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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact Name of the Registrant as Specified in its Charter)
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MARYLAND 6513 84-1259577
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80222-4348
(303) 757-8101
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
TROY D. BUTTS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80222-4348
(303) 757-8101
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------
COPY TO:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
ATTN: PATRICK J. FOYE
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the Merger (as defined herein).
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARES TO BE AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PER SHARE OFFERING PRICE REGISTRATION FEE
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- ----------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value
$.01 per share................ 7,205,739(1) $36.00(2) $259,406,604(1)(2) $89,450.56(3)
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(1) Estimated assuming all securities convertible into shares of common stock of
Ambassador Apartments, Inc. are so converted, and assuming the Conversion
Ratio will be 0.583.
(2) Assumes the Conversion Ratio will be 0.583.
(3) Pursuant to Rule 457(b), $55,634.71 of the registration fee is offset by the
filing fee previously paid by Ambassador Apartments, Inc. in connection with
the filing of preliminary proxy materials on February 11, 1998. Accordingly,
a registration fee of $33,815.85 is being paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
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AMBASSADOR APARTMENTS, INC.
PROXY STATEMENT
------------------------
PROSPECTUS OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
------------------------
This Proxy Statement/Prospectus is being furnished to stockholders of
Ambassador Apartments, Inc. ("Ambassador") in connection with the solicitation
of proxies by the Board of Directors of Ambassador (the "Ambassador Board") from
holders of shares of common stock, par value $.01 per share, of Ambassador
("Ambassador Common Stock") and holders of shares of Class A Senior Cumulative
Convertible Preferred Stock of Ambassador ("Ambassador Preferred Stock") for use
at a special meeting of Ambassador stockholders (the "Special Meeting") to be
held to consider and vote upon a proposal (the "Merger Agreement Proposal") to
adopt and approve the Agreement and Plan of Merger, dated as of December 23,
1997 and supplemented by letter dated as of March 11, 1998 (the "Merger
Agreement"), by and among Apartment Investment and Management Company ("AIMCO")
and Ambassador, and the transactions contemplated thereby. Approval of the
Merger Agreement Proposal by Ambassador stockholders is a condition to
consummation of the merger contemplated by the Merger Agreement (the "Merger").
See "The Merger Agreement and Terms of the Merger -- Conditions to the Merger."
Approval of the Merger Agreement Proposal requires the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Ambassador Common Stock
and the Ambassador Preferred Stock, voting together as a single class. Only
holders of record of Ambassador Common Stock and Ambassador Preferred Stock at
the close of business on March 19, 1998 (the "Record Date"), are entitled to
notice of, and to vote at, the Special Meeting. At the close of business on the
Record Date, 10,708,430 shares of Ambassador Common Stock were outstanding, of
which AIMCO and its affiliates owned an aggregate of 886,600 shares, or
approximately 8.3%, and 1,351,351 shares of Ambassador Preferred Stock were
outstanding. See "Information Concerning the Special Meeting."
In the Merger, among other things, each outstanding share of Ambassador
Common Stock will be converted into the right to receive that number of shares
of AIMCO Class A Common Stock, par value $.01 per share ("AIMCO Common Stock"),
equal to the quotient (rounded to the nearest 1/1000) (the "Conversion Ratio")
determined by dividing $21.00 by the AIMCO Index Price (as defined below). The
term "AIMCO Index Price" means the aggregate of the average of the high and low
sales prices of AIMCO Common Stock, as reported on the New York Stock Exchange
("NYSE"), on each of the twenty consecutive NYSE trading days ending on the
fifth NYSE trading day immediately preceding the effective time of the Merger
(the "Effective Time"), divided by 20. If the Conversion Ratio calculated
pursuant to the foregoing is greater than 0.583, then, at AIMCO's option, the
Conversion Ratio to be used shall be either the Conversion Ratio as calculated
pursuant to the foregoing or 0.583 (so long as the Merger would continue to
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code")). If AIMCO opts for the Conversion Ratio to equal
0.583, then, in addition to 0.583 shares of AIMCO Common Stock, AIMCO will pay
to each holder of Ambassador Common Stock, for each share of Ambassador Common
Stock held by such shareholder, an amount in cash equal to (i) $21.00 minus (ii)
the product of the AIMCO Index Price and 0.583 (such cash amount, together with
shares of AIMCO Common Stock issuable with respect to a share of Ambassador
Common Stock, the "Merger Consideration"). Assuming a Conversion Ratio of 0.583,
AIMCO will issue up to an aggregate of 7,205,739 shares of AIMCO Common Stock in
the Merger, based upon the number of shares of Ambassador Common Stock, options
to purchase Ambassador Common Stock ("Ambassador Stock Options") and other
securities currently convertible into shares of Ambassador Common Stock
outstanding on the Record Date.
Under applicable state law, holders of Ambassador Common Stock and holders
of Ambassador Preferred Stock will not be entitled to any dissenting
stockholders' appraisal rights in connection with the Merger. See "The Merger
and Related Transactions -- Appraisal Rights."
This Proxy Statement/Prospectus also constitutes the prospectus of AIMCO
with respect to the shares of AIMCO Common Stock to be issued in connection with
the Merger, as described herein. AIMCO Common Stock is listed and traded on the
NYSE under the symbol "AIV." Ambassador Common Stock is listed and traded on the
NYSE under the symbol "AAH."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF AMBASSADOR.
------------------------
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being sent to holders of Ambassador Common Stock and Ambassador Preferred
Stock on or about April 2, 1998.
------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is April 2, 1998.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... 1
FORWARD-LOOKING STATEMENTS.................................. 1
INCORPORATION BY REFERENCE.................................. 2
SUMMARY..................................................... 4
RISK FACTORS................................................ 22
Risks Relating to the Ambassador Acquisition.............. 22
Risks Relating to AIMCO's and Ambassador's Businesses..... 23
Risks Relating to the Insignia Merger..................... 32
INFORMATION CONCERNING THE SPECIAL MEETING.................. 32
Purpose, Time and Place................................... 32
Record Date; Quorum; Vote Required........................ 32
Proxies................................................... 33
Other Matters............................................. 33
Appraisal Rights.......................................... 33
THE MERGER AND RELATED TRANSACTIONS......................... 34
General Description of the Merger......................... 34
Related Transactions...................................... 35
Background of the Merger.................................. 36
Reasons of Ambassador for the Merger; Recommendation of
the Ambassador Board................................... 38
Opinion of Financial Advisor to Ambassador Board.......... 40
Ambassador Stock Options.................................. 45
Registration Rights Agreement............................. 46
Interests of Directors and Management of Ambassador and
AIMCO in the Merger and the Related Transactions....... 47
Conditions to the Merger.................................. 49
Federal Income Tax Consequences of the Merger............. 49
Accounting Treatment...................................... 51
Appraisal Rights.......................................... 51
Regulatory Matters........................................ 51
NYSE Listing.............................................. 52
Deregistration and Delisting of Ambassador Common Stock... 52
Restrictions on Resales by Affiliates..................... 52
THE MERGER AGREEMENT AND TERMS OF THE MERGER................ 52
Effective Time of the Merger.............................. 52
Manner and Basis of Converting Shares..................... 53
Distributions with Respect to Shares...................... 55
Representations and Warranties............................ 56
Conduct of Business Pending the Merger.................... 56
Indemnification........................................... 61
Employee Agreements; Workforce Matters; and Employee
Benefit and Stock Option Plans......................... 62
Non-Solicitation; Response to Other Offers................ 62
Conditions to the Merger.................................. 63
Termination............................................... 66
Termination Fees.......................................... 67
Amendment, Modification and Waiver........................ 69
SELECTED HISTORICAL FINANCIAL INFORMATION OF AIMCO.......... 71
SELECTED HISTORICAL FINANCIAL INFORMATION OF AMBASSADOR..... 74
PRO FORMA FINANCIAL INFORMATION OF AIMCO (MERGER)........... 76
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ii
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PRO FORMA FINANCIAL INFORMATION OF AIMCO (INSIGNIA MERGER)................................................... 85
CAPITALIZATION OF AIMCO...................................................................................... 95
BUSINESS OF AIMCO............................................................................................ 96
Operating and Financial Strategies......................................................................... 96
Growth Strategies.......................................................................................... 97
Property Management Strategies............................................................................. 99
Accounting Policies and Definitions........................................................................ 100
Policies of AIMCO with Respect to Certain Other Activities................................................. 101
Executive Offices.......................................................................................... 103
BOARD OF DIRECTORS AND OFFICERS OF AIMCO..................................................................... 104
PRINCIPAL STOCKHOLDERS OF AIMCO.............................................................................. 108
BUSINESS OF AMBASSADOR....................................................................................... 109
General.................................................................................................... 109
Business Philosophy and Background......................................................................... 109
The Industry/Principal Markets............................................................................. 110
Competition................................................................................................ 110
Employees/Property Management.............................................................................. 110
Properties................................................................................................. 111
Recent Events.............................................................................................. 111
PRINCIPAL STOCKHOLDERS OF AMBASSADOR......................................................................... 112
AIMCO RECENT DEVELOPMENTS.................................................................................... 115
Recent Acquisitions........................................................................................ 115
Recent Contracts........................................................................................... 117
Recent Financings.......................................................................................... 118
Insignia Merger and Related Transactions................................................................... 119
DESCRIPTION OF AIMCO'S CAPITAL STOCK......................................................................... 124
General.................................................................................................... 123
Restrictions on Transfer................................................................................... 124
AIMCO Class B Preferred Stock.............................................................................. 125
AIMCO Class B Common Stock................................................................................. 126
AIMCO Class C Preferred Stock.............................................................................. 127
AIMCO Class D Preferred Stock.............................................................................. 128
Business Combinations...................................................................................... 129
Control Share Acquisitions................................................................................. 129
FEDERAL INCOME TAX CONSEQUENCES RELATED TO AIMCO............................................................. 130
Taxation of AIMCO.......................................................................................... 130
Tax Aspects of AIMCO's Investments in Partnerships......................................................... 133
Taxation of Management Subsidiaries........................................................................ 135
Taxation of Taxable Domestic Stockholders.................................................................. 135
Taxation of Foreign Stockholders........................................................................... 135
Information Reporting and Backup Withholding............................................................... 137
Taxation of Tax-Exempt Stockholders........................................................................ 137
Possible Legislative or Other Actions Affecting Tax Consequences........................................... 137
State and Local Taxes...................................................................................... 138
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iii
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COMPARATIVE RIGHTS OF STOCKHOLDERS OF AIMCO AND
AMBASSADOR................................................ 138
Restrictions on Share Transfers........................... 138
Amendment of Charter Documents and Bylaws................. 138
Business Combinations..................................... 139
Appraisal Rights.......................................... 140
Preemptive Rights......................................... 140
Indemnification........................................... 140
Limitation of Personal Liability of Directors............. 141
Classified Board of Directors............................. 141
Cumulative Voting for Directors........................... 141
Removal of Directors...................................... 141
Newly Created Directorships and Vacancies................. 142
Special Meetings.......................................... 142
Rights Agreement.......................................... 142
LEGAL MATTERS............................................... 142
EXPERTS..................................................... 142
STOCKHOLDER PROPOSALS....................................... 143
AIMCO..................................................... 143
Ambassador................................................ 143
APPENDIX I -- Agreement and Plan of Merger, dated as of
December 23, 1997 by and among Apartment Investment and
Management Company and Ambassador Apartments, Inc., and
supplemental letter dated as of March 11, 1998
APPENDIX II -- Opinion of Merrill Lynch, Pierce, Fenner &
Smith Incorporated dated December 22, 1997
APPENDIX III -- Description of Business of Insignia
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iv
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AVAILABLE INFORMATION
AIMCO and Ambassador are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder, and, in accordance therewith, file
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). These reports, proxy and
information statements and other information concerning AIMCO and Ambassador can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th
Floor, New York, New York 10048, and copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains
a site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including AIMCO and Ambassador. In addition,
information filed by AIMCO and Ambassador with the NYSE may be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005. Insignia
Financial Group, Inc. also files reports, proxy and information statements and
other information with the Commission and the NYSE, which are available at the
same locations.
AIMCO has filed with the Commission a Registration Statement on Form S-4
(including all amendments and supplements thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations of the Commission thereunder, with respect to the shares
of AIMCO Common Stock to be issued pursuant to the Merger Agreement. This Proxy
Statement/ Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Such additional information
may be obtained from the Commission's offices as described above. Statements
contained herein, or in any document incorporated herein by reference,
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copies of such documents filed as
exhibits to the Registration Statement or otherwise filed with the Commission,
each such statement being qualified in its entirety by such reference.
No person has been authorized to give any information or to make any
representations other than those contained in or incorporated by reference in
this Proxy Statement/Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by AIMCO or
Ambassador. This Proxy Statement/Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities, or the solicitation of a
proxy, in any jurisdiction in which, or to or from any person to whom or from
whom, such offer, solicitation of an offer or solicitation of a proxy is not
authorized or is unlawful. Neither the delivery of this Proxy
Statement/Prospectus nor any sale or distribution made hereunder shall, under
any circumstances, create any implication that there has not been any change in
the facts set forth in this Proxy Statement/Prospectus or in the affairs of
AIMCO or Ambassador since the date hereof.
Information in this Proxy Statement/Prospectus regarding AIMCO and its
subsidiaries (including the AIMCO Operating Partnership (as defined herein)) and
information regarding Insignia Financial Group, Inc. has been prepared and/or
supplied by AIMCO and information regarding Ambassador and its subsidiaries
(including the Ambassador Operating Partnership (as defined herein)) has been
prepared and/or supplied by Ambassador.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
statements in the Summary, under the captions "Risk Factors," "The Merger and
Related Transactions -- Reasons of Ambassador for the Merger; Recommendation of
the Ambassador Board," "AIMCO Recent Developments," the Pro Forma Financial
Statements and elsewhere in this Proxy Statement/Prospectus and the documents
incorporated by reference herein contain or may contain
<PAGE> 7
information that is forward-looking, including, without limitation: statements
regarding the effect of the Merger; other acquisitions; AIMCO's future financial
performance; and the effect of government regulations. Actual results may differ
materially from those described in the forward-looking statements and will be
affected by a variety of risks and factors including, without limitation:
national and local economic conditions; the general level of interest rates;
terms of governmental regulations that affect AIMCO and Ambassador and
interpretations of those regulations; the competitive environment in which AIMCO
and Ambassador operate; financing risks, including the risk that AIMCO's cash
flow from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; acquisition and development risks, including the failure of
acquisitions to perform in accordance with projections; the risk that the
Insignia Merger (as defined herein) will not be consummated or that consummation
of the Insignia Merger will be delayed; and possible environmental liabilities,
including costs which may be incurred due to necessary remediation of
contamination of properties owned, acquired or previously owned by AIMCO or
Ambassador. In addition, AIMCO's continued qualification as a real estate
investment trust (a "REIT") involves the application of highly technical and
complex provisions of the Code. Readers should carefully review AIMCO's and
Ambassador's financial statements and the notes thereto, as well as the risk
factors described herein and in the AIMCO Incorporated Documents (as defined
herein) and the Ambassador Incorporated Documents (as defined herein).
INCORPORATION BY REFERENCE
AIMCO incorporates by reference herein the following documents (the "AIMCO
Incorporated Documents") filed by it with the Commission (File No. 001-13232)
pursuant to the Exchange Act:
1. AIMCO's Annual Report on Form 10-K for the year ended December 31,
1997;
2. AIMCO's Current Reports on Form 8-K dated December 23, 1997 (and
Amendment No. 1 thereto filed February 6, 1998), January 31, 1998 and March
17, 1998;
3. The description of AIMCO's capital stock which is contained in
AIMCO's Registration Statement on Form 8-A filed July 19, 1994, including
any amendment or reports filed for the purpose of updating such
description;
4. AIMCO's definitive Proxy Statement relating to AIMCO's 1997 Annual
Meeting of Shareholders held on April 24, 1997; and
5. AIMCO's preliminary Proxy Statement relating to AIMCO's 1998 Annual
Meeting of Shareholders.
Ambassador incorporates by reference herein the following documents (the
"Ambassador Incorporated Documents") filed by it with the Commission (File No.
001-14132) pursuant to the Exchange Act:
1. Ambassador's Annual Report on Form 10-K for the year ended December
31, 1997; and
2. Ambassador's Current Report on Form 8-K dated March 17, 1998.
All documents and reports filed by AIMCO or Ambassador pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to be a part
hereof from the date of such filing. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
2
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This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. A copy of these documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents) will be provided, without charge,
to each person to whom this Proxy Statement/Prospectus is delivered, upon
written or oral request, by first class mail or other equally prompt means
within one business day of receipt of such request. Such request should be
directed, in the case of documents relating to AIMCO, to Leeann Morein, Senior
Vice President -- Investor Services and Secretary, Apartment Investment and
Management Company, 1873 South Bellaire Street, 17th Floor, Denver, Colorado
80222-4348, (303) 691-4376, or in the case of documents relating to Ambassador,
to Debra A. Cafaro, President, Ambassador Apartments, Inc., 77 West Wacker
Drive, Suite 4040, Chicago, Illinois 60601, (312) 917-1600. In order to ensure
timely delivery of the documents prior to the Special Meeting, any request
should be made by April 20, 1998.
3
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. This summary is not intended to be complete
and reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Proxy Statement/Prospectus, the
Appendices hereto and the documents incorporated herein by reference.
Stockholders of Ambassador are encouraged to review carefully this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference, in their entirety.
THE COMPANIES
Apartment Investment and Management Company.
AIMCO is the second largest owner and manager of multifamily apartment
properties in the United States, based on apartment unit data compiled by the
National Multi Housing Council as of January 1, 1998. As of December 31, 1997,
AIMCO owned or managed 193,057 apartment units, comprised of 40,039 units in 147
apartment properties owned or controlled by AIMCO (the "Owned Properties"),
83,431 units in 515 apartment properties in which AIMCO had an equity interest
(the "Equity Properties") and 69,587 units in 374 apartment properties managed
by AIMCO for third parties and affiliates (the "Managed Properties," and,
together with the Owned Properties and the Equity Properties, the "AIMCO
Properties"). In addition to the Managed Properties, AIMCO manages all of the
Owned Properties and a majority of the Equity Properties. The AIMCO Properties
are located in 42 states, the District of Columbia and Puerto Rico. AIMCO has
elected to be taxed as a REIT for Federal income tax purposes. AIMCO conducts
substantially all of its operations through AIMCO Properties, L.P., a Delaware
limited partnership (the "AIMCO Operating Partnership"), and its subsidiaries.
As of December 31, 1997, AIMCO held approximately an 88% interest in the AIMCO
Operating Partnership. AIMCO's principal executive offices are located at 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222-4348, and its
telephone number is (303) 757-8101. See "Business of AIMCO." On March 17, 1998,
AIMCO entered into an Agreement and Plan of Merger with Insignia Financial
Group, Inc., a Delaware corporation ("Insignia"), pursuant to which Insignia
will be merged with and into AIMCO, with AIMCO as the survivor. See "AIMCO
Recent Developments -- Insignia Merger and Related Transactions."
Ambassador Apartments, Inc.
Ambassador is a self-administered and self-managed REIT engaged in the
ownership and management of garden style apartment properties leased primarily
to middle income tenants. As of December 31, 1997, Ambassador owned 52 apartment
communities (the "Ambassador Properties") with a total of 15,728 units located
in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas. In
addition, Ambassador manages one property containing 252 units for an unrelated
third party. Ambassador has elected to be taxed as a REIT for Federal income tax
purposes. Ambassador conducts substantially all of its operations through
Ambassador Apartments, L.P., a Delaware limited partnership (the "Ambassador
Operating Partnership"), and its subsidiaries. As of December 31, 1997,
Ambassador held approximately 94% of the outstanding common units of the
Ambassador Operating Partnership and 100% of the outstanding preferred units of
the Ambassador Operating Partnership. Ambassador's principal executive offices
are located at 77 West Wacker Drive, Suite 4040, Chicago, Illinois 60601, and
its telephone number is (312) 917-1600. See "Business of Ambassador."
THE MERGER AND RELATED TRANSACTIONS
The Merger.
On December 23, 1997, AIMCO and Ambassador entered into, and as of March
11, 1998, supplemented, the Merger Agreement. For purposes of this Proxy
Statement/Prospectus, references to the date of the Merger Agreement shall mean
December 23, 1997, unless otherwise provided or the context otherwise requires.
Pursuant to the Merger Agreement, Ambassador will be merged with and into AIMCO,
with AIMCO being the surviving corporation (the "Surviving Corporation") after
the Merger. The Merger will
4
<PAGE> 10
become effective at the time the parties file a certificate of merger with the
Secretary of State of the State of Maryland (the "Effective Time"). Upon
consummation of the Merger, each outstanding share of Ambassador Common Stock,
other than Ambassador Common Stock held by Ambassador or AIMCO, will be
converted into the right to receive that number of shares of AIMCO Common Stock
equal to the quotient (rounded to the nearest 1/1000) (the "Conversion Ratio")
determined by dividing $21.00 by the AIMCO Index Price. The term "AIMCO Index
Price" means the aggregate of the average of the high and low sales prices of
AIMCO Common Stock, as reported on the NYSE, on each of the twenty consecutive
NYSE trading days ending on the fifth NYSE trading day immediately preceding the
effective time of the Merger, divided by 20. If the Conversion Ratio calculated
pursuant to the foregoing is greater than 0.583, then, at AIMCO's option, the
Conversion Ratio to be used shall be either the Conversion Ratio as calculated
pursuant to the foregoing or 0.583 (so long as the Merger would continue to
qualify as a reorganization under Section 368(a) of the Code). If AIMCO opts for
the Conversion Ratio to equal 0.583, then, in addition to 0.583 shares of AIMCO
Common Stock, AIMCO will pay to each holder of Ambassador Common Stock, for each
share of Ambassador Common Stock held by such shareholder, an amount in cash
equal to (i) $21.00 minus (ii) the product of the AIMCO Index Price and 0.583.
The Merger is subject to a number of conditions, including the approval by the
stockholders of Ambassador. See "The Merger Agreement and Terms of the Merger."
As of the Record Date, there were 10,708,430 shares of Ambassador Common
Stock outstanding, including an aggregate of 886,600 shares owned by AIMCO and
its affiliates, 1,351,351 shares of Ambassador Preferred Stock outstanding,
739,068 shares of Ambassador Common Stock reserved for issuance upon the
exchange of limited partnership interests in the Ambassador Operating
Partnership ("OP Units"), and 447,510 shares of Ambassador Common Stock reserved
for issuance upon exercise of outstanding options to purchase shares of
Ambassador Common Stock ("Ambassador Stock Options"). If all Ambassador Stock
Options are exercised, all shares of Ambassador Preferred Stock are converted,
all OP Units are exchanged for shares of Ambassador Common Stock, and the AIMCO
Index Price is $36.00, the number of shares of AIMCO Common Stock to be issued
in the Merger would be 7,205,739 shares. See "The Merger Agreement and Terms of
the Merger -- Manner and Basis of Converting Shares."
