management and other key employees and presented its
recommendations relating to appropriate retention arrangements. The
Compensation Committee ultimately determined that these retention-related
matters were integrally related to the proposal set forth in the December 1
Letter of the Acquiror, and therefore, it would be more appropriate for the
Special Committee to address and decide these issues.
Later on December 22, 1998, the Special Committee met with Davis Polk
and Morgan Stanley. The Special Committee discussed the retention issues
considered by the Compensation Committee and authorized the implementation of
certain measures aimed at the retention of key employees, all as more fully
described under "--Interest of Certain Persons in the Merger; Certain Company
Benefit Plans." Davis Polk then outlined the duties of the Special Committee
under Maryland law and aspects of federal securities law. In addition, the
Special Committee and its advisors considered the structural impediments
contained in the Company's Articles of Incorporation and by-laws, as well as
The Irvine Company's stated desire not to consider offers to sell its position
in the Company, which made it impracticable for the Company to solicit a
third-party bidder. The Special Committee decided to negotiate the highest
price and best terms possible for a transaction with the Acquiror and then
determine whether it was preferable to engage in such transaction or to adopt
the alternative of saying "no" to such transaction and to continue to operate
the Company as a public company for the benefit of the Shareholders. Morgan
Stanley then reviewed certain preliminary financial and comparative analyses
based in part on information it had received from the Company in the prior
week. Morgan Stanley noted that its analyses were preliminary and subject to
revision.
On December 30, 1998, Morgan Stanley and NationsBanc Montgomery met to
discuss their respective valuation analyses. Also present were representatives
of Merrill Lynch Equity Research, a consultant to The Irvine Company. Morgan
Stanley presented its preliminary valuation analyses. In addition, Morgan
Stanley delivered a letter requesting disclosure from NationsBanc Montgomery,
the Acquiror and The Irvine Company of all material facts relating to the use
or value of the assets in question and to the market value of the subject
transaction. NationsBanc Montgomery presented its financial analyses to Morgan
Stanley in connection with the proposed business combination in the form of a
report dated December 30, 1998 (the "Second NationsBanc Montgomery Report").
During the meeting, a discussion ensued about the Company's October 30, 1998
Board of Directors meeting pertaining to the 1999 business plan of the Company
(the "1999 Business Plan"). At the Board meeting, members of management of the
Company had discussed management's 1999 Business Plan and the assumptions
underlying it. Following that presentation, Mr. Donald Bren, Chairman of the
Board of Directors of the Company (and the sole shareholder and Chairman of the
Board of The Irvine Company), indicated that he believed that certain
assumptions in management's proposed 1999 Business Plan were too conservative
in light of existing conditions and expected market conditions in 1999 and
beyond. Prior to the meeting, Mr. Bren had presented information that suggested
a recent rental growth rate for certain competitive properties in the range of
12% and that management's assumed 1999 rental growth rate of 5% should be
reviewed. Management disagreed with the information presented and the
conclusions reached by Mr. Bren. There followed considerable discussion among
the Directors and management of what growth assumptions and targets should be
established for the 1999 Business Plan. Upon conclusion of this discussion, the
Board of Directors (including
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<PAGE>
Mr. Bren) unanimously approved management's 1999 Business Plan as a base case
and it was agreed that management would undertake to develop an additional
1999 Business Plan which would reflect actual growth rates in the relevant
competitive California markets. It was also agreed by management and the Board
of Directors that, in any case, the Company would commit to meet or exceed the
competitive market in 1999 with respect to rental growth and occupancy rates.
It was further agreed that management would work with representatives of The
Irvine Company and independent consultants to agree on the composition of
properties comprising appropriate competitive markets. Because of the
Acquiror's acquisition proposal, the additional 1999 Business Plan has not yet
been undertaken.
In connection with the ongoing discussions, on December 31, 1998, the
Acquiror sent a letter to the Special Committee extending the time for the
Special Committee to respond to the Acquiror's proposal from December 31, 1998
to January 18, 1999.
On January 7, 1999, NationsBanc Montgomery delivered to Morgan Stanley
certain materials pertaining to the Company as requested by Morgan Stanley in
its December 30, 1998 letter. In a letter dated January 12, 1999 (the "Third
NationsBanc Montgomery Report" and, together with the First NationsBanc
Montgomery Report and the Second NationsBanc Montgomery Report, the
"NationsBanc Montgomery Reports"), NationsBanc Montgomery provided additional
detail and documentation in support of the Acquiror's offer of $32.50 per
share.
On January 13, 1999, Morgan Stanley and NationsBanc Montgomery met to
discuss outstanding issues related to valuation, including Morgan Stanley's
valuation analyses. Morgan Stanley reiterated its position that as a result of
its analyses, Morgan Stanley continued to be of the view that the Acquiror's
offer undervalued the Company.
On January 14, 1999, the Special Committee met with Morgan Stanley and
Davis Polk and reviewed the discussions that had occurred up until that point
and outlined the major differences between NationsBanc Montgomery's and Morgan
Stanley's valuations. Morgan Stanley then provided to the Special Committee a
summary of its material analyses. Morgan Stanley noted that its analyses were
preliminary and subject to revision.
On January 18 and 19, 1999, Messrs. Frank and McCoy, on behalf of the
Special Committee, and Messrs. Bren and Michael D. McKee, a Director of the
Company, a director and officer of The Irvine Company and an officer of the
Acquiror, on behalf of the Acquiror, together with their respective investment
bankers, met on several occasions to discuss valuation issues. No progress was
made at these meetings. Following the meeting on January 19, 1999, Messrs.
Bren and McKee met with Messrs. Frank and McCoy and indicated that, as a
result of the ongoing discussions, the Acquiror might be willing to increase
its offer to $33.50 per share. Messrs. Frank and McCoy responded that they
would discuss the matter with the full Special Committee.
On January 20, 1999, the Special Committee met with its advisors to
discuss the course of the negotiations. After deliberation, the Special
Committee concluded that a price of $33.50 per share would not be satisfactory.
The Special Committee instructed Messrs. Frank and McCoy to communicate to Mr.
Bren that the Special Committee would not support a price of $33.50 per share.
Messrs. Frank and McCoy telephoned Mr. Bren informing him of the Special
Committee's conclusion. Mr. Bren indicated that he would consider the matter
and proposed a meeting with Messrs. Frank and McCoy on January 21, 1999.
On January 21, 1999, Mr. Bren telephoned Messrs. Frank and McCoy and
stated that, as a final offer, the Acquiror was willing to raise its offer to
$34.00 per share. Messrs. Frank and McCoy indicated that they would
communicate the revised offer to the Special Committee.
Later on January 21, 1999, the Special Committee met with Davis Polk
and Morgan Stanley. Mr. McCoy indicated that the Acquiror had agreed to raise
its offer to $34.00 per share. Messrs. Frank and McCoy also indicated that Mr.
Bren urged them to consider this proposal carefully with the full Special
Committee and stated that the time had come when the transaction should either
be concluded or discussions terminated. Messrs. Frank and McCoy advised the
members of the Special Committee that they believed that $34.00 per share was
the final and best offer that would be received from the Acquiror. In response
to questions from members of the Special Committee, Morgan Stanley indicated
that its preliminary view was that it would be able to deliver a fairness
opinion to the Board of Directors with
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respect to a transaction at $34.00 per share.
Later on January 21, 1999, Messrs. Frank and McCoy telephoned Mr. Bren
and stated that the Special Committee would likely recommend acceptance of a
transaction at a price of $34.00 per share subject to final approval by the
Special Committee, receipt by the Special Committee of a written opinion from
Morgan Stanley that such consideration would be fair from a financial point of
view to the Nonaffiliated Shareholders, approval by the Board of Directors and
agreement on the terms of a definitive merger agreement.
In subsequent conversations between the parties on the same day, it
became evident that the Acquiror's offer did not include the continued payment
of quarterly dividends to the Shareholders, whereas the Special Committee had
contemplated the continued payment of regular quarterly dividends until the
completion of the Merger. The Special Committee concluded that it was not
prepared to recommend a transaction that did not allow for the continued
payment of regular quarterly dividends.
On January 26, 1999, the Acquiror delivered a letter to the Company
stating that in light of nearly two months of negotiations between the parties
and the upcoming regularly scheduled February 1, 1999 meeting of the Board of
Directors, at which declaration of quarterly dividends was scheduled to be
considered, the Acquiror believed that the parties should come to a prompt
resolution regarding the outstanding issues. The Acquiror set a deadline of
5:00 p.m. on February 1, 1999 for the resolution of all open issues.
On January 27, 1999, the Special Committee met with Davis Polk and
Morgan Stanley. Pursuant to earlier discussions between members of the Special
Committee and Mr. Bren, the Special Committee instructed its counsel to
attempt to resolve as many of the open issues as possible. The Acquiror
instructed its counsel similarly. During the period from January 28, 1999
through January 31, 1999, Davis Polk continued to negotiate the terms of a
definitive merger agreement with Latham & Watkins.
On January 31, 1999, Messrs. Frank, McCoy, Bren and McKee, with their
respective investment bankers and counsel, met in an attempt to resolve the
major outstanding issues. The parties met for several hours, but no agreement
was reached.
On the morning of February 1, 1999, the Special Committee met prior to
the Company's regularly scheduled Board of Directors and Committee meetings.
The Special Committee and Davis Polk then met with Messrs. Bren and McKee and
Latham & Watkins. Thereafter, the Special Committee and Mr. Bren resolved all
outstanding issues, including the issue of the continued payment of regular
quarterly dividends, and reached an agreement in principle, subject to formal
approval by the Special Committee and the entire Board of Directors and
receipt by the Board of Directors of the Morgan Stanley fairness opinion.
Later on February 1, 1999, the Special Committee held a meeting with
Davis Polk. Davis Polk reviewed the principal terms and conditions of the
Merger Agreement and outlined to members of the Special Committee the details
of their duties. Morgan Stanley had previously indicated its view that it
would be able to deliver an opinion that the $34.00 in cash per share to be
received by the Nonaffiliated Shareholders in the Merger was fair from a
financial point of view to such holders. See "Special Factors--Opinion of the
Financial Advisor for the Special Committee." Subject to receipt of Morgan
Stanley's fairness opinion, after full discussion, the Special Committee
unanimously determined that the Merger Proposal was fair to, and in the best
interests of, the Nonaffiliated Shareholders. Subject to receipt of Morgan
Stanley's fairness opinion, after full discussion, the Special Committee
unanimously adopted resolutions (i) recommending to the Board of Directors
that it approve and adopt the Merger Proposal and (ii) recommending to the
Shareholders that they vote to approve and adopt the Merger Proposal.
Immediately following the Special Committee meeting, the Board of
Directors and the Independent Directors Committee met to consider the Merger
Proposal. Davis Polk outlined to the Board of Directors its duties. Messrs.
Bren, McKee and Raymond L. Watson, a Director of the Company and Vice Chairman
of the Board of The Irvine
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Company, then departed the meeting temporarily to permit Directors William H.
McFarland and Jack W. Peltason, neither of whom had served on the Special
Committee, a full opportunity to ask questions and obtain information to
satisfy themselves that the Merger Proposal was fair to, and in the best
interests of, the Nonaffiliated Shareholders. Messrs. Bren, McKee and Watson
then rejoined the meeting and Davis Polk reviewed the principal terms and
conditions of the Merger Agreement. Morgan Stanley then reviewed the financial
terms of the Merger and Morgan Stanley's financial analyses and delivered its
oral opinion, subsequently confirmed in writing as of February 1, 1999, and
subject to the various considerations set forth in its opinion, that the
consideration to be received by the Nonaffiliated Shareholders pursuant to the
Merger Agreement is fair from a financial point of view to such holders. In
response to questions from the Directors, Morgan Stanley expressed its view,
based on the circumstances then existing and as discussed with the Special
Committee, that the proposed transaction at $34.00 per share was a superior
alternative for the Nonaffiliated Shareholders as compared to continuing to
hold their shares of Common Stock. The Special Committee then recommended that
the Board of Directors and the Independent Directors Committee each approve the
Merger Proposal. After full discussion, the Board of Directors and the
Independent Directors Committee each unanimously determined that the Merger
Proposal was fair to, and in the best interests of, the Nonaffiliated
Shareholders, and adopted resolutions to approve and adopt the Merger Proposal
and to recommend that the Shareholders vote to approve and adopt the Merger
Proposal.
Later on February 1, 1999, the Company and the Acquiror entered into a
definitive merger agreement. The Company and The Irvine Company also entered
into a letter agreement, a copy of which is attached as Appendix C to this
Proxy Statement.
On February 2, 1999, prior to the open of trading on the NYSE, the
Company and the Acquiror issued a joint press release announcing that they had
signed a definitive merger agreement under which, upon the merger of the
Company into the Acquiror, the Shareholders would receive $34.00 in cash per
share.
The Acquiror's Purpose; Structure of the Merger
Purpose. The purpose of the Merger is for the Acquiror and The Irvine
Company to acquire the assets of the Company, while providing the
Nonaffiliated Shareholders with the opportunity to liquidate their investment
in the Company for cash at a significant premium to market prices for the
Common Stock prior to the announcement of the Acquiror's acquisition offer.
Alternatives. Prior to reaching their decision to pursue the Merger,
the Acquiror and The Irvine Company considered various alternatives to the
Merger, including: (i) a two-step acquisition of the Company, consisting of a
first step tender offer and a second step merger; (ii) a purchase of the
Company's general partnership interest in the Operating Partnership; and (iii)
continuing The Irvine Company's existing ownership interest in the Company.
The primary benefit to the Acquiror and The Irvine Company of the
two-step acquisition alternative was the potential to consummate an
acquisition of the Company in a short time period and, potentially, avoid the
time and expense of seeking Shareholder approval at a meeting of the
Shareholders. The Acquiror and The Irvine Company ultimately rejected this
alternative, however, due to certain negative factors associated with the
two-step structure, including certain adverse tax consequences to the
Surviving Company.
The Acquiror and The Irvine Company considered the alternative of
purchasing the Company's general partnership interest in the Operating
Partnership because it offered many of the advantages of the Merger, including
favorable tax consequences to the Surviving Company. The Acquiror and The
Irvine Company ultimately rejected this alternative, however, because it
presented no material benefits relative to the Merger structure and would
result in the Company surviving as a public entity without any significant
operations.
The Acquiror and The Irvine Company also considered maintaining The
Irvine Company's current investment in the Company. The Acquiror and The
Irvine Company rejected this alternative due to the potential benefits
(discussed below) of the Merger.
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Benefits and Detriments. The Acquiror and The Irvine Company believe
that the Merger will result in certain benefits to the Acquiror and The Irvine
Company including: (i) simplifying their ownership structure; (ii) enabling
The Irvine Company to manage directly its interest in apartment communities as
a single enterprise; (iii) providing enhanced tax benefits; (iv) enhancing
their ability to retain capital for future development of apartment
communities; (v) reducing overall operational and administrative costs; (vi)
enhancing operating flexibility; and (vii) streamlining decision-making.
The detriments of the completion of the Merger to the Acquiror and The
Irvine Company will be (i) the significant cash outlay by the Acquiror
required to complete the Merger and (ii) the Surviving Company's inability to
use publicly traded securities as acquisition capital.
Recommendation of the Special Committee and the Board of Directors; Fairness
of the Merger
At a meeting held on February 1, 1999, the Special Committee
unanimously determined (i) to recommend that the Board of Directors approve
and adopt the Merger Proposal and that the Board of Directors recommend to the
Shareholders that they vote to approve and adopt the Merger Proposal; (ii) to
recommend to the Shareholders that they vote to approve and adopt the Merger
Proposal; and (iii) that the terms of the Merger Proposal are fair to, and in
the best interests of, the Nonaffiliated Shareholders. At a meeting of the
Board of Directors held on February 1, 1999, at which all of the Directors
were present, the Board of Directors, based on the unanimous recommendation of
the Special Committee, unanimously (x) approved and adopted the Merger
Proposal; (y) determined to recommend to the Shareholders that they vote to
approve and adopt the Merger Proposal; and (z) determined that the terms of
the Merger Proposal are fair to, and in the best interests of, the
Nonaffiliated Shareholders. See "--Background of the Merger" and "--The
Acquiror's Purpose; Structure of the Merger."
The Special Committee. In determining to recommend to the Board of
Directors that it approve and adopt the Merger Proposal, and in determining
the fairness of the terms of the Merger Proposal, the Special Committee
considered factors including the following, each of which, in the Special
Committee's view, supported the Special Committee's determination to recommend
the Merger Proposal:
o the opinion of Morgan Stanley as to the fairness from a financial
point of view to the Nonaffiliated Shareholders of the $34.00 per
share to be received by the Nonaffiliated Shareholders, and the
analyses presented to the Special Committee by Morgan Stanley (see
"Special Factors--Opinion of the Financial Advisor for the Special
Committee");
o the view that $34.00 per share was a superior alternative for the
Nonaffiliated Shareholders as compared to continuing to hold shares
of Common Stock;
o the structural impediments contained in the Company's Articles of
Incorporation and by-laws, as well as The Irvine Company's stated
desire not to consider offers to sell its position in the Company,
making it impracticable for the Company to solicit a third-party
bidder;
o the fact that, from the time of the Acquiror's initial acquisition
proposal which was publicly announced on December 1, 1998 through
the approval of the Merger by the Special Committee and the Board of
Directors on February 1, 1999, neither the Company nor the Special
Committee received any alternative offers;
o the fact that $34.00 per share was within the range of net asset
value valuations for real estate transactions presented by Morgan
Stanley (see "--Opinion of the Financial Advisor for the Special
Committee--Net Asset Value");
o the history of the negotiations with respect to the Merger Proposal
that, among other things, led to an increase in the Acquiror's offer
from $32.50 to $34.00 per share, and the belief of the Special
Committee that $34.00 per share was the best price that could be
obtained from the Acquiror;
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o the fact that the $34.00 per share to be received by Nonaffiliated
Shareholders in the Merger represented a premium of approximately
24.2% to the closing price of the Common Stock on the NYSE of
$27.375 on December 1, 1998, the day the Acquiror made its initial
merger proposal to the Company's Board of Directors, and that $34.00
per share exceeds the all-time high price of the Common Stock
($33.50 per share);
o the fact that the Company could continue to declare regular quarterly
dividends;
o the terms and conditions of the Merger Agreement, including the
price of $34.00 in cash per share, the scope of the parties'
representations, warranties, covenants and agreements, the limited
number of conditions to the obligations of the Acquiror and the
rights of the Special Committee and the Board of Directors,
consistent with their duties, to withdraw or modify their respective
recommendations; and
o the Shareholder approval condition to the consummation of the Merger
that effectively requires the affirmative vote of approximately
60.9% of the shares held by the Nonaffiliated Shareholders in favor
of the Merger Proposal.
In light of the number and variety of factors the Special Committee
considered in connection with its evaluation of the Merger Proposal, the
Special Committee did not find it practicable to assign relative weights to
the foregoing factors; accordingly, the Special Committee did not do so.
The Special Committee consulted with Morgan Stanley during the course
of Morgan Stanley's work in connection with its analysis of the Company and
evaluation of the proposed merger.
The Special Committee believes that the Merger Proposal is
procedurally fair because: (i) the Special Committee consisted of
disinterested Directors appointed to represent the interests of, and to
negotiate on an arm's-length basis with the Acquiror on behalf of, the
Nonaffiliated Shareholders; (ii) the Special Committee retained and was
advised by outside legal counsel; (iii) the Special Committee retained Morgan
Stanley as financial advisor to assist it in evaluating the proposed merger;
and (iv) the Merger Agreement contains as a condition to the consummation of
the Merger that the holders of a number of shares of Common Stock (excluding
the shares held by the Acquiror and its affiliates) representing a majority of
the total number of outstanding shares of Common Stock vote to approve the
Merger (effectively requiring the affirmative vote of approximately 60.9% of
the shares held by the Nonaffiliated Shareholders in favor of the Merger). In
addition, the Special Committee believes that the Merger Proposal is
procedurally fair because the price of $34.00 per share and the other terms
and conditions of the Merger Agreement resulted from active arm's-length
bargaining between the Special Committee and the Acquiror.
The Board of Directors. The Board of Directors, at its February 1,
1999 meeting, considered the unanimous recommendation of the Special
Committee, as well as the factors (enumerated above) considered by the Special
Committee, and unanimously determined that the Merger Proposal is fair to, and
in the best interests of, the Nonaffiliated Shareholders, approved and adopted
the Merger Proposal, and recommended that the Shareholders vote to approve and
adopt the Merger Proposal.
Opinion of the Financial Advisor for the Special Committee
The Special Committee retained Morgan Stanley to act as the Company's
financial advisor with respect to the proposed merger and related matters,
based on Morgan Stanley's qualifications, reputation and expertise. At a
meeting of the Board of Directors on February 1, 1999, Morgan Stanley
delivered its oral opinion to the Board of Directors, subsequently confirmed
in writing, that as of such date, and subject to the various considerations
set forth in its opinion (the "Opinion"), the consideration to be received by
the Nonaffiliated Shareholders pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DIRECTED TO THE
BOARD OF DIRECTORS AND DATED AS OF FEBRUARY 1, 1999, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, PROCEDURES FOLLOWED AND LIMITATIONS OF
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX
B TO THIS PROXY
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STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE OPINION OF MORGAN
STANLEY IS DIRECTED TO THE BOARD OF DIRECTORS FOR ITS USE IN CONNECTION WITH
ITS CONSIDERATION OF THE MERGER PROPOSAL AND IS NOT INTENDED TO BE, AND DOES
NOT CONSTITUTE, A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER PROPOSAL. THE SUMMARY
OF THE OPINION OF MORGAN STANLEY SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE NONAFFILIATED SHAREHOLDERS
ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its Opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of the Company; (ii) reviewed certain internal financial
statements and other financial and operating data concerning the Company
prepared by the management of the Company; (iii) reviewed certain financial
projections prepared by the management of the Company; (iv) discussed the past
and current operations and financial condition and the prospects of the
Company with senior executives of the Company; (v) reviewed the reported
prices and trading activity for the Common Stock; (vi) compared the financial
performance of the Company and the prices and trading activity of the Common
Stock with that of certain other comparable publicly-traded companies and
their securities; (vii) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions; (viii) participated in
discussions and negotiations between the Company and the Acquiror and The
Irvine Company and their respective financial and legal advisors; (ix)
reviewed the draft Merger Agreement and certain related documents; (x)
reviewed and considered the governance provisions relating to the Company and
the Operating Partnership; (xi) considered the Company's ability to execute
its business plan if the Merger were not consummated; and (xii) performed such
other analyses and considered such other factors as Morgan Stanley deemed
appropriate.
In rendering its Opinion, Morgan Stanley assumed and relied upon,
without independent verification, the accuracy and completeness of the
information reviewed by Morgan Stanley for the purposes of its Opinion. With
respect to the financial projections prepared by the management of the
Company, Morgan Stanley assumed that such information had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company. Morgan Stanley
did not make any independent valuation or appraisal of the assets or
liabilities of the Company, nor was Morgan Stanley provided with any such
appraisals. The Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan
Stanley as of, February 1, 1999. In arriving at its Opinion, Morgan Stanley
was not authorized to solicit, and did not solicit interest from, any other
party, with respect to the acquisition of, or any businesses combination or
other extraordinary transaction involving, the Company, nor did Morgan Stanley
negotiate with any party other than the Acquiror and The Irvine Company in
connection with a transaction involving the Company.
The following is a summary of the material financial and comparative
analyses performed by Morgan Stanley in connection with providing the Opinion
to the Board of Directors.
Stock Trading History. Morgan Stanley reviewed the historical trading
prices for the Common Stock and noted that the average of the daily closing
per share prices of the Common Stock in 1998 through December 1, 1998 (the
date of the Acquiror's initial proposal) was $28.91, with a low and high of
$23.375 and $32.1875, respectively. Further, the ten-trading day, two-month
and six-month average closing prices of the Common Stock through December 1,
1998, were $27.29, $26.24 and $27.26, respectively. Since the initial public
offering at a price of $17.50 per share on December 8, 1993, the Common Stock
recorded an all-time high of $33.50 on October 8, 1997. Morgan Stanley noted
that the Acquiror's offer was $34.00 in cash per share.
Morgan Stanley reviewed the premiums obtained by computing the
percentage excess of the $34.00 per share offer price over the average closing
prices of the Common Stock for the six-month, two-month and ten-day trading
periods ended December 1, 1998. The premium was 24.7% for the six months ended
on December 1, 1998, 29.6% for the two months ended December 1, 1998 and 24.6%
for the ten trading days ended December 1, 1998.
Net Asset Value. Morgan Stanley estimated the net asset value of the
Company based on a property-by-property analysis. For stabilized properties, a
range of capitalization rates based on recent, comparable market transactions
was applied to estimates of 1999 net operating income, based on various rent
growth scenarios. Properties under
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development were valued using a discounted cash flow analysis through the
stabilization period using a range of discount rates and applying a range of
capitalization rates to estimate terminal value. The gross value of the assets
was reduced by the estimated value of the outstanding debt and preferred stock
of the Company to arrive at a net asset value range of $33.00 to $40.00 per
fully diluted share of Common Stock.
Discounted Cash Flow. Morgan Stanley performed discounted cash flow
analyses of the Company based upon projections provided by the management of
the Company and a range of rental growth assumptions. Morgan Stanley performed
three separate discounted cash flow analyses at varying rental growth rates:
dividend discount, free cash flow and leveraged recapitalization. The dividend
discount model discounted dividends per share for the years 1999 through 2003,
using discount rates reflecting an expected equity total return of 11.0% to
15.0% and terminal multiples on 2004 FFO (funds from operations) of 9.0x to
12.0x. The free cash flow methodology discounted all available cash flow after
capital expenditures but before interest and dividends for the years 1999
through 2003, using discount rates reflecting a weighted average cost of
capital of 9.5% to 11.5% and terminal multiples on 2004 earnings before
interest, taxes, depreciation and amortization expense ("EBITDA") of 10.5x to
13.0x. The leveraged recapitalization analysis assumed that debt would be
raised to purchase the outstanding public shares and projected dividends based
upon 50% of funds available for distribution after all projected capital
expenditures. The projected dividends were discounted for the years 1999
through 2003, using discount rates reflecting an expected equity total return
of 14.0% to 18.0% and terminal multiples on 2004 FFO of 7.5x to 10.5x. The
range of present values per share of Common Stock estimated pursuant to these
discounted cash flow analyses was $30.00 to $40.00.
Analyses of Selected Comparable Publicly Traded Companies. Morgan
Stanley reviewed the trading statistics of selected comparable publicly traded
apartment REITs, selected on the basis of their size, portfolio
characteristics and geographic concentration or presence in high
barrier-to-entry markets. The comparable companies (the "Comparable
Companies") selected consisted of Archstone Communities Trust, AvalonBay
Communities Inc., BRE Properties Inc., Equity Residential Properties Trust,
Essex Property Trust Inc. and Post Properties Inc. Morgan Stanley then added
an estimated value of the Land Rights Agreement, derived by estimating the
present value benefit of the Company's right to purchase land from The Irvine
Company at below-market prices (the "LRA Value") to the values estimated by
applying trading statistics of the Comparable Companies to the Company.
Based on consensus security analyst estimates for 1999, as reported by
First Call, and January 20, 1999 closing share prices, the trading multiples
of 1999 projected FFO per share of the Comparable Companies ranged from 9.2x
to 10.4x, with an average of 9.9x. Applying this range of multiples to the
estimated 1999 FFO per share for the Company resulted in a range of values per
share of Common Stock of $26.61 to $29.91. Normalizing each of the Comparable
Companies' 1999 FFO to a target leverage (debt to market capitalization) ratio
of 35%, the trading multiples of normalized 1999 FFO per share ranged from
9.7x to 11.1x. Applying this range of multiples to the normalized 1999 FFO for
the Company and adding the LRA Value resulted in a range of values per share
of Common Stock of $28.06 to $31.76.
Based on the January 20, 1999 closing share prices of the Comparable
Companies, their dividend yields ranged from 5.8% and 7.6%, with an average of
6.7%. Applying this range of dividend yields to the estimated 2000 dividends
for the Company and adding the LRA Value resulted in a range of values per
share of Common Stock of $25.78 to $33.49.
Morgan Stanley also reviewed the multiple-to-total return ratios of
the Comparable Companies. The multiple-to-total return ratios were obtained by
dividing the FFO trading multiple for each Comparable Company by its total
return, computed as the sum of its annualized reported dividend yield and the
consensus analyst estimates of the long-term growth rate as reported by First
Call, an industry service provider of earnings estimates based on an average
of earnings estimates published by various investment banking firms ("First
Call"). The multiple-to-total return ratios for the Comparable Companies
ranged from .52x to .75x. This range was applied to the Company's estimated
total return to arrive at an implied FFO multiple range of 9.2x to 12.1x.
Applying the estimated 1999 FFO per share and adding the LRA Value yielded an
implied range of values per share of Common Stock of $26.51 to $34.67.
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None of the Comparable Companies is identical to the Company. In
evaluating the Comparable Companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company, such as the impact of competition on the Company
and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of the Company or the
industry or in the financial markets in general.
Ability-to-Pay Analysis. Morgan Stanley analyzed the purchase price
that could be paid by another public apartment company based on a variety of
assumptions as to a potential acquiror's acceptable level of earnings
accretion or dilution. Based upon each Comparable Company's cost of debt and
equity, the supportable purchase price was calculated assuming it would be
break-even to the potential acquiror's earnings or be slightly dilutive. The
resulting price range was estimated at $32.00 to $34.50 per share of Common
Stock.
Analyses of Selected Comparable Transactions. Morgan Stanley compared
the principal terms of the Merger with those of selected other comparable
transactions. Morgan Stanley analyzed three groups of selected precedent
transactions. The first group of transactions included the following selected
mergers of public REITs: Merry Land & Investment Co. Inc. with Equity
Residential Properties Trust in 1998, Beacon Properties Corp. with Equity
Office Properties Trust in 1997, Evans Withycombe Residential Inc. with Equity
Residential Properties Trust in 1997, Wellsford Residential Property Trust
with Equity Residential Properties Trust in 1997, and DeBartolo Realty Corp.
with Simon Property Group Inc. in 1996. Based on the average trading prices
for the ten-trading day period ending five trading days prior to the public
announcement of each of these transactions, the average per share premium paid
for the company being acquired by the surviving company was 18.6%, and ranged
from 13.5% to 22.4%, for the selected transactions. On the same computation
basis, the per share premium to be paid by the Acquiror pursuant to the Merger
is 24.6%.
The second group of transactions analyzed involved combinations of
public apartment REITs, including the mergers of Merry Land & Investment Co.
Inc. with Equity Residential Properties Trust in 1998, Security Capital
Atlantic Inc. with Security Capital Pacific Trust in 1998, Avalon Properties
Inc. with Bay Apartment Communities Inc. in 1998, Ambassador Apartments, Inc.
with Apartment Investment and Management Co. in 1997, Oasis Residential Inc.
with Camden Property Trust in 1997, Evans Withycombe Residential Inc. with
Equity Residential Properties Trust in 1997, Columbus Realty Trust with Post
Properties Inc. in 1997, Wellsford Residential Property Trust with Equity
Residential Properties Trust in 1997, Paragon Group Inc. with Camden Property
Trust in 1996, South West Property Trust Inc. with United Dominion Realty
Trust Inc. in 1996, and REIT of California with BRE Properties Inc. in 1995.
Based on the average trading prices for the ten-trading day period ending five
trading days prior to the public announcement of each of these transactions,
the average per share premium paid for the company being acquired was 11.7%,
and ranged from (1.0)% to 20.7%, for the selected transactions. On the same
computation basis, the per share premium to be paid by the Acquiror pursuant
to the Merger is 24.6%.
The third group of transactions analyzed involved precedent minority
shareholder transactions in which the majority shareholder bought out the
minority shareholders. The per share premiums paid ranged widely from
approximately 0% to 50%.
Applying a range of premiums paid based upon the three groups of
selected precedent transactions resulted in a range of values per share of
Common Stock of $31.00 to $35.00.
No transaction utilized in a comparable transaction analysis is
identical to the Merger and, accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
financial and operating characteristics of the Company and other factors that
would affect the acquisition value of companies to which it is being compared.
In evaluating the selected comparable transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company, such as the impact of competition
on the Company and the industry generally, industry growth and the absence of
any adverse material change in the financial condition and prospects of the
Company or the industry or in the financial markets in general.
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Wall Street's Views. Morgan Stanley reviewed the price estimates and
net asset value estimates for the Company as reported by Green Street
Advisors, Morgan Stanley Dean Witter, CIBC Oppenheimer, Jefferies & Company,
Sutro & Co., the Penobscot Group and Realty Stock Review. Morgan Stanley
reviewed the net asset and price target valuations published by the analysts
prior to the December 1, 1998 offer date, and after December 1, 1998. Based
upon the estimates provided by all of these analysts, the values of the Common
Stock ranged from $24.00 to $35.00 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be taken as a whole and that selecting
portions of its analyses, without considering all analyses, would create an
incomplete view of the process underlying the Opinion. In addition, Morgan
Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from a
particular analysis described above should not be taken to be Morgan Stanley's
view of the value of the Common Stock.
