<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 2
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 17, 1998
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 1-13232 84-1259577
- - ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1873 SOUTH BELLAIRE STREET, SUITE 1700, DENVER, CO 80222-4348
- - - -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 757-8101
NOT APPLICABLE
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
This form 8-K/A is filed to incorporate the Consolidated Financial
Statements for Insignia Financial Group, Inc. as of March 31, 1998 and December
31, 1997 and for the three months ended March 31, 1998 and 1997, and the Pro
Forma Financial Information of Apartment Investment and Management Company as of
March 31, 1998 and for the year ended December 31, 1997 and the three months
ended March 31, 1998 filed herewith.
Item 5. OTHER EVENTS
On March 17, 1998, Apartment Investment and Management Company
("AIMCO") and AIMCO Properties, L.P. entered into an Agreement and Plan of
Merger as amended and restated on May 26, 1998, (the "Insignia Merger
Agreement") with Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and its subsidiary, Insignia/ESG, Inc. pursuant to which, upon
the approval of stockholders holding a majority of the outstanding common stock
of Insignia, Insignia will be merged with and into AIMCO with AIMCO as the
survivor (the "Insignia Merger"). The Insignia Merger Agreement provides that
prior to the Insignia Merger, Insignia will spin off to its stockholders all
assets related to its U.S. and international commercial real estate business,
its New York-based cooperative and condominium management company, its
single-family home brokerage operations and other related holdings.
Assuming the stockholders of AIMCO and Insignia approve the Insignia
Merger, in the Insignia Merger the Class A common stock, par value $0.01 per
share, of Insignia ("Insignia Common Stock") will be converted into the right to
receive an aggregate of approximately $303 million in Series E Preferred Stock,
par value of $0.01 per share, of AIMCO ("Series E Preferred Stock"). In addition
to receiving the same dividends as holders of AIMCO Common Stock, holders of
Series E Preferred Stock are entitled to a preferred cash dividend of $50
million in the aggregate, and when such dividend is paid, the Series E Preferred
Stock automatically will convert into AIMCO Common Stock on a one-for-one basis,
subject to antidilution adjustments, if any. In addition, AIMCO will assume
approximately $308 million in outstanding indebtedness and other liabilities and
will assume approximately $150 million aggregate liquidation amount of 6 1/2%
Trust Convertible Preferred Securities (the "TOPRs") issued by Insignia
Financing I, a subsidiary of Insignia, for a total transaction value of
approximately $810 million. Also, the Insignia Merger Agreement provides that
AIMCO is required to propose to acquire (by merger) the outstanding shares of
beneficial interest in Insignia Properties Trust, a Maryland real estate
investment trust ("IPT"), at a price of at least $13.25 per IPT share and use
its reasonable best efforts to consummate the transaction after the closing of
the Insignia Merger but not earlier than August 15, 1998. IPT is a 61% owned
subsidiary of Insignia; the 39% of IPT not owned by Insignia is valued at an
aggregate of approximately $100 million, or approximately $13.25 per share.
If the stockholders of AIMCO do not approve the Insignia Merger, but
the stockholders of Insignia do approve it, the Insignia Merger may nonetheless
be consummated. However, instead of receiving $303 million in Series E Preferred
Stock, holders of Insignia Common Stock would receive approximately $203 million
in Series E Preferred Stock and $100 million aggregate liquidation value of
Series F Preferred Stock, par value $0.01 per share, of AIMCO ("Series F
Preferred Stock"). In either case, holders of Series E Preferred Stock would be
entitled to a preferred cash dividend of $50 million. Holders of Series F
Preferred Stock are entitled to receive the greater of (i) the dividends
received by holders of AIMCO Common Stock and (ii) preferred distributions of
10% of the liquidation value of the Series F Preferred Stock, with the preferred
return rate escalating by 1% each year until a 15% annual return is achieved.
Upon the approval by stockholders of AIMCO, the Series F Preferred Stock will
convert into AIMCO Common Stock on a one-to-one basis, subject to antidilution
adjustments, if any.
Insignia Financial Group, Inc. is a leading fully integrated real
estate services company. Insignia is the largest manager of multifamily
residential properties in the United States and is among the largest managers of
commercial properties. Insignia commenced operations in December 1990 and since
then has grown to provide property and/or asset management and other real estate
services for over 2,700 properties which include approximately 280,000
residential units (including cooperative and condominium units), and
approximately 160 million square feet and commercial space located in over 500
cities and 48 states and overseas.
2
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997 (included as Exhibit
99.1 to this Report and incorporated herein by this reference).
Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 (included as
Exhibit 99.2 to this Report and incorporated herein by this reference).
Consolidated Financial Statements for Insignia Financial Group, Inc.
as of March 31, 1998 (unaudited) and December 31, 1997 and for the three months
ended March 31, 1998 (unaudited) and 1997 (unaudited) (included as Exhibit 99.3
to this Report and incorporated herein by this reference).
(b) Pro Forma Financial Information
The required pro forma financial information is included as Exhibit
99.4 to this Report and incorporated herein by this reference.
(c) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description
- - -------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of May
26, 1998, by and among Apartment Investment and Management Company,
AIMCO Properties, L.P., Insignia Financial Group, Inc. and
Insignia/ESG Holdings, Inc.
23.1* Consent of Ernst & Young LLP, Chicago, Illinois.
23.2* Consent of Ernst & Young LLP, Greenville, South Carolina.
99.1* Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997.
99.2* Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997.
99.3 Consolidated Financial Statements for Insignia Financial Group, Inc.
as of March 31, 1998 and December 31, 1997 and for the three months
ended March 31, 1998 and 1997.
99.4 Pro Forma Financial Information of Apartment Investment and Management
Company as of March 31, 1998 and for the year ended December 31, 1997
and the three months ended March 31, 1998.
* * * * *
* Previously filed
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
Date: June 22, 1998 By: /s/ TROY D. BUTTS
------------------------------------
Troy D. Butts
Senior Vice President and Chief
Financial Officer
4
<PAGE> 5
EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Number Description
- - -------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of May
26, 1998, by and among Apartment Investment and Management Company,
AIMCO Properties, L.P., Insignia Financial Group, Inc. and
Insignia/ESG Holdings, Inc.
23.1* Consent of Ernst & Young LLP, Chicago, Illinois.
23.2* Consent of Ernst & Young LLP, Greenville, South Carolina.
99.1* Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997.
99.2* Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997.
99.3 Consolidated Financial Statements for Insignia Financial Group, Inc.
as of March 31, 1998 and December 31, 1997 and for the three months
ended March 31, 1998 and 1997.
99.4 Pro Forma Financial Information of Apartment Investment and Management
Company as of March 31, 1998 and for the year ended December 31, 1997
and the three months ended March 31, 1998.
</TABLE>
* Previously filed
<PAGE> 1
EXHIBIT 99.3
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Revenues
Fee based services $126,762 $65,066
Interest 1,342 734
Other 583 529
Apartment property 1,771 1,583
130,458 67,912
Costs and Expenses
Fee based services 104,810 51,717
Administrative 3,896 2,282
Apartment property 890 732
Interest 4,072 1,633
Apartment property interest 406 372
Depreciation and amortization 10,010 7,086
Apartment property depreciation 271 239
Merger related expenses 2,036 --
126,391 64,061
Equity earnings - limited partnership interests 3,193 3,067
Minority interests in consolidated subsidiaries (3,774) (3,578)
Income before income taxes 3,486 3,340
Provision for income taxes 1,569 1,336
Net income $ 1,917 $ 2,004
Per share amounts - basic: $.06 $.07
Per share amounts - assuming dilution: $.06 $.06
Weighted average common shares and assumed
conversions 32,893,848 31,550,390
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 2
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Note)
<S> <C> <C>
Assets
Cash and cash equivalents $ 73,143 $ 88,847
Receivables 151,919 122,180
Property and equipment 20,836 19,011
Investments in real estate limited partnerships
and other securities 238,673 215,735
Apartment property 26,003 22,357
Property management contracts 141,604 147,256
Costs in excess of net assets of acquired
businesses 230,118 158,524
Other assets 40,514 26,313
Total assets $922,810 $800,223
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 17,347 $ 13,705
Commissions payable 56,404 51,285
Accrued and sundry liabilities 114,524 102,009
Notes payable 236,465 170,404
Non-recourse mortgage note payable 21,957 19,300
Total liabilities 446,697 356,703
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust 144,137 144,065
Minority interests in consolidated subsidiaries 65,082 61,546
Stockholders' Equity:
Common stock, class A, par value $.01 per share-
authorized 100,000,000 shares, issued and
outstanding 31,270,025 (1998) and 30,159,161
(1997) shares, 166,400 shares held in treasury
(1998 and 1997) 313 302
Additional paid-in capital 228,648 201,597
Retained earnings 37,933 36,010
Total stockholders' equity 266,894 237,909
Total liabilities and stockholders' equity $922,810 $800,223
</TABLE>
NOTE:The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Operating Activities
Net income $ 1,917 $ 2,004
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 10,010 7,086
Apartment property depreciation 271 239
Equity in earnings of partnerships (3,193) (3,067)
Minority interests in consolidated subsidiaries 3,774 3,578
Foreign currency translation 6 --
Changes in operating assets and liabilities:
Accounts receivable (9,318) (4,478)
Other assets (6,519) (1,258)
Accrued compensation (13,555) (6,647)
Accounts payable and accrued expenses (7,110) (173)
Commissions payable 2,452 (472)
Net cash (used in) operating activities (21,265) (3,188)
Investing activities
Additions to property and equipment, net (1,538) (772)
Payments made for acquisition of management contracts
and acquired businesses (27,159) (2,990)
Proceeds from Balcor dispositions 196 2,149
Purchase of real estate limited partnership interests (23,623) (1,698)
Distributions from partnerships 6,497 28,329
Advances made under note agreements (4,394) (2,886)
Collections on notes receivable 604 375
Net cash (used in) provided by investing activities (49,417) 22,507
Financing activities
Proceeds from issuance of common stock of subsidiary -- 110
Payments on notes payable (1,530) (445)
Payment of dividends on trust based convertible
preferred securities (2,510) (2,429)
Proceeds from exercise of stock options and warrants 3,678 1,185
Proceeds from notes payable 56,840 --
Distributions made to minority interests (1,500) (1,581)
Debt and stock issuance costs -- (952)
Net cash provided by (used in) financing activities 54,978 (4,112)
Increase in cash and cash equivalents (15,704) 15,207
Cash and cash equivalents at beginning of period 88,847 54,614
Cash and cash equivalents at end of period $73,143 $ 69,821
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Insignia Financial Group, Inc. (the "Company" or "Insignia") is a Delaware
corporation incorporated in July 1990. The Company is a fully integrated
real estate services company specializing in the ownership and operation of
securitized real estate assets throughout the United States. As a full
service real estate management organization, Insignia performs property
management, asset management, investor services, partnership accounting,
real estate investment banking and real estate brokerage services for
various types of property owners.
2. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1998.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.
3. In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirement.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Thousands of Dollars,
except share data)
<S> <C> <C>
Basic
Average common shares outstanding 30,615 28,967
Assumed conversions -- --
Total 30,615 28,967
Net income $ 1,917 $ 2,004
Preferred dividends -- --
Adjusted net income $ 1,917 $ 2,004
Per share amounts - basic $.06 $.07
Diluted
Average common shares outstanding 30,615 28,967
Assumed conversions 2,279 2,583
Total 32,894 31,550
Net income $ 1,917 $ 2,004
Preferred dividends -- --
Adjusted net income $ 1,917 $ 2,004
Per share amounts - diluted $.06 $.06
</TABLE>
4. In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("Statement 130"). As of January 1, 1998,
the Company adopted Statement 130. Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, reported separately in shareholders' equity to be
included in other comprehensive income. Total comprehensive income for each
of the three month periods ended March 31, 1998 and 1997 was immaterial.
<PAGE> 5
5. In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"),
which is effective for financial statements for fiscal years beginning
after December 15, 1998. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application should
be reported as the cumulative effect of a change in accounting principle
and expensed in the first quarter in the year of adoption. At March 31,
1998, the Company had approximately $1.4 million capitalized as
organizational costs that would be affected by the requirements of SOP
98-5.
6. The following is a summary of the Company's material contingencies as of
March 31, 1998:
1996 Tender Offer Litigation.
In May 1996, Walton Street Capital Acquisition II, LLC ("Walton Street"),
together with certain Insignia affiliates, commenced tender offers for
limited partner interests in ten real estate limited partnerships
syndicated by The Balcor Company ("Balcor"). In May 1996, certain persons
claiming to be holders of limited partner interests commenced a lawsuit
entitled Chipain, Tom, v. Walton Street Capital Acquisition II, LLC, in the
Circuit Court of Cook County, Illinois, County Department, Chancery
Division, on behalf of themselves, on behalf of a putative class of
plaintiffs, and, as amended, derivatively on behalf of the
Balcor-syndicated partnerships, challenging the actions of the defendants
(including Insignia, an Insignia officer and certain affiliates, Walton
Street and the general partners of the Balcor-syndicated partnerships) in
connection with the tender offers and certain other matters.
The complaint, as amended, contained allegations that the tender offers
were inadequate and coercive based, in part, upon information allegedly
obtained by Insignia in violation of its fiduciary duties. Defendants
promptly moved to dismiss the complaint and on June 5, 1996 the court
dismissed the complaint as to Insignia and Walton Street, with leave to
replead. On June 11, 1996 plaintiffs filed an amended class and derivative
action complaint, repeating the same allegations as in their initial
complaint, and recasting some as derivative, rather than direct class,
claims. Defendants moved to dismiss the amended complaint and on June 18,
1996, the court again dismissed plaintiffs' amended complaint as to
Insignia and Walton Street.
On June 14, 1996 a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint,
entitled Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al.,
contained substantially the same allegations as the Chipain complaints and
asserted additionally that the tender offers violated certain state
securities and consumer statutes. Pursuant to the court's orders
consolidating the Chipain and Dee complaints with another action which does
not name Insignia, a new amended and consolidated class and derivative
action complaint was filed on July 25, 1996. The plaintiffs in the Chipain
action are not parties to this latest complaint.
On August 16, 1996 Insignia moved to dismiss the amended and consolidated
class and derivative action complaint. The motion was heard by the court on
September 27, 1996 at which time the court granted leave to the plaintiff
to (i) withdraw its pending complaint and (ii) serve a second amended and
consolidated class and derivative action complaint. On October 8, 1996
plaintiffs filed a second amended and consolidated class and derivative
action complaint which added claims of alleged antitrust injury and unjust
enrichment. On October 25, 1996 Insignia moved to dismiss the second
amended and consolidated class action complaint. That motion was heard by
the court in December 1996. On December 18, 1996 the court issued a
decision granting Insignia's motion to dismiss. By order dated January 7,
1997 the court dismissed the second amended and consolidated class action
complaint with prejudice. Plaintiffs filed a notice of appeal in the Dee
action on February 14, 1997. Plaintiffs perfected their appeal, which was
argued in March 1998. The appellate court has not yet rendered its decision
on the appeal.
United States Department of Housing and Urban Development
On or about May 8, 1997, the United States Department of Housing and Urban
Development ("HUD") filed a civil lawsuit against one of the third party,
unaffiliated owners of affordable housing to which the Company provides
management services. The complaint alleges that the owner, Associated
Financial Corporation ("AFC") of Los Angeles, California, whose chairman is
A. Bruce Rozet, had improperly received monies from 17 properties managed
by the Company over a period of approximately six years. The allegations
include statutory violations which could, if proven, give rise to double
and treble damages as well as civil penalties for false filings. The
Company was not named as a defendant in the suit.
On August 13, 1997, the Company entered into an agreement with HUD which
resolved any claims which HUD could have made against the Company arising
out of the allegations in the complaint against AFC and Rozet. Insignia has
not admitted to any liability or wrongdoing in the matter, and it has
<PAGE> 6
affirmatively stated that it relied on the advice of legal counsel that its
actions were proper. Although the Company believes it acted properly, it
agreed to resolve the matter expeditiously to avoid potential complex,
costly and disruptive litigation. In connection with the agreement, the
Company paid the Government the sum of $5 million and recorded a one-time
charge of $5 million (pre-tax) for its third quarter ended September 30,
1997.
In addition, the Company agreed with HUD that it could make voluntary
disclosures to the Government concerning other conduct arising out of or
relating to its management of HUD-related properties. On or about October
13, 1997, the Company provided additional information to the Government.
The Company recorded total charges aggregating $10.2 million in 1997 for
costs incurred and accrued in relation to its management of HUD properties.
At December 31, 1997, the Company had $4.0 million included in accrued and
sundry liabilities associated with its management of such properties.
In December 1997, AFC and a number of affiliates made a motion to implead
the Company as a third party defendant. In the proposed third party
compliant, AFC and affiliates alleged a number of claims sounding
principally in indemnification. The Government filed an opposition to that
motion. On February 3, 1998, the Court denied AFC's motion to implead. On
March 11, 1998, the Company and HUD resolved all remaining issues for a
payment of $2.5 million.
1998 Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain limited partnerships whose general partners (the
"General Partners") are affiliates of Insignia (the "Partnerships") filed a
purported class and derivative action in California Superior Court in the
County of San Mateo against Insignia, the General Partners, AIMCO, certain
persons and entities who purportedly formerly controlled the General
Partners, and additional entities affiliated with individuals who are
officers, directors and/or principals of several of the defendants. The
complaint contains allegations that, among other things, (i) the defendants
breached their fiduciary duties to the plaintiffs by selling or agreeing to
sell their "fiduciary positions" as stockholders, officers and directors of
the General Partners for a profit and retaining said profit rather than
distributing it to the plaintiffs; (ii) the defendants breached their
fiduciary duties by mismanaging the Partnerships and misappropriating the
assets of the Partnerships by (a) manipulating the operations of the
Partnerships to depress the trading price of limited partnership units (the
"Units") of the Partnerships; (b) coercing and fraudulently inducing
unitholders to sell Units to certain of the defendants at depressed prices;
and (c) using the voting control obtained by purchasing Units at depressed
prices to entrench certain of the defendants' positions of control over the
Partnerships; and (iii) the defendants breached their fiduciary duties to
the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of unitholders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to
the partnerships, the unitholders and tenants of Partnership properties.
The complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The complaint seeks
unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the General Partners to AIMCO and a court order
directing the defendants to discharge their fiduciary duties to the
plaintiffs. The defendants have not served or filed a reply to the
complaint. Insignia believes the suit to be without merit and intends to
defend the suit vigorously.
The Company and certain subsidiaries are defendants in lawsuits arising in
the ordinary course of business. Such lawsuits are primarily insured claims
arising from accidents at managed properties. Claims may demand substantial
compensatory and punitive damages.
Management believes that the aforementioned contingencies will be resolved
without material loss to the Company or its subsidiaries.
7. Acquisitions
Richard Ellis Group Limited Acquisition
In February 1998, the shareholders of Richard Ellis Group Limited ("RE")
accepted the Company's offer to acquire 100% of the stock of RE. RE is a
real estate services and investment firm located in the United Kingdom. The
purchase price is valued at approximately $81.5 million of which $14.7
million is contingent on future performance measures. The transaction was
completed on February 26, 1998. The Company funded the acquisition by
borrowing approximately $35 million from its revolving credit facility,
issuing 617,371 shares of its Class A Common Stock, and assuming existing
options which will enable RE employees to purchase 853,741 shares of the
Company's Class A Common Stock.
8. Merger and Spin-off.
On March 17, 1998, the Company and Insignia/ESG, Inc. ("Insignia/ESG")
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
<PAGE> 7
Apartment Investment and Management Company, a Maryland corporation
("AIMCO"), and AIMCO Properties, L.P., a Delaware limited partnership,
pursuant to which the Company will merge with and into AIMCO, with AIMCO as
the survivor (the "Merger"). Consummation of the Merger is subject to
certain conditions, including regulatory approval and the approval of the
stockholders of the Company (but not the approval of the stockholders of
AIMCO).
Prior to the AIMCO Merger, the Company will spin off to its stockholders
the stock of an entity that will become a separate public company and will
include Insignia/ESG throughout the US, RE in the UK and Insignia/CAGISA in
Italy; Insignia Residential Group, Inc., a New York based cooperative and
condominium management company; Realty One, the nations ninth largest
single-family home brokerage operations and other select holdings. Pursuant
to an Indemnification Agreement entered into in connection with the Merger
Agreement, the spun off company will provide indemnification for certain
liabilities arising under the Merger Agreement.
Assuming the stockholders of AIMCO approve the Merger, shares of the
Company's Class A Common Stock will be converted into the right to receive
an aggregate of approximately $303 million in Series E Preferred Stock, par
value $.01 per share of AIMCO (the "Series E Preferred"). In addition to
receiving the same dividends as holders of AIMCO common stock, holders of
Series E Preferred are entitled to receive a preferred dividend of $50
million in the aggregate to be paid on or before January 15, 1999 and when
paid, the Series E Preferred will automatically convert into AIMCO common
stock on a one-for-one basis, subject to certain antidilution adjustments.
The actual number of Series E Preferred issued in the Merger will be
determined by a formula based on the average market price of AIMCO's common
stock during a fixed period preceding the Merger, subject to a fixed
maximum AIMCO exchange value of $38 per share. If AIMCO's average price
during that period is less than $36.50 per share, AIMCO may elect to pay up
to $15 million of the purchase price in cash, provided that such payment
would not affect the tax free status of the Merger.
In addition, AIMCO will assume approximately $308 million in outstanding
indebtedness of the Company and will assume $149.5 million (liquidation
value) of the 6.5% Trust Convertible Preferred Securities issued by
Insignia Financing I, a subsidiary of the Company.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving approximately
$303 million in Series E Preferred, holders of the Company's Class A Common
Stock would receive approximately $203 million in Series E Preferred and
$100 million in Series F Preferred Stock, par value $.01 per share of AIMCO
(the "Series F Preferred"). In either case, holders of Series E Preferred
would be entitled to receive the $50 million preferred dividend. Holders of
Series F Preferred are entitled to receive the greater of (i) the same
dividends as holders of AIMCO common stock received and (ii) preferred
distributions of 10% of the face value of the Series F Preferred, with the
preferred return rate escalating 1% each year until a 15% annual return is
achieved. Upon the approval by the stockholders of AIMCO, the Series F
Preferred will convert into Series E Preferred on a one-to-one basis.
Also, the Merger Agreement provides that following the Merger, AIMCO is
required to offer to purchase the outstanding shares of beneficial interest
of Insignia Properties Trust, a majority owned subsidiary of the Company
("IPT"), at a price of at least $13.25 per IPT share. IPT is a 75% owned
subsidiary of the Company; the 25% interest of IPT not owned by the Company
is valued at an aggregate of approximately $100 million, assuming a value
of $13.25 per share.
As a condition to execution of the Merger Agreement, certain of the
Company's executive officers executed voting agreements and irrevocable
proxies in favor of AIMCO, pursuant to which each of the foregoing
individuals agreed to vote the shares of the Company's Class A Common Stock
owned of record and beneficially by him, including shares under options and
warrants to the extent exercisable (but excluding shares beneficially owned
by others notwithstanding that such shares may be owned of record by him)
in favor of the Merger and the Merger Agreement and against any competing
transaction. In addition, each of Metropolitan Acquisition Partners IV,
L.P. and Metropolitan Acquisition Partners V, L.P. (collectively, the
"MAPs") also executed voting agreements and irrevocable proxies, pursuant
to which each has agreed to vote certain shares of the Company's Class A
Common Stock to which the Company's Chairman, Chief Executive Officer and
President would be entitled in a distribution of shares of the Company's
Class A Common Stock made by the MAPs in favor of the Merger and the Merger
Agreement and against any competing transaction.
9. Trust Based Convertible Preferred Securities
On May 4, 1998, the Company approved, contingent upon the completion of the
spin-off distribution to its shareholders of all of the outstanding stock
of Insignia/ESG Holdings, Inc. ("Holdings"), a special distribution of
warrants to purchase common shares in Holdings (the "Warrant Distribution")
to the holders of 6.5% Trust Convertible Preferred Securities ("Preferred
Shares") issued by a subsidiary, Insignia Financing I. The Warrant
Distribution will be contingent upon both the completion of the Holdings
Distribution, which is in turn contingent upon approval of the shareholders
of IFS and other conditions, and the determination by Insignia's board that
<PAGE> 8
all of the conditions to Insignia's merger with AIMCO have been satisfied
in their entirety such that the closing of the merger is imminent.
The proposed Warrant Distribution would consist of six warrants for each
ten Preferred Shares assuming a distribution of one share of Holdings
common stock for each share of IFS common stock. Each Preferred Share has a
$50 liquidation preference. The number of warrants to be distributed would
be further adjusted by the Holdings Distribution ratio. For example, if two
shares of Holdings were distributed for each three shares of IFS, a holder
of ten Preferred Shares would receive four warrants to purchase common
shares in Holdings. The warrants would have a five-year term from the date
of the Holdings Distribution and would be exercisable at a price equal to
120% of the average closing price of Holdings' common stock for the first
five trading days following the Holdings Distribution. There are currently
2,990,000 Preferred Shares outstanding.
Under the terms of the merger agreement with AIMCO, the Preferred Shares
would become an obligation of AIMCO and would become convertible into AIMCO
securities, as Insignia Financing I would become a subsidiary of AIMCO.
Pursuant to the trust indenture governing the Preferred Shares, prescribed
adjustments to the conversion price would occur both as a result of the
Holdings Distribution and as a result of the merger.
10. Other Matters
On July 18, 1997, IPT, Insignia, MAE GP corporation (which at the time was
a affiliate of IPT but has subsequently been merged into IPT) ("MAE GP"),
and Angeles Mortgage Investment Trust, an unincorporated California
business trust ("AMIT") entered into a definitive merger agreement pursuant
to which AMIT is to be merged with and into IPT, with IPT being the
surviving entity, in a stock for stock transaction (the "AMIT Merger").
AMIT is a public company whose Class A Shares trade on the American Stock
Exchange under the symbol ANM. Insignia and its affiliates currently own
96,800 (or approximately 3.7%) of the 2,617,000 outstanding AMIT Class A
shares and all of the 1,675,113 outstanding AMIT Class B shares. If the
AMIT Merger is consummated, IPT will become a publicly traded company (IPT
presently intends to apply for listing of its shares on the American Stock
Exchange, which listing would be subject to completion of the AMIT Merger),
and it is anticipated that Insignia and its affiliates will own
approximately 57% of post-merger IPT. The former AMIT shareholders (other
than Insignia and its affiliates) will own approximately 17% of post-merger
IPT, and the current unaffiliated shareholders of IPT will own the
remaining 25% of post-merger IPT to which AIMCO will be making an offer to
purchase (see merger and spin-off above). The AMIT Merger is expected to be
completed in the second quarter of 1998. However, consummation of the AMIT
Merger is subject to several conditions, including approval of the AMIT
Merger Agreement and the AMIT Merger by the shareholders of AMIT.
Accordingly, there can be no assurance as to when the AMIT Merger will
occur, or that it will occur at all.
11. During the three months ended March 31, 1998, the Company had the following
changes in the equity accounts:
a) Exercise of 403,493 stock options and 90,000 warrants representing
493,493 shares of Class A Common Stock at exercise prices ranging from
$1.88 to $17.50 per share.
b) Net income of $1,917,000 for the three months ended March 31, 1998.
c) Accrued compensation of $517,677 relating to restricted stock awards.
d) Issuance of 617,371 shares at $21.12 with regard to the RE
acquisition.
<PAGE> 1
EXHIBIT 99.4
PRO FORMA FINANCIAL INFORMATION OF
AIMCO
(PRE-MERGER)
INTRODUCTION
In May and September of 1997, AIMCO directly or indirectly through a
subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares
of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired
the remaining shares of NHP Common Stock in a merger transaction accounted for
as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued
6,759,148 shares of AIMCO Class A Common Stock, par value $0.01 per share (the
"AIMCO Common Stock"), valued at $180.8 million, and paid $86.5 million in cash.
The total cost of the purchase of NHP was $349.5 million.
In June 1997, AIMCO purchased a group of companies (the "NHP Real Estate
Companies") affiliated with NHP that hold general and limited partnership
interests in partnerships (the "NHP Partnerships") that own 534 conventional and
affordable multifamily apartment properties (the "NHP Properties") containing
87,659 units, a captive insurance subsidiary and certain related assets (the
"NHP Real Estate Acquisition"). AIMCO paid aggregate consideration of $54.8
million in cash and warrants to purchase 399,999 shares of AIMCO Common Stock at
an exercise price of $36.00 per share. AIMCO engaged in a reorganization (the
"NHP Real Estate Reorganization") of its interests in the NHP Real Estate
Companies, which will result in certain of the assets of the NHP Real Estate
Companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the AIMCO Operating Partnership holds 99% limited partner
interest and certain directors and officers of AIMCO directly or indirectly,
hold a 1% general partner interest.
Immediately following the NHP Merger, in order to satisfy certain
requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged
in a reorganization (the "NHP Reorganization") of the assets and operations of
NHP that resulted in the Master Property Management Agreement being terminated
and NHP's operations being conducted through corporations (the "Unconsolidated
Subsidiaries") in which the AIMCO Operating Partnership holds non-voting
preferred stock that represents a 95% economic interest, and certain officers
and/or directors of AIMCO hold, directly or indirectly, all of the voting common
stock, representing a 5% economic interest. As a result of the controlling
ownership interest in the Unconsolidated Subsidiaries held by others, AIMCO
accounts for its interest in the Unconsolidated Subsidiaries on the equity
method.
On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc.
("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of stock ("Ambassador Common
Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were
converted into 0.553 shares of AIMCO Common Stock. Any outstanding options to
purchase Ambassador Common Stock were converted, at the election of the option
holder, into cash or options to purchase AIMCO Common Stock at their current
exercise price divided by the Conversion Ratio. In accordance with the Agreement
and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as
of March 11, 1998, (the "Ambassador Merger Agreement"), the outstanding shares
of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the
"Ambassador Preferred Stock") were redeemed and converted into Ambassador Common
Stock prior to the Ambassador Merger. Following the consummation of the
Ambassador Merger, a subsidiary of the AIMCO Operating Partnership was merged
with and into the Ambassador Operating Partnership (the "Ambassador OP Merger").
Each outstanding unit of limited partnership interest in the Ambassador
Operating Partnership was converted into the right to receive 0.553 AIMCO OP
Units, and as a result, the Ambassador Operating Partnership became a 99.9%
owned subsidiary partnership of the AIMCO Operating Partnership.
Also during 1997, AIMCO (i) acquired (a) 44 properties for aggregate
purchase consideration of $467.4 million, of which $56.0 million was paid in the
form of 1.9 million AIMCO OP Units (b) paid $34.2 million in cash and issued OP
Units valued at $7.3 million in connection with the acquisition of partnership
interests through tender offers in certain partnerships ((a) and (b) together
are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire
886,600 shares of Ambassador Common Stock
1
<PAGE> 2
(together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii)
sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net
proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative
Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000
shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1
million (collectively, the "1997 Stock Offerings"); and (iii) sold five real
estate properties (the "1997 Dispositions").
During 1998, AIMCO (i) sold 4,200,000 shares of AIMCO Class D 8.75%
Cumulative Preferred Stock for net proceeds of $101.5 million (the "1998 Stock
Offering"); (ii) purchased 11 properties for aggregate purchase consideration of
$89.6 million, of which $23.4 million was paid in the form of AIMCO OP Units
(the "1998 Acquisitions"); (iii) sold one real estate property (the "1998
Disposition"); and (iv) completed the Ambassador Merger.
PRO FORMA FINANCIAL INFORMATION (PRE-MERGER)
The following Pro Forma Consolidated Balance Sheet (Pre-Merger) of AIMCO as
of March 31, 1998 has been prepared as if each of the following transactions had
occurred as of March 31, 1998: (i) the purchase of two properties for an
aggregate purchase price of $14.7 million; and (ii) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations (Pre-Merger)
of AIMCO for the year ended December 31, 1997 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv)
the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi)
the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization;
(ix) the 1998 Stock Offering; (x) the 1998 Acquisitions; (xi) the 1998
Disposition; and (xii) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations (Pre-Merger)
of AIMCO for the three months ended March 31, 1998 has been prepared as if each
of the following transactions had occurred as of January 1, 1997: (i) the 1998
Stock Offering; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; and (iv)
the Ambassador Merger.
The following Pro Forma Financial Information (Pre-Merger) is based, in
part, on the following historical financial statements, which have been
previously filed by AIMCO: (i) the audited Consolidated Financial Statements of
AIMCO for the year ended December 31, 1997; (ii) the unaudited Consolidated
Financial Statements of AIMCO for the three months ended March 31, 1998; (iii)
the audited Consolidated Financial Statements of Ambassador for the year ended
December 31, 1997; (iv) the unaudited Consolidated Financial Statements of
Ambassador for the three months ended March 31, 1998; (v) the unaudited
Consolidated Financial Statements of NHP for the nine months ended September 30,
1997; (vi) the unaudited Combined Financial Statements of the NHP Real Estate
Companies for the three months ended March 31, 1997; (vii) the unaudited
Financial Statements of NHP Southwest Partners, L.P. for the three months ended
March 31, 1997; (viii) the unaudited Combined Financial Statements of the NHP
New LP Entities for the three months ended March 31, 1997; (ix) the unaudited
Combined Financial Statements of the NHP Borrower Entities for the three months
ended March 31, 1997; (x) the unaudited Historical Summaries of Gross Income and
Certain Expenses of The Bay Club at Aventura for the three months ended March
31, 1997; (xi) the unaudited Historical Summary of Gross Income and Direct
Operating Expenses of Morton Towers for the six months ended June 30, 1997;
(xii) the unaudited Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the six months ended June 30, 1997;
(xiii) the unaudited Statement of Revenues and Certain Expenses of First
Alexandria Associates, a Limited Partnership for the nine months ended September
30, 1997; (xiv) the unaudited Statement of Revenues and Certain Expenses of
Country Lakes Associates Two, a Limited Partnership for the nine months ended
September 30, 1997; (xv) the unaudited Statement of Revenues and Certain
Expenses of Point West Limited Partnership, A Limited Partnership for the nine
months ended September 30, 1997; and (xvi) the unaudited Statement of Revenues
and Certain Expenses for The Oak Park Partnership for the nine months ended
September 30, 1997. The following Pro Forma Financial Information (Pre-Merger)
should be read in conjunction with such financial statements and the notes
thereto.
2
<PAGE> 3
The unaudited Pro Forma Financial Information (Pre-Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, the 1997
Acquisitions, and the 1998 Acquisitions are adjusted to estimated fair market
value, based upon preliminary estimates, which are subject to change as
additional information is obtained. The allocations of purchase costs are
subject to final determination based upon estimates and other evaluations of
fair market value. Therefore, the allocations reflected in the following
unaudited Pro Forma Financial Information (Pre-Merger) may differ from the
amounts ultimately determined.
The following unaudited Pro Forma Financial Information (Pre-Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
3
<PAGE> 4
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF MARCH 31, 1998
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED AMBASSADOR PURCHASE PRICE PRO
HISTORICAL(A) TRANSACTIONS(B) HISTORICAL(C) ADJUSTMENTS(D) FORMA
------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Real estate............................ $1,537,646 $14,727 $496,595 $ 199,326(E) $2,248,294
Property held for sale................. 35,824 -- -- -- 35,824
Investments in securities.............. 23,759 -- -- (268,171)(E)
249,996(F) 5,584
Investments in and notes receivable
from unconsolidated subsidiaries..... 88,775 -- -- -- 88,775(H)
Investments in and notes receivable
from unconsolidated real estate
partnerships......................... 245,682 -- 1,270 1,020(E) 247,972
Cash and cash equivalents.............. 35,948 -- 5,484 -- 41,432
Restricted cash........................ 31,186 -- 30,948 -- 62,134
Accounts receivable.................... 24,586 -- 1,196 -- 25,782
Deferred financing costs............... 14,367 18 14,978 (10,619)(E) 18,744
Goodwill............................... 123,634 -- -- 123,634
Other assets........................... 59,064 -- 3,949 (862)(E) 62,151
---------- ------- -------- --------- ----------
Total assets................... $2,220,471 $14,745 $554,420 $ 170,690 $2,960,326
========== ======= ======== ========= ==========
Secured notes payable.................. $ 697,036 $ 1,142 $ 37,209 $ -- $ 735,387
Secured tax-exempt bond financing...... 73,560 -- 318,397 -- 391,957
Secured short term financing........... 40,900 10,244 31,550 19,557(E)
2,513(G) 104,764
Unsecured short-term financing......... -- -- 2,513 (2,513)(G) --
Accounts payable, accrued and other
liabilities.......................... 82,809 -- 6,886 47,378(E) 137,073
Security deposits and prepaid rents.... 10,023 -- 2,532 -- 12,555
---------- ------- -------- --------- ----------
904,328 11,386 399,087 66,935 1,381,736
Minority interest in other
partnerships......................... 36,128 1,888 18,872 (13,120)(E) 43,768
Minority interest in Operating
Partnership.......................... 124,952 1,471 7,424 (7,424)(E) 126,423
Class A common stock, $.01 par value... 413 -- 107 (107)(E)
66(F) 479
Class B common stock, $.01 par value... 2 -- -- -- 2
Non-voting preferred stock, $.01 par
value................................ -- -- 24,132 (24,132)(E) --
Class B Cumulative Convertible
Preferred Stock, $.01 par value...... 75,000 -- -- -- 75,000
Class C Cumulative Preferred Stock $.01
par value............................ 60,000 -- -- -- 60,000
Class D Cumulative Preferred Stock $.01
par value............................ 105,000 -- -- -- 105,000
Treasury Stock......................... (6,001) (6,001)
Additional paid in capital............. 998,000 -- 148,930 (148,930)(E)
249,930(F)
1,634(E) 1,249,564
Notes receivable on common stock
purchases............................ (41,608) -- -- -- (41,608)
Distributions in excess of earnings.... (33,900) -- (44,132) 44,132(E) (33,900)
Accumulated other comprehensive
losses............................... (1,843) -- -- 1,706(E) (137)
---------- ------- -------- --------- ----------
1,155,063 -- 129,037 124,299 1,408,399
---------- ------- -------- --------- ----------
Total liabilities and equity... $2,220,471 $14,745 $554,420 $ 170,690 $2,960,326
========== ======= ======== ========= ==========
</TABLE>
- - ---------------
(A) Represents the unaudited historical consolidated financial position of
AIMCO as of March 31, 1998, as reported in AIMCO's Quarterly Report on Form
10-Q.