AMBASSADOR STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES TO AMBASSADOR OR
AIMCO AT THIS TIME. As soon as practicable after the Effective Time, each
Ambassador stockholder will receive a letter of transmittal (a "Letter of
Transmittal") from BankBoston, N.A. (the "Exchange Agent") to be used to
transmit such stockholder's stock certificates to AIMCO. See "The Merger
Agreement and Terms of the Merger -- Manner and Basis of Converting Shares."
Pursuant to the Merger Agreement, immediately prior to the Effective Time,
each outstanding Ambassador Stock Option will become fully vested and
exercisable. Pursuant to the Merger Agreement, holders of Ambassador Stock
Options may elect prior to the Effective Time to have the Ambassador Stock
Options with respect to which such election is made canceled and, in
consideration for such cancellation, each such electing holder shall receive on
the day of the Effective Time for each share subject to the Ambassador Stock
Options for which such election is made, an amount (subject to any applicable
withholding tax) in cash equal to the excess, if any, of $21.00 over the per
share exercise price of such Ambassador Stock Option. Pursuant to the Merger
Agreement, as of the Effective Time, each outstanding Ambassador Stock Option
for which such an election has not been made shall be converted into an option
(or a new substitute option shall be granted) to purchase the number of shares
of AIMCO Common Stock (rounded up to the nearest whole share) equal to the
number of shares of Ambassador Common Stock subject to such option multiplied by
the Conversion Ratio (as calculated pursuant to the definition thereof, without
regard to the provisions regarding AIMCO's election) at an exercise price per
share of AIMCO Common Stock (rounded down to the nearest penny) equal to the
former exercise price per share of Ambassador Common Stock under such option
divided by the Conversion Ratio (as calculated pursuant to the definition
thereof, without regard to the provisions regarding AIMCO's election), subject
to adjustment based on the applicability of certain provisions of the Code.
Based upon the number of Ambassador Stock Options outstanding as of the Record
Date, and assuming a Conversion Ratio of 0.583, AIMCO will reserve approximately
260,898 shares of AIMCO Common Stock for issuance upon exercise of such options,
assuming no cancellation elections are made. See "The Merger and Related
Transactions -- Ambassador Stock Options."
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Related Transactions.
In the Merger Agreement, AIMCO and Ambassador agreed that the parties will
use their reasonable best efforts to effect a business combination (the "OP
Reorganization") of the Ambassador Operating Partnership with the AIMCO
Operating Partnership immediately following the Effective Time, with the AIMCO
Operating Partnership as the surviving entity, which business combination will
have, to the extent possible, for the holders of OP Units, the same economic and
tax consequences for the holders of OP Units as the Merger has for holders of
Ambassador Common Stock. If such a business combination is not effected due to
failure to obtain consents of all persons entitled to give or withhold such
consents which are necessary for such business combination, then (i) such
partnership shall remain and be operated as separate entities and (ii) AIMCO
shall execute and deliver to each limited partner in the Ambassador Operating
Partnership the agreement relating to the exchange rights of holders of OP Units
contemplated by a certain Exchange Rights Agreement of Ambassador (the "Exchange
Agreement") and be bound thereby.
The Merger Agreement also provides that at or prior to the Effective Time,
Ambassador will call for redemption the limited partnership interests not owned
by Ambassador or its affiliates in Jupiter-I, L.P. and Jupiter-II, L.P. (the
"Jupiter Redemption") in accordance with their respective partnership agreements
and subject to and simultaneously with the Effective Time, the Surviving
Corporation will provide the funds for, and cause payment to be made in respect
of, the redemption thereof upon the Effective Time.
The Merger Agreement provides that prior to the Effective Time, the Board
of Directors of Ambassador (the "Ambassador Board") will call for the redemption
of all outstanding shares of Ambassador Preferred Stock in accordance with, and
at a redemption price equal to the amount set forth in Section 8(a) of the
Articles Supplementary of Ambassador with respect thereto, to be effective
simultaneously with, and to be conditioned upon, the occurrence of, the
Effective Time. Notwithstanding the foregoing, the parties understand and agree
that the holder of such Ambassador Preferred Stock shall nonetheless have the
right to convert such stock into Ambassador Common Stock in the manner set forth
in such Articles Supplementary. To the extent any Ambassador Preferred Stock
shall not have been converted as of the Effective Time, AIMCO will provide the
funds for, and cause payment to be made in respect of, the redemption thereof on
the date of the Effective Time.
Each of AIMCO and Ambassador will declare its regular quarterly dividend
for the first quarter (and for any other calendar quarter ended prior to the
Effective Time) with a record date prior to the Effective Time. Ambassador will
also declare a special dividend (the "Special Dividend"), with a record date
prior to the Effective Time, which will result in its stockholders receiving an
amount per share equal to the product of (x) the difference between (a)
Ambassador's most recent quarterly dividend amount (appropriately adjusted for
any stock splits and the like) and (b) the product of the Conversion Ratio (as
determined pursuant to the Merger Agreement) and AIMCO's most recent quarterly
dividend amount (appropriately adjusted for any stock splits and the like), and
(y) the number of days which shall have elapsed through and including the day
immediately prior to the day of the Effective Time since the end of the most
recent calendar quarter (as of the Effective Time) for which Ambassador's
dividend record date has occurred, divided by 91. In addition, in the ordinary
course of business after the Effective Time, AIMCO will declare a dividend for
the quarter in which the Effective Time occurs in the amount of its regularly
quarterly dividend amount for such quarter. Concurrent and equivalent per unit
distributions for the benefit of holders of OP Units will be made in connection
with the dividends declared in this paragraph. See "The Merger Agreement and
Terms of the Merger -- Distributions with Respect to Shares."
On December 23, 1997, pursuant to a letter agreement, AIMCO and Ambassador
agreed that, on or prior to June 30, 1998, AIMCO will form an advisory committee
(the "Advisory Committee") to its Board of Directors. The members of the
Advisory Committee will be appointed by the Chairman of the Board of Directors
of AIMCO and serve at the discretion of the Chairman of the Board of Directors
until their replacements are duly appointed. In the letter agreement, AIMCO
agreed that the group first appointed as members of the Advisory Committee will
include at least one member who, as of December 23, 1997, was a member of the
Ambassador Board. The letter agreement provides that AIMCO intends that the
Advisory Committee will meet periodically to review the financial condition and
strategic position of AIMCO, with the
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purpose of making recommendations to the AIMCO Board of Directors. However, the
Advisory Committee will have such duties and authority, meet at such times, and
receive such compensation as the AIMCO Board of Directors determines in its sole
discretion. The letter agreement provides that it is understood that the
Advisory Committee is not a committee of the AIMCO Board of Directors and no
duties or responsibilities of the AIMCO Board of Directors will be assigned to
the Advisory Committee.
THE SPECIAL MEETING
Time and Place. The Special Meeting is to be held on April 30, 1998 at 9:00
a.m., local time, at 77 West Wacker Drive, Chicago, Illinois 60601.
Purpose. At the Special Meeting, the stockholders of Ambassador will be
asked to consider and approve the Merger Agreement Proposal, and to transact any
and all other business that may properly come before the Special Meeting. See
"Information Concerning the Special Meeting -- Purpose, Time and Place."
Record Date; Quorum; Required Vote. The record date for the Special Meeting
is the close of business on March 19, 1998. Only holders of record of shares of
Ambassador Common Stock and Ambassador Preferred Stock on the Record Date are
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 10,708,430 outstanding shares of Ambassador Common Stock, held by
approximately 2,500 holders of record (including 886,600 shares held by AIMCO
and its affiliates), and 1,351,351 shares of Ambassador Preferred Stock, held by
one holder of record. Each share of Ambassador Common Stock and each share of
Ambassador Preferred Stock is entitled to one vote on each matter to be acted
upon or which may properly come before the Special Meeting. The presence, in
person or by proxy, of at least a majority of the issued and outstanding shares
of capital stock entitled to vote is necessary to constitute a quorum at the
Special Meeting. Under the Maryland General Corporation Law (the "MGCL"), the
approval of the Merger Agreement Proposal requires the affirmative vote of
holders of at least 66 2/3% of the outstanding shares of Ambassador Common Stock
and Ambassador Preferred Stock, voting as a single class. AIMCO and its
affiliates own 8.3% of the outstanding shares of Ambassador Common Stock and
have agreed to vote in favor of the Merger Agreement Proposal. Votes to abstain
and broker non-votes will have the same effect as votes cast against the Merger
Agreement Proposal. See "Information Concerning the Special Meeting -- Record
Date; Quorum; Vote Required."
SUMMARY RISK FACTORS
Stockholders of Ambassador should consider carefully certain risks relating
to the Merger, the OP Reorganization, related transactions and the businesses of
AIMCO and Ambassador. Factors to be considered include, among other things, the
risks that AIMCO may not be able to integrate successfully the businesses of
AIMCO, Ambassador and Insignia and may not realize the benefits anticipated from
the Merger or the Insignia Merger, that AIMCO and its subsidiaries have
significant amounts of debt outstanding, certain of which debt bears interest at
variable rates, and that AIMCO and Ambassador are subject to various risks
associated with investments in and management of real estate. STOCKHOLDERS OF
AMBASSADOR SHOULD CAREFULLY EVALUATE THE MATTERS SET FORTH UNDER "RISK FACTORS."
RECOMMENDATION OF THE AMBASSADOR BOARD
The Ambassador Board has, by a vote of seven to one, approved and adopted
the Merger Agreement and has determined that the Merger is fair to, and in the
best interests of, Ambassador and the holders of Ambassador Common Stock. THE
AMBASSADOR BOARD HAS, BY THE SAME VOTE, RECOMMENDED THAT ALL OF THE AMBASSADOR
STOCKHOLDERS VOTE FOR THE ADOPTION AND AUTHORIZATION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY. For a discussion of the factors
considered by the Ambassador Board in reaching its decisions to approve, and
recommend that Ambassador stockholders approve, adopt and authorize, the Merger
Agreement and the transactions contemplated thereby, see "The Merger and Related
Transactions -- Reasons for the Merger; Recommendation of the Ambassador Board."
As of the Record Date, directors and executive officers of Ambassador owned
718,250 shares of Ambassador Common Stock (not including securities convertible
into shares of Ambassador Common Stock), representing 6.0% of the voting power
of the shares entitled to vote on the Merger Agreement Proposal.
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FINANCIAL ADVISOR TO THE AMBASSADOR BOARD
The investment banking firm of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") has delivered to the Ambassador Board its
opinion, dated December 22, 1997, to the effect that, as of such date and based
upon the assumptions made, matters considered and limits of review set forth
therein, the consideration to be received by the holders of Ambassador Common
Stock (other than AIMCO and its affiliates) in the Merger is fair to such
holders from a financial point of view. A copy of the Merrill Lynch opinion is
attached hereto as Appendix II. AMBASSADOR STOCKHOLDERS ARE URGED TO READ THE
MERRILL LYNCH OPINION ATTACHED HERETO IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW BY
MERRILL LYNCH. See "The Merger and Related Transactions -- Opinion of Financial
Advisor to Ambassador Board."
INTERESTS OF DIRECTORS AND MANAGEMENT OF AMBASSADOR AND AIMCO IN THE MERGER AND
THE RELATED TRANSACTIONS
Pursuant to the Merger Agreement, immediately prior to the Effective Time,
each outstanding Ambassador Stock Option will become fully vested and
exercisable. Pursuant to the Merger Agreement, holders of Ambassador Stock
Options may elect prior to the Effective Time to have the Ambassador Stock
Options with respect to which such election is made canceled and, in
consideration for such cancellation, each such electing holder shall receive on
the day of the Effective Time for each share subject to the Ambassador Stock
Option for which such election is made an amount (subject to any applicable
withholding tax) in cash equal to the excess, if any, of $21.00 over the per
share exercise price of such Ambassador Stock Option. Pursuant to the Merger
Agreement, as of the Effective Time, each outstanding Ambassador Stock Option
for which such an election has not been made shall be converted into an option
(or a new substitute shall be granted) to purchase the number of shares of AIMCO
Common Stock (rounded up to the nearest whole share) equal to the number of
shares of Ambassador Common Stock subject to such option multiplied by the
Conversion Ratio (as calculated pursuant to the definition thereof, without
regard to the provisions regarding AIMCO's election) at an exercise price per
share of AIMCO Common Stock (rounded down to the nearest penny) equal to the
former exercise price per share of Ambassador Common Stock subject to such
option divided by the Conversion Ratio (as calculated pursuant to the definition
thereof, without regard to the provisions regarding AIMCO's election), subject
to adjustment based on the applicability of certain provisions of the Code.
Based upon the number of Ambassador Stock Options outstanding at December 31,
1997, and assuming a Conversion Ratio of 0.583, AIMCO will reserve approximately
260,898 shares of AIMCO Common Stock for issuance upon exercise of such options,
assuming no cancellation elections are made.
Certain executive officers of Ambassador also will receive severance and
bonus payments as a result of change of control provisions in their respective
employment agreements which are triggered by consummation of the Merger.
Ambassador and each of David M. Glickman, Ambassador's Chief Executive Officer,
Debra A. Cafaro, Ambassador's President, and Thomas J. Coorsh, Ambassador's
Senior Vice President, Secretary and currently interim Chief Financial Officer,
are parties to employment agreements which provide that in the event there is a
Change of Control (as defined in each such employment agreement, which
definition would include the Merger), such executive will receive payments equal
to $2,595,000, $1,100,000 and $385,000, respectively, with respect to such
Change of Control and Messrs. Glickman and Coorsh will receive payments equal to
$900,000 and $215,000, respectively, in connection with noncompete/consulting
arrangements. See "The Merger and Related Transactions -- Interests of Directors
and Management of Ambassador and AIMCO in the Merger and the Related
Transactions."
Pursuant to resolutions adopted by the Ambassador Board, each of David
Heller, Richard Levy, Norman Bobins, Michael Reschke and Jane Patterson,
directors of Ambassador, will receive a payment of $25,000 upon consummation of
the Merger.
As described below, certain affiliates (including directors and executive
officers) of Ambassador will be party to a registration rights agreement with
AIMCO, pursuant to which AIMCO will agree to register for sale shares of AIMCO
Common Stock received by such persons in the Merger or upon exchange of AIMCO OP
Units issued in exchange for OP Units in the OP Reorganization. See
"Registration Rights Agreement."
Richard F. Levy is a director of Ambassador. Mr. Levy's professional
corporation is a partner in the law firm of Altheimer & Gray, which has in the
past performed and is expected in the future to perform legal services for
Ambassador, including in connection with the Merger. See "Legal Matters."
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In the Merger Agreement, AIMCO agreed that it will and will cause the AIMCO
Operating Partnership, to the fullest extent permitted by applicable law, to
indemnify, defend and hold harmless each person who is on the date of the Merger
Agreement, or has been at any time prior to the date of the Merger Agreement, or
who becomes prior to the Effective Time, an officer, director, advisory
committee member, or employee of any of the parties thereto or their respective
subsidiaries against all losses, expenses (including reasonable attorneys' fees
and expenses), claims, damages or liabilities or, subject to the provisions of
the Merger Agreement, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
advisory committee member, officer or employee of such party. See "The Merger
Agreement and Terms of the Merger -- Indemnification."
CONDITIONS TO THE MERGER
The respective obligations of each party to effect the Merger are subject
to the satisfaction or waiver of a number of conditions, including (i) the
receipt of all material authorizations, consents and approvals necessary from
any governmental entity necessary for consummation of the Merger, (ii) the
absence of any injunction or other court order, that would prohibit the
consummation of the Merger, (iii) the effectiveness of the AIMCO Registration
Statement, (iv) the approval for listing on the NYSE of the shares of AIMCO
Common Stock to be issued pursuant to the Merger, (v) the approval of the Merger
Agreement Proposal by the Ambassador stockholders, (vi) the receipt of opinions
of tax counsel to the effect that the Merger should constitute a reorganization
within the meaning of Section 368(a) of the Code, (vii) the receipt of an
opinion of counsel that following the Merger, AIMCO will continue to be taxed as
a REIT under the Code, and (viii) the continued accuracy, subject to certain
materiality standards, of the representations and warranties made by the other
party in the Merger Agreement. See "The Merger Agreement and Terms of the Merger
- -- Conditions to the Merger."
PROHIBITION OF CERTAIN ACTIVITIES
The Merger Agreement provides that, prior to the Effective Time, AIMCO and
Ambassador will conduct their respective business in the ordinary course as
discussed in this Proxy Statement/Prospectus in "The Merger Agreement and Terms
of the Merger -- Conduct of Business Pending the Merger." In addition,
Ambassador has agreed that it will not solicit, initiate, encourage or
facilitate proposals with respect to certain transactions that essentially
constitute a sale of Ambassador or a substantial portion of its stock or assets,
except under certain conditions set forth in the Merger Agreement. See "The
Merger Agreement and Terms of the Merger -- Response to Other Offers."
AMENDMENT AND TERMINATION
At any time before or after approval of the Merger Agreement Proposal by
the Ambassador stockholders, and prior to the Effective Time, the Merger
Agreement may be amended or supplemented in writing by Ambassador and AIMCO with
respect to any of the terms contained in the Merger Agreement, except that
following approval by the Ambassador stockholders, no amendment may be made
which would alter or change the amount or kind of Merger Consideration or the
treatment of shares of Ambassador Common Stock or otherwise materially adversely
affect the rights of holders of Ambassador Common Stock or AIMCO Common Stock,
without further approval of the Ambassador stockholders if applicable law would
require such further approval.
The Merger Agreement provides that it may be terminated prior to the
Effective Time, whether before or after the approval by Ambassador stockholders,
by the mutual written consent of the Boards of Directors of AIMCO and
Ambassador. The Merger Agreement may also be terminated prior to the Effective
Time, whether before or after the approval by Ambassador stockholders, by either
AIMCO or Ambassador upon the occurrence of certain events, including (i) the
failure of the Merger to be consummated by July 31, 1998, other than by reason
of a default by the party attempting to terminate, and provided that if the only
condition not met at such date relates to a required statutory approval, such
date shall be extended to September 15, 1998, (ii) any court of competent
jurisdiction issuing an order, judgment or decree restraining, enjoining or
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otherwise prohibiting the Merger, which has become final and nonappealable, or
(iii) the Ambassador stockholders fail to approve the Merger Agreement Proposal
at a meeting. Either party may terminate the Merger Agreement in the event of a
breach of any representation or warranty which would result in a material
adverse effect or if the other party commits a material breach of a covenant or
agreement, and fails to cure such default (or provide adequate assurance of such
a cure) within twenty business days of receiving notice from the terminating
party. Ambassador may terminate the Merger Agreement, under certain
circumstances, upon determining that an alternative acquisition proposal
constitutes a Superior Proposal (as defined herein). See "The Merger Agreement
and Terms of the Merger -- Termination."
If Ambassador terminates the Merger Agreement after determining that an
alternative acquisition proposal constitutes a Superior Proposal, AIMCO
terminates the Merger Agreement by reason of a breach by Ambassador of a
representation, warranty or covenant, or the Merger Agreement is terminated
because the Ambassador stockholders did not approve the Merger Agreement
Proposal, and, in each case, a third party makes a proposal to acquire the
business of Ambassador and such proposal is accepted and consummated within one
year of the termination of the Merger Agreement, then Ambassador may be required
to pay AIMCO a termination fee of the lesser of (i) approximately $8.7 million
(3.5% of the product of $21.00 and the number of shares of Ambassador Common
Stock and Ambassador Preferred Stock outstanding on the date of the Merger
Agreement) (the "Base Amount") and (ii) the maximum amount that can be paid to
AIMCO in the year of such termination and in the three years thereafter without
causing AIMCO to fail to meet the REIT requirements of the Code, as described in
the Merger Agreement, for such years. If Ambassador terminates the Merger
Agreement by reason of a breach by AIMCO of a representation, warranty or
covenant, under certain circumstances AIMCO may be required to pay Ambassador a
termination fee calculated in the same manner. In addition, under certain
circumstances, the parties have agreed to the payment of up to $1.0 million in
expenses. See "The Merger Agreement and Terms of the Merger -- Termination
Fees."
REGISTRATION RIGHTS AGREEMENT
The Merger Agreement requires that, prior to the Effective Time, Ambassador
will identify to AIMCO all persons who are, and to Ambassador's knowledge who
will be at the Effective Time, affiliates ("Rule 145 Affiliates") of Ambassador
under Rule 145 of the Securities Act (generally Ambassador directors, executive
officers or persons owning more than 10% of Ambassador Common Stock), and will
use reasonable efforts to cause such persons to deliver to AIMCO on or prior to
the Effective Time an agreement pursuant to which such persons agree, among
other things, to comply with the provisions of Rule 145. AIMCO has agreed to
enter into a registration rights agreement (the "Registration Rights Agreement")
with each person who delivers such an agreement or who receives units of limited
partnership in AIMCO Operating Partnership ("AIMCO OP Units") as a result of
conversion of OP Units in the OP Reorganization, or who own OP Units as of the
Effective Time. Pursuant to the Registration Rights Agreement, AIMCO will file a
"shelf" registration statement to register for resale the shares of AIMCO Common
Stock issued to such Rule 145 Affiliates as Merger Consideration or in
connection with the OP Reorganization, to be effective for three years, and will
be obligated, under certain circumstances to file additional registration
statements for such resales.
ACCOUNTING TREATMENT
The Merger will be accounted for by AIMCO and its subsidiaries under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," as amended. Under this method of
accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values. See "The Merger and
Related Transactions -- Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
AIMCO and Ambassador have conditioned the Merger on receipt of opinions to
the effect that the Merger should qualify as a tax-free reorganization for
Federal income tax purposes. If the Merger so qualifies,
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no gain or loss should be recognized by Ambassador's stockholders, except in
respect of cash received in lieu of fractional shares and to the extent cash is
received through AIMCO's election to pay cash consideration in the Merger, as
described herein. For a more detailed discussion of the material U.S. Federal
income tax consequences of the Merger and certain other matters related thereto,
see "The Merger and Related Transactions -- Federal Income Tax Consequences of
the Merger."
APPRAISAL RIGHTS
Under the Maryland General Corporation Law (the "MGCL"), the holders of
Ambassador Common Stock will not be entitled to any objecting stockholders'
rights to fair value in connection with the Merger. The MGCL does not provide
appraisal rights to shareholders of a corporation in connection with a merger if
their shares are listed on a national securities exchange, such as the NYSE, on
the record date for determining shareholders entitled to vote on such merger.
Shares of Ambassador Common Stock were listed on the NYSE as of the Record Date.
Holders of Ambassador Preferred Stock will not be entitled to such rights
because all shares of Ambassador Preferred Stock will either be converted into
Ambassador Common Stock or redeemed pursuant to their terms in connection with
the Merger. See "The Merger and Related Transactions -- Appraisal Rights" and
"Comparative Rights of Stockholders of AIMCO and Ambassador -- Appraisal
Rights."