In performing its analyses, Morgan Stanley made numerous judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company. The analyses performed by Morgan Stanley are not
necessarily indicative of actual value, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Morgan Stanley's analysis of whether the consideration to be
received by the Nonaffiliated Shareholders pursuant to the Merger Agreement is
fair from a financial point of view to such holders, and were conducted in
connection with the delivery of the Opinion by Morgan Stanley to the Board of
Directors. The analyses do not purport to be appraisals or to reflect the
prices at which the Company might actually be sold. The Morgan Stanley
analyses described above should not be viewed as determinative of the opinion
of the Board of Directors or the management of the Company with respect to the
value of the Company or of whether Morgan Stanley would have been willing to
agree to any consideration other than the consideration to be received by the
Shareholders pursuant to the Merger.
As described above, the Opinion and presentation of Morgan Stanley to
the Board of Directors were only one of many factors taken into consideration
by the Special Committee in making its determination to approve the Merger
Proposal. In addition, the terms of the Merger Agreement were determined
through negotiations between the Special Committee and the Acquiror. Although
Morgan Stanley provided advice to the Special Committee during the course of
these negotiations, the decision to enter into the Merger Agreement and to
accept the consideration to be received in the Merger was solely that of the
Board of Directors.
The Special Committee retained Morgan Stanley based upon its
experience and expertise. Morgan Stanley is an internationally recognized
investment banking and advisory firm. As part of its investment banking
business, Morgan Stanley is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuation for estate, corporate
and other purposes. In the ordinary course of their business, Morgan Stanley
and its affiliates may actively trade the debt and equity securities of the
Company for their own account and for the account of customers and,
accordingly, may at any time hold long or short positions in such securities
or senior loans. Morgan Stanley has also acted as an underwriter in connection
with public offerings of the Company's securities and has performed various
investment banking services for the Company and The Irvine Company.
In connection with the services of Morgan Stanley as financial advisor
to the Special Committee with respect to the Merger and related matters, the
Company has agreed to pay Morgan Stanley certain fees. If a transaction is
accomplished, the Company has agreed to pay Morgan Stanley a transaction fee
(the "Transaction Fee"). The Transaction Fee will be calculated as the sum of
(a) $3 million and (b) the product of (i) 5% and (ii) the amount, if any, by
which the aggregate consideration paid in the transaction to holders of Common
Stock, options exercisable for Common Stock or common L.P. Units of the
Operating Partnership (in each case as not currently owned by The Irvine
Company or its affiliates) exceeds the aggregate consideration such
securityholders would have received under the proposal set forth in the
December 1 Letter. In addition, the Company has agreed to reimburse Morgan
Stanley for its reasonable out-of-pocket expenses (including the fees and
disbursements of their attorneys) and to indemnify Morgan
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<PAGE>
Stanley and certain related persons against certain liabilities, including
certain liabilities under the federal securities laws, arising out of its
engagement. If a transaction is not accomplished, the Company has agreed to
pay Morgan Stanley a fee of $500,000 in connection with the delivery of Morgan
Stanley's Opinion.
Position of the Acquiror and The Irvine Company
The Acquiror and The Irvine Company had no involvement in the Special
Committee's evaluation of the fairness of the Merger Consideration to the
Nonaffiliated Shareholders and neither has undertaken any formal evaluation of
its own as to the fairness of the Merger Consideration. The Acquiror and The
Irvine Company, however, have considered the factors set forth above under
"--Recommendation of the Special Committee and the Board of Directors;
Fairness of the Merger." Based on such factors, the Acquiror and The Irvine
Company have each determined that the Merger Consideration is fair to the
Nonaffiliated Shareholders.
The Irvine Company retained NationsBanc Montgomery to analyze its
alternatives regarding its investment in the Company. In connection with the
engagement, the Acquiror and The Irvine Company asked NationsBanc Montgomery
to perform preliminary financial analyses regarding a potential business
combination. On November 25, 1998, NationsBanc Montgomery made presentations
to the Acquiror and The Irvine Company in which NationsBanc Montgomery
summarized its preliminary financial analyses in the First NationsBanc
Montgomery Report. Upon determining to proceed with the December 1 Letter, the
Acquiror and The Irvine Company engaged NationsBanc Montgomery to act as their
financial advisor in connection with the transaction proposed in the December
1 Letter. Following December 1, 1998, NationsBanc Montgomery continued to
refine its financial analyses, which culminated on December 30, 1998 in the
presentation of the Second NationsBanc Montgomery Report. In response to
requests by Morgan Stanley, NationsBanc Montgomery delivered the Third
NationsBanc Montgomery Report to Morgan Stanley on January 12, 1999.
A summary of the NationsBanc Montgomery Reports is attached as
Appendix D to this Proxy Statement and is qualified in its entirety by
reference to the full texts of the NationsBanc Montgomery Reports. The full
texts of the First NationsBanc Montgomery Report, the Second NationsBanc
Montgomery Report and the Third NationsBanc Montgomery Report, which set forth
the assumptions made, matters considered and qualifications and limitations on
the reviews undertaken by NationsBanc Montgomery, are attached as exhibits to
the Schedule 13E-3 filed with the Commission by the Acquiror. Copies of the
NationsBanc Montgomery Reports are available for inspection and copying at the
principal executive offices of the Acquiror during its regular business hours
by any Shareholder or such Shareholder's representative who has been so
designated in writing, upon written request and at the expense of the
requesting Shareholder or representative.
NationsBanc Montgomery was not retained to, and was not expected to,
render any advice or opinion to the Acquiror as to the fairness to the
Nonaffiliated Shareholders of the consideration to be received by them in the
Merger. THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS DID NOT RELY UPON THE
NATIONSBANC MONTGOMERY REPORTS IN DETERMINING THAT THE MERGER PROPOSAL WAS
FAIR TO, AND IN THE BEST INTERESTS OF, THE NONAFFILIATED SHAREHOLDERS. The
NationsBanc Montgomery Reports were intended to provide additional information
for the use and benefit of the Acquiror and in response to Morgan Stanley's
inquiries, and were not prepared for the purpose of addressing the merits of
the underlying business decision by the Acquiror to engage in the Merger and
do not constitute a recommendation to any Shareholder as to how such
Shareholder should vote on the Merger or any matter related thereto.
Interests of Certain Persons in the Merger; Certain Company Benefit Plans
General. In considering the recommendation of the Special Committee
and the Board of Directors, Shareholders should be aware that certain officers
and Directors of the Company have certain interests in the Merger or certain
relationships, including those referred to below, that present actual,
potential, or the appearance of potential, conflicts of interest in connection
with the Merger. The Special Committee and the Board of Directors were aware
of these potential or actual conflicts of interest and considered them along
with other matters described under "--Recommendation of the Special Committee
and the Board of Directors; Fairness of the Merger." See also "Certain
Relationships and Transactions."
24
<PAGE>
Treatment of Options and Restricted Stock Units; Retention Letters.
Certain Directors have received options ("Director Options") to acquire Common
Stock pursuant to the Company's 1993 Stock Option Plan for Directors (the
"Director Plan") and certain officers and employees of the Company and its
affiliates have received options ("Employee Options") to acquire Common Stock
and restricted stock units ("Units") pursuant to the Company's 1993 Long-Term
Stock Incentive Plan (the "1993 Plan") and the Company's 1996 Long-Term Stock
Incentive Plan (the "1996 Plan" and, together with the Director Plan and the
1993 Plan, the "Plans"). The Director Options and the Employee Options are
together referred to as the "Options," and the Directors and the officers and
employees of the Company and its affiliates are together referred to as
"Holders." In addition, Mr. McFarland has the right, under certain
circumstances, to receive future grants of restricted stock units ("Future
Units") pursuant to the terms of the July 14, 1997 employment offer letter
agreement between the Company and Mr. McFarland (the "McFarland Agreement").
Capitalized terms not otherwise defined in this subsection only have the
respective meanings set forth in the Retention Letters (as defined below).
Pursuant to the Merger Agreement, the Company will take all actions
necessary to assure that, prior to the time the Merger becomes effective (the
"Effective Time"), each outstanding Option and each Unit (and any dividend
equivalents relating thereto) (and each right to any award under the Plans)
will be canceled. The Merger Agreement provides that the Company will take all
actions necessary to assure that, prior to the Effective Time, each Holder
will be entitled to receive a cash amount equal to the excess of $34.00 over
the exercise price for each share of Common Stock subject to the Option,
payable at the Effective Time for a vested Option or a portion of an Option.
All Director Options are fully vested. All unvested Employee Options held by
any Holder not a party to a Letter Agreement will be canceled. Each other
Employee Option will be canceled according to the terms of the letter
agreements dated as of January 22, 1999 between the Company and the Holder of
such Employee Option or Unit (the "Retention Letters"), which were authorized
by the Special Committee on December 22, 1998. In the case of an Employee
Option, the Retention Letters provide that each Holder will be entitled to
receive a cash amount equal to the excess of $34.00 over the exercise price
for each share of Common Stock subject to the Option, payable at the Effective
Time if then vested, or at the time such Option or portion of an Option would
otherwise have vested according to the relevant award agreement. In the case
of a Unit, the Retention Letters provide that each Holder will be entitled to
receive a cash amount equal to $34.00 per Unit, payable at the time such Unit
would otherwise have been available for vesting according to the relevant
award agreement, assuming the achievement of all applicable performance
targets for the relevant periods. In the case of Mr. McFarland's Future Units,
his Retention Letter provides that he will be entitled to receive a cash
amount equal to $34.00 per Future Unit, payable at the time the restricted
stock units with respect to such Future Unit would otherwise have been
available for vesting according to the McFarland Agreement, assuming that
restricted stock units had been granted to Mr. McFarland in accordance with
the terms of the McFarland Agreement. It is a condition of payment with
respect to both Options and Units (and Future Units) that the Holder remain
continuously employed by the Company until the respective payment dates. The
Unit amounts (and the Future Unit amounts) will bear interest from the
Effective Time (or, in the case of the Future Unit amounts, from February 1 of
the scheduled year of grant of the restricted stock units) to the relevant
payment date, payable on the last day of each calendar quarter, at the annual
rate of 5% through February 29, 2000, and 6% from March 1, 2000 until the date
such Unit (or in the case of such Future Unit, the date the restricted stock
unit with respect to such Future Unit) would have been available for vesting
or, if sooner, until payment for such Units (or Future Units) is accelerated
in accordance with the Retention Letters. Interest will be payable in cash as
promptly as practicable following each interest payment date.
Pursuant to the Retention Letters, in the event that a Holder's
employment is terminated involuntarily by the Company without Cause or by the
Holder for Good Reason prior to the relevant payment date, payment for
unvested Options and Units (and Future Units) will be accelerated and made
within 10 days after such employment termination date.
The table below shows the Options and Units (and Future Units)
currently held by each of the Company's executive officers and Directors (and
all other individuals as a group) and the amounts in respect of such Options
and Units (and Future Units) such individuals (and such group) will be
entitled to receive at the Effective Time and in the future (not including
interest). All amounts to be paid at the Effective Time relate to vested
Options.
25
<PAGE>
<TABLE>
<CAPTION>
Outstanding
Outstanding Units and Future Payment at Potential Future
Name Options Units Effective Time Payment
- ------ ----------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
(in thousands)
Independent Directors:
Anthony M. Frank 10,500 -- $ 132.1 --
John F. Grundhofer 3,500 -- $ 16.9 --
Bowen H. McCoy 10,500 -- $ 132.1 --
Jack W. Peltason 10,500 -- $ 132.1 --
John F. Seymour, Jr. 10,500 -- $ 132.1 --
Executive Officers:
William H. McFarland 100,000 104,500 $ 150.0 $3,853.0
William W. Thompson 45,000 20,000 $ 175.2 $ 781.0
Richard E. Lamprecht 68,500 16,000 $ 643.2 $ 629.8
Bruce N. Dorfman 30,000 8,000 $ 62.9 $ 326.6
Rudy A. Svrcek 10,000 10,000 -- $ 381.9
Scott A. Reinert 32,000 8,000 $ 265.5 $ 308.7
Shawn Howie 65,000 4,000 $ 903.3 $ 160.8
All Other Individuals As a Group 202,000 22,000 $ 1,039.2 $1,197.5
</TABLE>
Termination Protection and Severance. Messrs. McFarland, Thompson,
Lamprecht, Svrcek, Reinert and Howie (each, an "executive") also entered into
termination protection and severance arrangements with the Company set forth
in their Retention Letters, which provide that, in addition to the
above-mentioned treatment of Options and Units (and Future Units), an
executive whose employment is terminated involuntarily by the Company without
Cause, or by himself for Good Reason within eighteen months following the
Merger, will be entitled to one year's base salary at the rate in effect at
either (i) the time of his termination of employment or (ii) the Effective
Time, whichever is higher. Such amount will be paid to the executive in a lump
sum, without reduction for the time value of money, as soon as practicable,
but in any event within 10 days, after the date of his termination of
employment. The severance benefits payable under the Retention Letters depend
on the effective rate of the base salary applicable to an executive at the
time of his termination of employment. Therefore, the severance amount payable
to an executive is not precisely determinable. However, assuming termination
at current levels of base salaries, the amounts that would be payable to
Messrs. McFarland, Thompson, Lamprecht, Svrcek, Reinert and Howie would be
$400,000, $275,000, $200,000, $175,000, $175,000 and $165,000, respectively.
The Retention Letters also provide that the Company will bear the
legal fees and expenses incurred by an employee to remedy a breach of the
terms of the Retention Letters by the Company, unless the employee's claim is
determined by a court or arbitrator to be without merit.
Indemnification and Insurance. Pursuant to the Merger Agreement, for
six years after the Effective Time, the Acquiror will cause the Surviving
Company to indemnify and hold harmless the present and former officers and
Directors of the Company in respect of acts or omissions occurring prior to
the Effective Time to the extent provided under the Company's Articles of
Incorporation and by-laws in effect on the date of the Merger Agreement. For
six years after the Effective Time, the Acquiror will cause the Surviving
Company to provide officers' and directors' liability insurance in respect of
acts or omissions occurring prior to the Effective Time covering each such
person currently covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less
favorable than those of such policy in effect on the date. See also "The
Merger--Additional Agreements."
26
<PAGE>
Certain Consequences of the Merger
Pursuant to the Merger Agreement, following approval and adoption of
the Merger Proposal and subject to the fulfillment or waiver of certain
conditions, the Company will be merged with and into the Acquiror, and the
Acquiror will continue as the Surviving Company in the Merger.
The Acquiror will continue in existence as the Surviving Company and,
without further transfer, succeed to and possess all of the rights, privileges
and powers of the Company, and all of the assets and property of whatever kind
and character of the Company will vest in the Acquiror without further act or
deed; thereafter, the Acquiror, as the Surviving Company, will be liable for
all of the liabilities and obligations of the Company and any claim or
judgment against the Company may be enforced against the Acquiror.
Therefore, following the Merger, the Nonaffiliated Shareholders will
cease to participate in future earnings or growth, if any, of the Company or
benefit from any increases, if any, in the value of the Company, and they no
longer will bear the risk of any decreases in the value of the Company.
Because the Common Stock will be canceled as a result of the Merger, the
Common Stock will be delisted from the NYSE.
The Common Stock is currently registered under the Securities Exchange
Act of 1934 (the "Exchange Act"). Registration of the Common Stock under the
Exchange Act will be terminated and the Company will be relieved of the
obligation to comply with the public reporting requirements of the Exchange
Act, including the obligation to comply with the proxy rules of Regulation 14A
under the Exchange Act. Accordingly, less information will be required to be
made publicly available than presently is the case. However, the Operating
Partnership and IAC Capital Trust will continue to be reporting companies.
At the Effective Time, certain unexercised options to purchase Common
Stock pursuant to certain stock option plans in which certain Company
employees and Directors participate will be converted into cash and rights to
future cash payments. See "--Interests of Certain Persons in the Merger;
Certain Company Benefit Plans."
The officers of the Acquiror immediately prior to the Merger will be
the executive officers of the Surviving Company immediately after the Merger.
The certificate of formation and limited liability company agreement of the
Acquiror in effect immediately prior to the Merger will be the certificate of
formation and limited liability company agreement of the Surviving Company
immediately after the Merger.
The Company is party to certain agreements with The Irvine Company
(including the Land Rights Agreement and the Miscellaneous Rights Agreement).
There can be no assurance that the Surviving Company and The Irvine Company
will not terminate any of these agreements or that any of these agreements
will otherwise remain in effect following the Merger, or that the Surviving
Company will continue to enjoy the benefits of these agreements.
Plans for the Company After the Merger
Except as otherwise described in this Proxy Statement, the Company has
not, and the Company has been advised by the Acquiror that neither the
Acquiror nor The Irvine Company has, as of the date of this Proxy Statement,
approved any specific plans or proposals for any extraordinary corporate
transaction involving the Surviving Company after the completion of the Merger
or any sale or transfer of a material amount of assets currently held by the
Company after the completion of the Merger. The Company has been advised by
the Acquiror that it is the Acquiror's and The Irvine Company's intention to
hold the assets for long term investment. Although the Acquiror deems it
unlikely, it reserves the right to change its plan at any time, and the
Acquiror may elect to sell, transfer or otherwise dispose of all or any
portion of the assets currently held by the Company to one or more of its
affiliates or to any other parties as warranted by future conditions. In
addition, the Company has been advised by the Acquiror that the Acquiror
currently plans to retain senior management of the Company in comparable
positions after the Merger. The Acquiror reserves the right to make whatever
personnel changes to the present management of the Company it deems necessary
after completion of the Merger.
27
<PAGE>
The Company has been advised by the Acquiror that the Acquiror's and
The Irvine Company's present intention is to retain all existing public and
tax-exempt debt securities and preferred limited partnership units in the
Operating Partnership and preferred securities of IAC Capital Trust.
Furthermore, the Acquiror intends to seek reaffirmation of the existing
investment grade ratings for these securities. The Acquiror's plans are
subject to revision based on feedback from the rating agencies, or otherwise,
and the Acquiror reserves the right to effect such revisions. There can be no
assurance that any rating agencies will reaffirm current investment grade
ratings for any of the aforementioned securities.
Conduct of the Business of the Company If the Merger Is Not Consummated
If the Merger is not consummated, the business and operations of the
Company are expected to continue to be conducted substantially as currently
conducted. The Company anticipates that The Irvine Company would continue to
be a substantial Shareholder and to have the right to nominate three out of
the nine members of the Board of Directors.
Certain Tax Considerations
The exchange of Common Stock for cash by a Shareholder in the Merger
will be a taxable transaction under the Code and may also be a taxable
transaction under state and local and other tax laws.
In general, a Shareholder will recognize gain or loss equal to the
difference between the tax basis of his or her Common Stock and the amount of
cash received in exchange therefor. Such gain or loss will be capital gain or
loss if the Common Stock is a capital asset in the hands of the Shareholder
and will be long-term gain or loss if the Shareholder has held the Common
Stock for more than one year as of the Effective Time. These rules may not
apply to Shareholders who acquired their Common Stock pursuant to the exercise
of stock options or other compensation arrangements with the Company or who
are not citizens or residents of the United States or who are otherwise
subject to special tax treatment under the Code.
For United States tax purposes the Merger will be treated as if the
Company sold all of its assets, including its interests in real property, to
the Acquiror and then liquidated. Under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"), a Foreign Shareholder will be subject to
(i) United States federal income tax at regular graduated rates on the amount
of the Merger proceeds that is distributed to such Foreign Shareholder and is
attributable to gains on the disposition of the Company's real property and
other "United States real property interests," and (ii) withholding in respect
of this tax at a rate of 35% of that amount. A "Foreign Shareholder" is a
person or entity that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership,
or a foreign estate or trust.
If the Common Stock is treated as a "United States real property
interest," then under FIRPTA a Foreign Shareholder will be subject to (i)
United States federal income tax at regular graduated rates on gain recognized
on the disposition of Common Stock pursuant to the Merger, and (ii) withholding
in respect of this tax at a rate of 10% of (x) the amount realized in the
Merger, less (y) any amount subject to 35% withholding as described above. In
general, the gain recognized on the disposition of Common Stock would not be
subject to this tax if (i) the Company is a "domestically controlled REIT"
within the meaning of the Code or (ii) the Common Stock is regularly traded on
an established securities market within the meaning of the Code and the Foreign
Shareholder does not own, actually or constructively under attribution rules
provided in the Code, in excess of 5% of the fair market value of all Common
Stock outstanding at any time during the shorter of the five-year period
preceding the Merger or the Foreign Shareholder's holding period. The Company
believes that the Common Stock is regularly traded on an established securities
market within the meaning of the Code and will endeavor to determine whether it
continues to be so traded and whether the Company is a "domestically controlled
REIT" as of the Effective Time. Foreign Shareholders are urged to consult their
tax advisors concerning the potential applicability of these provisions and the
consequences of a sale or other disposition of their Common Stock in advance of
the Merger.
To avoid FIRPTA withholding, non-Foreign Shareholders must certify
under penalties of perjury their non-foreign status by completing the
certification form that will be included with the letter of transmittal after
the proposed Merger.
28
<PAGE>
The exchange of Common Stock for cash by a Shareholder will be
reported to the Internal Revenue Service. "Backup" withholding at a rate of
31% will apply to payments made to a non-Foreign Shareholder (other than a
corporation or any other exempt non-Foreign Shareholder) unless the
non-Foreign Shareholder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup
withholding and meets certain other conditions. A Foreign Shareholder will be
exempt from backup withholding provided that certain certification
requirements are satisfied. Payment of the proceeds from the disposition of
the Common Stock to or through the United States office of a broker is subject
to information reporting and backup withholding unless the Shareholder
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a Shareholder under the withholding rules
described above will be allowed as a refund or a credit against such
Shareholder's United States Federal income tax liability, provided the
required information is furnished to the Internal Revenue Service on a timely
basis.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. DUE TO THE INDIVIDUAL
NATURE OF TAX CONSEQUENCES, SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
Litigation Regarding the Merger
Shortly after the public announcement of the proposed business
combination set forth in the December 1 Letter, four lawsuits were initiated
by Shareholders against The Irvine Company, the Acquiror, the Company and the
Company's Directors alleging that the price offered by the Acquiror for the
shares held by the Nonaffiliated Shareholders was inadequate and that any
negotiations leading up to the initial acquisition proposal were not conducted
at arm's length. Specifically, since December 2, 1998, four putative
shareholder action complaints have been filed in the Superior Court of
California, Orange County (together, the "Shareholder Actions"). Each of the
Shareholder Action complaints purports to be brought by Nonaffiliated
Shareholders as a class action on behalf of all Nonaffiliated Shareholders.
These lawsuits seek injunctive relief and unspecified money damages. The
complaints allege, among other things, that the defendants have breached their
duties to the Nonaffiliated Shareholders because the initially proposed merger
consideration was inadequate and unfair. The Acquiror, The Irvine Company and
the Company each believe that their respective actions and those of the Board
of Directors (and the Special Committee) in connection with the proposed
Merger have been in accordance with Maryland law.
Accounting Treatment
The Merger will be accounted for by the Acquiror under the "purchase"
method of accounting in accordance with generally accepted accounting
principles. Therefore, the Acquiror will treat the Merger as a purchase of an
approximately 83% interest in the Company.
29
<PAGE>
THE MERGER
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT WHICH IS
ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY
AND TO CONSIDER IT CAREFULLY. CAPITALIZED TERMS NOT OTHERWISE DEFINED IN THE
FOLLOWING SUMMARY HAVE THE RESPECTIVE MEANINGS SET FORTH IN THE MERGER
AGREEMENT.
The Merger
The Merger Agreement provides for the merger of the Company with and
into the Acquiror. The Acquiror will be the Surviving Company, and it will
continue its limited liability company existence under the laws of the State
of Delaware. At the Effective Time, the separate corporate existence of the
Company will cease. The Surviving Company will possess all the rights,
privileges, immunities, powers and purposes of the Company, and it will assume
and become liable for all liabilities and obligations of the Company.
Merger Consideration
In the Merger, each outstanding share of Common Stock will be
converted, by virtue of the Merger and without any action on the part of the
Shareholders, into the right to receive $34.00 in cash per share. The Merger
Consideration was determined as the result of arm's-length negotiations
between the Special Committee and the Acquiror. See "Special
Factors--Background of the Merger," "--The Acquiror's Purpose; Structure for
the Merger," "--Recommendation of the Special Committee and the Board of
Directors; Fairness of the Merger" and "--Opinion of the Financial Advisor for
the Special Committee."
Effective Time
The Effective Time will be 5:00 p.m. New York City time on the later
to occur of (i) the filing and acceptance for record of the Articles of Merger
with the Maryland State Department of Assessments and Taxation and (ii) the
filing of the Certificate of Merger with the Secretary of State of Delaware.
The Articles of Merger and the Certificate of Merger will be filed as soon as
practicable after the requisite approval and adoption of the Merger Proposal
by the Shareholders at the Special Meeting are obtained and the other
conditions precedent to the consummation of the Merger have been satisfied,
or, if legally permissible, waived. See "--Conditions."
Exchange and Payment Procedures
As soon as practicable after the Effective Time, the Exchange Agent
will mail to each record holder of an outstanding certificate representing
Common Stock immediately prior to the Effective Time, a letter of transmittal
and instructions for use in effecting the surrender of such certificate in
exchange for the Merger Consideration. Upon surrender to the Exchange Agent of
a certificate representing Common Stock, 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 $34.00 in cash per share. Until surrendered in accordance
with the foregoing instructions, each certificate representing Common Stock
will represent for all purposes only the right to receive the Merger
Consideration.
SHAREHOLDERS SHOULD NOT SEND THEIR COMMON STOCK CERTIFICATES NOW; THEY
SHOULD SEND THEM ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN LETTERS OF
TRANSMITTAL TO BE MAILED TO SHAREHOLDERS AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE TIME. IN ALL CASES, THE MERGER CONSIDERATION WILL BE PROVIDED ONLY
IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THIS PROXY STATEMENT, THE
MERGER AGREEMENT AND SUCH LETTERS OF TRANSMITTAL.
The Company and the Acquiror strongly recommend that certificates
representing Common Stock and letters of transmittal be transmitted only by
registered United States mail, return receipt requested, appropriately
insured.
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<PAGE>
Shareholders whose certificates are lost will be required at the holder's
expense to furnish a lost certificate affidavit and bond acceptable in form
and substance to the Exchange Agent.
Any Merger Consideration made available to the Exchange Agent that
remains unclaimed by Shareholders for six months after the Effective Time will
be delivered to the Acquiror, and any Shareholders who have not theretofore
made an exchange must thereafter look to the Acquiror for payment of their
claim for Merger Consideration.
The Acquiror will pay all charges and expenses of the Exchange Agent
in connection with the Merger and the payment and issuance of the Merger
Consideration.
Any questions concerning exchange and payment procedures and requests
for letters of transmittal may be addressed to EquiServe, L.P., the Exchange
Agent.
Transfer of Common Stock
No transfer of Common Stock will be made on the stock transfer books
of the Company after the Effective Time. If, at or after the Effective Time,
certificates of Common Stock are presented, they will be canceled and
exchanged for the right to receive $34.00 in cash per share as provided in
"--Exchange and Payment Procedures."
Additional Agreements
The Company and the Acquiror have agreed in the Merger Agreement to
prepare and file with the Commission this Proxy Statement and the Schedule
13E-3 and otherwise use all reasonable efforts to cause this Proxy Statement
and the Schedule 13E-3 to be mailed to the Shareholders at the earliest
practicable date. The Company and the Acquiror have agreed to cooperate with
each other and use their reasonable efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on their part under the Merger Agreement and applicable laws to consummate and
make effective the Merger and the other transactions contemplated by the
Merger Agreement as soon as practicable.
The Merger Agreement provides that the Company will (i) as soon as
practicable, call and convene the Special Meeting for the purpose of obtaining
the required Shareholder approvals and (ii) through the Board of Directors and
the Special Committee, recommend to the Shareholders that they approve the
Merger Proposal and will not withdraw, modify or change such recommendation,
or recommend any other offer or proposal, at any time prior to the conclusion
of the Special Meeting. Notwithstanding the foregoing, the Special Committee
or the Board of Directors (with the concurrence of the Special Committee) may
at any time prior to the Effective Time withdraw, modify or change any
recommendation regarding the Merger or the Merger Agreement, or recommend any
other offer or proposal, if the Special Committee or the Board of Directors
(with the concurrence of the Special Committee), after consultation with its
counsel, determines that taking any such action is required in accordance with
its duties to the Shareholders under applicable law.
The Merger Agreement provides that (i) the Company will afford the
representatives of the Acquiror reasonable access to its and its subsidiaries'
properties, books, contracts, commitments and records and (ii) each of the
Company and the Acquiror will cooperate with each other and use its reasonable
efforts to take or cause to be taken all actions, and do or cause to be done
all things, necessary, proper or advisable on their part under the Merger
Agreement and applicable laws to consummate and make effective the Merger and
the other transactions contemplated by the Merger Agreement as soon as
practicable.
Pursuant to the Merger Agreement, the Company has agreed to take all
actions necessary to assure that, prior to the Effective Time, (i) each
outstanding Option, Unit and Future Unit is canceled; (ii) each Plan is
terminated; and (iii) no holder of an Option, Unit, Future Unit or other award
will have a right to acquire an interest in the Company or the Acquiror as a
result of the exercise of such Option, Unit, Future Unit or other award at or
after the Effective Time.
31
<PAGE>
The Merger Agreement provides that the Company will not, directly or
indirectly, (i) solicit, knowingly encourage, initiate or participate in any
negotiations, inquiries or discussions with respect to any offer or proposal
to acquire all or any part of its business, assets or capital shares whether
by merger, consolidation, other business combination, purchase of assets,
tender offer or exchange offer or otherwise (each of the foregoing, an
"Acquisition Proposal"); (ii) disclose, in connection with an Acquisition
Proposal, any information or provide access to its properties, books or
records, except as required by law or pursuant to a governmental request for
information; (iii) enter into or execute any agreement relating to an
Acquisition Proposal; or (iv) make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal other
than with respect to the Merger. Notwithstanding the foregoing, the Special
Committee, on behalf of the Company, may undertake to engage in certain of the
above prohibited acts in connection with a Superior Proposal.
The Acquiror and the Company have also agreed to take certain actions
with regard to compliance with withholding obligations, development of a joint
communications plan, directors' and officers' liability protections and the
payment of previously declared but unpaid dividends.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, from February 1, 1999 to the
Effective Time, the Company and its subsidiaries must carry on their respective
businesses in the usual, regular and ordinary course in all material respects,
in accordance with past practice, and must use all reasonable efforts to
preserve intact their present business organizations and preserve their
relationships with customers, suppliers and others having business dealings
with them.
In addition, generally the Company may not, and may not permit any of its
subsidiaries to:
o adjust, split, combine or reclassify any stock, or make, declare or
pay any dividend on, or purchase or
otherwise acquire, any of its stock or any securities or obligations
convertible into or exchangeable for any shares of its stock, voting
securities or other ownership interests, or grant any stock
appreciation rights or grant any individual or entity any right,
warrant or option to acquire any shares of its stock, voting
securities or other ownership interests, except for: (A)
distributions on Series A Preferred Securities of IAC Capital Trust
not to exceed the greater of (1) the rate required by the terms
thereof and (2) the minimum rate required for IAC Capital Trust to
maintain its status as a REIT; (B) regular quarterly distributions
on preferred limited partnership interests in the Operating
Partnership at the rates required by the terms thereof; (C) regular
quarterly distributions on common partnership interests in the
Operating Partnership at the rates recently paid by the Operating
Partnership; (D) regular quarterly distributions on Common Stock not
to exceed the greater of (1) $.385 per share and (2) the minimum
rate required for the Company to maintain its status as a REIT;
provided that the record dates for the 1999 second and third quarter
distributions shall not be earlier than June 15, 1999 and September
15, 1999, respectively; and (E) payment of dividend equivalents with
respect to Units, or repurchase, redeem or otherwise acquire any
shares of its stock or any stock, voting securities or ownership
interests in any of its subsidiaries;
o subject to certain exceptions, issue, deliver or sell, or authorize
or propose the issuance, delivery or sale of, any equity securities
of the Company or any of its subsidiaries, or enter into any
agreement with respect to any of the foregoing, or amend any
equity-related awards issued pursuant to any of the Plans;
o amend its Articles of Incorporation or by-laws (or other governing
documents), except as contemplated by the Merger Agreement;
o subject to certain exceptions, sell, transfer, mortgage, lease,
pledge, encumber or otherwise dispose of material properties or
assets outside the ordinary course of business;
o subject to certain exceptions, merge, consolidate or make any
acquisitions;
o enter into or terminate any material contracts;
32
<PAGE>
o incur additional indebtedness, make any loan or discharge any
obligation;
o increase the compensation payable to any of its officers or
employees or grant additional severance or termination pay other
than in the ordinary course of business and in accordance with past
practice, or grant awards under any of the Plans or amend,
accelerate, modify or take any action with respect to any award
under any of the Plans except as described in "Special
Factors--Interests of Certain Persons in the Merger; Certain Company
Benefit Plans" above or otherwise in accordance with the Company's
contractual obligations in respect of any such awards;
o subject to certain exceptions, make or rescind any material tax
election, settle any material tax claims or make any material change
in its accounting methods, principles or practices;
o pay, discharge, settle or satisfy any claims, liabilities or
obligations, other than in the ordinary course of business in
accordance with past practice; or
o take any action that would result in any of its representations or
warranties set forth in the Merger Agreement becoming materially
untrue or any of the conditions to the Merger not being satisfied.