4
<PAGE> 5
(B) Represents adjustments to reflect the purchase of two properties for an
aggregate purchase price of 14,727.
(C) Represents the unaudited historical consolidated financial position of
Ambassador as of March 31, 1998. Certain reclassifications have been made
to Ambassador's historical balance sheet to conform to AIMCO's balance
sheet presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the issuance of 6,578,833 shares of AIMCO Common
Stock, valued at $249,996 (based on $38.00 per share, the average price
calculated in accordance with the Ambassador Merger Agreement), as
consideration to holders of Ambassador Common Stock outstanding as of the
date of the Ambassador Merger; (ii) the additional purchase price
consideration of $1,634 for the Ambassador Merger resulting from the
Ambassador Stock Options, which have been converted to options to purchase
shares of AIMCO Common Stock; and (iii) the allocation of the combined
purchase price of Ambassador based on the preliminary estimates of relative
fair market value of the assets and liabilities of Ambassador.
(E) As of March 31, 1998, AIMCO has an investment in Ambassador of $19,881,
comprised of 886,600 shares of Ambassador Common Stock. In connection with
the Ambassador Merger, AIMCO issued 6,578,833 shares of AIMCO Common Stock
valued at $249,996 (based on $38.00 per share, the average price calculated
in accordance with the Ambassador Merger Agreement) to acquire the shares
of Ambassador Common Stock owned by the Ambassador stockholders. AIMCO's
investment in Ambassador Common Stock of $268,171, is as follows:
<TABLE>
<S> <C>
Amount of Ambassador Common Stock at March 31, 1998......... $ 19,881
Less: Unrealized loss at March 31, 1998..................... (1,706)
Purchase of Ambassador Common Stock from public............. 249,996
--------
Total Investment.................................. $268,171
========
</TABLE>
The total purchase price of Ambassador is $743,285, as follows:
<TABLE>
<S> <C>
Cash paid for initial investment in Ambassador.............. $ 19,881
Issuance of 6,578,833 shares of AIMCO Common Stock in the
Ambassador Merger, at $38.00 per share.................... 249,996
Assumption of Ambassador liabilities and minority interest
in other partnerships..................................... 404,839
Transaction and loan assumption costs....................... 47,378
Buyout of limited partners in limited partnerships.......... 19,557
Consideration for Ambassador stock options outstanding...... 1,634
--------
Total............................................. $743,285
========
</TABLE>
This amount was allocated to the various assets of Ambassador acquired in
the Ambassador Merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $ 743,285
Historical basis of Ambassador's assets acquired............ (554,420)
---------
Step-up to record the fair value of Ambassador's assets
acquired.................................................. $ 188,865
=========
</TABLE>
5
<PAGE> 6
This step-up was applied to Ambassador's assets as follows:
<TABLE>
<S> <C>
Real estate................................................. $199,326
Investment in real estate partnerships...................... 1,020
Reduction in value of deferred loan costs................... (10,619)
Reduction in value of other assets.......................... (862)
--------
Total............................................. $188,865
========
</TABLE>
As of March 31, 1998, Ambassador's minority interest in its operating
partnership was $7,424. This balance was eliminated upon the completion of
the Ambassador Merger.
As of March 31, 1998, Ambassador's shareholders' equity was $129,037, which
is detailed as follows:
<TABLE>
<S> <C>
Preferred stock............................................. $ 24,132
Common stock................................................ 107
Additional paid-in capital.................................. 148,930
Distributions in excess of accumulated earnings............. (44,132)
--------
Total............................................. $129,037
========
</TABLE>
Upon completion of the Ambassador Merger, the entire amount of
shareholders' equity is eliminated.
In addition, upon completion of the Ambassador Merger, $13,120 of minority
interest in other partnerships of Ambassador is eliminated in connection
with the buyout of limited partners in certain limited partnerships.
(F) Represents the issuance of 6,578,833 shares of AIMCO Common Stock, valued
at $249,996, to Ambassador stockholders, in exchange for all the shares of
Ambassador Common Stock and Ambassador Preferred Stock not owned by AIMCO.
(G) Represents the repayment of the Ambassador line of credit upon the
completion of the Ambassador Merger. AIMCO borrowed under its line of
credit in order to fund this repayment.
(H) Represents notes receivable from the Unconsolidated Subsidiaries of $50,000
and equity in the unconsolidated subsidiaries of $38,775. The combined
historical balance sheet of the Unconsolidated Subsidiaries as of March 31,
1998 is presented below. There were no pro forma adjustments to the balance
sheet as of March 31, 1998.
6
<PAGE> 7
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Real estate................................................. $ 20,908
Cash and cash equivalents................................... 4,354
Restricted cash............................................. 4,925
Management contracts........................................ 50,514
Deferred financing costs.................................... 3,194
Goodwill.................................................... 44,799
Other assets................................................ 31,011
--------
Total assets...................................... $159,705
========
Secured notes payable....................................... $ 72,269
Accounts payable, accrued and other liabilities............. 50,521
Security deposits and prepaid rents......................... 312
--------
123,102
Common stock................................................ 2,298
Preferred stock............................................. 38,775
Retained earnings........................................... (4,351)
Notes receivable on common stock purchases.................. (119)
--------
36,603
--------
Total liabilities and equity...................... $159,705
========
</TABLE>
7
<PAGE> 8
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED NHP AMBASSADOR PURCHASE PRICE PRO
HISTORICAL(A) TRANSACTIONS(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) FORMA
------------- --------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues.................... $193,006 $ 95,828(F) $ 6,660 $ 93,329 $ -- $ 388,823
Property operating expenses... (76,168) (48,107)(F) (2,941) (36,088) -- (163,304)
Owned property management
expense..................... (6,620) (3,454)(F) (282) -- -- (10,356)
Depreciation.................. (37,741) (19,109)(F) (1,414) (18,979) (5,378)(J) (82,621)
-------- -------- ------- -------- -------- ---------
Income from property
operations.................. 72,477 25,158 2,023 38,262 (5,378) 132,542
-------- -------- ------- -------- -------- ---------
Management fees and other
income...................... 13,937 -- 7,813 -- -- 21,750
Management and other
expenses.................... (9,910) -- (5,394) -- -- (15,304)
Corporate overhead
allocation.................. (588) -- -- -- -- (588)
Amortization.................. (1,401) -- (5,800) -- -- (7,201)
-------- -------- ------- -------- -------- ---------
Income from service company
business.................... 2,038 -- (3,381) -- -- (1,343)
Minority interest in service
company business............ (10) -- -- -- -- (10)
-------- -------- ------- -------- -------- ---------
AIMCO's share of income from
service company business.... 2,028 -- (3,381) -- -- (1,353)
-------- -------- ------- -------- -------- ---------
General and administrative
expenses.................... (5,396) -- (1,025) (7,392) 7,392(K) (6,421)
Interest expense.............. (51,385) (8,502)(G) (5,462) (26,987) (221)(L) (92,557)(P)
Interest income............... 8,676 -- 1,900 -- -- 10,576
Minority interest in other
partnerships................ 1,008 779(H) 16 (851) 705(M) 1,657
Equity in losses of
unconsolidated
partnerships................ (1,798) (122)(I) (8,542) 405 -- (10,057)
Equity in earnings of
unconsolidated
subsidiaries................ 4,636 -- 5,790 -- -- 10,426(R)
-------- -------- ------- -------- -------- ---------
Income from operations........ 30,246 17,313 (8,681) 3,437 2,498 44,813
Gain on dispositions of
property.................... 2,720 (2,720) -- -- -- --
-------- -------- ------- -------- -------- ---------
Income before extraordinary
item and minority interest
in AIMCO Operating
Partnership................. 32,966 14,593 (8,681) 3,437 2,498 44,813
Extraordinary item -- early
extinguishment of debt...... (269) 269 -- -- -- --
-------- -------- ------- -------- -------- ---------
Income before minority
interest in AIMCO Operating
Partnership................. 32,697 14,862 (8,681) 3,437 2,498 44,813
Minority interest in AIMCO
Operating Partnership....... (4,064) (227)(N) 1,779(N) (386)(N) 9(N) (2,889)
-------- -------- ------- -------- -------- ---------
Net income.................... 28,633 14,635 (6,902) 3,051 2,507 41,924(P)
Income attributable to
preferred stockholders...... 2,315 17,617 -- 2,296 (2,296)(O) 19,932(Q)
-------- -------- ------- -------- -------- ---------
Income attributable to common
stockholders................ $ 26,318 $ (2,982) $(6,902) $ 755 $ 4,803 $ 21,992(P)
======== ======== ======= ======== ======== =========
Basic earnings per share...... $ 1.09 $ 0.47(P)
======== =========
Diluted earnings per share.... $ 1.08 $ 0.47(P)
======== =========
Weighted average shares
outstanding................. 24,055 46,685
======== =========
Weighted average shares and
equivalents outstanding..... 24,436 47,066
======== =========
</TABLE>
- - ---------------
(A) Represents AIMCO's audited consolidated results of operations for the year
ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings;
(iii) the 1997 Dispositions; (iv) the 1998 Stock Offering; (v) the 1998
Acquisitions; and (vi) the 1998 Disposition.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
8
<PAGE> 9
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating expenses....... (2,941)(v) (8,411) -- 8,411(xvii) (2,941)
Owned property management
expense......................... (282)(v) (862) -- 862(xvii) (282)
Depreciation...................... (1,414)(vi) (2,527) (693)(xi) 3,220(xvii) (1,414)
------- -------- ------- -------- -------
Income from property operations... 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and other
income.......................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other expenses..... (2,263)(viii) (35,267) -- 32,136 (xviii (5,394)
Corporate overhead allocation..... -- -- -- -- --
Amortization...................... -- (9,111) (4,432)(xii) 7,743(xix) (5,800)
------- -------- ------- -------- -------
Income from service company
business........................ (858) 27,798 (4,432) (25,889) (3,381)
Minority interest in service
company business................ -- -- -- -- --
------- -------- ------- -------- -------
AIMCO's share of income from
service company business........ (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and administrative
expenses........................ -- (16,266) 8,668 (xiii 6,573 (xviii (1,025)
Interest expense.................. (5,082)(ix) (10,685) -- 10,305(xx) (5,462)
Interest income................... 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest in other
partnerships.................... 16(v) -- -- -- 16
Equity in losses of unconsolidated
partnerships.................... (3,905)(x) -- (4,631)(xiv) (6) (8,542)
Equity in earnings of
unconsolidated subsidiaries..... -- -- (4,636)(xv) 10,426(xxii) 5,790
------- -------- ------- -------- -------
Income (loss) from operations..... (7,266) 7,852 (5,724) (3,543) (8,681)
Income tax provision.............. -- (3,502) 3,502(xvi) -- --
------- -------- ------- -------- -------
Income (loss) before minority
interest in Operating
Partnership..................... (7,266) 4,350 (2,222) (3,543) (8,681)
Minority interest in Operating
Partnership..................... 1,296 -- -- 483 1,779
------- -------- ------- -------- -------
Net income (loss)................. (5,970) 4,350 (2,222) (3,060) (6,902)
Income attributable to preferred
stockholders.................... -- -- -- -- --
------- -------- ------- -------- -------
Income (loss) attributable to
common stockholders............. $(5,970) $ 4,350 $(2,222) $ (3,060) $(6,902)
======= ======== ======= ======== =======
</TABLE>
- - ---------------
(i) Represents the adjustment to record activity from January 1, 1997 to the
date of acquisition, as if the acquisition of the NHP Real Estate
Companies had occurred on January 1, 1997. The historical financial
statements of the NHP Real Estate Companies consolidate certain real
estate partnerships in which they have an interest that will be presented
on the equity method by AIMCO as a result of the NHP Real Estate
Reorganization. In addition, represents adjustments to record additional
depreciation and amortization related to the increased basis in the assets
of the NHP Real Estate Companies as a result of the allocation of the
purchase price of the NHP Real Estate Companies and additional interest
expense incurred in connection with borrowings incurred by AIMCO to
consummate the NHP Real Estate Acquisition.
(ii) Represents the unaudited consolidated results of operations of NHP for the
period from January 1, 1997 through December 8, 1997 (date of NHP Merger).
9
<PAGE> 10
(iii) Represents the following adjustments occurring as a result of the NHP
Merger: (i) the reduction in personnel costs, primarily severance costs,
pursuant to a restructuring plan; (ii) the incremental depreciation of the
purchase price adjustment related to real estate; (iii) the incremental
amortization of the purchase price adjustment related to the management
contracts, furniture, fixtures and equipment, and goodwill; (iv) the
reversal of equity in earnings of NHP during the pre-merger period when
AIMCO held a 47.62% interest in NHP; and (v) the amortization of the
increased basis in investments in real estate partnerships based on the
purchase price adjustment related to real estate and an estimated average
life of 20 years.
(iv) Represents adjustments related to the NHP Reorganization, whereby AIMCO
will contribute or sell to the Unconsolidated Subsidiaries and the
Unconsolidated Partnership: (i) certain assets and liabilities of NHP,
primarily related to the management operations and other businesses owned
by NHP and (ii) 12 real estate properties containing 2,905 apartment
units. The adjustments represent (i) the related revenues and expenses
primarily related to the management operations and other businesses owned
by NHP and (ii) the historical results of operations of such real estate
partnerships contributed, with additional depreciation and amortization
recorded related to AIMCO's new basis resulting from the allocation of the
combined purchase price of NHP and the NHP Real Estate Companies.
(v) Represents adjustments to reflect the acquisition of the NHP Real Estate
Companies and the corresponding historical results of operations as if
they had occurred on January 1, 1997.
(vi) Represents incremental depreciation related to the consolidated real
estate assets purchased from the NHP Real Estate Companies. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(vii) Represents the adjustment to record the revenues from ancillary businesses
purchased from the NHP Real Estate Companies as if the acquisition had
occurred on January 1, 1997.
(viii)Represents $4,878 related to the adjustment to record the expenses from
ancillary businesses purchased from the NHP Real Estate Companies as if
the acquisition had occurred on January 1, 1997, less $2,615 related to a
reduction in personnel costs pursuant to a restructuring plan, approved by
AIMCO senior management, assuming that the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel, job
functions, location and the date of completion.
(ix) Represents adjustments in the amount of $3,391 to reflect the acquisition
of the NHP Real Estate Companies and the corresponding historical results
of operations as if they had occurred on January 1, 1997, as well as the
increase in interest expense in the amount of $1,691 related to borrowings
on AIMCO's Credit Facility of $55,807 to finance the NHP Real Estate
Acquisition
(x) Represents adjustments in the amount of $2,432 to reflect the acquisition
of the NHP Real Estate Companies and the corresponding historical results
of operations as if they had occurred on January 1, 1997, as well as
amortization of $1,473 related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of the NHP Real Estate Companies, based on an estimated average life
of 20 years.
(xi) Represents incremental depreciation related to the real estate assets
purchased from NHP. Buildings and improvements are depreciated on the
straight-line method over a period of 20 years, and furniture and fixtures
are depreciated on the straight-line method over a period of 5 years.
(xii) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management and other business
operated by the Unconsolidated Subsidiaries, based on AIMCO's new basis as
adjusted by the allocation of the combined purchase price of NHP including
amortization of management contracts of $3,782, depreciation of furniture,
fixtures and equipment of $2,018 and amortization of goodwill of $7,743,
less NHP's historical depreciation and amortization of $9,111. Management
contracts are amortized using the straight-line method over the weighted
average life of the contracts estimated to be approximately 15 years.
10
<PAGE> 11
Furniture, fixtures and equipment are depreciated using the straight-line
method over the estimated life of 3 years. Goodwill is amortized using the
straight-line method over 20 years.
(xiii)Represents a reduction in personnel costs, primarily severance costs,
pursuant to a restructuring plan, approved by AIMCO senior management,
specifically identifying all significant actions to be taken to complete
the restructuring plan, assuming that the Merger had occurred on January
1, 1997 and that the restructuring plan was completed on January 1, 1997.
(xiv) Represents adjustment for amortization of the increased basis in
investments in real estate partnerships, as a result of the allocation of
the combined purchase price of NHP and the NHP Real Estate Companies,
based on an estimated average life of 20 years.
(xv) Represents the reversal of equity in earnings in NHP during the pre-merger
period when AIMCO held a 47.62% interest in NHP, as a result of AIMCO's
acquisition of 100% of the NHP Common Stock.
(xvi) Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii)Represents the contribution of NHP's 12 real estate properties containing
2,905 apartment units to the Unconsolidated Partnership pursuant to the
NHP Reorganization.
(xviii)
Represents the historical income and expenses associated with certain
assets and liabilities of NHP that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations and other businesses owned by NHP.
(xix) Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on AIMCO's new basis resulting
from the allocation of the purchase price of NHP, that will be contributed
or sold to the Unconsolidated Subsidiaries, primarily related to the
management operations and other businesses owned by NHP.
(xx) Represents interest expense of $6,020 related to the contribution of NHP's
12 real estate properties containing 2,905 apartment units to the
Unconsolidated Partnership and interest expense of $4,285 related to the
certain assets and liabilities that will be contributed or sold to the
Unconsolidated Subsidiaries pursuant to the NHP Reorganization.
(xxi) Represents the interest income of $5,000 earned on notes payable of
$50,000 to AIMCO issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries by AIMCO, net of the
elimination of AIMCO's share of the related interest expense of $4,750
reflected in the equity in earnings of the Unconsolidated Subsidiaries
operating results, offset by $853 in interest income primarily related to
the management operations and other businesses owned by NHP contributed or
sold to the Unconsolidated Subsidiaries pursuant to the NHP
Reorganization.
(xxii)Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(D) Represents the audited historical statement of operations of Ambassador for
the year ended December 31, 1997. Certain reclassifications have been made
to Ambassador's historical Statement of Operations to conform to AIMCO's
Statement of Operations presentation. The Ambassador historical Statement
of Operations excludes extraordinary loss of $1,384 and a loss on sale of
an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt; and
(iv) the elimination of the minority interest associated with Jupiter I,
L.P.
(F) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Disposition as
if they had occurred on January 1, 1997. These pro forma operating results
are based on historical results of the properties, except for depreciation,
which is based on AIMCO's investment in the properties.
11
<PAGE> 12
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITION TOTAL
------------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues....... $ 88,589 $(4,081) $13,425 $(2,105) $ 95,828
Property operating expense............... (44,109) 1,944 (6,725) 783 (48,107)
Owned property management expense........ (3,233) 133 (429) 75 (3,454)
Depreciation............................. (16,839) 452 (3,076) 354 (19,109)
</TABLE>
(G) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1997 Property
Acquisitions.............................................. $(29,427)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1997 Dispositions and the 1997
Stock Offerings........................................... 19,505
Repayments on AIMCO's Credit Facility with proceeds from a
dividend received from one of the Unconsolidated
Subsidiaries.............................................. 1,889
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. (4,700)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1998 Disposition and the 1998 Stock
Offering.................................................. 4,231
--------
$ (8,502)
========
</TABLE>
(H) Represents income related to limited partners in consolidated partnerships
acquired in connection with the 1997 Property Acquisitions.
(I) Represents the reduction in AIMCO's earnings in unconsolidated partnerships
as a result of the consolidation of additional partnerships resulting from
additional ownership acquired through tender offers.
(J) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(K) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring plan,
approved by AIMCO senior management, assuming that the Ambassador Merger
had occurred on January 1, 1997 and that the restructuring plan was
completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(L) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Ambassador Merger, offset by an increase in interest expense of $3,833
related to borrowings under the AIMCO line of credit.
(M) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(N) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Completed Transactions, the NHP Transactions, and the
Ambassador Merger had occurred as of January 1, 1997. On a pro forma
12
<PAGE> 13
basis, without giving effect to the NHP Transactions, as of December 31,
1997, the minority interest percentage is approximately 15.5%. On a pro
forma basis, without giving effect to the Ambassador Merger, as of December
31, 1997, the minority interest percentage is approximately 13.3%. On a pro
forma basis, giving effect to the Ambassador Merger, as of December 31,
1997, the minority interest percentage is approximately 11.6%.
(O) Represents the elimination of the preferred stock dividends of Ambassador
upon the conversion of the Ambassador Preferred Stock to AIMCO Common
Stock.
(P) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 211
=======
Income before minority interest in AIMCO Operating
Partnership............................................... $44,602
Minority interest in AIMCO Operating Partnership............ (2,864)
=======
Net income.................................................. $41,738
=======
Net income attributable to common stockholders.............. $21,806
=======
Basic earnings per common share............................. $ 0.47
=======
Diluted earnings per common share........................... $ 0.46
=======
</TABLE>
(Q) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, and the AIMCO Class D
Preferred Stock as if these stock offerings had occurred as of January 1,
1997.
(R) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries of
$5,676, plus the elimination of intercompany interest expense of $4,750.
The combined Pro Forma Statement of Operations (Pre-Merger) of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Ambassador Merger, the
NHP Merger and the NHP Reorganization as if these transactions had occurred
as of January 1, 1997.
13
<PAGE> 14
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION
HISTORICAL(i) ADJUSTMENTS(ii) PRO FORMA
------------- --------------- ---------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 6,194 $ 6,371(iii) $ 12,565
Property operating expenses........................... (3,355) (3,531)(iii) (6,886)
Owned property management expense..................... (147) (478)(iii) (625)
Depreciation expense.................................. (1,038) (767)(iii) (1,805)
-------- --------- --------
Income from property operations....................... 1,654 1,595 3,249
-------- --------- --------
Management fees and other income...................... 23,776 41,992(iv) 65,768
Management and other expenses......................... (11,733) (20,403)(iv) (32,136)
Amortization.......................................... (3,726) (4,017)(iv) (7,743)
-------- --------- --------
Income from service company........................... 8,317 17,572 25,889
Minority interest in service company.................. -- -- --
-------- --------- --------
Company's share of service company.................... 8,317 17,572 25,889
-------- --------- --------
General and administrative expense.................... -- (6,573)(iv) (6,573)
Interest expense...................................... (6,058) (5,849)(v) (11,907)
Interest income....................................... 1,001 (148)(iv) 853
Minority interest in other partnerships............... (2,819) 2,198(vii) (621)
Equity in losses of unconsolidated partnerships....... (1,028) 1,028(iii) --
Equity in earnings of Unconsolidated Subsidiaries..... 2,943 (2,943)(vi) --
-------- --------- --------
Income from operations................................ 4,010 6,880 10,890
Income tax provision.................................. (1,902) (3,013)(viii) (4,915)
-------- --------- --------
Net income............................................ $ 2,108 $ 3,867 $ 5,975
======== ========= ========
Income attributable to preferred stockholders......... $ 2,003 $ 3,673 $ 5,676
======== ========= ========
Income attributable to common stockholders............ $ 105 $ 194 $ 299
======== ========= ========
</TABLE>
- - ---------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment units
from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as
well as the sale or contribution of 12 properties containing 2,905
apartment units from the Unconsolidated Subsidiaries to the Unconsolidated
Partnership.
(iii)Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12 real
estate properties contributed or sold to the Unconsolidated Partnership,
with additional depreciation recorded related to AIMCO's new basis
resulting from the allocation of purchase price of NHP and the NHP Real
Estate Companies.
(iv) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(v) Represents adjustments of $6,058 to reverse the historical interest expense
of the Unconsolidated Subsidiaries, which resulted from its original
purchase of NHP Common Stock, offset by $2,622 related to the contribution
or sale of the 14 real estate properties, $4,285 related to assets and
liabilities
14
<PAGE> 15
transferred from AIMCO to the Unconsolidated Subsidiaries and $5,000
related to a note payable to AIMCO.
(vi) Represents the reversal of the historical equity in earnings of NHP for the
period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(vii)Represents the minority interest in the operations of the 14 real estate
properties.
(viii)
Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
15
<PAGE> 16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED AMBASSADOR PURCHASE PRICE
HISTORICAL(A) TRANSACTIONS(B) HISTORICAL(C) ADJUSTMENTS(D) PRO FORMA
------------- --------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues.......................... $ 71,336 $ 2,866(E) $ 24,882 $ -- $ 99,084
Property operating expenses......... (26,309) (1,183)(E) (9,513) -- (37,005)
Owned property management expense... (2,132) (93)(E) -- -- (2,225)
Depreciation........................ (13,977) (663)(E) (5,113) (976)(G) (20,729)
------------- --------------- ------------- --------------- ---------
Income from property operations..... 28,918 927 10,256 (976) 39,125
------------- --------------- ------------- --------------- ---------
Management fees and other income.... 4,821 -- -- -- 4,821
Management and other expenses....... (1,961) -- -- -- (1,961)
Corporate overhead allocation....... (147) -- -- -- (147)
Amortization........................ (1,720) -- -- -- (1,720)
------------- --------------- ------------- --------------- ---------
Income from service company
business.......................... 993 -- -- -- 993
Minority interest in service company
business.......................... (1) -- -- -- (1)
------------- --------------- ------------- --------------- ---------
AIMCO's share of income from service
company business.................. 992 -- -- -- 992
------------- --------------- ------------- --------------- ---------
General and administrative
expenses.......................... (1,974) -- (2,438) 2,438(H) (1,974)
Interest expense.................... (15,441) (470)(F) (6,888) 137(I) (22,662)(M)
Interest income..................... 6,076 -- -- -- 6,076
Minority interest in other
partnerships...................... (582) -- (345) 292(J) (635)
Equity in losses of unconsolidated
partnerships...................... (653) -- (30) -- (683)
Equity in earnings of unconsolidated
subsidiaries...................... 4,068 -- -- -- 4,068(O)
------------- --------------- ------------- --------------- ---------
Income from operations.............. 21,404 457 555 1,891 24,307
Gain on dispositions of property.... 2,526 (2,526) -- -- --
------------- --------------- ------------- --------------- ---------
Income before minority interest in
Operating Partnership............. 23,930 (2,069) 555 1,891 24,307
Minority interest in Operating
Partnership....................... (2,288) 132(K) (87) 79(K) (2,164)(K)
------------- --------------- ------------- --------------- ---------
Net income.......................... 21,642 (1,937) 468 1,970 22,143(M)
Income attributable to preferred
stockholders...................... 3,681 1,233 584 (584)(L) 4,914(N)
------------- --------------- ------------- --------------- ---------
Income attributable to common
stockholders...................... $ 17,961 $ (3,170) $ (116) $ 2,554 $ 17,229(M)
============= =============== ============= =============== =========
Basic earnings per share............ $ 0.44 $ 0.36(M)
============= =========
Diluted earnings per share.......... $ 0.43 $ 0.36(M)
============= =========
Weighted average shares
outstanding....................... 41,128 47,675
============= =========
Weighted average shares and
equivalents outstanding........... 41,310 47,773
============= =========
</TABLE>
- - ---------------
(A) Represents AIMCO's unaudited consolidated results of operations for the
three months ended March 31, 1998.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997: (i) the 1998 Stock Offering; (ii) the 1998 Acquisitions;
and (iii) the 1998 Disposition.
(C) Represents the unaudited historical statement of operations of Ambassador
for the three months ended March 31, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform to
AIMCO's Statement of Operations presentation. The Ambassador historical
Statement of Operations excludes an extraordinary loss of $323.
16
<PAGE> 17
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt; and
(iv) the elimination of the minority interest associated with Jupiter I,
L.P.
(E) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Disposition as if they had occurred on January 1, 1997. These pro forma
operating results are based on historical results of the properties, except
for depreciation, which is based on AIMCO's investment in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITION TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Rental and other property revenues........... $ 2,964 $(98) $ 2,866
Property operating expense................... (1,274) 91 (1,183)
Owned property management expense............ (99) 6 (93)
Depreciation................................. (681) 18 (663)
</TABLE>
(F) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. (1,016)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1998 Disposition and the 1998 Stock
Offering.................................................. 546
-------
$ (470)
=======
</TABLE>
(G) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(H) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 317
Reduction in salaries and benefits.......................... 1,108
Merger related costs........................................ 436
Other....................................................... 577
------
$2,438
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring plan,
approved by AIMCO senior management, assuming that the Ambassador Merger
had occurred on January 1, 1997 and that the restructuring plan was
completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(I) Represents the decrease in interest expense of $1,081 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Ambassador Merger, offset by an increase in interest expense of $944
related to borrowings under the AIMCO line of credit.
(J) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(K) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Completed Transactions and the Ambassador Merger had occurred
as of January 1, 1997. On a pro forma
17
<PAGE> 18
basis, without giving effect to the Ambassador Merger, as of March 31,
1998, the minority interest percentage is approximately 12.7%. On a pro
forma basis, giving effect to the Ambassador Merger, as of March 31, 1998,
the minority interest percentage is approximately 11.2%.
(L) Represents the elimination of the preferred stock dividends of Ambassador
upon the conversion of the preferred stock to AIMCO Common Stock.
(M) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 52
=======
Income before minority interest in AIMCO Operating
Partnership............................................... $24,255
Minority interest in AIMCO Operating Partnership............ (2,159)
-------
Net income.................................................. $22,096
=======
Net income attributable to common stockholders.............. $17,182
=======
Basic earnings per common share............................. $ 0.36
=======
Diluted earnings per common share........................... $ 0.36
=======
</TABLE>
(N) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, and the AIMCO Class D
Preferred Stock as if these stock offerings had occurred as of January 1,
1997.
(O) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries of
$4,068. The combined historical statement of operations of the
unconsolidated subsidiaries for the three months ended March 31, 1998 is
presented below. There were no pro forma adjustments to the statement of
operations for the three months ended March 31, 1998.
18
<PAGE> 19
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Rental and other property revenues.......................... $ 3,353
Property operating expenses................................. (1,771)
Owned property management expense .......................... (115)
Depreciation expense........................................ (295)
--------
Income from property operations............................. 1,172
--------
Management fees and other income............................ 21,837
Management and other expenses............................... (12,335)
Amortization................................................ (695)
--------
Income from service company................................. 8,807
--------
Interest expense............................................ (1,649)
Interest income............................................. 272
Minority interest in other partnerships..................... (1,275)
--------
Income from operations...................................... 7,327
Income tax provision........................................ (3,045)
--------
Net income.................................................. $ 4,282
========
Income attributable to preferred stockholders............... $ 4,068
========
Income attributable to common stockholders.................. $ 214
========
</TABLE>
19
<PAGE> 20
PRO FORMA FINANCIAL INFORMATION OF AIMCO
(MERGER)
INTRODUCTION
On March 17, 1998, AIMCO entered into Merger Agreement pursuant to which
Insignia will be merged with and into AIMCO with AIMCO as the survivor. The
Merger Agreement provides that prior to the Merger, Insignia will complete the
Distribution to its stockholders of all of the Holdings Common Stock. Pursuant
to the Indemnification Agreement Holdings will provide indemnification for
certain liabilities arising under the Merger Agreement.
In the Merger the Insignia Common Stock will be converted, assuming the
stockholders of AIMCO and Insignia approve the Merger, into the right to receive
an aggregate of approximately $303 million of Class E Preferred Stock. In
addition to receiving the same dividends as holders of AIMCO Common Stock,
holders of AIMCO Class E Preferred Stock will be entitled to the Special
Dividend of $50 million in the aggregate. When the Special Dividend is paid in
full, the AIMCO Class E Preferred stock will automatically convert into AIMCO
Common Stock on a one-for-one basis, subject to antidilution adjustments, if
any. In addition, there will remain outstanding approximately $308 million in
indebtedness and other liabilities of Insignia and its subsidiaries and
subsidiaries of AIMCO will assume approximately $149.5 million of Convertible
Securities for a total transaction value of approximately $811 million. Also,
the Insignia Merger Agreement provides that AIMCO is required to propose to
acquire (by merger) the outstanding shares of beneficial interest in IPT (the
"IPT Merger"), at a price of at least $13.25 per IPT share and use its
reasonable best efforts to consummate the IPT Merger after the closing of the
Merger, but not earlier than August 15, 1998. IPT is an approximately 61% owned
subsidiary of Insignia; the 39% of the shares of IPT not owned by Insignia are
valued at an aggregate of approximately $152 million, after considering the
effect of the proposed merger of IPT and AMIT (the "IPT-AMIT Merger"), assuming
a value of $13.25 per share. If the Merger is consummated, AIMCO will assume
property management of approximately 192,000 multifamily units which consist of
general and limited partnership investments in 115,000 units and third party
management of 77,000 units. IPT owns a 32% weighted average general and limited
partnership interest in approximately 51,000 units.
The following Pro Forma Consolidated Balance Sheet (Merger) of AIMCO as of
March 31, 1998 has been prepared as if each of the following transactions had
occurred as of March 31, 1998: (i) all the transactions discussed in the Pro
Forma Financial Statements (Pre-Merger), appearing elsewhere herein; (ii) the
Merger; (iii) the Distribution, (iv) the IPT-AMIT Merger, (v) the IPT Merger;
and (vi) the transfer of certain assets and liabilities of Insignia to the
Unconsolidated Subsidiaries following the Merger (the "Insignia
Reorganization").
The following Pro Forma Consolidated Statement of Operations (Merger) of
AIMCO for the year ended December 31, 1997 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) all the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; (ii) the Merger; (iii) the Distribution, (iv) the
IPT-AMIT Merger, (v) the IPT Merger; and (vi) the Insignia Reorganization.
The following Pro Forma Consolidated Statement of Operations (Merger) of
AIMCO for the three months ended March 31, 1998 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) all the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; (ii) the Merger; (iii) the Distribution, (iv) the
IPT-AMIT Merger, (v) the IPT Merger; and (vi) the Insignia Reorganization.
The following Pro Forma Financial Information (Merger) is based, in part,
on: (i) the audited Consolidated Financial Statements of Insignia for the year
ended December 31, 1997; (ii) the audited Consolidated Financial Statements of
AMIT for the year ended December 31, 1997; (iii) the unaudited Consolidated
Financial Statements of Insignia for the three months ended March 31, 1998; and
(iv) the unaudited Consolidated Financial Statements of AMIT for the three
months ended March 31, 1998. The following Pro Forma Financial Information
(Merger) is also based, in part, on the Pro Forma Financial
20
<PAGE> 21
Information (Pre-Merger) of AIMCO, included elsewhere herein. Such pro forma
information is based in part upon: (i) the audited Consolidated Financial
Statements of Ambassador for the year ended December 31, 1997; (ii) the audited
Consolidated Financial Statements of AIMCO for the year ended December 31, 1997;
(iii) the unaudited Consolidated Financial Statements of Ambassador for the
three months ended March 31, 1998; (iv) the unaudited Consolidated Financial
Statements of AIMCO for the three months ended March 31, 1998; and (v) the
historical financial statements of certain properties and companies acquired by
AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5,
1997, June 3, 1997, September 19, 1997, October 15, 1997, and December 1, 1997.
The following Pro Forma Financial Information (Merger) should be read in
conjunction with such financial statements and notes thereto.
The unaudited Pro Forma Financial Information (Merger) has been prepared
using the purchase method of accounting whereby the assets and liabilities of
Insignia are adjusted to estimated fair market value, based upon preliminary
estimates, which are subject to change as additional information is obtained.
The allocations of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value. Therefore, the allocations
reflected in the following unaudited Pro Forma Financial Information (Merger)
may differ from the amounts ultimately determined.
The unaudited Pro Forma Financial Information (Merger) has been prepared
under the assumption that the AIMCO stockholders approved the Merger, the AIMCO
Class E Preferred Stock has been converted to AIMCO Common Stock, the IPT-AMIT
Merger occurs, and the IPT Merger was consummated.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving approximately $303
million in AIMCO Class E Preferred Stock, holders of Insignia Common Stock would
receive approximately $203 million in AIMCO Class E Preferred Stock, and
approximately $100 million in AIMCO Class F Preferred Stock. In either case,
holders of AIMCO Class E Preferred Stock would be entitled to the Special
Dividend. Holders of AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the dividends received by holders of AIMCO Common Stock and
(ii) preferred distributions of 10% of the liquidation value of the AIMCO Class
F Preferred Stock, with the preferred return rate escalating by 1% each year
until a 15% annual return is achieved. Upon the approval by stockholders of
AIMCO, the AIMCO Class F Preferred Stock will convert into AIMCO Common Stock on
a one-for-one basis, subject to antidilution adjustments, if any.