REGULATORY MATTERS
AIMCO and Ambassador believe that the Merger may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and that no waiting period
requirements under the HSR Act are applicable to the Merger. However, at any
time before or after the Effective Time, either the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin the Merger. AIMCO and
Ambassador believe that consummation of the Merger would not violate any
antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if a challenge is made, what
the result will be.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF AIMCO AND AMBASSADOR
As a result of the Merger, shares of Ambassador Common Stock will be
converted into the right to receive shares of AIMCO Common Stock. As a result of
differences between the governing instruments of Ambassador and AIMCO, the
rights of Ambassador stockholders as holders of Ambassador Common Stock before
the Merger, and as holders of AIMCO Common Stock after the Merger, will be
different. For a discussion of certain differences between the rights of
Ambassador stockholders and the rights of AIMCO stockholders, see "Comparative
Rights of Stockholders of AIMCO and Ambassador."
INSIGNIA MERGER
On March 17, 1998, AIMCO and the AIMCO Operating Partnership entered into
an Agreement and Plan of Merger (the "Insignia Merger Agreement") with 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. Pursuant to an Indemnification
Agreement entered into in connection with the Insignia Merger Agreement (the
"Insignia Indemnification Agreement"), the company to be spun off ("SpinCo")
will provide indemnification for certain liabilities arising under the Insignia
Merger Agreement. If the Insignia Merger is consummated, AIMCO expects to assume
property management of approximately 192,000 multifamily units, consisting of
115,000 units which will be controlled by AIMCO and 77,000 units owned by
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third parties, and AIMCO will acquire Insignia's approximately 75% ownership
interest in Insignia's real estate investment trust subsidiary, Insignia
Properties Trust, a Maryland real estate investment trust ("IPT"), which owns a
32% weighted average general and limited partnership interest in approximately
51,000 units.
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 of Series E Preferred Stock,
par value $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 will be entitled to a preferred cash dividend of $50 million
in the aggregate, and when such dividend is paid, the Series E Preferred Stock
will convert automatically into AIMCO Common Stock on a one-for-one basis,
subject to antidilution adjustments, if any. In addition, AIMCO will assume
approximately $307 million in outstanding indebtedness and other liabilities and
will assume approximately $150 million aggregate liquidation amount of 6 1/2%
Trust Convertible Preferred Securities issued by Insignia Financing I, a
subsidiary of Insignia (the "TOPRs"), 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 IPT not held by Insignia, 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.
The 25% of IPT not owned by Insignia are valued at an aggregate of approximately
$100 million, or approximately $13.25 per IPT 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 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 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-for-one basis, subject to antidilution
adjustments, if any. See "AIMCO Recent Developments -- Insignia Merger and
Related Transactions."
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SUMMARY HISTORICAL FINANCIAL INFORMATION OF AIMCO
The following table sets forth summary historical financial and operating
information for AIMCO. The summary historical financial information for the
years ended December 31, 1997, 1996 and 1995 is based on the audited financial
statements of AIMCO incorporated by reference herein. The summary historical
financial information for the period January 10, 1994 (the date of AIMCO's
inception) through December 31, 1994 for AIMCO and for the period from January
1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the
AIMCO Predecessors is based on the audited financial statements of AIMCO and the
AIMCO Predecessors, respectively. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of AIMCO and
notes thereto incorporated by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AIMCO AIMCO PREDECESSORS(A)
------------------------------------------------------ -----------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JANUARY 10, JANUARY 1, FOR THE
YEAR ENDED DECEMBER 31, 1994 THROUGH 1994 THROUGH YEAR ENDED
------------------------------------- DECEMBER 31, JULY 28, DECEMBER 31,
1997 1996 1995 1994 1994(B) 1993
---- ---- ---- -------------- -------------- ------------
(RESTATED)(C) (RESTATED)(C)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations........................... $ 72,477 $ 39,814 $ 27,483 $ 9,126 $ 2,391 $ 3,154
Income from service company business... 2,028 1,717 1,973 1,006 360 983
Income from operations................. 30,246 15,629 14,988 7,702 (1,499) 291
Net income (loss)...................... 28,633 12,984 13,375 7,143 (1,499) 291
PER SHARE DATA:
Basic earnings per common share........ $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A
Diluted earnings per common share...... $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A
Weighted average number of common
shares outstanding................... 24,055 12,411 9,571 9,589 N/A N/A
Weighted average number of common
shares and common share equivalents
outstanding.......................... 24,436 12,427 9,579 9,589 N/A N/A
Dividends paid per common
share................................ $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation......................... $1,657,207 $865,222 $477,162 $406,067 $47,500 $46,819
Cash and cash equivalents.............. 37,088 13,170 2,379 7,144 1,531 809
Total assets........................... 2,100,510 827,673 480,361 416,739 39,042 38,914
Total mortgages and notes payable...... 808,530 522,146 268,692 141,315 40,873 41,893
Mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Stock... -- -- -- 96,600 N/A N/A
Minority interest in Operating
Partnership.......................... 111,962 58,777 30,376 29,082 N/A N/A
Stockholders' equity................... 1,045,300 215,749 169,032 140,319 (9,345) (7,556)
CASH FLOW DATA:
Cash provided by operating
activities........................... $ 73,032 $ 38,806 $ 25,911 $ 16,825 $ 2,678 $ 2,203
Cash used in investing activities...... (717,663) (88,144) (60,821) (186,481) (924) (16,352)
Cash provided by (used in) financing
activities........................... 668,549 60,129 30,145 176,800 (1,032) 14,114
OTHER DATA:
Funds from Operations(d)............... $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A
Weighted average number of common
shares and OP Units outstanding(e)... 29,119 14,994 11,461 10,920 N/A N/A
</TABLE>
- -------------------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of AIMCO Common Stock. On
such date, AIMCO and Property Asset Management, L.L.C., and its affiliated
companies and PDI Realty Enterprises, Inc. (collectively, the "AIMCO
Predecessors") engaged in a business combination and consummated a series of
related transactions which enabled AIMCO to continue and expand the property
management and related businesses of the AIMCO Predecessors. The 966,000
shares of convertible preferred stock and 513,514 shares of AIMCO Common
Stock were repurchased by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of the
completion of the business combination with AIMCO.
(c) In the second quarter of 1996, AIMCO reorganized the ownership of the
service company, whereby the AIMCO Operating Partnership (i) owns all of the
non-voting preferred stock of the service company, Property Asset Management
Services, Inc. ("PAMS Inc."), representing a 95% economic interest, and (ii)
owns the 1% general partnership interest in Property Asset Management
Services, L.P. ("PAMS LP"). PAMS Inc. owns the 99% limited partnership
interest in PAMS LP. Substantially all the activity
13
<PAGE> 19
of PAMS Inc. is conducted by PAMS LP. Because the AIMCO Operating
Partnership owns 95% of the economic value of PAMS Inc. and also controls
the general partnership interest in PAMS LP, thereby controlling the
activity of the partnership, the service company is consolidated. Prior to
the reorganization, AIMCO reported the service company business on the
equity method. The restatement has no impact on net income, but does
increase third party and affiliate management and other income, management
and other expenses, amortization of management company goodwill and
depreciation of non-real estate assets. AIMCO has restated the balance sheet
as of December 31, 1995 and 1994, and the statements of income and
statements of cash flows for the year ended December 31, 1995 and the period
from January 10, 1994 through December 31, 1994 to reflect the change.
(d) AIMCO's management believes that the presentation of funds from operations
("FFO"), when considered with the financial data determined in accordance
with generally accepted accounting principles ("GAAP"), provides a useful
measure of AIMCO's performance. However, FFO does not represent cash flow
and is not necessarily indicative of cash flow or liquidity available to
AIMCO, nor should it be considered as an alternative to net income as an
indicator of operating performance. The Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net
income (loss), computed in accordance with GAAP, excluding gains and losses
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs),
and after adjustments for unconsolidated partnerships and joint ventures.
AIMCO calculates FFO in a manner consistent with the NAREIT definition,
which includes adjustments for minority interest in the AIMCO Operating
Partnership plus amortization of management company goodwill, the non-cash
deferred portion of the income tax provision for unconsolidated subsidiaries
and less the payments of dividends on preferred stock. AIMCO's management
believes that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of AIMCO's ability to
make required dividend payments, capital expenditures and principal payments
on its debt. There can be no assurance that AIMCO's basis of computing FFO
is comparable with that of other REITs.
The following is a reconciliation of Income before minority interest in
Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before minority interest in Operating Partnership.... $32,697 $15,673 $14,988
Gain on disposition of property............................. (2,720) (44) --
Extraordinary item.......................................... 269 -- --
Real estate depreciation, net of minority interests......... 33,751 19,056 15,038
Amortization of management company goodwill................. 948 500 428
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. 3,584 -- --
Amortization of management contracts...................... 1,587 -- --
Deferred taxes............................................ 4,894 -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 6,280 -- --
Preferred stock dividends................................... (135) -- (5,169)
------- ------- -------
Funds from operations....................................... $81,155 $35,185 $25,285
======= ======= =======
</TABLE>
(e) Generally, after a one-year holding period, AIMCO OP Units may be tendered
for redemption at the option of the holder and, upon tender, may be acquired
by AIMCO for shares of AIMCO Common Stock at an exchange ratio of one share
of AIMCO Common Stock for each AIMCO OP Unit (subject to adjustment).
14
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL INFORMATION OF AMBASSADOR
The following table sets forth summary historical financial information of
Ambassador and Prime Properties, the combined predecessor properties of
Ambassador (collectively, the "Ambassador Predecessor"). The summary historical
financial information for the years ended December 31, 1997, 1996 and 1995 is
derived from the audited consolidated financial statements of Ambassador
incorporated by reference herein. The summary historical financial information
for the period August 31, 1994 through December 31, 1994 for Ambassador and for
the period January 1, 1994 through August 30, 1994 and for the year ended
December 31, 1993 for the Ambassador Predecessor are based on the audited
financial statements of Ambassador and the Ambassador Predecessor, respectively.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Ambassador and notes thereto incorporated
by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AMBASSADOR AMBASSADOR PREDECESSOR
------------------------------------------------------ -------------------------
YEAR ENDED AUGUST 31 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
1997 1996 1995 1994 1994 1993
---- ---- ---- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, PROPERTIES AND UNITS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenue................................ $93,329 $70,194 $53,381 $14,680 $20,434 $20,024
Property operating expenses.................. 36,088 27,465 22,158 5,745 9,069 9,016
General and administrative expenses.......... 6,868 5,225 3,612 1,459 298 164
Property Management fees..................... -- -- -- -- 1,109 1,184
Depreciation................................. 18,979 13,430 8,894 2,101 3,190 3,271
Amortization of deferred financing fees...... 1,393 1,829 2,792 622 333 262
(Income) losses from unconsolidated real
estate limited partnerships................ (405) (233) 320 162 -- --
Merger related costs......................... 524 -- -- -- -- --
--------- --------- --------- --------- -------- --------
Income from operations....................... 29,882 22,478 15,605 4,591 6,435 6,127
Interest expense............................. 25,594 17,417 10,369 1,738 5,776 5,748
--------- --------- --------- --------- -------- --------
Income before minority interest, gain on sale
of rental property, loss on sale of
investment, loss on sale of interest rate
cap and extraordinary item................. 4,288 5,061 5,236 2,853 659 379
Income allocated to minority interest(1)..... (1,237) (1,883) (615) (332) -- --
--------- --------- --------- --------- -------- --------
Income before gain on sale of rental
property, loss on sale of investment, loss
on sale of interest rate cap and
extraordinary item......................... 3,051 3,178 4,621 2,521 659 379
Gain on sale of rental property net of
minority interest.......................... -- -- 966 -- -- --
--------- --------- --------- --------- -------- --------
Income before loss on sale of investment,
loss on sale of interest rate cap and
extraordinary item......................... 3,051 3,178 5,587 2,521 659 379
Loss on sale of investment, net of minority
interest................................... (509) -- -- -- -- --
--------- --------- --------- --------- -------- --------
Income before loss on sale of interest rate
cap and extraordinary item................. 2,542 3,178 5,587 2,521 659 379
Loss on sale of interest rate cap, net of
minority interest.......................... -- (2,084) -- -- -- --
--------- --------- --------- --------- -------- --------
Income before extraordinary item............. 2,542 1,094 5,587 2,521 659 379
Extraordinary item (net of minority
interest).................................. (1,384) (4,653) 4,360 (772) -- --
--------- --------- --------- --------- -------- --------
Net income (loss)............................ 1,158 (3,559) 9,947 1,749 659 379
Income allocated to preferred shareholders... 2,296 851 -- -- -- --
--------- --------- --------- --------- -------- --------
Net (loss) income applicable to common
stockholders............................... $ (1,138) $ (4,410) $ 9,947 $ 1,749 $ 659 $ 379
========= ========= ========= ========= ======== ========
Basic Earnings Per Share:(5)
(Loss) income per weighted average share of
common stock outstanding:
Before extraordinary item.................... $ 0.02 $ 0.03 $ 0.62 $ 0.28
Extraordinary item........................... (0.14) (0.52) 0.49 (0.09)
--------- --------- --------- ---------
Net (loss) income............................ $ (0.12) $ (0.49) $ 1.11 $ 0.19
========= ========= ========= =========
Weighted average number of common shares
outstanding................................ 9,834,710 8,958,525 8,958,525 8,847,547
Diluted Earnings Per Share:(5)
(Loss) income per weighted average share of
common stock outstanding:
Before extraordinary item.................... $ 0.03 $ 0.03 $ 0.62 $ 0.28
Extraordinary item........................... (0.14) (0.52) 0.49 (0.09)
--------- --------- --------- ---------
Net (loss) income............................ $ (0.11) $ (0.49) $ 1.11 $ 0.19
========= ========= ========= =========
Weighted average number of common shares and
common share equivalents outstanding....... 9,935,873 9,012,110 8,958,525 8,847,547
</TABLE>
15
<PAGE> 21
<TABLE>
<CAPTION>
AMBASSADOR AMBASSADOR PREDECESSOR
------------------------------------------------------ -------------------------
YEAR ENDED AUGUST 31 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
1997 1996 1995 1994 1994 1993
---- ---- ---- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, PROPERTIES AND UNITS)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating activities.... $ 20,732 $ 19,087 $ 21,592 $ 5,245 $ 4,935 $ 4,807
Net cash used in investing activities........ $ (39,029) $ (79,975) $ (58,530) $ (80,438) $ (1,731) $(64,155)
Net cash provided by (used in) financing
activities................................. $ 18,743 $ 59,620 $ 39,784 $ 77,617 $ (2,405) $ 60,669
SUPPLEMENTAL INFORMATION:
Funds from Operations(2)..................... $ 24,659 $ 20,762 $ 15,672 $ 5,093 $ 3,849 $ 3,650
Per share funds from operations(2)(6)........ $ 1.90 $ 1.85 $ 1.57 $ 0.51 $ 0.39 $ 0.37
Distributions/dividends per share............ $ 1.60 $ 1.60 $ 1.20 $ 0.538 -- --
Number of apartment units at end of
period(3).................................. 15,728 14,564 10,636 8,185 5,090 5,090
Number of Properties at end of period(3)..... 52 49 36 30 21 21
BALANCE SHEET DATA:
Rental property before accumulated
depreciation............................... $ 551,754 $ 495,292 $ 343,869 $ 235,916 $168,164 $166,433
Net rental property.......................... $ 499,435 $ 461,952 $ 323,959 $ 224,436 $157,689 $159,148
Total assets................................. $ 557,176 $ 515,784 $ 359,989 $ 244,511 $187,316 $166,407
Total debt(4)................................ $ 387,649 $ 359,329 $ 229,981 $ 112,800 $182,300 $163,900
Net equity (deficit)......................... $ 108,048 $ 90,448 $ 109,173 $ 109,962 $ (1,781) $ (2,422)
</TABLE>
- -------------------------
(1) Reflects allocation of income to minority interests (Limited Partners of the
Operating Partnership, Jupiter-I, L.P. and Jupiter-II, L.P.).
(2) The Company believes that to facilitate a clear understanding of its
operating results, Funds from Operations ("FFO") should be examined in
conjunction with net income as presented in the Consolidated Financial
Statements. Industry analysts generally consider FFO an appropriate measure
of performance of an equity REIT. FFO is defined by NAREIT as net income
(loss) computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains or (losses) from debt restructuring or sales of
property plus (i) real estate depreciation, (ii) amortization of capitalized
leasing expenses and tenant allowances or improvements, and (iii)
adjustments for unconsolidated partnerships and joint ventures.
(3) Subsequent to the initial offering, includes unconsolidated property
partnerships.
(4) Subsequent to the initial offering, excludes indebtedness in the aggregate
amount of $28,300 of bonds payable by the unconsolidated partnerships.
(5) The earnings per share amounts prior to 1997 have been reported as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share". No restatement of prior reported amounts was required.
For further discussion of earnings per share and the impact of Statement No.
128, see the notes to the consolidated financial statements.
(6) The year ended December 31, 1997 assumes 9,834,710 weighted average common
shares outstanding, conversion of all weighted average Common Units
(904,466), Jupiter-I, L.P. and Jupiter-II, L.P. (1,018,422), and conversion
of Ambassador Preferred Stock (1,246,402). The year ended December 31, 1996
assumes 8,958,525 weighted average common shares outstanding, conversion of
all weighted average Common Units (963,983), Jupiter-I, L.P. and Jupiter-II,
L.P. (910,365), and conversion of weighted average Ambassador Preferred
Stock (420,127).
16
<PAGE> 22
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary pro forma financial and operating
information of AIMCO for the year ended December 31, 1997. The Ambassador pro
forma financial and operating information gives effect to the Merger, the OP
Reorganization, and a number of transactions completed by AIMCO prior to the
Merger. The Insignia pro forma financial and operating information gives effect
to the Insignia Merger and the transfer of certain assets and liabilities of
Insignia to certain unconsolidated subsidiaries of AIMCO. The pro forma
financial and operating information set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical and pro
forma financial statements and notes thereto of AIMCO, NHP Incorporated ("NHP"),
the NHP Real Estate Companies (as defined in Note 1 to such financial
statements), NHP Southwest Partners, L.P., the NHP New LP Entities (as defined
in Note 1 of such financial statements included in Amendment No. 1 to AIMCO's
Current Report on Form 8-K, dated June 3, 1997 (the "June 3, 1997 Form 8-K,
Amendment No. 1")), the NHP Borrower Entities (as defined in Note 1 of such
financial statements included in the June 3, 1997 Form 8-K, Amendment No. 1),
The Bay Club at Aventura, the Morton Towers apartments, the Thirty-five
Acquisition Properties (as defined in AIMCO's Current Report on Form 8-K dated
October 15, 1997), First Alexandria Associates, The Oak Park Partnership,
Country Lakes Associates Two, Point West Limited Partners, Ambassador
Apartments, Inc. and Insignia Financial Group, Inc. which are incorporated by
reference in this Proxy Statement/Prospectus or included in prior filings of
AIMCO. See "Pro Forma Financial Information of AIMCO (Ambassador Merger)" and
"Pro Forma Financial Information of AIMCO (Insignia Merger)."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
AMBASSADOR INSIGNIA PRO
PRO FORMA FORMA
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Income from rental property operations.................... $ 131,188 $ 132,296
Loss from service company business........................ (1,353) (2,299)
Income (loss) before minority interest in Operating
Partnership............................................ 50,684 (10,694)
Net income attributable to preferred stockholders......... 19,932 19,932
Net income (loss) attributable to common stockholders..... $ 27,316 $ (30,626)
PER SHARE DATA:
Basic earnings (loss) per common share.................... $ 0.59 $ (0.56)
Diluted earnings (loss) per common share.................. $ 0.58 $ (0.56)
Weighted average number of common shares outstanding...... 46,529 54,663
Weighted average number of common shares and common share
equivalents outstanding................................ 45,910 54,663
CASH FLOW DATA:
Cash provided by operating activities(a).................. $ 138,683 $ 123,433
Cash used by investing activities(b)...................... (16,730) (16,947)
Cash used by financing activities(c)...................... (117,514) (142,565)
OTHER DATA:
Funds from operations(d).................................. $ 141,516 $ 163,264
Weighted average number of common shares, common share
equivalents and AIMCO OP Units outstanding(e).......... 55,273 64,060
BALANCE SHEET DATA:
Real estate, before accumulated depreciation.............. $2,326,029 $2,373,185
Cash and cash equivalents................................. 41,536 109,869
Total assets.............................................. 2,809,299 3,673,498
Total mortgages and notes payable......................... 1,120,077 1,482,755
Minority interest in Operating Partnership................ 130,764 130,764
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust....................... -- 144,065
Stockholders' equity(f)................................... 1,380,864 1,732,211
</TABLE>
17
<PAGE> 23
- -------------------------
(a) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
less the non-cash portion of AIMCO's equity in earnings of unconsolidated
subsidiaries. The pro forma amounts do not include adjustments for changes
in working capital resulting from changes in current assets and current
liabilities as there is no historical data available as of both the
beginning and end of each period presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
dividends and distributions to be paid based on AIMCO's historical dividend
rate of $1.85 per share for the year ended December 31, 1997, on
outstanding shares of AIMCO Common Stock and AIMCO OP Units, (ii) estimated
dividends to be paid based on the rate of $7.125 per share for the year
December 31, 1997, on outstanding shares of AIMCO Class B Preferred Stock,
(iii) estimated dividends to be paid based on the rate of $2.25 per share
for the year ended December 31, 1997, on outstanding shares of AIMCO Class
C Preferred Stock, and (iv) estimated dividends to be paid based on the
rate of $2.19 per share for the year ended December 31, 1997, on
outstanding shares of AIMCO Class D Preferred Stock.
(d) AIMCO's management believes that the presentation of FFO, when considered
with the financial data determined in accordance with GAAP, provides useful
measures of AIMCO's performance. However, FFO does not represent cash flow
and is not necessarily indicative of cash flow or liquidity available to
AIMCO, nor should it be considered as an alternative to net income as an
indicator of operating performance. The Board of Governors of NAREIT
defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO calculates FFO in a manner
consistent with the NAREIT definition, which includes adjustments for
minority interest in the AIMCO Operating Partnership, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on preferred stock. AIMCO's management believes that presentation
of FFO provides investors with an industry accepted measurement which helps
facilitate an understanding of AIMCO's ability to make required dividend
payments, capital expenditures and principal payments on its debt. There
can be no assurances that AIMCO's basis of computing FFO is comparable with
that of other REITs.
18
<PAGE> 24
The following is a reconciliation of pro forma income before minority
interest in Operating Partnership to pro forma FFO:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------
AMBASSADOR INSIGNIA
PRO FORMA PRO FORMA
---------- ---------
<S> <C> <C>
Income (loss) before minority interest in Operating
Partnership............................................... $ 50,684 $(10,694)
HUD release fee and legal reserve........................... -- 10,202
Amortization of management contracts........................ -- 11,546
Real estate depreciation, net of minority interests......... 74,495 75,928
Amortization of management company goodwill................. 6,262 7,209
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. 1,715 1,715
Amortization of management company goodwill............... 1,918 1,918
Amortization of management contracts...................... 5,438 29,951
Deferred taxes............................................ 4,342 1,625
Equity in earnings of other partnerships:
Real estate depreciation.................................. 11,250 48,452
Preferred stock dividends................................... (14,588) (14,588)
-------- --------
Funds From Operations....................................... $141,516 $163,264
======== ========
</TABLE>
- -------------------------
(e) Generally, after a one year holding period, AIMCO OP Units may be tendered
for redemption at the option of the holder and, upon tender, may be
acquired by AIMCO for shares of AIMCO Common Stock at an exchange ratio of
one share of AIMCO Common Stock for each AIMCO OP Unit (subject to
adjustment).