Pursuant to the Merger Agreement, each party has agreed:
o to confer with the other party on a regular basis and report on
operational matters; and
o to give prompt notice to the other of (i) any representation or
warranty made by it in the Merger Agreement becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply
with or satisfy in any material respect any covenant, condition or
agreement required to be complied with or satisfied by it under the
Merger Agreement or (iii) any change, event or circumstance that has
had or would have a Material Adverse Effect on the Company or
materially adversely affect any party's ability to consummate the
Merger in a timely manner.
The Merger Agreement further provides that the Company and its
subsidiaries and the Acquiror will file all reports required to be filed by
each of them with the Commission (and all other Governmental Entities) between
the date of the Merger Agreement and the Effective Time and will deliver to
the other party copies of all such reports promptly after the same are filed.
Subject to applicable laws relating to the exchange of information, each of
the Company and the Acquiror will have the right to review in advance, and to
the extent practicable each will consult with the other, with respect to all
the information relating to the other party and each of their respective
subsidiaries, which appears in any filings, announcements or publications in
connection with the transactions contemplated by the Merger Agreement.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the Company to the Acquiror, including with respect to the following matters:
o the due organization and valid existence of the Company and its
subsidiaries and similar corporate matters;
o the capitalization of the Company and its subsidiaries;
o the due authorization, execution and delivery of the Merger Agreement
by the Company and its binding effect
on the Company;
o the lack of required regulatory filings and approvals for the
consummation of the Merger, and the lack of conflicts between the
Merger Agreement (and the transactions contemplated thereby) and the
Company's Articles of Incorporation or by-laws, contracts to which
it or its subsidiaries are parties, or any law, rule, regulation,
order or decree applicable to the Company or its subsidiaries;
33
<PAGE>
o the accuracy of the Company's Commission filings and financial
statements;
o the accuracy of the information provided by the Company for inclusion
in this Proxy Statement and the Schedule 13E-3;
o compliance with applicable laws;
o certain litigation matters;
o certain tax matters;
o employee benefit plans, labor matters, severance and change of
control agreements;
o properties;
o environmental liability;
o contracts and debt instruments;
o the absence of certain changes or events;
o the vote required to approve the Merger under the Company's Articles
of Incorporation or by-laws or applicable law;
o transactions with related parties;
o the inapplicability to the Merger of certain provisions of state
takeover law;
o the absence of brokers and finders (other than Morgan Stanley)
engaged by the Company who would be entitled to payment in
connection with the Merger; and
o the receipt by the Board of Directors of Morgan Stanley's Opinion.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications.
The Merger Agreement also contains representations and warranties of
the Acquiror to the Company, including with respect to the following matters:
o the due organization and valid existence of the Acquiror and similar
corporate matters;
o the due authorization, execution and delivery of the Merger Agreement
by the Acquiror and its binding effect on the Acquiror;
o the lack of required regulatory filings and approvals for the
consummation of the Merger, and the lack of conflicts between the
Merger Agreement (and the transactions contemplated thereby) and the
certificate of formation or limited liability company agreement of
the Acquiror, contracts to which it is a party, or any law, rule,
regulation, order or decree applicable to the Acquiror;
o the Acquiror's access to funds sufficient to consummate the
transactions contemplated by the Merger Agreement;
o the accuracy of the information provided by the Acquiror or any of
its affiliates for inclusion in this Proxy Statement and the Schedule
13E-3; and
34
<PAGE>
o the absence of brokers and finders entitled to payment from the
Company.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications.
Conditions
The obligations of the Company and the Acquiror to consummate the
Merger are subject to the satisfaction or, if legally permissible, waiver at
or prior to the Effective Time of the following conditions:
o the obtaining of the affirmative vote of the holders of two-thirds
of the total number of outstanding shares of Common Stock in favor
of the Merger Proposal;
o the obtaining of the affirmative vote of the holders of a number of
shares of Common Stock (excluding the shares held by the Acquiror
and its affiliates) representing a majority of the total number of
outstanding shares of Common Stock in favor of the Merger Proposal;
and
o there not being in effect any temporary restraining order,
preliminary or permanent injunction or other order of a court or
governmental agency prohibiting the consummation of the transactions
contemplated by the Merger Agreement.
The obligation of the Acquiror to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions:
o the representations and warranties of the Company in the Merger
Agreement must be true and correct in all material respects;
o the Company must comply in all material respects with the terms of
the Merger Agreement;
o the Acquiror must have received a REIT tax opinion from Davis Polk;
and
o all awards must be canceled in accordance with the terms of the
Merger Agreement.
The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions:
o the representations and warranties of the Acquiror in the Merger
Agreement must be true and correct in all material respects; and
o the Company must comply in all material respects with the terms of
the Merger Agreement.
The mutual conditions can be waived if waiver is legally permitted
and both parties agree (in the case of the Company, the determination as to the
waiver may be made only by the Special Committee on behalf of the Company).
The conditions the Company must meet can be waived by the Acquiror and the
conditions the Acquiror must meet can be waived by the Special Committee on
behalf of the Company. As of the date of this Proxy Statement, the Company has
no present intention, and the Acquiror has advised the Company that it has no
present intention, to waive any material conditions to the Merger.
Termination; Withdrawal of Recommendations
The Merger Agreement provides that it may be terminated and the
Merger abandoned at any time prior to the Effective Time, generally whether
before or after approval by the Shareholders:
o by mutual written consent of the Acquiror and the Special Committee
(on behalf of the Company);
35
<PAGE>
o by either the Acquiror or the Special Committee (on behalf of the
Company) if:
o any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable (provided that the parties have used their
reasonable efforts to resolve the impediment);
o the Merger has not been consummated by October 1, 1999;
provided that the right to terminate the Merger Agreement in
such event is not available to any party whose failure to
fulfill any of its obligations under the Merger Agreement
results in the failure of the Merger to occur on or before such
date; or
o the Merger Proposal shall have been voted on by Shareholders at
the Special Meeting and the Required Company Votes were not
obtained;
o by the Acquiror (and the Company must pay the Acquiror the Break-Up
Fee described under "--Termination Fees and Expenses" below) if:
o after the receipt by the Company of an Acquisition Proposal,
the Special Committee or the Board of Directors (including a
majority of the members of the Special Committee) withdraws or
modifies its recommendation of the Merger or the Merger
Agreement;
o after the receipt by the Company of an Acquisition Proposal
(which Acquisition Proposal is public), the Acquiror requests
in writing that the Special Committee or the Board of Directors
publicly reconfirm its recommendation of the Merger and the
Merger Agreement to the Shareholders and the Special Committee
or the Board of Directors (including a majority of the members
of the Special Committee), as applicable, fails to do so within
5 business days after its receipt of the Acquiror's request;
o the Special Committee or the Board of Directors (including a
majority of the members of the Special Committee) recommends to
the Shareholders an Alternative Transaction;
o a tender offer or exchange offer for 20% or more of the
outstanding shares of Common Stock is commenced (other than by
the Company or an affiliate of the Company) and the Special
Committee or the Board of Directors (including a majority of
the members of the Special Committee) recommends that the
Shareholders tender their shares in such tender offer or
exchange offer; or
o the Company fails to call and hold the Special Meeting by
October 1, 1999;
o by the Special Committee (on behalf of the Company), prior to the
approval of the Merger Proposal by the Shareholders, if the Special
Committee determines to accept a Superior Proposal (and the Company
must pay the Acquiror the Break-Up Fee described under
"--Termination Fees and Expenses" below);
o by the Acquiror upon a material breach of any covenant or agreement
on the part of the Company set forth in the Merger Agreement, or if
any representation or warranty of the Company becomes untrue in any
material respect and the Company is not in good faith attempting to
cure such breach; and
o by the Special Committee (on behalf of the Company) upon a material
breach of any covenant or agreement on the part of the Acquiror set
forth in the Merger Agreement, or if any representation or warranty
of the Acquiror becomes untrue in any material respect and the
Acquiror is not in good faith attempting to cure such breach.
36
<PAGE>
Termination Fees and Expenses
The Acquiror and the Company have agreed that all Expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such Expenses. Notwithstanding the
foregoing, if the Special Committee or the Board of Directors (including a
majority of the members of the Special Committee) withdraw, modify or change
any recommendation regarding the Merger or the Merger Agreement, or recommend
any other offer or proposal, and the Required Company Votes are not obtained,
then the Company must pay all of the Expenses incurred by the Acquiror. The
Company must pay the Acquiror a Break-Up Fee equal to $19,250,000 upon the
earliest to occur of the following events: (i) the termination of the Merger
Agreement by either the Acquiror or the Company, if a proposal for an
Alternative Transaction involving the Company has been publicly announced
prior to the Special Meeting and either a definitive agreement for an
Alternative Transaction is entered into, or such Alternative Transaction is
consummated, within eighteen months of such termination; or (ii) the
termination of the Merger Agreement due to one of the reasons set forth under
"--Termination; Withdrawal of Recommendations" above for which payment of the
Break-Up Fee is specified.
Amendment and Waiver
The Merger Agreement provides that it may be amended by the parties
thereto, by action taken or authorized by the Special Committee (on behalf of
the Company) and the Managing Member of the Acquiror, at any time before or
after approval of the Merger Proposal by the Shareholders, but, after any such
approval, no amendment may be made which by law or in accordance with the
rules of the NYSE requires further approval by the Shareholders without such
further approval. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties thereto. At any
time prior to the Effective Time, the parties to the Merger Agreement, by
action taken or authorized by the Special Committee (on behalf of the Company)
and the Managing Member of the Acquiror, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations or other
acts of the other party thereto, (ii) waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions contained therein. Any agreement on the part of a party to the
Merger Agreement to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party.
Letter Agreement with The Irvine Company
The Irvine Company has entered into a letter agreement with the
Company (attached as Appendix C to this Proxy Statement), pursuant to which The
Irvine Company has agreed (i) to take no action that would cause the Acquiror
to maintain less than $150 million in cash available to complete the Merger
(until the earlier of (x) the completion of the Merger and (y) 60 days
following the termination of the Merger Agreement), and (ii) to cooperate with
the Acquiror, and cause the Acquiror to comply with its obligations, in
connection with certain non-financial agreements of the Acquiror under the
Merger Agreement (e.g., preparation and filing of the Acquiror's Schedule
13E-3 with the Securities and Exchange Commission, coordination with the
Company on public announcements and provision of directors' and officers'
liability insurance for the Directors of the Company). The Irvine Company is
not obligated to contribute any funds to the Acquiror in connection with the
Merger.
Financing; Source of Funds
The total amount of funds required to pay the Merger Consideration to
the Nonaffiliated Shareholders and fees and expenses related to the Merger is
estimated to be approximately $581 million. These funds will be obtained from
$150 million of cash on hand of the Acquiror and the Letters of Credit in the
aggregate amount of $438 million. The Letters of Credit are irrevocable
and unconditional, and they each require the Acquiror to certify to Bank of
America that the proceeds obtained upon draw down of the Letters of Credit will
be applied only to the payment of the Merger Consideration to the Nonaffiliated
Shareholders. The forms of the Letters of Credit have been filed with the
Commission as exhibits to the Schedule 13E-3.
37
<PAGE>
No Appraisal Rights
Holders of Common Stock are not entitled to dissenting shareholders'
appraisal rights under the MGCL. The MGCL does not provide appraisal rights to
shareholders of a corporation in connection with a merger if their shares are
listed on a national securities exchange, such as the NYSE, on the record date
for determining shareholders entitled to vote on such merger. All of the
shares of Common Stock outstanding on the Record Date for determining
Shareholders entitled to vote on the Merger were listed on the NYSE.
Fees and Expenses
The estimated aggregate costs and fees of the Company and the Acquiror
in connection with the Merger and related transactions are as follows:
Investment Banking Fees and Expenses................................$ 9,100,000
Filing Fees......................................................... 137,197
Legal Fees and Expenses............................................. 3,800,000
Bank Fees and Services.............................................. 4,100,000
Board of Directors Fees and Expenses................................ 200,000
Accounting Fees..................................................... 200,000
Printing, Mailing and Vote Solicitation Fees........................ 300,000
Miscellaneous Fees.................................................. 212,803
-----------
Total................................$18,050,000
===========
The Merger Agreement calls for such fees and expenses to be paid by
the party which incurred them, except under certain circumstances. See
"--Termination Fees and Expenses."
Regulatory Requirements
Except for the filing of the Articles of Merger with the Maryland State
Department of Assessments and Taxation pursuant to the MGCL, and the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to the Delaware General Corporation Law, after the approval and
adoption of the Merger Proposal, and compliance with federal and state
securities laws, neither the Company nor the Acquiror is aware of any material
United States federal or state or foreign governmental regulatory requirement
necessary to be complied with or approval that must be obtained in connection
with the Merger.
The Company and the Acquiror believe that the Merger may be
consummated without notification being given or certain information being
furnished to the Federal Trade Commission (the "FTC") or the Antitrust Division
of the Department of Justice (the "Antitrust Division") pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and that no waiting period requirements under the HSR Act are
applicable to the Merger. However, at any time before or after the completion
of the Merger, either the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, or certain other persons could take action under the antitrust laws,
including seeking to enjoin the Merger. The Company and the Acquiror believe
that consummation of the Merger will not violate any antitrust laws. However,
there can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if a challenge is made, as to what the result will be.
38
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected financial data and other
operating information of the Company. The selected financial data in the table
are derived from the consolidated financial statements of the Company. The
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information included or incorporated by
reference herein.
<TABLE>
<CAPTION>
Year Ended December 31.
------------------------------------------------------------------------
1998 1997 1996 1995 1995
---------- ---------- -------- -------- --------
(in thousands, except ratios, percentages, per share and property
information)
<S> <C> <C> <C> <C> <C>
Selected Operating Information
Total revenues.........................$ 220,837 $ 186,945 $158,698 $136,168 $130,236
Income before extraordinary item,
minority redeemable preferred
interests and minority interest in
income..............................$ 73,549 $ 58,583 $ 41,192 $ 25,056 $ 12,279
Net income.............................$ 8,356 $ 26,404 $ 8,746 $ 8,465 $ 7,273
Basic earnings per share(1)............$ 0.42 $ 1.34 $ 1.06 $ 0.61 $ 0.62
Diluted earnings per share(1)..........$ 0.41 $ 1.33 $ 1.05 $ 0.05 $ 0.41
Cash distributions per share...........$ 1.52 $ 1.48 $ 1.44 $ 1.39 $ 1.11
Ratio of earnings to fixed charges(2).. 1.90x 2.37x
Apartment units (at end of period)..... 16,439 15,136 13,656 12,776 11,358
Selected Stabilized Property
Information(3)
Total properties (at end of period).... 55 51 48 43 43
Average apartment units................ 15,617 14,452 12,139 11,334 11,334
Average physical occupancy............. 94.1% 94.5% 94.9% 94.6% 95.6%
Average monthly rent per unit(4).......$ 1,213 $ 1,116 $ 1,025 $ 996 $ 981
Selected Balance Sheet Information
at December 31
Total assets...........................$1,374,624 $1,163,677 $900,998 $853,230 $757,240
Total long-term debt...................$ 751,818 $ 704,063 $553,064 $563,286 $540,689
Minority redeemable preferred 140,327
interests and minority interest.....$ 378,610 $ 210,307 $ $109,133 $109,296
Shareholders' equity...................$ 195,858 $ 210,920 $180,017 $155,433 $ 81,753
Book value per share(5)................$ 9.71
</TABLE>
- -------------------
(1) Differences between basic and diluted earnings per share in 1995 and 1994
are primarily due to the impact of the Company's debt extinguishment
costs which were allocated to The Irvine Company in accordance with the
Partnership Agreement.
(2) For the purpose of calculating the ratios of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items
and certain fixed charges. Fixed charges consist of interest expense,
capitalized interest, amortization of deferred financing costs, that
portion of rental expense representative of the interest factor in leases
and minority redeemable preferred interests.
(3) A property is considered stabilized at the earlier of one year after
completion of construction or when it achieves 95% occupancy.
(4) Average monthly rent per unit is calculated by dividing average rental
revenue per unit by average economic occupancy.
(5) Book value per share is calculated by dividing the number of outstanding
shares of Common Stock into shareholders' equity.
39
<PAGE>
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION
The Common Stock is traded on the NYSE and the Pacific Exchange, Inc.
under the symbol "IAC." The following table shows the per share high and low
sales prices reported in the consolidated transaction reporting system for
transactions in Common Stock for the periods indicated and for December 1,
1998 (the last full trading day prior to the announcement of the Acquiror's
proposal to effectuate the Merger). The following table also shows for the
periods indicated the dividends declared per share of Common Stock. The
closing price on the NYSE of the Common Stock on February 22, 1999 was
$32.5625. Holders of Common Stock are encouraged to obtain current market
quotations for the Common Stock.
<TABLE>
<CAPTION>
Market Price of
Common Stock Dividends
------------------------- Declared
High Low Per Share
-------- -------- ---------
<S> <C> <C> <C>
1996
First Quarter.....................................................$21.1250 $18.5000 $0.355
Second Quarter....................................................$20.7500 $18.7500 $0.355
Third Quarter.....................................................$24.0000 $20.1250 $0.365
Fourth Quarter....................................................$25.1250 $22.0000 $0.365
1997
First Quarter.....................................................$29.3750 $24.6250 $0.365
Second Quarter....................................................$30.3750 $25.1250 $0.365
Third Quarter.....................................................$33.4375 $28.0625 $0.375
Fourth Quarter....................................................$33.5000 $29.0000 $0.375
1998
First Quarter.....................................................$32.4375 $30.2500 $0.375
Second Quarter....................................................$31.8750 $28.1875 $0.375
Third Quarter.....................................................$29.9375 $23.0000 $0.385
Fourth Quarter....................................................$32.0625 $23.2500 $0.385
December 1, 1998..................................................$27.4375 $26.8125 n/a
1999
First Quarter (through February 1, 1999)..........................$32.5000 $31.7500 $0.385
First Quarter (from February 2, 1999 through February 22, 1999)...$33.1250 $31.7500 n/a
</TABLE>
If the Merger is not consummated, the declaration of future dividends,
if any, will necessarily be dependent upon business conditions, the
earnings and financial position of the Company and the Company's plans with
respect to operating and capital expenditures and such other matters as the
Company's Board of Directors deems relevant. See "Questions and Answers
About the Merger--What will happen to my dividends?"
40
<PAGE>
CERTAIN FINANCIAL PROJECTIONS OF THE COMPANY
The Company does not as a matter of course publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. The projected financial data set
forth below reflect information which was contained in projections prepared by
management of the Company. These projections were based upon a variety of
estimates and assumptions, the material ones of which are set forth below. The
estimates and assumptions underlying the projections involved judgments with
respect to, among other things, future economic, competitive, and financial
market conditions and future business decisions which may not be realized and
are inherently subject to significant business, economic and competitive
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company. While the Company believes these estimates
and assumptions are reasonable, there can be no assurance that the projections
will be accurate, and actual results may vary materially from those shown. In
light of the uncertainties inherent in forward looking information of any
kind, the inclusion of these projections herein should not be regarded as a
representation by the Company, the Acquiror or any other person that the
anticipated results will be achieved and investors are cautioned not to place
undue reliance on such information. See "Special Factors-- Opinion of the
Financial Advisor for the Special Committee -- Discounted Cash Flow."
The Company does not intend to update or otherwise revise the
information set forth below to reflect circumstances existing after the date
of the most recent financial statements incorporated by reference in this
Proxy Statement or to reflect the occurrence of unanticipated events. The
information set forth below should be read together with the information
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and the other information included or incorporated by
reference in this Proxy Statement.
Subject to the qualifications and limitations stated above, the
information set forth below generally relies upon the following material
assumptions and bases for projections:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
"Same store" rent growth
Existing properties.................................... 5.0% 4.0% 3.0% 3.0% 3.0%
New development........................................ 5.0% 4.0% 3.0% 3.0% 3.0%
"Same store" expense growth............................... 2.5% 2.5% 3.0% 3.0% 3.0%
Occupancy................................................. 95.0% 95.0% 95.0% 95.0% 95.0%
</TABLE>
In addition, it was assumed that the Company would invest approximately
$400 million per year in new development.
<PAGE>
41
<TABLE>
<CAPTION>
Forecast
-------------------------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(in millions, except per share information)
Rental income.............................................$251.7 $310.4 $372.7 $431.0 $494.3
Other income.............................................. 7.7 9.5 10.9 12.1 13.3
------ ------ ------ ------ ------
Operating revenues..................................... 259.4 319.9 383.6 443.1 507.6
Property expenses......................................... (52.7) (62.1) (70.7) (79.1) (90.7)
Real estate taxes......................................... (20.4) (25.3) (30.8) (36.0) (41.2)
------ ------ ------ ------ ------
Net operating income................................... 186.3 232.5 282.1 328.0 375.7
General and administrative................................ (10.2) (10.4) (10.7) (11.0) (11.3)
Interest income........................................... 0.2 0.1 0.3 0.2 0.1
Interest expense, net..................................... (24.3) (36.4) (51.7) (64.3) (75.9)
Amortization of deferred financing costs.................. (2.1) (2.0) (1.9) (2.0) (2.1)
Depreciation & amortization of non-real estate assets..... (0.2) (0.2) (0.2) (0.2) (0.2)
Distributions to preferred holders........................ (18.8) (29.9) (36.7) (36.7) (41.6)
------ ------ ------ ------ ------
Funds from operations (FFO)(1)............................ 130.9 153.7 181.2 214.0 244.7
Amortization of deferred financing costs.................. 2.1 2.0 1.9 2.0 2.1
Depreciation and amortization of non-real estate assets... 0.2 0.2 0.2 0.2 0.2
Recurring capital expenditures............................ (7.4) (8.4) (9.4) (10.4) (11.8)
------ ------ ------ ------ ------
Funds available for distribution (FAD).................$128.8 $147.5 $173.9 $205.8 $235.2
====== ====== ====== ====== ======
FFO per share(1)..........................................$ 2.62 $ 2.92 $ 3.23 $ 3.54 $ 3.85
FAD per share.............................................$ 2.52 $ 2.80 $ 3.10 $ 3.40 $ 3.70
</TABLE>
- -------------------
(1) The Company generally considers FFO a useful measure of performance
for an equity REIT. The Company computes FFO in accordance with
standards established by the National Association of Real Estate
Investment Trusts ("NAREIT"). FFO is defined as net income (computed
in accordance with generally accepted accounting principles),
excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization of real estate assets,
and after adjustments for unconsolidated partnerships and joint
ventures. Other REITs may not use this definition of FFO. FFO should
be considered in conjunction with net income calculated in accordance
with generally accepted accounting principles. FFO should not be
considered an alternative to net income as an indication of the
Company's performance and is not indicative of cash available to fund
all cash flow needs. FFO does not represent cash flows from
operating, investing or financing activities as defined by generally
accepted accounting principles.
42
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Agreement Relating to Thompson Residential Company, Inc.
On February 4, 1997, the Operating Partnership acquired the assets
(primarily options on three parcels of land in Northern California) of
Thompson Residential Company, Inc. ("TRC") in exchange for 74,523 Common L.P.
Units in the Operating Partnership (currently approximately 0.2% of the Common
L.P. Units outstanding). In addition, TRC is entitled to an "earn out" based
on the performance of the apartment community built on one of the three
parcels of land, up to a maximum of $2,000,000. Concurrently with these
transactions, each of the three owners of TRC (William W. Thompson, Bruce N.
Dorfman and Robert J. Hughes) became officers of the Company.
The Operating Partnership has entered into a Stock Purchase Agreement
with Messrs. Thompson, Dorfman and Hughes, pursuant to which they will sell
their shares in TRC to the Operating Partnership or its assignee for an
aggregate of $4,533,782. The consummation of the Stock Purchase Agreement is
conditioned upon the Merger.
After the Merger and the subsequent purchase of the shares in TRC from
Messrs. Thompson, Dorfman and Hughes, The Irvine Company and its subsidiaries
will own 99.32% of the Common L.P. Units. The remaining 0.68% is held by
Stonecrest Village Company, LLC ("Stonecrest"), a limited liability company
not controlled by The Irvine Company but whose members are each wholly owned
by Mr. Bren.
Special Rights of The Irvine Company Under Certain Agreements
Pursuant to the Partnership Agreement, the consent of the holders of a
majority of the outstanding common limited partnership units ("Common L.P.
Units") is required with respect to certain extraordinary actions involving
the Operating Partnership including (i) the amendment, modification or
termination of the Partnership Agreement, (ii) a general assignment for the
benefit of creditors or the appointment of a custodian, receiver or trustee
for any of the assets of the Operating Partnership, (iii) the institution of
any proceeding for bankruptcy of the Operating Partnership, (iv) the transfer
of any general partnership interests in the Operating Partnership, including
through any merger, consolidation or liquidation of the Company, subject to
certain exceptions, (v) the admission of any additional or substitute general
partner in the Operating Partnership; (vi) for the Company to take title to
assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the Operating Partnership) or to conduct business
other than through the Operating Partnership; and (vii) for the Company or the
Operating Partnership to engage in any business other than the ownership,
construction, development and operation of multifamily rental apartment
communities.
In addition, until such time as the Company owns 90% or more of the
total percentage interest in the Operating Partnership, the consent of the
limited partners holding a majority interest in the Common L.P. Units will
also be required with respect to the sale or other transfer of all or
substantially all of the assets of the Operating Partnership and certain
mergers and business combinations resulting in the complete disposition of all
Common L.P. Units.
As general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional units of
general and limited partnership interest in the Operating Partnership. In the
event that the Operating Partnership issues new Common L.P. Units (for cash
but not property), The Irvine Company has the right to purchase Common L.P.
Units at a purchase price equal to the purchase price in the transaction
giving rise to such participation right in order, and to the extent necessary,
to maintain its percentage interest in the Operating Partnership.
Pursuant to the Partnership Agreement, The Irvine Company and the other
limited partners of the Operating Partnership, their affiliates and certain
related persons have certain rights, exercisable once in each twelve-month
period, to exchange generally up to one-third of the Common L.P. Units owned
by them for shares of Common Stock (subject to the applicable ownership limit
provisions contained in the Company's Articles of Incorporation) and to tender
up to one-third of the Common L.P. Units owned by them to the Company for cash
payable solely out of the net proceeds of an offering of the shares of Common
Stock.
43
<PAGE>
In the event that the Company issues (whether for cash or property) any
shares of Common Stock or securities convertible into, or exchangeable or
exercisable for, shares of Common Stock, The Irvine Company, subject to
certain limited exceptions, including the issuance of shares of Common Stock
pursuant to any stock incentive plan adopted by the Company or pursuant to The
Irvine Company's exercise of the exchange rights or cash tender rights
described above, will have the right to purchase shares of Common Stock or
such securities at a purchase price equal to the purchase price in the
transaction giving rise to the participation rights in order to maintain its
interest in the Company and the Operating Partnership, considered on a
consolidated basis. However, other Shareholders have no participation rights
to purchase shares of Common Stock or such securities and any such issuances
might cause a dilution of a Shareholder's investment in the Company.
Pursuant to the Miscellaneous Rights Agreement, the Company has granted
to The Irvine Company, its affiliates and certain related persons,
registration rights with respect to shares of Common Stock owned by them
whether acquired upon exchange of Common L.P. Units pursuant to certain
exchange rights, upon exercise of any option or right of first refusal
pursuant to the Land Rights Agreement, pursuant to The Irvine Company's
participation rights, in the open market or otherwise. These registration
rights, with certain limitations, grant such parties the opportunity to demand
registration of all or any portion of the shares of Common Stock one time each
calendar year and the right to have such shares of Common Stock registered
incidentally to any registration being conducted by the Company of shares of
Common Stock, securities convertible or exchangeable for shares of Common
Stock or securities substantially similar to shares of Common Stock. The
Company will bear expenses incident to its registration requirements under the
registration rights, except that such expenses will not include any
underwriting discounts or commissions.
Pursuant to the Miscellaneous Rights Agreement, The Irvine Company has
the right to nominate three persons to the Company's Board of Directors so
long as The Irvine Company, its affiliates, the shareholders of The Irvine
Company and their affiliates or immediate family members beneficially own at
least 20% of the shares of Common Stock of the Company (including for these
purposes shares of Common Stock issuable upon exchange of Common L.P. Units).
In the event that this ownership falls below 20% but is at least 15%, The
Irvine Company will have the right to nominate two persons for election to the
Board of Directors, and if this ownership falls below 15% but is at least 10%,
The Irvine Company will have the right to nominate one person for election to
the Board of Directors. The three current nominees of The Irvine Company are
Messrs. Bren, McKee and Watson.
Pursuant to the Miscellaneous Rights Agreement, three nominees of The
Irvine Company have been elected to the Company's nine member Board of
Directors. Pursuant to Section 3.4 of the Miscellaneous Rights Agreement, the
Company has agreed not to increase the size of the Board of Directors to more
than ten persons or to decrease the size of the Board of Directors to fewer
than eight persons without the written consent of the Irvine Persons (as
defined therein) then owning, directly or indirectly, any shares of Common
Stock or Common L.P. Units. Pursuant to Article Ninth of the Articles of
Incorporation and Article III of the Company's By-laws, the consent of
Directors representing more than 75% of the entire Board of Directors is
required with respect to certain actions, including (i) a change of control
(as defined in Article Ninth of the Articles of Incorporation); (ii) the
amendment of the Company's Articles of Incorporation or By-laws, or the
Partnership Agreement; (iii) any waiver or modification of the ownership
limits provisions set forth in the Articles of Incorporation; (iv) the merger,
consolidation or sale of all or substantially all the assets of the Company or
the Operating Partnership; (v) the issuance, under certain circumstances, of
equity securities of the Company; (vi) for the Company to take title to assets
or to conduct business other than through the Operating Partnership, or for
the Company or the Operating Partnership to engage in any business other than
the ownership, construction, development and operation of multi-family rental
apartment communities; (vii) making a general assignment for the benefit of
creditors; or (viii) terminating the Company's status as a REIT for tax
purposes.
The Company, The Irvine Company, the Operating Partnership and Mr. Bren
entered into the Land Rights Agreement which through July 31, 2020 provides
the Company with the exclusive right, but not the obligation, to acquire all
land sites on the Irvine Ranch which are entitled for residential development
and designated by The Irvine Company as ready for rental apartment community
development (the "Future Land Sites"). The purchase price for each Future Land
Site is determined by appraisal and will be payable by the Company in cash,
Common L.P. Units or shares of Common Stock at the option of the Company for
Future Land Site purchase rights exercised on or before July 31, 2000, and
thereafter at the option of The Irvine Company, but subject to a determination
by the Independent Directors
44
<PAGE>
Committee that the method of payment will not adversely affect the Company's
qualification as a REIT. The Irvine Company has no obligation to designate any
land for sale and development of additional apartment communities.
Purchases of Common Stock and Common L.P. Units by The Irvine Company and Its
Affiliates Since January 1, 1997
On February 20, 1997, the Company sold 1,150,000 shares of Common Stock
in an underwritten public offering at $27.50 per share. The aggregate proceeds
to the Company were approximately $29,969,000. On the same date, The Irvine
Company exercised its right pursuant to the Partnership Agreement to make
additional capital contributions to the Operating Partnership totaling
$36,332,695.64 through TIC Investment Company C, a California general
partnership ("TICICC"), for which TICICC received 1,394,194 Common L.P. Units.
On February 10, 1997, October 21, 1997 and December 16, 1997, TIC
Investment Company D, a California general partnership ("TICICD") and a
subsidiary of The Irvine Company, sold apartment community land sites to the
Operating Partnership pursuant to the Land Rights Agreement. TICICD received
as payment of the purchase price 313,439, 179,433 and 332,060 Common L.P.
Units, respectively, which in each case was equal to the purchase price in
dollars ($8,408,000, $5,697,000 and $10,325,000, respectively) divided by the
average of the closing prices of the Common Stock on the NYSE for the ten
trading days immediately preceding the closing date of the applicable sale.
On December 1, 1997, Stonecrest sold an apartment community land site
to the Operating Partnership and received 305,707 Common L.P. Units as payment
for the $9,475,000 purchase price.
From February 28, 1997 through September 8, 1998, The Irvine Company
and its subsidiaries acquired an aggregate of 135,465 Common L.P. Units and
153,613 shares of Common Stock from the Company and the Operating Partnership at
various prices ranging from $25.438 to $30.544 pursuant to the Company's
Dividend Reinvestment and Additional Cash Investment Plan and The Irvine
Company's rights under the Partnership Agreement and the Miscellaneous Rights
Agreement.
The following chart provides quarterly data regarding: (i) the number
of shares of Common Stock purchased; (ii) the number of Common L.P. Units,
which are exchangeable for shares of Common Stock on a one-for-one basis,
purchased; (iii) the range of amounts paid for the Common Stock and Common
L.P. Units; and (iv) the average purchase price paid per share of Common Stock
or Common L.P. Unit by The Irvine Company and its affiliates since January 1,
1997.