The following unaudited Pro Forma Financial Information (Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
21
<PAGE> 22
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA AIMCO BEFORE INSIGNIA
PRE-MERGER INSIGNIA MERGER INSIGNIA REORGANIZATION AIMCO
PRO FORMA(A) AS ADJUSTED(B) ADJUSTMENTS(C) REORGANIZATION(D) ADJUSTMENTS(E) PRO FORMA
------------ -------------- -------------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate.................... $2,248,294 $ 31,967 $ 21,153(F) $2,301,414 $ -- $2,301,414
Property held for sale......... 35,824 -- -- 35,824 -- 35,824
Investments in securities...... 5,584 -- 303,000(F)
(303,000)(G) 5,584 -- 5,584
Investments in and notes
receivable from
unconsolidated
subsidiaries................. 88,775 -- -- 88,775 14,206(H) 102,981(J)
Investments in and notes
receivable from
unconsolidated
partnerships................. 247,972 219,036 448,177(F) 915,185 -- 915,185
Mortgage notes receivable...... -- 29,884 -- 29,884 -- 29,884
Cash and cash equivalents...... 41,432 68,952 -- 110,384 (34,754)(I) 75,630
Restricted cash................ 62,134 -- -- 62,134 -- 62,134
Accounts receivable............ 25,782 23,419 -- 49,201 (22,803)(I) 26,398
Deferred financing costs....... 18,744 764 -- 19,508 -- 19,508
Goodwill....................... 123,634 20,171 (433)(F) 143,372 -- 143,372
Property management
contracts.................... -- 94,779 17,270(F) 112,049 (77,410)(H) 34,639
Other assets................... 62,151 30,116 (632)(F) 91,635 (15,904)(I) 75,731
---------- -------- --------- ---------- --------- ----------
$2,960,326 $519,088 $ 485,535 $3,964,949 $(136,665) $3,828,284
========== ======== ========= ========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Secured notes payable.......... $ 735,387 $ 29,463 $ -- $ 764,850 $ -- $ 764,850
Secured tax-exempt bond
financing.................... 391,957 -- -- 391,957 -- 391,957
Secured short-term financing... 104,764 202,276 (272,325)(F)
152,000(F)
50,000(F)
308,434(F) 545,149 (50,000)(H) 495,149
Accounts payable, accrued and
other liabilities............ 137,073 37,120 20,000(F) 194,193 (69,995)(I) 124,198
Deferred tax liability......... -- 18,802 (18,802)(F)
13,204(F) 13,204 (13,204)(H) --
Security deposits and deferred
income....................... 12,555 3,466 -- 16,021 (3,466)(I) 12,555
---------- -------- --------- ---------- --------- ----------
1,381,736 291,127 252,511 1,925,374 (136,665) 1,788,709
Minority interest in other
partnerships................. 43,768 64,727 (64,727)(F) 43,768 -- 43,768
Minority interest in Operating
Partnership.................. 126,423 -- -- 126,423 -- 126,423
Company-obligated mandatorily
redeemable convertible
securities of a subsidiary
trust........................ -- 144,137 5,363(F) 149,500 -- 149,500
Class A common stock, $.01 par
value........................ 479 354 (354)(F)
81(G) 560 -- 560
Class B common stock, $.01 par
value........................ 2 -- -- 2 -- 2
Class B Cumulative Convertible
Preferred Stock, $.01 par
value........................ 75,000 -- -- 75,000 -- 75,000
Class C Cumulative Preferred
Stock, $.01 par value........ 60,000 -- -- 60,000 -- 60,000
Class D Cumulative Preferred
Stock, $.01 par value........ 105,000 -- -- 105,000 -- 105,000
Treasury stock................. (6,001) -- -- (6,001) -- (6,001)
Additional paid in capital..... 1,249,564 (6,093) 6,093(F)
302,919(G)
8,485(F) 1,560,968 -- 1,560,968
Notes receivable on common
stock purchases.............. (41,608) -- -- (41,608) -- (41,608)
Distributions in excess of
earnings..................... (33,900) 24,836 (24,836)(F) (33,900) -- (33,900)
Accumulated other comprehensive
losses....................... (137) -- -- (137) -- (137)
---------- -------- --------- ---------- --------- ----------
1,408,399 19,097 292,388 1,719,884 -- 1,719,884
---------- -------- --------- ---------- --------- ----------
$2,960,326 $519,088 $ 485,535 $3,964,949 $(136,665) $3,828,284
========== ======== ========= ========== ========= ==========
</TABLE>
- - ---------------
(A) Represents AIMCO's pro forma consolidated financial position as of March
31, 1998, which gives effect to the purchase of two properties for an
aggregate purchase price of $14.7 million and the Ambassador Merger. See
"Pro Forma Financial Information (Pre-Merger)."
22
<PAGE> 23
(B) Represents adjustments to reflect the Merger, including the IPT-AMIT
Merger, and the Distribution, as if these transactions had occurred on
March 31, 1998. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA AS
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Real estate................................... $ 26,003 $ 5,964 $ -- $ 31,967
Property held for sale........................ -- -- -- --
Investments in securities..................... -- -- -- --
Investments in and notes receivable from
unconsolidated subsidiaries................. -- -- -- --
Investments in and notes receivable from
unconsolidated partnerships................. 238,673 -- (19,637) 219,036
Mortgage notes receivable..................... -- 29,884 -- 29,884
Cash and cash equivalents..................... 73,143 10,860 (15,051) 68,952
Restricted cash............................... -- -- -- --
Accounts receivable........................... 151,919 615 (129,115) 23,419
Deferred financing costs...................... 764 -- -- 764
Goodwill...................................... 230,118 -- (209,947) 20,171
Property management contracts................. 141,604 -- (46,825) 94,779
Other assets.................................. 60,586 (138) (30,332) 30,116
-------- ------- --------- --------
$922,810 $47,185 $(450,907) $519,088
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable......................... $ 24,938 $ 4,525 $ -- $ 29,463
Secured tax-exempt bond financing............. -- -- -- --
Secured short-term financing.................. 233,484 -- (31,208) 202,276
Accounts payable, accrued and other
liabilities................................. 166,007 1,737 (130,624) 37,120
Deferred tax liability........................ 18,802 -- -- 18,802
Security deposits and deferred income......... 3,466 -- -- 3,466
-------- ------- --------- --------
446,697 6,262 (161,832) 291,127
Minority interest in other partnerships....... 65,082 -- (355) 64,727
Minority interest in Operating Partnership.... -- -- -- --
Company-obligated mandatorily redeemable
convertible securities of a subsidiary
trust....................................... 144,137 -- -- 144,137
Class A common stock, $.01 par value.......... 313 41 -- 354
Class B common stock, $.01 par value.......... -- -- -- --
Class B Cumulative Convertible Preferred
Stock, $.01 par value....................... -- -- -- --
Class C Cumulative Preferred Stock, $.01 par
value....................................... -- -- -- --
Class D Cumulative Preferred Stock, $.01 par
value....................................... -- -- -- --
Treasury stock................................ -- -- -- --
Additional paid in capital.................... 228,648 40,882 (275,623) (6,093)
Notes receivable on common stock purchases.... -- -- -- --
Distributions in excess of earnings........... 37,933 -- (13,097) 24,836
Accumulated other comprehensive losses........ -- -- -- --
-------- ------- --------- --------
266,894 40,923 (288,720) 19,097
-------- ------- --------- --------
$922,810 $47,185 $(450,907) $519,088
======== ======= ========= ========
</TABLE>
23
<PAGE> 24
- - ---------------
(i) Represents the unaudited consolidated financial position of Insignia as of
March 31, 1998, as reported in Insignia's Quarterly Report on Form 10-Q.
Certain reclassifications have been made to Insignia's historical balance
sheet to conform to AIMCO's balance sheet presentation.
(ii) Represents the historical balance sheet of AMIT, as well as pro forma
adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is expected
to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
Holdings will own all of Insignia's commercial real estate services,
Insignia's residential brokerage business, and Insignia's cooperative and
condominium management business.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the issuance of 8,134,228 shares of AIMCO Common Stock, valued at
approximately $303,000 (based on $37.25 per share, the mid-point between
the maximum AIMCO Index Price and the AIMCO Index Price below which AIMCO
has the right to pay a portion of the Merger Consideration in cash), as
consideration to holders of Insignia Common Stock outstanding as of the
date of the Merger; (ii) the additional purchase price consideration of
$8,484 for the Merger resulting from the Insignia Stock Options, which will
be converted to options to purchase shares of AIMCO Common Stock; (iii) the
IPT Merger; (iv) the payment of the Special Dividend of $50,000; (v) the
assumption of $149,500 of the Convertible Debentures; and (vi) the
allocation of the combined purchase price of Insignia based on the
preliminary estimates of relative fair market value of the assets and
liabilities of Insignia.
(D) Represents the effects of AIMCO's acquisition of Insignia immediately after
the Merger. These amounts do not give effect to the Insignia
Reorganization, which includes the transfers of certain assets and
liabilities of Insignia to the combined Unconsolidated Subsidiaries. The
Insignia Reorganization must occur immediately after the Merger in order
for AIMCO to maintain its qualification as a REIT. This column is included
as an intermediate step to assist the reader in understanding the entire
nature of the Merger and related transactions.
(E) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
transfer of assets valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia. AIMCO will receive non-voting
preferred stock as consideration in exchange for the net assets
contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(F) In connection with the Merger, AIMCO will issue 8,134,228 shares of AIMCO
Common Stock valued at approximately $303,000 (based on $37.25 per share,
the mid-point between the maximum AIMCO Index Price and the AIMCO Index
Price below which AIMCO has the right to pay a portion of the Merger
Consideration in cash) to acquire the shares of Insignia Common Stock owned
by the Insignia stockholders.
The total purchase price of Insignia is $1,004,623, as follows:
<TABLE>
<S> <C>
Issuance of 8,134,228 shares of AIMCO Common Stock in the
Merger, at $37.25 per share............................ $ 303,000
IPT Merger............................................... 152,000
Assumption of Convertible Debentures..................... 149,500
Assumption of Insignia liabilities as indicated in the
Merger Agreement....................................... 308,434
Transaction costs........................................ 20,000
Generation of deferred tax liability..................... 13,204
Special Dividend......................................... 50,000
Consideration for Insignia Stock Options outstanding..... 8,485
----------
Total.......................................... $1,004,623
==========
</TABLE>
24
<PAGE> 25
The Insignia Stock Options will be assumed by AIMCO in the Merger. The
consideration for the Insignia Stock Options was calculated based on the
exercise of Insignia Stock Options at a value of $21 per share.
The purchase price was allocated to the various assets of Insignia acquired
in the Merger, as follows:
<TABLE>
<S> <C>
Purchase price........................................... $1,004,623
Historical basis of Insignia's assets acquired, adjusted
for the IPT -- AMIT Merger and the Distribution........ (519,088)
----------
Step-up to record the fair value of Insignia's assets
acquired............................................... $ 485,535
==========
</TABLE>
This step-up was applied to Insignia's assets as follows:
<TABLE>
<S> <C>
Real estate............................................... $ 21,153
Investment in real estate partnerships.................... 448,177
Management contracts...................................... 17,270
Reduction in value of goodwill............................ (433)
Reduction in value of other assets........................ (632)
--------
Total........................................... $485,535
========
</TABLE>
The fair value of Insignia's assets, primarily the real estate and
management contracts, was calculated based on estimated future cash flows
of the underlying assets.
As of March 31, 1998, Insignia's stockholder's equity, as adjusted for the
IPT -- AMIT Merger and the Distribution, was $19,097, which is detailed as
follows:
<TABLE>
<S> <C>
Common stock............................................... $ 354
Additional paid-in capital................................. (6,093)
Retained earnings.......................................... 24,836
-------
Total............................................ $19,097
=======
</TABLE>
Upon completion of the Merger, the entire amount of the stockholder's
equity is eliminated.
In addition, the minority interest in other partnerships of Insignia of
$64,727 will be eliminated upon the IPT Merger.
(G) Represents the issuance of 8,134,228 shares of AIMCO Common Stock, valued
at approximately $303,000, to Insignia Stockholders, in exchange for all
the shares of Insignia Common Stock.
In accordance with the Merger Agreement, AIMCO will issue approximately
$303,000 in AIMCO Class E Preferred Stock, provided that the AIMCO
Stockholders approve the Merger. Each share of AIMCO Class E Preferred
Stock will automatically convert to one share of AIMCO Common Stock upon
the payment of the Special Dividend. Upon the payment of the Special
Dividend and the conversion of the AIMCO Class F Preferred Stock to AIMCO
Common Stock, the former Insignia stockholders will own approximately 14.5%
of the AIMCO Common Stock. This Special Dividend represents a distribution
related to Insignia operations up to the time of the Merger, and does not
represent a preferential return on the AIMCO Class E Preferred Stock. As
such, AIMCO's management believes that the AIMCO Class E Preferred Stock is
substantially the same as AIMCO Common Stock, and that the fair value of
the AIMCO Class E Preferred Stock approximates the fair value of AIMCO
Common Stock.
In the event that the AIMCO stockholders do not approve the Merger, AIMCO
will issue approximately $203,000 in AIMCO Class E Preferred Stock, and
approximately $100,000 in AIMCO Class F Preferred Stock. The terms and
rights of the AIMCO Class E Preferred Stock are the same as those stated
above. The holders of the AIMCO Class F Preferred Stock will be entitled to
receive the greater of (i) the same dividends as holders of AIMCO Common
Stock and (ii) preferred cash dividends of 10% of the liquidation value of
the AIMCO Class F Preferred Stock, with the preferred dividend rate
escalating by 1% each year until a 15% dividend rate is achieved. AIMCO's
management believes that
25
<PAGE> 26
the preferred dividend will compensate the holders of the AIMCO Class F
Preferred Stock for the lack of convertibility to AIMCO Common Stock, the
lack of voting rights, and the uncertainty as to the liquidity of the AIMCO
Class F Preferred Stock. As such, AIMCO's management believes that the fair
value of the AIMCO Class F Preferred Stock approximates the fair value of
the AIMCO Common Stock.
(H) Represents the increase in AIMCO's investment in Unconsolidated
Subsidiaries to reflect the contribution of property management contracts,
including the related deferred tax liability, and notes payable to the
Unconsolidated Subsidiaries. These assets and liabilities are valued at
AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(I) Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by AIMCO to the
Unconsolidated Subsidiaries, valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(J) Amount represents notes receivable from the Unconsolidated Subsidiaries of
$50,000 and equity in the Unconsolidated Subsidiaries of $52,981. The
combined pro forma balance sheet of the Unconsolidated Subsidiaries as of
March 31, 1998 is presented below, which reflects the effects of the
Merger, the IPT Merger and the Insignia Reorganization as if such
transactions had occurred as of March 31, 1998.
26
<PAGE> 27
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (MERGER)
AS OF MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA INSIGNIA
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
ASSETS
Real estate........................................... $ 20,908 $ -- $ 20,908
Cash and cash equivalents............................. 4,354 34,754 (iii) 39,108
Restricted cash....................................... 4,925 -- 4,925
Management contracts.................................. 50,514 77,410(iv) 127,924
Accounts receivable................................... -- 22,803 (iii) 22,803
Deferred financing costs.............................. 3,194 -- 3,194
Goodwill.............................................. 44,799 -- 44,799
Other assets.......................................... 31,011 15,904 (iii) 46,915
-------- -------- --------
$159,705 $150,871 $310,576
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable................................. $ 72,269 $ -- $ 72,269
Secured short-term financing.......................... -- 50,000(iv) 50,000
Accounts payable, accrued and other liabilities....... 50,521 69,995 (iii) 120,516
Security deposits and deferred income................. 312 3,466 (iii) 3,778
Deferred tax liability................................ -- 13,204(iv) 13,204
-------- -------- --------
123,102 136,665 259,767
Common stock.......................................... 2,298 748(v) 3,046
Preferred stock....................................... 38,775 14,206(iv) 52,981
Retained earnings..................................... (4,351) -- (4,351)
Notes receivable on common stock purchases............ (119) (748)(v) (867)
-------- -------- --------
36,603 14,206 50,809
-------- -------- --------
$159,705 $150,871 $310,576
======== ======== ========
</TABLE>
- - ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated financial
position after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
transfer of assets valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia. AIMCO will receive non-voting
preferred stock as consideration in exchange for the net assets
contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(iii)Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by AIMCO to the
Unconsolidated Subsidiaries, valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(iv) Represents the transfer of management contracts, and the establishment of
the related estimated net deferred Federal and state tax liabilities at a
combined rate of 40% for the estimated difference between the book and tax
basis of the net assets of the Unconsolidated Subsidiaries. The primary
component of the deferred tax liability is the difference between the new
basis of the property management contracts, as a result of the allocation
of the purchase price of Insignia, and the historical tax basis.
(v) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
27
<PAGE> 28
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA INSIGNIA
PRE-MERGER INSIGNIA AS MERGER REORGANIZATION AIMCO
PRO FORMA(A) ADJUSTED(B) ADJUSTMENTS(C) ADJUSTMENTS(D) PRO FORMA
------------ ----------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $ 388,823 $ 6,912 $ -- $ -- $ 395,735
Property operating expenses....... (163,304) (3,307) -- -- (166,611)
Owned property management
expense......................... (10,356) -- -- -- (10,356)
Depreciation...................... (82,621) (966) (1,321)(E) -- (84,908)
--------- -------- -------- -------- ---------
Income from property operations... 132,542 2,639 (1,321) -- 133,860
--------- -------- -------- -------- ---------
Management fees and other
income.......................... 21,750 94,330 -- (74,404)(K) 41,676
Management and other expenses..... (15,304) (57,615) -- 49,236(K) (23,683)
Corporate overhead allocation..... (588) -- -- -- (588)
Amortization...................... (7,201) (16,768) (24,954)(F) 28,922(L) (20,001)
--------- -------- -------- -------- ---------
Income from service company
business........................ (1,343) 19,947 (24,954) 3,754 (2,596)
Minority interest in service
company business................ (10) -- -- -- (10)
--------- -------- -------- -------- ---------
AIMCO's share of income from
service company business........ (1,353) 19,947 (24,954) 3,754 (2,606)
--------- -------- -------- -------- ---------
General and administrative
expenses........................ (6,421) (21,199) -- 6,392(K) (21,228)
Interest expense.................. (92,557) (9,035) (17,737)(G) 3,725(K) (115,604)(O)
Interest income................... 10,576 10,967 -- -- 21,543
Minority interest in other
partnerships.................... 1,657 (12,871) 1,170(H) -- (10,044)
Equity in income (losses) of
unconsolidated partnerships..... (10,057) 12,515 (25,357)(I) -- (22,899)
Equity in earnings of
Unconsolidated Subsidiaries..... 10,426 -- -- (8,082)(M) 2,344(Q)
--------- -------- -------- -------- ---------
Income (loss) from operations..... 44,813 2,963 (68,199) 5,789 (14,634)
Income tax provision.............. -- 1,701 (1,701)(J) -- --
Gain on sale of property.......... -- 80 (80) -- --
--------- -------- -------- -------- ---------
Income (loss) before minority
interest in AIMCO Operating
Partnership..................... 44,813 4,744 (69,980) 5,789 (14,634)
Minority interest in AIMCO
Operating Partnership........... (2,889)(N) -- 6,366(N) -- 3,477(O)
--------- -------- -------- -------- ---------
Net income (loss)................. 41,924 4,744 (63,614) 5,789 (11,157)(O)
Income (loss) allocable to
preferred stockholders.......... 19,932 -- -- -- 19,932(P)
--------- -------- -------- -------- ---------
Income (loss) allocable to common
stockholders.................... $ 21,992 $ 4,744 $(63,614) $ 5,789 $ (31,089)(O)
========= ======== ======== ======== =========
Basic earnings (loss) per common
share........................... $ 0.47 $ (0.57)(O)
========= =========
Diluted earnings per common
share........................... $ 0.47 $ (0.57)(O)
========= =========
Weighted average shares
outstanding..................... 46,685 54,819
========= =========
Weighted average shares and
equivalents outstanding......... 47,066 55,362
========= =========
</TABLE>
- - ---------------
(A) Represents AIMCO's pro forma consolidated statement of operations for the
year ended December 31, 1997, which gives effect to (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions;
(iv) the 1998 Stock Offering; (v) the 1998 Acquisitions; (vi) the 1998
Disposition; (vii) the NHP Real Estate Companies Purchase; (viii) the NHP
Merger; (ix) the NHP Reorganization; and (x) the Ambassador Merger, as if
these transactions had occurred on January 1, 1997. See "Pro Forma
Financial Information (Pre-Merger)."
28
<PAGE> 29
(B) Represents adjustments to reflect the operations of Insignia, including the
IPT-AMIT Merger, and the Distribution, as if these transactions had
occurred on January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) AS ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues......................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses................................ (3,251) (56) -- (3,307)
Owned property management expense.......................... -- -- -- --
Depreciation............................................... (966) -- -- (966)
--------- ------- --------- --------
Income from property operations............................ 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other income........................... 389,626 -- (295,296) 94,330
Management and other expenses.............................. (315,653) -- 258,038 (57,615)
Corporate overhead allocation.............................. -- -- -- --
Amortization............................................... (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company business....................... 42,264 (303) (22,014) 19,947
Minority interest in service company business.............. -- -- -- --
--------- ------- --------- --------
AIMCO's share of income from service company business...... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative expenses........................ (20,435) (1,351) 587 (21,199)
Interest expense........................................... (9,353) -- 318 (9,035)
Interest income............................................ 4,571 6,853 (457) 10,967
Minority interest in other partnerships.................... (12,448) (382) (41) (12,871)
Equity in income (losses) of unconsolidated partnership.... 10,027 2,639 (151) 12,515
Equity in earnings of Unconsolidated
Subsidiary............................................... -- -- -- --
--------- ------- --------- --------
Income (loss) from operations.............................. 17,055 7,666 (21,758) 2,963
Income tax provision....................................... (6,822) (180) 8,703 1,701
Gain on sale of property................................... -- 80 -- 80
--------- ------- --------- --------
Income (loss) before minority interest in Operating
Partnership.............................................. 10,233 7,566 (13,055) 4,744
Minority interest in Operating Partnership................. -- -- -- --
--------- ------- --------- --------
Net income (loss).......................................... 10,233 7,566 (13,055) 4,744
Income (loss) allocable to preferred stockholders.......... -- -- -- --
--------- ------- --------- --------
Income (loss)allocable to common stockholders.............. $ 10,233 $ 7,566 $ (13,055) $ 4,744
========= ======= ========= ========
</TABLE>
- - ---------------
(i) Represents the audited consolidated results of operations of Insignia for
the year ended December 31, 1997, as reported in Insignia's Annual Report
on Form 10-K. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to AIMCO's statement of
operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well as pro
forma adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
Holdings will own all of Insignia's commercial real estate services,
Insignia's residential brokerage business, and Insignia's cooperative and
condominium management business.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to consolidated real estate and investments in real estate partnerships;
(ii) the amortization of goodwill and property management contracts
resulting from the Merger; (iii) the increase in interest expense resulting
from the net increase in debt; (iv) the elimination of the income tax
provision; and (v) the elimination of the minority interest associated with
IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional
29
<PAGE> 30
amortization recorded related to AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Merger, based on AIMCO's new basis
resulting from the allocation of the purchase price of Insignia. Buildings
and improvements are depreciated on the straight-line method over a period
of 20 years, and furniture and fixtures are depreciated on the
straight-line method over a period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia, including amortization of property management contracts
of $37,350, amortization of goodwill of $950 and depreciation of furniture,
fixtures, and equipment of $3,119, less Insignia's historical depreciation
and amortization of $16,465. Property management contracts are amortized
using the straight-line method over a period of three years. Furniture,
fixtures, and equipment are depreciated using the straight-line method over
a period of three years. Goodwill is amortized using the straight-line
method over 20 years. The allocation of the purchase price of Insignia is
preliminary; therefore the amount and life of goodwill are subject to
change as additional information is obtained and the purchase price
allocation is finalized.
(G) Represents the increase in interest expense of $3,725 related to borrowings
to pay the special dividend of $50 million to holders of the AIMCO Class E
Preferred Stock; $11,324 related to borrowings of $152 million to
consummate the IPT Merger; and (iii) $2,688 related to borrowings of
$36,109 for the additional liabilities of Insignia assumed by AIMCO.
(H) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(I) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia.
(J) Represents the reversal of Insignia's income tax provision.
(K) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(L) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(M) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(N) Represents adjustments to Minority Interest in Operating Partnership
assuming the Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Merger, as of December 31, 1997, the
minority interest percentage is approximately 11.6%. On a pro forma basis,
giving effect to the Insignia Merger, as of December 31, 1997, the minority
interest percentage is approximately 10.1%.
30
<PAGE> 31
(O) The following table presents the net impact to pro forma net loss
applicable to holders of AIMCO Common Stock and net loss per share of AIMCO
Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense.............................. $ 1,310
========
Loss before minority interest in Operating Partnership.... $(15,944)
Minority interest in Operating Partnership................ 3,609
--------
Net loss.................................................. $(12,335)
========
Net loss attributable to common stockholders.............. $(32,267)
========
Basic loss per share...................................... $ (0.59)
========
Diluted loss per share.................................... $ (0.59)
========
</TABLE>
(P) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, and the AIMCO Class D
Preferred Stock as if these stock offerings had occurred as of January 1,
1997. In the event the AIMCO Stockholders do not approve the Merger, AIMCO
will issue approximately $100,000 in AIMCO Class F Preferred Stock. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. If the AIMCO Class F
Preferred Stock is issued, dividends attributable to the holders of the
AIMCO Class F Preferred Stock will be $10,000 for 1997, the net loss
attributable to common stockholders will increase to $(40,083) and the net
loss per common share will increase to $(0.73).
(Q) Represents AIMCO's equity in losses in the Unconsolidated Subsidiaries of
$(2,406), offset by the elimination of intercompany interest expense of
$4,750. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the NHP Merger, the NHP
Reorganization, the Ambassador Merger, the Merger, the IPT Merger and the
Insignia Reorganization as if these transactions had occurred as of January
1, 1997.
31
<PAGE> 32
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA INSIGNIA
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues................ $ 12,565 $ -- $ 12,565
Property operating expenses....................... (6,886) -- (6,886)
Owned property management expense................. (625) -- (625)
Depreciation...................................... (1,805) -- (1,805)
-------- -------- --------
Income from property operations................... 3,249 -- 3,249
-------- -------- --------
Management fees and other income.................. 65,768 74.404(iii) 140,172
Management and other expenses..................... (32,136) (49,236)(iii) (81,372)
Amortization...................................... (7,743) (28,922)(iv) (36,665)
-------- -------- --------
Income from service company business.............. 25,889 (3,754) 22,135
-------- -------- --------
General and administrative expenses............... (6,573) (6,392)(iii) (12,965)
Interest expense.................................. (11,907) (3,725)(iii) (15,632)
Interest income................................... 853 -- 853
Minority interest in other partnerships........... (621) -- (621)
-------- -------- --------
Income (loss) from operations..................... 10,890 (13,871) (2,981)
Income tax provision.............................. (4,915) 5,364(v) 449
-------- -------- --------
Net income (loss)................................. $ 5,975 $ (8,507) $ (2,532)
======== ======== ========
Income (loss) allocable to preferred
stockholders.................................... $ 5,676 $ (8,082) $ (2,406)
======== ======== ========
Income (loss) allocable to common stockholders.... $ 299 $ (425) $ (126)
======== ======== ========
</TABLE>
- - ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional amortization recorded related
to AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
32
<PAGE> 33
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA INSIGNIA
PRE-MERGER INSIGNIA MERGER REORGANIZATION AIMCO
PRO FORMA(A) AS ADJUSTED(B) ADJUSTMENTS(C) ADJUSTMENTS(D) PRO FORMA
------------ -------------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues..... $ 99,084 $ 1,858 $ -- $ -- $ 100,942
Property operating expenses............ (37,005) (890) -- -- (37,895)
Owned property management expense...... (2,225) -- -- -- (2,225)
Depreciation........................... (20,729) (271) (382)(E) -- (21,382)
-------- -------- -------- -------- ---------
Income from property operations........ 39,125 697 (382) -- 39,440
-------- -------- -------- -------- ---------
Management fees and other income....... 4,821 24,826 -- (19,845)(L) 9,802
Management and other expenses.......... (1,961) (15,888) -- 9,257(L) (8,592)
Corporate overhead allocation.......... (147) -- -- (147)
Amortization........................... (1,720) (4,846) (5,529)(F) 7,231(M) (4,864)
-------- -------- -------- -------- ---------
Income from service company business... 993 4,092 (5,529) (3,357) (3,801)
Minority interest in service company
business............................. (1) -- -- -- (1)
-------- -------- -------- -------- ---------
AIMCO's share of income from service
company business..................... 992 4,092 (5,529) (3,357) (3,802)
-------- -------- -------- -------- ---------
General and administrative expenses.... (1,974) (3,134) 2,036(G) 690(L) (2,382)
Interest expense....................... (22,662) (4,096) (4,435)(H) 931(L) (30,262)(P)
Interest income........................ 6,076 2,033 -- 8,109
Minority interest in other
partnerships......................... (635) (3,808) 804(I) (3,639)
Equity in losses of unconsolidated
partnerships......................... (683) 3,669 (5,125)(J) (2,139)
Equity in earnings of Unconsolidated
Subsidiaries......................... 4,068 -- -- 780(N) 4,848(R)
-------- -------- -------- -------- ---------
Income (loss) from operations.......... 24,307 (547) (12,631) (956) 10,173
Income tax provision................... -- 688 (688)(K) --
Income (loss) before minority interest
in AIMCO Operating Partnership....... 24,307 141 (13,319) (956) 10,173
Minority interest in AIMCO Operating
Partnership.......................... (2,164)(O) -- 1,654(O) (510)(P)
-------- -------- -------- -------- ---------
Net income (loss)...................... 22,143 141 (11,665) (956) 9,663(P)
Income (loss) attributable to preferred
stockholders......................... 4,914 -- -- 4,914(Q)
-------- -------- -------- -------- ---------
Income (loss) attributable to common
stockholders......................... $ 17,229 $ 141 $(11,665) $ (956) $ 4,749(P)
======== ======== ======== ======== =========
Basic earnings per share............... $ 0.36 $ 0.09(P)
======== =========
Diluted earnings per share............. $ 0.36 $ 0.09(P)
======== =========
Weighted average shares outstanding.... 47,675 55,810
======== =========
Weighted average shares and equivalents
outstanding.......................... 47,773 56,069
======== =========
</TABLE>
- - ---------------
(A) Represents AIMCO's pro forma consolidated statement of operations for the
three months ended March 31, 1998, which gives effect to (i) the 1998 Stock
Offering; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; and (iv)
the Ambassador Merger, as if these transactions had occurred on January 1,
1997. See "Pro Forma Financial Information (Pre-Merger)."
33
<PAGE> 34
(B) Represents adjustments to reflect the operations of Insignia, including the
IPT-AMIT Merger, and the Distribution, as if these transactions had
occurred on January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA
HISTORICAL(I) MERGER(II) DISTRIBUTION(III) AS ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues............ $ 1,771 $ 87 $ -- $ 1,858
Property operating expenses................... (890) -- -- (890)
Owned property management expense............. -- -- -- --
Depreciation.................................. (271) -- -- (271)
--------- ---- --------- --------
Income from property operations............... 610 87 -- 697
--------- ---- --------- --------
Management fees and other income.............. 127,345 -- (102,519) 24,826
Management and other expenses................. (106,846) -- 90,958 (15,888)
Corporate overhead allocation................. -- -- -- --
Amortization.................................. (10,010) (20) 5,184 (4,846)
--------- ---- --------- --------
Income from service company business.......... 10,489 (20) (6,377) 4,092
Minority interest in service company
business.................................... -- -- -- --
--------- ---- --------- --------
AIMCO's share of income from service company
business.................................... 10,489 (20) (6,377) 4,092
--------- ---- --------- --------
General and administrative expenses........... (3,896) (56) 818 (3,134)
Interest expense.............................. (4,478) -- 382 (4,096)
Interest income............................... 1,342 973 (282) 2,033
Minority interest in other partnerships....... (3,774) -- (34) (3,808)
Equity in losses of unconsolidated
partnerships................................ 3,193 476 3,669
--------- ---- --------- --------
Income (loss) from operations................. 3,486 984 (5,017) (547)
Income tax provision.......................... (1,569) -- 2,257 688
--------- ---- --------- --------
Income (loss) before minority interest in
Operating Partnership....................... 1,917 984 (2,760) 141
Minority interest in Operating Partnership.... -- -- -- --
--------- ---- --------- --------
Net income (loss)............................. 1,917 984 (2,760) 141
Income (loss) attributable to preferred
stockholders................................ -- -- -- --
--------- ---- --------- --------
Income (loss) attributable to common
stockholders................................ $ 1,917 $984 $ (2,760) $ 141
========= ==== ========= ========
</TABLE>
- - ---------------
(i) Represents the unaudited consolidated results of operations of Insignia for
the three months ended March 31, 1998, as reported in Insignia's Quarterly
Report on Form 10-Q. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to AIMCO's statement of
operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well as pro
forma adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
Holdings will own all of Insignia's commercial real estate services,
Insignia's residential brokerage business, and Insignia's cooperative and
condominium management business.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to consolidated real estate and investments in real estate partnerships;
(ii) the amortization of goodwill and property management contracts
resulting from the Merger; (iii) the increase in interest expense resulting
from the net increase in debt; (iv) the
34
<PAGE> 35
elimination of the income tax provision; and (v) the elimination of the
minority interest associated with IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional amortization recorded related
to AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Merger, based on AIMCO's new basis
resulting from the allocation of the purchase price of Insignia. Buildings
and improvements are depreciated on the straight-line method over a period
of 20 years, and furniture and fixtures are depreciated on the
straight-line method over a period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia, including amortization of property management contracts
of $9,337, amortization of goodwill of $238 and depreciation of furniture,
fixtures, and equipment of $780, less Insignia's historical depreciation
and amortization of $4,826. Property management contracts are amortized
using the straight-line method over a period of three years. Furniture,
fixtures, and equipment are depreciated using the straight-line method over
a period of three years. Goodwill is amortized using the straight-line
method over 20 years. The allocation of the purchase price of Insignia is
preliminary; therefore the amount and life of goodwill are subject to
change as additional information is obtained and the purchase price
allocation is finalized.
(G) Represents the elimination of merger related expenses recorded by Insignia
during the three months ended March 31, 1998. In connection with the
Merger, certain Insignia executives will receive one-time lump-sum payments
in connection with the termination of their employment and option
agreements. The total of these lump sum payments is estimated to be
approximately $15,750.
(H) Represents the increase in interest expense of $931 related to borrowings
to pay the Special Dividend to holders of the AIMCO Class E Preferred
Stock; $2,831 related to borrowings of $152 million to consummate the IPT
Merger; and (iii) $673 related to borrowings of $36,109 for the additional
liabilities of Insignia assumed by AIMCO.
(I) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(J) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia.
(K) Represents the reversal of Insignia's income tax provision.
(L) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(M) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(N) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(O) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Merger, as of March 31, 1998, the
minority interest percentage is approximately 11.2%. On a pro forma basis,
giving effect to the Merger, as of March 31, 1998, the minority interest
percentage is approximately 9.7%.
35
<PAGE> 36
(P) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 323
======
Income before minority interest in AIMCO Operating
Partnership............................................... $9,850
Minority interest in AIMCO Operating Partnership............ (478)
------
Net income.................................................. $9,372
======
Net income attributable to common stockholders.............. $4,458
======
Basic income per share...................................... $ 0.08
======
Diluted income per share.................................... $ 0.08
======
</TABLE>
(Q) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, and the AIMCO Class D
Preferred Stock as if these stock offerings had occurred as of January 1,
1997. In the event the AIMCO stockholders do not approve the Merger, AIMCO
will issue approximately $100,000 in AIMCO Class F Preferred Stock. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. If the AIMCO Class F
Preferred Stock is issued, dividends attributable to the holders of the
AIMCO Class F Preferred Stock will be $2,750 for the three months ended
March 31, 1998, the net income attributable to common stockholders will
decrease to $2,266 and the net income per common share will decrease to
$0.04.
(R) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries of
$4,848. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the three months ended March 31, 1998 is
presented below, which represents the effects of the Ambassador Merger, the
Insignia Merger, the IPT Merger and the Insignia Reorganization as if these
transactions had occurred as of January 1, 1998.
36
<PAGE> 37
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA INSIGNIA
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 3,353 $ -- $ 3,353
Property operating expenses........................... (1,771) -- (1,771)
Owned property management expense .................... (115) -- (115)
Depreciation expense.................................. (295) -- (295)
-------- ------- --------
Income from property operations....................... 1,172 -- 1,172
-------- ------- --------
Management fees and other income...................... 21,837 19,845 (iii 41,682
Management and other expenses......................... (12,335) (9,257)(iii) (21,592)
Amortization.......................................... (695) (7,231)(iv) (7,926)
-------- ------- --------
Income from service company........................... 8,807 3,357 12,164
-------- ------- --------
General and administrative expense.................... -- (690)(iii) (690)
Interest expense...................................... (1,649) (931)(iii) (2,580)
Interest income....................................... 272 -- 272
Minority interest in other partnerships............... (1,275) -- (1,275)
-------- ------- --------
Income from operations................................ 7,327 1,736 9,063
Income tax provision.................................. (3,045) (915)(v) (3,960)
-------- ------- --------
Net income............................................ $ 4,282 $ 821 $ 5,103
======== ======= ========
Income attributable to preferred stockholders......... $ 4,068 $ 780 $ 4,848
======== ======= ========
Income attributable to common stockholders............ $ 214 $ 41 $ 255
======== ======= ========
</TABLE>
- - ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional amortization recorded related
to AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
37
<PAGE> 1
CONFORMED COPY
EXHIBIT 2.1
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
and
AIMCO PROPERTIES, L.P.
and
INSIGNIA FINANCIAL GROUP, INC.
and
INSIGNIA/ESG HOLDINGS, INC.