(f) Subsequent to December 31, 1997, AIMCO issued 4,200,000 shares of AIMCO
Class D Preferred Stock, par value $.01 per share, for aggregate net
proceeds of approximately $101.5 million. See "AIMCO Recent Developments --
Recent Financings."
COMPARATIVE PER SHARE DATA
Set forth below are historical and pro forma earnings per common share,
cash dividends per common share and book value per common share data of AIMCO
and historical and equivalent pro forma earnings per common share, cash
dividends per common share and book value per common share of Ambassador. The
data set forth below should be read in conjunction with the AIMCO and Ambassador
audited financial statements and unaudited interim financial statements,
including the notes thereto, which are incorporated by reference herein. The
data should also be read in conjunction with the unaudited pro forma financial
statements, including the notes thereto, included elsewhere herein. The pro
forma data are not necessarily indicative of the actual financial position that
would have occurred, or future operating results that will occur, upon
consummation of the Merger.
<TABLE>
<CAPTION>
AIMCO AMBASSADOR(1)
----------------- -----------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
HISTORICAL:
Basic earnings per weighted average common share
outstanding............................................ $ 1.09 $(0.12)
Diluted earnings per weighted average common share
outstanding............................................ $ 1.08 $(0.11)
Cash dividends per common share outstanding............... $ 1.85 $ 1.60
Book value per common share outstanding................... $22.51 $10.99
</TABLE>
19
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
PRO FORMA(2):
Basic earnings per common share outstanding............... $ 0.59
Diluted earnings per common share outstanding............. $ 0.58
Cash dividends per common share outstanding............... $ 1.85
Book value per common share outstanding................... $24.35
AMBASSADOR PRO FORMA EQUIVALENTS(3):
Basic earnings per common share outstanding............... $ 0.34
Diluted earnings per common share outstanding............. $ 0.34
Cash dividends per common share outstanding............... $ 1.08
Book value per common share outstanding................... $14.20
</TABLE>
- -------------------------
(1) Book value per common share does not include Ambassador Preferred Stock.
(2) The pro forma combined per share data for AIMCO for the year ended December
31, 1997 have been prepared as if the Merger, the OP Reorganization, and a
number of transactions completed by AIMCO prior to the Merger had all
occurred as of January 1, 1997, resulting in weighted average shares
outstanding of 46,529,248 for the year ended December 31, 1997.
(3) The equivalent pro forma per share amounts of Ambassador are calculated by
multiplying pro forma earnings per share, cash dividends per share and book
value per share by an assumed Conversion Ratio of 0.583 to 1.
COMPARATIVE STOCK PRICES AND DIVIDENDS
AIMCO Common Stock is listed and traded on the NYSE under the symbol "AIV."
Ambassador Common Stock is listed and traded on the NYSE under the symbol "AAH."
The following table sets forth, for the periods indicated, the high and low
reported sales prices per share of AIMCO Common Stock and Ambassador Common
Stock, as reported on the NYSE Composite Tape, and dividends declared on AIMCO
Common Stock and Ambassador Common Stock for the same periods.
CALENDAR QUARTERS
<TABLE>
<CAPTION>
AIMCO AMBASSADOR
COMMON STOCK COMMON STOCK
---------------------------------------- ------------------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter........................... $21 1/8 $19 3/8 $ 0.425 $20 1/8 $16 7/8 $0.40
Second Quarter.......................... 21 18 3/8 0.425 18 3/4 16 0.40
Third Quarter........................... 22 18 3/8 0.425 18 3/4 15 7/8 0.40
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 24 17 7/8 0.40
1997
First Quarter........................... 30 1/2 25 1/2 0.4625 25 7/8 23 1/8 0.40
Second Quarter.......................... 29 3/4 26 0.4625 24 7/8 22 1/2 0.40
Third Quarter........................... 36 3/16 28 1/8 0.4625 24 3/4 20 3/4 0.40
Fourth Quarter.......................... 38 32 0.5625 23 13/16 19 9/16 0.40
1998
First Quarter (through March 30,
1998)................................ 38 5/8 34 1/4 -- 20 3/4 20 1/4 --
</TABLE>
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Set forth below is a table containing, for each of December 22, 1997 (the
last trading day before the announcement that AIMCO and Ambassador had entered
into the Merger Agreement) and March 30, 1998 (the most recent practicable date
prior to the printing of this Proxy Statement/Prospectus), the last reported
sale price per share of AIMCO Common Stock and Ambassador Common Stock, as
reported on the NYSE Composite Tape. In addition, the table sets forth the
number of shares of AIMCO Common Stock to be received per share of Ambassador
Common Stock in the Merger, as if the Merger had occurred on the date indicated.
<TABLE>
<CAPTION>
DECEMBER 22, 1997 MARCH 30, 1998
----------------- --------------
<S> <C> <C>
AIMCO....................................................... 34 13/16 37 15/16
Ambassador.................................................. 20 5/16 20 7/16
Ambassador (AIMCO equivalent)............................... 0.600(1) 0.584(1)
</TABLE>
- -------------------------
(1) Subject to AIMCO's right to elect to pay in cash a portion of the
consideration to be received by holders of Ambassador Common Stock.
Because AIMCO and Ambassador have elected to be taxed for Federal income
tax purposes as REITs, they are required to distribute annually to their
stockholders at least 95% of their respective "real estate investment trust
taxable income," which, as defined by the Code and the Treasury regulations
promulgated thereunder (the "Treasury Regulations"), is generally equivalent to
net taxable ordinary income. Each of AIMCO and Ambassador measures its economic
profitability and pays regular dividends to its stockholders based on its
operating results during the relevant period. Pursuant to the Merger Agreement
and in connection therewith, AIMCO and Ambassador have agreed that each of them
will pay dividends in the ordinary course of business of $0.5625 and $0.40 per
quarter, respectively, and that Ambassador will pay the Special Dividend in
connection with consummation of the Merger. In addition, the Merger Agreement
restricts Ambassador from increasing its dividend rate prior to the Effective
Time. See "The Merger Agreement and Terms of the Merger -- Distributions with
Respect to Shares." Notwithstanding the foregoing, the future payment of
dividends by AIMCO and Ambassador will be at the discretion of the respective
Board of Directors and will depend on numerous factors, including financial
condition, capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors as such Boards
deem relevant. See "Business of AIMCO -- Operating and Financial Strategies --
Dividend Policy."
On January 22, 1998, the AIMCO Board voted to increase the annual dividend
rate on the AIMCO Common Stock to $2.25 per share. Such dividend increase was
effective commencing with the February 13, 1998 dividend payment and is subject
to the factors described above, including AIMCO's future results of operations
from its recently completed acquisitions.
FLUCTUATIONS IN MARKET PRICE
The number of shares of AIMCO Common Stock to be received by Ambassador
stockholders in the Merger (and, at AIMCO's election under certain
circumstances, the potential receipt of cash as a part of the Merger
Consideration), will depend upon the market price of AIMCO Common Stock, which
is subject to fluctuation. See "-- Comparative Stock Prices and Dividends,"
above. AMBASSADOR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE AIMCO COMMON STOCK.
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<PAGE> 27
RISK FACTORS
In considering whether to approve the Merger Agreement Proposal, Ambassador
stockholders should consider, in addition to the other information in this Proxy
Statement/Prospectus, the AIMCO Incorporated Documents and the Ambassador
Incorporated Documents, the following risk factors.
RISKS RELATING TO THE AMBASSADOR ACQUISITION
In addition to the risks typically associated with acquisitions generally
(see "-- Risks Relating to AIMCO's and Ambassador's Businesses -- Risks Related
to Investment in and Management of Real Estate -- Risks of Acquisition and
Development Activities"), the acquisition of Ambassador by AIMCO involves
certain risks and uncertainties.
The integration of Ambassador's business with AIMCO's may place a
significant burden on AIMCO's management. Such integration is subject to risks
commonly encountered in making such acquisitions, including, among others, loss
of key personnel of Ambassador, the difficulty associated with assimilating the
personnel, operations and systems of Ambassador, the disruption of AIMCO's
ongoing business and acquisition strategy, the difficulty in maintaining uniform
standards, controls, procedures and policies, and the possible impairment of
AIMCO's reputation. No assurance can be given that the anticipated benefits from
the Merger will be realized or that AIMCO will be able to integrate the two
businesses successfully. Failure of AIMCO to integrate the two businesses
successfully could have a material adverse effect on AIMCO's results of
operations. Substantial growth in AIMCO's portfolio as a result of recent and
possible future acquisitions of businesses may involve similar burdens and
risks.
Certain executive officers of Ambassador also will receive severance and
bonus payments as a result of change of control provisions in their respective
employment agreements which are triggered by consummation of the Merger.
Ambassador and each of David M. Glickman, Ambassador's Chief Executive Officer,
Debra A. Cafaro, Ambassador's President, and Thomas J. Coorsh, Ambassador's
Senior Vice President, Secretary and currently interim Chief Financial Officer,
are parties to employment agreements which provide that in the event there is a
Change of Control (as defined in each such employment agreement, which
definition would include the Merger), such executive will receive payments equal
to $2,595,000, $1,100,000 and $385,000, respectively, with respect to such
Change of Control and Messrs. Glickman and Coorsh will receive payments equal to
$900,000 and $215,000, respectively, in connection with noncompete/consulting
arrangements. See "The Merger and Related Transactions -- Interests of Directors
and Management of Ambassador and AIMCO in the Merger and the Related
Transactions."
Pursuant to resolutions adopted by the Ambassador Board, each of David
Heller, Richard Levy, Norman Bobins, Michael Reschke and Jane Patterson,
directors of Ambassador, will receive a payment of $25,000 upon consummation of
the Merger.
Further details regarding other potential conflicts of interest are set
forth under "The Merger and Related Transactions -- Interests of Directors and
Management of Ambassador and AIMCO in the Merger and the Related Transactions."
Each of the benefits identified above will accrue to the identified
stockholders, officers and directors, but not to other stockholders of
Ambassador. These persons may therefore have had incentives to approve the
Merger that are not shared by other stockholders of Ambassador. The Ambassador
Board was aware of these benefits and the potential conflicts of interest they
create at the time of its consideration of the Merger.
The number of shares of AIMCO Common Stock to be received by Ambassador
stockholders in the Merger (and, at AIMCO's election under certain
circumstances, the potential receipt of cash as a part of the Merger
Consideration), will depend upon the market price of AIMCO Common Stock, which
is subject to fluctuation. See "Summary -- Comparative Stock Prices and
Dividends." AMBASSADOR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE AIMCO COMMON STOCK.
As a result of the Merger, Ambassador stockholders will no longer own
shares of Ambassador and will become stockholders of AIMCO. Differences in the
provisions of the respective corporate charters of AIMCO and Ambassador result
in differences in rights of stockholders of the two corporations. As a result of
these
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<PAGE> 28
differences, the rights of AIMCO stockholders may in some cases be considered
less favorable than the rights of Ambassador stockholders. In particular, the
AIMCO Charter restricts the ownership of shares by any person of AIMCO Common
Stock to 8.7% of the issued and outstanding AIMCO Common Stock, subject to
certain exceptions and conditions described under "Description of AIMCO's
Capital Stock -- Restrictions on Transfer." See "Comparative Rights of
Stockholders of AIMCO and Ambassador." These differences in the rights of
stockholders may make it more difficult for a person interested in acquiring or
engaging in a business combination with AIMCO to complete such a transaction and
may discourage offers for such a transaction, and may also adversely affect the
ability of AIMCO stockholders to take action that may be in their interests.
RISKS RELATING TO AIMCO'S AND AMBASSADOR'S BUSINESSES
An investment in AIMCO Common Stock following the Merger will involve
various risks associated with AIMCO's and Ambassador's businesses. In addition
to general investment risks and those factors set forth elsewhere in this Proxy
Statement/Prospectus, Ambassador stockholders should consider the following
material risk factors related to an investment in AIMCO:
Conflicts of Interest.
AIMCO and certain of its officers and/or directors have entered into, and
may in the future enter into, certain types of transactions that may result in
conflicts of interest between AIMCO and such officers and/or directors. These
types of transactions include: the acquisition by AIMCO of property or assets
from, or the sale by AIMCO of property or assets to, such officers and/or
directors; making loans to or borrowing from such officers and/or directors,
including in connection with the purchase of AIMCO Common Stock or the purchase
of interests in the AIMCO Operating Partnership and other unconsolidated
subsidiaries of AIMCO; investments by AIMCO in partnerships or other entities
(such as the AIMCO Operating Partnership and such other unconsolidated
subsidiaries) in which such officers and/or directors have a controlling equity
interest or other form of ownership interest; and the purchase or sale of real
estate or other assets by such officers and/or directors, where the acquisition
of such real estate or assets is also a corporate opportunity for AIMCO. AIMCO
has adopted certain policies designed to minimize or eliminate conflicts of
interest between AIMCO and its officers and/or directors. Without the approval
of a majority of the disinterested directors, AIMCO will not acquire from or
sell to any director, officer or employee of AIMCO or any entity in which such
director, officer or employee owns more than a 1% interest, or acquire from or
sell to any affiliate of any of the foregoing persons, any assets or other
property of AIMCO, make any loan to or borrow from any of the forgoing persons,
or engage in any material transaction with the foregoing persons. In addition,
AIMCO has entered into employment agreements with Messrs. Considine, Kompaniez
and Ira which include provisions intended to eliminate or minimize potential
conflicts of interest, and which provide that those persons will be prohibited
from engaging directly or indirectly in the acquisition, development, operation
or management of other multifamily apartment properties outside of AIMCO, except
with respect to certain investments currently held by such persons, as to which
investments those persons have committed to an orderly liquidation. There can be
no assurance, however, that these policies always will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of
AIMCO's stockholders as a whole. Furthermore, such policies are subject to
change without the approval of stockholders of AIMCO.
AIMCO presently manages its Managed Properties through Property Asset
Management Services, Inc. ("PAMS Inc."), Property Asset Management Services,
L.P. ("PAMS LP") and certain former subsidiaries of NHP (the "Management
Subsidiaries"). In order to satisfy certain REIT requirements, the ownership of
PAMS Inc. and certain other Management Subsidiaries consists of the AIMCO
Operating Partnership holding non-voting preferred stock that represents a 95%
economic interest, and certain officers and/or directors of AIMCO holding,
directly or indirectly, all of the voting common stock, representing a 5%
economic interest. In addition, PAMS LP provides property management services
with respect to certain Managed Properties in which certain officers and/or
directors of AIMCO have separate ownership interests. The fees for these
services have been negotiated on an individual basis and typically range from 3%
to 6% of gross receipts for the particular property. Although these arrangements
were not negotiated on an arm's-length
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<PAGE> 29
basis, AIMCO believes, based on comparisons to the fees charged by other real
estate companies and by PAMS LP with respect to unaffiliated Managed Properties
in comparable locations, that the terms of such arrangements are fair to AIMCO.
AIMCO has entered into a Contribution Agreement (the "Contribution
Agreement") with CK Services, Inc. ("CK") and the stockholders of CK to cause
certain assets of AIMCO to be contributed to CK and to distribute all
outstanding stock of CK to the stockholders of AIMCO. CK is a corporation
wholly-owned by Terry Considine, AIMCO's Chairman and Chief Executive Officer,
and by Peter Kompaniez, AIMCO's President and Vice Chairman. It is AIMCO's
intent to use CK as a vehicle for holding property and performing services that
AIMCO is limited or prohibited from holding or providing due to AIMCO's election
to be taxed as a REIT. AIMCO is finalizing which assets will be contributed to
CK. Any transfer of assets or services to CK will be at market rates and
approved by the independent members of the AIMCO Board of Directors, and if
market rates are difficult to ascertain, the pricing will favor AIMCO.
Debt Financing and Interest Rate Hedging Risks.
AIMCO and its subsidiaries, and partnerships in which a subsidiary of AIMCO
is a general partner, have significant amounts of debt outstanding and,
accordingly, are subject to the risks normally associated with debt financing,
including the risk that its cash flow from operations will be insufficient to
make required payments of principal and interest, the risk that existing
indebtedness, including secured indebtedness, may not be refinanced or that the
terms of any refinancing will not be as favorable as the terms of existing
indebtedness. As of December 31, 1997, 95% of AIMCO's Owned Properties and 67%
of its total assets were encumbered by debt, and AIMCO had total outstanding
indebtedness of $808.5 million, all of which was secured by Owned Properties and
other assets. AIMCO's credit facility restricts AIMCO's ability to effect
certain mergers, business consolidations and asset sales, imposes minimum net
worth requirements, and requires AIMCO to maintain a ratio of debt to gross
asset value of no more than 0.55 to 1, an interest coverage ratio of at least
2.25 to 1 and a debt service coverage ratio of at least 2.0 to 1. Additionally,
the Credit Facility limits AIMCO from distributing more than 80% of funds from
operations. Failure to perform or observe covenants or conditions under an
intracompany subordination agreement entered into in connection with the Credit
Facility and events of default resulting in acceleration under AIMCO's other
credit agreements, among other events, are considered defaults under the Credit
Facility. General Motors Acceptance Corporation has made 89 loans (the "GMAC
Loans"), with an aggregate outstanding principal balance of $398.6 million at
December 31, 1997, to property owning partnerships of AIMCO, each of which is
secured by the underlying Owned Property of such partnership. Certain GMAC Loans
are cross-collateralized with certain other GMAC Loans. Other than certain GMAC
Loans, none of AIMCO's debt is subject to cross-collateralization provisions.
The AIMCO Charter does not limit the amount of indebtedness which may be
incurred by AIMCO and its subsidiaries. AIMCO's management generally follows the
strategies set forth under "Business of AIMCO -- Operating and Financial
Strategies -- Debt Financing," in connection with incurrences of additional
indebtedness; however, such strategies are not binding on management and are
subject to change from time to time.
As of December 31, 1997, approximately 92% of AIMCO's total consolidated
indebtedness was subject to fixed interest rates and 8% (approximately $66.5
million) was subject to variable interest rates. Although, as described below,
AIMCO has certain hedging arrangements in place, increases in interest rates
could increase AIMCO's interest expense and adversely affect cash flow. AIMCO
from time to time enters into agreements to reduce the risks associated with
increases in short term interest rates. Although these agreements provide AIMCO
with some protection against rising interest rates, these agreements also reduce
the benefits to AIMCO when interest rates decline. In September 1997, AIMCO
entered into an interest rate hedging agreement (the "Hedge") with an investment
banking company in anticipation of refinancing certain indebtedness. The Hedge,
which has been extended to mature on April 19, 1998, has a notional amount of
$75.0 million and fixes the interest rate of the anticipated refinancing at
6.211%. Based on the fair value of the Hedge at December 31, 1997, AIMCO has
unrealized losses of approximately $2.6 million. These losses, when amortized,
will result in effective interest rates of 7.0%, over the life of the refinanced
debt. There can be
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<PAGE> 30
no assurance that the above described indebtedness will be refinanced or that
AIMCO will be able to enter into other hedging arrangements to replace the
Hedge.
Interest rate hedging arrangements may expose AIMCO to certain risks.
Interest rate movements during the term of interest rate hedging arrangements
may result in a gain or loss on AIMCO's investment in the hedging arrangement.
In addition, if a hedging arrangement is not indexed to the same rate as the
indebtedness that is hedged, AIMCO may be exposed to losses to the extent that
the rate governing the indebtedness and the rate governing the hedging
arrangement change independently of each other. Finally, nonperformance by the
other party to the hedging arrangement may result in credit risks to AIMCO. In
order to minimize counterparty credit risk, AIMCO's policy is to enter into
hedging arrangements only with large financial institutions that maintain an
investment grade credit rating.
In December 1997, AIMCO refinanced certain secured long-term notes payable
in order to obtain more favorable interest rates. In anticipation of the
refinancing, AIMCO entered into a $100 million interest rate lock agreement,
which fixed the interest rate at 7.053%. Upon maturity of the interest swap
agreement, as a result of declining interest rates, AIMCO realized a loss of
approximately $10.9 million, which will be amortized over the life of the
refinanced debt.
Risks Related to Investment in and Management of Real Estate.
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the amount
of income generated and expenses incurred. AIMCO's income from its Owned
Properties and Equity Properties may be adversely affected by the general
economic climate, local conditions such as oversupply of apartments or a
reduction in demand for apartments in the area, the attractiveness of the
properties to tenants, competition from other available apartments, the ability
of AIMCO to provide adequate maintenance and insurance, and increases in
operating costs (including real estate taxes). AIMCO's income from its Owned
Properties and Equity Properties would also be adversely affected if a
significant number of tenants were unable to meet their rent payment obligations
when due or if apartments could not be rented on favorable terms. Certain
significant expenditures associated with real property investments (such as debt
service, real estate taxes and maintenance costs) generally are not reduced when
circumstances cause a reduction in income from the investments. In addition,
income from properties and real estate values are also affected by such factors
as applicable laws, including tax laws, interest rate levels and the
availability of financing. If AIMCO's Owned Properties and Equity Properties do
not generate income sufficient to meet operating expenses, including debt
service and capital expenditures, AIMCO's income and its ability to make
distributions to holders of AIMCO Common Stock will be adversely affected. Many
of the factors that could adversely affect AIMCO's income from its Owned
Properties and Equity Properties could also adversely affect AIMCO's income from
its Managed Properties by reducing gross receipts for such properties.
ILLIQUIDITY OF REAL ESTATE. Investments in real estate or partnerships
which own real estate may be illiquid. As a result, AIMCO may be unable to vary
its portfolio promptly in response to changes in economic or other conditions.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. AIMCO has engaged in, and
intends to continue to engage in, the selective acquisition, development and
expansion of multifamily apartment properties. In the ordinary course of
business, AIMCO is engaged in discussions and negotiations regarding the
acquisition of apartment properties or interests in apartment properties. AIMCO
frequently enters into contracts and binding or nonbinding letters of intent
with respect to the purchase of properties. These contracts are typically
subject to certain conditions and permit AIMCO to terminate such contracts in
its sole and absolute discretion if it is not satisfied with the results of its
due diligence investigation of the properties. AIMCO believes that such
contracts essentially result in the creation of an option on the subject
properties and give AIMCO greater flexibility in seeking to acquire properties.
As of March 18, 1998, AIMCO had under letter of intent or contract an aggregate
of 21 multi-family apartment properties with a maximum aggregate purchase price
of $224 million including estimated capital improvements, which, in some cases,
may be paid in the form of assumption of existing debt. All such contracts are
subject to termination by AIMCO as described above. No
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assurance can be given that any of these possible acquisitions will be completed
or, if completed, that they will be accretive to earnings on a per share basis.