45
<PAGE>
<TABLE>
<CAPTION>
Range of Common Stock
Number of and Common Average Purchase
Number of Common L.P. L.P. Unit Purchase Price Price Paid per
Shares Units -------------------------- Share and
Purchased (1) Purchased(1) Low High Common L.P. Unit
------------ ------------ ------- ------ ----------------
<S> <C> <C> <C> <C> <C>
1997
First Quarter.................... 229,400 1,400,415 26.060 28.500 26.370
Second Quarter................... 970,600 6,362 26.500 28.500 27.603
Third Quarter.................... 16,882 7,317 28.083 28.188 28.109
Fourth Quarter................... 316,504 7,259 29.500 31.500 30.885
1998
First Quarter.................... 535,871 34,558 30.043 32.125 30.953
Second Quarter................... 629,882 34,572 29.000 31.000 30.013
Third Quarter.................... 731,274 39,176 25.313 29.000 26.880
Fourth Quarter................... -- -- n/a n/a n/a
1999
First Quarter (through -- -- n/a n/a n/a
February 22, 1999)............
</TABLE>
- -------------------
(1) At December 31, 1996, The Irvine Company and its affiliates beneficially
owned 183,325 shares of Common Stock and 22,292,114 Common L.P. Units.
Other Transactions
Mr. Grundhofer is Chairman, President and Chief Executive Officer of
U.S. Bancorp (formerly First Bank System, Inc.) which, through an affiliate,
is a member of the bank syndicate that provided the Company's $250,000,000
revolving credit facility. There was no balance under the credit facility as
of February 22, 1999. An affiliate of U.S. Bancorp is also a member of the
bank syndicate that provided the Company's $100,000,000 term loan facility.
Based on this bank's percentage participation in these credit facilities (and
the predecessor facilities), the Company estimates that the amount of interest
and fees paid to the affiliate totaled approximately $364,000 in 1998.
Affiliates of U.S. Bancorp are also lenders to The Irvine Company and the
Acquiror and their affiliates, including under the Letters of Credit.
Mr. Peltason has served as President of the Donald L. Bren Foundation,
a California non-profit public benefit corporation affiliated with Mr. Bren,
since September 1997, and was a consultant to Mr. Bren with respect to
charitable giving and the formation of the Donald L. Bren Foundation from
October 1995 through December 1997.
Additional information (including with respect to transactions between
the Company and The Irvine Company and its affiliates) is set forth in Part
III--Item 13. Certain Relationships and Related Transactions, and in the notes
to the consolidated financial statements of the Company, each of which is
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, which is incorporated by reference in this Proxy Statement.
MANAGEMENT OF THE COMPANY
Information with respect to the management of the Company is set forth
in Part III of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, which is incorporated by reference in this Proxy Statement.
46
<PAGE>
MANAGEMENT OF THE ACQUIROR AND ITS MEMBERS
The Acquiror
The name, title, present and five year historical principal occupation or
employment of each of the executive officers of the Acquiror are set forth
below. Currently, the Acquiror has no directors. The business address of each
executive officer is 550 Newport Center Drive, Suite 900, Newport Beach, CA
92660. Unless otherwise indicated, each position set forth opposite an
individual's name refers to the Acquiror. In addition, if no dates are indicated
with respect to a position, the individual has served in that capacity for at
least the past five years.
All of the persons listed below are
citizens of the United States of America.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
- --------------------------------- --------------------------------------------------------------------
<S> <C>
Donald Bren 1998 - Present - Chairman, President and Chief Executive Officer
Chairman, President and Chief Executive Officer, The Irvine Company
1997 - President and Chief Executive Officer, the Company, 550 Newport
Center Drive, Suite 300, Newport Beach, CA 92660
Michael D. McKee, Esq. 1998 - Present - Executive Vice President, Chief Financial Officer and Secretary
1996 - Present - Executive Vice President, Chief Financial Officer and
Corporate Secretary, The Irvine Company
1994 - 1996 - Executive Vice President and Chief Legal Officer, The Irvine
Company
1993 - 1994 - Managing Partner, Orange County Office, Latham & Watkins,
650 Town Center Drive, Suite 2000, Costa Mesa, CA 92626
David A. Patty 1998 - Present - Senior Vice President
1996 - Present - Senior Vice President and Chief Investment Officer, The Irvine Company
1994 - 1996 - Senior Vice President, The Irvine Company
1993 - 1994 - Chief Financial Officer, Donahue Schriber, 3501 Jamboree
Road, Suite 300, Newport Beach, CA 92660
Thomas B. Rogers 1998 - Present - Treasurer
1995 - Present - Treasurer and Senior Vice President, The Irvine Company
1993 - 1995 - Senior Vice President, The Irvine Company
</TABLE>
The Irvine Company
The name, business address, title, present and five year historical
principal occupation or employment of each of the directors and executive
officers of The Irvine Company are set forth below. If no business address is
given, the director's or officer's business address is 550 Newport Center
Drive, Newport Beach, CA 92660. Unless otherwise indicated, each position
set forth opposite an individual's name refers to The Irvine Company. In
addition, if no dates are indicated with respect to a position, the individual
has served in that capacity for at least the past five years. There are no
executive officers, other than Joseph D. Davis, who are not also directors. All
of the persons listed below are citizens of the United States of America.
47
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
- --------------------------------- --------------------------------------------------------------------
<S> <C>
Donald Bren Chairman, President and Chief Executive Officer
1997 - President and Chief Executive Officer, the Company, 550 Newport
Center Drive, Suite 300, Newport Beach, CA 92660
Raymond L. Watson Vice Chairman
Gary H. Hunt Executive Vice President, Corporate Affairs
Joseph D. Davis 1996 - Present - Executive Vice President, Land and Residential
Development
1994 - 1996 - Vice President and General Manager, Chevron Land and Development,
1 Corporate Plaza, Newport Beach, CA 92660
1993 - 1994 - Vice President, Irvine Community Builders, The Irvine
Company
Richard G. Sim Executive Vice President and President, Investment Properties Group
Michael D. McKee, Esq. 1996 - Present - Executive Vice President, Chief Financial Officer and
Corporate Secretary
1994 - 1996 - Executive Vice President and Chief Legal Officer, The Irvine
Company
1993 - 1994 - Managing Partner, Orange County Office, Latham & Watkins,
650 Town Center Drive, Suite 2000, Costa Mesa, CA 92626
Richard F. Alden Private Investor
11340 West Olympic Blvd., Suite 280
Los Angeles, CA 90064
Donald M. Koll Chairman and Chief Executive Officer, The Koll Company
The Koll Company
4343 Von Karman Avenue 1991 - 1997, Chairman of the Board, Koll Management Services, Inc.
Newport Beach, CA 92660
Benjamin V. Lambert Chairman and Chief Executive Officer, Eastdil Realty Company
Eastdil Realty Company
40 West 57th Street, 22nd Floor
New York, NY 10019
Donn B. Miller, Esq. President and Chief Executive Officer, Pearson-Sibert Oil Company of
Pearson-Sibert Oil Company of Texas Texas
136 El Camino, Suite 216
Beverly Hills, CA 90212
48
<PAGE>
Thomas H. Nielsen 1998 - Present - Consulting Director, Orange County Office of U.S. Trust of California
U.S. Trust Of California
600 Anton Blvd., Suite 150 1993 - 1998 - Managing Director, Orange County Office of U.S. Trust of
Costa Mesa, CA 92626-7147 California
Carl E. Reichardt 1998 - Present - Retired Chairman and Chief Executive Officer, Wells Fargo Bank
c/o Wells Fargo Bank
420 Montgomery St., 12th Floor 1993 - 1998 - Chairman of the Board, Chief Executive Officer, Wells Fargo
San Francisco, CA 94104 Bank
Thomas C. Sutton Chairman and Chief Executive Officer, Pacific Mutual Life Insurance
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, CA 92660
Peter V. Ueberroth Managing Director, Contrarian Group
The Contrarian Group
1071 Camelback, Suite 111
Newport Beach, CA 92660
William T. White, III President, Blanco Investments and Land Ltd.
Blanco Investments & Land Ltd.
230 Newport Center Drive, Suite 300
Newport Beach, CA 92660
</TABLE>
ICDC
The name, business address, title, present and five year historical
principal occupation or employment of each of the directors and executive
officers of ICDC are set forth below. If no business address is given the
director's or officer's business address is 550 Newport Center Drive, Newport
Beach, CA 92660. Unless otherwise indicated, each position set forth opposite an
individual's name refers to ICDC. In addition, if no dates are indicated with
respect to a position, the individual has served in that capacity for at least
the past five years. There are no executive officers, other than Joseph D.
Davis, who are not also directors. All of the persons listed below are citizens
of the United States of America.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
- --------------------------------- --------------------------------------------------------------------
<S> <C>
Donald Bren Chairman of the Board
Chairman, President and Chief Executive Officer, The Irvine Company
1997 - President and Chief Executive Officer, the Company, 550 Newport
Center Drive, Suite 300, Newport Beach, CA 92660
49
<PAGE>
Joseph D. Davis President and Chief Executive Officer
1996 - Present - Executive Vice President, Land and Residential
Development, The Irvine Company
1994 - 1996 - Vice President and General Manager,
Chevron Land and Development, 1 Corporate Plaza, Newport
Beach, CA 92660
1993 - 1994 - Vice President, Irvine Community Builders, The Irvine
Company
Michael D. McKee, Esq. Executive Vice President, Chief Financial Officer and Secretary
1996 - Present - Executive Vice President, Chief Financial Officer and
Corporate Secretary, The Irvine Company
1994 - 1996 - Executive Vice President and Chief Legal Officer, The Irvine
Company
1993 - 1994 - Managing Partner, Orange County Office, Latham & Watkins,
650 Town Center Drive, Suite 2000, Costa Mesa, CA 92626
Richard F. Alden Private Investor
11340 West Olympic Boulevard,
Suite 2800
Los Angeles, CA 90064
Gary H. Hunt Executive Vice President, Corporate Affairs, The Irvine Company
Donn B. Miller, Esq. President and Chief Executive Officer, Pearson-Sibert Oil Company of
Pearson-Sibert Oil Company of Texas Texas
136 El Camino, Suite 216
Beverly Hills, CA 90212
Thomas H. Nielsen 1998 - Present - Consulting Director, Orange County Office of U.S. Trust of California
U.S. Trust Of California
600 Anton Blvd., Suite 150 1993 - 1998 - Managing Director, Orange County Office of U.S. Trust of
Costa Mesa, CA 92626-7147 California
Richard G. Sim Executive Vice President and President, Investment Properties Group, The Irvine Company
Peter V. Ueberroth Managing Director, Contrarian Group
The Contrarian Group
1071 Camelback, Suite 111
Newport Beach, CA 92660
Raymond L. Watson Vice Chairman, The Irvine Company
</TABLE>
50
<PAGE>
SECURITIES OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock
by the Acquiror, ICDC, The Irvine Company and their affiliates, directors and
executive officers as of February 1, 1999. The number of shares of Common
Stock beneficially owned includes the number of shares of Common Stock into
which Common L.P. Units beneficially owned by the person are exchangeable. The
percentage of all shares of Common Stock/Common L.P. Units owned assumes, with
respect to each person, that all Common L.P. Units beneficially owned by such
person are exchanged for Common Stock and that none of the Common L.P. Units
held by other persons are exchanged for Common Stock.
<TABLE>
<CAPTION>
Common Stock Percent of All
Beneficially Shares of
Number Percent of All Number of Owned Common
of Shares of Shares of Common L.P (Rights Stock/Common
Person Common Stock Common Stock Units to Acquire(1) L.P. Units
- ------ ------------ -------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
The Acquiror.................. -- -- -- -- --
ICDC.......................... -- -- -- -- --
The Irvine Company............ 3,430,413 17.0% 24,646,705(2) 28,077,118 62.6%
Donald Bren(3)................ 183,325(4) * -- -- *
TICICC........................ -- -- 3,034,105(5) 3,034,105 13.1%
TIC Investment Company A...... -- -- 1,502,105(6) 1,502,105 6.9%
TICICD........................ -- -- 1,185,333(7) 1,185,333 5.5%
DBIAC Investment Company(8)... -- -- -- -- --
Raymond L. Watson............. 20,000 * -- -- *
Richard G. Sim................ -- -- -- -- --
Michael D. McKee.............. 5,000 * -- -- *
David A. Patty................ -- -- -- -- --
Thomas B. Rogers.............. 3,447 * -- -- *
Richard F. Alden.............. 17,303 * -- -- *
Thomas H. Nielsen............. 25,000 * -- -- *
Carl E. Reichardt............. 60,000(10) * -- -- *
Peter V. Ueberroth............ 14,046 * -- -- *
William T. White, III......... 6,000 * -- -- *
Donn B. Miller................ 975 * -- -- *
Gary H. Hunt.................. 300 * -- -- *
Donald M. Koll................ -- -- -- -- --
Benjamin V. Lambert........... -- -- -- -- --
Thomas C. Sutton.............. -- -- -- -- --
Joseph D. Davis............... 5,300 * -- -- *
</TABLE>
- -------------------
*Less than 1%
(1) Assumes all of the Common L.P. Units are exchanged for Common Stock,
without regard to certain ownership limit provisions set forth in the
Company's Articles of Incorporation. It is not anticipated that these
ownership limit provisions will be waived. The Irvine Company has the
right, once in every twelve month period, generally to exchange up to one
third of the Common L.P. Units for Common Stock at an exchange ratio of
one Common L.P. Unit for each share, subject to adjustment. The Company's
Articles of Incorporation place a limit on ownership by The Irvine
Company, Mr. Bren and their affiliates, in the aggregate, of 20% of the
Common Stock.
(2) The 24,646,705 Common L.P. Units include (i) 15,784,000 Common L.P. Units
that The Irvine Company received directly in exchange for its transfer of
certain rental apartment communities to the Operating Partnership, (ii)
1,359,000 Common L.P. Units that The Irvine Company received upon
liquidation of certain limited partnerships that contributed rental
apartment communities to the Operating Partnership, (iii) 160,000 Common
L.P. Units that The Irvine Company received upon liquidation of the
general partnership that contributed rental apartment communities to the
Operating Partnership, (iv) 478,162 Common L.P. Units that The Irvine
Company controls through its general partnership interest in TIC
Investment Company B, a California general partnership ("TICICB"), (v)
1,144,000 Common L.P. Units that The Irvine Company controls as the
general partner of two limited partnerships (the "Limited Partnerships")
that contributed rental apartment communities to the Operating
Partnership, (vi) 4,536,210 Common L.P. Units that The Irvine Company
controls through its general partnership interest in TIC Investment
Company A, a California general partnership ("TICICA"), and TICICC and
(vii) 1,185,333 Common L.P. Units that The Irvine Company controls
through its general partnership interest in TICICD.
51
<PAGE>
(3) Mr. Bren may be deemed the beneficial holder of the Common Stock and
Common L.P. Units beneficially owned by The Irvine Company and the 305,707
Common L.P. Units owned by Stonecrest due to his status as the sole
shareholder and Chairman of the Board of Directors of The Irvine Company
and the sole owner of the members of Stonecrest. Assuming the exchange of
all 24,646,705 Common L.P. Units beneficially owned by The Irvine Company
and 199,011 Common L.P. Units owned by Stonecrest (106,696 of 305,707
Common L.P. Units are restricted and cannot be exchanged without the
consent of a majority of the Shareholders) for Common Stock, Mr. Bren
would be deemed to beneficially own 63.2% of the Common Stock. Mr. Bren
disclaims beneficial ownership of the Common Stock and the L.P. Units
directly or indirectly owned by The Irvine Company and Stonecrest.
(4) Common Stock held by a trust of which Mr. Bren is trustee.
(5) The 3,034,105 Common L.P. Units are also included in the 24,646,705
Common L.P. Units deemed to be beneficially owned by The Irvine Company
because The Irvine Company is the managing general partner of TICICC. The
address of TICICC's principal executive offices is 550 Newport Center
Drive, Newport Beach, California 92660.
(6) The 1,502,105 Common L.P. Units were transferred to TICICA from Irvine
Lease Company, Inc. ("ILCI") on June 21, 1996. The 1,502,105 Common L.P.
Units are also included in the 24,646,705 L.P. Units deemed to be
beneficially owned by The Irvine Company because The Irvine Company is
the managing general partner of TICICA. The address of TICICA's principal
executive offices is 550 Newport Center Drive, Newport Beach, California
92660.
(7) The 1,185,333 Common L.P. Units were received in exchange for apartment
community land sites sold to the Operating Partnership pursuant to the
Land Rights Agreement. The 1,185,333 Common L.P. Units are also included
in the 24,646,705 Common L.P. Units deemed to be beneficially owned by
The Irvine Company because The Irvine Company is the managing general
partner of TICICD. The address of TICICD's principal executive offices is
550 Newport Center Drive, Newport Beach, California 92660.
(8) DBIAC Investment Company, a California corporation ("DBIAC"), is the 1%
general partner of TICICA, TICICB, TICICC and TICICD and the Limited
Partnerships, which in the aggregate own 7,343,705 Common L.P. Units. The
Irvine Company is the managing general partner of TICICA, TICICB, TICICC,
TICICD and such Common L.P. Units are included in the 24,646,705 Common
L.P. Units deemed to be beneficially owned by The Irvine Company. The
sole shareholder of DBIAC is the Donald L. Bren Trust, dated June 26,
1987, as amended, of which Mr. Donald Bren is the sole trustee. Assuming
the exchange of the 7,343,705 Common L.P. Units into Common Stock, DBIAC
would be deemed to beneficially own 26.7% of the Common Stock. Since The
Irvine Company is the managing general partner of TICICA, TICICB, TICICC,
TICICD and the Limited Partnerships, DBIAC disclaims beneficial ownership
of such Common Stock. The address of DBIAC's principal executive offices
is 550 Newport Center Drive, Newport Beach, California 92660.
(9) Includes 10,000 shares Mr. Reichardt has a right to acquire through a
pension trust account.
Except as set forth in this Proxy Statement, none of The Irvine
Company, the Acquiror, ICDC, or any other person controlling The Irvine
Company, the Acquiror or ICDC nor, to the best of any of their knowledge,
any executive officer or director of the Acquiror, The Irvine Company or
ICDC beneficially owns any Common Stock.
Additional information with respect to the securities ownership of the
Company is set forth in Part III--Item 12. Share Ownership of Certain
Beneficial Owners and Management of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, which is incorporated by reference in
this Proxy Statement.
PROPOSALS BY SHAREHOLDERS OF THE COMPANY
If the Merger is consummated, there will be no public Shareholders of
the Company and no public participation in any future meetings of Shareholders
of the Company. However, if the Merger is not consummated, or is materially
delayed, the Company intends to hold its 1999 annual meeting of Shareholders
as promptly as reasonably practicable. In such case, the Company's public
Shareholders would continue to be entitled to attend and participate in the
Company's Shareholder meetings. Any proposals by Shareholders intended to be
presented at the 1999 annual meeting of Shareholders must be received by the
Company not less than 60 nor more than 90 days prior to the 1999 annual
meeting, provided that, in the event that the Company gives less than 70 days'
notice or prior public disclosure of the date of the 1999 annual meeting,
notice must be received by the Company no later than the close of business on
the tenth day following such notice or prior public disclosure. Because the
date of the Company's 1999 annual meeting will likely have been changed by
more than 30 days from the date of the Company's 1998 annual meeting, any
proposals by Shareholders intended to be presented and included in the
Company's proxy materials must be received by the Company within a reasonable
time before the Company begins to print and mail its proxy materials in
connection
52
<PAGE>
with the 1999 annual meeting. In order for a Shareholder to bring other
business before a Shareholder meeting, timely notice must be received by the
Company within the time limits described above. Such notice must include a
description of the proposed business, the reasons therefor, and other specific
matters. In each case, the notice must be given to the Secretary of the
Company, at the Company's principal address. Any Shareholder desiring a copy
of the Company's by-laws will be furnished one without charge upon written
request of the Secretary.
INDEPENDENT AUDITORS
The consolidated financial statements and financial statement schedule
of the Company appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements
and financial statement schedule are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. It is expected that representatives of Ernst & Young
LLP will be present at the Special Meeting, both to respond to appropriate
questions of Shareholders and to make a statement if they so desire.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the year ended December
31, 1998 is being mailed to all Shareholders with this Proxy Statement. The
information contained therein, including the annual consolidated financial
statements and notes thereto, the report of Ernst & Young LLP, independent
auditors, thereon, selected financial data and management's discussion and
analysis of financial condition and results of operations included in such
Annual Report on Form 10-K, is incorporated herein by reference. Information
incorporated by reference is considered part of this Proxy Statement, except
to the extent that the information is superseded by information in this Proxy
Statement. Shareholders who would like to receive copies of exhibits to the
Annual Report on Form 10-K (other than any exhibits that are themselves
specifically incorporated by reference in this Proxy Statement) may do so upon
request to Irvine Apartment Communities, Inc., 550 Newport Center Drive, Suite
300, Newport Beach, California 92660, Attention: Shareholder Relations;
telephone (949) 720- and the payment of the Company's reasonable expenses
in furnishing such exhibit.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, the Company files reports, proxy statements and
other information with the Commission. Because the Merger is a "going private"
transaction, the Acquiror has filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the Merger. The Schedule 13E-3 and such
reports, proxy statements and other information contain additional information
about the Company. You can inspect and copy these materials at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, Suite 1300, New York, New York 10048. For further
information concerning the Commission's public reference rooms, you may call
the Commission at 1-800-SEC-0330. Some of this information may also be
accessed on the World Wide Web through the Commission's Internet address at
"http://www.sec.gov." The Common Stock is listed on the NYSE and the Pacific
Exchange, Inc., and materials may also be inspected at their offices, 20 Broad
Street, New York, New York 10005, and 301 Pine Street, San Francisco,
California 94104, respectively.
You should rely only on the information contained in (or incorporated
by reference into) this Proxy Statement. The Company has not authorized anyone
to give any information different from the information contained in (or
incorporated by reference into) this Proxy Statement. This Proxy Statement is
dated _________, 1999. You should not assume that the information contained in
this Proxy Statement is accurate as of any later date, and the mailing of this
Proxy Statement to Shareholders shall not create any implication to the
contrary.
53
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Proxy Statement are forward-looking
statements that involve risks and uncertainties. Forward-looking statements
include the information set forth under "Certain Financial Projections of the
Company" concerning the projected consolidated income statement data as to the
years ending December 31, 1999 through December 31, 2003. Such information has
been included in this Proxy Statement for the limited purpose of giving the
Shareholders access to financial projections by the Company's management. Such
information was prepared by the Company's management for internal use and not
with a view to publication. The information set forth under "Certain Financial
Projections of the Company" was based on assumptions concerning the Company's
business prospects in the years 1999 through 2003. The information also was
based on other revenue and operating assumptions. Information of this type is
based on estimates and assumptions that are inherently subject to significant
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the Company's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower
than those set forth under "Certain Financial Projections of the Company." In
addition, the consolidated income statement data as to the years ending
December 31, 1999 through December 31, 2003 were not prepared with a view to
public disclosure or compliance with the published guidelines of the
Commission or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and forecasts and are
included in this Proxy Statement only because such information was made
available to the Acquiror. Neither the Company's nor the Acquiror's
independent accountants have examined or applied any agreed upon procedures to
this information and, accordingly, assume no responsibility for this
information. None of the Company, the Acquiror, or any other party assumes any
responsibility for the accuracy or validity of the projections.
54
OTHER MATTERS
The Board of Directors does not know of any matter other than that
described in this Proxy Statement that will be presented for action at the
Special Meeting. If other matters properly come before the meeting, the
persons named as proxies intend to vote the shares they represent in
accordance with their discretion.
By Order of the Board of Directors,
----------------------------------------------
Shawn Howie
Interim Chief Financial Officer and Secretary
__________, 1999
55
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 1, 1999
BETWEEN
TIC Acquisition LLC,
a Delaware limited
liability company
AND
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
TABLE OF CONTENTS
Page
----
ARTICLE I. THE MERGER..................................................... 1
1.1. The Merger........................................................ 1
1.2. Closing........................................................... 1
1.3. Effective Time.................................................... 2
1.4. Effects of the Merger............................................. 2
1.5. Certificate of Formation and Limited Liability Company Agreement.. 2
1.6. Bylaws............................................................ 2
1.7. Officers of Surviving Entity...................................... 2
1.8. Tax Treatment..................................................... 2
ARTICLE II. EFFECT OF THE MERGER ON THE OWNERSHIP INTERESTS IN
THE CONSTITUENT ENTITIES....................................... 3
2.1. Effect on Company Stock........................................... 3
2.2. Acquiror Interests................................................ 3
2.3. Company Options and Restricted Stock Units........................ 3
2.4. Surrender and Payment............................................. 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................. 6
3.1. Representations and Warranties of the Company..................... 6
3.2. Representations and Warranties of Acquiror........................19
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE MERGER.........................21
4.1. Covenants of the Company..........................................21
4.2. Advice of Changes; Government Filings.............................24
ARTICLE V. ADDITIONAL AGREEMENTS..........................................25
5.1. Preparation of Schedule 13E-3 and Proxy Statement; the
Company Stockholders Meeting......................................25
5.2. Access to Information.............................................26
5.3. Approvals and Consents; Cooperation...............................26
5.4. Stock Options and Restricted Stock................................27
5.5. Acquisition Proposals.............................................27
5.6. [Intentionally Omitted]...........................................29
5.7. Withholding/Foreign Persons.......................................29
5.8. Public Announcements..............................................29
5.9. Director and Officer Liability....................................29
5.10. Payment of Dividends..............................................29
5.11. Further Assurances................................................30
ARTICLE VI. CONDITIONS PRECEDENT............................................30
6.1. Conditions to Each Party's Obligation to Effect the Merger........30
6.2. Additional Conditions to Obligations of Acquiror..................30
6.3. Additional Conditions to Obligations of the Company...............31
ARTICLE VII. TERMINATION AND AMENDMENT......................................32
7.1. Termination.......................................................32
7.2. Expenses..........................................................33
7.3. Effect of Termination.............................................35
7.4. Amendment.........................................................35
7.5. Extension; Waiver.................................................35
ARTICLE VIII. GENERAL PROVISIONS............................................36
8.1. Non-Survival of Representations, Warranties and Agreements;
No Other Representations and Warranties...........................36
8.2. Notices...........................................................36
8.3. Interpretation....................................................36
8.4. Counterparts......................................................37
8.5. Entire Agreement; No Third Party Beneficiaries....................37
8.6. Governing Law.....................................................37
8.7. Severability......................................................37
8.8. Assignment........................................................38
8.9. Enforcement.......................................................38
8.10. Definitions.......................................................38
GLOSSARY OF DEFINED TERMS
Location of
Definition Defined Term
Acquisition Proposal.............................................Section 5.5
Acquiror............................................................Preamble
Affiliate.......................................................Section 8.10
Agreement...........................................................Preamble
Alternative Transaction......................................Section 7.2.(e)
Articles of Merger...............................................Section 1.3
Board of Directors..............................................Section 8.10
Break-Up Fee..................................................Section 7.2(f)
Business Day....................................................Section 8.10
Certificate of Merger............................................Section 1.3
Certificates..................................................Section 2.4(b)
Closing..........................................................Section 1.2
Closing Date.....................................................Section 1.2
Code.......................................................Section 3.1(i)(i)
Company.............................................................Preamble
Company Affiliate...............................................Section 8.10
Company Benefit Plans......................................Section 3.1(n)(i)
Company Common Stock................................................Recitals
Company Disclosure Letter.......................................Section 8.10
Company Permits...............................................Section 3.1(g)
Company Properties............................................Section 3.1(k)
Company Stock Option Plans......................................Section 8.10
Company Stockholders Meeting..................................Section 5.1(c)
Company Sub.....................................................Section 8.10
DLLCA...............................................................Recitals
Effective Time...................................................Section 1.3
Encumbrances..................................................Section 3.1(k)
Environmental Laws............................................Section 3.1(l)
ERISA......................................................Section 3.1(n)(i)
Exchange Act.............................................Section 3.1(d)(iii)
Exchange Agent................................................Section 2.4(a)
Expenses......................................................Section 7.2(a)
GAAP.......................................................Section 3.1(e)(i)
Governmental Entity......................................Section 3.1(d)(iii)
HSR Act...................................................Section 3.1(d)(ii)
Indebtedness..............................................Section 3.1(m)(ii)
IRS........................................................Section 3.1(n)(i)
Knowledge.......................................................Section 8.10
Liens.....................................................Section 3.1(c)(ii)
Maryland Department..............................................Section 1.3
Matching Transaction..........................................Section 5.5(b)
Material Adverse Effect.........................................Section 8.10
Material Contract..........................................Section 3.1(m)(i)
Merger..............................................................Recitals
Merger Consideration.............................................Section 2.1
MGCL................................................................Recitals
Non-Employee Option...........................................Section 2.3(b)
NYSE.....................................................Section 3.1(d)(iii)
OP.........................................................Section 3.1(e)(i)
OP Units........................................................Section 8.10
Option.....................................................Section 3.1(n)(v)
Organizational Documents........................................Section 8.10
Outside Date..................................................Section 7.1(b)
Person..........................................................Section 8.10
Property Restrictions.........................................Section 3.1(k)
Proxy Statement...............................................Section 5.1(b)
REIT......................................................Section 3.1(i)(ii)
Required Company Votes..........................................Section 8.10
Required Regulatory Approvals...................................Section 8.10
Restricted Stock Unit Agreement...........................Section 3.1(n)(vi)
Retention Agreement...........................................Section 2.3(a)
Schedule 13E-3................................................Section 5.1(a)
SEC...........................................................Section 3.1(a)
SEC Reports................................................Section 3.1(e)(i)
Securities Act.............................................Section 3.1(e)(i)
Special Committee...................................................Recitals
Stock Option Agreement.....................................Section 3.1(n)(v)
Subsidiary......................................................Section 8.10
Superior Proposal.............................................Section 5.5(b)
Surviving Entity.................................................Section 1.1
Tax.............................................................Section 8.10
Taxable.........................................................Section 8.10
Taxes...........................................................Section 8.10
Tax Return......................................................Section 8.10
Terminating Acquiror Breach...................................Section 7.1(h)
Terminating Company Breach....................................Section 7.1(g)
The other party.................................................Section 8.10
Third Party.....................................................Section 8.10
TIC...........................................................Section 3.1(q)
Trust......................................................Section 3.1(e)(i)
Trust Shares....................................................Section 8.10
Violation.................................................Section 3.1(d)(ii)
This AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1999
(this "Agreement"), by and between TIC Acquisition LLC, a Delaware limited
liability company ("Acquiror"), and Irvine Apartment Communities, Inc., a
Maryland corporation (the "Company").
W I T N E S S E T H :
WHEREAS, (i) each of the Board of Directors of the Company and
a special committee thereof comprised entirely of non-management independent
directors not affiliated with the Acquiror or any of its Affiliates (the
"Special Committee") has determined that the Merger (as defined below) is
advisable and in the best interests of its stockholders and (ii) each of the
Board of Directors of the Company, the Special Committee and the Managing
Member of Acquiror have approved the Merger upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of Common Stock, par value $.01 per share, of the Company ("Company
Common Stock") will be converted into the right to receive cash;
WHEREAS, in order to effectuate the foregoing, the Company,
upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware Limited Liability Company Act (the "DLLCA") and
the Maryland General Corporation Law (the "MGCL"), will merge with and into
Acquiror (the "Merger"); and
WHEREAS, Acquiror and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DLLCA and the MGCL,
the Company shall be merged with and into Acquiror at the Effective Time (as
defined below). Following the Merger, the separate corporate existence of the
Company shall cease and Acquiror shall continue as the surviving entity
(hereinafter sometimes called the "Surviving Entity") in accordance with the
DLLCA and the MGCL.
1.2. Closing. The closing of the Merger (the "Closing") will
take place on the second Business Day after satisfaction or waiver (as
permitted by this Agreement and applicable law) of the conditions (excluding
conditions that, by their terms, cannot be satisfied until the Closing Date)
set forth in Article VI (the "Closing Date"), unless another time or date is
agreed to in writing by the parties hereto. The Closing shall be held at the
offices of Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa,
California 92626, unless another place is agreed to in writing by the parties
hereto.
1.3. Effective Time. Upon the Closing, the parties shall (i)
file with the Secretary of State of the State of Delaware a certificate of
merger or other appropriate documents (in any such case, the "Certificate of
Merger") executed in accordance with the relevant provisions of the DLLCA,
(ii) file with the Maryland State Department of Assessments and Taxation (the
"Maryland Department") the articles of merger or other appropriate documents
(in any such case, the "Articles of Merger") executed in accordance with the
relevant provisions of the MGCL and (iii) make all other filings, recordings
or publications required under the DLLCA and MGCL in connection with the
Merger. The Merger shall become effective at 5:00 p.m., New York City time,
on the later of the date of (i) the filing of the Certificate of Merger with
the Delaware Secretary of State in accordance with the DLLCA and (ii) the
filing of the Articles of Merger with, and the acceptance for record of such
Articles of Merger by, the Maryland Department in accordance with the MGCL, or
at such other time as the parties may agree and specify in such filings in
accordance with applicable law (the time the Merger becomes effective being
the "Effective Time").