Dated as of May 26, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II TREATMENT OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Effect of the Merger on Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Payment of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 IFG Liabilities at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF IFG . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.2 Organization and Qualification; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance . . . . . . . . . . . . . . . 20
Section 4.5 IFG SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.8 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.11 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.12 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.13 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.14 HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.15 Deficit Restoration Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.16 Earnings and Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.17 Absence of Inducement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IVA REPRESENTATIONS AND WARRANTIES OF SPINCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.1A Authority; Non-Contravention; Statutory Approvals; Compliance . . . . . . . . . . . . . . . 31
Section 4.2A Absence of Inducement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF AIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance . . . . . . . . . . . . . . . 34
Section 5.5 Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.8 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.11 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.12 HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.13 Absence of Inducement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.1 Covenants of IFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.2 Covenants of AIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.2 Proxy Statement and Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.4 Approval of IFG Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.5 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.6 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.9 REIT Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.10 Offer to Acquire Minority Interest in IPT . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.11 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.12 Employees; Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.13 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.15 Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.16 SpinCo Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.17 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.18 Approval of AIMCO Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.19 No Stock Purchase Intention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.20 Maintenance of IFG's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.21 Intercompany/Consolidated Return Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.22 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.23 Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.24 TOPR Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.25 Names and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.26 E&P Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.27 Preparation of Tax Returns; Tax Cooperation . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.28 Indemnity Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.29 Ambassador Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 7.30 Winthrop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VIII CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . 61
Section 8.2 Conditions to Obligation of AIMCO to Effect the Merger . . . . . . . . . . . . . . . . . . 62
Section 8.3 Conditions to Obligation of IFG to Effect the Merger . . . . . . . . . . . . . . . . . . . 64
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 9.3 Termination Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 9.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 9.6 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.2 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.6 Counterparts; Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.7 Parties' Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.8 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.11 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.12 Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
(iii)
<PAGE> 5
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Term Page
----
<S> <C>
7.5% Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Original Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Acquisition Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Acquisition Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Adjusted Net Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Aggregate Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AIMCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AIMCO Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
AIMCO Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
AIMCO Class B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AIMCO Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AIMCO Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
AIMCO Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
AIMCO Index Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
AIMCO Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
AIMCO Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
AIMCO Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AIMCO Required Statutory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
AIMCO SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
AIMCO Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
AIMCO Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
AIMCO Welfare Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
AIMCOLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Alternative Analyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Ambassador Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
AMIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
AMIT Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Base Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Break-Up Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Break-Up Fee Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Call Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Canceled Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class B Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Closing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Confidentiality Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Covered Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Effective AIMCO Common Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Employee Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Environmental Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Estimated Closing Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exercise Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Existing 401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Existing LTD Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Existing Restoration Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Existing Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Final Closing Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Flex Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Former Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
HUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
HUD Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
HUD Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
HUD Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
IFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IFG 401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
IFG Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
IFG Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IFG Common Stock Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IFG Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IFG Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
IFG Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IFG Flex Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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IFG LTD Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
IFG Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
IFG Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
IFG Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
IFG Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
IFG Required Statutory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
IFG Restoration Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
IFG SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
IFG Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IFG Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
IFG VEBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
IFG Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IPLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IPT Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
IPT Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
IPT Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
IPT Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Irrevocable Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
MAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MAE Asset Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MAE Asset Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Material IFG Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Material Non-REIT Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Material REIT Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Maximum Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
New York Residential Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Original Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PCBs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Post-Closing Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Prior Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Qualifying Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
REIT GP Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
REIT Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Retained Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Return Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Revised Closing Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Series E Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series E Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series E Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series E Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series F Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series F Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Series F Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Series F Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Special Dividend Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Spin Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Spin Off Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Spin Off Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SpinCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SpinCo LTD Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SpinCo Restoration Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SpinCo Vacation Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SpinCo VEBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SpinCo Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Status Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Superior Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Tax Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Tender Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Termination Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
TOPRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TOPRs Conversion Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
(vii)
<PAGE> 9
<TABLE>
<CAPTION>
Term Page
----
<S> <C>
Trade Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transfer Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
VEBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Voting Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
(viii)
<PAGE> 10
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of May 26, 1998, by and among Apartment Investment and
Management Company, a Maryland corporation ("AIMCO"), Insignia Financial Group,
Inc., a Delaware corporation ("IFG"), with respect to Article IVA, Sections
2.3, 6.1, 7.1, 7.2, 7.3, 7.5, 7.7, 7.8, 7.12, 7.16, 7.19(c), 7.27, 7.28, 7.29,
7.30, 8.1, 8.2 and Articles IX and X only, Insignia/ESG Holdings, Inc., a
Delaware corporation ("SpinCo"), and with respect to Section 9.3(b) only, AIMCO
Properties, L.P., a Delaware limited partnership ("AIMCOLP").
WHEREAS, the respective boards of directors of AIMCO and IFG
have approved the merger of IFG with and into AIMCO, with AIMCO being the
surviving corporation (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, SpinCo is a wholly-owned subsidiary of IFG and
because AIMCO would not enter into this Agreement to acquire IFG if SpinCo were
not distributed by IFG prior to the Effective Date, IFG will cause all of the
issued and outstanding shares of capital stock of SpinCo to be distributed to
the stockholders of IFG (the "Spin Off") prior to the Merger and IFG intends to
qualify the Spin Off as a tax-free distribution to its stockholders under
Section 355 and Section 368(a)(l)(D) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "Code");
WHEREAS, on March 17, 1998, AIMCO, IFG, Insignia/ESG, Inc. and
AIMCOLP entered into an Agreement and Plan of Merger, as amended by Amendment
No. 1 thereto, dated as of April 24, 1998 (the "Original Agreement");
WHEREAS, the parties to the Original Agreement desire to
supercede such Original Agreement, release Insignia/ESG, Inc. from any
obligations under the Original Agreement, and enter into an amended and
restated agreement to which Insignia/ESG Holdings, Inc., is a party;
WHEREAS, simultaneously with the execution and delivery of the
Original Agreement, the following additional agreements and instructions (each
of even date herewith) providing for the following related transactions and
actions were executed and delivered:
(i) an Asset Purchase Agreement (the "MAE Asset Sale
Agreement") between AIMCOLP and Metropolitan Asset Enhancement, L.P.,
a Delaware limited partnership ("MAE"), pursuant to which MAE has
agreed to sell, and AIMCO Operating Partnership has agreed to
purchase, all the multi-family apartment assets of MAE specified
therein (the "MAE Asset Sale");
(ii) an Indemnification Agreement (the "Original
Indemnification Agreement") between AIMCO and SpinCo, providing for
indemnification of certain liabilities;
<PAGE> 11
(iii) Voting Agreements (the "Voting Agreements") between
AIMCO and certain stockholders of IFG;
(iv) Irrevocable Proxies (the "Irrevocable Proxies")
between AIMCO and certain stockholders of IFG; and
(v) Call Option and Purchase Price Adjustment Agreements
(the "Call Agreements") between certain stockholders of IFG and AIMCO;
WHEREAS, this Agreement amends and restates the Original
Agreement and substitutes Insignia/ESG Holdings, Inc. as a party hereto in
place of Insignia/ESG, Inc., and simultaneously the Original Indemnification
Agreement is being amended and restated to substitute Insignia/ESG Holdings,
Inc. as a party thereto in place of Insignia/ESG, Inc. (the "Indemnification
Agreement");
WHEREAS, the Merger, the MAE Asset Sale and the Spin Off are
collectively referred to herein as the "Transactions," and this Agreement, the
MAE Asset Sale Agreement, the Indemnification Agreement, the Voting Agreements,
the Irrevocable Proxies and the Call Agreements are collectively referred to
herein as the "Transaction Documents;"
WHEREAS, AIMCO, as the surviving corporation in the Merger,
intends that, following the Merger, it shall continue to be subject to taxation
as a real estate investment trust (a "REIT") within the meaning of the Code;
WHEREAS, for Federal income tax purposes it is intended that
the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code; and
WHEREAS, SpinCo, IFG and AIMCO desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section
1.3), IFG shall be merged with and into AIMCO in accordance with the laws of
the States of Maryland and Delaware. AIMCO shall be the surviving corporation
in the Merger and shall continue its corporate existence under the laws of the
2
<PAGE> 12
State of Maryland. AIMCO after the Effective Time is sometimes referred to
herein as the "Surviving Corporation." The effects and the consequences of the
Merger shall be as set forth in Section 1.2.
Section 1.2 EFFECTS OF THE MERGER. At the Effective Time,
(i) the Articles of Restatement of AIMCO, as in effect immediately prior to the
Effective Time (the "AIMCO Articles"), shall be the articles of incorporation
of the Surviving Corporation until thereafter amended as provided by law and
the AIMCO Articles, (ii) the by-laws of AIMCO, as in effect immediately prior
to the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter amended as provided by law, the AIMCO Articles, and such by-laws,
and (iii) the directors and officers of AIMCO immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors are duly elected and
qualified. Subject to the foregoing, the additional effects of the Merger
shall be as provided in the applicable provisions of the Maryland General
Corporation Law ("MGCL") and the Delaware General Corporation Law ("DGCL").
Section 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing
Date (as defined in Section 3.1), articles of merger shall be executed and
filed by AIMCO and IFG with the Maryland Department of Assessment and Taxation
pursuant to the MGCL and a certificate of merger shall be executed and filed by
AIMCO and IFG with the Secretary of State of the State of Delaware pursuant to
the applicable provisions of the DGCL. The Merger shall become effective upon
the acceptance by the Maryland Department of Assessment and Taxation of the
articles of merger and the filing with the Secretary of State of the State of
Delaware of the certificate of merger relating to the Merger (the "Effective
Time").
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE MERGER ON SHARES.
(a) CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"AIMCO Index Price" means the aggregate of the daily average
(computed based on the sum of the high and low sales prices of AIMCO Common
Stock (as reported on the NYSE Composite Transactions reporting system) as
published in The Wall Street Journal or, if not published therein, in another
authoritative source, divided by two) on each of the twenty consecutive NYSE
trading days ending the fifth NYSE trading day immediately preceding the
Effective Time, divided by 20; provided, however, that if the AIMCO Index Price
is greater than $38.00, then the AIMCO Index Price shall be deemed to be $38.00
for purposes of calculating the Series E Conversion Ratio and the Series F
Conversion Ratio.
3
<PAGE> 13
"Aggregate Cash Amount" means the aggregate amount of Merger
Consideration AIMCO elects to pay in cash, if any, pursuant to Section 2.1(b).
"Cash Amount" means the Aggregate Cash Amount divided by the
number of IFG Common Stock Equivalents as of the Effective Time.
"Exercise Amount" means the aggregate purchase price
(including for this purpose exchange value or liquidation amount) that would be
paid if all IFG Convertible Securities outstanding on the date immediately
following the Closing were exercised, converted or exchanged on such date, plus
the aggregate exercise price that would be paid if all options issued under the
IFG Stock Plan outstanding on the date immediately following the Closing were
exercised.
"Covered Person" means each individual who holds, as of the
Effective Time, any vested or unvested option to purchase a share of IFG Common
Stock granted pursuant to the IFG Stock Plan or any vested or unvested share of
restricted IFG Common Stock granted pursuant to the IFG Stock Plan.
"Effective AIMCO Common Conversion Ratio" means the sum of (A)
the Series E Conversion Ratio and (B) the Series F Conversion Ratio.
"IFG Common Stock" means Class A common stock, par value $0.01
per share, of IFG.
"IFG Common Stock Equivalents" means, as of any date of
determination, the sum of (A) the aggregate number of shares of IFG Common
Stock actually issued and outstanding on such date (excluding treasury shares
and any shares of IFG Common Stock owned by any wholly owned Subsidiary of
IFG), plus (B) the aggregate number of shares of IFG Common Stock issuable as
of such date pursuant to restricted stock awards (whether or not vested)
granted under the IFG Stock Plan, plus (C) the aggregate number of shares of
IFG Common Stock issuable as of such date upon exercise of outstanding options
(whether or not vested) granted under the IFG Stock Plan, plus (D) the
aggregate number of shares of IFG Common which would be issued on such date if
all outstanding IFG Convertible Securities were exercised in full on such date.
"IFG Convertible Securities" means any and all securities
issued by IFG or any Subsidiary of IFG (excluding stock options issued under
the IFG Stock Plan) which are exercisable, convertible or exchangeable for or
into shares of IFG Common Stock, but specifically excluding those certain 6
1/2% Trust Convertible Preferred Securities issued by Insignia Financing I as
described in its prospectus dated January 22, 1997 (the "TOPRs").
"IFG Stock Plan" means, collectively, the Insignia 1992 Stock
Incentive Plan, as amended, and the Insignia 1995 Non-Employee Director Stock
Option Plan.
4
<PAGE> 14
"Maximum Cash Amount" means (if applicable) the lesser of (i)
$15,000,000 and (ii) the product of (x) $36.50 less the AIMCO Index Price,
multiplied by (y) the number of IFG Common Stock Equivalents as of the
Effective Time.
"Merger Consideration" means the aggregate per share
consideration to be received by a holder of IFG Common Stock pursuant to
Section 2.1 of this Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"Series E Amount" means (i) $203,000,000, in the event that
the AIMCO Stockholders' Approval shall not have been obtained prior to the
Effective Time, or (ii) $303,000,000 plus the TOPRs Conversion Amount, in the
event that the AIMCO Stockholders' Approval shall have been obtained prior to
the Effective Time; provided, however, that if the AIMCO Index Price is less
than $36.50 and AIMCO is entitled to, and does, elect pursuant to Section
2.1(b) to pay part of the Merger Consideration in cash, then "Series E Amount"
shall mean (i) $203,000,000 less the Aggregate Cash Amount, in the event that
the AIMCO Stockholders' Approval shall not have been obtained prior to the
Effective Time, or (ii) $303,000,000 plus the TOPRs Conversion Amount minus the
Aggregate Cash Amount, in the event that the AIMCO Stockholders' Approval shall
have been obtained prior to the Effective Time.
"Series E Conversion Ratio" means the quotient obtained by
dividing (A) the sum of (x) the Series E Amount plus (y) the product of the
Exercise Amount as of the Effective Time multiplied by Series E Factor, by (B)
the product of the AIMCO Index Price multiplied by the number of IFG Common
Stock Equivalents as of the Effective Time.
"Series E Factor" means the quotient of (A) the Series E
Amount, divided by (B) the sum of the Series E Amount plus the Series F Amount.
"Series E Preferred Stock" means preferred stock of AIMCO
designated as Series E Preferred Stock and having the terms, rights and
preferences set forth in the form of Articles Supplementary attached as Exhibit
6E hereto.
"Series F Amount" means (i) $100,000,000 plus the TOPRs
Conversion Amount, in the event that the AIMCO Stockholders' Approval shall not
have been obtained prior to the Effective Time, or (ii) $0 (zero), in the event
that the AIMCO Stockholders' Approval shall have been obtained prior to the
Effective Time.
"Series F Conversion Ratio" means the quotient obtained by
dividing (A) the sum of (x) the Series F Amount plus (y) the product of the
Exercise Amount as of the Effective Time multiplied by Series F Factor, by (B)
the product of the AIMCO Index Price multiplied by the number of IFG Common
Stock Equivalents as of the Effective Time.
5
<PAGE> 15
"Series F Factor" means the quotient of (A) the Series F
Amount, divided by (B) the sum of the Series E Amount plus the Series F Amount.
"Series F Preferred Stock" means preferred stock of AIMCO
designated as Series F Preferred Stock and having the terms, rights and
preferences set forth in the form of Articles Supplementary attached as on
Exhibit 6F hereto.
"Special Dividend Amount" means the quotient of $50,000,000
divided by the number of IFG Common Stock Equivalents as of the Effective Time.
"TOPRs Conversion Amount" means an amount equal to the product
of (x) $50.00, multiplied by (y) the number of TOPRs which have converted into
shares of IFG Common Stock prior to the Effective Time (if any).
(b) AIMCO CASH ELECTION. If the AIMCO Index Price is
less than $36.50, then AIMCO may elect to pay part of the Merger Consideration
in cash by giving notice to IFG (as provided in Section 10.3) that it has
elected to do so, which notice shall set forth the aggregate amount AIMCO has
elected to pay in cash; provided, however, that such aggregate amount may not
exceed the Maximum Cash Amount.
(c) COMMON STOCK OF IFG. Subject to Section 2.2, as of
the Effective Time, by virtue of the Merger and without any action on the part
of any holder of any shares of capital stock of IFG, each issued and
outstanding share of IFG Common Stock, other than shares of IFG Common Stock
beneficially owned by AIMCO or any wholly owned Subsidiary of AIMCO or IFG,
shall be converted into and become the right to receive, (i) that number of
fully paid and nonassessable shares of Series E Preferred Stock equal to the
Series E Conversion Ratio, (ii) that number of fully paid and nonassessable
shares of Series F Preferred Stock equal to the Series F Conversion Ratio, if
any, and (iii) the Cash Amount, if any.
(d) CANCELLATION OF IFG COMMON STOCK. As of the
Effective Time, all such shares of IFG 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 (as defined in Section 2.2(b)),
formerly representing any such shares shall cease to have any rights with
respect to such shares, except the right to receive shares of Series E
Preferred Stock, Series F Preferred Stock and cash, if any, contemplated by
this Section 2.1 and cash in lieu of fractional shares and dividends and other
distributions in accordance with Section 2.2. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
capital stock of IFG, any shares of IFG Common Stock that are owned by IFG as
treasury shares or by AIMCO or by any wholly owned Subsidiary of AIMCO or IFG
shall be canceled and retired and shall cease to exist and no Merger
Consideration or other consideration shall be issued or delivered in exchange
therefor.
(e) IFG CONVERTIBLE SECURITIES. At the Effective Time,
each then outstanding IFG Convertible Security shall, by virtue of this
Agreement and without any further action of IFG,
6
<PAGE> 16
AIMCO or the holder of such security, be assumed by AIMCO, and appropriate
adjustments to the provisions thereof shall be made in accordance with the
terms of such security. AIMCO covenants and agrees that the effective economic
adjustment to each IFG Convertible Security at the time of the Merger shall be
no less favorable to the holder thereof than the economic position such holder
would have been in if it had exercised, converted or exchanged such IFG
Convertible Security immediately prior to the Effective Time.
(f) STOCK OPTIONS AND RESTRICTED STOCK.
(i) Stock Options. At the Effective Time, each
then outstanding, unexercised option to purchase a share of IFG
Common Stock granted under the IFG Stock Plan and held by a Covered
Person, whether vested or unvested, shall, by virtue of this Agreement
and without any further action of IFG, AIMCO or the holder of such
option, be assumed by AIMCO and converted into an option to purchase
that number of shares of AIMCO Common Stock equal to the Effective
AIMCO Common Conversion Ratio, at an exercise price equal to the
difference between (A) the quotient of the exercise price of such
option in effect immediately prior to the Effective Time divided by
the Effective AIMCO Common Conversion Ratio, less (B) the quotient of
the Special Dividend Amount divided by the Effective AIMCO Common
Conversion Ratio, less (C) the Cash Amount, if any. Except for the
foregoing adjustments and as provided in the last sentence of this
subsection, each option so assumed by AIMCO under this Agreement shall
continue to have, and be subject to, the same terms and conditions set
forth in the IFG Stock Plan and the applicable stock option agreement,
as in effect immediately prior to the Effective Time. AIMCO agrees to
use its best efforts to ensure that options intended to qualify as
incentive stock options under Section 422 of the Code prior to the
Effective Time continue to so qualify after the Effective Time. AIMCO
covenants and agrees that if the employment of any Covered Person
should terminate prior to the vesting of all options held by such
Covered Person which were unvested at the Effective Time, then AIMCO
shall, promptly after such termination, pay to either such Covered
Person or SpinCo an amount equal to the "in the money" spread value of
such remaining unvested options as of the Effective Time.
(ii) Restricted Stock. At the Effective Time,
each unvested restricted share of IFG Common Stock awarded under the
IFG Stock Plan and held by a Covered Person shall, by virtue of this
Agreement and without any further action of IFG, AIMCO or the holder
of such restricted share, be assumed by AIMCO and converted into that
number of restricted shares of AIMCO Common Stock equal to the
Effective AIMCO Common Conversion Ratio. Except as provided in the
remainder of this subsection, each restricted share so assumed by
AIMCO under this Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in the IFG Stock Plan and the
applicable restricted share agreement, as in effect immediately prior
to the Effective Time. AIMCO covenants and agrees that it will pay to
each such holder of restricted AIMCO Common Shares (1) an amount equal
to the Cash Amount, if any, promptly following the Effective Time, (2)
an amount equal to the Special Dividend Amount, as and when such
dividends are paid in
7
<PAGE> 17
respect of the Series E Preferred Stock, and (3) all dividends paid in
respect of AIMCO Common Shares from and after the Effective Time, in
each case regardless of whether such restricted AIMCO Common Shares
are vested at the applicable time. AIMCO further covenants and agrees
that if any Covered Person is terminated as an employee of or
consultant to AIMCO prior to the vesting of all restricted shares held
by such Covered Person which were unvested at the Effective Time, then
AIMCO shall, promptly after such termination, pay to either such
Covered Person or SpinCo an amount equal to value of such remaining
unvested restricted shares as of the Effective Time (determined based
on the AIMCO Price Index, without giving effect to the proviso of the
definition thereof).
(iii) Registration. AIMCO agrees to (1) take all
corporate action necessary to reserve for issuance a sufficient number
of shares of AIMCO Common Stock for delivery upon exercise of options
and vesting of restricted shares in accordance with Sections 2.1(f)(i)
and (ii), (2) cause such shares of AIMCO Common Stock to be covered by
an effective registration statement on Form S-8 (or any successor or
other appropriate forms), and (3) use its reasonable best efforts to
maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus contained therein) for
so long as the options and restricted shares remain outstanding.
(g) SAVING CLAUSE. It is the intention of the parties
that the sum of (x) the consideration actually paid in respect of the shares of
IFG Common Stock outstanding as of the Effective Time (including the Special
Dividend Amount actually paid in respect thereof pursuant to the terms of the
Series E Preferred Stock), plus (y) the economic effect of the adjustments to
the IFG Convertible Securities, shall equal the sum of $353,000,000 plus the
TOPRs Conversion Amount.
Section 2.2 PAYMENT OF MERGER CONSIDERATION.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practical
after the Effective Time, AIMCO shall deposit, in trust for the benefit of
holders of Certificates, with Bank Boston, N.A. (the "Exchange Agent")
certificates representing shares of Series E Preferred Stock and Series F
Preferred Stock required to effect the issuance referred to in Section 2.1(c),
together with the Cash Amount, if any, and the cash payable in respect of
fractional shares pursuant to Section 2.2(d) (collectively, the "Exchange
Fund"). The Exchange Fund shall not be used for any other purpose.
(b) PAYMENT PROCEDURES. As soon as practicable after the
Effective Time, AIMCO shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates (the "Certificate" or the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of IFG Common Stock (the "Canceled Shares") that were
canceled and became instead the right to receive Merger Consideration pursuant
to Section 2.1(c): (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 actual delivery of the Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent for cancellation (or to such
8
<PAGE> 18
other agent or agents as may be appointed by AIMCO), together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
shall require, the holder of such Certificate shall be entitled to receive with
respect to the shares of IFG Common Stock formerly represented thereby, (A) a
certificate or certificates representing that number of whole shares of Series
E Preferred Stock which such holder has the right to receive pursuant to the
provisions of Section 2.1(c), (B) a certificate or certificates representing
that number of whole shares of Series F Preferred Stock which such holder has
the right to receive pursuant to the provisions of Section 2.1(c), (C) the Cash
Amount, if any, which such holder is entitled to receive pursuant to Section
2.1(c) and (D) cash in lieu of fractional shares which such holder is entitled
to receive pursuant to Section 2.2(d) hereof. In the event of a transfer of
ownership of Canceled Shares which is not registered in the transfer records of
IFG, a certificate representing that number of whole shares of Series E
Preferred Stock, Series F Preferred Stock, the Cash Amount, if any, and cash in
lieu of fractional shares may be issued to a transferee if the Certificate
representing such Canceled Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to the Exchange Agent that any applicable share
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender a certificate
representing shares of Series E Preferred Stock, Series F Preferred Stock, the
Cash Amount, if any, in respect thereof and cash in lieu of any fractional
shares.
(c) DISTRIBUTIONS WITH RESPECT TO SHARES. No dividends
or other distributions declared or made after the Effective Time with respect
to shares of Series E Preferred Stock or Series F Preferred Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Series E Preferred Stock or Series F
Preferred Stock represented thereby and no Cash Amount, if any, or cash payment
in lieu of fractional shares shall be paid to any such holder until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Series E Preferred Stock or Series F Preferred
Stock issued in consideration therefor, without interest, (i) at the time of
such surrender, the Cash Amount, if any pursuant to Section 2.1, or any cash
payable in lieu of fractional shares to which such holder is entitled pursuant
to Section 2.2(d) and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Series E Preferred Stock or Series F Preferred Stock, as the
case may be, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Series E Preferred Stock or Series F Preferred Stock, as
the case may be.
(d) NO FRACTIONAL SECURITIES. No scrip representing
fractional shares of Series E Preferred Stock or Series F Preferred Stock shall
be issued in the Merger and, except as provided in this Section 2.2(d), no
dividend or other distribution, stock split or interest shall relate to any
such fractional share, and such fractional share shall not entitle the owner
thereof to vote or to any other rights of a stockholder of AIMCO. In lieu of
any fractional share of Series E Preferred Stock to
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which a holder of IFG Common Stock would otherwise be entitled, such holder,
upon surrender of a Certificate representing IFG Common Stock as described in
this Section, shall be paid an amount in cash (without interest) equal to the
product of (x) the AIMCO Index Price (computed without giving effect to the
proviso of the definition thereof) multiplied by (y) the fraction of a share of
Series E Preferred Stock to which such holder would otherwise be entitled. In
lieu of any fractional share of Series F Preferred Stock to which a holder of
IFG Common Stock would otherwise be entitled, such holder, upon surrender of a
Certificate representing IFG Common Stock as described in this Section, shall
be paid an amount in cash (without interest) equal to the product of (x) the
AIMCO Index Price (computed without giving effect to the proviso of the
definition thereof) multiplied by (y) the fraction of a share of Series F
Preferred Stock to which such holder would otherwise be entitled. AIMCO shall
make available to the Exchange Agent, without regard to any other cash being
provided to the Exchange Agent, the amount of cash necessary to make such
payments.
(e) BOOK ENTRY. Notwithstanding any other provision of
this Agreement, the letter of transmittal referred to in Section 2.2(b) may, at
the option of AIMCO, provide for the ability of a holder of one or more
Certificates to elect that shares of Series E Preferred Stock or Series F
Preferred Stock to be received in exchange for the Canceled Shares formerly
represented by such surrendered Certificates be issued in uncertificated form.
(f) CLOSING OF TRANSFER BOOKS; ETC. From and after the
Effective Time, the stock transfer books of IFG shall be closed and no
registration of any transfer of any capital stock of IFG shall thereafter be
made on the records of IFG. If, after the Effective Time, Certificates are
presented to AIMCO, they shall be canceled and exchanged for certificates
representing the appropriate number of shares of Series E Preferred Stock and
Series F Preferred Stock, the Cash Amount, if any, pursuant to Section 2.1, and
cash in lieu of fractional shares and dividends and other distributions, as
provided in this Section 2.2. Shares of Series E Preferred Stock and Series F
Preferred Stock issued in the Merger shall be issued as of, and be deemed to be
outstanding as of, the Effective Time. AIMCO shall cause all such shares of
Series E Preferred Stock and Series F Preferred Stock issued pursuant to the
Merger to be duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. In the event any Certificate(s) shall have
been lost, stolen or destroyed, upon the making of any affidavit of that fact
by the Person claiming such Certificate(s) to be lost, stolen or destroyed and,
if reasonably required by AIMCO, upon the posting by such Person of a bond in
such amount as reasonably determined as indemnity against any claim that may be
made against it with respect to such Certificate(s), the Exchange Agent will
issue in respect of such lost, stolen or destroyed Certificate(s), the
consideration to be received by virtue of the Merger with respect to the Series
E Preferred Stock, Series F Preferred Stock and Cash Amount, if any,
represented thereby (subject to the payment of cash in lieu of fractional
shares in accordance herewith) and such Person shall be entitled to the voting,
dividend and other distribution rights provided herein with respect thereto.
Appropriate procedures shall be established by AIMCO and the Exchange Agent so
that each holder of a Certificate at the Effective Time shall be entitled to
vote on all matters subject to the vote of holders of Series E Preferred Stock
and/or Series F Preferred Stock with a record date on or after the date of the
Effective Time, whether or not such Certificate
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holder shall have surrendered Certificates in accordance with the provisions of
this Agreement. For purposes of the immediately preceding sentence, AIMCO may
rely conclusively on the stockholder records of IFG in determining the identity
of, and the number of shares of IFG Common Stock held by, each holder of a
Certificate at the Effective Time.
(g) TERMINATION OF EXCHANGE AGENT. Any certificates
representing shares of Series E Preferred Stock or Series F Preferred Stock
deposited with the Exchange Agent pursuant to Section 2.2(a) and not exchanged
within one year after the Effective Time pursuant to this Section 2.2 shall be
returned by the Exchange Agent to AIMCO, which shall thereafter act as Exchange
Agent. All funds held by the Exchange Agent in the Exchange Fund for payment
to the holders of unsurrendered Certificates and unclaimed at the end of one
year from the Effective Time shall be returned to AIMCO; after which time any
holder of unsurrendered Certificates shall look only to AIMCO for payment of
such funds and the issuance of shares of Series E Preferred Stock or Series F
Preferred Stock to which such holder may be due, subject to applicable law.
AIMCO shall not be liable to any Person for such shares or funds delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. As used in this Agreement, the term "Person" shall mean any
natural person, corporation, general or limited partnership, limited liability
company, joint venture, trust, association or entity of any kind.
Section 2.3 IFG LIABILITIES AT CLOSING.
(a) Not later than five business days prior to Closing,
SpinCo shall prepare and deliver to AIMCO a schedule (the "Estimated Closing
Schedule") estimating in good faith the Adjusted Net Liabilities (as defined
below) of IFG and its consolidated Subsidiaries (other than IPT, Material REIT
Subsidiaries, IPLP or any Investment Limited Partnership) as of Effective Time,
together with supporting schedules in reasonable detail. For purposes of this
Section 2.3, the term "Adjusted Net Liabilities" shall mean the difference
between (A) the sum of (i) accrued and unpaid Taxes (other than deferred
Taxes), (ii) indebtedness for borrowed money, including accrued interest
thereon, (iii) accounts payable, (iv) accrued salaries, rent payable in respect
of periods prior to the Closing, and accrued and unpaid legal, accounting,
investment banking and other expenses incurred by IFG in connection with the
transactions contemplated by this Agreement, (v) the present value of all
unpaid amounts under the employment agreements between IFG and each of Andrew
L. Farkas, James A. Aston, Frank M. Garrison and Ronald Uretta, discounted at a
rate of 10% per annum, (vi) the present value of all obligations with respect
to leases (real and personal) set forth on Schedule 2.3(a) payable after
Closing, discounted at a rate of 10% per annum, (vii) other current liabilities
not otherwise included herein, to the extent requiring payment after the
Closing for pre-Closing matters, less (B) the sum of (I) cash and cash
equivalents, if any, (II) accounts receivable, including temporary advances,
net of reasonable allowances, (III) notes receivable, including accrued
interest thereon, net of reasonable allowances, (IV) prepaid amounts and
refundable deposits, (V) securities valued at fair market value (for this
purpose, limited partner or similar interests in non- controlled real estate
entities shall be stated at one-half of their fair market value) and (VI)
current assets not otherwise included herein, to the extent resulting in the
collection of cash after Closing. Except for those Subsidiaries which are not
included in the consolidated amounts as specified herein
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and as may be specified otherwise herein, Adjusted Net Liabilities will be
determined on a consolidated basis in accordance with generally accepted
accounting principles ("GAAP") consistently applied with prior periods.
Notwithstanding the foregoing, no amount shall be included in (A) above for (i)
obligations with respect to leases (real and personal) not set forth on
Schedule 2.3(a) payable in respect of periods after the Closing, (ii)
reserves, for contingencies or otherwise, (iii) obligations with respect to
capital leases, (iv) the aggregate liquidation amount of the TOPRs (as
hereinafter defined) or accrued distributions on the common securities of
Insignia Financing I, and (v) vacation pay or sick days, and no amount in (A)
shall include any unearned income, minority interests or other deferred
credits. If and to the extent that the Estimated Closing Schedule shows that
the Adjusted Net Liabilities exceed $308,433,730 (as adjusted pursuant to
Section 6.1(e)), SpinCo shall pay to AIMCO such excess in cash at Closing. If
and to the extent that the Estimated Closing Schedule shows that the Adjusted
Net Liabilities are less than $308,433,730 (as adjusted pursuant to Section
6.1(e)), AIMCO shall pay to SpinCo such excess in cash at Closing.
(b) From time to time after Closing, but no more
frequently than monthly or fewer times than once, AIMCO may prepare and deliver
to SpinCo a revised schedule (the "Revised Closing Schedule") setting forth the
Adjusted Net Liabilities of IFG and its consolidated Subsidiaries (other than
IPT, Material REIT Subsidiaries, IPLP or any Investment Limited Partnership) as
of the Effective Time taking into account all information with respect thereto
available after Closing; provided, however, that no Revised Closing Schedule
may be delivered to IFG after March 31, 1999 or, if the Effective Time occurs
after December 31, 1998, May 15, 1999. After Closing, AIMCO will grant to
SpinCo access to the books, records and properties of IFG and its Subsidiaries
as reasonably requested by SpinCo to determine the accuracy of any Revised
Closing Schedule. Not later than twenty business days after SpinCo receives a
Revised Closing Schedule, SpinCo shall advise AIMCO in writing of its
acceptance of such Revised Closing Schedule or any objection it has to such
Revised Closing Schedule, together with supporting schedules in reasonable
details. If no objection is made by SpinCo to such Revised Closing Schedule
within such period, it shall be deemed to be accepted by SpinCo. AIMCO and
SpinCo shall negotiate in good faith to resolve any objection to such Revised
Closing Schedule not later than twenty business days after AIMCO receives
written notice of SpinCo's objection. If AIMCO and SpinCo are unable to
resolve AIMCO's objection within such period, AIMCO and SpinCo shall retain
Ernst & Young LLP (or such other nationally recognized accounting firm mutually
acceptable to SpinCo and AIMCO) to resolve such matters and the resolution
thereof by such firm shall be conclusive and binding on the parties hereto.
Ernst & Young LLP (or such other firm) shall be directed by AIMCO and SpinCo to
render a special purpose report on the disputed matters not later than twenty
business days after receiving written notice of the disputed matters from the
parties hereto. All fees of such firm shall be borne equally by AIMCO and
SpinCo.
(c) If and to the extent that a Revised Closing Schedule
(as accepted by SpinCo or as adjusted to reflect the agreement of AIMCO and
SpinCo or the report of Ernst & Young LLP (or such other firm), as the case may
be (a "Final Closing Schedule")) shows that the Adjusted Net Liabilities exceed
$308,433,730 (as adjusted pursuant to Section 6.1(e)), SpinCo shall pay to
AIMCO such excess (adjusted for payments previously made pursuant to Sections
2.3(a) and (c))
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in cash within five business days after the determination of such Final Closing
Schedule plus interest thereon at the rate equal to the 30 day LIBOR rate plus
150 basis points from the Closing Date to the date of receipt of payment
("Post-Closing Interest"). If and to the extent that such Final Closing
Schedule shows that the Adjusted Net Liabilities were less than $308,433,730
(as adjusted pursuant to Section 6.1(e)), AIMCO shall pay to SpinCo such excess
(adjusted for payments previously made pursuant to Sections 2.3(a) and (c)) in
cash within five business days after the determination of such Final Closing
Schedule plus Post-Closing Interest.
(d) If there is a delay in the determination of any Final
Closing Schedule because of a disagreement being resolved pursuant to Section
2.3(b), then, during the pendency of such resolution, the net amount not so
disputed shall be paid, together with Post-Closing Interest. Any payments made
pursuant to Section 2.3(c) shall be net of any payments made pursuant to this
Section 2.3(d).
(e) Notwithstanding the foregoing, any amount for Taxes
included in a Final Closing Schedule shall be further adjusted following the
filing of the final income tax returns of IFG to reflect the Taxes shown on
such returns prepared in accordance with Section 7.27(a) (the "Return Taxes").
AIMCO shall deliver to SpinCo copies of such returns certified by the chief
financial officer of AIMCO within ten business days of the filing of the last
of such returns. If and to the extent that the Return Taxes (less the sum of
(i) any portion thereof paid by IFG prior to the Effective Time, (ii) any
credit attributable to periods prior to the Effective Time and (iii) the Taxes
provided in the Estimated Closing Schedule as adjusted for any changes in Taxes
taken into account in prior Revised Closing Schedules ("Prior Taxes"), are
greater than Prior Taxes, SpinCo shall pay to AIMCO the amount of such excess
within five business days after receipt of copies of such returns plus
Post-Closing Interest. If and to the extent that the Return Taxes are less
than the Prior Taxes, AIMCO shall pay to SpinCo the amount of such excess at
the time copies of such returns are delivered to SpinCo plus Post-Closing
Interest. The final tax returns each will be prepared so as to take into
account the effects of all payments made under this Section 2.3 (including
under this Section 2.3(e)) which are required to be reflected therein.
(f) If AIMCO does not pay any of the amounts referred to
in Section 2.3 (a)(A)(v) for any reason, it shall instead pay such amounts to
SpinCo.
(g) In the event any amounts have been transferred prior
to the Effective Time in violation of any covenant of IFG and/or SpinCo (and/or
IFG's and SpinCo's appropriate Subsidiaries) requiring or prohibiting the
payment of money contained in or contemplated by this Agreement which is
required to be performed by them at or prior to the Effective Time, SpinCo
shall at the Closing pay such amounts to AIMCO and deliver to AIMCO a schedule
identifying the nature and amount of such transfers (the "Transfer Schedule").