In addition to general investment risks associated with any new investment,
acquisitions entail risks that such investments will fail to perform in
accordance with expectations, including projected occupancy and rental rates,
management fees and the costs of property improvements, along with
integration-related risks. Risks associated with redevelopment and expansion of
properties include the risks that development opportunities may be abandoned;
that construction costs of a property may exceed original estimates, possibly
making the property uneconomical; that occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable; that
construction and permanent financing may not be available on favorable terms;
and that construction and lease-up may not be completed on schedule, resulting
in increased debt service expense and construction costs. Development activities
are also subject to risks relating to any inability to obtain, or delays in
obtaining, necessary zoning, land-use, building, occupancy, and other
governmental permits and authorizations. See also "-- Risks Relating to the
Ambassador Acquisition."
AIMCO also has engaged in, and intends to continue to engage in the
selective acquisition of, or investment in, companies that own or manage
multifamily apartment properties or own general or limited partnership or other
interests therein, including tender offers for limited partnership interests.
Risks associated with AIMCO's past and future acquisitions of general
partnership interests, and tender offers for outstanding limited partnership
interests, include the risks that the general partner will be subject to
allegations (including legal actions) of, or will be otherwise liable for,
breaches of fiduciary duty to the limited partners of such partnership and that
the assets of the general partner may be subject to claims by creditors of the
partnership if the partnership becomes insolvent. See "-- Risks Relating to
English Litigation."
OPERATING RISKS. The AIMCO Properties are subject to operating risks common
to multifamily apartment properties in general. These risks may adversely affect
AIMCO's cash flow from operations. For example, increases in unemployment in the
areas in which the AIMCO Properties are located may adversely affect multifamily
apartment occupancy or rental rates and it may not be possible to offset
increases in operating costs due to inflation and other factors by increased
rents. Local rental market characteristics also limit the extent to which rents
may be increased without decreasing occupancy rates.
COMPETITION. There are numerous housing alternatives that compete with the
AIMCO Properties in attracting residents. Such properties compete directly with
other multifamily rental apartments and single family homes that are available
for rent in the markets in which such properties are located. Such properties
also compete for residents with new and existing homes and condominiums. The
ability of AIMCO to lease apartment units and the level of rents charged is
determined in large part by the number of competitive properties in the local
market. Numerous real estate companies compete with AIMCO in each of its market
areas in acquiring, developing and managing multifamily apartment properties and
seeking tenants to occupy their properties and AIMCO's market share is small in
each of its market areas. In addition, numerous property management companies
compete with AIMCO in the markets where the Managed Properties are located.
CHANGE IN LAWS. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions, as well as changes in laws affecting
development, construction and safety requirements, may result in significant
unanticipated expenditures, which would adversely affect AIMCO's cash flow from
operating activities. In addition, future enactment of rent control or rent
stabilization laws or other laws regulating multifamily housing may reduce, or
limit the ability of AIMCO to increase, rental revenue or increase operating
costs in particular markets.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under Federal, state and local
environmental laws and regulations, a current or previous owner or operator of
real property may be required to investigate and clean up a release of hazardous
substances at such property, and may, under such laws and common law, be held
liable for property damage and other costs incurred by third parties in
connection with such releases. The liability under certain of these laws has
been interpreted to be joint and several unless the harm is divisible or there
is a reasonable basis for allocation of responsibility. The failure to remediate
the property properly may also adversely affect
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the owner's ability to sell or rent the property or to borrow using the property
as collateral. In connection with its ownership, operation or management of the
AIMCO Properties, AIMCO could be potentially liable for environmental
liabilities or costs associated with its properties or properties it may in the
future acquire or manage.
Certain Federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition; impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the air.
These laws also impose liability for a release of ACMs and may enable third
parties to seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership,
operation or management of properties, AIMCO could be potentially liable for
those costs. There are ACMs at certain of the Owned Properties, and there may be
ACMs at certain of the other AIMCO Properties. AIMCO has developed and
implemented operations and maintenance programs, as appropriate, that establish
operating procedures with respect to the ACMs at most of the Owned Properties,
and intends to develop and implement, as appropriate, such programs at AIMCO
Properties that do not have such programs.
Certain of the Owned Properties, and some of the other AIMCO Properties,
are located on or near properties that contain or have contained underground
storage tanks or on which activities have occurred which could have released
hazardous substances into the soil or groundwater. There can be no assurances
that such hazardous substances have not been released or have not migrated, or
in the future will not be released or will not migrate onto the AIMCO
Properties. Such hazardous substances have been released at certain Owned
Properties and, in at least one case, have migrated from an off-site location
onto AIMCO's property. In addition, AIMCO's Montecito property in Austin, Texas,
is located adjacent to, and may be partially on, land that was used as a
landfill. Low levels of methane and other landfill gas have been detected at
Montecito. The City of Austin (the "City"), the former landfill operator, has
assumed responsibility for conducting all investigation and remedial activities
to date associated with the methane and other landfill gas. The remediation of
the landfill gas is now substantially complete, and the Texas Natural Resources
Conservation Commission ("TNRCC") has preliminarily approved the methane gas
remediation efforts. Final approval of the site and the remediation process is
contingent upon the results of continued methane gas monitors to confirm the
effectiveness of the remediation efforts. Should further actionable levels of
methane gas be detected, a proposed contingency plan of passive methane gas
venting may be implemented by the City. The City has also conducted testing on
AIMCO's Montecito property to determine whether, and to what extent, groundwater
has been impacted. Based on test reports received to date by AIMCO, the
groundwater does not appear to be contaminated at actionable levels. AIMCO has
not incurred and does not expect to incur liability for the landfill
investigation and remediation; however, AIMCO has relocated some of its tenants
and has installed a venting system according to the TNRCC's specifications under
the building slabs, in connection with AIMCO's present raising of four of its
buildings in order to install stabilizing piers thereunder, at a total cost of
approximately $550,000, which is primarily the cost for the restabilization. The
restabilization was substantially completed as of January 1998. The City will be
responsible for monitoring the conditions at the Montecito property.
All of the Owned Properties were subject to Phase I or similar
environmental audits by independent environmental consultants prior to
acquisition. The audits did not reveal, nor is AIMCO aware of, any environmental
liability relating to such properties that AIMCO believes would have material
adverse effect on AIMCO's business, assets or results of operations. However,
such audits involve a number of judgments and it is possible that such audits
did not reveal all environmental liabilities or that there are material
environmental liabilities of which AIMCO is unaware. In addition, the Managed
Properties may not have been subject to Phase I or similar environmental audits
by independent environmental consultants. While AIMCO is not aware of any
environmental liability that it believes would have a material adverse effect on
its business, financial condition or results of operations relating to the
Managed Properties for which audits are not available, there can be no assurance
that material environmental liabilities of which AIMCO is unaware do not exist
at such properties.
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In October 1997, NHP received a letter (the "EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protection Agency ("EPA") had requested that DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the National
Recycling and Emissions Reduction Program and associated regulations in
connection with the employment of certain unlicensed personnel, maintenance and
disposal of certain refrigerants, and record-keeping practices at two
properties. A settlement in principle between NHP and the EPA has been reached
whereby NHP has agreed to pay a fine of $99,900, permit the EPA to audit the
maintenance records and technical staffing at 40 NHP properties and continue to
provide training to all maintenance workers with respect to the disposal of
refrigerants. A formal settlement agreement is expected to be executed in 1998.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional Federal, state and local laws exist which also may
require modifications to the Owned Properties, or restrict certain further
renovations thereof, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants and also could
result in an order to correct any non-complying feature, which could result in
substantial capital expenditures. Although management of AIMCO believes that the
Owned Properties are substantially in compliance with present requirements, if
the Owned Properties are not in compliance, AIMCO is likely to incur additional
costs to comply with the ADA and FHAA.
RISKS RELATING TO ENGLISH LITIGATION. In November 1996, AIMCO acquired (the
"English Acquisition") certain partnership interests, real estate and related
assets owned by J.W. English, a Houston, Texas-based real estate syndicator and
developer, and certain affiliated entities (collectively, the "J.W.English
Companies"). In the English Acquisition, AIMCO purchased all of the general and
limited partnership interests owned by the J.W. English Companies in 22 limited
partnerships which act as the general partner to 31 limited partnerships (the
"English Partnerships") that own 22 multifamily apartment properties and other
assets and interests related to the J.W. English Companies, and assumed
management of the properties owned by the English Partnerships. AIMCO made
separate tender offers (the "English Tender Offers") to the limited partners of
25 of the English Partnerships (the "Tender Offer English Partnerships").
In November 1996, purported limited partners of certain of the Tender Offer
English Partnerships filed a purported class action lawsuit against AIMCO and
J.W. English in the U.S. District Court for the Northern District of California
(the "Federal Action"), alleging, among other things, that AIMCO conspired with
J.W. English to breach his fiduciary duty to the plaintiffs, and that the
offering materials used by AIMCO in connection with the English Tender Offers
contained misleading statements or omissions. The Federal Action was voluntarily
dismissed, without prejudice, in favor of another purported class action filed
in May 1997 by limited partners of certain of the Tender Offer English
Partnerships and six additional English Partnerships. Two complaints were filed
in Superior Court of the State of California (the "California Actions") against
AIMCO and the J.W. English Companies, alleging, among other things, that the
consideration AIMCO offered in the English Tender Offers was inadequate and
designed to benefit the J.W. English Companies at the expense of the limited
partners, that certain misrepresentations and omissions were made in connection
with the English Tender Offers, that AIMCO receives excessive fees in connection
with its management of the properties owned by the English Partnerships, that
AIMCO continues to refuse to liquidate the English Partnerships and that the
English Acquisition violated the partnership agreements governing the English
Partnerships and constituted a breach of fiduciary duty.
In addition to unspecified compensation and exemplary damages, the original
complaints in the California Actions sought an accounting, a constructive trust
on the assets and monies acquired by the English defendants in connection with
the English Acquisition, a court order removing AIMCO from management of the
English Partnerships and/or ordering disposition by AIMCO of the properties and
attorneys fees, expert fees and other costs. AIMCO intends to vigorously defend
itself in connection with these actions. AIMCO believes it is entitled to
indemnity from the J.W. English Companies, subject to certain exceptions.
Failure by
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AIMCO to prevail in the California Actions or to receive indemnification could
have a material adverse effect on AIMCO's financial condition and results of
operations.
On August 4, 1997 AIMCO filed demurrers to both complaints in the
California Actions. At a hearing on the demurrers on January 9, 1998, the court
granted AIMCO's demurrers in each of the three causes of action against it in
the two complaints, with leave to amend. On February 25, 1998, the plaintiffs
filed a consolidated amended class and derivative complaint for damages. On
March 27, 1998 AIMCO filed a demurrer on behalf of the AIMCO defendants.
RISK OF LOSS OF REVENUE DUE TO TERMINATION OR OTHER LOSS OF PROPERTY
MANAGEMENT AGREEMENTS. AIMCO is dependent upon revenue received for services
performed under property management agreements relating to properties owned by
third parties. For the year ended December 31, 1997, AIMCO derived approximately
1.0% of its gross revenues from management of properties owned by third parties.
Risks associated with the management of properties owned by third parties
include risks that management contracts will be terminated by the property owner
or will be lost in connection with a sale of the property, contracts may not be
renewed upon expiration or may not be renewed on terms consistent with current
terms, and rental revenues upon which management fees are based will decline as
a result of general real estate market conditions or other factors and result in
decreases in management fees. If significant numbers of contracts are terminated
or are not renewed, net income from fee management operations could be adversely
affected. Contracts with unaffiliated third parties are for terms ranging from
30 days to 5 years, with most contracts being terminable within one year or
less. In general, management contracts may be terminated or otherwise lost as a
result of a number of factors, many of which are beyond the control of AIMCO,
including: (i) disposition of the property by the owner in the ordinary course
or as a result of financial distress of the property owner; (ii) the property
owner's determination that AIMCO's management of the property is unsatisfactory;
(iii) willful misconduct, gross negligence or other conduct by the manager that
constitutes grounds for termination under such contracts; or (iv) with respect
to certain affordable properties, termination of such contracts by HUD or state
housing finance agencies, generally at their discretion.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. As of December 31,
1997, AIMCO's management portfolio included 68,820 affordable units in 468
properties. In addition, AIMCO owns interests in 59,072 affordable units. A
substantial portion of the affordable properties, and some conventional
properties in which AIMCO owns interests, were built or acquired by the owners
with the assistance of programs administered by HUD that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements, which
typically include limits on rents to amounts approved by HUD. HUD approval is
required before AIMCO may be appointed as manager of additional HUD-assisted
properties. There can be no assurance that HUD approval will be received with
respect to any particular action for which it is required. In addition to the
effects of HUD regulation on AIMCO as a manager of affordable properties, the
business of AIMCO or its affiliates may be indirectly affected by regulations
generally applicable to the entities owning affordable properties. In
particular, HUD limits the rents that may be charged on certain HUD-assisted
properties to approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary which
would result in a loss of management fee revenue. As of December 31, 1997, and
in addition to the 422 HUD-assisted properties, AIMCO managed 52 properties that
receive assistance from agencies other than HUD or are subject to regulation by
agencies other than HUD. Such revenues comprise less than 9.0% of AIMCO's
revenues.
RISKS RELATED TO HUD ENFORCEMENT AND LIMITED DENIALS. Under its
regulations, HUD has the authority to suspend or deny property owners and
managers from participation in HUD programs with respect to additional
assistance within a geographic region through imposition of a limited denial of
participation ("LDP") by any HUD office or nationwide for violations of HUD
regulatory requirements. In March 1997, HUD announced its intention to step up
enforcement against property owners who violate their agreements with HUD, and,
in July 1997, HUD announced the creation of a new department-wide enforcement
division. Three HUD field offices recently issued LDPs to NHP as a result of
physical inspections and mortgage defaults at four properties owned by
NHP-related companies (two of which properties are managed by NHP). One LDP was
subsequently withdrawn and another was terminated in December 1997 after a
reinspection of
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the property. The one remaining LDP, unless lifted, suspends NHP's ability to
manage or acquire additional HUD-assisted properties in eastern Missouri until
June 24, 1998. In 1996, NHP obtained approximately $1 million in management
revenues from affordable properties in the affected regions. AIMCO has proposed
a settlement agreement with HUD which includes aggregate payments to HUD of
approximately $485,000. AIMCO is awaiting HUD's response. AIMCO cannot determine
whether HUD will accept the proposed settlement. Because an LDP is prospective,
existing HUD agreements are not affected, so an LDP is not expected to result in
the loss of management service revenue from or to otherwise affect properties
that NHP currently manages in the subject regions. If HUD were to disapprove
AIMCO as property manager for one or more affordable properties, AIMCO's and
NHP's ability to obtain property management revenues from new affordable
properties may be impaired.
HUD monitors the performance of properties with HUD-insured mortgage loans.
HUD also monitors compliance with applicable regulations, and takes performance
and compliance into account in approving management of additional HUD-assisted
properties. In this regard, since July 1988, 29 HUD-assisted properties owned or
managed by NHP or NHP-related companies have defaulted on non-recourse HUD-
insured mortgage loans. Eight of these 29 properties are currently managed by
NHP. An additional six properties owned or managed by NHP have received
unsatisfactory performance ratings. As a result of the defaults and
unsatisfactory ratings, a national HUD office must review any application by
AIMCO to act as property manager or owner for additional HUD-assisted
properties. The national HUD office has consistently approved NHP's applications
to manage new properties, and AIMCO received HUD clearance to acquire its
interests in NHP and the NHP-related companies. AIMCO believes that it enjoys a
good working relationship with HUD and that the national office will continue to
apply the clearance process to large management portfolios such as AIMCO's with
discretion and flexibility. While there can be no assurance, AIMCO believes that
the unsatisfactory reviews and the mortgage defaults will not have a material
impact on its results of operations or financial condition.
In October 1997, NHP received a subpoena from the Inspector General of HUD
requesting documents relating to any arrangement whereby NHP or any of its
affiliates provides or has provided compensation to owners of HUD multifamily
projects in exchange for or in connection with property management of a HUD
project. AIMCO believes that other owners and managers of HUD projects have
received similar subpoenas. Documents relating to certain of NHP's acquisitions
of property management rights for HUD projects may be responsive to the
subpoena. AIMCO and NHP are in the process of complying with the subpoena and
have provided certain documents to the Inspector General, without conceding that
they are responsive to the subpoena. AIMCO believes that NHP's operations are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. Effective February 13, 1998,
counsel for NHP and the U.S. Attorney for the Northern District of California
entered into a Tolling Agreement related to certain civil claims the government
may have against NHP. Although no action has been initiated against NHP or AIMCO
or, to AIMCO's knowledge, any owner of a HUD property managed by NHP or AIMCO,
if any such action is taken in the future, it could ultimately affect existing
arrangements with respect to HUD projects or otherwise have a material adverse
effect on the results of operations of AIMCO.
RISKS RELATING TO UNCERTAINTY REGARDING STATUS OF FEDERAL SUBSIDIES. AIMCO
owns and/or manages approximately 44,000 units that are subsidized under Section
8 of the United States Housing Act of 1937, as amended ("Section 8"). These
subsidies are generally provided pursuant to project-based Housing Assistance
Payment Contracts ("HAP Contracts") between HUD and the owners of the properties
or, with respect to a limited number of units managed by AIMCO and Ambassador,
pursuant to vouchers received by tenants. On October 27, 1997, the President
signed into law the Multifamily Assisted Housing Reform and Affordability Act of
1997 (the "1997 Housing Act"). Under the 1997 Housing Act, the mortgage
financing and HAP Contracts of certain properties assisted under Section 8, with
rents above market levels and financed with HUD-insured mortgage loans, will be
restructured by reducing subsidized rents to market levels, thereby reducing
rent subsidies, and lowering required debt service payments as needed to ensure
financial viability at the reduced rents and subsidy levels. The 1997 Housing
Act retains project-based subsidies for most properties (properties in rental
markets with limited supply, properties serving the elderly and certain other
properties).
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The 1997 Housing Act phases out project-based subsidies on selected properties
serving families not located in rental markets with limited supply, converting
such subsidies to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified tenants who then could elect to reside at
properties of their choice, provided such tenants have the financial ability to
pay the difference between the selected properties' monthly rent and the monthly
value of the vouchers, which would be established based on HUD's regulated fair
market rent for the relevant geographical areas. The 1997 Housing Act provides
that properties will begin the restructuring process in Federal fiscal year 1999
(beginning October 1, 1998), and that HUD will issue final regulations
implementing the 1997 Housing Act on or before October 27, 1998. Congress has
elected to renew HAP Contracts expiring before October 1, 1998 for one-year
terms, generally at existing rent levels, so long as the properties remain in
compliance with the HAP Contracts. While AIMCO does not expect the provisions of
the 1997 Housing Act to result in a significant number of tenants relocating
from properties managed by AIMCO, there can be no assurance that the provisions
will not significantly affect AIMCO's management portfolio. Furthermore, there
can be no assurance that other changes in Federal housing subsidy policy will
not occur. Any such changes could have a material adverse effect on AIMCO's
property management revenues.
Dependence on Certain Executive Officers.
Although each of Messrs. Considine and Kompaniez and Steven D. Ira,
officers and/or directors of AIMCO, has entered into an employment agreement
with AIMCO, the loss of any of their services could have an adverse effect on
the operations of AIMCO.
Adverse Consequences of Failure to Qualify as a REIT.
Qualification as a REIT involves the application of highly technical and
complex provisions of the Code, for which there are only limited judicial or
administrative interpretations, and the determination of various factual matters
and circumstances not entirely within AIMCO's control. Although AIMCO believes
that it has operated since July 29, 1994, the date of AIMCO's initial public
offering, in a manner so as to qualify as a REIT, no assurance can be given that
AIMCO is or will remain so qualified. See "Federal Income Tax Considerations
Related to AIMCO." Future tax legislation could adversely affect AIMCO's ability
to operate as a REIT and no assurance can be given that any new legislation,
regulations, administrative interpretations or court decisions would not change
the tax laws with respect to AIMCO's qualification as a REIT or the Federal
income tax consequences of such qualification.
At the closing of the Merger, the parties will receive opinions from
Ambassador's and AIMCO's respective tax counsel concerning the qualification of
Ambassador and AIMCO as REITs. If, in any taxable year, AIMCO fails to qualify
as a REIT, AIMCO would not be allowed a deduction for dividends to stockholders
in computing taxable income and would be subject to Federal income tax on its
taxable income at corporate rates. As a result of the additional tax liability,
AIMCO might need to borrow funds or liquidate certain investments on terms that
may be disadvantageous to AIMCO in order to pay the applicable tax and AIMCO
would not be compelled to make distributions under the Code. Unless entitled to
relief under certain statutory provisions, AIMCO would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. Although AIMCO currently intends to operate in a manner
designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause AIMCO to fail to qualify as a REIT
or may cause the Board of Directors of AIMCO to revoke the REIT election. See
"Federal Income Tax Considerations Related to AIMCO."
Certain requirements for REIT qualification may in the future limit AIMCO's
ability to conduct or increase the property management and asset management
operations of its subsidiaries without jeopardizing AIMCO's qualification as a
REIT. See "Federal Income Tax Considerations Related to AIMCO."
In addition, if AIMCO fails to qualify as a REIT, the agreement pursuant to
which AIMCO issued its Class B Cumulative Preferred Stock, par value $.01 per
share (the "AIMCO Class B Preferred Stock"), provides that the original
purchaser may require AIMCO to repurchase such investor's AIMCO Class B
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Preferred Stock, in whole or in part, at a price of $105 per share, plus accrued
and unpaid dividends to the date of repurchase. Such investor acquired and
currently owns 750,000 shares of AIMCO Class B Preferred Stock.
RISKS RELATING TO THE INSIGNIA MERGER
In addition to the risks typically associated with acquisitions generally,
the acquisition of Insignia by AIMCO involves certain risks and uncertainties.
The integration of Insignia's business with AIMCO's may place a significant
burden on AIMCO's management. Such integration is subject to risks commonly
encountered in making such acquisitions, including, among others, loss of key
personnel and clients of Insignia, the difficulty associated with assimilating
the personnel, operations and systems of Insignia, the disruption of AIMCO's
ongoing business and acquisition strategy, the difficulty in maintaining uniform
standards, controls, procedures and policies, and the possible impairment or
improvement of AIMCO's reputation. No assurance can be given that the
anticipated benefits from the Insignia Merger will be realized or that AIMCO
will be able to integrate the two businesses successfully. Failure of AIMCO to
integrate the two businesses successfully could have a material adverse effect
on AIMCO's results of operations.
The number of shares of Series E Preferred Stock and (under certain
circumstances) Series F Preferred Stock to be received by Insignia stockholders
in the Merger (and, at AIMCO's election under certain circumstances, the
potential receipt of cash as a part of the consideration in the Insignia
Merger), will depend upon the market price of AIMCO Common Stock, which is
subject to fluctuation. The shares of Series E Preferred Stock and (under
certain circumstances) Series F Preferred Stock received by Insignia
stockholders in the Insignia Merger will, upon the approval by stockholders of
AIMCO, convert into AIMCO Common Stock, and any such shares received will be
dilutive of the Ambassador stockholders' ownership of AIMCO. AMBASSADOR
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE AIMCO COMMON
STOCK.