1.4. Effects of the Merger. At the Effective Time, Acquiror
shall continue in existence as the Surviving Entity, and without further
transfer, succeed to and possess all of the rights, privileges and powers of
the Company, and all of the assets and property of whatever kind and character
of the Company shall vest in Acquiror without further act or deed; thereafter,
Acquiror, as Surviving Entity, shall be liable for all of the liabilities and
obligations of the Company (including the Retention Agreements), and any claim
or judgment against the Company may be enforced against Acquiror, as the
Surviving Entity, in accordance with the DLLCA and the MGCL. At and after the
Effective Time, the Merger will have the effects set forth in the DLLCA and
the MGCL.
1.5. Certificate of Formation and Limited Liability Company
Agreement. The certificate of formation and limited liability company
agreement of Acquiror as in effect immediately prior to the Effective Time
shall be the certificate of formation and limited liability company agreement
of Surviving Entity until thereafter changed or amended as provided therein or
by applicable law.
1.6. Bylaws. The bylaws of Acquiror as in effect at the
Effective Time shall be the bylaws of the Surviving Entity until thereafter
changed or amended as provided therein or by applicable law.
1.7. Officers of Surviving Entity. The officers of Acquiror
shall be the officers of the Surviving Entity, until the earlier of their
resignation or removal or otherwise ceasing to be an officer or until their
respective successors are duly appointed and qualified, as the case may be.
1.8. Tax Treatment. The parties intend that, for United States
federal and applicable state income tax purposes, the Merger shall be treated
as if the Company had transferred all of its assets and liabilities to
Acquiror in a taxable transaction in exchange for the Merger Consideration and
then completely liquidated. Acquiror and the Company shall each report the
Merger for federal and applicable state income tax purposes consistently with
the above described treatment.
ARTICLE II.
EFFECT OF THE MERGER ON THE OWNERSHIP INTERESTS
IN THE CONSTITUENT ENTITIES
2.1. Effect on Company 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 Company Common Stock, each issued and outstanding share of Company
Common Stock shall be converted into the right to receive $34.00 in cash,
without interest (the "Merger Consideration"). As of the Effective Time, all
shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Common Stock
shall cease to have any rights with respect thereto, except the right to
receive, upon the surrender of such certificates, the Merger Consideration.
2.2. Acquiror Interests. At and after the Effective Time, each
membership interest in Acquiror issued and outstanding immediately prior to
the Effective Time shall remain an issued and outstanding membership interest
in Acquiror and shall not be affected by the Merger. Each membership interest
in Acquiror that is issued but not outstanding shall remain an issued but not
outstanding membership interest in Acquiror and shall not be affected by the
Merger.
2.3. Company Options and Restricted Stock Units.
(a) The Company shall take all actions necessary to assure
that, prior to the Effective Time, each Option (other than the Options
referred to subsection 2.3(b)) and each Restricted Stock Unit Agreement (and
any dividend equivalents relating thereto) (and each right to any award under
any Company Stock Option Plan) shall be canceled in accordance with the terms
of the letter agreement dated as of January 22, 1999 between the Company and
the holder thereof (a "Retention Agreement").
(b) The Company shall take all actions necessary to assure
that, prior to the Effective Time, each outstanding Option (i) under the
Company's 1993 Stock Option Plan for Directors or (ii) held by James Mead (a
"Non-Employee Option"), whether or not then exercisable or vested, shall be
canceled, and, in consideration of such cancellation, the Company shall pay
the holder of such Non-Employee Option an amount in cash in respect thereof
equal to the product of (x) the excess (if any) of the Merger Consideration
over the exercise price thereof, and (y) the number of shares of Company
Common Stock with respect to which such Non-Employee Option is then
exercisable and vested (such payment to be net of withholding taxes applicable
thereto). Each Non-Employee Option shall be canceled with respect to all
shares of Company Common Stock subject to such Non-Employee Option,
including shares of Company Common Stock with respect to which such Non-
Employee Option is not then exercisable or vested.
(c) The Company shall take all actions necessary to assure
that, on and after the date of this Agreement, (i) no awards are granted under
any Company Stock Option Plan, (ii) except as provided in the Retention
Agreements, no Option or Restricted Stock Unit Agreement (or any dividend
equivalents relating thereto) is amended, modified or terminated, and (iii)
except as provided in the Retention Agreements, no other actions are taken
that accelerate the vesting or exercisability of any Option or Restricted Stock
Unit Agreement (or any dividend equivalents relating thereto) or otherwise
change the rights of the holder of any Option or Restricted Stock Unit
Agreement (or any dividend equivalents relating thereto), and (iv) that there
are no options, warrants or other rights to acquire stock from the Company
(other than the Options and Restricted Stock Unit Agreements (and dividend
equivalents relating thereto) set forth on Schedules 3.1(n)(v) and 3.1(n)(vi)
to the Company Disclosure Letter.
2.4. Surrender and Payment.
(a) Exchange Agent. Prior to the Effective Time, pursuant to an
agreement in form and substance reasonably acceptable to the Special Committee,
Acquiror shall appoint an agent, who shall be reasonably acceptable to the
Special Committee (the "Exchange Agent"), for the purpose of exchanging
certificates representing shares of Company Common Stock for the Merger
Consideration. Acquiror will make available to the Exchange Agent, as needed,
the Merger Consideration (in immediately available funds) to be paid in
respect of the shares of Company 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 (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock (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 Acquiror may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Acquiror, 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 the Merger Consideration, without interest thereon, and the
Certificate so surrendered shall forthwith be canceled. If any portion of the
Merger Consideration is to paid to a Person other than the registered holder
of the shares represented by the Certificate or Certificates surrendered in
exchange therefor, it shall be a condition to such payment that the
Certificate or Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required
as a result of such payment to a Person other than the registered holder of
such shares of Company Common Stock or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable. Until
surrendered as contemplated by this Section 2.4, 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.
(c) No Further Ownership Rights in Company Common Stock. All
Merger Consideration paid upon the surrender for exchange of Certificates in
accordance with the terms of this Article II shall be deemed to have been paid
in full satisfaction of all rights pertaining to the shares of Company Common
Stock theretofore represented by such Certificates, subject, however, to the
Surviving Entity'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 the Company on such shares of Company Common Stock
(i) on or after the date of this Agreement in a manner that does not violate
the terms of this Agreement or (ii) prior to the date of this Agreement and
which, in either case, remain unpaid at the Effective Time, and, from and
after the Effective Time, there shall be no further registration of transfers
on the stock transfer books of the Surviving Entity of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Entity 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.
(d) Unclaimed Funds. Any portion of the Merger Consideration
made available to the Exchange Agent pursuant to Section 2.4(a) that remains
unclaimed by holders of the Certificates for six months after the Effective
Time shall be delivered to Acquiror, upon demand, and any holders of
Certificates who have not theretofore complied with this Article II shall
thereafter look only to Acquiror for payment of their claim for Merger
Consideration.
(e) No Liability. None of Acquiror, the Company or the
Exchange Agent shall be liable to any Person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not
have been surrendered prior to seven years after the Effective Time or
immediately prior to such earlier date on which any Merger Consideration in
respect of such Certificate would otherwise escheat to or become the property
of any Governmental Entity (as defined below), any such Merger Consideration
in respect of such Certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Entity, free and clear of all claims
or interest of any Person previously entitled thereto.
(f) Investment of Funds. The Exchange Agent shall invest any
Merger Consideration made available to the Exchange Agent pursuant to Section
2.4(a), as directed by Acquiror, on a daily basis. Any interest and other
income resulting from such investments shall be paid to Acquiror.
(g) Lost Certificates. In the event that 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, if required by Acquiror, the posting by such Person of a bond in such
reasonable amount as Acquiror may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration with respect to such Certificate, to which such Person is
entitled pursuant hereto.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company
represents and warrants to Acquiror as follows:
(a) Organization, Standing and Power. The Company has been duly
incorporated and is validly existing and in good standing under the laws of
the State of Maryland. The Company is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to so qualify would not, either individually or in
the aggregate, have a Material Adverse Effect on the Company. The copies of
the Organizational Documents of the Company filed with the Securities and
Exchange Commission (the "SEC") are true, complete and correct copies of such
documents as amended and in effect on the date of this Agreement.
(b) Company Subsidiaries. Schedule 3.1(b) to the Company
Disclosure Letter sets forth each Subsidiary of the Company and the ownership
interest therein of the Company. Each Company Sub that is a corporation is
duly incorporated and validly existing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to carry on
its business as now being conducted. Each of the Company Subs that is a
partnership, limited partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its
business as now being conducted. Each Company Sub 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 or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed would not, either
individually or in the aggregate, have a Material Adverse Effect on the
Company. True, complete and correct copies of the partnership agreement and
trust declaration, as applicable, of the Company Subs, each as amended to the
date of this Agreement, have been previously delivered or made available to
Acquiror.
(c) Capital Structure.
(i) As of the date of this Agreement, the authorized
stock of the Company consists of (A) 150,000,000 shares of Company
Common Stock, of which 20,163,642 shares are outstanding, (B)
160,000,000 shares of excess stock, par value $.01 per share, of which
no shares are outstanding, and (C) 10,000,000 shares of preferred
stock, par value $1.00 per share, of which no shares are outstanding.
All issued and outstanding shares of stock of the Company are duly
authorized, validly issued, fully paid and nonassessable, and, except
as disclosed in Schedule 3.1(c)(i) to the Company Disclosure Letter,
no class of stock of the Company is entitled to preemptive rights. As
of the date of this Agreement, there are no outstanding options,
warrants or other rights to acquire stock from the Company other than
(1) Options representing in the aggregate the right to purchase
671,333 shares of Company Common Stock under the Company Stock Option
Plans, (2) Restricted Stock Units outstanding under the Company Stock
Plans which may, in the Company's discretion, be settled by the
delivery of an aggregate of 202,000 shares of Company Common Stock
granted under the Company Stock Option Plans, and (3) as set forth on
Schedule 3.1(c)(i) to the Company Disclosure Letter. There are no
stock appreciation rights relating to the stock of the Company.
Except as disclosed in Schedule 3.1(c)(i) to the Company Disclosure
Letter, as of the date of this Agreement, no bonds, debentures, notes
or other indebtedness of the Company having the right to vote on any
matters on which stockholders may vote are issued or outstanding.
(ii) Schedule 3.1(c)(ii) to the Company Disclosure
Letter sets forth the equity ownership of each Company Sub (it being
understood that such representation with respect to securities held by
any entity other than the Company or any Company Sub is made only to
the extent of the Knowledge of the Company). Except as set forth on
Schedule 3.1(c)(ii) to the Company Disclosure Letter, (A) all of the
outstanding shares of stock of each Company Sub that is a corporation
have been duly authorized, validly issued, fully paid and
nonassessable, and are owned by the Company free and clear of all
liens, claims, encumbrances, restrictions, preemptive rights or any
other claims of any thirty party ("Liens") and (B) all equity
interests in each Company Sub that is a partnership, limited
partnership, joint venture, limited liability company or trust are
owned by the Company or one or more Company Subs free and clear of all
Liens. Except as set forth on Schedule 3.1(c)(ii) to the Company
Disclosure Letter, there are no outstanding options, warrants or other
rights to acquire ownership interests from the Company Subs. Except
as disclosed in Schedule 3.1(c)(ii) to the Company Disclosure Letter,
as of the date of this Agreement, no bonds, debentures, notes or other
indebtedness of the Company Subs having the right to vote on any
matters on which holders of equity in the Company Subs are entitled to
vote are issued or outstanding.
(iii) Except as otherwise set forth in this Section
3.1(c) or in Schedule 3.1(c)(i) or 3.1(c)(ii) to the Company
Disclosure Letter, as of the date of this Agreement, there are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or the
Company Subs is a party or by which any of them is bound obligating
the Company or the Company Subs to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of stock or other
voting securities of the Company or the Company Subs or obligating the
Company or the Company Subs to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, other
than as set forth in Schedule 3.1(c)(i) or 3.1(c)(ii) to the Company
Disclosure Letter, there are no outstanding obligations of the Company
or the Company Subs to repurchase, redeem or otherwise acquire any
shares of stock of the Company or shares of stock or other ownership
interests of the Company Subs.
(d) Authority; No Conflicts.
(i) The Company has all requisite corporate power and
corporate authority to enter into this Agreement and, subject to the
adoption of this Agreement by the requisite vote of the holders of
Company Common Stock, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Company, subject in the case of the consummation of the Merger to the
approval of this Agreement by the stockholders of the Company. This
Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company, enforceable
against it in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting creditors generally
and by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) Except as set forth in Schedule 3.1(d)(ii) to the
Company Disclosure Letter, the execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any
violation of, or constitute a default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation or the loss
of a material benefit under, or the creation of a lien, pledge,
security interest, charge or other encumbrance on any assets (any such
conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation")
pursuant to: (A) any provision of the Organizational Documents of the
Company or the Company Subs or (B) except as would not have a Material
Adverse Effect on the Company and, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, any
loan or credit agreement, note, mortgage, bond, indenture, lease,
benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, the Company
Subs or their respective properties or assets.
(iii) No consent, approval, order or authorization of,
or registration, declaration or filing with, any supranational,
national, state, municipal or local government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, or other governmental or quasi-
governmental authority (a "Governmental Entity"), is required by or
with respect to the Company or the Company Subs in connection with the
execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby,
except for (x) those required under or in relation to (A) the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (B)
the DLLCA and the MGCL with respect to the filing and recordation of
appropriate merger documents, (C) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and (D) rules and
regulations of the New York Stock Exchange (the "NYSE"), and (y) such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would
not, individually or in the aggregate, have a Material Adverse Effect
on the Company.
(e) Reports and Financial Statements.
(i) Each of the Company, Irvine Apartment Communities,
L.P., a Delaware limited partnership (the "OP"), and IAC Capital
Trust, a Delaware business trust (the "Trust"), has filed all required
reports, schedules, forms, statements and other documents required to
be filed by it with the SEC since, in each case, the later of (i)
January 1, 1996 and (ii) its formation (collectively, including all
exhibits thereto, the "SEC Reports"). No other Company Sub is
required to file any form, report or other document with the SEC.
None of the SEC Reports, as of their respective dates (and, if amended
or superseded by a filing prior to the date of this Agreement or of
the Closing Date, then on the date of such filing), contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the SEC Reports presents fairly, in all
material respects, (i) the consolidated financial position and
consolidated results of operations and cash flows of the Company and
the OP and (ii) the financial position and results of operations and
cash flows of the Trust, as of the respective dates or for the
respective periods set forth therein, all in conformity with United
States generally accepted accounting principles ("GAAP") consistently
applied during the periods involved except as otherwise noted therein,
and subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments that have not been and are
not expected to be material in amount. All of such SEC Reports, as of
their respective dates (and as of the date of any amendment to the
respective SEC Report), complied as to form in all material respects
with the applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except for liabilities and obligations referred
to in any of the SEC Reports (including, without limitation, the
financial statements included therein) filed prior to the date of this
Agreement, and except for liabilities and obligations incurred in the
ordinary course of business since September 30, 1998, neither the
Company nor any Company Sub has any liabilities or obligations of any
nature which, individually or in the aggregate, would have a Material
Adverse Effect on the Company.
(f) Schedule 13E-3; Proxy Statement.
(i) None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in the
Schedule 13E-3 (except for information about Acquiror or any of its
Affiliates) will, on the date the Schedule 13E-3 is first mailed to
the Company's stockholders or at the time of the Company 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 were made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company should occur
and is required to be described in an amendment of, or a supplement
to, the Schedule 13E-3, the Company shall promptly furnish Acquiror
with a description of such event. For purposes of this subsection
3.1(f)(i), any statement which is made or incorporated by reference in
the Schedule 13E-3 shall be deemed modified or superseded to the
extent any later filed document incorporated by reference in the
Schedule 13E-3 or any statement included in the Schedule 13E-3
modifies or supersedes such earlier statement.
(ii) None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in
the Proxy Statement (except for information about Acquiror or any of
its Affiliates furnished by Acquiror or any of its Affiliates to the
Company) will, on the date the Proxy Statement is first mailed to the
Company's stockholders or at the time of the Company 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 were made, not misleading. If at any time prior to
the Effective Time any event (other than an event with respect to the
Acquiror or any of its Affiliates) should occur and is required to be
described in an amendment of, or a supplement to, the Proxy Statement,
such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. If at any time prior
to the Effective Time any event with respect to the Acquiror or any of
its Affiliates should occur and is required to be described in an
amendment of, or a supplement to, the Proxy Statement, upon receipt of
a description of such event from Acquiror or any of its Affiliates,
such amendment or supplement shall be promptly filed by the Company
with the SEC and, as required by law, disseminated to the stockholders
of the Company. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC thereunder. For purposes of this
subsection 3.1(f)(ii), any statement which is made or incorporated by
reference in the Proxy Statement shall be deemed modified or
superseded to the extent any later filed document incorporated by
reference in the Proxy Statement or any statement included in the
Proxy Statement modifies or supersedes such earlier statement
(g) Compliance with Applicable Laws; Regulatory Matters.
Except as disclosed in any of the SEC Reports, the Company and the Company
Subs hold, and are in compliance with the terms of, all permits, licenses,
certificates, franchises, registrations, variances, exemptions, orders and
approvals of all Governmental Entities which are material to the operation of
their businesses, taken as a whole (the "Company Permits"), except where the
failure so to hold or comply, individually or in the aggregate, would not have
a Material Adverse Effect on the Company. Except as disclosed in any of the
SEC Reports, the businesses of the Company and the Company Subs are not being
and have not been conducted in violation of any law, ordinance, regulation,
judgment, decree, injunction, rule or order of any Governmental Entity, except
for violations which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. As of the date of this Agreement,
except as disclosed in any SEC Report, no investigation by any Governmental
Entity with respect to the Company or the Company Subs is pending or, to the
Knowledge of the Company, threatened, other than investigations which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
(h) Litigation. Except as disclosed in any of the SEC Reports
or in Schedule 3.1(h) to the Company Disclosure Letter, there is no
litigation, arbitration, claim, suit, action, investigation or proceeding
pending (it being understood that such representation with respect to any
litigation, arbitration, claim, suit, action, investigation or proceeding
being handled by representatives of the Acquiror or its Affiliates on behalf of
the Company is made only to the extent of the Knowledge of the Company) or, to
the Knowledge of the Company, threatened, against or affecting the Company or
the Company Subs which, individually or in the aggregate, would have a
Material Adverse Effect on the Company, nor is there any judgment, award,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or the Company Subs which, individually or in
the aggregate, would have a Material Adverse Effect on the Company. As of the
date hereof, except as set forth in Schedule 3.1(h) to the Company Disclosure
Letter, (i) there is no litigation, arbitration, claim, suit, action,
investigation or proceeding pending against or affecting the Company or its
Directors relating to this Agreement or the transactions contemplated hereby,
and (ii) to the Knowledge of the Company, there is no injunction, judgment,
order, decree, ruling or charge in effect against the Company, any of the
Directors of the Company or any Company Sub which would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) materially adversely affect the right of
Acquiror or any of its Subsidiaries to own its or the Company's or any Company
Sub's assets and to operate its or the Company's or any Company Sub's
businesses (and no such injunction, judgment, order, decree, ruling or charge
shall be in effect).
(i) Taxes.
(i) Each of the Company and each Company Sub has (A)
filed on a timely basis all Tax Returns required to be filed by it
(after giving effect to any filing extension properly granted by a
Governmental Entity having authority to do so) and all such Tax
Returns are accurate and complete in all material respects; and (B)
paid (or the Company has paid on its behalf) all Taxes shown on such
returns and reports as required to be paid by it, and, except as
disclosed in any of the SEC Reports or in Schedule 3.1(i)(i) to the
Company Disclosure Letter, the most recent financial statements
contained in any of the SEC Reports reflect an adequate reserve for
all material Taxes payable by the Company (and by those Company Subs
whose financial statements are contained therein) for all taxable
periods and portions thereof through the date of such financial
statements. The accruals and reserves for Taxes (including deferred
Taxes) reflected in the books and records of the Company (and such
Company Subs) as of the last day of the Company's most recently
completed fiscal month end are in all material respects adequate to
cover Taxes required to be accrued through such date (including Taxes
being contested) in accordance with GAAP applied on a consistent basis
with the financial statements contained in any of the SEC Reports.
True, correct and complete copies of all federal, state, local and
foreign Tax Returns for the Company and each Company Sub, and all
written communications relating thereto, have been delivered or made
available to representatives of Acquiror. Since January 1, 1998, the
Company has not incurred and does not expect to incur any liability
for taxes under Section 857(b), 860(c) or 4981 of the Internal Revenue
Code of 1986, as amended (the "Code"), and neither the Company nor any
Company Sub has incurred any material liability for Taxes other than
in the ordinary course of business. The Company has not elected and
will not elect to pay tax on any capital gain recognized on or after
January 1, 1998, including but not limited to gain recognized as a
result of the Merger. To the Knowledge of the Company, no event has
occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding two
sentences will be imposed upon the Company. Except as set forth on
Schedule 3.1(i)(i) to the Company Disclosure Letter, to the Knowledge
of the Company, no deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of the Company Subs,
and no requests for waivers of the time to assess any such Taxes are
pending. To the Knowledge of the Company, Schedule 3.1(i)(i) to the
Company Disclosure Letter sets forth (i) the taxable years of the
Company and the Company Subs as to which the respective statutes of
limitations for assessment of federal, state and foreign income or
franchise Taxes have not expired, and (ii) with respect to such
taxable years, those years for which examinations have been completed,
those years for which examinations are presently being conducted,
those years for which examinations have not yet been initiated and
those years for which extensions to file Tax Returns have been
requested and such Tax Returns have not yet been filed.
(ii) The Company (A) for all taxable years commencing
with 1993 through the most recent December 31, has been subject to
taxation as a real estate investment trust (a "REIT") within the
meaning of the Code and has satisfied all requirements to qualify as a
REIT for such years, (B) has operated, and will continue to operate,
in such a manner as to qualify as a REIT for the tax year ending upon
the Closing Date, and (C) has not taken or omitted to take any action
which would reasonably be expected to result in a challenge to its
status as a REIT, and to the Company's Knowledge, no such challenge is
pending or threatened. The OP and each other Company Sub that is a
partnership has been since its formation and continues to be treated
for federal income tax purposes as a partnership and not as a
corporation or an association or publicly traded partnership taxable
as a corporation. The Trust (W) for its taxable year ended December
31, 1998 has been organized and has operated in conformity with the
requirements for REIT qualification under the Code, (X) will, in a
timely fashion, elect to be treated as a REIT for the taxable year
ended December 31, 1998, (Y) during the portion of its taxable year
from January 1, 1999 through the date hereof has been organized and
has operated, and through the Closing Date will continue to be
organized and to operate, in conformity with the requirements for REIT
qualification under the Code, and (Z) has not taken or omitted to take
any action which would reasonably be expected to result in a challenge
to its status as a REIT and, to the Company's Knowledge, no such
challenge is pending or threatened. Each other Company Sub has been
since its formation, and continues to be treated for federal income
tax purposes as a "qualified REIT subsidiary" as defined in Section
856(i) of the Code. To the Knowledge of the Company, neither the
Company nor any Company Sub holds any asset (A) the disposition of
which would be subject to rules similar to Section 1374 of the Code as
a result of an election under IRS Notice 88-19 or (B) that is subject
to a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder.
(j) No Payments to Employees, Officers or Directors. Except as
set forth on Schedule 3.1(j) to the Company Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no employment or
severance contract, or other agreement requiring payments to be made or
increasing any amounts payable thereunder on a change of control or otherwise
as a result of the consummation of the Merger, with respect to any employee,
officer or director of the Company or any Company Sub.
(k) Properties. Except as provided in Schedule 3.1(k) to the
Company Disclosure Letter, the Company or one of the Company Subs owns fee
simple or leasehold, as applicable, title to each of the real properties
identified (as to fee simple property or leasehold property) in Schedule
3.1(k) to the Company Disclosure Letter (the "Company Properties"). The
Company Properties are not subject to liens, mortgages or deeds of trust,
claims against title, charges which are liens, security interests or other
encumbrances on title ("Encumbrances") and which could cause, individually or
in the aggregate, a Material Adverse Effect on the Company. The Company
Properties (other than the Company Properties under development) are not
subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an
interest in title (collectively, "Property Restrictions"), except for (i)
Encumbrances and Property Restrictions set forth in Schedule 3.1(k) to the
Company Disclosure Letter, (ii) Property Restrictions imposed or promulgated
by law or any governmental body or authority with respect to real property,
including zoning regulations, provided they do not materially adversely affect
the current use of any Company Property (other than the Company Properties
under development), (iii) Encumbrances and Property Restrictions disclosed on
existing title reports, existing title policies or existing surveys (in either
case copies of which title reports, title policies and surveys have been
delivered or made available to Acquiror; provided, however, that platting of
development land will not be shown on existing title reports or existing title
policies) and (iv) mechanics', carriers', workmen's, repairmen's liens and
other Encumbrances, Property Restrictions and other limitations of any kind,
if any, which, individually or in the aggregate, are not substantial in
amount, do not materially detract from the value of or materially interfere
with the current use of any of the Company Properties subject thereto or
affected thereby, and would not otherwise have a Material Adverse Effect on
the Company. Except as provided in Schedule 3.1(k) to the Company Disclosure
Letter, valid policies of title insurance have been issued insuring the
Company's or the applicable Company Sub's fee simple or leasehold, as
applicable, title to the Company Properties in amounts at least equal to the
purchase price (or in the case of leasehold properties, imputed value)
thereof, subject only to the matters disclosed above, and such policies are,
at the date hereof, in full force and effect and no material claim has been
made against any such policy. Except as provided in Schedule 3.1(k) to the
Company Disclosure Letter, (i) the Company has no Knowledge that any material
certificate, permit or license from any governmental authority having
jurisdiction over any of the Company Properties (other than the Company
Properties under development) or any agreement, easement or other right which
is necessary to permit the current use of the buildings and improvements on
any of the Company Properties (other than the Company Properties under
development) or which is necessary to permit the current use of all driveways,
roads, and other means of egress and ingress to and from any of the Company
Properties (other than the Company Properties under development) has not been
obtained and is not in full force and effect, or of any pending threat of
modification or cancellation of any of same, in each case which would
materially detract from the value of or materially interfere with the current
use of any of the Company Properties; (ii) the Company has not received written
notice of any material violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of
the Company Properties issued by any governmental authority; (iii) the Company
has no Knowledge of any structural defects relating to the Company Properties
which would materially detract from the value of or materially interfere with
the current use of any of the Company Properties; (iv) the Company has no
Knowledge of any Company Properties whose building systems are not in working
order in any material respect; (v) the Company has no Knowledge of any physical
damage to any Company Property in excess of $50,000 for which there is no
insurance in effect covering the cost of the restoration; and (vi) the Company
has no Knowledge of any current renovation or restoration (not including
recurring capital expenditures) to any Company Property the remaining cost of
which exceeds $50,000. The Company has no Knowledge of any Property
Restrictions on any Company Property under development that are likely to
materially detract from the value of or materially interfere with the proposed
use of such Company Property (other than Property Restrictions which the
Company has no reason to believe it will be unable to have removed prior to
the proposed occupancy of the Company Property). The Company has no Knowledge
that any governmental authority having jurisdiction over any Company Property
under development has denied or rejected any application by the Company for a
certificate, permit or license with respect to such Company Property, which
denial or rejection is likely to materially detract from the value of or
materially interfere with the proposed use of such Company Property. The
Company has received no notice of any material violation of any zoning,
building or similar law, code, ordinance or regulation which applies to the
Company Properties under development. Neither the Company nor any of the
Company Subs has received any notice to the effect that (A) any condemnation
or adverse rezoning proceedings are pending or threatened with respect to any
of the Company Properties or (B) any zoning, building or similar law, code,
ordinance or regulation is or will be violated by the continued maintenance,
operation or use of any buildings or other improvements on any of the Company
Properties (other than the Company Properties under development) or by the
continued maintenance, operation or use of the parking areas except where such
proceedings or violations could not have, individually or in the aggregate, a
Material Adverse Effect on the Company. All material work to be performed,
material payments to be made and material actions to be taken by the Company
or the Company Subs prior to the date hereof pursuant to any agreement entered
into with a governmental body or authority in connection with a site approval,
zoning reclassification or other similar action relating to the Company
Properties has been performed, paid or taken, as the case may be, in all
material respects.
(l) Environmental Liability. Except as disclosed in any of the
SEC Reports or as set forth in Schedule 3.1(l) to the Company Disclosure
Letter, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose, or that would result in the imposition, on the Company or the Company
Subs, of any liability or obligation arising under common law standards
relating to environmental protection, human health or safety, or under any
local, state or federal environmental statute, regulation or ordinance,
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (collectively,
"Environmental Laws"), pending or, to the Knowledge of the Company,
threatened, against the Company or any of the Company Subs, which liability or
obligation would have a Material Adverse Effect on the Company. To the
Knowledge of the Company, except as disclosed in any of the SEC Reports or in
Schedule 3.1(l) to the Company Disclosure Letter, during or, with respect to
Company Properties not located within that certain area of Orange County,
California commonly known as the Irvine Ranch, prior to the period of (i) its
or any of the Company Sub's ownership or operation of any of their respective
current properties, (ii) its or any of the Company Sub's participation in the
management of any property, or (iii) its or any of the Company Sub's holding
of a security interest or other interest in any property, there were no
releases or threatened releases (which release would represent a violation of,
or is likely to lead to liability under, any Environmental Law) of hazardous,
toxic, radioactive or dangerous materials or other materials regulated under
Environmental Laws in, on, under or affecting any such property which would,
individually or in the aggregate, have a Material Adverse Effect on the
Company. Neither the Company nor any of the Company Subs is subject to any
written agreement, order, judgment, decree, letter or memorandum by or with
any Governmental Entity or third party imposing any material liability or
obligation pursuant to or under any Environmental Law that would have a
Material Adverse Effect on the Company.
(m) Contracts; Debt Instruments.
(i) To the Knowledge of the Company, neither the
Company nor any Company Sub is in violation of or in default under
(nor does there exist any condition which upon the passage of time or
the giving of notice or both would cause such a violation of or
default under) any material loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or
any other material contract, agreement, arrangement or understanding
(each, a "Material Contract") to which it is a party or by which it or
any of its properties or assets is bound, except as set forth in
Schedule 3.1(m)(i) to the Company Disclosure Letter. To the Knowledge
of the Company, a true, complete and correct copy of each Material
Contract that has not been filed as an exhibit to any of the SEC
Reports has been previously delivered or made available to Acquiror,
and a list of all Material Contracts that have not been filed as an
exhibit to any of the SEC Reports is set forth on Schedule 3.1(m)(i)
to the Company Disclosure Letter.
(ii) Except for any of the following disclosed in any
of the SEC Reports, Schedule 3.1(m)(ii) to the Company Disclosure
Letter sets forth (x) a list of all loan or credit agreements, notes,
bonds, mortgages, indentures and other agreements and instruments
pursuant to which any Indebtedness of the Company or any of the
Company Subs in an aggregate principal amount of in excess of $100,000
per item is outstanding or may be incurred and (y) the respective
principal amounts of all material Indebtedness of the Company or any
Company Sub (categorized to a level of specificity that the Acquiror
acknowledges is sufficient) outstanding on December 31, 1998. For
purposes of this Section 3.1(m)(ii), "Indebtedness" shall mean, with
respect to any Person, without duplication, (A) all indebtedness of
such Person for borrowed money, whether secured or unsecured, (B) all
obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person,
(C) all capitalized lease obligations of such Person, (D) all
obligations of such Person under interest rate or currency hedging
transactions (valued at the termination value thereof) and (E) all
guarantees of such Person of any such Indebtedness of any other
Person.
(n) Employee Benefit Plans; Labor Matters.
(i) With respect to each employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), any Company Stock Option Plan and any bonus,
deferred compensation, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, change in control and severance plan, program,
arrangement and contract), to which the Company or any Company Sub is a party,
which is maintained, administered or contributed to by the Company or any
Company Sub or Company Affiliate which the Company or any Company Sub or
Company Affiliate has maintained, administered or contributed to, or with
respect to which the Company or any Company Sub or Company Affiliate has or
could incur liability under the Code or ERISA (the "Company Benefit Plans"),
the Company has made available to Acquiror a true and complete copy of (A) such
Company Benefit Plan, (B) the most recent annual report (Form 5500) filed with
the Internal Revenue Service (the "IRS"), (C) each trust or other funding
arrangement relating to such Company Benefit Plan, (D) the most recent summary
plan description related to each Company Benefit Plan for which a summary plan
description is required, (E) the most recent actuarial report (if applicable)
relating to an Company Benefit Plan and (F) the most recent determination
letter, if any, issued by the IRS with respect to any Company Benefit Plan
qualified under Section 401(a) of the Code.
(ii) Each of the Company Benefit Plans that is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA and that is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the IRS, and the Company is not aware of
any circumstances likely to result in the revocation of any such favorable
determination letter that would have a Material Adverse Effect on the Company.
(iii) Each of the Company Benefit Plans has been administered
and operated in accordance with the terms thereof and has complied, in form
and in operation, with ERISA, the Code and any other applicable law, except to
the extent any failure to so comply, individually or in the aggregate, would
not have a Material Adverse Effect on the Company.