Not later than twenty business days after the Closing, AIMCO shall advise
SpinCo in writing of its acceptance of such Transfer Schedule or any objection
it has to such Transfer Schedule, together with supporting schedules in
reasonable details. If no objection is made by AIMCO to such Transfer Schedule
within such period, it shall be deemed to be accepted by AIMCO. AIMCO and
SpinCo shall negotiate in good faith to resolve
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any objection to such Transfer Schedule not later than twenty business days
after SpinCo receives written notice of AIMCO's objection. If AIMCO and SpinCo
are unable to resolve AIMCO's objection within such period, AIMCO and SpinCo
shall retain Ernst & Young LLP (or such other nationally recognized accounting
firm mutually acceptable to SpinCo and AIMCO) to resolve such matters and the
resolution thereof by such firm shall be conclusive and binding on the parties
hereto. Ernst & Young LLP (or such other firm) shall be directed by AIMCO and
SpinCo to render a special purpose report on the disputed matters not later
than twenty business days after receiving written notice of the disputed
matters from the parties hereto. All fees of such firm shall be borne equally
by AIMCO and SpinCo.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Merger (the
"Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York 10022 at 10:00 A.M., local
time, on the fifth NYSE trading day immediately following the date on which the
last of the conditions set forth in Article VIII hereof is fulfilled or has
been waived or at such other time, date and place as AIMCO and IFG shall
mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IFG
IFG makes the following representations and warranties to
AIMCO. Except as set forth in the IFG SEC Reports, in the AMIT Agreements (as
set forth on Section 4.0 of the IFG Disclosure Letter) or in the disclosure
letter from IFG to AIMCO dated the date hereof (the "IFG Disclosure Letter"):
Section 4.1 SUBSIDIARIES. As used in this Agreement:
(a) The term "Subsidiary" of a Person shall mean any
corporation or other entity (including partnerships, limited liability
companies and other business associations) of which at least a majority of the
voting power represented by the outstanding shares of capital stock or other
voting securities or interests (including, without limitation, general partner
interests) having voting power under ordinary circumstances to elect directors
or similar members of the governing body of such corporation or entity shall at
the time be held, directly or indirectly, by such Person.
(b) The term "Material IFG Subsidiary" shall mean each
Material REIT Subsidiary and each Material Non-REIT Subsidiary.
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(c) The term "Material REIT Subsidiary" shall mean each
of Insignia Properties Trust, a Maryland real estate investment trust ("IPT"),
IPLP, the Tender Entities, the REIT GP Entities and the Investment Limited
Partnerships.
(d) The term "Material Non-REIT Subsidiary" shall mean
each of the entities listed in Section 4.1(d) of the IFG Disclosure Letter.
(e) The term "IPLP" shall mean Insignia Properties, L.P.,
a Delaware limited partnership, which is the operating partnership of IPT.
(f) The term "Tender Entity" shall mean each of the
entities listed in Section 4.1(f) of the IFG Disclosure Letter, each of which
has made tender offers for units of limited partner interest in Investment
Limited Partnerships or holds a controlling interest in an Investment Limited
Partnership owning a real property which is 100% owned (indirectly) by IPLP.
(g) The term "REIT GP Entity" shall mean each of the
entities listed in Section 4.1(g) of the IFG Disclosure Letter, each of which
directly or indirectly controls (or is in the chain of control) or comprises
the managing general partner of an Investment Limited Partnership.
(h) The term "Investment Limited Partnership" shall mean
each of the limited partnerships listed in Section 4.1(h) of the IFG Disclosure
Letter, each of which holds direct or indirect investments in real estate.
(i) The term "Affiliate," shall mean, as to any Person,
any other Person which directly or indirectly controls, or is under common
control with, or is controlled by, such Person. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
(j) The terms Material IFG Subsidiary, Material REIT
Subsidiary, Material Non-REIT Subsidiary, IPLP, Tender Entity, REIT GP Entity
and Investment Limited Partnership includes, as of the date hereof, each
material Subsidiary of IFG except for (i) the Spin Off Entities, (ii) single
asset special purpose financing entities (each of which is a partnership,
limited liability company or qualified REIT subsidiary), (iii) general partners
of single asset special purpose entities (each of which is a partnership,
limited liability company or qualified REIT subsidiary) and (iv) the entities
set forth on Section 4.1(j) of the IFG Disclosure Letter.
Section 4.2 ORGANIZATION AND QUALIFICATION; ASSETS.
(a) IFG. IFG is a corporation duly formed, validly
existing and in good standing under the laws of the State of Delaware. IFG is
duly qualified and in good standing as a foreign entity under the laws of each
jurisdiction where such qualification is required other than in such
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jurisdictions where the failure to so qualify would not have an IFG Material
Adverse Effect, has all requisite power and authority, and has been duly
authorized by all necessary approvals and orders to own, lease and operate its
assets and properties to the extent owned, leased and operated and to carry on
its business as it is now being conducted. Each share of capital stock of IFG
is validly issued, fully paid, nonassessable and free of preemptive rights. IFG
has furnished to AIMCO true and complete copies of IFG's certificate of
incorporation and by-laws, as each is in effect on the date of this Agreement.
(b) IPT. IPT is a real estate investment trust (as
defined in Section 8-101(b) of the Maryland Corporations and Associations
Article) duly formed, validly existing and in good standing under the laws of
the State of Maryland. Other than the REIT GP Entities, IPLP and special
purpose financing entities (all of which are either partnerships, limited
liability companies or qualified REIT subsidiaries), as of the date of this
Agreement, IPT is not the record owner of more than 10% of the outstanding
voting securities of any Person. IPT is duly qualified and in good standing as
a foreign entity under the laws of each jurisdiction where such qualification
is required, other than in such jurisdictions where the failure to so qualify
would not have an IFG Material Adverse Effect, has all requisite power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned, leased
and operated and to carry on its business as it is now being conducted. Except
as set forth in Section 4.2(b) of the IFG Disclosure Letter, each share of
beneficial interest owned by IFG or any Material IFG Subsidiary in IPT is
validly issued, fully paid, nonassessable and free of preemptive rights, and
owned, directly or indirectly, by IFG or such Material IFG Subsidiary free and
clear of any liens, claims, encumbrances, security interests, charges and
options of any nature whatsoever and there are no outstanding subscriptions,
calls, options, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement. IPT has furnished to AIMCO true and complete copies of IPT's
declaration of trust and by-laws, as each is in effect on the date of this
Agreement.
(c) IPLP. IPLP is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware.
As of the date hereof, the sole general partner of IPLP is IPT, and the sole
limited partner of IPLP is IFG. Other than the Tender Entities, the Investment
Limited Partnerships and special purpose financing entities (all of which are
either partnerships or limited liability companies), as of the date of this
Agreement, IPLP is not the record owner of more than 10% of any class of voting
securities of any Person. IPLP is duly qualified and in good standing as a
foreign entity under the laws of each jurisdiction where such qualification is
required, other than in such jurisdictions where the failure to so qualify
would not have an IFG Material Adverse Effect, has all requisite power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned, leased
and operated and to carry on its business as it is now being conducted. Except
as set forth in Section 4.2(c) of the IFG Disclosure Letter and in the Fourth
Amended and Restated Agreement of Limited Partnership of IPLP, each
partnership interest owned by IFG or IPT in IPLP is validly issued, fully paid,
nonassessable and free of preemptive rights, and owned, directly or
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indirectly, by IFG or IPT free and clear of any liens, claims, encumbrances,
security interests, charges and options of any nature whatsoever and there are
no outstanding subscriptions, calls, options, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement. IFG has furnished to AIMCO true and
complete copies of the Fourth Amended and Restated Agreement of Limited
Partnership of IPLP, which is the partnership agreement of IPLP in effect on
the date of this Agreement.
(d) TENDER ENTITIES. Section 4.1(f) of the IFG
Disclosure Letter sets forth the name and state of organization of and
ownership interest in each Person (other than the Investment Limited
Partnerships and special purpose financing entities which are either
partnerships or limited liability companies) of which IPLP is the record owner
of more than 10% of voting securities as of the date of this Agreement. Other
than the Investment Limited Partnerships, as of the date of this Agreement, no
Tender Entity is the record owner of any shares of capital stock of or other
equity interest in any Person. Each of the Tender Entities is duly formed,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
(e) REIT GP ENTITIES. Section 4.1(g) of the IFG
Disclosure Letter sets forth the name, state of organization and type of entity
of, and ownership interest in, each Person (other than IPLP) which IPT or any
REIT GP Entity is the record owner of any shares of capital stock or other
equity interests as of the date of this Agreement. Each of the REIT GP
Entities is validly existing and in good standing under the laws of the
jurisdiction of its organization.
(f) INVESTMENT LIMITED PARTNERSHIPS. Section 4.1(h) of
the IFG Disclosure Letter sets forth the name and state of organization of each
Person (other than the Tender Entities) of which IPLP or any Tender Entity is
the record owner of any shares of capital stock or other equity interests as of
the date of this Agreement, as well as the name and state of organization of
the REIT GP Entity(ies) which controls such Person and the aggregate direct and
indirect limited partner ownership interest of IPT in such Person. Each of the
Investment Limited Partnerships is a limited partnership validly existing and
in good standing under the laws of the jurisdiction of its organization.
(g) MATERIAL NON-REIT SUBSIDIARIES. Section 4.1(d) of
the IFG Disclosure Letter sets forth the name and state of organization of each
of the Material Non-REIT Subsidiaries. Unless otherwise indicated in Section
4.1(d) of the IFG Disclosure Letter, each Material Non-REIT Subsidiary is
wholly owned (directly or indirectly) by IFG. Each of the Material Non-REIT
Subsidiaries which was formed by IFG was duly formed. Each of the Material
Non-REIT Subsidiaries is validly existing and in good standing under the laws
of the jurisdiction of its organization.
(h) COMMERCIAL ASSETS. Except as otherwise provided in
Section 4.2(h) of the IFG Disclosure Letter, the assets of the entities listed
in Section 4.2(h) of the IFG Disclosure Letter (the "Spin Off Entities") and
other assets to be included as part of the Spin Off (collectively, the
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"Spin Off Assets") are not used in and do not relate to the United States'
based multifamily apartment business of IFG or any Subsidiary of IFG, and such
assets will not be assets of IFG or any Subsidiary of IFG at the Effective
Time.
(i) RESIDENTIAL ASSETS. As a result of the Merger, AIMCO
will succeed to all of the assets of IFG relating to the United States-based
multifamily apartment business of IFG and the Subsidiaries of IFG, other than
(i) any such assets which constitute Spin Off Assets and are described in
Section 4.2(h) of the IFG Disclosure Letter and (ii) such assets acquired after
the date hereof which AIMCO does not elect to retain pursuant to Section
6.1(e). The "New York Residential Business" shall mean condominium or
cooperative real estate assets or service related businesses or residential
rental property management and related services in the nature of those
conducted currently by Insignia Residential Group Inc., Kreisel Company, Inc.,
Soren Management, Inc. and Insignia Construction Management Services New York,
Inc. in the States of New York, New Jersey or Connecticut or any real estate or
interests related thereto.
(j) IFG PROPERTIES. Section 4.2(j)-1 of the IFG
Disclosure Letter sets forth a list of each real property controlled by IPT,
the name of the Investment Limited Partnership which owns (excluding for this
purpose any special purposes financing entities) such real property, the number
of apartment units or commercial square feet contained at such property and the
location of such property. Section 4.2(j)-2 of the IFG Disclosure Letter sets
forth a list of each other real property controlled by IFG as of the date
hereof (other than through IPT) to which AIMCO will succeed as a result of the
Merger, the name of the entity which owns (excluding for this purpose any
special purposes financing entities) such real property, the number of
apartment units or commercial square feet contained at such property and the
location of such property. The real properties identified in Sections 4.2(j)-1
and 4.2(j)-2 of the IFG Disclosure Letter are collectively referred to herein
as the "IFG Properties." All of the information set forth in Sections 4.2(j)-1
and 4.2(j)-2 of the IFG Disclosure Letter is true, accurate and complete in all
material respects.
(k) MORTGAGES. Section 4.2(k) of the IFG Disclosure
Letter sets forth a list of (i) each outstanding loan secured by a mortgage on
an IFG Property controlled by IPT, (ii) the maturity date of such loan and
(iii) the unpaid principal balance of such loan as of a recent date. All of the
information set forth in Section 4.2(k) of the IFG Disclosure Letter is true,
accurate and complete in all material respects.
Section 4.3 CAPITALIZATION.
(a) IFG. As of the date hereof, the authorized shares of
IFG consist of (i) 100,000,000 shares of IFG Common Stock; (ii) 2,000,000
shares of Class B Common Stock, par value $0.01 per share ("Class B Common");
and (iii) 1,000,000 shares of preferred stock, par value $0.01 per share ("IFG
Preferred") of which 15,000 shares have been designated as 7.5% Step-Up Rate
Convertible Preferred Stock ("7.5% Preferred"). As of the close of business on
March 15, 1998, (i) 30,626,962 shares of IFG Common Stock were issued and
outstanding, of which none were owned by SpinCo; (ii) 166,400 shares of IFG
Common Stock were held by IFG in its treasury or by
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its wholly owned Subsidiaries; (iii) 4,930,970 shares of IFG Common Stock were
issuable upon exercise of outstanding stock options under the IFG Stock Plan;
(iv) 426,493 shares of IFG Common Stock were issuable upon vesting of
restricted stock granted under the IFG Stock Plan; (v) 1,120,300 shares of IFG
Common Stock were issuable upon exercise of outstanding warrants held by
employees of IFG ("Employee Warrants"); (vi) 1,976,666 shares of IFG Common
Stock were issuable upon exercise of outstanding warrants (excluding those
described in (v) above); (vii) 200,000 shares of IFG Common Stock were issuable
upon the conversion of $2,000,000 principal amount of convertible notes; (viii)
5,641,532 shares of IFG Common Stock were issuable upon the conversion of the
outstanding TOPRs; (ix) no shares of Class B Common, or IFG Preferred were
outstanding; and (x) no bonds, debentures, notes or other indebtedness having
the right to vote (or convertible into securities having the right to vote) on
any matters on which stockholders may vote ("Voting Debt"), were issued or
outstanding. As of the date hereof, except as set forth in the preceding
sentence above, in Section 4.3 of the IFG Disclosure Letter and pursuant to
this Agreement, there are no securities, options, warrants, calls, rights,
commitments or agreements of any character to which IFG or any Material
Non-REIT Subsidiary is a party or by which any of them are bound obligating IFG
or any Material Non-REIT Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares or any Voting Debt securities of
IFG or any Material Non-REIT Subsidiary or obligating IFG or any Material
Non-REIT Subsidiary to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
(b) IPT. As of the date hereof, the authorized shares of
IPT consist of (i) 400,000,000 shares of beneficial interest, par value $0.01
per share ("IPT Common Stock"), and (ii) 100,000,000 preferred shares of
beneficial interest, par value $0.01 per share ("IPT Preferred"), of IPT. On
the date hereof, 19,427,760 shares of IPT Common Stock were issued and
outstanding, of which 11,886,808 were owned by IFG and its Subsidiaries, and
510,000 have been issued under the IPT 1997 Share Incentive Plan (the "IPT
Stock Plan"). In addition, (i) 25,000 shares of IFG Common Stock are issuable
upon exercise of outstanding options and 38,000 were issuable upon vesting of
restricted share awards under the IPT Stock Plan, (ii) no shares of IPT Common
Stock were held by IPT in its treasury or by its wholly owned Subsidiaries,
(iii) no shares of IPT Preferred were issued, and (iv) no Voting Debt was
issued or outstanding. All outstanding shares of IPT Common Stock are validly
issued, fully paid and nonassessable and are not subject to preemptive rights.
As of the date hereof, except as set forth in Section 4.3 of the IFG Disclosure
Letter or pursuant to this Agreement and the IPT Stock Plan, there are no
options, warrants, calls, rights, commitments or agreements of any character to
which IPT or any Subsidiary of IPT is a party or by which any of them are bound
obligating IPT or any Subsidiary of IPT to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares or any Voting Debt securities
of IPT or any Subsidiary of IPT or obligating IPT or any Subsidiary of IPT to
grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. Other than in connection with the IPT Stock Plan, immediately
after the Effective Time, there will be no option, warrant, call, right,
commitment or agreement of any character obligating IPT or any Subsidiary of
IPT to issue, deliver or sell, or cause to be issued, delivered or sold, any
shares or any Voting Debt of IPT or any Subsidiary of IPT, or obligating IPT or
any Subsidiary of IPT to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
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Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY
APPROVALS; COMPLIANCE.
(a) AUTHORITY. IFG has all requisite corporate power and
authority to enter into this Agreement and, subject to the receipt of the
applicable IFG Stockholders' Approval (as defined in Section 4.12) and the
applicable IFG Required Statutory Approvals (as defined in Section 4.4(c)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation by IFG of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of IFG, subject to obtaining the applicable IFG Stockholders' Approval. This
Agreement has been duly and validly executed and delivered by IFG and, assuming
the due authorization, execution and delivery hereof by AIMCO, constitutes the
valid and binding obligation of IFG enforceable against it in accordance with
the terms of this Agreement.
(b) NON-CONTRAVENTION. The execution and delivery of
this Agreement by IFG does not, and the consummation of the transactions
contemplated hereby will not, in any respect, materially violate, conflict with
or result in a breach of any material provision of, or constitute a material
default (with or without notice or lapse of time or both) under, or result in
the termination or modification of, or accelerate the performance required by,
or result in a right of termination, cancellation or acceleration of any
obligation or the loss of a material benefit under, or result in the creation
of any material lien, security interest, charge or encumbrance upon any of the
properties or assets of IFG or any of the Material IFG Subsidiaries (any such
violation, conflict, breach, default, right of termination, modification,
cancellation or acceleration, loss or creation, is referred to herein as a
"Violation" with respect to IFG and such term when used in Articles IVA and V
has correlative meanings with respect to SpinCo and AIMCO, respectively)
pursuant to any provisions of (i) the certificate of incorporation, by-laws,
declaration of trust or similar governing documents of IFG or IPT, or (ii)
subject to obtaining the IFG Required Statutory Approvals and the receipt of
the IFG Stockholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority (as defined in Section 4.4(c)) applicable to IFG or IPT
or any of their respective properties or assets, except in the case of clause
(ii) for any such Violation which would not have an IFG Material Adverse Effect
(as defined).
(c) STATUTORY APPROVALS. No declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
court, federal, state, local or foreign governmental or regulatory body
(including the United States Department of Housing and Urban Development, a
stock exchange or other self-regulatory body) or authority (each, a
"Governmental Authority") is necessary for the execution and delivery of this
Agreement by IFG or the consummation by IFG of the transactions contemplated
hereby except as described in Section 4.4(c) of the IFG Disclosure Letter or
the failure of which to make, give or obtain would not result in an IFG
Material Adverse Effect (as defined) other than filings required under the HSR
Act and the Federal securities laws (the "IFG Required Statutory Approvals," it
being understood that references in this Agreement to "obtaining" such IFG
Required Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law).
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(d) COMPLIANCE. Except as set forth in Section 4.7,
Section 4.10, or Section 4.11 of the IFG Disclosure Letter, or as disclosed in
the IFG SEC Reports, neither IFG nor any of the Material IFG Subsidiaries is
in violation of, or to the knowledge of IFG, is under investigation with
respect to any violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Laws) of any
Governmental Authority. Except as set forth in Section 4.11 of the IFG
Disclosure Letter, IFG and the Material IFG Subsidiaries have all permits,
licenses, including licenses required to operate as a property manager,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted, except where the
failure to obtain such permits, licenses, including licenses required to
operate as a property manager, franchises and other authorizations, consents
and approvals would not have an IFG Material Adverse Effect. Except as set
forth on Section 4.4(d) of the IFG Disclosure Letter, IFG and each of the
Material IFG Subsidiaries is not in breach or violation of or in default in the
performance or observance of any material term or provision of, and no event
has occurred which, with lapse of time or action by a third party, could result
in a default by IFG or any Material IFG Subsidiary under (i) IFG's or IPT's
organizational documents or (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument (other than any organizational documents or loan agreements,
notes and mortgages with respect to non-residential properties) to which it is
a party or by which IFG or any Material IFG Subsidiary is bound or to which any
of its property is subject, except for possible violations, breaches or
defaults which individually or in the aggregate would not have an IFG Material
Adverse Effect.
(e) ACQUISITION DOCUMENTS. Section 4.4(e) of the IFG
Disclosure Letter sets forth a list of all material documents related to any
material acquisition (the "Acquisition Documents") of assets, stock or limited
partnership interests (excluding Spin Off Assets and tender offer documents) by
IFG or any Subsidiary of IFG since December 31, 1990. True, complete and
correct copies of each of such documents have been made available to AIMCO and
its Representatives.
Section 4.5 IFG SEC REPORTS. "IFG SEC Reports" shall
mean the documents set forth on Section 4.5 of the IFG Disclosure Letter. As
of their respective dates, the IFG SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
IFG included in the IFG SEC Reports (collectively, the "IFG Financial
Statements") have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present in all material respects the financial
position of IFG as of the dates thereof and the results of its operations and
cash flows for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal, recurring audit and year-end
adjustments.
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Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth on Section 4.6 of the IFG Disclosure Letter, since December
31, 1997, (i) IFG and each of the Material IFG Subsidiaries have conducted
their business only in the ordinary course of business consistent with past
practice (it being understood that tender offers by Material REIT Subsidiaries
for, or private purchases of, limited partner interests in Investment Limited
Partnerships and acquisitions and dispositions of multi-family apartment
properties and interests therein are ordinary course and are consistent with
past practice), (ii) IFG has not transferred any assets other than (A) to IPT,
to wholly owned Subsidiaries of IFG or to IPLP or (B) in the ordinary course of
business and consistent with past practice to persons who are not affiliates
and (iii) there has not been any IFG Material Adverse Effect. For purposes of
this Agreement, an "IFG Material Adverse Effect" shall mean the existence of
any fact or condition which has had or will have a material adverse effect on
the business, assets, financial condition or results of operations of IFG and
the Material IFG Subsidiaries taken as a whole; provided, however, that adverse
effects on the business, assets, financial condition or results of operations
of IFG or the Material IFG Subsidiaries due to general economic conditions,
loss of employees, cancellation of third party management contracts (other than
contracts which are on properties where IFG or a Material IFG Subsidiary is a
general partner (other than in the case of replacement following a third party
tender offer) or where cancellation will result in substantial termination
payments), unsolicited third party offers for limited partnership interests of
Material IFG Subsidiaries and Material IFG Subsidiaries' response thereto,
unsolicited offers to acquire one or more assets of any Material IFG Subsidiary
and IFG's or any Material IFG Subsidiary's purchase or sale in response
thereto, events or occurrences resulting from the failure by IFG or any of its
Subsidiaries to obtain any third party consents or waivers to the execution of
this Agreement or consummation of the Merger and the other transactions
contemplated hereby and conditions affecting generally the multi-family
apartment property market or any of the markets in which IFG or any Subsidiary
of IFG operates shall not be deemed to be an IFG Material Adverse Effect and
shall not be taken into account in determining the existence of an IFG Material
Adverse Effect. In addition, consummation or failure to consummate the merger
of IPT and AMIT pursuant to the AMIT Agreements shall not be taken into account
in determining the existence of an IFG Material Adverse Effect.
Section 4.7 LITIGATION. As of the date hereof, except
as set forth in Sections 4.7, 4.9 or 4.11 of the IFG Disclosure Letter, (a)
there are no claims, suits, actions or proceedings against any general partner
controlled by IFG of any Investment Limited Partnership pending, (b) there are
no claims, suits, actions or proceedings by any Governmental Authority or third
party pending or, with respect to Governmental Authorities to the knowledge of
IFG, threatened, nor are there, to the knowledge of IFG, any investigations or
reviews by any Governmental Authority pending or threatened against, relating
to or affecting IFG or any of the Material IFG Subsidiaries which would have an
IFG Material Adverse Effect, (c) there have not been any significant adverse
developments since December 31, 1997 with respect to such disclosed claims,
suits, actions, proceedings, investigations or reviews and (d) there are no
judgments, decrees, injunctions, or orders of any Governmental Authority
specifically applicable to IFG or any of the Material IFG Subsidiaries.
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Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
None of the information supplied or to be supplied by or on behalf of IFG for
inclusion or incorporation by reference in (a) the registration statement on
Form S-4 or any post-effective amendment to a registration statement on Form
S-4 to be filed with the SEC by AIMCO in connection with the issuance of shares
of Series E Preferred Stock and Series F Preferred Stock in the Merger (as
amended or supplemented, the "Registration Statement") will at the time the
Registration Statement is filed by AIMCO with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (b) the joint
proxy statement, in definitive form, relating to the meetings of IFG
stockholders and AIMCO stockholders to be held in connection with the Merger
and the transactions related thereto (as amended or supplemented, the "Proxy
Statement") will, at the dates mailed to the IFG stockholders and AIMCO
stockholders and at the time of the meetings of IFG stockholders and AIMCO
stockholders to be held in connection with the Merger contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Proxy
Statement (to the extent applicable to IFG) will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder.
Section 4.9 TAX MATTERS. "Taxes," as used in this Agreement,
means any federal, state, county, local or foreign taxes, charges, fees, levies
or other assessments, including all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, share, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "Tax Return," as used in this Agreement, means a
report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined
or consolidated returns for any group of entities that includes IFG or any
Material IFG Subsidiary or AIMCO or any AIMCO Subsidiary, as the case may be.
Except as set forth in Section 4.9 of the IFG Disclosure
Letter:
(a) FILING OF TIMELY TAX RETURNS. IFG and each of the
Subsidiaries of IFG have filed (or there has been filed on its behalf)
all Tax Returns required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. IFG and each of the Subsidiaries
of IFG have, within the time and in the manner prescribed by law, paid
all Taxes that are currently due and payable for all periods through
and including the Closing Date, except for those contested in good
faith and for which adequate reserves have been taken.
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(c) TAX RESERVES. IFG and the Subsidiaries of IFG have
established on their books and records reserves adequate to pay all
material Taxes and reserves for deferred income Taxes in accordance
with GAAP.
(d) TAX LIENS. There are no Tax liens upon the material
assets of IFG or any of the Material IFG Subsidiaries except liens for
Taxes not yet delinquent.
(e) WITHHOLDING TAXES. IFG and each of the Material IFG
Subsidiaries have complied in all material respects with the
provisions of the Code relating to the withholding of Taxes, as well
as similar provisions under any other laws, and have, within the time
and in the manner prescribed by law, withheld and paid over to the
proper governmental authorities all amounts required.
(f) REIT CLASSIFICATION. At all times since its
organization, IPT has been organized and operated in conformity with
the requirements necessary to qualify as a REIT pursuant to Section
856 of the Code (the "Status Requirements") and its proposed method of
operation will enable it to continue to meet the Status Requirements
and otherwise qualify as a REIT.
(g) CONTINUATION AS REIT. The execution or delivery by
IFG of this Agreement and the consummation by IFG of the transactions
contemplated hereby or compliance with or fulfillment of the terms and
provisions hereof by IFG, will not adversely affect the qualification
of IPT as a REIT for the taxable year ending immediately prior to the
Closing Date.
(h) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No
audits or other administrative proceedings or court proceedings are
presently pending with regard to any material Taxes or Tax Returns of
IFG or any of the Material IFG Subsidiaries.
(i) TAX RULINGS. Except for the rulings previously
delivered by IFG to AIMCO, neither IFG nor any of the Material IFG
Subsidiaries has received or has pending a Tax Ruling (as defined
below) or entered into a Closing Agreement (as defined below) with any
taxing authority. "Tax Ruling," as used in this Agreement, shall mean
a written ruling of a taxing authority relating to Taxes. "Closing
Agreement," as used in this Agreement, shall mean a written and
legally binding agreement with a taxing authority relating to Taxes.
(j) TAX SHARING AGREEMENTS. Except as may be entered
into between IFG and SpinCo in connection with the Spin Off, neither
IFG nor any Material IFG Subsidiary is a party to any agreement
relating to allocating or sharing of Taxes other than those contained
in the Acquisition Documents.
(k) LIABILITY FOR OTHERS. Other than pursuant to the
Acquisition Documents, neither IFG nor any of the Material IFG
Subsidiaries has any material liability for Taxes of
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any Person other than IFG and the Material IFG Subsidiaries (i) under
Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law), (ii) by contract, or (iii) otherwise.
(l) SECTION 341(f). Neither IFG nor any of the Material
IFG Subsidiaries has, with regard to any assets or property held or
acquired by any of them, filed a consent to the application of Section
341(f)(2) of the Code, or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by IFG or any of the
Material IFG Subsidiaries.
(m) DEFICIENCIES. No deficiencies for any Taxes has been
proposed, asserted or assessed against IFG, and there is no
outstanding waiver of the statute of limitations with respect to any
Taxes or Tax Returns of IFG.
(n) TEN PERCENT VOTING INTEREST. At the Closing Date
and except as provided in the following sentence, other than a
corporation in which IFG or any Subsidiary of IFG owns 100% of the
stock, including such corporations held through one or more chains of
includible corporations connected through 100% stock ownership with
IFG or any corporate Subsidiary of IFG, as the case may be, neither
IFG nor any Subsidiary of IFG will own (as determined for purposes of
Section 856 of the Code and with the same meaning as when used in the
Investment Company Act of 1940, as amended), directly or indirectly,
more than ten percent of the voting securities of any corporation as
determined for purposes of Section 856(c)(4)(B) of the Code. IFG will
provide AIMCO with a list of all corporations in which IFG or any
Subsidiary of IFG will at the Effective Time own less than 100% and
more than 10% of the outstanding voting securities as determined for
purposes of Section 856(c)(4)(B) of the Code at least 30 days prior to
the Closing.
(o) SERVICES. At the Closing Date, neither IPT nor any
of its Subsidiaries will provide services to tenants other than those
customarily furnished or rendered in connection with the rental of
real property for purposes of Section 856(c) of the Code.
Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in
Section 4.10 of the IFG Disclosure Letter and as contemplated under Section
6.1(h) of the IFG Disclosure Letter:
(a) BENEFIT PLANS. As of the date hereof, Section
4.10(a) of the IFG Disclosure Letter contains a true and complete list
of each written or, to the knowledge of IFG, oral material employment
agreement, arrangement, commitment, severance or retention agreement,
employee benefit plan, policy or agreement covering Retained Employees
and other individuals with respect to which AIMCO will have financial
obligations following the Merger or their beneficiaries, or providing
benefits to such Persons in respect of services provided to IFG or any
Material IFG Subsidiary, including, but not limited to, any material
employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and any material severance or change
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in control agreement (collectively, the "IFG Benefit Plans"). Since
March 1, 1997, except as set forth in Section 4.10(a) of the IFG
Disclosure Letter, there have been no new plans adopted or changes,
additions or modification to any existing IFG Benefit Plan that could
reasonably be expected to materially increase the cost of such IFG
Benefit Plan. Neither IFG nor any Material IFG Subsidiary has any
obligation to provide any former or present employee, director,
officer or partner any profit sharing, springing or existing equity or
profits interest or participation, any paid sabbatical, or the right
to purchase any asset or property including, without limitation, any
apartment.
(b) CONTRIBUTIONS. All material contributions and other
material payments required to be made by IFG or any of the Material
IFG Subsidiaries to any IFG Benefit Plan (or to any Person pursuant to
the terms thereof) have been made or the amount of such payment or
contribution obligation has been reflected in the IFG Financial
Statements to the extent required by GAAP.
(c) QUALIFICATION; COMPLIANCE. Except where failures to
so comply with each of the following representations would not
individually or in the aggregate be expected to result in an IFG
Material Adverse Effect, (i) each of the IFG Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the Internal Revenue Service (the "IRS") to be so
qualified, and, to the knowledge of IFG, no circumstances exist that
are reasonably expected by IFG to result in the revocation of any such
determination; (ii) IFG is in compliance with, and each of the IFG
Benefit Plans is and has been operated in compliance with, all
applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code; (iii) each IFG Benefit Plan
intended to provide for the deferral of income, the reduction of
salary or other compensation, or to afford other income tax benefits,
complies with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such
income tax benefits; (iv) no prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred
for which a statutory or administrative exemption is not available
with respect to any IFG Benefit Plan, and which could give rise to
liability on the part of IFG, any IFG Benefit Plan, or any fiduciary,
party in interest or disqualified Person.
(d) LIABILITIES. With respect to the IFG Benefit Plans
and except for liabilities that individually or in the aggregate would
not be expected to result in an IFG Material Adverse Effect, no event
has occurred, and, to the knowledge of IFG, there does not now exist
any condition or set of circumstances, that could reasonably be
expected to subject IFG or any of the Material IFG Subsidiaries to any
material liability arising under the Code, ERISA or any other
applicable law (including, without limitation, any liability to any
such plan or the Pension Benefit Guaranty Corporation (the "PBGC")),
excluding liability for benefit claims and funding obligations payable
in the ordinary course.
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(e) WELFARE PLANS. None of the IFG Benefit Plans that
are "welfare plans," within the meaning of Section 3(1) of ERISA,
provide for any material benefits with respect to current or former
employees for periods extending beyond their retirement or other
termination of service, other than continuation coverage required to
be provided under Section 4980B of the Code or Part 6 of Title I of
ERISA.
(f) PAYMENTS RESULTING FROM THE MERGER. Other than with
respect to the restricted stock, option awards and Employee Warrants
referred to in Section 4.3, or with respect to the employment
agreements or arrangements set forth in Section 4.10(a) of the IFG
Disclosure Letter, the consummation or announcement of any transaction
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional or further acts or events, including,
without limitation, the termination of employment of any officers,
directors, employees or agents of IFG or any Subsidiary of IFG on or
prior to the Closing), result in any (i) payment (whether of severance
pay or otherwise) becoming due from IFG or any of the Material IFG
Subsidiaries to any Retained Employee or to the trustee under any
"rabbi trust" or similar arrangement, or (ii) benefit of any Retained
Employee under any IFG Benefit Plan becoming accelerated, vested or
payable.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 4.11 of the IFG
Disclosure Letter, to the knowledge of IFG:
(i) COMPLIANCE. IFG and each of the Material IFG
Subsidiaries is in compliance with all applicable Environmental Laws
(as defined in Section 4.11(b)(ii)) and neither IFG nor any of the
Material IFG Subsidiaries has received any communication (written or
oral), from any Person or Governmental Authority that alleges that IFG
or any of the Material IFG Subsidiaries is not in such compliance with
applicable Environmental Laws. Compliance with all applicable
Environmental Laws will not require IFG or any Material IFG Subsidiary
to incur costs that will be reasonably likely to result in an IFG
Material Adverse Effect.
(ii) ENVIRONMENTAL PERMITS. IFG and each of the Material
IFG Subsidiaries has obtained or has applied for all environmental,
health and safety permits and governmental authorizations
(collectively, the "Environmental Permits") necessary for the
construction of their facilities or the conduct of their operations,
and all such Environmental Permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending
agency approval, and IFG and the Material IFG Subsidiaries are in
compliance with all terms and conditions of the Environmental Permits,
except for Environmental Permits which in the aggregate would not
result in an IFG Material Adverse Effect.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental
Claim (as defined in Section 4.11(b)(i)) pending (A) against IFG or
any of the Material IFG Subsidiaries, (B) against any Person or entity
whose liability for any Environmental Claim IFG or any of the
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Material IFG Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (C) against any real or
personal property or operations which IFG or any of the Material IFG
Subsidiaries owns, leases or manages, in whole or in part, except, in
each case, for Environmental Claims which in the aggregate would not
result in an IFG Material Adverse Effect.
(iv) RELEASES. There have been no Releases (as defined in
Section 4.11(b)(iv)) of any Hazardous Material (as defined in Section
4.11(b)(iii)) that would be reasonably likely to form the basis of any
Environmental Claim against IFG or any of the Material IFG
Subsidiaries or against any Person or entity whose liability for any
Environmental Claim IFG or any of the Material IFG Subsidiaries has or
may have retained or assumed either contractually or by operation of
law, except for Releases which in the aggregate would not result in an
IFG Material Adverse Effect.
(v) PREDECESSORS. There is no Environmental Claim with
respect to any predecessor of IFG or any of the Material IFG
Subsidiaries which would have an IFG Material Adverse Effect pending
or threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claim, except
for Environmental Claims which in the aggregate would not result in an
IFG Material Adverse Effect.
(b) DEFINITIONS. As used in this Agreement:
(i) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, liens, investigations, proceedings or
notices of noncompliance or violation (written or oral) by any Person
(including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, Release
or threatened Release into the environment of any Hazardous Materials
at any location, whether or not owned, operated, leased or managed by
IFG or any of the Material IFG Subsidiaries (for purposes of this
Section 4.11); or (B) circumstances forming the basis of any violation
or alleged violation of any Environmental Law or (C) any and all
claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and
local laws, rules and regulations relating to pollution, the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or protection
of human health as it relates to the environment including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the
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manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or
petroleum products, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls ("PCBs"); (B) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar
import under any Environmental Law and (C) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in
which IFG or any of the Material IFG Subsidiaries operates (for
purposes of this Section 4.11).
(iv) "Release" means any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the atmosphere, soil, surface water, groundwater or
property.
Section 4.12 VOTE REQUIRED. The affirmative vote of the
holders of at least a majority of the shares of IFG Common Stock outstanding on
the record date for the meeting at which such vote is taken (the "IFG
Stockholders' Approval"), is the only vote of the holders of any class or
series of the shares of IFG, SpinCo or any of their Subsidiaries that is
required to approve this Agreement, the Merger and the Spin Off.