On March 19, 1998, Duff & Phelps Credit Rating Co. ("DCR") placed its
ratings of AIMCO on its "Rating Watch -- Uncertain" in response to the
announcement that AIMCO will acquire Insignia's multifamily management and
investment business. DCR has indicated that it expects to resolve AIMCO's Rating
Watch status once it has had the opportunity to review AIMCO's operating and
financing plan for combining the Insignia and Ambassador organizations.
INFORMATION CONCERNING THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
The Special Meeting will be held on April 30, 1998 at 9:00 a.m., local
time, at 77 West Wacker Drive, Chicago, Illinois 60601. The purpose of the
Special Meeting is to (i) consider and act upon the Merger Agreement Proposal,
and (ii) transact any and all other business that may properly come before the
Special Meeting.
RECORD DATE; QUORUM; VOTE REQUIRED
The Ambassador Board has selected March 19, 1998 as the record date for the
Special Meeting. Only holders of record of Ambassador Common Stock and
Ambassador Preferred Stock at the close of business on the Record Date are
entitled to notice of and to vote at the Special Meeting.
On the Record Date, there were approximately 2,500 holders of record of
Ambassador Common Stock with 10,708,430 shares of Ambassador Common Stock issued
and outstanding and one holder of record of Ambassador Preferred Stock with
1,351,351 shares of Ambassador Preferred Stock issued and outstanding. Each
share of Ambassador Common Stock and Ambassador Preferred Stock entitles the
holder thereof to one vote on each matter submitted for Ambassador stockholder
approval.
The presence, in person or by proxy, of at least a majority of the issued
and outstanding shares of capital stock entitled to vote is necessary to
constitute a quorum at the Special Meeting. Abstentions and broker non-votes
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the Special Meeting. Under the MGCL, the
approval of the Merger Agreement Proposal requires the affirmative vote of at
least 66 2/3% of the outstanding shares of Ambassador Common Stock, and
Ambassador Preferred Stock, voting as a single class. AIMCO and its affiliates
own 8.3% of the outstanding shares of
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Ambassador Common Stock and have agreed to vote in favor of the Merger Agreement
Proposal. Votes to abstain and broker non-votes will have the same effect as
votes cast against the Merger Agreement Proposal.
On the Record Date, directors and executive officers of Ambassador owned
718,250 shares of Ambassador Common Stock, representing 6.0% of the voting power
of the shares entitled to vote on the Merger Agreement Proposal and AIMCO and
its affiliates owned 886,600 shares of Ambassador Common Stock representing 7.4%
of the voting power of the shares entitled to vote on the Merger Agreement
Proposal.
THE AMBASSADOR BOARD HAS, BY A VOTE OF SEVEN TO ONE, RECOMMENDED THAT
STOCKHOLDERS VOTE IN FAVOR OF THE MERGER AGREEMENT PROPOSAL.
PROXIES
All proxies in the enclosed form of proxy that are properly executed and
returned to Ambassador prior to commencement of voting at the Special Meeting
will be voted at the Special Meeting or any adjournments or postponements
thereof in accordance with the instructions thereon. All executed but unmarked
proxies will be voted FOR adoption and authorization of the Merger Agreement.
Any proxy may be revoked by any Ambassador stockholder who attends the Special
Meeting and gives notice of his or her intention to vote in person without
compliance with any other formalities. In addition, any Ambassador stockholder
may revoke a proxy at any time before it is voted by executing and delivering a
subsequent proxy or by delivering a written notice stating that the proxy is
revoked to Thomas J. Coorsh, the Secretary of Ambassador, 77 West Wacker Drive,
Suite 4040, Chicago, Illinois 60601. At the Special Meeting, stockholder votes
will be tabulated by persons appointed by the Ambassador Board to act as
inspectors of election.
The expense of printing this Proxy Statement/Prospectus and the proxies
solicited hereby will be shared equally by AIMCO and Ambassador. All other
expenses incurred in connection with the solicitation of proxies will be borne
by AIMCO or Ambassador as they are incurred by each. In addition to the use of
the mails, proxies may be solicited by officers and directors and regular
employees of Ambassador, without additional remuneration, by personal
interviews, telephone, telegraph or otherwise. Ambassador may also request
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to beneficial owners of shares of Ambassador Common Stock and will provide
reimbursement for the cost of forwarding the material in accordance with
customary charges. Ambassador has retained Corporate Investor Communications,
Inc. at an estimated cost of $8,000, plus reimbursement of expenses, to assist
in its solicitation of proxies from brokers, nominees, institutions and
individuals.
OTHER MATTERS
At the date of this Proxy Statement/Prospectus, the Ambassador Board does
not know of any business to be presented at the Special Meeting other than as
set forth in the notice accompanying this Proxy Statement/Prospectus. If any
other matter should properly come before the Special Meeting, it is intended
that the shares represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting such proxies.
APPRAISAL RIGHTS
Under Maryland law, stockholders of Ambassador who dissent from the Merger
are not entitled to seek any appraisal or similar rights with respect to such
stockholders' shares of Ambassador Common Stock. The MGCL does not provide
appraisal rights to shareholders of a corporation in connection with a merger if
their shares are listed on a national securities exchange, such as the NYSE, on
the record date for determining shareholders entitled to vote on such merger.
Shares of Ambassador Common Stock were listed on the NYSE as of the Record Date.
Holders of Ambassador Preferred Stock will not be entitled to such rights
because all shares of Ambassador Preferred Stock will either be converted into
Ambassador Common Stock or redeemed in connection with the Merger. See "The
Merger and Related Transactions -- Appraisal Rights" and "Comparative Rights of
Stockholders of AIMCO and Ambassador -- Appraisal Rights."
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THE MERGER AND RELATED TRANSACTIONS
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the principal terms of the Merger Agreement are subject to, and
qualified in their entirety by reference to, the Merger Agreement, a copy of
which is attached to this Proxy Statement/Prospectus as Appendix I and is
incorporated herein by reference.
GENERAL DESCRIPTION OF THE MERGER
On December 23, 1997, AIMCO and Ambassador entered into, and as of March
11, 1998, supplemented, the Merger Agreement. Pursuant to the Merger Agreement,
Ambassador will be merged with and into AIMCO, with AIMCO as the surviving
corporation. The Merger will become effective at the Effective Time. Upon
consummation of the Merger, each outstanding share of Ambassador Common Stock,
other than Ambassador Common Stock held by Ambassador or AIMCO, will be
converted into the right to receive that number of shares of AIMCO Common Stock
equal to the quotient (rounded to the nearest 1/1000) (the "Conversion Ratio")
determined by dividing $21.00 by the AIMCO Index Price (as defined below). The
term "AIMCO Index Price" means the aggregate of the average of the high and low
sales prices of AIMCO Common Stock, as reported on the NYSE, on each of the
twenty consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Effective Time, divided by 20. Notwithstanding the
foregoing, if the Conversion Ratio calculated pursuant to the foregoing is
greater than 0.583, then, at AIMCO's option, the Conversion Ratio to be used
shall be either the Conversion Ratio as calculated pursuant to the foregoing or
0.583 (so long as the Merger would continue to qualify as a reorganization under
Section 368(a) of the Code). If AIMCO opts for the Conversion Ratio to equal
0.583, then, in addition to 0.583 shares of AIMCO Common Stock, AIMCO will pay
to each holder of Ambassador Common Stock, for each share of Ambassador Common
Stock held by such shareholder, an amount in cash equal to (i) $21.00 minus (ii)
the product of the AIMCO Index Price and 0.583. In lieu of any fractional shares
of AIMCO Common Stock, each holder of Ambassador Common Stock who would
otherwise be entitled to receive such fractional shares will be paid cash equal
to the product of such fractional shares and the AIMCO Index Price. The Merger
is subject to a number of conditions, including the approval of the stockholders
of Ambassador.
By way of example, if the AIMCO Index Price is $40.00, then the Conversion
Ratio would be 0.525 ($21.00 divided by $40.00), and each outstanding share of
Ambassador Common Stock will be converted into the right to receive 0.525 shares
of AIMCO Common Stock. If the AIMCO Index Price is $30.00, then the Conversion
Ratio would be 0.700 ($21.00 divided by $30.00), and each outstanding share of
Ambassador Common Stock will be converted into the right to receive 0.700 shares
of AIMCO Common Stock; provided, however, that, so long as the Merger would
continue to qualify as a reorganization under Section 368(a) of the Code, AIMCO
could elect at its option to treat the Conversion Ratio as being 0.583, in which
event each outstanding share of Ambassador Common Stock will be converted into
the right to receive 0.583 shares of AIMCO Common Stock plus $3.51 ($21.00 minus
the product of 0.583 and $30.00) in cash.
As of the Record Date, there were 10,708,430 shares of Ambassador Common
Stock outstanding, including an aggregate of 886,600 shares owned by AIMCO and
its affiliates, 1,351,351 shares of Ambassador Preferred Stock outstanding,
739,068 shares of Ambassador Common Stock reserved for issuance upon the
exchange of OP Units in the Ambassador Operating Partnership, and 447,510 shares
of Ambassador Common Stock reserved for issuance upon exercise of outstanding
Ambassador Stock Options. If all Ambassador Stock Options are exercised, all
shares of Ambassador Preferred Stock are converted, all OP Units are exchanged
for shares of Ambassador Common Stock and the AIMCO Index Price is $36.00, the
number of shares of AIMCO Common Stock to be issued in the Merger would be
approximately 7,205,739 shares.
AMBASSADOR STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES TO AMBASSADOR OR
AIMCO AT THIS TIME. As soon as practicable after the Effective Time, each
Ambassador stockholder will receive a Letter of Transmittal from the Exchange
Agent to be used to transmit such stockholder's stock certificates to AIMCO. See
"The Merger Agreement and Terms of the Merger -- Manner and Basis of Converting
Shares."
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Pursuant to the Merger Agreement, immediately prior to the Effective Time,
each outstanding Ambassador Stock Option will become fully vested and
exercisable. Pursuant to the Merger Agreement, holders of Ambassador Stock
Options may elect prior to the Effective Time to have the Ambassador Stock
Options with respect to which such election is made canceled and, in
consideration for such cancellation, each such electing holder shall receive on
the day of the Effective Time for each share subject to the Ambassador Stock
Options for which such election is made, an amount (subject to any applicable
withholding tax) in cash equal to the excess, if any, of $21.00 over the per
share exercise price of such Ambassador Stock Option. Pursuant to the Merger
Agreement, as of the Effective Time, each outstanding Ambassador Stock Option
for which such an election has not been made shall be converted into an option
(or a new substitute option shall be granted) to purchase the number of shares
of AIMCO Common Stock (rounded up to the nearest whole share) equal to the
number of shares of Ambassador Common Stock subject to such option multiplied by
the Conversion Ratio (as calculated pursuant to the definition thereof, without
regard to the provisions regarding AIMCO's election) at an exercise price per
share of AIMCO Common Stock (rounded down to the nearest penny) equal to the
former exercise price per share of Ambassador Common Stock under such option
divided by the Conversion Ratio (as calculated pursuant to the definition
thereof, without regard to the provisions regarding AIMCO's election), subject
to adjustment based on the applicability of certain provisions of the Code.
Based upon the number of Ambassador Stock Options outstanding at December 31,
1997, and assuming a Conversion Ratio of 0.583, AIMCO will reserve approximately
260,898 shares of AIMCO Common Stock for issuance upon exercise of such options,
assuming no cancellation elections are made. See "The Merger Agreement and Terms
of the Merger -- Ambassador Stock Options."
RELATED TRANSACTIONS
In the Merger Agreement, AIMCO and Ambassador agreed that the parties will
use their reasonable best efforts to effect the OP Reorganization immediately
following the Effective Time, with the AIMCO Operating Partnership as the
surviving entity. The parties intend that the OP Reorganization will have, to
the extent possible, the same economic and tax consequences for the holders of
OP Units as the Merger has for holders of Ambassador Common Stock. If such a
business combination is not effected due to failure to obtain consents of all
persons entitled to give or withhold such consents which are necessary for such
business combination, then (i) such partnerships shall remain and be operated as
separate entities and (ii) AIMCO shall execute and deliver to each limited
partner in the Ambassador Operating Partnership the agreement relating to the
exchange rights of holders of OP Units contemplated by a certain Exchange Rights
Agreement of Ambassador (the "Exchange Agreement") and be bound thereby.
The Merger Agreement also provides that at or prior to the Effective Time,
Ambassador will call for redemption the limited partnership interests not owned
by Ambassador or its affiliates in Jupiter-I, L.P. and Jupiter-II, L.P. in
accordance with their respective partnership agreements and subject to and
simultaneously with the Effective Time, the Surviving Corporation will provide
the funds for, and cause payment to be made in respect of, the redemption
thereof upon the Effective Time.
Each of AIMCO and Ambassador will declare its regular quarterly dividend
for the first quarter (and for any other calendar quarter ended prior to the
Effective Time) with a record date prior to the Effective Time. Ambassador will
also declare a special dividend (the "Special Dividend"), with a record date
prior to the Effective Time, which will result in its stockholders receiving an
amount per share equal to the product of (x) the difference between (a)
Ambassador's most recent quarterly dividend amount (appropriately adjusted for
any stock splits and the like) and (b) the product of the Conversion Ratio (as
determined pursuant to the Merger Agreement) and AIMCO's most recent quarterly
dividend amount (appropriately adjusted for any stock splits and the like), and
(y) the number of days which shall have elapsed through and including the day
immediately prior to the day of the Effective Time since the end of the most
recent calendar quarter (as of the Effective Time) for which Ambassador's
dividend record date has occurred divided by 91. In addition, in the ordinary
course of business after the Effective Time, AIMCO will declare a dividend for
the quarter in which the Effective Time occurs in the amount of its regularly
quarterly dividend amount for such quarter. See "The Merger Agreement and Terms
of the Merger -- Distributions with Respect to Shares."
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The Merger Agreement provides that prior to the Effective Time, the
Ambassador Board will call for the redemption of all outstanding shares of
Ambassador Preferred Stock in accordance with, and at a redemption price equal
to the amount set forth in Section 8(a) of the Articles Supplementary of
Ambassador with respect thereto, to be effective simultaneously with, and to be
conditioned upon, the occurrence of, the Effective Time. Notwithstanding the
foregoing, the holders of such Ambassador Preferred Stock shall have the right
to convert such stock into Ambassador Common Stock in the manner set forth in
such Articles Supplementary. To the extent any Ambassador Preferred Stock shall
not have been converted as of the Effective Time, AIMCO will provide the funds
for, and cause payment to be made in respect of, the redemption thereof on the
date of the Effective Time.
On December 23, 1997, pursuant to a letter agreement, AIMCO and Ambassador
agreed that, on or prior to June 30, 1998, AIMCO will form the Advisory
Committee. The members of the Advisory Committee will be appointed by the
Chairman of the Board of Directors of AIMCO and serve at the discretion of the
Chairman of the Board of Directors until their replacements are duly appointed.
In the letter agreement, AIMCO agreed that the group first appointed as members
of the Advisory Committee will include at least one member who, as of December
23, 1997, was a member of the Ambassador Board. The letter agreement provides
that AIMCO intends that the Advisory Committee will meet periodically to review
the financial condition and strategic position of AIMCO, with the purpose of
making recommendations to the AIMCO Board of Directors. However, the Advisory
Committee will have such duties and authority, meet at such times, and receive
such compensation as the AIMCO Board of Directors determines in its sole
discretion. The letter agreement provides that it is understood that the
Advisory Committee is not a committee of the AIMCO Board of Directors and no
duties or responsibilities of the AIMCO Board of Directors will be assigned to
the Advisory Committee.
BACKGROUND OF THE MERGER
Issues relating to the long term strategy of Ambassador were discussed
regularly by senior management and the Ambassador Board. In this regard, senior
management and the Ambassador Board were of the view that, during the past
several years, the REIT industry has been characterized by consolidation, driven
in large measure by the economies of scale available to larger entities in the
industry. They likewise believed that greater size permitted efficiencies and
lower costs in capital raising, lower costs for goods and services resulting
from larger centralized buying power, amortization of ongoing general and
administrative costs over a broader portfolio base and other potential
advantages for shareholders that could be gained in a combination with another
operator. In addition, senior management and the Ambassador Board believed that
the emergence of larger apartment REITs, with their appetites for acquisition of
additional apartment communities, generally increased the prices at which these
properties were offered and sold. As a result, as one of the smaller REITs,
Ambassador found it increasingly difficult to identify and acquire additional
multifamily residential assets at prices that would be accretive to Ambassador's
earnings.
On August 25, 1997, the Ambassador Board announced its intention to retain
a financial advisor to assist Ambassador in maximizing shareholder value. The
Ambassador Board formed a Facilitating Committee composed of three experienced
independent directors to work with senior management and the financial advisor
to coordinate this process. On August 22, 1997, the Ambassador Common Stock
closed at $22.25 per share.
Four investment banking firms were selected to compete for the appointment
as financial advisor to Ambassador. Each of these firms had multinational real
estate investment banking experience and was familiar with Ambassador and the
multi-family residential business. Each provided extensive written material,
analyzing publicly available information about the multi-family residential
market and strategic options that might be available to Ambassador and made an
in-person presentation to senior management and the Facilitating Committee. On
September 19, 1997, the Ambassador Board, recognizing the substantial
qualifications of all the advisor candidates, chose Merrill Lynch to act as
Ambassador's financial advisor.
While this selection process was ongoing, two multifamily REITs purchased
significant stakes in Ambassador. On September 8, 1997, the limited partnership
in which Equity Residential Property Trust serves as a general partner filed a
Schedule 13D Statement, stating that it had acquired 9.5% of the
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outstanding common stock of Ambassador for investment purposes. On September 15,
the AIMCO Operating Partnership filed a Schedule 13D Statement, stating that it
had acquired 8.5% of Ambassador's outstanding common stock for investment
purposes. Both of these parties were advised that Ambassador was in the process
of choosing a financial advisor and they were asked to coordinate any interest
in acquiring additional shares with that advisor. Equity Residential Property
Trust's operating partnership filed an amendment to its Schedule 13D on October
9, reflecting the sale of shares representing 5.5% of the outstanding common
stock of Ambassador, and never thereafter formally made a proposal to acquire
the remainder of Ambassador's common stock.
On September 19, 1997, representatives of Merrill Lynch conducted a
detailed briefing and discussion with the Ambassador Board during which they
outlined the methodology they would employ in collecting and disseminating
information about the business of Ambassador, identifying potential acquirers
and examining and reporting on potential strategies for increasing shareholder
value by methods other than sale or merger.
On September 26, 1997, at a special meeting of Ambassador's Board of
Directors, Merrill Lynch presented a review of potential strategic alternatives
available to Ambassador. These alternatives included the continuation of
Ambassador's existing strategy of property operation and of pursuing acquisition
and renovation opportunities in its markets, the possibility of a so-called
"merger of equals" with another public company, the merger of Ambassador into a
larger public company, and combining with a privately controlled entity which
could use additional third party leverage to enhance equity returns. Strategic
alternative combination partners were reviewed and discussed. At the September
26 meeting, Merrill Lynch was instructed to further investigate such
alternatives and to solicit interest on behalf of Ambassador in such
transactions.
By early October 1997, Merrill Lynch had completed preparation of a
confidential disclosure memorandum and had assembled a list of more than 40
persons, firms and entities who were viewed as potential candidates for a
business combination, or as potential sources of substantial additional capital
for Ambassador. Eventually, 33 persons executed confidentiality agreements and
were provided with copies of the confidential disclosure memorandum. Throughout
October and early November, Merrill Lynch, Ambassador senior management and the
Facilitating Committee had regular conferences concerning the progress of these
efforts.
On October 17, 1997, all parties known to be interested in acquiring
Ambassador were asked to provide a written expression of interest describing the
terms on which they had an interest in acquiring Ambassador no later than
October 29, 1997. That date was later extended to October 30, 1997. On the later
date, written expressions of interest were received from four parties, one of
whom was AIMCO. In November 1997, written expressions of interest were received
from three additional parties.
On November 6, 1997, Mr. Glickman and Ms. Cafaro met with Mr. Considine and
Mr. Kompaniez to discuss whether a merger would be in the best interests of the
companies and their respective shareholders.
On November 13, 1997, AIMCO advised Ambassador that it was interested in
acquiring all of the shares of Ambassador in a merger at a net price to the
shareholders of approximately $20 to $21 per share. This offer was considered by
the Ambassador Board at a special meeting held on November 15. Merrill Lynch was
present at these meetings, together with Ambassador's legal advisors. During
these meetings, the directors considered the alternative of continuing as a
stand-alone company. Extensive discussions were held concerning the limited
resources available to Ambassador if this alternative was adopted, the
increasing pressure from the larger REITs whose economies of scale permitted
less costly operation, higher acquisition costs and other factors. The
Ambassador Board concluded that this alternative, while viable, was not in the
best interests of the shareholders.
At the conclusion of the November 15 meeting, the Ambassador Board
instructed Merrill Lynch to negotiate with AIMCO, while continuing its efforts
to identify and encourage other persons interested in business combinations.
During early December, negotiations continued. General terms and timing
were discussed and a tentative exchange ratio was established based on the then
market value of AIMCO's common stock, approximately $36 per share, and a net
price to Ambassador shareholders of $21 per share.
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On December 15, the AIMCO Operating Partnership filed an amended Schedule
13D Statement, stating that AIMCO had made an offer to merge with Ambassador
with a net price of $21.00 per share of Ambassador Common Stock and on December
16, 1997, AIMCO provided an initial draft of a merger agreement.
On December 17 and 18, 1997, Mr. Glickman, Ms. Cafaro, Mr. Levy, Merrill
Lynch and Ambassador's counsel met with Mr. Kompaniez and AIMCO's counsel at the
Chicago offices of AIMCO's counsel to negotiate with respect to the terms of the
proposed merger agreement.
On December 18, 1997, a special meeting of the Ambassador Board considered
all offers and expressions of interest then remaining pending, consisting of the
proposed merger upon the terms set forth in the draft of a merger agreement
provided by AIMCO and expressions of interest from two privately-held entities
interested in a "reverse merger." Certain members of the Ambassador Board and/or
Merrill Lynch met with each of these parties. Based on these meetings and
subsequent discussions with Merrill Lynch, the Ambassador Board concluded that
the likelihood was low that either of the proposed "reverse mergers" could be
consummated on a timely basis, if at all, and that the return to the
shareholders, even if one of those proposed transactions was consummated, was so
uncertain that pursuing it would not be in the best interests of the
shareholders. The Ambassador Board reviewed possibilities available to
Ambassador in detail with its financial advisor and its lawyers. The Ambassador
Board therefore determined to proceed with negotiations with respect to the
AIMCO transaction, subject to the receipt of any other viable offers prior to
execution of a merger agreement and to the advice of its financial advisor
concerning the fairness of the transaction from a financial point of view.