(iv) With respect to the Company Benefit Plans, no event has
occurred and, to the Knowledge of the Company, there exists no condition or
set of circumstances, in connection with which the Company or any Company Sub
could be subject to any liability under the terms of such Company Benefit
Plans, ERISA, the Code or any other applicable law which, individually or in
the aggregate, would have a Material Adverse Effect on the Company.
(v) Schedule 3.1(n)(v) to the Company Disclosure Letter sets
forth with respect to each Option (an "Option") to purchase shares of Company
Common Stock under any Company Stock Option Plan, whether or not then
exercisable or vested, that is outstanding on the date of this Agreement: (i)
the name of the holder of such Option, (ii) the number of shares of Company
Common Stock with respect to which such Option is then exercisable and vested,
(iii) the grant date of each Option and a listing of each Option which was
granted pursuant to a Stock Option Agreement (each, a "Stock Option
Agreement") which is not in the form of Stock Option Agreement previously
provided to Acquiror, and (iv) the per share exercise price of such Option.
(vi) Schedule 3.1(n)(v) to the Company Disclosure Letter sets
forth with respect to each Restricted Stock Unit Agreement (including any
dividend equivalents relating thereto) (a "Restricted Stock Unit Agreement")
under any Company Stock Option Plan, whether or not then vested, that is
outstanding on the date of this Agreement: (i) the name of the holder of such
Restricted Stock Unit Agreement, (ii) the number of Restricted Stock Units
subject to such Restricted Stock Unit Agreement, and (iii) the grant date of
each award of Restricted Stock Units and a listing of each award which was
granted pursuant to a Restricted Stock Unit Agreement which is not in the form
of Restricted Stock Unit Award Agreement previously provided to Acquiror.
(vii) Except for the Options and Restricted Stock Unit
Agreements (including any dividend equivalents relating thereto) disclosed in
Schedule 3.1(n)(v) or 3.1(n)(vi) to the Company Disclosure Letter, as of the
date of this Agreement, (i) there are no outstanding awards under any Company
Stock Option Plan, and (ii) there are no outstanding options, warrants or
other rights to acquire stock from the Company.
(viii) Schedule 3.1(j) to the Company Disclosure Letter sets
forth a list of each Retention Agreement.
(ix) There is no pending labor dispute, strike or work stoppage
against the Company or any Company Sub which may interfere with the respective
business activities of the Company or any Company Sub, except where such
dispute, strike or work stoppage would not have a Material Adverse Effect on
the Company. There is no pending charge or complaint against the Company or
any Company Sub by the National Labor Relations Board or any comparable state
agency, except where such unfair labor practice, charge or complaint would not
have a Material Adverse Effect on the Company.
(o) Absence of Certain Changes or Events. Except as disclosed
in any of the SEC Reports or in Schedule 3.1(o) to the Company Disclosure
Letter, since September 30, 1998 through the date of this Agreement, (A) each
of the Company and the Company Subs has conducted its business in the ordinary
course and has not incurred any material liability, except in the ordinary
course of their respective businesses; and (B) there has not been any change
in the business, financial condition or results of operations of the Company
or the Company Subs that has had, or will have, a Material Adverse Effect on
the Company.
(p) Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock in favor of the
Merger is the only vote of the holders of any class or series of the Company's
stock required by the Organizational Documents of the Company or any Company
Sub or applicable law to approve, on behalf of the Company, this Agreement,
the Merger and the other transactions contemplated by this Agreement.
(q) Related Party Transactions. Set forth in Schedule 3.1(q)
to the Company Disclosure Letter is a list of all material arrangements,
agreements and contracts (other than arrangements, agreements and contracts to
which The Irvine Company, a Delaware corporation ("TIC"), or a wholly-owned
subsidiary of TIC is a party and other than any such arrangement, agreement or
contract filed as an exhibit to any SEC Report, substantially identical in
form to any such exhibit or substantially identical in form to the forms of
option agreement, restricted stock unit agreement and performance award
agreement previously provided to Acquiror) entered into by the Company or any
of the Company Subs, on the one hand, and any Person who is an officer,
director or affiliate of the Company or any of the Company Subs, any relative
of any of the foregoing or any entity of which any of the foregoing is an
affiliate, on the other hand. Copies of all such documents have previously
been delivered or made available to Acquiror.
(r) State Takeover Laws. The Board of Directors of the Company
has taken all such action required to be taken by it to provide that this
Agreement and the transactions contemplated hereby shall be exempt from the
requirements of any "moratorium," "control share," "fair price" or other
anti-takeover laws or regulations of any state. Title 3, Subtitles 6 and 7 of
the MGCL do not apply to the Merger or to any other business combination (as
defined in the MGCL) between the Company (or any affiliate thereof) and the
Acquiror (or any affiliate thereof) or to limit the voting rights of the
Acquiror as a holder of Company Common Stock.
(s) Brokers or Finders. Other than Morgan Stanley & Co.
Incorporated, no agent, broker, investment banker, financial advisor or other
firm or Person is or will be entitled to any broker's or finder's fee or any
other similar commission or fee in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or any Company Sub.
(t) Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Morgan Stanley & Co. Incorporated dated
the date of this Agreement, to the effect that, as of such date, the Merger
Consideration is fair, from a financial point of view, to the holders of
Company Common Stock (other than Acquiror and its Affiliates).
3.2. Representations and Warranties of Acquiror. Acquiror
represents and warrants to the Company as follows:
(a) Organization, Standing and Power. Acquiror has been duly
organized and is validly existing and in good standing under the laws of the
State of Delaware. Acquiror is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure so to qualify would not, either individually or in
the aggregate, have a Material Adverse Effect on Acquiror. Acquiror was
organized on December 1, 1998. A true, correct and complete copy of the
Limited Liability Company Operating Agreement of Acquiror has previously been
delivered or made available to the Company. Since the date of its
organization, Acquiror has not engaged in any activities other than in
connection with arranging any financing required to consummate the
transactions contemplated hereby.
(b) Authority; No Conflicts.
(i) Acquiror has all requisite limited liability
company power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate or limited liability company action on the part of Acquiror.
This Agreement has been duly executed and delivered by Acquiror and
constitutes a valid and binding agreement of Acquiror, enforceable
against Acquiror in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors generally, or by general equity principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ii) The execution and delivery of this Agreement does
not or will not, as the case may be, and the consummation of the
transactions contemplated hereby will not, result in any Violation of:
(A) any provision of the Organizational Documents of Acquiror or (B)
except as would not have a Material Adverse Effect on Acquiror and
subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or its properties or assets.
(iii) No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity
is required by or with respect to Acquiror in connection with the
execution and delivery of this Agreement by Acquiror or the
consummation by Acquiror of the transactions contemplated hereby,
except for (A) the consents, approvals, orders, authorizations,
registrations, declarations and filings required under or in relation
to clauses (A), (B) or (C) of Section 3.1(d)(iii) and (B) such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would
not have a Material Adverse Effect on Acquiror or impair or delay the
ability of Acquiror to consummate the transactions contemplated
hereby.
(c) Available Funds. Acquiror has, and will maintain until the
Effective Time, cash or cash equivalents on hand in the amount of not less
than $150 million. Acquiror has or will have available, prior to the
Effective Time, sufficient funds to enable it to consummate the Merger and the
other transactions contemplated hereby and to pay all related fees and
expenses.
(d) Schedule 13E-3; Proxy Statement.
(i) None of the information supplied or to be supplied
by Acquiror or any of its Affiliates for inclusion or incorporation by
reference in the Schedule 13E-3 (except for (A) information about the
Company furnished by the Company to Acquiror and (B) information in
the Proxy Statement which is incorporated by reference in the Schedule
13E-3 (except for the information in the Proxy Statement about
Acquiror or any of its Affiliates furnished by Acquiror or any of its
Affiliates to the Company)) will, on the date the Schedule 13E-3 is
first mailed to the Company's stockholders or at the time of the
Company 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 were made, not misleading. If
at any time prior to the Effective Time any event (other than an event
with respect to the Company) should occur and is required to be
described in an amendment of, or a supplement to, the Schedule 13E-3,
such event shall be so described, and such amendment or supplement
shall be promptly filed by Acquiror with the SEC and, as required by
law, disseminated to the stockholders of the Company. If at any time
prior to the Effective Time any event with respect to the Company
should occur and is required to be described in an amendment of, or a
supplement to, the Schedule 13E-3, upon receipt of a description of
such event from the Company, such amendment or supplement shall be
promptly filed by Acquiror with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Schedule 13E-3
will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this subsection 3.2(d)(i), any statement
which is made or incorporated by reference in the Schedule 13E-3 shall
be deemed modified or superseded to the extent any later filed
document incorporated by reference in the Schedule 13E-3 or any
statement included in the Schedule 13E-3 modifies or supersedes such
earlier statement.
(ii) None of the information about the Acquiror or any
of its Affiliates supplied or to be supplied by Acquiror or any of its
Affiliates for inclusion or incorporation by reference in the Proxy
Statement will, on the date it is first mailed to the Company's
stockholders or at the time of the Company 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 were made, not misleading. If at any time prior to the Effective
Time any event with respect to Acquiror or any of its Affiliates
should occur and is required to be described in an amendment of, or a
supplement to, the Proxy Statement, a description of such event shall
be promptly furnished by Acquiror or its Affiliate(s) to the Company.
For purposes of this subsection 3.2(d)(ii), any statement which is
made or incorporated by reference in the Proxy Statement shall be
deemed modified or superseded to the extent any later filed document
incorporated by reference in the Proxy Statement or any statement
included in the Proxy Statement modifies or supersedes such earlier
statement.
(e) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee from the
Company or a Company Sub as a result of Acquiror being a party hereto or
consummating any of the transactions contemplated by this Agreement.
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. Covenants of the Company. During the period from the date
of this Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that Acquiror
shall otherwise consent in writing):
(a) Ordinary Course. The Company and the Company Subs shall
carry on their respective businesses in the usual, regular and ordinary course
in all material respects, in accordance with past practice, and shall use all
reasonable efforts to preserve intact their present business organizations and
preserve their relationships with customers, suppliers and others having
business dealings with them; provided, however, that no action by the Company
or the Company Subs with respect to matters specifically addressed by any
other provision of this Section 4.1 shall be deemed a breach of this Section
4.1(a) unless such action would constitute a breach of one or more of such
other provisions.
(b) Dividends; Changes in Share Capital. The Company shall
not, and shall not permit any Company Sub to, and shall not propose to: (i)
adjust, split, combine or reclassify any stock; (ii) make, declare or pay any
dividend or make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its stock or any securities or
obligations convertible into or exchangeable for any shares of its stock,
voting securities or other ownership interests, or grant any stock
appreciation rights or grant any individual, corporation or other entity any
right, warrant or option to acquire any shares of its stock, voting securities
or other ownership interests, except for: (A) distributions on Trust Shares
not to exceed the greater of (1) the rate required by the terms thereof and
(2) the minimum rate required for the Trust to maintain its status as a REIT;
(B) regular quarterly distributions on preferred OP Units at the rates
required by the terms thereof; (C) regular quarterly distributions on common
OP Units at the rates recently paid by the OP; (D) regular quarterly
distributions on Company Common Stock not to exceed the greater of (1) $.385
per share and (2) the minimum rate required for the Company to maintain its
status as a REIT; provided that the record dates for the 1999 second and third
quarter distributions shall not be earlier than June 15, 1999 and September
15, 1999, respectively; and (E) payment of dividend equivalents with respect to
Restricted Stock Units; or (iii) repurchase, redeem or otherwise acquire any
shares of its stock or any stock, voting securities or ownership interests in
any Company Sub.
(c) Issuance of Equity Securities. Except as disclosed on
Schedule 4.1(c) to the Company Disclosure Letter, the Company shall not and
shall cause the Company Subs not to issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any equity securities of the
Company or any Company Sub, or enter into any agreement with respect to any of
the foregoing and shall not amend any equity-related awards issued pursuant to
the Company Benefit Plans, other than (i) the issuance of Company Common Stock
upon the exercise of Options outstanding as of the date of this Agreement as
disclosed in Section 3.1(c); provided any such issuance must be consistent
with past practice and in accordance with the terms of the Company Stock
Option Plans as in effect on the date of this Agreement, and no issuances
shall be made with respect to any Option which is amended, accelerated or
otherwise modified in violation of Section 4.1(i), (ii) issuances of Company
Common Stock to holders of common limited partner interests in the OP upon
exchange of common limited partner interests in the OP and (iii) issuances of
excess stock of the Company in accordance with the terms of, and subject to
the limits set forth in, the Organizational Documents of the Company upon
transfers of Company Common Stock.
(d) Organizational Documents. Except to the extent required to
comply with their respective obligations hereunder, required by law or
required by the rules and regulations of the NYSE, the Company and the Company
Subs shall not amend or propose to amend their respective Organizational
Documents.
(e) Properties. Except as set forth on Schedule 4.1(e) to the
Company Disclosure Letter, the Company shall not, and shall not permit any
Company Sub to sell, transfer, mortgage, lease, pledge, encumber or otherwise
dispose of any Company Properties or assets to any individual, corporation or
other entity other than a direct or indirect wholly owned Company Sub, or
cancel, release or assign any indebtedness to any such Person or any claims
held by any such Person, in each case that is material to such party, except
(i) pursuant to contracts or agreements in force at the date of this Agreement
in accordance with the terms of such contract or agreement as in effect on the
date of this Agreement, (ii) as reasonably necessary to protect REIT
qualification, (iii) pursuant to leases of apartment units in the ordinary
course of business or (iv) pursuant to sales, transfers, mortgages, leases,
pledges, encumbrances or other dispositions of assets other than Company
Properties in the ordinary course of business.
(f) Mergers and Acquisitions. Except as set forth on Schedule
4.1(f) to the Company Disclosure Letter, the Company shall not, and shall not
permit any Company Sub to merge or consolidate with any entity, make any
acquisition or investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchases of any property or
assets of any other individual, corporation or other entity, except
transactions which are reasonably necessary to protect REIT qualifications.
(g) Contracts. Except as set forth on Schedule 4.1(g) to the
Company Disclosure Letter, the Company shall not, and shall not permit any
Company Sub to, except for transactions which are reasonably necessary to
protect REIT qualification, enter into or terminate any material contract or
agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without materially adverse changes
of terms thereof.
(h) Indebtedness. Except as set forth on Schedule 4.1(h) to
the Company Disclosure Letter, the Company shall not, and shall not permit any
Company Sub to, (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of the Company or any Company Sub or guarantee
any debt securities of other Persons, (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, or (iii) pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than in the case of clauses
(ii) and (iii), loans, advances, capital contributions, investments, payments,
discharges or satisfactions that are incurred or committed to in the ordinary
course of business consistent with past practice and that do not exceed
$250,000 individually or $1 million in the aggregate.
(i) Benefit Plans. The Company shall not, and shall not permit
any Company Sub to, (i) increase the compensation payable or to become payable
to any of its executive officers or employees or (ii) take any action with
respect to the grant of any severance or termination pay, or stay, bonus or
other incentive arrangement (other than pursuant to benefit plans and policies
(including the Retention Agreements) in effect on the date of this Agreement),
except any such increases or grants made in the ordinary course of business
and in accordance with past practice. The Company shall take all actions
necessary to assure that (i) no awards shall be granted under any Company
Stock Option Plan, or (ii) the terms and conditions of any award under any
Company Stock Option Plan will not be amended, accelerated, or otherwise
modified, and no other action will be taken with respect to any award under
any Company Stock Option Plan, except as provided in Section 2.3 or otherwise
in accordance with the contractual obligations of the Company in respect of
any such awards.
(j) Tax Election. The Company shall not, and shall not permit
any Company Sub to, make any material Tax election (unless required by law or
necessary to preserve the Company's status as a REIT or the status of any
Company Sub as a partnership for federal tax purposes, as a REIT or as a
"qualified REIT subsidiary" under Section 856(i) of the Code, as the case may
be).
(k) Accounting Principles and Taxes. The Company shall not,
and shall not permit any Company Sub to, (i) change in any material manner any
of its methods, principles or practices of accounting in effect at September
30, 1998, or (ii) make or rescind any express or deemed election relating to
Taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, except in
the case of settlements or compromises relating to taxes on real property in
an amount not to exceed, individually or in the aggregate, $100,000, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
return for the most recently completed taxable year except, in the case of
clause (i), as may be required by the SEC, applicable law or GAAP.
(l) Liabilities. Except as set forth on Schedule 4.1(l) to the
Company Disclosure Letter, the Company shall not, and shall not permit any
Company Sub to, pay, discharge, settle or satisfy any claims, liabilities or
objections (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements (or the notes thereof) of
the Company included in any of the SEC Reports or incurred in the ordinary
course of business consistent with past practice.
(m) Other Actions. The Company shall not, and shall not permit
any Company Sub to, take any action that would result in (i) any of the
representations or warranties of the Company set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in
any material respect or (iii) any of the conditions to the Merger set forth in
Article VI not being satisfied.
4.2. Advice of Changes; Government Filings. Each party shall
(a) confer on a regular and frequent basis with the other, (b) report (to the
extent permitted by law, regulation and any applicable confidentiality
agreement) on operational matters, consistent with past practice, and (c)
promptly advise the other orally and in writing 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 (A) to comply with
or satisfy in any respect any covenant, condition or agreement required to be
complied with or satisfied by it under this Agreement that is qualified as to
materiality or (B) to comply with or satisfy in any material respect any
covenant, condition or agreement required to be complied with or satisfied by
it under this Agreement that is not so qualified as to materiality or (iii) any
change, event or circumstance that has had or would have a Material Adverse
Effect on the Company or materially adversely affect any party's ability to
consummate the Merger in a timely manner; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. The Company, the Company Subs and Acquiror shall file
all reports required to be filed by each of them with the SEC (and all other
Governmental Entities) between the date of this Agreement and the Effective
Time and shall (to the extent permitted by law or regulation or any applicable
confidentiality agreement) deliver to the other party copies of all such
reports promptly after the same are filed, consistent with past practice.
Subject to applicable laws relating to the exchange of information, each of
the Company and Acquiror shall have the right to review in advance, and to the
extent practicable each will consult with the other, with respect to all the
information relating to the other party and each of their respective
Subsidiaries, which appears in any filings, announcements or publications made
with, or written materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party agrees that, to the
extent practicable, it will keep the other party apprised of the status of
matters relating to completion of the transactions contemplated hereby.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1. Preparation of Schedule 13E-3 and Proxy Statement; the
Company Stockholders Meeting.
(a) Acquiror will, as promptly as practicable, prepare and file
with the SEC, and will cause its Affiliates to cooperate, to the extent
necessary, in such preparation and filing, a Rule 13e-3 Transaction Statement
on Schedule 13E-3 (the "Schedule 13E-3"). Acquiror will use all reasonable
efforts, and will cause its Affiliates to cooperate, to the extent necessary,
to cause the Schedule 13E-3 to be mailed to stockholders of the Company at the
earliest practicable date.
(b) The Company will, as promptly as practicable, prepare and
file with the SEC a proxy statement in connection with the vote of the
Company's stockholders with respect to the Merger and this Agreement (such
proxy statement, together with any amendments thereof or supplements thereto,
in each case in the form or forms mailed to the Company's stockholders, are
herein called the "Proxy Statement"). The Company will use all reasonable
efforts to cause the Proxy Statement to be mailed to stockholders of the
Company at the earliest practicable date.
(c) The Company shall (i) as soon as practicable following the
date of this Agreement, duly call, give notice of, convene and hold a meeting
of its stockholders (the "Company Stockholders Meeting") for the purpose of
obtaining the Required Company Votes, and (ii) through its Board of Directors
and the Special Committee, recommend to its stockholders that they approve the
transactions contemplated by this Agreement and shall not withdraw, modify or
change such recommendation, or recommend any other offer or proposal, at any
time prior to the conclusion of the Company Stockholders Meeting.
Notwithstanding clause (ii) of the immediately preceding sentence of this
subsection 5.1(c), the Special Committee or the Board of Directors of the
Company (with the concurrence of the Special Committee) may at any time prior
to the Effective Time withdraw, modify or change any recommendation regarding
this Agreement or the Merger, or recommend any other offer or proposal, if the
Special Committee or the Board of Directors of the Company (with the
concurrence of the Special Committee) after consultation with its counsel,
determines that taking any such action is required in accordance with its
legal duties to the Company's stockholders under applicable law; provided,
such withdrawal, modification, change or recommendation shall not affect or
excuse the performance, or cure any breach, of, any obligation of the Company
hereunder (other than that set forth in clause (ii) of the immediately
preceding sentence of this subsection 5.1(c)), including, but not limited to,
the requirements in clause (i) of the immediately preceding sentence of this
subsection 5.1(c) and the requirements in Section 5.5.
5.2. Access to Information. Upon reasonable notice, the Company
shall (and shall cause the Company Subs, to the extent permitted by the
Organizational Documents or other pertinent agreements of such entity, to)
afford to the officers, employees, accountants, counsel, financial advisors
and other representatives of Acquiror reasonable access during normal business
hours, during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, the Company
shall (and shall cause the Company Subs, to the extent permitted by the
Organizational Documents or other pertinent agreements of such entity, to)
furnish promptly to Acquiror (a) a copy of each report, schedule, registration
statement and other document filed, published, announced or received by it
during such period pursuant to the requirements of Federal or state securities
laws, as applicable (other than reports or documents which such party is not
permitted to disclose under applicable law) and (b) consistent with its legal
obligations, all other information concerning its business, properties and
personnel as Acquiror may reasonably request.
5.3. Approvals and Consents; Cooperation. Each of the Company
and Acquiror shall cooperate with each other and use (and shall take all
reasonable steps to cause each of their respective Subsidiaries to use) its
reasonable efforts to take or cause to be taken all actions, and do or cause
to be done all things, necessary, proper or advisable on their part under this
Agreement and applicable laws to consummate and make effective the Merger and
the other transactions contemplated by this Agreement as soon as practicable,
including (i) preparing and filing as promptly as practicable all
documentation to effect all necessary applications, notices, petitions,
filings, and other documents and to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits, tax
rulings and authorizations necessary or advisable to be obtained from any
third party and/or any Governmental Entity in order to consummate the Merger
or any of the other transactions contemplated by this Agreement and (ii)
taking all reasonable steps as may be necessary to obtain all such consents,
waivers, licenses, registrations, permits, authorizations, tax rulings, orders
and approvals. Without limiting the generality of the foregoing, each of the
Company and Acquiror agrees to make all necessary filings in connection with
the Required Regulatory Approvals as promptly as practicable after the date of
this Agreement, and to use its reasonable efforts to furnish or cause to be
furnished, as promptly as practicable, all information and documents requested
with respect to such Required Regulatory Approvals and shall otherwise
cooperate with the applicable Governmental Entity in order to obtain any
Required Regulatory Approvals in as expeditious a manner as possible. Each of
the Company and Acquiror shall use its reasonable efforts to resolve such
objections, if any, as any Governmental Entity may assert with respect to this
Agreement and the transactions contemplated hereby in connection with the
Required Regulatory Approvals. In the event that a suit is instituted by a
Person or Governmental Entity challenging this Agreement and the transactions
contemplated hereby as violative of applicable antitrust or competition laws,
each of the Company and Acquiror shall use its reasonable efforts to resist or
resolve such suit. With respect to any action, suit, or proceeding pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (iii) affect adversely the right of
any of Acquiror or its Affiliates to own its assets and to operate its
businesses or (iv) cause the Company, the Company Sub, Acquiror or any of
their Affiliates to pay damages in connection with claims related to the
transactions contemplated by this Agreement, the Company and Acquiror (x)
shall confer and cooperate with one another in the defense thereof and (y)
shall not, without the written consent of the other (not to be unreasonably
withheld), enter into any settlement, or consent to the entry of any judgment,
relating thereto; provided that neither party may withhold its consent to any
settlement or judgment which would not have the effects described in clauses
(i)-(iv) of this sentence and pursuant to which it would be fully and
unconditionally released from liability. The Company and Acquiror each shall,
upon request by the other, furnish the other with all information concerning
itself, its Subsidiaries, directors, officers and stockholders and such other
matters as may reasonably be necessary or advisable in connection with the
Schedule 13E-3 or the Proxy Statement or any other statement, filing, tax
ruling request, notice or application made by or on behalf of the Company,
Acquiror or any of their respective Subsidiaries to any third party and/or any
Governmental Entity in connection with the Merger or the other transactions
contemplated by this Agreement.
5.4. Stock Options and Restricted Stock. The Company and each
Company Sub shall take all actions as may be necessary under the Company Stock
Option Plans to effect the cancellations described in Section 2.3 and shall
comply with all requirements regarding tax withholding in connection
therewith. In addition to the foregoing and subject to the terms of the
Company Stock Option Plans and applicable law, the Company shall take all
actions necessary to cause the Company Stock Option Plans to be terminated at
or prior to the Effective Time, and to satisfy Acquiror that no holder of
Options, Restricted Stock Units or other awards under such Plans, or
participant in any Company Stock Option Plans, will have any right to acquire
any interest in the Company or Acquiror as a result of the exercise of Options,
Restricted Stock Units or other awards or rights pursuant to such Company
Stock Option Plans at or after the Effective Time.
5.5. Acquisition Proposals.
(a) Unless and until this Agreement shall have been terminated
by either party pursuant to Article VII hereof, the Company shall not take or
cause, directly or indirectly, any of the following actions with any party
other than Acquiror or its designees: (i) solicit, knowingly encourage,
initiate or participate in any negotiations, inquiries or discussions with
respect to any offer or proposal to acquire all or any part of its business,
assets or capital shares whether by merger, consolidation, other business
combination, purchase of assets, tender or exchange offer or otherwise (each
of the foregoing, an "Acquisition Proposal"); (ii) disclose, in connection
with an Acquisition Proposal, any information or provide access to its
properties, books or records, except as required by law or pursuant to a
governmental request for information; (iii) enter into or execute any
agreement relating to an Acquisition Proposal; or (iv) make or authorize any
public statement, recommendation or solicitation in support of any Acquisition
Proposal other than with respect to the Merger.
(b) Notwithstanding the foregoing, in response to a bona fide,
unsolicited, written Acquisition Proposal from a Third Party (that does not
result from a breach of this Section 5.5), the Special Committee may, and may
authorize and permit the Company's officers, directors, employees, financial
advisors, representatives, or agents to, provide such Third Party with
nonpublic information, otherwise facilitate any effort or attempt by such
Third Party to make or implement such Acquisition Proposal, agree to or
recommend or endorse any such Acquisition Proposal with or by any Third Party,
and participate in discussions and negotiations with such Third Party relating
to such Acquisition Proposal, if (i) the Special Committee believes in good
faith (after consultation with its financial advisor) that such Acquisition
Proposal (A) provides or is likely to provide for higher per share value to
the stockholders of the Company, (B) is capable of being fully financed and
performed and (C) is not subject or is not likely to be subject to any
material conditions to which the Merger is not subject (a "Superior
Proposal"), (ii) the Special Committee, after having consulted with and
considered the advice of outside counsel, has reasonably determined in good
faith that the failure to do so would cause the members of such Special
Committee to breach their legal duties to the stockholders of the Company under
applicable law and (iii) the Third Party has entered into a confidentiality
agreement pertaining to nonpublic information regarding the Company containing
customary terms and conditions. The Company agrees, if so requested by
Acquiror in its sole and absolute discretion (such request must to be made
within five business days after receipt by Acquiror of notice of the Superior
Proposal from the Company in accordance with Section 5.5(c)), to enter into an
agreement to consummate a transaction with Acquiror or its designee on terms
providing equivalent value for the Company's stockholders to the value
provided by the terms contained in the Superior Proposal, including without
limitation on the same terms contained in the Superior Proposal (a "Matching
Transaction"). If Acquiror does not timely request to consummate a Matching
Transaction following the Company's receipt of a Superior Proposal, the
Special Committee (on behalf of the Company) may terminate this Agreement
under Section 7.1(f) and accept such Superior Proposal, and the Special
Committee may make or authorize any public statement, recommendation or
solicitation in support of such Superior Proposal.
(c) The Company shall notify Acquiror reasonably promptly after
receipt by the Company (or any of their advisors) of any Acquisition Proposal
or any request for nonpublic information in connection with an Acquisition
Proposal or for access to the Company's properties, books or records by any
person or entity that informs the Company that it is considering making, or
has made, an Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate in reasonable detail the identity of the offeror
and the terms and conditions of such proposal, inquiry or contact. If the
Acquisition Proposal is believed by the Special Committee to be a Superior
Proposal, the Company shall reasonably promptly furnish to Acquiror all of the
terms of such proposal and copies of any proposed agreement relating thereto.
The Company shall continue to keep Acquiror informed, on a reasonably prompt
basis, of the status of any discussions or negotiations of any Acquisition
Proposal and the terms being discussed or negotiated.
(d) The provisions of this Section 5.5 shall not constitute a
waiver or limitation or in any way affect the rights of Acquiror or its
Affiliates under the Organizational Documents of the Company or otherwise.
(e) The provisions of this Section 5.5 shall not be deemed to
affect any rights or claims in tort or otherwise of Acquiror or its Affiliates
against any Person not affiliated with a party to this Agreement with respect
to any attempt to interfere with, cause the termination of, or cause Acquiror
or its Affiliates to lose any benefits under, this Agreement.
5.6. [Intentionally Omitted].
5.7. Withholding/Foreign Persons. The Company shall promptly
take all steps necessary to ensure compliance, and shall comply, with all
withholding obligations with respect to any foreign stockholders of the
Company in connection with the payment of the Merger Consideration.
5.8. Public Announcements. The Company and Acquiror shall use
all reasonable efforts to develop a joint communications plan and each party
shall use all reasonable efforts (i) to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan, and (ii) unless
otherwise required by applicable law or by obligations pursuant to any listing
agreement with or rules of any securities exchange, to consult with each other
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
5.9. Director and Officer Liability. For six years after the
Effective Time, Acquiror will cause the Surviving Entity to indemnify and hold
harmless the present and former officers and directors of the Company in
respect of acts or omissions occurring prior to the Effective Time to the
extent provided under the Company's Organizational Documents in effect on the
date hereof; provided that such indemnification shall be subject to any
limitation imposed from time to time by applicable law. For six years after
the Effective Time, Acquiror will cause the Surviving Entity to provide
officers' and directors' liability insurance in respect of acts or omissions
occurring prior to the Effective Time covering each such person currently
covered by the Company's officers' and directors' liability insurance policy
on terms with respect to coverage and amount no less favorable than those of
such policy in effect on the date hereof.
5.10. Payment of Dividends. Prior to the Effective Time, the
Company shall pay any and all dividends or make any other distributions with
respect to the Company Common Stock which have been declared or made by the
Company as permitted by this Agreement. The record date and amount of any
dividends or any other distributions with respect to the Company Common Stock
which have been declared or made by the Company prior to the date of this
Agreement and which remain unpaid as of the date of this Agreement are set
forth on Schedule 5.10 to the Company Disclosure Letter.
5.11. Further Assurances. In case at any time after the
Effective Time any further action is reasonably necessary to carry out the
purposes of this Agreement, the proper officers of the Company and Acquiror
shall take any such reasonably necessary action.
ARTICLE VI.
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation to Effect the
Merger. The obligations of the Company and Acquiror to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions (it being understood that, in the case of the Company,
any determination as to the satisfaction or waiver of any of the following
conditions shall be made only by the Special Committee on behalf of the
Company):
(a) Required Company Votes. The Company shall have obtained the
Required Company Votes.
(b) No Injunctions or Restraints, Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued
by a court or other Governmental Entity of competent jurisdiction shall be in
effect and have the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; provided, however, that the provisions
of this Section 6.1(b) shall not be available to any party whose failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause of,
or shall have resulted in, such order or injunction.
(c) HSR Act. If applicable, the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired.
6.2. Additional Conditions to Obligations of Acquiror. The
obligations of Acquiror to effect the Merger are subject to the satisfaction
of, or waiver by Acquiror, on or prior to the Closing Date, of the following
additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of the Company set forth in this Agreement that
is qualified as to materiality shall have been true and correct when made and
shall be true and correct on and as of the Closing Date as if made on and as
of such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such certain
date), and each of the representations and warranties of the Company that is
not so qualified shall have been true and correct in all material respects
when made and shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of such date (other than representations
and warranties which address matters only as of a certain date which shall be
true and correct in all material respects as of such certain date).
(b) Performance of Obligations of the Company. The Company
shall have performed or complied with all agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing Date that
are qualified as to materiality and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
not so qualified as to materiality.
(c) REIT Tax Opinion. Acquiror shall have received an opinion
of Davis Polk & Wardwell, counsel to the Company, in form and substance
reasonably satisfactory to Acquiror, dated as of the Effective Time,
substantially to the effect that (i) commencing with the taxable year ended
December 31, 1993, the Company has been organized and has operated in
conformity with the requirements for qualification as a REIT within the
meaning of the Code, (ii) commencing with its taxable year ended December 31,
1998, the Trust has been organized and has operated in conformity with the
requirements for qualification as a REIT within the meaning of the Code and
(iii) the OP and each other Company Sub which is a partnership has been, at
all times since it has been a Company Sub, and continues to be, treated for
federal income tax purposes as a partnership and not as an association or
publicly traded partnership taxable as a corporation (in each case with
customary exceptions, conditions, assumptions and qualifications).