Section 4.13 OPINION OF FINANCIAL ADVISOR. IFG has received
the opinions of Lehman Brothers Inc. ("Lehman Brothers"), dated as of the
date hereof, to the effect that, as of the date hereof, the total
consideration, including the Merger Consideration and the common stock of
SpinCo to be received by the holders of IFG Common Stock in the Spin Off is
fair, from a financial point of view, and that, as of the date hereof, the
allocation of the Merger Consideration and the amount to be received by holders
of shares of beneficial interest of IPT (assuming that a merger occurs pursuant
to the offer required to be made by AIMCO pursuant to Section 7.10 at a price
of $13.25 per IPT share) between the holders of IFG Common Stock and holders of
shares of beneficial interest of IPT is reasonable.
Section 4.14 HUD. Other than as set forth on Section 4.14 of
the IFG Disclosure Letter and except in the case of (a), (b) and (c) where the
failure to obtain, or presence of which, would not result in an IFG Material
Adverse Effect, each of IFG and the Material IFG Subsidiaries as of the date
hereof (a) has all necessary consents and approvals of the United States
Department of Housing and Urban Development and/or applicable state housing
agencies (together, "HUD") to act as a general partner of and/or management
agent for, as the case may be, each partnership which is an owner of a HUD-
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insured or HUD-assisted property for which IFG or any Material IFG Subsidiary
acts as a general partner and/or management agent and (b) with respect to each
HUD-insured or HUD-assisted property for which IFG or any Material IFG
Subsidiary acts as a general partner and/or management agent, IFG and the
Material IFG Subsidiaries do not have any physical inspection reviews or
management agent's performance reviews that are graded as less than
"Satisfactory" or, as to state housing agencies, an equivalent rating and (c)
has no "flags" or limited denials of participation, suspensions or debarments
currently in effect under the HUD 2530 Previous Participation Clearance
Procedures or any other applicable HUD regulations.
Section 4.15 DEFICIT RESTORATION OBLIGATIONS. As of the date
hereof, the aggregate deficit capital account restoration obligations of the
Material IFG Subsidiaries, the Material Non-REIT Subsidiaries and the REIT GP
Entities which serve as general partners in Investment Limited Partnerships,
assuming that each partnership sold all of its assets at fair market value,
allocated gain in accordance with its partnership agreement, paid its
liabilities and distributed any remaining assets to its partners in accordance
with its partnership agreement, after reduction by that percentage of the
limited partner interests owned by all affiliates of such general partner and
after taking into account any indemnification, reimbursement or similar
obligations from third parties, does not exceed $6,000,000.
Section 4.16 EARNINGS AND PROFITS. As of the date hereof
and assuming a Closing Date of June 30, 1998, IFG's good faith estimate is that
the earnings and profits of IFG (including any earnings and profits resulting
from and transferred with the distribution of the stock of SpinCo) and the
Material IFG Subsidiaries and the other Subsidiaries of IFG included in IFG's
consolidated group at the Effective Time will not exceed $60 million.
Section 4.17 ABSENCE OF INDUCEMENT. In entering into this
Agreement, IFG has not been induced by, or relied upon, any representations,
warranties or statements by AIMCO not set forth or referred to in the
Transaction Documents, the Schedules thereto or the other documents required to
be delivered thereby, whether or not such representations, warranties or
statements have actually been made, in writing or orally, and IFG acknowledges
that, in entering into this Agreement, AIMCO has been induced by and relied
upon the representations and warranties of IFG and SpinCo herein set forth, the
information set forth in the AIMCO SEC Reports and the representations and
warranties of the parties to the Transaction Documents, the Schedules thereto
or the other documents required to be delivered thereby. IFG has made its own
investigation of AIMCO prior to the execution of this Agreement and has not
been induced by or relied upon any representations, warranties or statements as
to the advisability of entering into this Agreement other than as set forth
above.
ARTICLE IVA
REPRESENTATIONS AND WARRANTIES OF SPINCO
SpinCo makes the following representations and warranties to
AIMCO and IFG. Except as set forth in the IFG Disclosure Letter:
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Section 4.1A AUTHORITY; NON-CONTRAVENTION; STATUTORY
APPROVALS; COMPLIANCE.
(a) AUTHORITY. SpinCo has all requisite corporate power
and authority to enter into this Agreement and, subject to the IFG
Stockholders' Approval, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by SpinCo of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SpinCo. This Agreement has been duly and
validly executed and delivered by SpinCo and, assuming the due authorization,
execution and delivery hereof by AIMCO, constitutes the valid and binding
obligation of SpinCo enforceable against it in accordance with the terms of
this Agreement.
(b) NON-CONTRAVENTION. The execution and delivery of
this Agreement by SpinCo does not, and the consummation of the transactions
contemplated hereby will not, constitute a Violation of (i) the certificate of
incorporation or by-laws of SpinCo, (ii) subject to obtaining the approval of
the stockholders of IFG, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to SpinCo or any of its properties or assets
or (iii) subject to obtaining any required consent, any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which SpinCo is a party or to which it or any of its properties or assets is
subject, except where such Violations would not result in a SpinCo Material
Adverse Effect.
(c) STATUTORY APPROVALS. Except for the filing of Form
10 with the SEC, no declaration, filing or registration with, or notice to or
authorization, consent or approval of, any Governmental Authority is necessary
for the execution and delivery of this Agreement by SpinCo or the consummation
by SpinCo of the transactions contemplated hereby, except where failure to
obtain such declaration, filing, registration, authorization, consent or
approval would not have a SpinCo Material Adverse Effect.
(d) COMPLIANCE. Except as set forth in Section 4.1A of
the IFG Disclosure Letter, SpinCo is not in violation of, is not, to the
knowledge of SpinCo, under investigation with respect to any violation of, and
has not been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Laws) of any Governmental Authority.
Except as set forth in Section 4.1A of the IFG Disclosure Letter, SpinCo has
all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct its business as presently
conducted, except where the failure to obtain such authorizations, consents and
approvals would not result in a SpinCo Material Adverse Effect. SpinCo is not
in breach or violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time or
action by a third party, could result in a default by SpinCo under (i) its
certificate of incorporation or by-laws or (ii) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which it is a party or by which SpinCo is bound
or to which any of its property is subject, except for possible violations,
breaches
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or defaults which individually or in the aggregate would not have a SpinCo
Material Adverse Effect. For purposes of this Agreement, a SpinCo Material
Adverse Effect shall mean the existence of any fact or condition which has or
will have a material adverse effect on the business, assets, financial
condition or results of operations of SpinCo.
Section 4.2A ABSENCE OF INDUCEMENT. In entering into this
Agreement, SpinCo has not been induced by, or relied upon, any representations,
warranties or statements by AIMCO not set forth or referred to in the
Transaction Documents Schedules thereto or the other documents required to be
delivered thereby, whether or not such representations, warranties or
statements have actually been made, in writing or orally, and SpinCo
acknowledges that, in entering into this Agreement, AIMCO has been induced by
and relied upon the representations and warranties of SpinCo herein set forth
and the representations and warranties of the parties to the Transaction
Documents, the Schedules thereto or the other documents required to be
delivered thereby. SpinCo has made its own investigation of AIMCO prior to the
execution of this Agreement and has not been induced by or relied upon any
representations, warranties or statements as to the advisability of entering
into this Agreement other than as set forth above.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AIMCO
AIMCO makes the following representations and warranties to
IFG and SpinCo. Except as set forth in the AIMCO SEC Reports or the disclosure
letter from AIMCO to IFG and SpinCo dated the date hereof (the "AIMCO
Disclosure Letter"):
Section 5.1 ORGANIZATION AND QUALIFICATION. AIMCO and each
of the AIMCO Subsidiaries (as defined below) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned, leased
and operated and to carry on its business as it is now being conducted and 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 assets and
properties makes such qualification necessary other than in such jurisdictions
where the failure so to qualify would not have an AIMCO Material Adverse
Effect.
Section 5.2 SUBSIDIARIES. The term "AIMCO Subsidiary" shall
mean each of the AIMCO Subsidiaries as of the date hereof set forth on Section
5.2 of the AIMCO Disclosure Letter. Except as set forth in Section 5.2 of the
AIMCO Disclosure Letter, all of the issued and outstanding shares of capital
stock and all other equity interests owned by each AIMCO Subsidiary are, in the
case of capital stock, validly issued, fully paid, nonassessable and free of
preemptive rights, and, in the case of capital stock and all other equity
interests on any entity, are owned, directly or indirectly, by AIMCO free and
clear of any liens, claims, encumbrances, security interests, charges and
options
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of any nature whatsoever, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such AIMCO Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock
or obligating it to grant, extend or enter into any such agreement or
commitment.
Section 5.3 CAPITALIZATION. As of the date hereof, the
authorized capital stock of AIMCO consists of (i) 150,000,000 shares of AIMCO
Class A Common Stock, par value $0.01 per share ("AIMCO Common Stock"), (ii)
750,000 shares of Class B Common Stock, par value $0.01 per share (the "AIMCO
Class B Common Stock") and (iii) 10,000,000 shares of Preferred Stock, par
value $0.01 per share (the "AIMCO Preferred"). At the close of business on
February 28, 1998, (i) 41,083,073 shares of AIMCO Common Stock were issued and
outstanding, (ii) no shares of AIMCO Common Stock were held by AIMCO in its
treasury or by its wholly owned Subsidiaries, (iii)162,500 shares of AIMCO
Class B Common Stock were issued and outstanding, and of such issued shares,
none were held by AIMCO in its treasury or by wholly owned subsidiaries, (iv)
7,350,000 shares of AIMCO Preferred were issued and outstanding (including
750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock, par
value $0.01 per share, 2,400,000 shares of AIMCO 9% Class C Cumulative
Preferred Stock, par value $0.01 per share, and 4,200,000 shares of AIMCO 8.75%
Class D Cumulative Preferred Stock, par value $0.01 per share), and of such
issued shares, none were held by AIMCO in its treasury or by its wholly owned
Subsidiaries, (v) an aggregate of 5,235,337 shares of AIMCO Common Stock were
reserved for issuance upon the exchange of units of limited partnership in
AIMCO Properties, L.P., (vi) an aggregate of 5,115,246 shares of AIMCO Common
Stock were reserved for issuance pursuant to the AIMCO Benefit Plans and
outstanding warrants, (vii) an aggregate of 2,463,052 shares of AIMCO Common
Stock were reserved for issuance upon conversion of AIMCO Preferred, (viii)
162,500 shares were reserved for issuance upon conversion of AIMCO Class B
Common Stock and (ix) no Voting Debt was issued or outstanding. All
outstanding shares of AIMCO Common Stock and AIMCO Preferred Stock are validly
issued, fully paid and nonassessable and are not subject to preemptive rights.
Upon consummation of the Merger and the issuance of the Series E Preferred
Stock, the Series F Preferred Stock and the AIMCO Common Stock underlying the
Series E Preferred Stock, all such shares will be validly issued, fully paid
and nonassessable and will not be subject to preemptive rights. As of the date
hereof, except as disclosed in the AIMCO SEC Reports filed prior to the date
hereof or as set forth in Section 5.3 of the AIMCO Disclosure Letter or
pursuant to this Agreement and the AIMCO Benefit Plans, there are no options,
warrants, calls, rights, commitments or agreements of any character to which
AIMCO or any AIMCO Subsidiary is a party or by which any of them are bound
obligating AIMCO or any AIMCO Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or any Voting
Debt securities of AIMCO or any AIMCO Subsidiary or obligating AIMCO or any
AIMCO Subsidiary to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
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Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY
APPROVALS; COMPLIANCE.
(a) AUTHORITY. AIMCO has all requisite power and
authority to enter into this Agreement and, subject to the receipt of the
applicable AIMCO Required Statutory Approvals (as defined in Section 5.4(c)),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by AIMCO of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of AIMCO. This Agreement has been duly and validly executed and
delivered by AIMCO and, assuming the due authorization, execution and delivery
hereof by IFG, constitutes the valid and binding obligation of AIMCO
enforceable against it in accordance with the terms of this Agreement. No
approval of the stockholders of AIMCO is required to execute and deliver this
Agreement or to consummate the transactions contemplated hereby including
without limitation, the issuance and listing on the NYSE of the Series E
Preferred Stock, the Series F Preferred Stock and the AIMCO Common Stock
underlying the Series E Preferred Stock in the Merger and the assumption of all
obligations of IFG relating to the TOPRs and the performance of all actions
required by the documents governing TOPRs documents.
(b) NON-CONTRAVENTION. Except as set forth in Section
5.4(b) of the AIMCO Disclosure Letter, the execution and delivery of this
Agreement by AIMCO does not, and the consummation of the transactions
contemplated hereby will not, result in a material Violation with respect to
AIMCO or any of the AIMCO Subsidiaries pursuant to any provisions of (i) the
certificate of incorporation, by-laws or similar governing documents of AIMCO
or any of the AIMCO Subsidiaries, (ii) subject to obtaining the AIMCO Required
Statutory Approvals, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to AIMCO or any of the AIMCO Subsidiaries or any of their
respective properties or assets or (iii) subject to obtaining the third-party
consents set forth in Section 5.4(b) of the AIMCO Disclosure Letter, any
material note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or
agreement of any kind to which AIMCO or any of the AIMCO Subsidiaries is a
party or to which it or any of its properties or assets is subject, except in
the case of clause (ii) or (iii) for any such Violation which would not have an
AIMCO Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by AIMCO or the consummation by AIMCO of the transactions
contemplated hereby except as described in Section 5.4(c) of the AIMCO
Disclosure Letter or the failure of which to make, give or obtain would not
result in an AIMCO Material Adverse Effect (the "AIMCO Required Statutory
Approvals," it being understood that references in this Agreement to
"obtaining" such AIMCO Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire
as are necessary to avoid a violation of law).
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(d) COMPLIANCE. Except as set forth in Section 5.4 of
the AIMCO Disclosure Letter or as disclosed in the AIMCO SEC Reports filed
prior to the date hereof, neither AIMCO nor any of the AIMCO Subsidiaries is in
violation of, is, to the knowledge of AIMCO, under investigation with respect
to any violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable Environmental Laws) of any
Governmental Authority. "AIMCO SEC Reports" shall mean each report, schedule,
registration statement and definitive proxy statement filed with the SEC by
AIMCO pursuant to the requirements of the Securities Act or Exchange Act since
December 31, 1996 as such documents have since the time of their filing been
amended. Except as disclosed in the AIMCO SEC Reports filed prior to the date
hereof, AIMCO and the AIMCO Subsidiaries have all permits, licenses, including
licenses to operate as a property manager, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted, except where the failure to obtain such permits, licenses,
including licenses required as a property manager, franchise and other
authorizations, consents and approvals would not have an AIMCO Material Adverse
Effect. AIMCO and each of the AIMCO Subsidiaries is not in breach or violation
of or in default in the performance or observance of any term or provision of,
and no event has occurred which, with lapse of time or action by a third party,
could result in a default by AIMCO or any AIMCO Subsidiary under (i) AIMCO's or
AIMCOLP's organizational documents or (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument (other than any organizational documents) to which it is a
party or by which AIMCO or any AIMCO Subsidiary is bound or to which any of its
property is subject, except for possible violations, breaches or defaults which
individually or in the aggregate would not have an AIMCO Material Adverse
Effect.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings
required to be made by AIMCO and the AIMCO Subsidiaries since December 31, 1996
under the Securities Act, Exchange Act and applicable state laws and
regulations have been filed with the SEC or the appropriate state commission,
as the case may be, including all forms, statements, reports, agreements (oral
or written) and all documents, exhibits, amendments and supplements
appertaining thereto, and complied, as of their respective dates, in all
material respects with all applicable requirements of the appropriate statutes
and the rules and regulations thereunder, except for such filings the failure
of which to have been made or to so comply would not result in an AIMCO
Material Adverse Effect. As of their respective dates, the AIMCO SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of AIMCO included in the AIMCO SEC Reports
(collectively, the "AIMCO Financial Statements") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present in all material respects the financial
position of AIMCO as of the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal, recurring and year-end audit
adjustments. True, accurate and
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complete copies of the AIMCO Articles and AIMCO by-laws, as in effect on the
date hereof have been provided to IFG.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the AIMCO SEC Reports filed prior to the date hereof, since
December 31, 1997, AIMCO and each of the AIMCO Subsidiaries have conducted
their business only in the ordinary course of business (except for acquisitions
and dispositions) consistent with past practice and there has not been any
AIMCO Material Adverse Effect. For purposes of this Agreement, an "AIMCO
Material Adverse Effect" shall mean the existence of any fact or condition
which has or will have a material adverse effect on the business, assets,
financial condition or results of operations of AIMCO and the AIMCO
Subsidiaries taken as a whole; provided, however, that adverse effects on the
business, assets, financial condition or results of operations of AIMCO or the
AIMCO Subsidiaries due to general economic conditions, loss of employees,
cancellation of third party management contracts (other than contracts which
are on properties where AIMCO or an AIMCO Subsidiary is a general partner or
where cancellation will result in substantial termination payments),
unsolicited third party offers for limited partnership interests of AIMCO
Subsidiaries and AIMCO's response thereto, unsolicited offers to acquire one or
more assets of any AIMCO Subsidiary and AIMCO's or any AIMCO Subsidiary's
purchase or sale in response thereto and conditions affecting generally the
multi-family apartment property market or any of the markets in which AIMCO or
any AIMCO Subsidiary operates shall not be deemed to be an AIMCO Material
Adverse Effect and shall not be taken into account in determining the existence
of an AIMCO Material Adverse Effect.
Section 5.7 LITIGATION. Except as disclosed in the AIMCO SEC
Reports filed prior to the date hereof or as disclosed in Section 5.7 of the
AIMCO Disclosure Letter, (a) there are no claims, suits, actions or proceedings
against any general partner or limited partner of any AIMCO Subsidiary pending,
(b) there are no claims, suits, actions or proceedings by any court,
Governmental Authority or third party, pending or, with respect to
Governmental Authorities, to the knowledge of AIMCO, threatened, nor are there,
to the knowledge of AIMCO, any investigations or reviews by any Governmental
Authority pending or threatened against, relating to or affecting AIMCO or any
of the AIMCO Subsidiaries which would have an AIMCO Material Adverse Effect,
(c) there have not been any significant adverse developments since December 31,
1997 with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews and (d) there are no judgments, decrees, injunctions
or orders of any Governmental Authority specifically applicable to AIMCO or any
of the AIMCO Subsidiaries.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
None of the information supplied or to be supplied by or on behalf of AIMCO for
inclusion or incorporation by reference in (a) the Registration Statement will,
at the time the Registration Statement is filed by AIMCO with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(b) the Proxy Statement will at the dates mailed to IFG stockholders and AIMCO
stockholders and at the time of the meetings of IFG stockholders and AIMCO
stockholders to be held in connection with the Merger, contain any untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The
Registration Statement and Proxy Statement (to the extent applicable to AIMCO)
will comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Section 5.9 TAX MATTERS. Except as set forth in Section
5.9 of the AIMCO Disclosure Letter:
(a) FILING OF TIMELY TAX RETURNS. AIMCO and each of the
Subsidiaries of AIMCO have filed (or there has been filed on its
behalf) all Tax Returns required to be filed by each of them under
applicable law. All such Tax Returns were and are in all material
respects true, complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. AIMCO and each of the Subsidiaries
of AIMCO have, within the time and in the manner prescribed by law,
paid all Taxes that are currently due and payable for all periods
through and including the Closing Date, except for those contested in
good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. AIMCO and the Subsidiaries of AIMCO
have established on their books and records reserves adequate to pay
all material Taxes and reserves for deferred income Taxes in
accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the material
assets of AIMCO or any of the AIMCO Subsidiaries except liens for
Taxes not yet delinquent.
(e) WITHHOLDING TAXES. AIMCO and each of the
Subsidiaries of AIMCO have complied in all material respects with the
provisions of the Code relating to the withholding of Taxes, as well
as similar provisions under any other laws, and have, within the time
and in the manner prescribed by law, withheld and paid over to the
proper governmental authorities all amounts required.
(f) REIT CLASSIFICATION. At all times since the initial
public offering of AIMCO, AIMCO has been organized and operated in
conformity with the Status Requirements, and its proposed method of
operation will enable it to continue to meet the Status Requirements
and otherwise qualify as a REIT.
(g) CONTINUATION AS REIT. The execution or delivery by
AIMCO of this Agreement and the consummation by AIMCO of the
transactions contemplated hereby or compliance with or fulfillment of
terms and provisions hereof by AIMCO, will not adversely affect the
qualification of AIMCO as a REIT for each taxable year ending on or
after the Closing Date.
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(h) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No
audits or other administrative proceedings or court proceedings are
presently pending with regard to any material Taxes or Tax Returns of
AIMCO or any of the Subsidiaries of AIMCO.
(i) TAX RULINGS. Neither AIMCO nor any of the
Subsidiaries of AIMCO has received or has pending a Tax Ruling or
entered into a Closing Agreement with any taxing authority.
(j) TAX SHARING AGREEMENTS. Except as between affiliates
of AIMCO as set forth in Section 5.9 of the AIMCO Disclosure Letter,
neither AIMCO nor any AIMCO Subsidiary is a party to any agreement
relating to allocating or sharing of Taxes.
(k) LIABILITY FOR OTHERS. Neither AIMCO nor any of the
Subsidiaries of AIMCO has any liability for material Taxes of any
person other than AIMCO and the AIMCO Subsidiaries (i) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law), (ii) by contract, or (iii) otherwise.
(l) SECTION 341(F). Neither AIMCO nor any of the
Subsidiaries of AIMCO has, with regard to any assets or property held
or acquired by any of them, filed a consent to the application of
Section 341(f)(2) of the Code, or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f)(4) of the Code) owned by AIMCO or
any of the Subsidiaries of AIMCO.
(m) DEFICIENCIES. No deficiencies for any Taxes has been
proposed, asserted or assessed against AIMCO and there is no
outstanding waiver of the statute of limitations with respect to any
Taxes or Tax Returns of AIMCO.
(n) DOMESTIC CONTROL. AIMCO believes that it is a
"domestically-controlled" REIT within the meaning of Section
897(h)(4)(B) of the Code.
Section 5.10 EMPLOYEE MATTERS; ERISA. Except as set
forth in Section 5.10 of the AIMCO Disclosure Letter:
(a) BENEFIT PLANS. As of the date hereof, Section 5.10
of the AIMCO Disclosure Letter contains a true and complete list of
each written or oral material employment agreement, arrangement,
commitment, severance or retention agreement or policy, employee
benefit plan, policy or agreement covering employees, former employees
or directors of AIMCO and each of the AIMCO Subsidiaries or their
beneficiaries, or providing benefits to such Persons in respect of
services provided to any such entity, including, but not limited to,
any material employee benefit plans within the meaning of Section 3(3)
of ERISA and any material severance or change in control agreement
(collectively, the "AIMCO Benefit Plans"). Since December 31, 1996,
there have been no new plans adopted nor changes,
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additions or modification to any existing AIMCO Benefit Plans that
could reasonably be expected to materially increase the cost of such
AIMCO Benefit Plan.
(b) CONTRIBUTIONS. All material contributions and other
material payments required to be made by AIMCO or any of the AIMCO
Subsidiaries to any AIMCO Benefit Plan (or to any person pursuant to
the terms thereof) have been made or the amount of such payment or
contribution obligation has been reflected in the AIMCO Financial
Statements to the extent required by GAAP.
(c) QUALIFICATION; COMPLIANCE. Except where failure to
so comply with each of the following representations would not
individually or in the aggregate be expected to result in an AIMCO
Material Adverse Effect: (i) each of the AIMCO Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified, and, to the knowledge
of AIMCO, no circumstances exist that are reasonably expected by AIMCO
to result in the revocation of any such determination; (ii) AIMCO is
in compliance with, and each of the AIMCO Benefit Plans is and has
been operated in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA
and the Code; (iii) each AIMCO Benefit Plan intended to provide for
the deferral of income, the reduction of salary or other compensation,
or to afford other income tax benefits, complies with the requirements
of the applicable provisions of the Code or other laws, rules and
regulations required to provide such income tax benefits; and (iv) no
prohibited transactions (as defined in Section 406 or 407 of ERISA or
Section 4975 of the Code) have occurred for which a statutory or
administrative exemption is not available with respect to any AIMCO
Benefit Plan, and which could give rise to liability on the part of
AIMCO, any AIMCO Benefit Plan, or any fiduciary, party in interest or
disqualified Person.
(d) LIABILITIES. With respect to the AIMCO Benefit Plans
and except for liabilities that individually or in the aggregate would
not be expected to result in an AIMCO Material Adverse Effect,
individually and in the aggregate, no event has occurred, and, to the
knowledge of AIMCO, there does not now exist any condition or set of
circumstances, that could reasonably be expected to subject AIMCO or
any of the AIMCO Subsidiaries to any material liability arising under
the Code, ERISA or any other applicable law (including, without
limitation, any liability to any such plan or the PBGC), excluding
liability for benefit claims and funding obligations payable in the
ordinary course.
(e) WELFARE PLANS. None of the AIMCO Benefit Plans that
are "welfare plans," within the meaning of Section 3(1) of ERISA,
provide for any material benefits with respect to current or former
employees for periods extending beyond their retirement or other
termination of service, other than continuation coverage required to
be provided under Section 4980B of the Code or Part 6 of Title I of
ERISA.
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(f) PAYMENTS RESULTING FROM THE MERGER. The consummation
or announcement of any transaction contemplated by this Agreement will
not (either alone or upon the occurrence of any additional or further
acts or events, including, without limitation, the termination of
employment of any officers, directors, employees or agents of AIMCO or
any of the AIMCO Subsidiaries) result in any (i) payment (whether of
severance pay or otherwise) becoming due from AIMCO or any of the
AIMCO Subsidiaries to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (ii) benefit under any AIMCO Benefit Plan becoming
accelerated, vested or payable.
Section 5.11 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 5.11 of the AIMCO
Disclosure Letter, to the knowledge of AIMCO:
(i) COMPLIANCE. AIMCO and each of the AIMCO Subsidiaries is
in compliance with all applicable Environmental Laws and neither AIMCO
nor any of the AIMCO Subsidiaries has received any communication
(written or oral), from any Person or Governmental Authority that
alleges that AIMCO or any of the AIMCO Subsidiaries is not in such
compliance with applicable Environmental Laws. Compliance with all
applicable Environmental Laws will not require AIMCO or any AIMCO
Subsidiary to incur costs that will be reasonably likely to result in
a AIMCO Material Adverse Effect.
(ii) ENVIRONMENTAL PERMITS. AIMCO and each of the AIMCO
Subsidiaries has obtained or has applied for all Environmental Permits
necessary for the construction of their facilities or the conduct of
their operations, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely
filed and is pending agency approval, and AIMCO and the AIMCO
Subsidiaries are in compliance with all terms and conditions of the
Environmental Permits, except for Environmental Permits which in the
aggregate would not result in an AIMCO Material Adverse Effect.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending (A) against AIMCO or any of the AIMCO Subsidiaries, (B)
against any Person or entity whose liability for any Environmental
Claim AIMCO or any of the AIMCO Subsidiaries has or may have retained
or assumed either contractually or by operation of law, or (C) against
any real or personal property or operations which AIMCO or any of the
AIMCO Subsidiaries owns, leases or manages, in whole or in part,
except, in each case, for Environmental Claims which in the aggregate
would not result in an AIMCO Material Adverse Effect.
(iv) RELEASES. There have been no Releases of any Hazardous
Material that would be reasonably likely to form the basis of any
Environmental Claim against AIMCO or any of the AIMCO Subsidiaries or
against any Person or entity whose liability for any Environmental
Claim AIMCO or any of the AIMCO Subsidiaries has or may have retained
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or assumed either contractually or by operation of law, except for
Releases which in the aggregate would not result in an AIMCO Material
Adverse Effect.
(v) PREDECESSORS. There is no Environmental Claim with
respect to any predecessor of AIMCO or any of the AIMCO Subsidiaries
which would have a AIMCO Material Adverse Effect pending or
threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claim, except
for Environmental Claims which in the aggregate would not result in an
AIMCO Material Adverse Effect.
Section 5.12 HUD. Other than as set forth on Section 5.12 of
the AIMCO Disclosure Letter and except in the case of (a), (b) and (c) where
the failure to obtain or presence of which would not result in an AIMCO
Material Adverse Effect, each of AIMCO and the AIMCO Subsidiaries as of the
date hereof (a) has all necessary consents and approvals of HUD to act as a
general partner of and/or management agent for, as the case may be, each
partnership which is an owner of a HUD-insured or HUD-assisted property for
which AIMCO or any AIMCO Subsidiary acts as a general partner and/or management
agent and (b) with respect to each HUD-insured or HUD-assisted property for
which AIMCO or any AIMCO Subsidiary acts as a general partner and/or management
agent has any physical inspection reviews or management agent's performance
reviews that are graded as less than "Satisfactory" or, as to state housing
agencies, an equivalent rating and (c) has no "flags" or limited denials of
participation, suspensions or debarments currently in effect under the HUD 2530
Previous Participation Clearance Procedures or any other applicable HUD
regulations.
Section 5.13 ABSENCE OF INDUCEMENT. In entering into this
Agreement, AIMCO has not been induced by, or relied upon, any representations,
warranties or statements by IFG or SpinCo not set forth or referred to in the
Transaction Documents, the Schedules thereto or the other documents required to
be delivered thereby, whether or not such representations, warranties or
statements have actually been made, in writing or orally, and AIMCO
acknowledges that, in entering into this Agreement, IFG and SpinCo have been
induced by and relied upon the representations and warranties of AIMCO herein
set forth, the information set forth in the IFG SEC Reports and the
representations and warranties of the parties to the Transaction Documents, the
Schedules thereto or the other documents required to be delivered thereby.
AIMCO has made its own investigation of IFG and SpinCo prior to the execution
of this Agreement and has not been induced by or relied upon any
representations, warranties or statements as to the advisability of entering
into this Agreement other than as set forth above or in the IFG SEC Reports.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 COVENANTS OF IFG. IFG agrees, as to IFG and as
to each of the Subsidiaries of IFG, that after the date hereof and prior to the
Effective Time or earlier termination
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of this Agreement, (i) except as expressly contemplated or permitted in this
Agreement, (ii) except as AIMCO may otherwise agree in writing (which decision
shall be made as soon as reasonably practicable), (iii) except with respect to
the business and assets of SpinCo and the Spin Off Entities, and (iv) except
where a Subsidiary of IFG controls a general partner or member of a Subsidiary
of IFG which is a partnership or a limited liability company and such general
partner or member is acting in a manner consistent with its fiduciary duty as
a general partner or member under applicable law:
(a) ORDINARY COURSE OF BUSINESS. Except with respect to
the transfer of assets or securities to SpinCo or the Spin Off
Entities in compliance with this Agreement or in connection with its
constitution or operation, IFG shall, and shall cause its respective
Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts (but
which shall not require the payment of money) to preserve intact their
present business organizations, take all actions necessary to continue
to qualify IPT as a REIT, duly and timely file all reports, Tax
Returns and other documents required to be filed with federal, state,
local and other authorities, subject to prudent management of work
force needs and ongoing programs currently in force, use commercially
reasonable efforts to keep available the services of the Retained
Employees, and will take no action intended to jeopardize the goodwill
and relationships with customers, suppliers and others having business
dealings with them; provided, however, nothing in this paragraph (a)
shall prohibit IFG or any of its Subsidiaries from transferring
operations to IFG, any of its wholly owned Subsidiaries, IPT or IPLP
or from engaging in real estate development activities.
Notwithstanding the foregoing, IFG shall not, nor shall IFG permit any
of its Subsidiaries to, enter into a new line of business involving
any material investment of assets or resources if it would result in
any material exposure to liability or loss to IFG and the Material IFG
Subsidiaries taken as a whole.
(b) DISTRIBUTIONS. IFG shall not, nor shall IFG permit
any Material IFG Subsidiary to, (i) split, combine or reclassify any
of their shares or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for, of
their shares or (ii) except as set forth in Section 6.1(b) of the IFG
Disclosure Letter, redeem, repurchase or otherwise acquire any shares,
nor shall IFG permit IPT or IPLP to declare or pay any distributions
in respect of any of their shares or partnership units, respectively,
other than regular quarterly distributions not to exceed $0.15 ($0.16
after the consummation of the merger contemplated by the AMIT
Agreements) per share and per partnership unit, respectively.
(c) ISSUANCE OF SECURITIES. Except pursuant to the AMIT
Agreements, IFG shall not permit IPT or IPLP to issue, agree to issue,
deliver, sell, award, pledge, dispose of or otherwise encumber or
authorize or propose the issuance, delivery, sale, award, pledge,
disposal or other encumbrance of, any shares of any class or any
securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares or
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convertible or exchangeable securities, other than issuances of shares
upon exercise or conversion of outstanding stock options, warrants or
convertible securities set forth in Section 4.3 or upon vesting of
restricted stock. The parties shall promptly furnish to each other
such information as may be reasonably requested including financial
information and take such action as may be reasonably necessary and
otherwise fully cooperate with each other in the preparation of any
registration statement under the Securities Act and other documents
necessary in connection with the issuance of securities as
contemplated by this Section 6.1(c), subject to obtaining customary
indemnities.
(d) CHARTER DOCUMENTS. IFG shall not, and shall not
permit any of the Material IFG Subsidiaries, to amend or propose to
amend its charter, by-laws or regulations, or similar organizational
documents, except as contemplated herein and as may be necessary or
appropriate in connection with the offer to be made by AIMCO pursuant
to Section 7.10.
(e) ACQUISITIONS. IFG shall not, nor shall IFG permit
any of its Subsidiaries to, acquire, or publicly propose to acquire,
or agree to acquire, by merger or consolidation with, or by purchase
or otherwise, an equity interest in or a substantial portion of the
assets of, any business or any corporation, partnership, association
or other business organization or division thereof, nor shall IFG
acquire or agree to acquire a material amount of assets, if such
acquisition would adversely affect the tax-free treatment of the
Merger under Section 368(a) of the Code or the treatment of IPT as a
REIT following the Merger. If IFG or any of the Material Non-REIT
Subsidiaries acquires any United States multi-family residential
assets, securities or businesses (other than assets, securities or
businesses relating to the New York Residential Business or the
residential mortgage origination business), IFG shall, and shall cause
its Material Non-REIT Subsidiaries to, irrevocably offer AIMCO the
option to either (x) require any such assets to be distributed by IFG
to SpinCo (or the Spin Off Entities) at the effective time of the Spin
Off or (y) retain such assets or businesses by notifying IFG in
writing that AIMCO elects to retain such assets; provided however that
AIMCO shall be deemed, subject to consummation of the Merger and the
merger of IPT and AMIT pursuant to the AMIT Agreements, to have
elected to purchase the assets of Angeles Mortgage Investment Trust
("AMIT") to be purchased pursuant to the AMIT Agreements (the"AMIT
Assets"). If AIMCO elects to retain such assets AIMCO will reimburse
SpinCo for the cost of such assets by increasing the number
$308,433,730 in each place it appears in Section 2.3 by the amount of
the Acquisition Cost. The term "Acquisition Cost" shall mean with
respect to any such assets, the actual amount paid by IFG or any
Material Non-REIT Subsidiary for such assets (including reasonable,
actual out-of- pocket closing costs and any indebtedness incurred in
connection with the acquisition), less net cash flow received by IFG
in respect of such investment plus interest on such amount calculated
at the 30-day LIBOR rate plus 150 basis points calculated from the
date of incurrence or receipt.
(f) NO DISPOSITIONS. IFG shall not, nor shall IFG permit
any of the Material IFG Subsidiaries to, sell or dispose of any of
their assets other than (i) dispositions in the ordinary course of
business consistent with past practice, (ii) dispositions of assets
set forth on Section
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6.1(f) of the IFG Disclosure Letter, (iii) distribution of all the
shares of SpinCo to the stockholders of IFG or (iv) Spin Off Assets
and Spin Off Entities.
(g) INDEBTEDNESS. IFG covenants and agrees that it will
take such actions as are necessary to cause the aggregate indebtedness
for borrowed money (including without duplication, guarantees (other
than obligations under capitalization notes) and pledges) at IFG and
the Material Non-REIT Subsidiaries not to exceed $300,000,000, it
being understood that the TOPRs do not constitute indebtedness for
borrowed money for the purposes of this provision; provided, however,
that any such indebtedness shall be incurred pursuant to the notes
(other than those related to Realty One) identified in Note 9 to the
Insignia financial statements included on the draft Form 10-K for the
period ended December 31, 1997, (ii) IFG's credit facility with First
Union National Bank of South Carolina, as agent, in existence on the
date hereof or (iii) agreements permitting pre-payment at any time
without penalty or premium; provided further that the $300,000,000
amount shall be increased by the amount of debt incurred to acquire
assets which AIMCO elects to retain pursuant to Section 6.1(e).