Ambassador Common Stock's closing price on the NYSE was $20.3125 on December 18.
On December 22, the AIMCO Board met and approved the merger on the terms
set forth in the draft merger agreement, subject to such changes as were
approved by management of AIMCO.
Negotiations continued through December 22. The Ambassador Board met on
December 21 and 22 to consider the terms of the proposed transaction. On
December 21, Ambassador's legal counsel recapitulated previous discussions
concerning issues related to the terms of the merger and again advised the
Ambassador Board of its fiduciary duties in connection with the transaction. On
December 22, Merrill Lynch made a presentation to the Ambassador Board and
delivered its opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of Ambassador Common Stock (other
than AIMCO and its affiliates) in the Merger. After extensive discussion which
included Merrill Lynch and legal counsel, the meeting was adjourned to the
morning of December 23, at which time a final version of the proposed merger
agreement was made available to the Ambassador Board. The Ambassador Board then
approved and adopted, by a vote of seven to one, the merger agreement and
approved the transactions contemplated thereby. That morning the parties
executed the merger agreement and later that day publicly announced the
transaction.
REASONS OF AMBASSADOR FOR THE MERGER; RECOMMENDATION OF THE AMBASSADOR BOARD
THE BOARD OF DIRECTORS OF AMBASSADOR, BY A VOTE OF SEVEN TO ONE, HAS
APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, AMBASSADOR AND THE HOLDERS OF AMBASSADOR COMMON STOCK AND
RECOMMENDS THAT ALL OF THE STOCKHOLDERS OF AMBASSADOR VOTE FOR THE APPROVAL,
ADOPTION AND AUTHORIZATION OF THE MERGER AGREEMENT PROPOSAL.
In making its determination with respect to the Merger, the Ambassador
Board considered, among other things:
(i) the Ambassador Board's familiarity with Ambassador's business,
financial condition, results of operations, business strategy and
prospects, current industry, economic and market conditions, and the
Ambassador Board's assessment of the consequences of remaining independent,
and risks inherent in such a course, including the impact of increasing
competition, the difficulty in identifying and acquiring additional
multifamily residential assets at attractive prices, Ambassador's access to
capital on acceptable terms, its ability to be an acquiror in a
consolidating market and the future for small and medium sized apartment
REITs in such a consolidating market;
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(ii) the Ambassador Board's view that the Merger represents the
greatest potential to maximize shareholder value and that the proposed
transaction with AIMCO was the best alternative reasonably available to
Ambassador's shareholders. In this regard, the Board considered
Ambassador's efforts to maximize shareholder value since it announced on
August 25, 1997 its intention to hire a financial advisor to assist
Ambassador in maximizing shareholder values, and, in particular, the
discussions management conducted with its advisor, Merrill Lynch,
discussions and negotiations with, and terms of expressions of interest
received from, other parties as to possible transactions with Ambassador
and the likelihood of concluding a transaction with such other parties on
terms more favorable to Ambassador stockholders than the Merger. The
Ambassador Board believed that, after such discussions, there were no other
prospective purchasers that had the financial ability to complete the
transaction, would be willing to pay an aggregate consideration greater
than that to be paid by AIMCO in the Merger and would be willing to commit
to a transaction with greater certainty than that provided by AIMCO
pursuant to the Merger Agreement;
(iii) the terms of the Merger Agreement, which the Ambassador Board
viewed as favorable because it believed them to be fair to Ambassador and
the holders of Ambassador Common Stock and because the terms were reached
through extensive arms-length negotiations. In this regard, the Ambassador
Board noted that the Merger represented an attractive opportunity for
shareholders to continue their investment in a significantly larger company
with significantly expanded geographical diversification and improved
access to public debt and equity markets to support AIMCO's growth
following the Effective Time. As part of its deliberations in this regard,
the Ambassador Board considered, among other factors, the age, condition
and geographic diversification of AIMCO's assets, the depth and experience
of its management and its capital structure, funds from operations and Debt
to Total Market Capitalization Ratio, as well as its future prospects and
opportunities for growth as a combined company with Ambassador;
(iv) AIMCO's financial condition, results of operations, cash flows,
and competitive position, and the risks of owning shares of AIMCO,
including those set forth in "Risk Factors," above;
(v) terms of the Merger Agreement which, (A) although prohibiting
Ambassador and its representatives from soliciting, initiating or
facilitating Acquisition Proposals (as defined herein), permit Ambassador
and its representatives to furnish information to, and negotiate and
otherwise engage in discussions with, any third party in response to
unsolicited inquiries, to the extent the Ambassador Board determines in
good faith that to do so has a reasonable prospect of leading to a Superior
Proposal (as defined herein) or that failure to take such action would be
inconsistent with the fiduciary duties of the Ambassador Board under
applicable law, and (B) permit Ambassador to terminate the Merger Agreement
to accept a Superior Proposal, subject to payment of termination fees, as
described herein. See "The Merger Agreement and Terms of the Merger --
Response to Other Offers" and "The Merger Agreement and Terms of the Merger
-- Termination Fees;"
(vi) the Ambassador Board's view, after consultation with management
and Merrill Lynch, regarding the likelihood of the emergence of other
viable purchasers on terms as favorable as those in the Merger, and, after
consultation with counsel to Ambassador, as to the ability of Ambassador to
agree to a transaction with such a purchaser, notwithstanding the Merger
Agreement;
(vii) that the structure of the Merger, particularly the fact that the
Merger, as a "stock-for-stock" transaction (except for partial payment of
cash in limited circumstances), rather than a "cash-for-stock" transaction,
will provide an opportunity for Ambassador's shareholders to participate in
any future appreciation of AIMCO;
(viii) the expected treatment of the Merger as a "tax-free"
reorganization;
(ix) the fact that, under the Merger Agreement, of all of the
third-party consents which might have been required in connection with the
continuation of Ambassador's credit enhancement facilities, only the
consent of the Federal National Mortgage Association ("FNMA") is a
condition to AIMCO's obligation to consummate the Merger;
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(x) the fact that pursuant to the terms of the Merger Agreement, in
the event of a decline in the market price of AIMCO Common Stock or a
general market decline between the date of the Merger Agreement and the
Effective Time, the economic value of the consideration to be received in
the Merger for each share of Ambassador Common Stock would be protected
through the Conversion Ratio mechanism;
(xi) the conditions to the Merger, and the fact that there would be no
special financing or "due diligence" contingency to the Merger. In this
connection, the Ambassador Board also considered the likelihood that the
Merger would be consummated, including the likelihood of satisfaction of
the conditions to the Merger, the risks to Ambassador if the Merger were
not consummated and the experience and reputation of AIMCO;
(xii) the opinion, analyses and presentations of Merrill Lynch,
including the opinion that, subject to certain considerations, assumptions
and limits of review, the consideration to be received by the holders of
Ambassador Common Stock (other than AIMCO and its affiliates) pursuant to
the Merger was fair from a financial point of view to such holders; and
(xiii) the recommendation of Ambassador's management with respect to
the proposed transaction.
The Ambassador Board also considered certain potentially negative factors
in its deliberations concerning the Merger, including, among others:
(i) the risk that the anticipated benefits of the Merger might not be
fully realized;
(ii) the substantial management time and effort required to effectuate
the Merger; and
(iii) the possibility that Ambassador may be required, if the Merger
Agreement is terminated under certain circumstances, to pay AIMCO a
Break-Up Fee and to reimburse AIMCO Break-Up Expenses, as described herein.
In addition to the above factors, the Ambassador Board was mindful of and
evaluated the actual and potential conflicts of interest. In view of the wide
variety of factors considered by the Ambassador Board, the Ambassador Board did
not quantify or otherwise attempt to assign relative weights to the specific
factors considered in making its determination. Rather, the Ambassador Board
viewed its position and recommendations as being based on its judgment in light
of the totality of the information presented to and considered by it as to the
overall effect of the Merger on Ambassador stockholders (including in comparison
to the potential and likely effects of rejecting the Merger Agreement Proposal).
OPINION OF FINANCIAL ADVISOR TO AMBASSADOR BOARD
Merrill Lynch was retained by Ambassador on September 19, 1997 to assist
Ambassador in the evaluation and implementation of strategic alternatives
intended by Ambassador to maximize shareholder value. At the meeting of the
Ambassador Board held on December 22, 1997, Merrill Lynch delivered a written
opinion (the "Merrill Lynch Opinion") to the Ambassador Board to the effect
that, as of such date, and based upon the assumptions made, matters considered
and limits of review set forth in the Merrill Lynch Opinion, the consideration
to be received by the holders of Ambassador Common Stock (other than AIMCO and
its affiliates) in the Merger was fair to such stockholders from a financial
point of view. Merrill Lynch has not been requested to, and will not, update its
opinion prior to the Closing.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS APPENDIX II TO THIS PROXY
STATEMENT/PROSPECTUS. EACH HOLDER OF AMBASSADOR COMMON STOCK IS URGED TO READ
SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS INTENDED FOR THE USE
AND BENEFIT OF THE AMBASSADOR BOARD, WAS DIRECTED ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION TO THE HOLDERS OF AMBASSADOR COMMON STOCK (OTHER THAN AIMCO
AND ITS AFFILIATES) FROM A FINANCIAL POINT OF VIEW, DID NOT ADDRESS THE MERITS
OF THE UNDERLYING DECISION BY
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AMBASSADOR TO ENGAGE IN THE MERGER, AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE
MERGER AGREEMENT PROPOSAL OR ANY TRANSACTION RELATED THERETO. MERRILL LYNCH DID
NOT EXPRESS ANY OPINION IN THE MERRILL LYNCH OPINION AS TO THE PRICES AT WHICH
THE AMBASSADOR COMMON STOCK OR THE AIMCO COMMON STOCK WOULD TRADE FOLLOWING THE
ANNOUNCEMENT OR CONSUMMATION OF THE MERGER. THE MERGER CONSIDERATION WAS
DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN AMBASSADOR AND AIMCO AND WAS
APPROVED BY THE AMBASSADOR BOARD. THE SUMMARY OF THE MERRILL LYNCH OPINION SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch among other things:
(i) reviewed certain publicly available business and financial information
relating to Ambassador and AIMCO which Merrill Lynch deemed to be relevant; (ii)
reviewed certain information, including financial forecasts, relating to the
business, earnings, funds from operations, adjusted funds from operations, cash
flow, assets, liabilities and prospects of Ambassador and AIMCO furnished to
Merrill Lynch by Ambassador and AIMCO, as well as the amount and timing of the
cost savings and related expenses and synergies expected to result from the
Merger (the "Expected Synergies") furnished to Merrill Lynch by Ambassador and
AIMCO; (iii) conducted discussions with members of senior management of AIMCO
and Ambassador concerning the matters described in clauses (i) and (ii) above,
as well as their respective businesses and prospects before and after giving
effect to the Merger and the Expected Synergies; (iv) reviewed the market prices
and valuation multiples for the Ambassador Common Stock and the AIMCO Common
Stock and compared them with those of certain publicly traded companies that
Merrill Lynch deemed relevant; (v) reviewed the results of operations of
Ambassador and AIMCO and compared them with those of certain publicly traded
companies that Merrill Lynch deemed relevant; (vi) compared the proposed
financial terms of the Merger with the financial terms of certain other
transactions which Merrill Lynch deemed relevant; (vii) participated in certain
discussions and negotiations among representatives of Ambassador and AIMCO and
their financial and legal advisors; (viii) reviewed the potential pro forma
impact of the Merger; (ix) reviewed a draft, dated December 22, 1997, of the
Merger Agreement; and (x) reviewed such other financial studies and analyses and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available. Merrill Lynch also did not assume any responsibility for
independently verifying such information or for undertaking an independent
evaluation or appraisal of any of the assets or liabilities of Ambassador or
AIMCO, and Merrill Lynch has not been furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct
any physical inspection of the properties or facilities of Ambassador or AIMCO.
With respect to the financial forecast information and the Expected Synergies
furnished to or discussed with Merrill Lynch by Ambassador and AIMCO, Merrill
Lynch assumed that they had been reasonably prepared and reflected the best
currently available estimates and judgment of Ambassador's or AIMCO's management
as to the expected future financial performance of Ambassador or AIMCO, as the
case may be, and the Expected Synergies. Merrill Lynch further assumed that the
Merger will qualify as a tax-free reorganization for United States federal
income tax purposes.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and upon the information
made available to Merrill Lynch, as of the date of the Merrill Lynch Opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
contemplated benefits of the Merger. Merrill Lynch also assumed that the
combined entity will continue to qualify after the Merger as a REIT for federal
income tax purposes.
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At Ambassador's request, Merrill Lynch contacted over 40 potential
acquirors of Ambassador. Such potential acquirors were selected by Ambassador
and Merrill Lynch from a group of companies and other parties likely to be
interested in an acquisition of Ambassador.
At the meeting of the Ambassador Board held on December 22, 1997, Merrill
Lynch presented certain financial analyses in connection with the delivery of
the Merrill Lynch Opinion. The following is a summary of the material financial
and comparative analyses performed by Merrill Lynch in arriving at the Merrill
Lynch Opinion.
Valuation of Ambassador
Historical Trading Performance and Current Capitalization. Merrill Lynch
reviewed certain trading information for Ambassador and, on the basis thereof,
calculated its market value, market capitalization and trading multiples based
on its stock price as of December 18, 1997, of $20.31. For this purpose, Merrill
Lynch defined "total market capitalization" as the market value of Ambassador's
common equity (including the assumed conversion of all outstanding operating
partnership units and preferred shares into shares of Ambassador Common Stock),
plus total debt (including an estimated $25.9 million of equity associated with
the redemption of units in Jupiter-I, L.P. and Jupiter-II, L.P., which was
treated as debt for this purpose). Merrill Lynch then calculated the market
value of Ambassador as a multiple of projected funds from operations ("FFO")
(based on mean estimates of FFO provided by First Call, an industry service
provider of earnings estimates based on an average of earnings estimates
published by various investment banking firms ("First Call")), and FFO less
recurring capital expenditures ("AFFO"). Ambassador's FFO multiples for 1997 and
1998 were 10.7x and 10.4x respectively, and AFFO multiples for 1997 and 1998
were 12.5x and 11.7x, respectively.
Merrill Lynch also reviewed AIMCO's offer for Ambassador and, on the basis
thereof, calculated an aggregate net offer value for the Ambassador Common Stock
(the "Net Offer Value") of $268.8 million. Using an estimation of Ambassador's
debt balances as of December 31, 1997 provided by Ambassador's management,
Merrill Lynch also calculated an aggregate transaction value (the "Transaction
Value") of $700.5 million which consisted of the Net Offer Value plus debt and
redemption costs of $435.5 million, less an estimation of Ambassador's cash
balance at December 31, 1997 of $3.8 million. With respect to the Net Offer
Value, Merrill Lynch calculated FFO multiples for 1997 and 1998 of 11.1x and
10.7x, respectively, and the AFFO multiples for 1997 and 1998 of 12.9x and
12.1x, respectively.
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call, and taken from Merrill Lynch Equity Research, Merrill Lynch compared
certain financial and operating information and ratios for Ambassador with the
corresponding financial and operating information for a group of publicly traded
companies engaged primarily in the ownership, management, operation and
acquisition of multifamily properties. For the purpose of its analysis, the
following companies were used as comparable companies to Ambassador: Amli
Residential Properties Trust, Associated Estates Realty Corporation, Gables
Residential Trust, Oasis Residential, Inc., Town & Country Trust, Summit
Properties Inc. and Mid-America Apartment Communities, Inc. (collectively, the
"Ambassador Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Ambassador Comparable Companies and for Ambassador as of December 18, 1997
(calculation for Oasis Residential Inc. made as of December 16, 1997, the last
trading day prior to its announcement of a merger with Camden Property Trust): a
range of debt to total market capitalization of 38.2% to 49.4%, with a mean of
43.2% (as compared to Ambassador at 62.6%); a range of market value as a
multiple of projected 1997 FFO of 9.9x to 11.4x, with a mean of 10.5x (as
compared to Ambassador at 10.7x); a range of market value as a multiple of
projected 1998 FFO of 9.2x to 10.5x, with a mean of 9.8x (as compared to
Ambassador at 10.4x); a range of market value as a multiple of projected 1997
AFFO of 10.8x to 12.8x, with a mean of 11.9x (as compared with Ambassador at
14.0x); and a range of market value as a multiple of projected 1998 AFFO of 9.8x
to 11.7x, with a mean of 10.9x (as compared to Ambassador at 13.5x). Based upon
projected 1998 FFO multiples, the implied per share valuation of the Ambassador
Common Stock was between $18.05 and $20.58.
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<PAGE> 48
None of the Ambassador Comparable Companies is, of course, identical to
Ambassador. Accordingly, a complete analysis of the results of the foregoing
calculations cannot be limited to a quantitative review of such results and
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Ambassador Comparable Companies
and other factors that could affect the public trading volume of the Ambassador
Comparable Companies, as well as that of Ambassador. In addition, the multiples
of market value to estimated 1997 and projected 1998 FFO and AFFO for the
Ambassador Comparable Companies are based on projections prepared by research
analysts using only publicly available information. Accordingly, such estimates
may or may not prove to be accurate.
Comparable Transaction Analysis. Merrill Lynch also compared certain
financial ratios of the Merger with those of selected other mergers and
strategic transactions involving REITS. These transactions were Camden Property
Trust's acquisition of Oasis Residential, Inc., Equity Residential Properties
Trust's acquisition of Evans Withycombe Residential, Inc., Post Properties,
Inc.'s acquisition of Columbus Realty Trust, Equity Residential Properties
Trust's acquisition of Wellsford Residential Property Trust, Camden Property
Trust's acquisition of Paragon Group, Inc., United Dominion Realty Trust, Inc.'s
acquisition of South West Property Trust, Mid-America Apartment Communities,
Inc.'s acquisition of America First REIT and Wellsford Residential Property
Trust's acquisition of Holly Residential Properties, Inc. (collectively, the
"Transaction Comparables").
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premium of the implied
offer prices relative to the acquired company's stock price on the day before
the announcement of the respective transaction and the implied offer value per
share for the acquired company, as of the day before the announcement of the
respective transaction, as a multiple of the projected FFO per share for such
company. This analysis yielded a range of premiums of 4.9% to 38.0% with a mean
of 14.4% and a range of transaction FFO multiples of 9.2x to 12.3x with a mean
of 10.9x. This resulted in an implied per share valuation of between $18.03 and
$24.11 for the Ambassador Common Stock.
Discounted Cash Flow Analyses. Merrill Lynch performed discounted cash flow
analyses (i.e., an analysis of the present value of the projected levered cash
flows for the periods using the discount rates indicated) of Ambassador based
upon projections provided by Ambassador's management for the years 1998 through
2002, inclusive, using discount rates reflecting an equity cost of capital
ranging from 13.7% to 15.7% and terminal value multiples of calendar year 2002
FFO ranging from 10.0x to 11.0x. The range of implied present values per share
of Ambassador Common Stock was approximately $17.65 to $20.35 using the
discounted dividend method and approximately $18.45 to $21.19 based upon the
discounted AFFO method.
Net Asset Valuation Analysis. Merrill Lynch performed a net asset valuation
for Ambassador based upon an asset-by-asset real estate valuation of
Ambassador's properties, an estimation of the current value for Ambassador's
other assets and liabilities, and an estimation of Ambassador's debt balances as
of December 31, 1997. The real estate valuation utilized property specific
projections prepared by Ambassador's management for the calendar year 1998. For
the operating portfolio of Ambassador, the valuation utilized the direct
capitalization method on 1998 property net operating income and a range of
weighted-average capitalization rates of 8.75% to 9.25%. These calculations
indicated a per share net asset valuation range for Ambassador Common Stock of
approximately $18.65 to $21.01.
Valuation of AIMCO
Historical Trading Performance and Current Capitalization. Merrill Lynch
reviewed certain trading information for AIMCO and, on the basis thereof,
calculated its market value, market capitalization and trading multiples based
on its stock price as of December 18, 1997 of $35.38. For this purpose, Merrill
Lynch defined "total market capitalization" as the market value of AIMCO's
common equity (including the assumed conversion of all outstanding operating
partnership units into shares of AIMCO Common Stock) plus preferred stock at
liquidation value plus total debt. Merrill Lynch then calculated the market
value of AIMCO as a multiple of projected FFO (based on mean estimates of FFO
provided by First Call) and AFFO. AIMCO's FFO multiples for 1997 and 1998 were
12.8x and 10.9x, respectively, and the AFFO multiples for 1997 and 1998 were
14.0x and 11.8x, respectively.
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<PAGE> 49
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call and taken from Merrill Lynch Equity Research, Merrill Lynch compared
certain financial and operating information and ratios for AIMCO with the
corresponding financial and operating information for a group of publicly traded
companies engaged primarily in the ownership, management, operation and
acquisition of multifamily properties. For the purpose of its analysis, the
following companies were used as comparable companies to AIMCO: BRE Properties,
Inc., Camden Property Trust (excluding its pending merger with Oasis
Residential, Inc.), Equity Residential Properties Trust, Merry Land & Investment
Co., Inc., Security Capital Atlantic Incorporated, Security Capital Pacific
Trust, United Dominion Realty Trust, Inc. and Walden Residential Properties,
Inc. (Walden Residential Properties, Inc. data is pro forma its merger with
Drever Partners, Inc. which was consummated on October 1, 1997) (collectively,
the "AIMCO Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the AIMCO Comparable Companies and for AIMCO as of December 18, 1997 (Camden
Property Trust calculated as of December 16, 1997): a range of debt to total
market capitalization of 18.9% to 42.5%, with a mean of 28.0% (as compared to
AIMCO at 44.7%); a range of market value as a multiple of projected 1997 FFO of
10.3x to 14.8x, with a mean of 12.5x (as compared to AIMCO at 12.8x); a range of
market value as a multiple of projected 1998 FFO of 9.6x to 13.2x, with a mean
of 11.3x (as compared to AIMCO at 10.9x); a range of market value as a multiple
of projected 1997 AFFO of 12.1x to 15.7x, with a mean of 13.8x (as compared with
AIMCO at 14.6x); and a range of market value as a multiple of projected 1998
AFFO of 11.0x to 14.0x, with a mean of 12.5x (as compared to AIMCO at 12.5x).
Based upon projected 1998 FFO multiples, the implied per share valuation of the
AIMCO Common Stock was between $31.13 and $42.65.
None of the AIMCO Comparable Companies is, of course, identical to AIMCO.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the AIMCO Comparable Companies and other factors that could
affect the public trading volume of the AIMCO Comparable Companies, as well as
that of AIMCO. In addition, the multiples of market value to estimated 1997 and
projected 1998 FFO and AFFO for the AIMCO Comparable Companies are based on
projections prepared by research analysts using only publicly available
information. Accordingly, such estimates may or may not prove to be accurate.