(d) Cancellation of Options and Restricted Stock Units. All
Options and Restricted Stock Units under any Company Stock Option Plan shall
be canceled in accordance with Section 2.3, and no holder of Options,
Restricted Stock Units (or dividend equivalents relating thereto) or other
awards under any Company Stock Option Plan or any other incentive compensation
plans of the Company or any Company Sub shall have any further rights
thereunder or any right or interest in the Company or Acquiror on or after the
Effective Time, except as provided in the Retention Agreements. There shall be
(i) no outstanding awards under any Company Stock Option Plan and (ii) no
outstanding options, warrants or other rights to acquire stock or other forms
of equity from the Company.
6.3. Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the
satisfaction of, or waiver by the Company on or prior to the Closing Date of
the following additional conditions (it being understood that any
determination as to the satisfaction or waiver of any of the following
conditions shall be made only by the Special Committee on behalf of the
Company):
(a) Representations and Warranties. Each of the
representations and warranties of Acquiror set forth in this Agreement that is
qualified as to materiality shall have been true and correct when made and
shall be true and correct on and as of the Closing Date as if made on and as
of such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such certain
date), and each of the representations and warranties of Acquiror that is not
so qualified shall have been true and correct in all material respects when
made and shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date which shall be true
and correct in all material respects as of such certain date).
(b) Performance of Obligations of Acquiror. Acquiror shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
qualified as to materiality and shall have performed or complied in all
material respects with all agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality.
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Special
Committee (on behalf of the Company) or the Managing Member (on behalf of the
Acquiror), whether before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company:
(a) By mutual written consent of Acquiror and the Special
Committee (on behalf of the Company), by action of the Managing Member of the
Acquiror and the Special Committee (on behalf of the Company);
(b) By either the Special Committee (on behalf of the Company)
or Acquiror if the Merger shall not have been consummated by the date which is
eight months from the date of this Agreement (the "Outside Date"); provided
that the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Merger to
occur on or before such date;
(c) By either the Special Committee (on behalf of the Company)
or Acquiror if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties shall have used their reasonable efforts to resist, resolve or
lift, as applicable, subject to the provisions of Section 5.3) permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement, and such order, decree, ruling or other action shall have
become final and nonappealable;
(d) By either Acquiror or the Special Committee (on behalf of
the Company) if the Required Company Votes shall not have been obtained at a
duly held meeting of stockholders or at any adjournment thereof; provided that
the right to terminate this Agreement under this Section 7.1(d) shall not be
available to the Company if it fails to fulfill its obligations under Section
5.1 and Section 5.5;
(e) By Acquiror, if (i) after the receipt by the Company of an
Acquisition Proposal, the Special Committee or the Board of Directors of the
Company (including a majority of the members of the Special Committee) shall
have withdrawn or modified its recommendation of this Agreement or the Merger,
(ii) after the receipt by the Company of an Acquisition Proposal (which
Acquisition Proposal is public), Acquiror requests in writing that the Special
Committee or the Board of Directors of the Company publicly reconfirm its
recommendation of this Agreement and the Merger to the stockholders of the
Company and the Special Committee or the Board of Directors of the Company
(including a majority of the members of the Special Committee), as applicable,
fails to do so within 5 business days after its receipt of Acquiror's request;
(iii) the Special Committee or the Board of Directors of the Company
(including a majority of the members of the Special Committee) shall have
recommended to the stockholders of the Company an Alternative Transaction;
(iv) a tender offer or exchange offer for 20% or more of the outstanding
shares of Company Common Stock is commenced (other than by the Company or an
Affiliate of the Company) and the Special Committee or the Board of Directors
of the Company (including a majority of the members of the Special Committee)
recommends that the stockholders of the Company tender their shares in such
tender or exchange offer; or (v) the Company fails to call and hold the
Company Stockholders Meeting by the Outside Date in breach of Section 5.1(c).
(f) By the Special Committee (on behalf of the Company), prior
to the approval of this Agreement by the stockholders of the Company, if the
Company and the Special Committee have complied in all respects with Section
5.5, and the Special Committee has determined to accept a Superior Proposal;
provided, however, that no termination shall be effective pursuant to this
Section 7.1(f) under circumstances in which a Break-Up Fee is payable by the
Company pursuant to Section 7.2(c)(iii), unless concurrently with such
termination, such Break-Up Fee is paid in full by the Company in accordance
with Section 7.2(c)(iii), as applicable;
(g) By Acquiror, upon a material breach of any covenant or
agreement on the part of the Company set forth in this Agreement, or if (i)
any representation or warranty of the Company that is qualified as to
materiality shall have become untrue or (ii) any representation or warranty of
the Company that is not so qualified shall have become untrue in any material
respect, in each case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is capable of
being cured by the Company prior to the Effective Time, for so long as the
Company continues in good faith to attempt to cure such breach, Acquiror may
not terminate this Agreement under this Section 7.1(g); or
(h) By the Special Committee (on behalf of the Company), upon a
material breach of any covenant or agreement on the part of Acquiror set forth
in this Agreement, or if (i) any representation or warranty of Acquiror that
is qualified as to materiality shall have become untrue or (ii) any
representation or warranty of Acquiror that is not so qualified shall have
become untrue in any material respect, in each case such that the conditions
set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied
("Terminating Acquiror Breach"); provided, however, that, if such Terminating
Acquiror Breach is capable of being cured by Acquiror prior to the Effective
Time, for so long as Acquiror continues in good faith to attempt to cure such
breach, the Company may not terminate this Agreement under this Section 7.1(h).
7.2. Expenses
(a) Except as otherwise provided in this Section 7.2, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses. As
used in this Agreement, "Expenses" includes all reasonable out-of-pocket
expenses (including, without limitation, all reasonable fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Schedule 13E-3
and Proxy Statement and the solicitation of stockholder approvals and all
other matters related to the transactions contemplated hereby.
(b) Notwithstanding the foregoing, if (i) the Special Committee
or the Board of Directors of the Company (including a majority of the members
of the Special Committee) withdraw, modify or change any recommendation
regarding this Agreement or the Merger, or recommend any other offer or
proposal, as contemplated in Section 5.1(c) and (ii) the condition set forth
in Section 6.1(a) is not satisfied, then the Company shall pay all of the
Expenses incurred by Acquiror.
(c) The Company shall pay Acquiror a Break-Up Fee upon the
earliest to occur of the following events:
(i) the termination of this Agreement by either
Acquiror or the Company pursuant to Section 7.1(d), if a proposal for
an Alternative Transaction involving the Company shall have been
publicly announced prior to the Company Stockholders' Meeting and
either a definitive agreement for an Alternative Transaction is
entered into, or such Alternative Transaction (or another Alternative
Transaction with the proponent of such transaction or an Affiliate) is
consummated, within eighteen months of such termination;
(ii) the termination of this Agreement by Acquiror
pursuant to Section 7.1(e); or
(iii) the termination of this Agreement by the Special
Committee (on behalf of the Company) pursuant to Section 7.1(f).
The Company's payment of a Break-Up Fee pursuant to this subsection shall be
the sole and exclusive remedy of Acquiror against the Company and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise
to such payment; provided that this limitation shall not apply in the event of
a willful breach of this Agreement by the Company.
(d) The Break-Up Fee payable pursuant to Section 7.2(c) shall
be paid concurrently with the first to occur of the events described in
Section 7.2(c)(i), (ii) or (iii).
(e) As used in this Agreement, "Alternative Transaction" means
either (i) a transaction pursuant to which any Third Party acquires more than
20% of the outstanding shares of Company Common Stock pursuant to a tender
offer or exchange offer or otherwise, (ii) a merger or other business
combination involving the Company pursuant to which any Third Party (or the
stockholders of a Third Party) acquires more than 20% of the outstanding
shares of Company Common Stock or the entity surviving such merger or business
combination, or (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of the Company and the entity surviving any merger
or business combination including any of them) of the Company having a fair
market value (as determined by the Special Committee of the Company in good
faith) equal to more than 20% of the fair market value of all the assets of
the Company and its Subsidiaries, taken as a whole, immediately prior to such
transaction.
(f) The "Break-Up Fee" shall be an amount equal to $19,250,000.
7.3. Effect of Termination. In the event of termination of this
Agreement by either the Company or Acquiror as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Acquiror or the Company or their respective
officers, members or directors except (i) with respect to Section 5.6 and (ii)
with respect to any liabilities or damages incurred or suffered by a party as
a result of the breach by the other party of any of its representations,
warranties, covenants or other agreements set forth in this Agreement.
7.4. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorization of the Special Committee (on behalf
of the Company) and the Managing Member of Acquiror, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of the Company, but, after any such approval, no amendment shall
be made which by law or in accordance with the rules of the NYSE requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.5. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorization of the Special
Committee (on behalf of the Company) and the Managing Member of Acquiror, may,
to the extent legally allowed, (i) extend the time for the performance of any
of the obligations or other acts of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. No delay on the part
of any party hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any
party hereto of any right, power or privilege hereunder operate as a waiver of
any other right, power or privilege hereunder, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
which the parties hereto may otherwise have at law or in equity. 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 those rights.
ARTICLE VIII.
GENERAL PROVISIONS
8.1. Non-Survival of Representations, Warranties and
Agreements; No Other Representations and Warranties. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any
rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their
terms apply or are to be performed in whole or in part after the Effective
Time. Each party hereto agrees that, except for the representations and
warranties contained in this Agreement, neither of the Company nor Acquiror
makes any other representations or warranties, and each hereby disclaims any
other representations and warranties made by itself or any of its officers,
directors, members, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement,
the documents and the instruments referred to herein, or the transactions
contemplated hereby or thereby, notwithstanding the delivery or disclosure to
the other party or the other party's representatives of any documentation or
other information with respect to any one or more of the foregoing.
8.2. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly given (a) on the date of delivery
if delivered personally, (b) on the first Business Day following the date of
dispatch if delivered by a nationally recognized next-day courier service, (c)
on the fifth Business Day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid or (d)
if sent by facsimile transmission, with a copy mailed on the same day in the
manner provided in (a) or (b) above, when transmitted and receipt is
acknowledged. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the
party to receive such notice:
(a) if to Acquiror, to TIC Acquisition LLC, 550 Newport Center
Drive, Suite 900, Newport Beach, California 92660, Attention: Michael D.
McKee, Facsimile No. (949) 720-2599, with copies to Thomas W. Dobson, Latham &
Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071,
Facsimile No. (213) 891-8763, and William J. Cernius, 650 Town Center Drive,
Suite 2000, Costa Mesa, California 92626, Facsimile No. (714) 755-8290;
(b) if to the Company, to Irvine Apartment Communities, Inc.,
Attention: President, Facsimile No. (949) 720-5503, with a copy to Jeffrey
Small, Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017,
Facsimile No. (212) 450-
4800.
8.3. Interpretation. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms 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 parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden or proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the content requires otherwise. It
is understood and agreed that neither the specifications of any dollar amount
in this Agreement nor the inclusion of any specific item in the Schedules or
Exhibits is intended to imply that such amounts or higher or lower amounts, or
the items so included or other items, are or are not material, and neither
party shall use the fact of setting of such amounts or the fact of the
inclusion of such item in the Schedules or Exhibits in any dispute or
controversy between the parties as to whether any obligation, item or matter
is or is not material for purposes hereof.
8.4. 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 party, it being understood that
both parties need not sign the same counterpart.
8.5. Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement (including the Schedules and Exhibits)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to
the benefit of each party hereto, and nothing in this Agreement, express or
implied, except for Sections 2.1, 2.3 and 5.9, is intended to or shall confer
upon any other Person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
8.6. Governing Law. Except to the extent that the MGCL shall
govern the Merger, this Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to the laws
that might be applicable under conflicts of laws principles.
8.7. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. 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 in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible. Any
provision of this Agreement held invalid or unenforceable only in part, degree
or certain jurisdictions will remain in full force and effect to the extent
not held invalid or unenforceable. To the extent permitted by applicable law,
each party waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
8.8. Assignment. This Agreement and the rights, interests and
obligations hereunder shall not be assigned, except by Acquiror to a party
which, in a written instrument shall agree to assume all of Acquiror's
obligations hereunder and be bound by all of the terms and conditions of this
Agreement; provided, however, that no such assignment shall relieve the
Acquiror of its obligations hereunder. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.9. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms
hereof, this being in addition to any other remedy to which they are entitled
at law or in equity.
8.10. Definitions. As used in this Agreement:
(a) "Affiliate" means an affiliate, as defined in Rule 405
promulgated under the Securities Act; provided, that the Company and the
Company Subs shall not be deemed Affiliates of Acquiror or its members or
their Affiliates for purposes of this Agreement. For the avoidance of doubt,
for purposes of this Agreement, TIC shall be an Affiliate of Acquiror.
(b) "Board of Directors" means the Board of Directors of any
specified Person and any properly serving and acting committees thereof.
(c) "Business Day" means any day on which banks are not
required or authorized to close in the City of New York.
(d) "Company Affiliate" shall mean any entity which is (or at
any relevant time was) treated as a single employer with the Company or any
Company Sub under Section 414 of the Code or Section 4001(b)(11) of ERISA.
(e) "Company Disclosure Letter" means the letter previously
delivered to Acquiror by the Company disclosing certain information in
connection with this Agreement.
(f) "Company Stock Option Plans" means the Company's 1993 Stock
Option Plan for Directors, 1993 Long-Term Stock Incentive Plan and 1996
Long-Term Stock Incentive Plan, each as amended.
(g) "Company Sub" means a Subsidiary of the Company (excluding
any Subsidiary of the Company which is inactive, has no business operations
and has no liabilities).
(h) "Knowledge" means the actual knowledge after reasonable
investigation of the executive officers of the applicable entity.
(i) "Material Adverse Effect" means, with respect to any
Person, any adverse change, circumstance or effect that, individually or in
the aggregate with all other adverse changes, circumstances and effects, would
be materially adverse to the business, operations, financial condition or
results of operations of such Person and its Subsidiaries taken as a whole;
provided that, with respect to Section 3.1(o) only, in no event shall any
change, circumstance or effect relating to or arising out of (i) the fact or
terms of this Agreement or the Merger; (ii) general economic or market
conditions; or (iii) the real estate development industry generally constitute
a Material Adverse Effect.
(j) "OP Units" shall mean any of (i) limited partnership units
of the OP, (ii) general partnership units of the OP, (iii) Series A Preferred
Limited Partner Units of the OP and (iv) Series B Preferred Limited Partner
Units of the OP.
(k) "Organizational Documents" means, with respect to any
entity, the charter, certificate of incorporation, bylaws, partnership
agreement, declaration of trust or other governing documents of such entity,
including any documents designating or certifying the terms of any security of
such entity.
(l) "Person" means an individual, corporation, partnership,
limited partnership, limited liability company association, trust,
unincorporated organization, entity or group (as defined in the Exchange Act).
(m) "Required Company Votes" means (i) the affirmative vote of
the holders of two-thirds of the total number of outstanding shares of Company
Common Stock in favor of this Agreement and the Merger and (ii) the
affirmative vote of a number of shares of Company Common Stock (excluding the
shares held by Acquiror and its Affiliates) representing a majority of the
total number of outstanding shares of Company Common Stock.
(n) "Required Regulatory Approvals" means all authorizations,
consents, orders and approvals of, and declarations and filings with, and all
expirations of waiting periods imposed by, any Governmental Entity which, if
not obtained in connection with the consummation of the transactions
contemplated hereby, would have a Material Adverse Affect on TIC or the
Company.
(o) "Subsidiary" when used with respect to any party means any
corporation, partnership, limited partnership, limited liability company or
other organization, whether incorporated or unincorporated, any equity
interests of which are owned by such party or by a Subsidiary of such party,
or which is consolidated with such party for financial reporting purposes.
(p) (i) "Tax" (including, with correlative meaning, the terms
"Taxes" and "Taxable") means all federal, state, local and foreign income,
profits, franchise, gross receipts, environmental, customs duty, stock,
severance, stamp, payroll, sales, employment, unemployment disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to tax,
and (ii) "Tax Return" means all returns and reports (including elections,
claims, declarations, disclosures, schedules, estimates, computations and
information returns) required to be supplied to a Tax authority in any
jurisdiction.
(q) "the other party" means, with respect to the Company,
Acquiror and means, with respect to Acquiror, the Company.
(r) "Third Party" shall mean any Person other than the Company,
Acquiror and their respective Affiliates.
(s) "Trust Shares" shall mean Series A Preferred Securities of
the Trust.
IN WITNESS WHEREOF, the Company and Acquiror have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of February 1, 1999.
TIC ACQUISITION LLC,
a Delaware limited liability company
By: /s/ Michael D. McKee
-----------------------------
Michael D. McKee
Authorized Signatory
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
By: /s/ William H. McFarland
-----------------------------
William H. McFarland
President
<PAGE>
APPENDIX B
MORGAN STANLEY DEAN WITTER 1585 Broadway
New York, New York 10036
(212) 761-4000
OPINION OF MORGAN STANLEY
February 1, 1999
Board of Directors
Irvine Apartment Communities
550 Newport Center Drive, Suite 300
Irvine, CA 92660
Members of the Board:
We understand that Irvine Apartment Communities (the "Company") and TIC
Acquisition LLC ("Acquisition Sub"), a wholly owned subsidiary of The Irvine
Company ("TIC"), propose to enter into an Agreement and Plan of Merger
substantially in the form of the draft dated January 29, 1999 (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger") of
Acquisition Sub with and into the Company. Pursuant to the Merger, Acquisition
Sub will become a wholly owned subsidiary of TIC, and each outstanding share of
common stock, par value $.01 per share (the "Company Common Stock"), of the
Company will be converted into the right to receive $34.00 per share in cash,
subject to adjustment in certain circumstances. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement. We further understand
that approximately 17% of the outstanding shares of the Company Common Stock are
owned by TIC and its affiliates.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of the Company Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders (other
than TIC and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the
management of the Company;
(iii) reviewed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Company
Common Stock;
(vi) compared the financial performance of the Company and the prices
and trading activity of the Company Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
B-1
<PAGE>
(viii) participated in discussions and negotiations among
representatives of the Company and TIC and their financial and legal
advisors;
(ix) reviewed the draft Merger Agreement and certain related
documents;
(x) reviewed and taken into consideration the governance provisions of
the Company;
(xi) considered the Company's ability to execute its business plan if
the Merger were not consummated; and
(xii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction, involving the Company, nor did
we negotiate with any other parties.
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. In the past, Morgan Stanley
& Co. Incorporated and its affiliates have provided financial advisory and
financing services for the Company and have received fees for the rendering of
these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect of this transaction with
the Securities and Exchange Commission.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of the
Company Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders (other than TIC and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Scott M. Kelley
-----------------------------------
Scott M. Kelley
Managing Director
B-2
<PAGE>
APPENDIX C
THE IRVINE COMPANY
550 Newport Center Drive
Newport Beach, CA 92660
February 1, 1999
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660
Gentlemen:
In connection with that certain Agreement and Plan of Merger, dated as of
February 1, 1999 (the "Merger Agreement"), between TIC Acquisition LLC
("Acquiror") and Irvine Apartment Communities, Inc. (the "Company"), you have
requested that The Irvine Company ("TIC") make certain representations,
warranties and covenants. In order to facilitate the transactions contemplated
by the Merger Agreement, TIC hereby makes the representations, warranties and
covenants set forth in this letter agreement. All capitalized terms not defined
herein shall have the meanings set forth in the Merger Agreement.
1. Ownership of Acquiror/Availability of Funds. All of Acquiror's
membership interests are owned by TIC and a wholly-owned Subsidiary of TIC.
TIC is the sole managing member of Acquiror. TIC shall take no action that
would cause Acquiror not to have a minimum of $150 million of cash on hand
from the date of the Merger Agreement through the earlier of (i) the
Effective Time and (ii) sixty (60) days following the termination of the
Merger Agreement pursuant to the terms thereof. Prior to the earlier of (i)
the Effective Time and (ii) sixty (60) days following the termination of
the Merger Agreement pursuant to the terms thereof, TIC shall not permit
Acquiror to engage in any business or transaction other than business or
transactions related to the transactions contemplated by the Merger
Agreement.
2. Ownership of Stock. From the date hereof to the earlier of (i) the
Effective Time and (ii) the termination of the Merger Agreement pursuant to
the terms thereof, TIC shall not, and shall not permit any of its
Subsidiaries to, sell or otherwise dispose of any of the shares of Company
Common Stock owned by them. At the Company Stockholders Meeting, or any
adjournment thereof, TIC shall, and shall cause its Subsidiaries to, vote
the shares of Company Common Stock owned by them in favor of the Merger.
3. Cooperation. TIC shall take all actions necessary to cooperate with
Acquiror, and shall take all actions necessary to cause Acquiror to comply
with its obligations, in connection with Sections 5.1(a), 5.8 and 5.9
(insofar as it pertains to insurance only) of the Merger Agreement;
provided that with respect to Section 5.9 of the Merger Agreement, TIC
shall be deemed to have satisfied its obligations hereunder (and the
obligations of Acquiror under the Merger Agreement) by causing Acquiror to
purchase an appropriate policy of insurance. TIC agrees to cooperate with
Acquiror and the Company in connection with the Merger Agreement and to use
reasonable efforts to cause Acquiror to consummate the Merger; provided
that TIC shall have no obligation to contribute any funds to Acquiror in
connection with the Merger.
The rights and obligations of the parties to this letter agreement shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto.
C-1
<PAGE>
This letter agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to conflicts of law
principles.
This letter agreement constitutes the full and complete understanding and
agreement of the parties hereto and supersedes all prior understandings and
agreements with respect to the subject matter hereof. Any waiver, modification
or amendment of any provision of this letter agreement shall be effective only
if in writing and signed by the parties hereto.
If the foregoing reflects your understanding of our agreement concerning
the matters set forth herein, please sign a copy of this letter agreement where
indicated below and return it to me.
Very truly yours,
The Irvine Company
By: /s/ Michael D. McKee
------------------------------------
Michael D. McKee
Chief Financial Officer
The terms and conditions of the preceding letter agreement are accepted and
agreed to by the following:
Irvine Apartment Communities, Inc.
By: /s/ William H. McFarland
------------------------------------
William H. McFarland
Chief Executive Officer
C-2
<PAGE>
APPENDIX D
SUMMARY OF THE NATIONSBANC MONTGOMERY REPORTS
This summary of the NationsBanc Montgomery Reports is included as Appendix
D in this Proxy Statement pursuant to Rule 13e-3 under the Exchange Act. All
information contained in this summary has been supplied by the Acquiror for
inclusion herein and has not been independently verified by the Company. The
Company makes no representation or warranty as to the accuracy or completeness
of any such information. NationsBanc Montgomery was not retained to, and was not
expected to, render any advice or opinion as to the fairness to the
Nonaffiliated Shareholders of the consideration to be received by them in the
proposed merger. The Special Committee and the Board of Directors of the Company
did not rely upon the NationsBanc Montgomery Reports in determining that the
Merger Proposal was fair to, and in the best interests of, the Nonaffiliated
Shareholders.
Pursuant to the Acquiror Engagement Letter, The Irvine Company retained
NationsBanc Montgomery to act as its financial advisor in connection with the
possible acquisition of the Company. NationsBanc Montgomery is a nationally
recognized investment banking firm and, as part of its activities, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. The Acquiror and The Irvine Company selected NationsBanc
Montgomery as their financial advisor on the basis of NationsBanc Montgomery's
experience and expertise in transactions similar to the proposal set forth in
the December 1 Letter and its reputation in the REIT industry and investment
community and its historical investment banking relationship with The Irvine
Company.
NationsBanc Montgomery prepared the NationsBanc Montgomery Reports but did
not prepare or render any opinion as to the fairness of the proposal set forth
in the December 1 Letter or the Merger and was not asked to prepare or render
any such opinion to the Acquiror or The Irvine Company. No limitations were
imposed by the Acquiror or The Irvine Company on NationsBanc Montgomery with
respect to the investigations made or procedures followed in preparing the
NationsBanc Montgomery Reports. NationsBanc Montgomery was not requested to, nor
did it deliver a report to the Acquiror or The Irvine Company with respect to
the Merger or the Acquiror's underlying decision to proceed with or effect the
proposal set forth in the December 1 Letter or the Merger. NationsBanc
Montgomery was not requested to, and did not make, any recommendation to the
Acquiror as to the Merger Consideration, which was determined by the Acquiror.
The following summary of the NationsBanc Montgomery Reports is qualified in
its entirety by reference to the full text of the NationsBanc Montgomery
Reports. A copy of each of the NationsBanc Montgomery Reports has been filed as
an exhibit to the Schedule 13E-3 filed with the Commission by the Acquiror and
is available for inspection and copying at the principal executive offices of
the Acquiror during its regular business hours by any Shareholder or such
Shareholder's representative who has been so designated in writing, upon written
request and at the expense of the requesting Shareholder or representative. The
NationsBanc Montgomery Reports were directed to the Acquiror and the Board of
Directors of The Irvine Company and do not constitute a recommendation to any
Shareholder as to how such Shareholder should vote with respect to the Merger.
The NationsBanc Montgomery Reports do not address the underlying decision of the
Acquiror to proceed with or effect the proposal set forth in the December 1
Letter or the Merger or any other aspect of the proposal set forth in the
December 1 Letter or the Merger. In furnishing the NationsBanc Montgomery
Reports, NationsBanc Montgomery did not admit that it is an expert within the
meaning of the term "expert" as used in the Securities Act, nor did it admit
that the NationsBanc Montgomery Reports constitute reports or valuations within
the meaning of the Securities Act.
In connection with the preparation of the NationsBanc Montgomery Reports,
NationsBanc Montgomery, among other things: (i) reviewed certain publicly
available financial and other data with respect to the Company, including the
financial statements for recent years and interim periods to September 30, 1998,
and certain other
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relevant financial and operating data relating to The Irvine Company and the
Company made available to NationsBanc Montgomery from published sources and from
the internal records of The Irvine Company and internal records of the Company
which were provided to NationsBanc Montgomery by The Irvine Company; (ii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, the Common Stock and calculated the stock price of the
Common Stock as a multiple of projected FFO per share, based on estimates
published by First Call; (iii) compared the Company from a financial point of
view with certain other publicly traded companies in the REIT industry which
NationsBanc Montgomery deemed to be relevant; (iv) considered the financial
terms of, and the premiums offered in, to the extent publicly available,
selected recent business combinations of publicly traded companies in the REIT
industry which NationsBanc Montgomery deemed to be comparable, in whole or in
part, to the proposal set forth in the December 1 Letter; (v) reviewed the
reports and net asset value estimates of industry analysts; (vi) calculated net
asset values of the Company based on certain capitalization rate and discounted
cash flow analyses, considering the value of certain exclusive land rights using
going concern and liquidation analyses with respect to stabilized assets; (vii)
reviewed and discussed with representatives of the management of the Acquiror
and The Irvine Company certain information of a business and financial nature
regarding The Irvine Company and the Company furnished to NationsBanc Montgomery
by them, including financial forecasts and related assumptions of The Irvine
Company and the Company; (viii) made inquiries regarding and discussed the
proposal set forth in the December 1 Letter and other matters related thereto
with the Acquiror's counsel; and (ix) performed such other analyses and
examinations as NationsBanc Montgomery deemed appropriate.
In connection with its review, NationsBanc Montgomery assumed and relied
upon the accuracy and completeness of the foregoing information and did not
assume any responsibility for independent verification of such information. With
respect to the financial forecasts of The Irvine Company and the Company
provided to NationsBanc Montgomery by the Acquiror's and The Irvine Company's
management, NationsBanc Montgomery assumed for purposes of preparing the
NationsBanc Montgomery Reports, upon the advice of the Acquiror's and The Irvine
Company's management, that such forecasts have been reasonably prepared on bases
reflecting the best available estimates and judgments of the management of The
Irvine Company and the Company at the time of preparation as to the future
financial performance of the Company, and that they provide a reasonable basis
upon which NationsBanc Montgomery could prepare the NationsBanc Montgomery
Reports. The Irvine Company and the Company do not publicly disclose internal
management forecasts of the type provided to NationsBanc Montgomery by the
management of The Irvine Company and the Company in connection with NationsBanc
Montgomery's analyses. Such forecasts were not prepared with a view toward
public disclosure. In addition, such forecasts were based upon numerous
variables and assumptions that are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those set forth in
such forecasts. NationsBanc Montgomery has assumed no liability for such
forecasts. NationsBanc Montgomery also assumed that there have been no material
changes in the Company's assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements
made available to NationsBanc Montgomery. NationsBanc Montgomery relied on
advice of counsel and independent accountants to the Acquiror and The Irvine
Company as to all legal and financial reporting matters with respect to The
Irvine Company, the Merger and the Merger Agreement. In addition, NationsBanc
Montgomery did not assume responsibility for making an independent evaluation,
appraisal or physical inspection of the assets or liabilities (contingent or
otherwise) of the Company, nor was NationsBanc Montgomery furnished with any
such appraisals. Finally, the NationsBanc Montgomery Reports are based on
economic, monetary and market and other conditions as in effect on, and the
information made available to NationsBanc Montgomery as of, the respective dates
of the NationsBanc Montgomery Reports. Set forth below is a summary of the
NationsBanc Montgomery Reports.
The First NationsBanc Montgomery Report
Historical Stock Price Analysis. NationsBanc Montgomery reviewed the
performance of the per share market price and trading volume of the Common Stock
for the period from December 1, 1993 to November 23, 1998. The analysis
indicated that for the last year, the highest closing market price per share was
$32.44. The average stock
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prices for the last 30 trading days, 60 trading days and 90 trading days prior
to November 23, 1998 were $26.81, $26.21 and $25.95, respectively. NationsBanc
Montgomery noted that the closing stock price on November 23, 1998 was $27.13
(the "November Stock Price").
NationsBanc Montgomery also calculated the implied price per share of
Common Stock as a multiple of projected FFO (as of November 23, 1998) based on
estimates provided to NationsBanc Montgomery by First Call, with such estimates
based on an average of earnings estimates published by various investment
banking firms and based on historical forward multiples of the Company. The
calculations yielded historical forward FFO per share multiples ranging from
9.1x to 15.2x, with a mean of 12.1x and a median of 12.2x. NationsBanc
Montgomery noted that the mean and median multiples of forward FFO per share, on
a historical basis, when multiplied by the estimated calendar year 1999 FFO per
share, implied per share prices of $30.97 and $31.20, respectively, for a share
of Common Stock.
Comparable Company Analysis. Based on public and other available
information, including estimates of future financial results published by First
Call and taken from NationsBanc Montgomery research reports, NationsBanc
Montgomery calculated the percentages of debt to total market capitalization
(defined as the market value of the equity of the Company and its Subsidiaries
plus total debt), the multiples of stock price to estimated calendar year 1998
FFO per share, and the multiples of stock price to estimated calendar year 1999
FFO per share for eight publicly traded companies in the REIT industry (the
"First Report Comparable Companies"). Such analysis indicated the following: a
range of percentages of debt to total market capitalization of 31.0% to 61.8%,
with a mean of 45.2% and a median of 46.4%; a range of stock price to estimated
calendar year 1998 FFO per share of 7.7x to 11.6x, with a mean of 10.5x and a
median of 10.9x; and a range of stock price to estimated calendar year 1999 FFO
per share of 7.2x to 10.6x, with a mean of 9.5x and a median of 9.9x.
NationsBanc Montgomery noted that the November Stock Price implied a percentage
of debt to total market capitalization of 44.6%. NationsBanc Montgomery also
noted that the November Stock Price, when multiplied by the estimated calendar
year 1998 FFO per share and estimated calendar year 1999 FFO per share mean and
median multiples, implied per share valuations of $23.68 and $24.60 and $24.30
and $25.25, respectively, for a share of Common Stock.
Comparable Transactions Analysis. Based on public and other available
information, NationsBanc Montgomery calculated the multiples of aggregate value
to last twelve months (to November 23, 1998) ("LTM") EBITDA and LTM FFO per
share for the target company implied in 13 acquisitions of control of comparable
publicly traded REIT companies that were announced between January 17, 1997 and
November 17, 1998 (the "First Report Comparable Transactions"). Such analysis
yielded the following multiples: a range of 8.1x to 17.9x LTM EBITDA, with a
mean of 13.9x and a median of 13.6x; and a range of 10.6x to 19.7x LTM FFO per
share, with a mean of 13.9x and a median of 13.9x. NationsBanc Montgomery noted
that the Company's estimated calendar year 1999 EBITDA and estimated calendar
year 1999 FFO per share, when multiplied by the means and medians of LTM EBITDA
and LTM FFO per share, implied per share prices of $20.79 and $19.96 and $30.35
and $30.37, respectively, for a share of Common Stock.
NationsBanc Montgomery also compared the discounts/premiums paid in the
First Report Comparable Transactions to the share price of the target company
one day prior to the announcement of the proposal set forth in the December 1
Letter in the First Report Comparable Transactions. Such analysis indicated a
range of discounts/premiums of (1.3%) to 14.9%, with a mean of 7.7% and a median
of 7.9%. NationsBanc Montgomery noted that adding the mean and median
discounts/premiums to the November Stock Price implied share prices of $29.20
and $29.27.