(h) COMPENSATION, BENEFITS. Except as may be required by
applicable law or as permitted by Sections 2.1 and 7.12 of this
Agreement or Section 6.1(h) of the IFG Disclosure Letter, or as
requested by AIMCO, IFG shall not, nor shall IFG permit any of the
Material IFG Subsidiaries, with respect to Retained Employees to, (i)
enter into, adopt or amend or increase the amount or accelerate the
payment or vesting of any benefit or amount payable under, any
employee benefit plan or other contract, agreement, commitment,
arrangement, plan, trust, fund or policy maintained by, contributed to
or entered into by IFG or any of its Subsidiaries or increase, or
enter into any contract, agreement, commitment or arrangement to
increase in any manner, the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or
any related rights, other than normal, annual increases in the
ordinary course of business consistent with past practice; (ii) enter
into or amend any employment, severance or special pay arrangement
with respect to the termination of employment or other similar
contract, agreement or arrangement, other than in the ordinary course
of business consistent with past practice; or (iii) deposit into any
trust (including any "rabbi trust") amounts in respect of any
obligations to Retained Employees; provided that transfers into any
trust, other than a rabbi or other trust with respect to any
non-qualified deferred compensation, may be made in accordance with
past practice.
(i) ACCOUNTING. IFG shall not, nor shall IFG permit any
of its Subsidiaries to, make any changes in their accounting methods,
except as expressly required by law, rule, regulation or GAAP.
(j) AFFILIATE TRANSACTIONS. As of the Effective Time,
except (i) as set forth on Section 6.1(j) of the IFG Disclosure
Letter, (ii) for amounts or items covered in Section 2.3 of this
Agreement, and (iii) for loans by financial institutions in the
ordinary course of
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business, IFG (and each of its Material Non-REIT Subsidiaries other
than SpinCo) shall (x) not have any outstanding notes payable to,
accounts payable to, or advances to SpinCo, any Subsidiary of SpinCo,
any direct holder of 10% of any class of equity securities of IFG, any
officer, director or employee of SpinCo or any Subsidiary of SpinCo or
(y) not be a party to any contract (other than partnership agreements)
with SpinCo, any Subsidiary of SpinCo, or any direct holder of 10% of
any class of equity securities, any officer, director or employee of
SpinCo or any Subsidiary of SpinCo, other than the Transaction
Documents and other agreements contemplated by the Transaction
Documents and any agreements otherwise permitted by this Agreement.
(k) COOPERATION, NOTIFICATION. IFG shall (i) confer on a
regular and frequent basis with one or more representatives of AIMCO
to discuss, subject to applicable law, material operational matters
and the general status of its ongoing operations, (ii) promptly notify
AIMCO of any significant changes in its business, properties, assets,
condition (financial or other), results of operations or prospects,
and (iii) promptly provide AIMCO with copies of all filings made by
IFG, SpinCo or any of their Subsidiaries with any state or federal
court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions
contemplated hereby.
(l) NO BREACH, ETC. IFG shall not, nor shall IFG permit
any of its Subsidiaries to, willfully take any action that would
result in a material breach of any provision of this Agreement or in
any of its material representations and warranties set forth in this
Agreement being untrue on and as of the Closing Date.
(m) CONTRACTS. Except as set forth on Section 6.1(m) of
the IFG Disclosure Letter, or for contracts made in the ordinary
course of business consistent with past practice, IFG shall not, nor
shall IFG permit any Material IFG Subsidiary to modify, amend,
terminate, renew or fail to use reasonable business efforts to renew,
as the case may be, any contract or agreement material to IFG and the
Material IFG Subsidiaries taken as a whole or waive, release or assign
any material rights or claims.
(n) INSURANCE. IFG shall maintain with financially
responsible insurance companies insurance with respect to IFG and the
Material IFG Subsidiaries in such amounts and against such risks and
losses as are customary for entities engaged in the multi-family
apartment business.
(o) PERMITS. IFG shall, and shall cause its Subsidiaries
to, use reasonable efforts to maintain in effect all existing
governmental permits which are material to the operations of IFG or
its Subsidiaries taken as a whole.
(p) TAX MATTERS. IFG shall not, nor shall IFG permit any
Subsidiary of IFG to, (i) make or rescind any election relating to
Taxes if such action would adversely affect the status of IPT as a
REIT or the status of any Subsidiary of IFG (other than the Spin Off
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Entities) as a partnership for federal income tax purposes, (ii)
without the written consent of AIMCO, which consent will not be
unreasonably withheld, settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to Taxes unless such settlement or
compromise results in (A) a change in taxable income or Tax liability
that will reverse in future periods and is therefore, by its nature, a
timing difference or (B) a change in taxable income or tax liability
that will not reverse in future periods and is therefore, by its
nature, a permanent difference or (iii) change in any material respect
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 taxable year ending December 31,
1996, except as may be required by applicable law or except for such
changes that would reduce consolidated federal taxable income or
alternative minimum taxable income.
(q) TAX SHARING AGREEMENTS. IFG shall not enter into any
tax sharing agreement with SpinCo (or any of the Spin Off Entities)
without first obtaining AIMCO's consent, which shall not be
unreasonably withheld, conditioned or delayed.
Section 6.2 COVENANTS OF AIMCO. AIMCO agrees, as to itself
and to each of its Subsidiaries, that after the date hereof and prior to the
Effective Time or earlier termination of this Agreement:
(a) COOPERATION, NOTIFICATION. AIMCO shall (i) confer on
a regular and frequent basis with one or more representatives of IFG
to discuss, subject to applicable law, material operational matters
and the general status of its ongoing operations, (ii) promptly notify
IFG of any significant changes in its business, properties, assets,
condition (financial or other), results of operations or prospects,
and (iii) promptly provide IFG with copies of all filings made by
AIMCO or any of its Subsidiaries with any state or federal court,
administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated
hereby.
(b) NO BREACH, ETC. AIMCO shall not, nor shall AIMCO
permit any of its Subsidiaries to, willfully take any action that
would result in a material breach of any provision of this Agreement
or in any of its material representations and warranties set forth in
this Agreement being untrue on and as of the Closing Date; provided,
however, that AIMCO and its Subsidiaries may issue securities, acquire
securities or assets and otherwise act in the ordinary course of their
business.
(c) ACCOUNTING. AIMCO shall not, nor shall AIMCO permit
any of its Subsidiaries to, make any changes in their accounting
methods, except as required by law, rule, regulation, the SEC or GAAP,
and shall maintain its status as a REIT under the Code.
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(d) ACQUISITION OF AMIT ASSETS. AIMCO covenants and
agrees that at the Effective Time AIMCO shall elect to retain the
assets acquired by IFG from AMIT pursuant to the AMIT Agreements on
the terms set forth in Section 6.1(e).
(e) ARTICLES SUPPLEMENTARY. AIMCO covenants and agrees
to file Articles Supplementary to the AIMCO Articles in the forms
attached as Exhibits 6E and 6F, with only such changes for share
amounts or such other additional changes as agreed to by IFG and
SpinCo prior to the Effective Time; provided however, that if AIMCO
receives the AIMCO Stockholders' Approval prior to the Effective Time,
then AIMCO shall not file the Articles Supplementary set forth in
Exhibit 6E.
(f) DIVIDENDS. AIMCO covenants and agrees that during the
20-day AIMCO Index Price measurement period, AIMCO will not declare a
dividend in excess of 125% of AIMCO's then latest quarterly dividend
declaration.
(g) RECLASSIFICATION OF PREFERRED STOCK. AIMCO covenants
and agrees that prior to the Effective Time it will take all necessary
actions to reclassify a sufficient number of shares of AIMCO Common
Stock to issue the Series E Preferred Stock and/or Series F Preferred
Stock issued in the Merger.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice,
each party shall, and shall cause its Subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors and other representatives of the other (collectively,
"Representatives") reasonable access, during normal business hours throughout
the period prior to and following the Effective Time, to all of its properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) and, during such period, each party shall, and shall cause its
Subsidiaries to, furnish promptly to the other (i) access to each report,
schedule and other document filed or received by it or any of its Subsidiaries
pursuant to the requirements of federal or state securities laws or filed with
or sent to the SEC or any other federal or state regulatory agency or
commission and (ii) access to all information concerning themselves, their
Subsidiaries, directors, officers and stockholders and such other matters as
may be reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for any
other reason related to the transactions contemplated by this Agreement;
provided however that the foregoing shall apply to SpinCo and the Spin Off
Entities only with respect to information and access necessary to or required
by AIMCO in preparation of Tax Returns. Nothing in this Section 7.1 shall
require IFG or AIMCO to take any action or furnish any access or information
which would cause or could reasonably be expected to cause the waiver of any
applicable attorney client privilege. In addition, nothing herein shall
require IFG or AIMCO to provide information
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other than with respect to itself and its Subsidiaries, or the conduct of their
businesses. Each party and its representatives shall hold all information
obtained by it pursuant to this Agreement in accordance with the terms and
provisions of those confidentiality agreements dated October 14, 1997 (as
amended by letter dated March 2, 1998) and February 27, 1998 between the
parties (the "Confidentiality Agreements"), which shall continue in full force
and effect following execution of this Agreement.
Section 7.2 PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and
file with the SEC as soon as reasonably practicable after the date hereof the
Proxy Statement, the Registration Statement, AIMCO Form 8-A and the SpinCo Form
10. The parties hereto shall each use reasonable best efforts to cause the
Proxy Statement and Registration Statement, AIMCO Form 8-A and SpinCo Form 10
to be declared effective under the Securities Act as promptly as practicable
after such filing. Each party hereto shall also take such action as may be
reasonably required to cause the shares of Series E Preferred Stock and Series
F Preferred Stock issuable in connection with the Merger and the underlying
AIMCO Common Stock to be registered or to obtain an exemption from
registration under applicable state "blue sky" or securities laws; provided,
however, that no party shall be required to register or qualify as a foreign
corporation or to take other action which would subject it to general service
of process in any jurisdiction where the Surviving Corporation will not be,
following the Merger, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for inclusion in
the Proxy Statement and Registration Statement. AIMCO shall cause the shares
of Series E Preferred Stock and Series F Preferred Stock issuable in the Merger
and the AIMCO Common Stock underlying the Series E Preferred Stock to be
approved for listing on the NYSE upon official notice of issuance on or prior
to the Effective Date. The information provided by any party hereto for use in
the Proxy Statement, Registration Statement, AIMCO Form 8-A and SpinCo Form 10
shall be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading. No representation, covenant or agreement is made by any party
hereto with respect to information supplied by any other party for inclusion in
the Proxy Statement, Registration Statement and SpinCo Form 10.
(b) LETTER OF IFG'S ACCOUNTANTS. IFG shall use its
reasonable best efforts to cause to be delivered to AIMCO letters of Ernst &
Young LLP, dated a date within two business days before the date of the Proxy
Statement and Registration Statement, and addressed to AIMCO, in form and
substance reasonably satisfactory to AIMCO and customary in scope and
substance for "cold comfort" letters delivered by independent public accounts
in connection with registration statements on Form S-4.
(c) LETTER OF AIMCO'S ACCOUNTANTS. AIMCO shall use its
reasonable best efforts to cause to be delivered to IFG letters of Ernst &
Young LLP, dated a date within two business days before the date of the Proxy
Statement and Registration Statement, and addressed to IFG, in form and
substance reasonably satisfactory to IFG and customary in scope and substance
for
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"cold comfort" letters delivered by independent public accountants in
connection with registration statements on Form S- 4.
(d) ACQUISITIONS. AIMCO agrees that for the 60-day
period after the receipt of written notice from IFG, AIMCO will not, and will
not permit any of its subsidiaries to, enter into, directly or indirectly, any
agreement to acquire or dispose of stock or assets if such acquisition or
disposition would require a material change to the information contained in the
Proxy Statement and Registration Statement or would require dissemination of a
supplement to the Proxy Statement and Registration Statement. IFG shall be
entitled to deliver such notice to AIMCO on only one occasion.
Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause
to be filed with the federal Trade Commission and the Department of Justice any
notifications required to be filed by their respective "ultimate parent"
companies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules and regulations promulgated thereunder
with respect to the transactions contemplated hereby. Such parties will use
all commercially reasonable efforts to make such filings in a timely manner and
to respond on a timely basis to any requests for additional information made by
either of such agencies.
(b) HUD APPROVAL. AIMCO shall file or cause to be filed
with HUD any documents required to be filed under any applicable law or the
rules and regulations of HUD (collectively, the "HUD Rules"), with respect to
the Merger. AIMCO will use all commercially reasonable efforts to make such
filings in a timely manner and IFG shall make reasonable efforts to assist
AIMCO, upon request, in obtaining any necessary approvals of HUD. AIMCO and
IFG will respond on a timely basis to any requests for additional information
made by HUD. If an approval of HUD with respect to the transactions
contemplated hereby ("HUD Approval") is not obtained on or before the Closing
Date, SpinCo shall use its reasonable efforts to cause the officers of IPT on
the Closing Date to continue to serve in such capacities for purposes of
supervising all entities having an ownership interest in entities which own
HUD-assisted or HUD-insured properties (the "HUD Properties") and the directors
and/or officers of Insignia Residential Group, L.P. or its general partner to
continue to serve in such capacities with respect to the management of all HUD
Properties, until such approval is obtained. All funds received from the HUD
Properties by a REIT GP Entity, Subsidiaries of Insignia Residential Group,
L.P. and IPT, shall be placed in escrow until such time as either (i) HUD
Approval is obtained, or (ii) AIMCO directs the escrow agent to release the
escrowed funds. AIMCO will cause the existing Director and Officer Liability
Insurance currently in effect to be continued while any of such officers serve
in such capacities. AIMCO shall indemnify such officers to the full extent
permitted by law as provided in the certificate of incorporation, as amended,
and bylaws of IFG as currently in effect. The parties hereto agree that
receipt of any required HUD Approval is not a condition to the obligations of
any party hereunder to consummate the Closing. The failure of IFG or SpinCo to
perform in accordance with the provisions of this paragraph shall not be, and
shall not be deemed, a breach of this Agreement and shall not be, and
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shall not be deemed, to result in any loss, cost, damage or expense to AIMCO or
to result in an IFG Material Adverse Effect.
(c) OTHER REGULATORY APPROVALS. Each party hereto shall
cooperate and use its best efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to use all commercially reasonable efforts to
obtain all necessary permits, consents, approvals and authorizations of all
Governmental Authorities necessary or advisable to obtain the IFG Required
Statutory Approvals and the AIMCO Required Statutory Approvals.
Section 7.4 APPROVAL OF IFG STOCKHOLDERS.
(a) IFG MEETING. Subject to the provisions of Section
7.4(c), as soon as reasonably practical, IFG shall (i) take all steps necessary
to duly call, give notice of, convene and hold a meeting of its stockholders
(together with any adjournments thereof, the "IFG Meeting") for the purpose of
securing the IFG Stockholders' Approval, (ii) distribute to its stockholders
the Proxy Statement in accordance with applicable federal and state law and
with its certificate of incorporation and by-laws, (iii) subject to a good
faith determination, upon advice of outside counsel, that to do so would not be
inconsistent with the fiduciary duties of its Board of Directors, recommend to
its stockholders the approval of the Merger, this Agreement and the
transactions contemplated hereby, and (iv) cooperate and consult with AIMCO
with respect to each of the foregoing matters. Notwithstanding the foregoing,
IFG and its Board of Directors may take and disclose to stockholders a position
contemplated by Rule 14e-2 promulgated under the Exchange Act if required to
do so by provisions of the Exchange Act applicable to IFG, comply with Rule
14d-9 thereunder if required to do so by provisions of the Exchange Act
applicable to IFG, and make all other disclosures required by provisions of the
Exchange Act applicable to IFG.
(b) MEETING DATE. IFG agrees to use commercially
reasonable efforts to hold the IFG Meeting for the purpose of securing the IFG
Stockholders' Approval not later than August 31, 1998 or on such other date as
IFG and AIMCO shall mutually determine.
(c) FAIRNESS OPINION. It shall be a condition to the IFG
Board of Director's obligation to recommend the stockholders of IFG vote in
favor of the Merger that the opinion of Lehman Brothers described in Section
4.13 hereof shall not have been withdrawn or materially adversely modified as
of the date of the Proxy Statement.
Section 7.5 PUBLIC ANNOUNCEMENTS. Subject to each party's
disclosure obligations imposed by law and the rules of the NYSE, IFG, SpinCo
and AIMCO will cooperate with each other in the development and distribution of
all news releases and other public information disclosures with respect to this
Agreement or any of the transactions contemplated hereby and shall not issue
any public announcement or statement with respect hereto or thereto without the
consent of the other party (which consent shall not be unreasonably withheld).
The initial press releases with respect to the announcement of this Agreement
and the other Transaction Documents shall be in the forms
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attached hereto as Exhibit A and Exhibit B hereto and shall be released on the
date hereof or soon thereafter. All press releases released following the
initial press releases will characterize the transaction in a manner consistent
with the initial press releases.
Section 7.6 NO SOLICITATION. From and after the date hereof,
IFG will not, and will not authorize or permit any of its Affiliates or
Representatives to, directly or knowingly indirectly, solicit, initiate or
encourage (including by way of furnishing information) or take any other action
to facilitate knowingly any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal
(as defined herein) from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, IFG may (i) at any
time prior to the time IFG's stockholders shall have voted to approve this
Agreement, engage in discussions or negotiations with a third party who
(without any solicitation, initiation or encouragement, directly or knowingly
indirectly, by or with IFG or its Representatives after the date hereof) seeks
to initiate such discussions or negotiations and may furnish such third party
information concerning IFG and its business, properties and assets if (A) (x)
the third party has first made an Acquisition Proposal and IFG's Board of
Directors determines in good faith after consultation with its financial
advisors that to do so has a reasonable prospect of leading to an Acquisition
Proposal that is superior to the Merger and for which financing for the
Acquisition Proposal has a reasonable prospect to be obtained (as determined in
good faith by IFG's Board of Directors after consultation with its financial
advisor) (a "Superior Proposal") or (y) IFG's Board of Directors shall conclude
in good faith, after considering applicable provisions of state law, and after
considering oral or written advice of outside counsel that failure to take such
action would be inconsistent with its fiduciary duties under applicable law and
(B) prior to furnishing such information to or entering into discussions or
negotiations with such Person, IFG (x) except to the extent inconsistent with
the fiduciary obligation of IFG's Board of Directors provides prompt notice to
AIMCO to the effect that it is planning to furnish information to or enter into
discussions or negotiations with such Person and (y) receives from such Person
an executed confidentiality agreement in reasonably customary form (but not
containing any standstill provision), (ii) comply with the provisions of Rule
14e-2 and Rule 14d-9 promulgated under the Exchange Act with regard to a tender
or exchange offer if such provisions are applicable to IFG or otherwise make
any disclosure required by applicable law, and/or (iii) accept an Acquisition
Proposal from a third party, provided IFG concurrently terminates this
Agreement pursuant to Section 9.1(e) and immediately pays the Break-Up Fee set
forth in Section 9.3. Except to the extent inconsistent with the fiduciary
obligation of IFG's Board of Directors, IFG shall immediately cease and
terminate any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any parties conducted heretofore by IFG, or its
Representatives with respect to the foregoing. IFG shall notify AIMCO orally
and in writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the Person making it), within 24 hours of the receipt thereof, shall keep AIMCO
reasonably informed of the status and details of any such inquiry, offer or
proposal. As used herein, "Acquisition Proposal" shall mean a proposal or offer
(other than by AIMCO or an Affiliate of AIMCO) to acquire at least 20% of the
outstanding equity securities of IFG or IPT or a merger, consolidation, share
exchange, or other business combination or spin off or similar distribution
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(other than the Spin Off) involving IFG or IPT or any proposal to acquire in
any manner all or substantially all of the assets of IFG or IPT.
Section 7.7 EXPENSES. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, it being understood that any fees
or expenses of Lehman Brothers, Proskauer Rose LLP, Rogers & Wells LLP, and
Ernst & Young LLP (for services rendered to and at the request of IFG or any of
the Material Non-REIT Subsidiaries) shall be paid by IFG and any fees or
expenses of Akin, Gump, Strauss, Hauer & Feld LLP and Miles & Stockbridge shall
be paid by IPT.
Section 7.8 FURTHER ASSURANCES. Each party will, and will
cause its Subsidiaries to, execute such further documents and instruments and
take such further actions, including the application for any necessary
regulatory approvals or exemptions, as may reasonably be requested by any other
party in order to consummate the Merger in accordance with the terms hereof.
Section 7.9 REIT STATUS. Notwithstanding anything to the
contrary set forth in this Agreement, nothing in this Agreement shall prohibit
IFG or IPT from taking and IFG hereby agrees to take and cause IPT to take, any
action at any time or from time to time that in the reasonable judgment of IFG
is legally necessary for IPT to maintain its qualification as a REIT within the
meaning of Sections 856-860 of the Code for any period or portion thereof
ending on or prior to the Effective Time, including without limitations, making
distribution payments to stockholders of IPT.
Section 7.10 OFFER TO ACQUIRE MINORITY INTEREST IN IPT.
(a) IPT. AIMCO agrees to propose to acquire (by merger)
IPT and to use its reasonable best efforts to consummate such merger within
three months following the Effective Time (but not earlier than August 15,
1998) at a purchase price of no less than $13.25 per share of beneficial
interest of IPT payable in cash.
(b) IPT MEETING. If AIMCO or a Subsidiary of AIMCO
enters into a definitive merger agreement with IPT pursuant to Section 7.10(a),
then, to the extent not violative of IFG's or IPT's obligations under the AMIT
Agreements, as soon as reasonably practical, IFG shall cause IPT to (i) take
all steps necessary to duly call, give notice of, convene and hold a meeting of
IPT's shareholders (together with any adjournments thereof, the "IPT Meeting")
for the purpose of securing the approval of the IPT shareholders to such
merger; (ii) distribute to the IPT shareholders a proxy statement in accordance
with applicable federal and state law and with its declaration of trust and
by-laws, (iii) subject to a good faith determination, upon advice of outside
counsel, that to do so would not be inconsistent with the fiduciary duties of
its Board of Trustees and subject to Section 7.10(a), recommend to the IPT
shareholders that they approve such merger, the agreement and plan of merger
relating thereto and the transactions contemplated thereby, and (iv) cooperate
and consult with AIMCO with respect to each of the foregoing matters.
Notwithstanding the foregoing, IPT and its Board of Trustees may take and
disclose to shareholders a position contemplated by Rule 14e-2 and Rule 14d-9
promulgated under the Exchange Act if required to do so by provisions of the
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Exchange Act then applicable to IPT, and make all other disclosures required by
provisions of the Exchange Act then applicable to IPT.
(c) VOTE OF IPT SHARES. Nothing herein is intended to
be, nor shall it be interpreted as, an acquisition by AIMCO prior to the
Effective Date of the power to direct the exercise of voting power with respect
to any IPT shares owned by IFG. IFG shall have unfettered ability to vote such
shares in its discretion.
Section 7.11 CONTRIBUTIONS.
(a) OPERATING PARTNERSHIP ASSETS. AIMCO agrees that it
will use its reasonable best efforts to effect the contribution of all of the
assets of IPLP to AIMCOLP in exchange for limited partner interests in AIMCOLP.
After the date hereof, IFG shall, to the extent not violative of IFG's or IPT's
obligations under the AMIT Agreements, use its commercially reasonable efforts
to assist AIMCO in effecting such contribution.
(b) IFG ASSETS. Other than as set forth on Section 7.11
of the AIMCO Disclosure Letter, AIMCO shall contribute all of the assets of IFG
to AIMCOLP immediately after the Merger.
Section 7.12 EMPLOYEES; EMPLOYEE PLANS.
(a) RETAINED EMPLOYEES. Except as otherwise may be
agreed in writing by the parties, immediately prior to the Effective Time, IFG
shall cause all employees of IFG and the Subsidiaries of IFG (other than IPT)
previously identified in writing by AIMCO to be terminated (the "Former
Employees"). All employees of IFG and the Subsidiaries of IFG as of the
Effective Time who are not Former Employees shall be "Retained Employees" and
AIMCO shall be liable for all obligations relating to all Retained Employees
for all periods from and after the date hereof. IFG and its Subsidiaries
(other than the Spin Off Entities) shall not hire new employees after the date
hereof and until the Effective Time unless such employment is agreed to in
writing by AIMCO at the time of such employee's hire. Except as set forth in
this Section 7.12, SpinCo shall assume in the Spin Off all obligations relating
to all employees including the Former Employees and employees of SpinCo and its
Subsidiaries, arising prior to or at the Effective Time, including all
obligations or liabilities relating to employee benefits, health insurance and
severance, if any.
(b) EMPLOYEE BENEFIT PLANS. On and after the Closing
Date, AIMCO shall continue, or cause to be continued, the IFG Benefit Plans for
such period as AIMCO may determine in its sole discretion; provided, however,
that in no event shall AIMCO terminate or amend the IFG Welfare Plans in a
manner which reduces any benefits for, or otherwise adversely affects, Retained
Employees, prior to December 31, 1998. SpinCo (and the Spin Off Entities)
shall be responsible for all obligations and liabilities relating to or arising
under the group health plan continuation coverage requirements of Section 4980B
of the Code and Title I, Subtitle B of ERISA for employees employed by IFG
prior to the Closing Date other than the Retained Employees. SpinCo (and the
Spin Off Entities) shall also be responsible for any liabilities or obligations
for severance obligations
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relating to employees of IFG employed by IFG prior to the Closing Date other
than the Retained Employees.
(c) WELFARE PLANS. On and after the Closing Date, AIMCO
shall cause each employee benefit plan or arrangement established, maintained
or contributed to by AIMCO or any of its Affiliates (including, without
limitation, the IFG Benefit Plans) to grant full credit for all service or
employment with, or recognized by, IFG and any of its Affiliates for purposes
of eligibility and vesting with respect to any employee pension benefit plan,
as defined in Section 3(2) of ERISA, and, for purposes of eligibility and
determining the amount of any benefit with respect to any vacation program and
any employee welfare benefit plan, as defined in Section 3(1) of ERISA ("AIMCO
Welfare Plan"), including without limitation, any health, salary continuation,
severance or sick plan. On and after the Closing Date, AIMCO shall pay, or
cause to be paid, all claims for health care benefits by the Retained Employees
(and their beneficiaries), made after the Closing for post-Closing periods, and
shall pay, or cause to be paid, all claims for health care benefits by the
Retained Employees (and their beneficiaries), made after the Closing for all
periods prior to the Closing, to the extent of the assets in the IFG VEBA at
Closing.
(d) WAIVER OF CONDITIONS. On the after the Closing Date,
AIMCO shall cause each AIMCO Welfare Plan to waive any pre-existing condition
exclusions and waiting periods (except to the extent that such exclusions would
have then applied or waiting periods were not satisfied under the Existing
Welfare Plans or the IFG Welfare Plans) with respect to the Retained Employees
(and their beneficiaries). For purposes of computing deductible amounts,
co-pays or other maximums under any AIMCO Welfare Plan, expenses and claims
recognized prior the Closing Date for similar purposes under the applicable
Existing Welfare Plan or IFG Welfare Plan shall be credited or recognized under
any AIMCO Welfare Plan.
(e) ACCRUED VACATION. AIMCO, IFG and SpinCo agree that
all accrued vacation for Retained Employees and after the Effective Time shall
be AIMCO's obligation, provided, however that if a Retained Employee (other
than on- site employees) is terminated or quits prior to December 31, 1998 (or
December 31, 1999 if the Closing occurs in 1999) and such Retained Employee
(other than on-site employees) was entitled to accrued vacation relating to his
employment prior to the Effective Time (the "SpinCo Vacation Obligation") at
the time of his departure and received a cash payment for such SpinCo Vacation
Obligation, SpinCo shall promptly reimburse AIMCO for such amount.
(f) 401(k) PLAN AND RESTORATION PLAN. Immediately prior
to, and subject to, the Spin Off, IFG shall cause a "spin off" of the assets
and liabilities of the IFG 401(k) Retirement Plan (the "Existing 401(k) Plan")
resulting in the division of the Existing 401(k) Plan into two separate,
identical, component plans and trusts, in accordance with applicable law
(including, without limitation, Section 414(l) of the Code), covering,
respectively, (i) the Retained Employees (and their beneficiaries) (the "IFG
401(k) Plan") and (ii) all other Existing 401(k) Plan participants (and their
beneficiaries) (the "SpinCo 401(k) Plan"). Immediately prior to, and subject
to, the Spin Off, IFG shall cause a "spin off" of the assets and liabilities of
the IFG 401(k) Restoration Plan (the "Existing
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Restoration Plan") resulting in the division of the Existing Restoration Plan
into two separate, identical component plans and trusts, covering,
respectively, (i) the Retained Employees (and their beneficiaries) (the "IFG
Restoration Plan") and (ii) all other Existing Restoration Plan participants
(and their beneficiaries) (the "SpinCo Restoration Plan"). Immediately prior
to, and subject to, the Spin Off, IFG shall cause the SpinCo 401(k) Plan and
the SpinCo Restoration Plan to be transferred to SpinCo but shall retain the
IFG 401(k) Plan and the IFG Restoration Plan. Prior to the Spin Off, IFG shall
draft the appropriate documents and use its reasonable best efforts to take all
actions necessary, to the extent possible, to effectuate the intent of this
Section 7.12(f).
(g) WELFARE PLANS. Except as otherwise provided herein,
immediately prior to, and subject to, the Spin Off, IFG shall cause all IFG
Benefit Plans that are employee welfare benefit plans, as defined in Section
3(1) of ERISA (the "Existing Welfare Plans"), to be divided into separate,
identical component plans covering, respectively, (i) the Retained Employees
(and their beneficiaries) (the "IFG Welfare Plans") and (ii) all other Existing
Welfare Plan participants, including without limitation, participants (and
their beneficiaries) who experienced a "qualifying event" for purposes of the
group health plan continuation coverage requirements of Section 4980 of the
Code and Title I, Subtitle B of ERISA prior to the Closing Date regardless of
when an election for continuation coverage is made by the participant (the
"SpinCo Welfare Plans"). Notwithstanding the foregoing, IFG shall cause the
IFG Long Term Disability Plan (the "Existing LTD Plan") to be divided into two
separate, identical component plans covering, respectively, (i) employees who
work for IFG after the Spin Off and employees who were working in the United
States' based multifamily apartment business of IFG and the Subsidiaries not
set forth on Section 4.2(b) of the IFG Disclosure Letter at the time they
became eligible for benefits under the Existing LTD Plan (the "IFG LTD Plan")
and (ii) all other participants in the Existing LTD Plan (the "SpinCo LTD
Plan"). Without limiting the generality of the foregoing, immediately prior
to, and subject to, the Spin Off, IFG shall cause a "spin off" of the assets
and liabilities of each of the IFG Voluntary Employees' Beneficiary Association
and the Existing Flexible Spending Plan (which contains premium, dependent care
and medical health reimbursement component parts) (respectively, the "VEBA" and
the "Flex Plan") resulting in the division of each of the VEBA and the Flex
Plan into separate, identical, component plans and trusts, in accordance with
applicable law, covering, respectively, (i) the Retained Employees (and their
beneficiaries) (respectively, the "IFG VEBA" and "IFG Flex Plan") and (ii) all
other participants (and their beneficiaries) in the VEBA and the Flex Plan
(respectively, the "SpinCo VEBA" and the "SpinCo Flex Plan"). Immediately
prior to and subject to, the Spin Off, IFG shall cause the SpinCo Welfare
Plans, SpinCo LTD Plan, SpinCo VEBA and SpinCo Flex Plan to be transferred to
SpinCo but shall retain the IFG Welfare Plans, IFG LTD Plan, IFG VEBA and IFG
Flex Plan. Prior to the Spin Off, IFG shall draft the appropriate documents
and use its reasonable best efforts to take all actions necessary, to the
extent possible, to effectuate the intent of this Section 7.12(g).
(h) STOCK PLAN. Immediately prior to, and subject to,
the Spin Off, IFG shall cause SpinCo to assume all options and awards of
restricted stock (whether vested or unvested) held under the IFG Stock Plan by
employees of IFG who become employees of SpinCo and convert such options and
awards of restricted stock into an option to purchase shares of common stock of
SpinCo
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or an award of restricted stock for shares of common stock of SpinCo, as
applicable, as IFG deems appropriate to reflect the Spin Off. Prior to the
Spin Off, IFG shall draft the appropriate documents and use its reasonable best
efforts to take all actions necessary, to the extent possible, to effectuate
the intent of this Section 7.12(h).
(i) SPINCO EMPLOYEES. Immediately prior to, and subject
to, the Spin Off, IFG shall transfer to SpinCo (or the Spin Off Entities) the
employees whose employment relates to the Spin Off Entities and Spin Off
Assets, as determined by IFG in its sole discretion, so that no such employee
who becomes employed by SpinCo experiences any termination or other
interruption in employment. The employees who become employees of SpinCo upon
the Spin Off shall not be employees of IFG or any Subsidiary of IFG at the
Effective Time, except as otherwise agreed to in writing by the parties.
Section 7.13 PERFORMANCE OF OBLIGATIONS.
(a) ACQUISITION DOCUMENTS. Following the Effective Time
the Surviving Corporation will cause the Subsidiaries of IFG which become
Subsidiaries of the Surviving Corporation to discharge the obligations of such
parties under the Acquisition Documents and the other agreements set forth on
Section 7.13 of the IFG Disclosure Letter.
(b) TOPR ACTIONS. AIMCO covenants and agrees that AIMCO
shall comply in all material respects with all of its obligations as the
successor corporation in the Merger under the indenture and trust agreement
(and any related ancillary documents) relating to the TOPRs.
(c) CONVERTIBLE SECURITIES. AIMCO covenants and agrees
that AIMCO shall comply in all material respects with the terms of the
Convertible Securities, including the antidilution provisions set forth
therein.
(d) RECORD DATES AND DIVIDEND PAYMENT DATES. AIMCO
covenants and agrees that from the date hereof until the Effective Time, AIMCO
shall (i) set record dates for the declaration of dividends on all its classes
of equity securities and (ii) set payment dates for the payment of dividends on
all its classes of equity securities, each consistent with past practice;
provided, however, that AIMCO may set its record date for the dividend payment
preceding the Ambassador Merger pursuant to the Ambassador Agreement earlier
than customary in anticipation of such transaction.
Section 7.14 INSURANCE. AIMCO agrees that following the
Effective Time the Surviving Corporation will maintain IFG's directors' and
officers' insurance and general partner liability insurance and each person
covered by such insurance immediately prior to the Effective Time shall be
named as additional insureds.
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Section 7.15 BREACHES. Each party hereto agrees it shall
notify the other parties hereto prior to Closing if such party is aware of or
has knowledge of another party's breach of any representation, warranty or
covenant hereunder.
Section 7.16 SPINCO FURTHER ASSURANCES. In the event assets
used in or relating to the United States multi-family apartment business of IFG
are transferred to SpinCo (other than the Spin Off Assets and any such assets
which are acquired after the date hereof but which AIMCO does not elect to
retain pursuant to Section 6.1(e)), SpinCo shall hold such assets as agent for
the sole benefit of IFG, and, promptly following the written request of AIMCO,
SpinCo shall take all commercially reasonable actions required to transfer such
assets to AIMCO without the payment of additional consideration for such assets
and SpinCo shall bear the expenses and other costs required to effect such
transfer.
Section 7.17 [INTENTIONALLY OMITTED].
Section 7.18 APPROVAL OF AIMCO STOCKHOLDERS.
(a) AIMCO MEETING. As soon as reasonably practical,
AIMCO shall (i) take all steps necessary to duly call, give notice of, convene
and hold a meeting of its stockholders (together with any adjournments thereof,
the "AIMCO Meeting") for the purpose of securing the approval of the
stockholders of AIMCO to the Merger and this Agreement, and the amendment to
the AIMCO Articles to make provisions for the TOPRS pursuant to the documents
governing the TOPRS, (the "AIMCO Stockholders' Approval"), (ii) distribute to
its stockholders the Proxy Statement in accordance with applicable federal and
state law and with its certificate of incorporation and by-laws, (iii) subject
to a good faith determination, upon advice of outside counsel, that to do so
would not be inconsistent with the fiduciary duties of its Board of Directors,
recommend to its stockholders the approval of the Merger and this Agreement and
the amendment to the AIMCO Articles to make provisions for the TOPRS pursuant
to the documents governing the TOPRS, and matters related thereto and (iv)
cooperate and consult with IFG with respect to each of the foregoing matters.
(b) MEETING DATE. AIMCO agrees to use commercially
reasonable efforts to hold the AIMCO Meeting for the purpose of securing the
AIMCO Stockholders' Approval not later than August 31, 1998 or on such date as
AIMCO and IFG shall mutually determine.
Section 7.19 NO STOCK PURCHASE INTENTION.
(a) AIMCO. AIMCO represents and warrants that AIMCO and
each of its Subsidiaries have no plan or intention to purchase or otherwise
acquire, directly or indirectly, stock or securities of IFG other than through
the Merger or pursuant to the Call Agreements or, following the Spin Off,
voting securities of SpinCo. AIMCO covenants and agrees that AIMCO and any
AIMCO Subsidiary will not acquire for a period of three years following the
Closing Date more than 3% of the voting securities of SpinCo.
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(b) IFG. IFG represents and warrants that IFG and each
of its Subsidiaries have no plan or intention to purchase or otherwise acquire,
directly or indirectly, stock or securities of AIMCO.
(c) SPINCO. SpinCo represents and warrants that SpinCo
and each of its Subsidiaries have no plan or intention to purchase or otherwise
acquire, directly or indirectly, stock or securities of AIMCO. SpinCo
covenants and agrees that SpinCo and any SpinCo Subsidiary will not acquire for
a period of three years following the Spin Off more than 3% of the voting
securities of AIMCO.
Section 7.20 MAINTENANCE OF IFG'S BUSINESS.
(a) ASSET SALES. Except within the ordinary course of
business or to the extent contemplated by this Agreement or as previously
disclosed to IFG, AIMCO covenants and agrees that neither AIMCO nor any AIMCO
Subsidiary will transfer, sell or otherwise dispose of a significant portion of
the assets acquired by AIMCO from IFG in the Merger for a period of six months
following the Closing Date without an opinion from nationally recognized tax
counsel acceptable to SpinCo that such transfer, sale or disposition will not
adversely affect the treatment of the Spin Off as a tax-free spin off for
purposes of Section 355 of the Code.