Control Premium Analysis. NationsBanc Montgomery reviewed the consideration
paid in 124 acquisitions of controlling equity interests in target companies
announced between January 7, 1997 and November 17, 1998 in which the aggregate
values paid were between $500 million and $1.5 billion. NationsBanc Montgomery
calculated the premiums paid relative to the prices of the acquired controlling
equity interests for one day, one week and thirty days prior to the announcement
of the proposal set forth in the December 1 Letter. Such analysis indicated
median
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premiums of 17.8%, 23.0% and 28.2%, respectively. Multiplying the implied
premiums by the November Stock Price implied per share stock prices of $31.78,
$33.37 and $35.46, respectively, for a share of Common Stock.
No other company or transaction used in the comparable company, comparable
transactions and control premium analyses as a comparison is identical to the
Company or the proposal set forth in the December 1 Letter. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which the Company and
the proposal set forth in the December 1 Letter were compared in the NationsBanc
Montgomery Reports.
Research Analyst Views. NationsBanc Montgomery reviewed and summarized
publicly available equity analyst research reports regarding the Company
published between October 24, 1997 and November 4, 1998 (the "Research
Reports"). NationsBanc Montgomery noted that the Research Reports indicated a
range of estimated target price (during a projected twelve to eighteen month
period) per share valuation of $30.00 to $34.00, with a mean of $32.00, to the
extent the Research Reports indicated such a price. NationsBanc Montgomery also
noted that the Research Reports indicated a range of estimated net asset value
("NAV") per share of $24.00 to $28.71, with a mean of $26.57, to the extent the
Research Reports indicated such a value.
Net Asset Value Analysis. NationsBanc Montgomery estimated the NAV per
share of the Company based on a property-by-property analysis. For stabilized
properties, a range of capitalization rates based on recent, comparable market
transactions were applied to forward estimates of net operating income, based on
projections of The Irvine Company's management. Other assets under construction
or not fully leased were valued at cost of construction. The gross value of the
assets was reduced by the estimated value of the net debt and preferred equity
of the Company and its subsidiaries to arrive at NAVs per share ranging from
$30.76 to $32.50 for a share of Common Stock.
Discounted Cash Flow Analysis. NationsBanc Montgomery applied a discounted
cash flow analysis to the financial cash flow forecasts for the Company for
calendar years 1998 through 2003, as estimated by The Irvine Company's
management. In conducting this analysis, NationsBanc Montgomery first calculated
the present values of the forecasted cash flows. Second, NationsBanc Montgomery
estimated the present value of the aggregate value of the Company at the end of
calendar year 2003 by capitalizing the Company's estimated calendar year 2004
net operating income at a capitalization rate of 8.5%. Such cash flows and
aggregate values were discounted to present values using discount rates ranging
from 10% to 12%. This analysis indicated a range of imputed equity values of the
Company of $29.94 to $33.46.
The Second NationsBanc Montgomery Report
Historical Stock Price Analysis. NationsBanc Montgomery again reviewed the
performance of the per share market price and trading volume of the Common Stock
for the period from December 1, 1993 to November 23, 1998. The analysis
indicated that for the last year, the highest closing market price per share was
$32.44. The average stock prices for the last 30 trading days, 60 trading days
and 90 trading days prior to November 23, 1998 were $26.81, $26.21 and $25.95,
respectively. NationsBanc Montgomery noted that the closing stock price on
November 23, 1998 was $27.13.
NationsBanc Montgomery also calculated the implied price per share of
Common Stock as a multiple of projected FFO (as of November 23, 1998), based on
estimates provided to NationsBanc Montgomery by First Call, with such estimates
based on an average of earnings estimates published by various investment
banking firms and based on historical forward multiples of the Company. The
calculations yielded historical forward FFO multiples ranging from 9.1x to
15.2x, with a mean of 12.1x and a median of 12.2x. NationsBanc Montgomery noted
that the mean and median multiples of forward FFO per share, on a historical
basis, when multiplied by the estimated calendar year 1999 FFO per share,
implied per share prices of $30.97 and $31.20, respectively, for a share of
Common Stock.
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Comparable Company Analysis. Based on public and other available
information including estimates of future financial results published by First
Call and taken from NationsBanc Montgomery research reports, NationsBanc
Montgomery calculated the percentages of debt to total market capitalization,
the multiples of stock price to estimated calendar year 1998 FFO per share, and
the multiples of stock price to estimated calendar year 1999 FFO per share for
the First Report Comparable Companies. Such analysis indicated the following: a
range of percentages of debt to total market capitalization of 31.0% to 61.8%,
with a mean of 45.2% and a median of 46.4%; a range of stock price to estimated
calendar year 1998 FFO per share of 7.7x to 11.6x, with a mean of 10.5x and a
median of 10.9x; and a range of stock price to estimated calendar year 1999 FFO
per share of 7.2x to 10.6x, with a mean of 9.5x and a median of 9.9x.
NationsBanc Montgomery noted that the November Stock Price implied a percentage
of debt to total market capitalization of 44.6%. NationsBanc Montgomery also
noted that the November Stock Price, when multiplied by the estimated calendar
year 1998 FFO per share and estimated calendar year 1999 FFO per share mean and
median multiples, implied per share valuations of $23.68 and $24.60 and $24.30
and $25.25, respectively, for a share of Common Stock.
Comparable Transactions Analysis. Based on public and other available
information, NationsBanc Montgomery calculated the multiples of aggregate value
to LTM EBITDA and LTM FFO per share for the target company implied in the First
Report Comparable Transactions. Such analysis yielded the following multiples: a
range of 8.1x to 17.9x LTM EBITDA, with a mean of 13.9x and a median of 13.6x;
and a range of 10.6x to 19.7x LTM FFO per share, with a mean of 13.9x and a
median of 13.9x. NationsBanc Montgomery noted that the Company's estimated
calendar year 1999 EBITDA and estimated calendar year 1999 FFO per share, when
multiplied by the means and medians of LTM EBITDA and LTM FFO per share, implied
per share prices of $20.79 and $19.96 and $30.35 and $30.37, respectively, for a
share of Common Stock.
NationsBanc Montgomery also compared the discounts/premiums paid in the
First Report Comparable Transactions to the share price of the target company
one day prior to the announcement in the First Report Comparable Transactions.
Such analysis indicated a range of discounts/premiums of (1.3%) to 14.9%, with a
mean of 7.7% and a median of 7.9%. NationsBanc Montgomery noted that adding the
mean and median discounts/premiums to the November Stock Price implied share
prices of $29.20 and 29.27.
No other company or transaction used in the comparable company and
comparable transactions analyses as a comparison is identical to the Company or
the proposal set forth in the December 1 Letter. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which the Company and the proposal set forth
in the December 1 Letter were compared in the NationsBanc Montgomery Reports.
Research Analyst Views. NationsBanc Montgomery reviewed and summarized the
Research Reports. NationsBanc Montgomery noted that the Research Reports
indicated a range of estimated target price (during a projected twelve to
eighteen month period) per share valuation of $30.00 to $34.00, with a mean of
$32.00, to the extent the Research Reports indicated such a price. NationsBanc
Montgomery also noted that the Research Reports indicated a range of estimated
NAV per share of $24.00 to $28.71, with a mean of $26.57, to the extent the
Research Reports indicated such a value. NationsBanc Montgomery further noted
that the Acquiror had determined to set its initial proposal price at $32.50
(the "Initial Proposal Price").
Net Asset Value Analyses. NationsBanc Montgomery performed several net
asset valuations of the Company. NationsBanc Montgomery calculated NAV by first
arriving at a value for the real property assets of the Company. The real estate
assets included were categorized as stabilized (properties which are fully
constructed and fully leased), lease-up (properties for which construction is
nearly complete and which are not fully leased) and under construction.
Stabilized assets were valued using "going concern" and liquidation analyses,
discussed below. "Lease-up" assets were valued by using a number equal to the
sum of Company management estimates of total costs incurred prior to November
23, 1998 with respect to the construction of such properties and an additional
estimated
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ten percent (10%) developer's profit. The "under construction" assets were
valued at cost incurred prior to November 23, 1998 based on Company management
estimates.
Second, NationsBanc Montgomery identified and calculated other sources of
value within the Company. Other sources of value identified included value
associated with existing tax exempt debt and value associated with the Land
Rights Agreement. NationsBanc Montgomery used The Irvine Company's management
estimates to determine a value for the exclusive land rights associated with the
Land Rights Agreement. Based on estimates from The Irvine Company and Company
management, NationsBanc Montgomery assumed that the Company would acquire land
eligible for the development of 5,888 apartment units over a period of five
years, commencing in calendar year 1999. Reviewing 13 comparable sale
transactions between July 1996 and October 1998, NationsBanc Montgomery assumed
an average land cost per unit of $47,000. Applying a 5% discount to such
projected land sales to determine a hypothetical stream of cash flows for such
five year period, and further discounting such hypothetical cash flows by 12%, a
present value was determined.
Third, NationsBanc Montgomery added the value of the stabilized properties,
the "lease-up" properties and the "under construction" properties and other
identified sources of value to determine the Company's total enterprise value.
Fourth, NationsBanc Montgomery adjusted the total enterprise value to reflect an
estimated discount of 10% based on, among other factors, the aggregate size of
the Company's portfolio and anticipated fees associated with liquidation.
Finally, NationsBanc Montgomery subtracted the net liabilities and preferred
equity of the Company and its subsidiaries from the adjusted total enterprise
value to determine the Company's aggregate equity value.
a. Going Concern Analysis. In performing the NAV calculations, NationsBanc
Montgomery analyzed the value of the Company under the assumption that the
Company would continue its current operations as a going concern. Under the
Going Concern Analysis, the assumption was made that the Company would continue
to incur corporate overhead expenses, which would be deducted from the
stabilized portfolio value prior to arriving at the final NAV.
NationsBanc Montgomery used three methods to calculate the going concern
value for stabilized assets. The first method utilized property-specific
projections of net operating income less maintenance capital expenditures for
each of the estimated calendar years 1998 and 1999 (the "Capitalization Rate
Analysis"). Such projections were based on information contained in monthly
operating performance reports through October 1998 prepared by Company
management. The projected cash flows were then capitalized at a blended
capitalization rate of 7.62% to arrive at a value for the Company's stabilized
portfolio of assets. Adding the value of the stabilized portfolio to the other
components of value described above, capitalization of the estimated calendar
years 1998 and 1999 cash flow projections yielded implied share prices of $21.54
and $24.12, respectively.
The second method utilized Company management operating performance reports
to estimate cash flows for a period of ten years, between 1998 and 2008. A
discounted cash flow analysis was applied to cash flows over the ten year period
using discount rates between 11% and 13%. The terminal value of the assets was
also determined by capitalizing the eleventh year (calendar year 2009) cash flow
projection of each of the assets at a blended capitalization rate of 8.62%.
Adding the value of the stabilized portfolio to the other components of value
described above, the NAV per share range implied by such present value analysis
was $19.30 to $21.68.
The third method of determining the going concern value of the stabilized
asset portfolio used reports of the Company's management to determine the
aggregate costs of the construction of six recent Company building projects. The
aggregate cost of construction of each project was divided by the number of
units available for lease in each project to determine an average cost per unit.
Using such statistics, NationsBanc Montgomery calculated the mean and median
cost per unit for the projects to be $116,118 and $117,526. Multiplying the mean
and median costs per unit by the number of units in the Company's stabilized
portfolio, the implied aggregate value of the stabilized portfolio was
calculated to be within a range of $1.895 billion to $1.918 billion. Adding the
value of the stabilized portfolio to the other components of value described
above, the NAV per share range implied by such capitalization was $22.86 to
$23.84.
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b. Liquidation Analysis. Under a liquidation analysis, the stabilized
portfolio was valued using the same analysis performed in the Capitalization
Rate Analysis. NationsBanc Montgomery then assumed that the Company would incur
no additional corporate overhead expenses but rather would liquidate its
properties. Additionally, NationsBanc Montgomery assumed that a potential buyer
of the liquidated properties would have to pay additional sums based on a tax
reassessment made under California's Proposition 13 (the "Proposition 13
Liability"). Adding the value of the stabilized portfolio to the other
components of value described above and accounting for the Proposition 13
Liability, the NAV per share range implied by such capitalization was $21.70 to
$24.34.
The Third NationsBanc Montgomery Report
Comparable Transactions Analysis. In the Third NationsBanc Montgomery
Report, NationsBanc Montgomery enclosed a copy of its comparable transactions
analyses from the First NationsBanc Montgomery Report and the Second NationsBanc
Montgomery Report. NationsBanc Montgomery noted that the Acquiror's Initial
Proposal Price implied a 19% premium over the closing price of the Common Stock
on November 30, 1998 and that the implied 19% premium was in excess of the 7.9%
median for discounts/premiums indicated in the First Report Comparable
Transactions.
Comparable Company Analysis. In the Third NationsBanc Montgomery Report,
NationsBanc Montgomery enclosed a copy of its comparable company analyses from
the First NationsBanc Montgomery Report and the Second NationsBanc Montgomery
Report. NationsBanc Montgomery reiterated that its analyses indicated that
multiples of stock price to estimated calendar year 1999 FFO per share for the
First Report Comparable Companies ranged from 7.2x to 10.6x, with a mean of
9.5x. NationsBanc Montgomery noted that the Acquiror's Initial Proposal Price
implied a multiple of 12.7x estimated calendar year 1999 FFO per share and a
premium of 34% over the mean 1999 FFO per share multiple of 9.5x. NationsBanc
Montgomery stated that it believed the Company's high FFO per share multiple was
partly due to support from an open market purchase program conducted by The
Irvine Company prior to the Acquiror's offer and that the share price prior to
the Acquiror's offer was also supported by The Irvine Company with respect to a
return guarantee with respect to land sales, which had expired.
Research Analyst Views.
Views Prior to Offer. NationsBanc Montgomery enclosed a copy of a summary
of research analyst views analyses from the First NationsBanc Montgomery Report
and the Second NationsBanc Montgomery Report. NationsBanc Montgomery noted again
that the Research Reports indicated a range of estimated NAV per share of $24.00
to $28.71 with a mean of $26.57, to the extent the Research Reports indicated
such a value. NationsBanc Montgomery noted that the Acquiror's Initial Proposal
Price implied a 22% premium over the estimated mean NAV per share.
Further, NationsBanc Montgomery noted that the estimated mean target price
per share valuation indicated in the Research Reports was $32.00. NationsBanc
Montgomery noted that the Acquiror's Initial Proposal Price implied a 2% premium
over the estimated mean target price per share, which was a projection of price
per share value over a 12 to 18 month period in the future.
Views After Offer Was Made. NationsBanc Montgomery enclosed copies of
publicly available equity analyst research reports regarding the Company
published between December 1, 1998 and December 4, 1998 (the "Post-Offer
Research Reports"). The Post-Offer Research Reports stated that the Acquiror's
Initial Proposal Price was reasonable or fair, with the exception of one such
report which contained no assessment regarding the Acquiror's Initial Proposal
Price's fairness or reasonableness. NationsBanc Montgomery noted that the common
view in unrelated and unsolicited conversations with Shareholders and research
analysts indicated support of the Acquiror's Initial Proposal Price.
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Historical Stock Price Analysis. NationsBanc Montgomery enclosed a copy of
the primary page from its historical stock price analyses from the First
NationsBanc Montgomery Report and the Second NationsBanc Montgomery Report.
NationsBanc Montgomery noted that the Acquiror's Initial Proposal Price (a)
implied (i) a 21% premium over the average stock price for the last 30 trading
days prior to November 23, 1998 and (ii) a 25% premium over the average price of
the Common Stock for the last 90 trading days prior to November 23, 1998; and
(b) was greater than the highest price of the Common Stock for the 52-week
period prior to November 23, 1998 (i.e., $32.44).
Trading Activity Analysis. NationsBanc Montgomery noted that over 20% of
the shares of Common Stock owned by Nonaffiliated Shareholders parties were sold
in the open market between December 1, 1998 and January 11, 1999 at prices less
than the Acquiror's Initial Proposal Price.
Rent Growth. NationsBanc Montgomery enclosed copies of rent growth
projections for the Company contained in the 1999 Business Plan and a
presentation by Company management to the Board of Directors on October 30,
1998. NationsBanc Montgomery noted that the 1999 Business Plan contained a 5%
rent growth projection for calendar year 1999 which the Board of Directors
approved at its October 30, 1998 Board meeting (the "October 1998 Board
Presentation").
NationsBanc Montgomery also enclosed a summary providing 21 references to
estimated calendar year 1999 rent growth rates for the Company obtained from the
Company's management and publicly available equity analyst research reports. The
estimated calendar year 1999 rent growth rates for the Company ranged from 3.0%
to 6.2%, with a mean of 4.8%. Based on the information contained in the 1999
Business Plan and the publicly available equity analyst research reports,
NationsBanc Montgomery, the Acquiror and The Irvine Company used the 5% rent
growth projection for calendar year 1999 contained in the 1999 Business Plan for
the applicable valuation analyses. NationsBanc Montgomery also enclosed
summaries of gross domestic product growth forecasts for calendar years 1999
through 2001 derived from publicly available university forecasts and publicly
available "blue chip" economic indicators as well as the Company's internal
forecasts regarding employment to show that forecasted declines in gross
domestic product growth and employment would likely affect housing demand and
the Company's ability to increase rents.
The Third NationsBanc Montgomery Report also clarified references to a
statement by the Chairman of the Board of Directors that the Company's rental
growth rate had been below the 12% annualized rate achieved by competitors in
the relevant geographic region in the first three quarters of 1998. As noted in
the Third NationsBanc Montgomery Report, the statement by the Chairman of the
Board of Directors was made in the context of setting a goal for Company
management that the Company's rental growth rate should meet or exceed the
projected rental growth rates generally anticipated in the regional marketplace
in the future, not that the Chairman had established a 12% rental growth rate
target for the Company.
Bulk Discount. As stated in the third paragraph of the "Net Asset Value
Analyses" section of the summary of the Second NationsBanc Montgomery Report,
NationsBanc Montgomery adjusted the total enterprise value to reflect an
estimated discount of 10% based on, among other factors, the aggregate size of
the Company's portfolio, the time value of money and anticipated fees associated
with liquidation. NationsBanc Montgomery responded to Morgan Stanley's inquiries
regarding the discount by noting that in the experience of The Irvine Company
and NationsBanc Montgomery, and based on market research and other information,
buyers would typically apply a size-oriented discount to the total value of the
assets being acquired in a transaction. NationsBanc Montgomery stated its belief
that few buyers would be willing or have the resources available to purchase the
Company's entire portfolio, making liquidity an issue for a prospective buyer.
NationsBanc Montgomery further noted that the Company's portfolio was
geographically concentrated, increasing the risk that any legislative changes,
natural disasters or regional economic downturns would have an impact on the
entire portfolio.
Additionally, NationsBanc Montgomery noted that a third party buyer would
likely discount the value of the Company's aggregate portfolio for a number of
reasons, including the time and transaction costs necessary to
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complete a liquidation of the portfolio and the downward pressure that the sale
of each property would cause on property prices for subsequent sales of other
properties out of the portfolio. A third party buyer would also likely have to
account for a substantial increase in property taxes due to tax reassessments
under California's Proposition 13 upon sale of the properties.
NationsBanc Montgomery focused on such factors to further explain its use
of the 10% discount. Finally, NationsBanc Montgomery noted that if Morgan
Stanley's assumptions that (a) no bulk discount would be used in the valuations
and (b) a 45% savings could be achieved with respect to corporate, general and
administrative expenses were applied to the NAV analysis, the price per share
would still be below the Acquiror's Initial Proposal Price.
Land Rights Agreement. NationsBanc Montgomery responded to Morgan Stanley's
inquiries regarding the valuation for the Land Rights Agreement. NationsBanc
Montgomery enclosed a copy of a portion of the 1999 Business Plan setting forth
the Company's projected Irvine Ranch development program.
NationsBanc Montgomery noted that the valuation for the Land Rights
Agreement was affected by the supply of available land for multi-family
development on the Irvine Ranch property. NationsBanc Montgomery noted that The
Irvine Company was not obligated under the Land Rights Agreement to make any
land available to the Company for future apartment development and land
identified in the 1999 Business Plan for multi-family development was not
covered by any contractual obligation of The Irvine Company. Using the 1999
Business Plan, NationsBanc Montgomery determined that 5,763 units were
potentially available for development over a period of five years under the Land
Rights Agreement. NationsBanc Montgomery noted that the estimates of the Company
and NationsBanc Montgomery were aggressive and that The Irvine Company had
informed the Company on several occasions that the projects listed in the 1999
Business Plan would likely not all be made available. Consequently, there
existed the possibility that not all of the land referred to in the 1999
Business Plan would actually be developed under the Land Rights Agreement,
therefore impacting the NAV analysis.
NationsBanc Montgomery restated Morgan Stanley's assumption that 15,000
units could be developed over a period of 10 years to determine the value of the
Land Rights Agreement. NationsBanc Montgomery noted that 16,000 units had been
built over 30 years and that expectations that a similar number of units could
be built in 10 years in a more rigorous zoning environment were subject to
question. NationsBanc Montgomery also stated that the Company's historical
building rate after December 1, 1993 was 800 units per year, slightly over half
the number that would have to be built to meet Morgan Stanley's assumption.
Further, NationsBanc Montgomery noted that no apartment development had occurred
on the Irvine Ranch property for several years prior to December 1, 1993.
NationsBanc Montgomery responded to Morgan Stanley's suggestion that the
value to the Company of the Land Rights Agreement should be greater than the 5%
discount applied to the fair market value of projected land sales determined by
independent third party appraisers by noting that the Land Rights Agreement
specified that a 5% discount to fair market value was to be applied. NationsBanc
Montgomery further noted that the 10% minimum return guarantee set forth in the
Land Rights Agreement had expired. Consequently, NationsBanc Montgomery had used
a 5% discount in arriving at the cash flow numbers to be valued over the
forecast period.
As stated in the "Net Asset Value Analyses" section of the description of
the Second NationsBanc Montgomery Report, NationsBanc Montgomery discounted to
present value the value of the hypothetical cash flows under the Land Rights
Agreement by 12%. NationsBanc Montgomery stated its assumption that discount
rates for land should be significantly higher than discount rates for completed
apartment units due to the speculative nature of the investment, the uncertainty
of entitlement, lack of cash flow and long term investment horizon.
On average, over the five year forecasted period, NationsBanc Montgomery
used an average land price of approximately $50,000 per unit in its valuation
analysis of the Land Rights Agreement. NationsBanc Montgomery responded to
Morgan Stanley's inquiries regarding the average land price by noting that the
Company's best Irvine
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Ranch land had a current price of $54,000 per unit, while the land anticipated
to be sold under the Land Rights Agreement was to be located in other areas
where land prices were lower.
NationsBanc Montgomery also responded to Morgan Stanley's assertion that a
decrease or cessation of multi-family development would result in higher rents
and increase the value of the existing portfolio. NationsBanc Montgomery noted
that The Irvine Company had the right to use any land on the Irvine Ranch
property for the development and sale of medium to high density residential
property, directly competing with the Company. Further, NationsBanc Montgomery
noted that competitors could build apartment units adjacent to the Irvine Ranch
property, offsetting the potential for rent growth from decreased on-ranch
development. The completion of the Highway 73 corridor and the impact of toll
roads on the apartment rental market in the Irvine Ranch area were also noted.
Corporate General and Administrative Costs. NationsBanc Montgomery enclosed
a copy of a portion of the 1999 Business Plan containing the Company's statement
of funds available for distribution. NationsBanc Montgomery reiterated that if
Morgan Stanley's assumptions that (a) no bulk discount would be used in the
valuations and (b) a 45% savings could be achieved with respect to corporate,
general and administrative expenses were applied to the NAV analysis, the price
per share would still be below the Acquiror's Initial Proposal Price.
NationsBanc Montgomery noted that corporate general and administrative costs had
been taken into account in its analyses because The Irvine Company management
had stated that they anticipated the retention of the Company's existing
management structure and further noted that NationsBanc Montgomery's estimate of
the Company's corporate general and administrative costs for calendar year 1999
had already accounted for a reduction of $1,000,000 from the estimate contained
in the 1999 Business Plan to reflect cost savings from the merger. NationsBanc
Montgomery noted that The Irvine Company anticipated retaining public securities
and that consequently, expenses related to reporting requirements and obtaining
credit ratings would continue to be incurred after the merger.
Capitalization Rates. NationsBanc Montgomery enclosed copies of (a) a
summary of the cash flow capitalization rates for (i) the Company's recent bids
and acquisitions, (ii) comparable sales transactions in the relevant geographic
area, and (iii) publicly available equity analyst research reports; (b) a
comparable sales transactions table included in the Second NationsBanc
Montgomery Report; (c) pro forma operations statements from a Company investment
proposal dated June 19, 1998 for Paloma Summit, Seaview Summit, Niguel Summit
and Hidden Hills; (d) the stabilized portfolio valuation capitalization rate
analysis chart from the Second NationsBanc Montgomery Report; (e) an executive
summary of growth strategies provided by the Company's management; (f) a
memorandum from the Company's management regarding financial information for
four recent acquisitions or bids by the Company; (g) a chart comparing equity
analyst research reports issued before and after the announcement of the
Acquiror's offer; and (h) an article entitled "Denver developer buys 800 Hon
units in Orange County" from the January 8, 1999 edition of The Orange County
Register.
NationsBanc Montgomery reviewed the factors for selecting a blended cash
flow capitalization rate of 7.62% in the going concern analysis of the Company's
stabilized portfolio. NationsBanc Montgomery noted that it had reviewed 45
Company properties and 20 comparable apartment projects in the relevant
geographic area. NationsBanc Montgomery further noted that (a) comparable sales
transactions and publicly available equity analyst research reports each implied
cash flow capitalization rates of 7.8%; (b) the Hon apartment portfolio sale in
Laguna Niguel implied a capitalization rate of 7.55%, which the Company had
valued at a 7.6% forward twelve month capitalization rate; (c) recent Company
bids and acquisitions were valued using capitalization rates ranging from 7.3%
to 7.8%; (d) the 1999 Business Plan specified target "breakeven" capitalization
rates of 7.75%; (e) over the 90 days prior to the Third NationsBanc Montgomery
Report, the turmoil in public equity and debt markets had reduced the number of
real estate buyers, increasing capitalization rates; (f) two recent comparable
sales should have their capitalization rates adjusted due to favorable
conditions specific to those transactions; (g) older properties in the Company
portfolio would be valued at significantly higher capitalization rates,
balancing the impact of higher value properties; and (h) the blended
capitalization rate of 7.62%, when applied to the Acquiror's Initial Proposal
Price, implied a price of approximately $140,000 per stabilized apartment unit,
which was two times greater than the average price for an apartment unit sold in
Orange County, California, 34% higher than comparable apartment unit prices in
the southern Orange County, California area and higher than all apartment unit
prices in Orange County California.
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<PAGE>
Discount Rates for Analysis of the Present Value of Future Property Cash
Flows. NationsBanc Montgomery reviewed the factors it considered in selecting a
range of discount rates between 11% and 13% to be applied in the second method
of performing a going concern analysis with respect to the Company's stabilized
portfolio. NationsBanc Montgomery noted that the Company's management and the
1999 Business Plan stated that the estimated cost of equity was 15%. Based on
the assumption that the cost of equity was 15% and using the same capital
structure and cost of debt assumed by Morgan Stanley, NationsBanc Montgomery
noted that the assumptions implied a weighted average cost of capital of 11.8%.
NationsBanc Montgomery further assumed that institutional investors such as
pension funds, who would be the most likely private buyers of a portfolio equal
in size to the Company's portfolio, would apply discounts ranging from 11 to
13%.
NationsBanc Montgomery did not apply a capital asset pricing model in its
analysis because it believed that the model was flawed when applied in this case
due in part to the real estate industry, due in part to (a) its use of a
correlation between the price of the Common Stock and the Standard & Poor's
stock index over time, since the index does not allow REITs to be included in
the index due to circumstances surrounding their structure; and (b) the
insignificance of the correlation between the price of the Common Stock and the
Standard & Poor's stock index.
While the foregoing summary describes all analyses and examinations that
NationsBanc Montgomery deemed material in its preparation of the NationsBanc
Montgomery Reports, it is not a comprehensive description of all analyses and
examinations actually conducted by NationsBanc Montgomery. The preparation of
the NationsBanc Montgomery Reports was not susceptible to partial analysis or
summary description. NationsBanc Montgomery believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and of the factors considered, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentations to the Acquiror and The Irvine
Company. In addition, NationsBanc Montgomery may have given various analyses
more or less weight than other analyses, and may have deemed various assumptions
more or less probable than other assumptions. The fact that any specific
analysis has been referred to in the summary above is not meant to indicate that
such analysis was given greater weight than any other analysis. Accordingly, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be NationsBanc Montgomery's view of the actual value of
the Company.
In performing its analyses, NationsBanc Montgomery made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Acquiror, The Irvine Company or the Company. The analyses performed by
NationsBanc Montgomery are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses were provided to the Acquiror and The
Irvine Company in connection with the delivery of the NationsBanc Montgomery
Reports. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at any time in the future.
As described above, the NationsBanc Montgomery Reports and NationsBanc
Montgomery's presentations to the Acquiror and The Irvine Company were among a
number of factors taken into consideration by the Acquiror and The Irvine
Company in making their determination to make the proposal set forth in the
December 1 Letter and to approve the Merger.
Upon execution of the Acquiror Engagement Letter, The Irvine Company agreed
to pay NationsBanc Montgomery a retainer fee of $250,000. In addition, The
Irvine Company agreed to pay NationsBanc Montgomery a transaction fee contingent
on the consummation of certain transactions of the Company, including the
Merger. The retainer fee will be credited against any transaction fee. The
Acquiror Engagement Letter also calls for The
D-11
<PAGE>
Irvine Company to reimburse NationsBanc Montgomery for its reasonable
out-of-pocket expenses. Pursuant to a separate letter agreement, The Irvine
Company has agreed to indemnify NationsBanc Montgomery, its affiliates, and
their respective partners, directors, officers, employees and controlling
persons against certain liabilities, including liabilities under the federal
securities laws.
In the ordinary course of its business, NationsBanc Montgomery actively
trades the equity securities of the Company for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. NationsBanc Montgomery has also acted as an
underwriter in connection with public offerings of the Company's securities and
has performed various investment banking services for the Company. NationsBanc
Montgomery's ultimate parent corporation, BankAmerica Corporation, and its
affiliates have commercial lending relationships with each of The Irvine Company
and the Company; additionally, Bank of America has agreed to provide funding to
the Acquiror and The Irvine Company in connection with the Merger.
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PROXY PROXY
Irvine Apartment Communities, Inc.
SPECIAL MEETING, __________, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Shareholder of Irvine Apartment Communities, Inc., a
Maryland corporation (the "Company"), hereby appoints __________ and __________,
or either of them, as proxies for the undersigned, with full power of
substitution in each of them, to attend the Special Meeting of Shareholders of
the Company, to be held on _______, 1999 at __:__ _m. and at any adjournments or
postponements thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting. The undersigned hereby
acknowledges receipt of the Notice of Special Meeting of Shareholders and
revokes any proxy heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as instructed
on the reverse hereof. If this proxy is executed but no instruction is given,
the votes entitled to be cast by the undersigned will be cast FOR the proposal
as described in the accompanying Proxy Statement and in the discretion of the
proxy holder on any other matter that may properly come before the meeting or
any adjournment or postponement thereof.
A MAJORITY (OR IF ANY ONE, THEN THAT ONE) OF THE ABOVE PERSONS OR THEIR
SUBSTITUTES WHO SHALL BE PRESENT AND ACTING AT THE MEETING SHALL HAVE THE POWERS
CONFERRED HEREBY.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
DO NOT SUBMIT ANY STOCK CERTIFICATES WITH THIS PROXY CARD.
(Continued and to be signed on reverse side.)
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<PAGE>
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PLEASE MARK VOTE IN THE FOLLOWING MANNER USING DARK INK ONLY. [x]
A vote FOR approval and adoption of the below-described Merger and Merger
Agreement is recommended by the Board of Directors.
1. To consider and act upon a proposal to adopt and approve the merger of
Irvine Apartment Communities, Inc. with and into TIC Acquisition LLC
(the "Merger") and the Agreement and Plan of Merger dated as of
February 1, 1999, between Irvine Apartment Communities, Inc. and TIC
Acquisition LLC (the "Merger Agreement"), as more fully described in
the accompanying Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
This proxy when properly executed will be
voted in the manner directed herein by
the undersigned Shareholder(s). If no
direction is made, this proxy will be
voted FOR proposal No. 1 above and will
be voted by the proxy holders listed on
the reverse hereof in their discretion as
to any other matters which may properly
come before the meeting.
Dated: ________________,1999
Signature(s)_____________________________
_________________________________________
Signature of Shareholder(s)--please sign
name(s) exactly as imprinted (do not
print). Please indicate any change of
address. NOTE: Executors, administrators,
trustees and others signing in a
representative capacity should indicate
the capacity in which they sign. If
shares are held jointly, EACH holder
should sign.
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