(b) CONTRIBUTIONS. AIMCO covenants and agrees that it
will use its reasonable best efforts to contribute to and operate through
AIMCOLP (i) substantially all of the property management, partnership services
and asset management businesses relating to each of the Shelter Properties
Limited Partnerships other than Shelter Properties VII Limited Partnership and
(ii) additional property management, partnership services and asset management
businesses acquired in the Merger which, together with the business referred to
in clause (i) represent at least $20 million of gross revenues per year and
AIMCO or AIMCOLP will employ substantially all of the persons who are
responsible for the performance of such business other than on-site property
employees who act under the supervision of AIMCO and AIMCOLP employees.
Section 7.21 INTERCOMPANY/CONSOLIDATED RETURN GAIN. IFG
covenants and agrees that the amount of intercompany income and gain taken into
account for purposes of Treasury Regulations Section 1.1502-1, et seq., with
respect to IFG or any Subsidiary of IFG as a result of the completion of the
Merger and the completion of the Spin Off shall not exceed the amount disclosed
in writing to AIMCO by IFG at least five business days prior to the Closing
Date.
Section 7.22 TRANSFER TAXES. The parties will cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding the real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees or similar Taxes ("Transfer
Taxes") which become payable in connection with the transactions contemplated
by this Agreement that are required to be filed on or before the Closing Date.
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Section 7.23 OPINION. Simultaneously with the execution and
delivery of this Agreement, AIMCO shall deliver an opinion of Ballard Spahr in
the form set forth as Exhibit 7.23.
Section 7.24 TOPR ADJUSTMENT. IFG shall consult with and
provide detailed calculations to AIMCO at least three business days prior to
taking any action prior to the Closing which would result in an adjustment to
the conversion ratio of the TOPRs resulting from the SpinOff.
Section 7.25 NAMES AND TRADEMARKS.
(a) TRADE MARKS. Subject to the terms of this Agreement,
no later than the date 90 days after the Closing Date, AIMCO agrees (i) to
cause IFG and each Subsidiary of IFG to change its name and all of its trade
names, trademarks, service marks and the like, to a name or names which does/do
not include the word "Insignia," "ESG" or "Insignia/ESG" and is/are not
confusingly similar to the word "Insignia," "ESG" or "Insignia/ESG," or any
other trademarks, service marks, trade names or logos used by IFG, (ii) to
cause the words "Insignia," "ESG" and "Insignia/ESG," and all corporate names,
trademarks, service marks, trade names and logos which are used in any way by
IFG to be removed from all marketing, advertising and business materials,
including without limitation, telephone listings, signage, brochures and all
other property used by IFG or any Subsidiary of IFG, except that AIMCO may
continue to use any remaining stationary, business cards and other similar
property which bears the word "Insignia" until the stock thereof on hand at the
Effective Time has been depleted and (iii) to use its reasonable best efforts
to cause buildings which AIMCO will own or in which AIMCO rents space, to
change their names to names not including any reference to "Insignia," "ESG" or
"Insignia/ESG."
(b) LICENSE. Effective upon the Closing and continuing
until the later of the date AIMCO has complied with all of the terms of Section
7.25(a) or the date 90 days after the Closing Date, and subject to the terms of
this Agreement, IFG and SpinCo hereby grant to AIMCO, solely for the purpose of
complying with the terms of Section 7.25(a) hereof, a limited, non-exclusive,
royalty free license to use the name "Insignia" and the IFG corporate name,
trade name, trademark, service mark and logo (collectively, the "Trade Marks")
only in connection with the marketing and sale of goods and/or residential
property and asset management services which are currently undertaken by IFG
and each Subsidiary of IFG (other than the Spin Off Entities). All use of the
Trade Marks by AIMCO shall inure to the benefit of IFG.
(c) COURSE OF USE. The Trade Marks shall only be used in
the same manner in which they are currently used by IFG and each Material IFG
Subsidiary. In the event that the Trade Marks are used in a manner
inconsistent with the terms of this sub-section, IFG shall have the right to
terminate the limited license of Section 7.25(b) upon ten (10) calendar days'
prior notice to AIMCO.
Section 7.26 E&P ESTIMATE. At least 30 days prior to
the Effective Time, IFG shall provide AIMCO and its independent public
accountants an estimate of earnings and profits of
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IFG (including any earnings and profits resulting from the distribution of the
stock of SpinCo) and the members of its consolidated group as a whole through
the Effective Time (which shall be updated following the Spin Off) prepared by
IFG and its independent public accountants, which if not accepted by AIMCO
within 15 days of its receipt shall be finally determined by a Big Six
accounting firm (the "Alternative Analyst") to be chosen by the parties within
60 days of the execution hereof, and in such event, IFG agrees to cooperate
with and to provide all documents and other information to the Alternative
Analyst as requested by the Alternative Analyst for the purpose of completing
such analysis.
Section 7.27 PREPARATION OF TAX RETURNS; TAX COOPERATION.
(a) PREPARATION OF RETURNS. AIMCO will be responsible
for the preparation of all federal, state, local and foreign Tax Returns for
IFG and the Subsidiaries of IFG other than the Spin Off Entities for all
periods ending on or after the Effective Date. SpinCo and its accountants will
be provided for their review and approval, a draft of each material Tax Return
at least 30 days prior to the date AIMCO intends to file such Tax Return.
SpinCo will have the right to require within 20 days of receipt of the Tax
Return such changes to such returns as it and its accountants believe are
reasonable or appropriate to properly reflect the liability of IFG and its
Subsidiaries (other than the Spin Off Entities) for the period through and
including the Effective Date.
(b) COOPERATION REGARDING TAXES. Each of AIMCO and
SpinCo will, and will cause its Subsidiaries and their respective personnel to,
cooperate fully with the other of them in connection with the preparation and
review of Tax Returns and in connection with any examinations of any Tax
Returns filed by either of them or any of their Subsidiaries.
Section 7.28 INDEMNITY ENFORCEMENT. AIMCO covenants and
agrees to assign and cause each of its Subsidiaries (after giving effect to the
Merger) to assign to SpinCo (or any of the Spin Off Entities) at the Effective
Time (i) the right to assert, prosecute and enforce, at SpinCo's expense, the
indemnification and related provisions of, and the other remedies available
with respect to, the Acquisition Documents in the name of the Surviving
Corporation (as successor to IFG ) and each of its Subsidiaries (after giving
effect to the Merger) with respect to any claim as to which any AIMCO
Indemnitee (as defined in the Indemnification Agreement) asserts against SpinCo
under the Indemnification Agreement and (ii) any amounts recovered by SpinCo
pursuant to the assertion, prosecution and enforcement of any of such
indemnification provisions or other remedies by SpinCo under the Acquisition
Documents. The parties hereto agree that the partial assignment by AIMCO and
its Subsidiaries will allow AIMCO and its Subsidiaries to preserve their rights
(i) to assert, prosecute and enforce, at AIMCO's expense, the indemnification
and related provisions of, and the other remedies available with respect to,
the Acquisition Documents in the name of the Surviving Corporation (as
successor to IFG) and each of its Subsidiaries (after giving effect to the
Merger) with respect to any claim the Surviving Corporation or any Subsidiary
of the Surviving Corporation (after giving effect to the Merger) may have
pursuant to the Acquisition Documents and (ii) to any amounts recovered by them
pursuant to the assertion, prosecution and enforcement of any of such
indemnification provisions or other remedies under the Acquisition Documents
(to the extent not
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actually indemnified by SpinCo pursuant to the Indemnification Agreement). In
the event the assignment provided for in the first sentence of this paragraph
is found to be unenforceable for any reason with respect to one or more of the
Acquisition Documents on one or more occasions, AIMCO covenants and agrees that
(i) SpinCo shall be, without further action by AIMCO, the designated
attorney-in-fact of the Surviving Corporation and each of its Subsidiaries
(after giving effect to the Merger) with full power and authority to enforce
the indemnification and related provisions of, and the other remedies available
with respect to, the Acquisition Document or Documents, as required, with
respect to any claim as to which any AIMCO Indemnitee asserts against SpinCo
under the Indemnification Agreement and (ii) any amounts recovered by SpinCo
pursuant to the assertion, prosecution and enforcement of any of such
indemnification provisions or other remedies by SpinCo under the Acquisition
Documents shall be the property of SpinCo. AIMCO covenants and agrees to cause
each of its Subsidiaries (after giving effect to the Merger) of the Surviving
Corporation to grant SpinCo at the Effective Time the rights with respect to
such Subsidiary provided for in the immediately preceding sentence.
Section 7.29 AMBASSADOR PROXY. AIMCO, IFG and SpinCo
shall each cooperate in the filing by AIMCO and Ambassador of the proxy
statement and registration statement and amendments thereto related to the
merger of AIMCO and Ambassador Apartments, Inc. (the "Ambassador Merger"),
including providing financial statements, information required for pro forma
financial statements, business descriptions, cooperate in responding to SEC
comments and any other information required by the rules and regulations of the
SEC.
Section 7.30 WINTHROP. SpinCo covenants and agrees to
take any and all actions necessary to assign to AIMCO the right to vote the
Class B Shares in First Winthrop Corporation from and after the Effective Time.
SpinCo also agrees to engage AIMCO as a consultant to advise SpinCo with
respect to the residential properties controlled by First Winthrop Corporation,
with the fee for such services being an amount equal to the amount of dividends
received by SpinCo in respect of the Class B Shares attributable to such
residential properties.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of each party to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions, except, to the extent permitted by applicable law, that
such conditions may be waived in writing pursuant to Section 9.5 by the joint
action of the parties hereto:
(a) STOCKHOLDER APPROVAL. The IFG Stockholders' Approval
shall have been obtained.
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(b) NO INJUNCTION. No temporary restraining order or
preliminary or permanent injunction or other order by any federal or
state court preventing consummation of the Merger shall have been
issued and be continuing in effect.
(c) NO CHANGE IN LAW. The Merger and the other
transactions contemplated hereby shall not have been prohibited under
any applicable federal or state law or regulation adopted or amended
after the date hereof.
(d) FAIRNESS OPINION. The opinions of Lehman described
in Section 4.13 hereof shall have been delivered at the time of the
execution of this Agreement.
(e) HSR APPROVAL. Any waiting periods under the HSR Act
applicable to the Merger shall have expired or been terminated.
(f) REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the Securities Act.
Section 8.2 CONDITIONS TO OBLIGATION OF AIMCO TO EFFECT THE
MERGER. The obligation of AIMCO to effect the Merger shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by AIMCO in writing pursuant to Section 9.5:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of IFG and SpinCo set forth in this
Agreement shall be true and correct (i) on and as of the date hereof
and (ii) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly
speak only as of a specific date or time which need only be true and
correct as of such date or time); provided that this condition to the
obligation of AIMCO to consummate the Merger shall be deemed satisfied
if the aggregate loss, cost, damage or expense to AIMCO due to
breaches of such representations and warranties (without giving effect
to any materiality qualification or standard contained in any such
representations and warranties) when aggregated with failures to
comply with covenants by IFG and SpinCo and IFG Material Adverse
Effects and SpinCo Material Adverse Effects do not exceed $50.0
million.
(b) CLOSING CERTIFICATES. AIMCO shall have received
certificates signed by the chief financial officer of IFG and SpinCo,
each dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the condition set forth in Section 8.2(a) with
respect to such entity have been satisfied.
(c) REIT OPINION. AIMCO shall have received an opinion
of counsel to IPT, dated as of the Effective Time, in substantially
the form attached hereto that, for IPT's taxable year ended December
31, 1997, and all subsequent taxable years ending on or before
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the Effective Time, if any, IPT was organized and has operated in
conformity with the requirements for qualification as a REIT under the
Code and that, after giving effect to the Merger, IPT's proposed
method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code
(with customary exceptions, assumptions and qualifications and based
upon customary representations). AIMCO agrees that the form of
opinion attached hereto as Exhibit 8.2(c) shall be acceptable to AIMCO
and that the failure of IPT to deliver such opinion substantially in
the form attached shall constitute a breach by IFG unless such failure
shall be due solely to a change in law (statutory or case law) or
regulation occurring after the date hereof.
(d) OPINION OF IFG'S SPECIAL COUNSEL. AIMCO shall have
received the opinion of Proskauer Rose LLP (or another nationally
recognized law firm acceptable to AIMCO) to the effect that this
Agreement is enforceable under New York law, that all requisite
approvals under the DGCL have been obtained, that this Agreement, the
Indemnification Agreement, the Voting Agreements (for Andrew L. Farkas
and The Andrew L. Farkas Trust), the Irrevocable Proxies (for Andrew
L. Farkas and The Andrew L. Farkas Trust) and the Call Agreements
constitute the valid and binding obligation of IFG, SpinCo and/or the
other parties thereto (other than AIMCO), as applicable, and that such
agreements are enforceable against IFG, SpinCo and/or the other
parties thereto (other than AIMCO), as applicable, in accordance with
their terms (with customary exceptions, assumptions and
qualifications and based on customary representations). AIMCO agrees
that the form of opinion attached hereto as Exhibit 8.2(d) shall be
acceptable to AIMCO and that the failure of IFG to deliver such
opinion in substantially the form attached shall constitute a breach
by IFG unless such failure shall be due solely to a change in law
(statutory or case law) or regulation occurring after the date hereof.
(e) SPIN OFF TIMING. The Spin Off shall have occurred at
least ten business days prior to the Closing Date.
(f) MERGER OPINION. AIMCO shall have received an opinion
of Skadden, Arps, Slate, Meagher & Flom LLP (or another nationally
recognized law firm acceptable to AIMCO) that, based upon certificates
and letters acceptable to Skadden, Arps, Slate, Meagher & Flom LLP (or
such other nationally known law firm acceptable to AIMCO) dated as of
the Closing Date, the Merger will qualify as a "reorganization" within
the meaning of Section 368 of the Code (with customary exceptions,
assumptions and qualifications and based on customary
representations). AIMCO agrees that an opinion in substantially the
form attached hereto as Exhibit 8.2(f) shall be acceptable to AIMCO
and the failure of AIMCO to receive delivery of such opinion in
substantially the form attached hereto shall constitute a breach by
AIMCO unless such failure shall be due solely to a change in law
(statutory or case law) occurring after the date hereof.
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Section 8.3 CONDITIONS TO OBLIGATION OF IFG TO EFFECT THE
MERGER. The obligation of IFG to effect the Merger shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by IFG in writing pursuant to Section 9.5.
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of AIMCO set forth in this Agreement shall be true and
correct (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a
specific date or time which need only be true and correct as of such
date or time); provided that this condition to the obligation of IFG
to consummate the Merger shall be deemed satisfied if the aggregate
loss, cost, damage or expense to IFG due to breaches of such
representations and warranties (without giving effect to any
materiality qualification or standard contained in any such
representations and warranties) when aggregated with failures to
comply with covenants by AIMCO and AIMCO Material Adverse Effects do
not exceed $50.0 million.
(b) CLOSING CERTIFICATES. IFG shall have received a
certificate signed by the chief financial officer of AIMCO, dated the
Closing Date, to the effect that, to the best of such officer's
knowledge, the condition set forth in Section 8.3(a) has been
satisfied.
(c) REIT OPINION. IFG and SpinCo shall have received an
opinion of counsel to AIMCO dated as of the Effective Time, in
substantially the form attached hereto that, for AIMCO's taxable year
ended December 31, 1997, and all subsequent taxable years ending on or
before the Effective Time, AIMCO was organized and has operated in
conformity with the requirements for qualification as a REIT under the
Code and that, after giving effect to the Merger, AIMCO's proposed
method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code
(with customary exceptions, assumptions and qualifications and based
upon customary representations). IFG agrees that the form of opinion
attached hereto as Exhibit 8.3(c) shall be acceptable to IFG and that
the failure of AIMCO to deliver such opinion shall constitute a breach
by AIMCO unless such failure shall be due solely to a change in law
(statutory or case law) or regulation occurring after the date hereof.
(d) OPINION OF AIMCO'S MARYLAND COUNSEL. IFG shall have
received the opinion of Ballard Spahr (or another nationally
recognized law firm acceptable to IFG) to the effect that this
Agreement and the articles of merger are enforceable under Maryland
law, that all requisite approvals have been obtained, and at the
Effective Time upon issuance thereof in accordance with the terms of
this Agreement, such shares of Series E Preferred Stock and the Series
F Preferred Stock will be validly issued, fully paid and nonassessable
and not subject to preemptive rights and the shares of AIMCO Common
Stock underlying the Series E Preferred Stock and the Series F
Preferred Stock upon issuance in accordance with the terms of the
Series E Preferred Stock or the Series F Preferred Stock will be
validly issued fully paid and non assessable and not subject to
preemptive rights, and as to such other
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matters as are customary in a transaction such as the Merger. IFG
agrees that the form of opinion attached hereto as Exhibit 8.3(d)
shall be acceptable to IFG and that the failure of AIMCO to deliver
such opinion shall constitute a breach by AIMCO unless such failure
shall be due solely to a change in law (statutory or case law) or
regulation occurring after the date hereof.
(e) MERGER OPINION. IFG shall have received an opinion
of Rogers & Wells LLP (or another nationally recognized law firm
acceptable to the recipient) that, based upon certificates and letters
acceptable to Rogers & Wells LLP (or another nationally recognized law
firm acceptable to IFG) dated as of the Closing Date, the Merger will
qualify as a "reorganization" within the meaning of Section 368 of the
Code and the Spin Off should continue to qualify as a tax deferred
distribution to IFG's stockholders (with customary exceptions,
assumptions and qualifications and based on customary
representations). IFG agrees that an opinion substantially in the
form attached hereto as Exhibit 8.3(e) shall be acceptable to IFG and
that the failure of IFG to obtain delivery of such opinion shall
constitute a breach by IFG unless such failure shall be due solely to
a change in law (statutory or case law) or regulation occurring after
the date hereof.
(f) OPINION OF AIMCO'S COUNSEL. IFG shall have received
the opinion of Skadden, Arps, Slate, Meagher & Flom LLP (or another
nationally known law firm acceptable to IFG) to the effect that this
Agreement is enforceable under New York law, that this Agreement, the
Indemnification Agreement, the Voting Agreement, and the Call
Agreements constitute the valid and binding obligation of AIMCO and
AIMCOLP, and that such agreements are enforceable against AIMCO and
AIMCOLP, in accordance with their terms (with customary exceptions,
assumptions and qualifications and based on customary
representations). IFG agrees that an opinion substantially in the
form attached hereto as Exhibit 8.3(f) shall be acceptable to IFG and
that the failure of AIMCO to deliver such opinion shall constitute a
breach by AIMCO unless such failure shall be due solely to a change in
law (statutory or case law) or regulation occurring after the date
hereof.
(g) LISTING OF SHARES. The shares of Series E Preferred
Stock and Series F Preferred Stock issuable in the Merger pursuant to
Article II and the shares of AIMCO Common Stock underlying the Series
E Preferred Stock and Series F Preferred Stock shall have been
approved for listing on the NYSE upon official notice of issuance.
The parties acknowledge and agree that if IFG elects to waive this
condition in the event it is not satisfied, such waiver will not
constitute a waiver of (or absolve AIMCO from liability for) the
breach of the covenant in Section 7.2(a).
(h) RELEASE OR REFINANCING OF INDEBTEDNESS. AIMCO shall
have either refinanced or assumed the indebtedness of IFG which is
included in the Estimated Closing Schedule (the "Assumed Debt") but in
either case, AIMCO shall have caused the lender of such Assumed Debt
to release, at the Effective Time, SpinCo, any Subsidiaries of SpinCo
and their respective assets and properties from all guarantees, liens,
pledges and other
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security arrangements, in favor of the lender of the Assumed Debt.
AIMCO shall have provided SpinCo with evidence (UCC-3 releases, payoff
letters, etc.) reasonably satisfactory to SpinCo reflecting the
termination of such security arrangements.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date, whether before or after approval by the
stockholders of IFG contemplated by this Agreement only:
(a) by mutual written consent of the Boards of Directors
of IFG and AIMCO;
(b) (i) by either AIMCO or IFG if there has been any breach
by the other party of any representation or warranty, or failure to
comply with any of the other party's covenants and which breaches,
failures and IFG Material Adverse Effects or AIMCO Material Adverse
Effects, as the case may be, individually or in the aggregate would
result in losses, costs, damages or expenses that would exceed $50.0
million, and, which breaches, failures and IFG Material Adverse
Effects or AIMCO Material Adverse Effects, as the case may be, have
not been cured within 60 days following receipt by the breaching or
failing party of notice of such breach or adequate assurance of such
cure shall not have been given by or on behalf of the breaching party
within such 60 day period, (ii) by either party, if the IFG Board of
Directors or any committee of the IFG Board of Directors (A) shall
withdraw or modify in any adverse manner its approval or
recommendation of this Agreement or the Merger, (B) shall fail to
reaffirm such approval or recommendation upon AIMCO's request, (C)
shall approve or recommend any acquisition of either IFG or IPT or a
material portion of its assets or securities or any tender offer or
exchange offer for shares of IFG or IPT, in each case, other than by
AIMCO or an Affiliate thereof or (D) shall resolve to take any of the
actions specified in clause (A), (B) or (C), or (iii) by AIMCO or IFG,
if any state or federal law, order, rule or regulation is adopted or
issued after the date hereof, which has the effect, as supported by
the written opinion of outside counsel for such party, of prohibiting
the Merger, or by any party hereto if any court of competent
jurisdiction in the United States or any state shall have issued an
order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Merger, and such order, judgment or decree
shall have become final and nonappealable;
(c) by either AIMCO or IFG, by written notice to the
other party, if the Effective Time shall not have occurred on or
before December 31, 1998; provided, however, that such date shall be
extended to March 31, 1999 if the Proxy Statement and Registration
Statement have been filed with the SEC and are actively being
prosecuted by IFG and AIMCO (the "Termination Date"); provided,
further, however, that the right to terminate the Agreement
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under this Section 9.1(c) 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 Effective Time to occur
on or before this date;
(d) by AIMCO or IFG, by written notice to the other
party, if the IFG Stockholders' Approval shall not have been obtained
at a duly held IFG Meeting prior to the Termination Date, including
any adjournments thereof;
(e) by IFG prior to the approval of this Agreement by the
stockholders of IFG, by written notice to AIMCO, if the Board of
Directors of IFG shall determine in good faith that an Acquisition
Proposal constitutes a Superior Proposal; provided, however, that IFG
may not terminate this Agreement pursuant to this clause (e) unless
(i) five days shall have elapsed after delivery to AIMCO of a written
notice of such determination by such Board of Directors and at all
reasonable times during such five-day period IFG shall have cooperated
with AIMCO in informing AIMCO of the terms and conditions of such
Acquisition Proposal and the identity of the person or group making
such Acquisition Proposal, with the objective of providing AIMCO a
reasonable opportunity, during such five-day period, to propose
adjustments in the terms and conditions of this Agreement so that a
business combination between IFG and AIMCO may be effected, (ii)
during such five-day period, IFG's Board of Directors negotiates in
good faith with AIMCO with respect to such proposed modifications;
provided, however, that the decision as to whether to proceed with the
Merger and other Transactions shall be at the discretion of the Board
of Directors of IFG and (iii) at the end of such five-day period IFG's
Board of Directors shall continue to believe in good faith that such
Acquisition Proposal constitutes a Superior Proposal;
(f) by AIMCO or IFG if the Spin Off has not occurred by
December 31, 1998 or by such date IFG and SpinCo are unable to retain
nationally recognized tax counsel willing to give the opinion
described in Section 8.3(e); provided, however, that such date shall
be extended to March 31, 1999 if the Proxy Statement and Registration
Statement have been filed with the SEC and are actively being
prosecuted by IFG and AIMCO; or
(g) by AIMCO or IFG if the other party hereto has the
right to terminate this Agreement pursuant to Section 9.1(b)(i);
provided, however, if the party with the right to terminate pursuant
to Section 9.1(b)(i) agrees to waive as a closing condition only the
other party's breaches of representations and warranties, failures to
comply with the other party's covenants and the other party's Material
Adverse Effects to the extent and only to the extent such breaches,
failures or Material Adverse Effects exceed $50 million, then neither
AIMCO nor IFG shall have any right to terminate this Agreement
pursuant to this subsection (g); provided, however, that any such
limited waiver shall first be applied against the other party's
breaches of representations and warranties and then applied to failure
to comply with covenants; and provided, further, that nothing in this
subsection (g) shall impair the right of the party making the limited
waiver to assert claims pursuant to this Agreement and the
Indemnification Agreement for the other party's breaches of
representations and warranties,
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failures to comply with the other party's covenants and Material
Adverse Effects in the aggregate amount of up to $49,999,999.
Section 9.2 EFFECT OF TERMINATION. In the event of
termination of this Agreement by either IFG or AIMCO pursuant to Section 9.1,
Sections 7.5, 7.6, 7.7, 9.1, 9.2, 9.3, 9.6 and Article X shall survive the
termination indefinitely (unless otherwise specifically provided therein).
Section 9.3 TERMINATION FEES.
(a) AIMCO BREAK-UP FEE. If (i) this Agreement (A) is
terminated by AIMCO pursuant to Section 9.1(b)(i), (B) is terminated by IFG
pursuant to Section 9.1(e) or Section 9.1(g), (C) is terminated as a result of
IFG's breach of Section 7.4(a), (D) is terminated because the stockholders of
IFG do not approve the Merger or (E) is terminated by either AIMCO or IFG
pursuant to Section 9.1(f) or (F) is terminated by either party as a result of
the inability of counsel to IFG or IPT to deliver an opinion set forth in
Section 8.2(c) or (d), unless such inability is due solely to a change in law
(statutory or case) or regulation after the date hereof, (ii) at the time of
such termination or prior to the meeting of IFG's stockholders but after the
date hereof there shall have been made an Acquisition Proposal involving IFG or
IPT (whether or not such Acquisition Proposal shall have been rejected or shall
have been withdrawn prior to the time of such termination or of such meeting)
and (iii) within one year of the termination of this Agreement IFG or IPT
becomes a Subsidiary of the party which has made such Acquisition Proposal or a
Subsidiary of an Affiliate of such party or accepts a written offer to
consummate or consummates an Acquisition Proposal with such party or an
Affiliate thereof, then IFG, upon the signing of a definitive agreement
relating to such Acquisition Proposal, or, if no such agreement is signed, then
at the closing (and as a condition to the closing) of IFG or IPT becoming such
a Subsidiary or of such Acquisition Proposal, shall pay to AIMCO the Break-Up
Fee. The payment of the Break-Up Fee shall be compensation and liquidated
damages for the loss suffered by AIMCO as the result of the failure of the
Merger to be consummated and to avoid the difficulty of determining damages
under the circumstances, and IFG shall have no other liability to AIMCO, other
than the payment of the Break-Up Fee, and IPT shall have no liability to AIMCO.
The "Break-Up Fee" shall be an amount equal to the lesser of (i) $24.0 million
(the "Base Amount") and (ii) the sum of (X) the maximum amount that can be paid
to AIMCO in the year in which this Agreement is terminated (the "Termination
Year") and in all relevant taxable years thereafter without causing it to fail
to meet the requirements of Sections 856(c) (2) and (3) of the Code (the "REIT
Requirements") for such year, determined as if the payment of such amount did
not constitute income described in Section 856(c) (2)(A)-(H) and 856(c)
(3)(A)-(I) of the Code ("Qualifying Income"), as determined by independent
accountants to AIMCO, and (Y) in the event AIMCO receives a ruling from the IRS
(a "Break-Up Fee Ruling") holding that AIMCO's receipt of the Base Amount would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of the REIT Requirements, the Base Amount less the amount
payable under clause (X) above. If the amount payable for the Termination Year
under the preceding sentence is less than the Base Amount, IFG shall place the
remaining portion of the Base Amount in escrow and shall not release any
portion thereof to AIMCO and AIMCO shall not be entitled to any such amount
unless and until IFG receives either of the following: (i) a letter from
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AIMCO's independent accountants indicating the maximum amount that can be paid
at that time to AIMCO without causing AIMCO to fail to meet the REIT
Requirements for any relevant taxable year, together with either an IRS Ruling
issued to AIMCO or an opinion of AIMCO's tax counsel to the effect that such
payment would not be treated as includible in the income of AIMCO for any prior
taxable year, in which event IFG shall pay such maximum amount, or (ii) a
Break-Up Fee Ruling, in which event IFG shall pay to AIMCO the unpaid Base
Amount. IFG's obligation to pay any unpaid portion of the Break-Up Fee shall
terminate ten years from the date of this Agreement and IFG shall have no
obligation to make any further payments notwithstanding that the entire Base
Amount has not been paid as of such date.
(b) IFG LIQUIDATED DAMAGES. If this Agreement is
terminated by IFG in accordance with Section 9.1(b)(i), or by IFG as a result
of the inability of counsel to AIMCO to deliver an opinion set forth in Section
8.3 (c), (d) or (f), unless such inability is due solely to a change in law
(statutory or case) or regulation after the date hereof and, at the time of
such termination, IFG has not breached any of its representations or warranties
or failed to comply with covenants requiring or prohibiting the payment of
money set forth in this Agreement which aggregated with IFG Material Adverse
Effects are more than $50.0 million, then AIMCO shall pay to IFG liquidated
damages in the amount of $50.0 million ("Liquidated Damages"), and AIMCOLP
hereby agrees to be jointly and severally liable for such Liquidated Damages.
The payment of the Liquidated Damages shall be compensation and liquidated
damages for the loss suffered by IFG as the result of the failure of the Merger
to be consummated and to avoid the difficulty of determining damages under the
circumstances, and AIMCO and AIMCOLP shall not have any liability to IFG, other
than the payment of the Liquidated Damages.
(c) EXPENSES. The parties agree that the agreements
contained in this Section 9.3 are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and not a
penalty. Notwithstanding anything to the contrary contained in this Section
9.3, if IFG fails to promptly pay to AIMCO any fee due under Section 9.3(a), in
addition to any amounts paid or payable pursuant to such sections, if AIMCO is
entitled to such fee, IFG shall pay the reasonable costs and expenses
(including legal fees and expenses) in connection with any action, including
the filing of any lawsuit or other legal action, taken by AIMCO to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Bank of America National Trust and Savings Association
from the date such fee was required to be paid.
Section 9.4 AMENDMENT. This Agreement may be amended by
the parties hereto at any time before or after approval hereof by the
stockholders of IFG and prior to the Effective Time, but after such approval,
no such amendment shall (a) alter or change the amount or kind of shares,
rights or any of the proceedings of the treatment of shares under Article II or
(b) alter or change any of the terms and conditions of this Agreement if any of
the alterations or changes, alone or in the aggregate, would materially
adversely affect the rights of holders of IFG Common Stock or AIMCO Common
Stock, except for alterations or changes that could otherwise be adopted by the
Board of Directors of the Surviving Corporation without the further approval of
such stockholders
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under Maryland law. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Effective
Time, a party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions of the other party contained herein, to the extent
permitted by applicable law. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
Section 9.6 DAMAGES. Notwithstanding any other
provision herein, the parties agree that if the Merger is consummated each
party hereto shall have the right to collect damages for any breach of
representations or warranties or failure to comply with covenants, and any
failure to satisfy any condition, as provided in the Indemnification Agreement;
provided, however, that if pursuant to Section 9.1(g) a party agrees to waive
the other party's breaches of representations, warranties, failures to comply
with covenants, IFG Material Adverse Effects or AIMCO Material Adverse Effects,
as the case may be, and consummates the Merger, then such waiving party's right
to make a claim for damages shall be limited to $50 million provided, further
that this limitation shall not apply to IFG's waiver of Section 8.3(g). In
addition, the parties agree that if this Agreement is terminated by either
party and no Break-Up Fee is payable pursuant to Section 9.3(a), AIMCO shall
have the right to collect damages for any breach of this Agreement by IFG. If
this Agreement is terminated by IFG and IFG is not entitled under the terms of
this Agreement to receive Liquidated Damages pursuant to Section 9.3(b), IFG
shall not have any right to assert a claim for damages for any breach by AIMCO
of this Agreement.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties in this Agreement shall survive the
Effective Time until the later of (a) June 30, 1999 and (b) the date which is
nine months after the Closing, except that the representations and warranties
set forth in Sections 4.9, 4.10, 4.11, 5.9, 5.10, 5.11, 7.21 and 7.22 and the
covenants in this Agreement intended to be performed after the Closing shall
survive until the expiration of the applicable statute of limitations, unless
otherwise set forth in the applicable section. The obligations of the parties
to this Agreement for breaches of representations and warranties and failure to
comply with covenants shall be as set forth in Sections 9.3 and 9.6 and the
Indemnification Agreement. Sections 9.3 and 9.6 and the Indemnification
Agreement shall be the sole remedy for breaches of this Agreement.
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Section 10.2 BROKERS. IFG represents and warrants that,
except for Lehman Brothers whose fees have been disclosed to AIMCO prior to the
date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of IFG. AIMCO represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of AIMCO.
Section 10.3 NOTICES. All notices and other
communications hereunder shall be in writing and shall be deemed given (a) when
delivered personally, (b) when sent by reputable overnight courier service, or
(c) when telecopied (which is confirmed by copy sent within one business day by
a reputable overnight courier service) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) If to SpinCo or IFG, to:
Insignia/ESG Holdings, Inc.
200 Park Avenue
New York, New York 10166
Attn: Adam B. Gilbert, Esq.
Telecopy: (212) 984-6655
Telephone: (212) 984-6644
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Arnold S. Jacobs, Esq.
Telecopy: (212) 969-2900
Telephone: (212) 969-3210
(ii) If to AIMCO, to:
Apartment Investment and Management Company
1873 South Bellaire Street, 1th Floor
Denver, Colorado 80222
Attn: Peter K. Kompaniez
Telecopy: (303) 757-8735
Telephone: (303) 757-8101
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
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Los Angeles, CA 90071
Attn: Thomas C. Janson, Esq.
Telecopy: (213) 687-5221
Telephone: (213) 688-5600
Section 10.4 MISCELLANEOUS. This Agreement, the Transaction
Documents, the Confidentiality Agreements and the documents and instruments
referred to herein, together with any side letters of even date herewith
delivered in connection herewith, (a) constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) shall not be assigned by any party, and (c) shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts executed in and to be fully performed in such State, without giving
effect to its conflicts of law rules or principles and except to the extent the
provisions of this Agreement (including the documents or instruments referred
to herein) are expressly governed by or derive their authority from the MGCL or
the DGCL.
Section 10.5 INTERPRETATION. When a reference is made in
this Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit of this Agreement, respectively, unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
Section 10.7 PARTIES' INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies of any nature whatsoever under or by reason of
this Agreement, except that the directors, officers and general partners
covered by the insurance referred to in Sections 7.3 and 7.14 shall have the
right to enforce such provisions and SpinCo shall have the right to enforce
AIMCO's obligations under Section 7.10 hereunder.
Section 10.8 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 or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or in New York state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the State of New
York or any New York state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this
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Agreement, (b) agrees that it will not attempt to deny such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal or state court sitting in the State of New York.
Section 10.9 SEVERABILITY. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof. If any provision of this Agreement, or the application
thereof to any Person or entity or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
Persons, entities or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction.
Section 10.10 KNOWLEDGE. As used herein, the "knowledge" of
IFG, SpinCo or any Material IFG Subsidiary shall mean the actual knowledge of
Andrew L. Farkas, James A. Aston, Frank M. Garrison, Ronald Uretta or Jeffrey
P. Cohen (with respect to IPT and its Subsidiaries only) or any of them, and
the "knowledge" of AIMCO or any AIMCO Subsidiary shall mean the actual
knowledge of Terry Considine, Peter Kompaniez, Thomas M. Toomey or Harry G.
Alcock (with respect to property-related matters only), or any of them.
Section 10.11 LOSSES. For the purposes of valuing the $50.0
million amount set forth in Sections 8.2(a), 8.3(a), 9.1(b)(i), 9.1(g), 9.3(b)
and 9.6, the amount of losses, costs, damages and expenses shall be determined
in accordance with the definition of the term "Losses" in Section 1 of the
Indemnification Agreement.
Section 10.12 BREACHES. Notwithstanding any other provision
herein, if at the execution of this Agreement AIMCO has actual knowledge of a
breach of any representation or warranty by IFG or SpinCo, or IFG or SpinCo
has actual knowledge of a breach of any representation or warranty by AIMCO,
such party shall be deemed to have waived such breach to the extent of its
actual knowledge of such breach at the time of the execution of this Agreement.
* * * * *
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IN WITNESS WHEREOF, AIMCO, IFG and SpinCo have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ Peter Kompaniez
-----------------------------------------
Peter Kompaniez
Title:
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
-----------------------------------------
Andrew L. Farkas
Chairman of the Board and
Chief Executive Officer
INSIGNIA/ESG HOLDINGS, INC.
(with respect to Article IVA, Sections 2.3,
6.1, 7.1, 7.2, 7.3, 7.5, 7.7, 7.8, 7.12,
7.16, 7.19(c), 7.27, 7.28, 7.29, 7.30, 8.1,
8.2 and Articles IX and X only)
By: /s/ Ronald Uretta
-----------------------------------------
Ronald Uretta
President
AIMCO PROPERTIES, L.P.
(with respect to Section 9.3(b) and Article
X only)
By: AIMCO-GP, Inc.
Its: General Partner
By: /s/ Peter Kompaniez
-----------------------------------------
Peter Kompaniez
Title:
74