Comparable Transaction Analysis. Merrill Lynch also compared certain
financial ratios of the Merger with those of the Transaction Comparables. Using
publicly available information and estimates of financial results as published
by First Call, Merrill Lynch calculated with respect to the Transaction
Comparables the premiums of the implied offer prices relative to the acquired
company's stock price on the day before the announcement of the respective
transaction and the implied offer value per share for the acquired company, as
of the day before the announcement of the respective transaction, as a multiple
of the projected FFO per share for such company. This analysis yielded a range
of premiums of 4.9% to 38.0% with a mean of 14.4% and a range of transaction FFO
multiples of 9.2x to 12.3x with a mean of 10.9x. This resulted in an implied per
share valuation of AIMCO Common Stock of between $29.80 and $39.85.
Discounted Cash Flow Analyses. Merrill Lynch performed discounted cash flow
analyses (i.e., an analysis of the present value of the projected levered cash
flows for the periods using the discount rates indicated) of AIMCO based upon
projections provided by AIMCO's management for the years 1998 through 2002,
inclusive, using discount rates reflecting an equity cost of capital ranging
from 15.0% to 17.0% and terminal value multiples of calendar year 2002 FFO
ranging from 10.5x to 11.5x. The range of implied present values per share of
AIMCO Common Stock was approximately $30.27 to $35.00 using the discounted
dividend method and approximately $33.31 to $38.19 based upon the discounted
AFFO method.
Net Asset Valuation Analysis. Merrill Lynch performed a net asset valuation
for AIMCO based upon an aggregate real estate valuation of AIMCO's properties,
an estimation of the current value for AIMCO's other assets and liabilities, and
an estimation of AIMCO's debt balances as of December 31, 1997. The real estate
valuation utilized projections prepared by AIMCO's management for the calendar
year 1998. For the operating portfolio of AIMCO, the valuation utilized the
direct capitalization method on 1998 property net
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<PAGE> 50
operating income and a range of capitalization rates of 8.9% to 9.4%. These
calculations indicated a per share net asset valuation range for AIMCO Common
Stock of approximately $32.50 to $34.51.
Pro Forma Merger Consequences. Merrill Lynch analyzed the pro forma effects
resulting from the Merger, including the potential impact on AIMCO's projected
standalone FFO per share and the anticipated accretion (i.e., the incremental
increase) to AIMCO's per share FFO resulting from the Merger. Merrill Lynch
observed that, after giving effect to the Expected Synergies, the Merger would
be accretive to AIMCO's projected FFO per share in each of the years 1998
through 2002, inclusive, and that the year-over-year annual growth rates for FFO
per share in each of the years 1999 through 2002, inclusive, exceeded such
comparable results for AIMCO on a standalone basis.
The summary set forth above does not purport to be a complete description
of the analysis performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
process underlying the Merrill Lynch Opinion. In its analyses, Merrill Lynch
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond
Ambassador's, AIMCO's and Merrill Lynch's control. Any estimates contained in
Merrill Lynch's analyses are not necessarily indicative of actual values, which
may be significantly more or less favorable than as set forth therein. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty.
The Ambassador Board selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial experience in transactions similar to the Merger and because it
is familiar with Ambassador and its business. Merrill Lynch is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to a letter agreement dated September 19, 1997, Ambassador has
agreed to pay Merrill Lynch a fee equal to approximately $3.2 million upon
consummation of the Merger. In addition, Ambassador has agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, subject to certain
limitations, and to indemnify Merrill Lynch and certain related persons against
certain liabilities, including certain liabilities under the federal securities
laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory services to
AIMCO and may continue to do so and has received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of its business,
Merrill Lynch may actively trade in the securities of Ambassador or AIMCO, for
its own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. As of December 31, 1997,
affiliates of Merrill Lynch held 905,400 shares of Ambassador Common Stock.
AMBASSADOR STOCK OPTIONS
Pursuant to the Merger Agreement, immediately prior to the Effective Time,
each outstanding Ambassador Stock Option will become fully vested and
exercisable. Pursuant to the Merger Agreement, holders of Ambassador Stock
Options may elect prior to the Effective Time to have the Ambassador Stock
Options with respect to which such election is made canceled and, in
consideration for such cancellation, each such electing holder shall receive on
the day of the Effective Time for each share subject to the Ambassador Stock
Options for which such election is made, an amount (subject to any applicable
withholding tax) in cash equal to the excess, if any, of $21.00 over the per
share exercise price of such Ambassador Stock Option. Pursuant to the Merger
Agreement, as of the Effective Time, each outstanding Ambassador Stock Option
for which such an election has not been made shall be converted into an option
(or a new substitute option shall be granted) to purchase the number of shares
of AIMCO Common Stock (rounded up to the nearest whole share) equal to the
number of shares of Ambassador Common Stock subject to such option multiplied by
the
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<PAGE> 51
Conversion Ratio (as calculated pursuant to the definition thereof, without
regard to the provisions regarding AIMCO's election) at an exercise price per
share of AIMCO Common Stock (rounded down to the nearest penny) equal to the
former exercise price per share of Ambassador Common Stock under such option
divided by the Conversion Ratio (as calculated pursuant to the definition
thereof, without regard to the provisions regarding AIMCO's election), subject
to adjustment based on the applicability of certain provisions of the Code.
Based upon the number of Ambassador Stock Options outstanding at December 31,
1997, AIMCO will reserve approximately 260,898 shares of AIMCO Common Stock for
issuance upon exercise of such options.
REGISTRATION RIGHTS AGREEMENT
The following summary of the Registration Rights Agreement does not purport
to be complete and is qualified in its entirety by reference to the registration
rights agreement actually entered into by AIMCO in connection with the
referenced transactions.
The Merger Agreement requires AIMCO to enter into the Registration Rights
Agreement prior to the Effective Date. In accordance with the terms of the
Merger Agreement, it is currently anticipated that the Registration Rights
Agreement will provide as follows:
Registration. The Merger Agreement requires AIMCO to enter into a
Registration Rights Agreement with those Ambassador stockholders who are Rule
145 Affiliates and who execute an Affiliate Agreement pursuant to which such
Rule 145 Affiliates agree, among other things, to comply with the provisions of
Rule 145 and with holders of OP Units who receive AIMCO OP Units in the OP
Reorganization or who own OP Units as of the Effective Time. Pursuant to the
Registration Rights Agreement, AIMCO would be obligated to file a shelf
registration statement (the "Shelf Registration Statement") with the Commission
within 60 to 90 days after the delivery of the Registration Rights Agreement to
register for resale the shares of AIMCO Common Stock held by parties to the
Registration Rights Agreement ("Affiliate Shares"). AIMCO would be required to
use its best efforts to effect such registration as soon as possible, and to
keep such registration continuously effective for three years.
In addition, during the first three years following the Effective Time,
AIMCO is required to file a registration statement (the "Demand Registration
Statement," and together with the Shelf Registration Statement, the "Merger
Registration Statements") with the Commission within 60 to 90 days of written
notice (a "Demand Notice") by holders of at least 200,000 Affiliate Shares to
register such Affiliate Shares for resale. Such holders would be entitled to
demand two Demand Registration Statements per year. AIMCO would be required to
keep such Demand Registration Statement continuously effective until the earlier
of (i) 90 days after the Commission declares such Demand Registration Statement
effective and (ii) the date all shares covered by such Demand Registration
Statement have been sold pursuant to such Demand Registration Statement. Mr.
Glickman will have additional rights to demand Demand Registrations.
It is possible that the Registration Rights Agreement could also contain
provisions with respect to so-called "piggyback" registration rights.
Deferral of Registration; Suspension of Sales. Notwithstanding the
foregoing, AIMCO has the right to defer the filing of the Merger Registration
Statements (or suspend sales under any effective Merger Registration Statement)
for periods of not more than 90 days in any calendar year, if AIMCO determines
that it would be detrimental to AIMCO and its stockholders to file such
registration statement at such time (or to permit continued sales under an
effective Merger Registration Statement).
Expenses. AIMCO is required to bear the expenses of the registration of the
Affiliate Shares. AIMCO will also pay the fees and disbursements, not to exceed
$25,000 per registration, of counsel selected by holders owning a majority of
the Affiliate Shares to represent such holders. Selling stockholders are
responsible for paying any other selling expenses, including underwriting
discounts and broker's commissions, and expenses of selling stockholder's
counsel except as described in the previous sentence.
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<PAGE> 52
INTERESTS OF DIRECTORS AND MANAGEMENT OF AMBASSADOR AND AIMCO IN THE MERGER AND
THE RELATED TRANSACTIONS
Certain current and former members of the Ambassador Board, senior
management and current and former affiliates of Ambassador have interests in the
transactions contemplated under the Merger Agreement that may present them with
potential conflicts of interest. The Ambassador Board was aware of these
potential conflicts at the time of its consideration of the Merger. A summary of
these potential conflicts of interest is provided below.
Ambassador Stock Options. The following table sets forth, as of March 17,
1998, with respect to the directors and executive officers of Ambassador, (i)
the number of shares of AIMCO Common Stock that will be purchasable upon
exercise of Ambassador Stock Options held by such persons, all of which are
vested as a result of the Merger Agreement (as are all of the options held by
employees of Ambassador), and (ii) the average exercise price per share of AIMCO
Common Stock, in each case assuming that such director or executive officer
elects to have his or her Ambassador Stock Options converted into options to
purchase shares of AIMCO Common Stock.:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OF AVERAGE
AIMCO EXERCISE
NAME COMMON STOCK PRICE/SHARE(1)
---- ------------ --------------
<S> <C> <C>
Norman R. Bobins............................................ 8,746 $32.59
Debra A. Cafaro............................................. 27,407 $41.59
Thomas J. Coorsh............................................ 14,575 $33.16
David M. Glickman........................................... 99,110 $31.26
David B. Heller............................................. 8,746 $32.59
Richard F. Levy............................................. 8,746 $32.59
Jane R. Patterson........................................... 8,746 $32.59
Michael W. Reschke.......................................... 56,843 $28.23
</TABLE>
- -------------------------
(1) Assumes the Conversion Ratio is 0.583. The actual adjustment will depend on
the AIMCO Index Price, as finally determined pursuant to the Merger
Agreement. See "-- Ambassador Stock Options" above.
Employment Agreements. On April 7, 1997, Ambassador entered into a new
employment agreement with David Glickman, Ambassador's Chief Executive Officer,
terminating his existing employment agreement executed in August 1994, which was
scheduled to expire on August 31, 1997. The new employment agreement provides
for an initial term ending December 31, 1999, and extends automatically for
additional one-year periods unless terminated by either Ambassador or Mr.
Glickman with at least 180 days' prior written notice. The employment agreement
provides for a salary of not less than $250,000 in 1997, increasing each year
thereafter by 10% per year over the prior year's minimum (and accordingly
increased to $275,000 on January 1, 1998), bonuses to be paid at the discretion
of the Ambassador Board and the immediate vesting of all his then-outstanding
unvested options. In the event there is a Change of Control (as defined in the
employment agreement) during the term of his employment or within 6 months after
the termination of his employment by Ambassador without Cause or for Disability
or by Mr. Glickman for Good Reason (each as defined in the employment
agreement), whether or not his employment is terminated in connection therewith,
Mr. Glickman shall receive a lump sum payment equal to the lesser of $2,595,000
and 2.99 times his "base amount" as defined by Section 280G of the Internal
Revenue Code (generally equal to his prior five-year average compensation). In
addition, if Mr. Glickman's employment is terminated by Ambassador without Cause
or for Disability or by Mr. Glickman for Good Reason, he shall receive a lump
sum termination payment equal to his annual base salary then in effect for a
period equal to the greater of six months or one-half of the remaining
employment term, unless he has received or within seven months after the date of
termination receives the Change of Control payment described above. Upon
termination of his employment, Mr. Glickman will receive a lump sum payment
equal to $900,000, for which he has agreed during the one-year period following
such termination not to compete with Ambassador in its principal markets and to
provide Ambassador with consulting services. Ambassador's sole recourse if Mr.
Glickman breaches his non-compete or consulting arrangements is liquidated
damages in the amount of $75,000 for each month remaining in such one-year
period after such breach.
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<PAGE> 53
On April 7, 1997, Ambassador also entered into a new employment agreement
with Thomas J. Coorsh, Ambassador's Senior Vice President, Secretary and
currently interim Chief Financial Officer. Mr. Coorsh's employment agreement is
substantially identical to the employment agreement of Mr. Glickman except that
the initial minimum salary is $140,000; the amount of the Change of Control
compensation shall not exceed $385,000, the noncompete/consulting services
payment is $215,000 and the liquidated damages amount for breach of the
noncompete/consulting arrangement is $17,917 per month. Effective January 1,
1998, in accordance with the terms of his employment agreement, Mr. Coorsh's
salary was increased to $154,000.
On April 7, 1997, Ambassador entered into an employment agreement with
Debra A. Cafaro, Ambassador's President, which agreement was amended on December
19, 1997. The employment agreement provides for an initial term ending December
31, 1999, and extends automatically for additional one-year periods unless
terminated by either Ambassador or Ms. Cafaro with at least 180 days' prior
written notice. The employment agreement provides for an annualized salary of
not less than $225,000 in 1997, increasing each year thereafter by 10% per year
over the prior years minimum (and, accordingly was increased to $247,500
effective January 1, 1998); a bonus for 1997 of 90% of the bonus paid to Mr.
Glickman for 1997 (no such bonuses were paid to Mr. Glickman for 1997) and
bonuses at the discretion of the Ambassador Board thereafter; and options to
purchase 47,010 shares of Ambassador Common Stock which vest one-fourth each six
months and immediately upon a Change of Control or termination of her employment
as a result of her death, by Ambassador without Cause or for Disability or by
Ms. Cafaro for Good Reason (each as defined in the agreement). The employment
agreement also provides that Ambassador will lend to Ms. Cafaro $700,000 in
connection with the purchase of 32,990 of OP Units, at a price of $24.25 per OP
Unit. The loan bears interest at 6.38% and matures on the earlier of June 30,
2000, and six months after the termination of her employment with Ambassador
other than as a result of her death, by Ambassador without Cause or for
Disability or by Ms. Cafaro for Good Reason and is extended for so long as she
is prohibited from exchanging her OP Units and publicly selling the Ambassador
Common Stock received in exchange for such OP Units, but not later than June 30,
2000. In the event there is a Change of Control (as defined in the employment
agreement) during 1998 and during the term of her employment or within 6 months
after the termination of her employment by Ambassador without Cause or for
Disability or by Ms. Cafaro for Good Reason whether or not her employment is
terminated in connection therewith, Ms. Cafaro shall receive a lump sum payment
equal to twice her annualized prior year's salary and retention payments paid to
Ms. Cafaro within the twelve month period prior to such Change of Control (which
lump sum payment, as of December 12, 1997, totals $1.1 million). Ms. Cafaro
received a retention payment of $325,000 in December 1997. She would have been
required to return seventy-five percent of the retention payment if she had
voluntarily resigned on or before March 1, 1998, and she must return 50 percent
if she resigns on or before April 1, 1998; and 25 percent if she resigns on or
before May 1, 1998. After May 1, 1998, she retains all the retention payment
under all circumstances. In addition, if Ms. Cafaro's employment is terminated
by Ambassador without Cause or for Disability or by her for Good Reason, she
shall receive a lump sum payment equal to her annual base salary then in effect
for a period equal to the greater of six months or one-half of the remaining
employment term, unless she has received or within seven months after the date
of termination receives the Change of Control payment described above. Upon
termination of her employment other than without Cause, for Good Reason or for
Disability, Ms. Cafaro has agreed during the one-year period following such
termination not to compete with Ambassador in its principal markets for which
she will receive no additional compensation. Ms. Cafaro may shorten the duration
of her noncompetition period by up to ten months in exchange for $36,000 per
month. In addition, Ms. Cafaro has the option of canceling a portion of the
Change of Control payment and accepting in lieu thereof the termination
compensation she otherwise would have received or extending the term of her
noncompetition period and receiving additional noncompetition payments in an
amount equal to $24,000 for each of the first twelve months of such extension
and $12,000 for each of the second twelve months of such extension.
In addition, the current employment agreements of Mr. Glickman and Ms.
Cafaro provide that each will be nominated for election to the Ambassador Board.
The consummation of the Merger would constitute a Change of Control under
each of the employment agreements described in this section. Assuming the Merger
is consummated on May 1, 1998, Mr. Glickman, Ms. Cafaro and Mr. Coorsh will
receive payments with respect to the resulting Change of Control equal to
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<PAGE> 54
$2,595,000, $1,100,000 and $385,000, respectively, and Messrs. Glickman and
Coorsh will receive payments with respect to the noncompete/consulting services
equal to $900,000 and $215,000, respectively.
Pursuant to resolutions adopted by the Ambassador Board, each of David
Heller, Richard Levy, Norman Bobins, Michael Reschke and Jane Patterson,
directors of Ambassador, will receive a payment of $25,000 upon consummation of
the Merger.
Advisory Committee. AIMCO and Ambassador have agreed that the Advisory
Committee will have, as at least one of its initial members, an individual who
on December 23, 1997 was a member of the Ambassador Board. See "The Merger and
Related Transactions -- Related Transactions."
Registration Rights. As described above, certain affiliates (including
directors and executive officers) of Ambassador will be party to a registration
rights agreement with AIMCO, pursuant to which AIMCO will agree to register for
sale the shares of AIMCO Common Stock received by such persons in the Merger.
See "-- Registration Rights Agreement."
Legal Fees. Richard F. Levy is a director of Ambassador. Mr. Levy's
professional corporation is a partner in the law firm of Altheimer & Gray, which
has in the past performed and is expected in the future to perform legal
services for Ambassador, including in connection with the Merger. See "Legal
Matters."
Indemnification. In the Merger Agreement, AIMCO agreed that it will and
will cause the AIMCO Operating Partnership to, to the fullest extent permitted
by applicable law, indemnify, defend and hold harmless each person who is on the
date of the Merger Agreement, or has been at any time prior to the date of the
Merger Agreement, or who becomes prior to the Effective Time, an officer,
director or employee of any of the parties thereto or their respective
subsidiaries, against all losses, expenses (including reasonable attorney's fees
and expenses), claims, damages or liabilities or, subject to the provisions of
the Merger Agreement, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer or employee of such party. See "The Merger Agreement and Terms of the
Merger--Indemnification."
CONDITIONS TO THE MERGER
The respective obligations of each party of effect the Merger are subject
to the satisfaction of waiver of a number of conditions, including (i) the
receipt of all material authorizations, consents and approvals necessary from
any governmental entity necessary for consummation of the Merger, (ii) the
absence of any injunction or other court order, that would prohibit the
consummation of the Merger, (iii) the effectiveness of the AIMCO Registration
Statement, (iv) the approval for listing on the NYSE of the shares of AIMCO
Common Stock to be issued pursuant to the Merger, (v) the approval of the Merger
Agreement Proposal by the Ambassador stockholders, (vi) the receipt of opinions
of tax counsel to the effect that the Merger should constitute a reorganization
within the meaning of Section 368(a) of the Code, (vii) the receipt of an
opinion of counsel that following the Merger, AIMCO will continue to be taxed as
a REIT under the Code and (viii) the continued accuracy, subject to certain
materiality standards, of the representations and warranties made by the other
party in the Merger Agreement. See "The Merger Agreement and Terms of the Merger
- -- Conditions to the Merger."
Neither AIMCO nor Ambassador currently anticipates waiving any of the
conditions to the Merger specified in the Merger Agreement.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material U.S. federal income
tax consequences of the Merger to a stockholder of Ambassador. The discussion is
based on the Code, Treasury Regulations promulgated thereunder, administrative
rulings and pronouncements and judicial decisions as of the date hereof, all of
which are subject to change (possibly with retroactive effect). This discussion
does not address all aspects of U.S. federal taxation that may be relevant to
particular Ambassador stockholders in light of their personal investment
circumstances or to Ambassador stockholders subject to special treatment under
the
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Code (including banks, tax-exempt organizations, insurance companies, dealers in
securities or foreign currency, Ambassador stockholders who received their
shares through the exercise of employee stock options or otherwise as
compensation, Ambassador stockholders who are not U.S. persons (under the Code)
and Ambassador stockholders who hold their shares as part of a straddle, hedge
or conversion transaction). In addition, this discussion does not address any
foreign, state or local tax consequences of the Merger.
EACH AMBASSADOR STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF U.S. FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX
LAWS.
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to
AIMCO, and Altheimer & Gray, counsel to Ambassador, the Merger should be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and AIMCO and Ambassador should each be a party to
that reorganization within the meaning of Section 368(b) of the Code. In that
event,
(i) no gain or loss will be recognized by an Ambassador stockholder
who receives AIMCO stock for Ambassador stock exchanged therefor, except
that gain realized will be recognized to the extent of the cash received in
the Merger;
(ii) the tax basis of the AIMCO stock to be received by Ambassador
stockholders pursuant to the Merger will be the same as the tax basis in
the Ambassador stock exchanged therefor (increased by the gain recognized
and reduced by the cash received in the Merger);
(iii) the holding period of the AIMCO stock to be received by
Ambassador stockholders pursuant to the Merger will include the holding
period of the Ambassador stock surrendered in exchange therefor, provided
that the Ambassador stock was held as a capital asset at the Effective
Time; and
(iv) no gain or loss will be recognized by AIMCO or Ambassador as a
result of the Merger.
Notwithstanding the foregoing, cash received in lieu of a fractional share
interest in AIMCO stock will be treated under section 302 of the Code as if such
fractional shares were actually received and then redeemed for cash, and in
general, gain or loss will be recognized, measured by the difference between the
amount of cash received and the basis of the Ambassador stock allocable to such
fractional shares. In general, such gain or loss will constitute capital gain or
loss if the Ambassador stock was held as a capital asset at the Effective Time.
Any capital gain recognized as a result of the Merger will be taxed at rates
applicable to capital gains. The tax rate applicable to capital gains of an
individual taxpayer varies depending on the taxpayer's holding period for the
shares. In the case of an individual, any such capital gain will be subject to a
maximum federal income tax rate of (i) 20% if the individual's holding period in
such stock was more than 18 months on the date of the Effective Time or (ii) 28%
if the individual's holding period was more than one year but not more than 18
months on the date of the Effective Time. Gains on the sale of capital assets
held for one year or less are subject to tax at ordinary income levels. The
deductibility of capital losses is subject to limitations for both individuals
and corporations.
Following the Merger, the Ambassador Operating Partnership is expected to
be merged into the AIMCO Operating Partnership. The Internal Revenue Service
(the "IRS") has recently finalized regulations (which are effective for
transactions occurring after January 28, 1998, except that they generally do not
apply to any transaction occurring after January 28, 1998 pursuant to a written
contract which is binding on January 28, 1998) which indicate that, under such
regulations, the merger of the Ambassador Operating Partnership into the AIMCO
Operating Partnership subsequent to the Merger as contemplated, would not
adversely affect the Merger's qualification as a tax-free reorganization because
AIMCO will own (through its qualified REIT subsidiaries) a substantial portion
(in excess of 80%) of the aggregate interests, as well as the sole general
partnership interest, in the AIMCO Operating Partnership. Although the
regulations should not apply to the Merger, the respective tax counsels to AIMCO
and Ambassador believe that a court should not reach a contrary conclusion under
existing statutory and judicial authorities. Accordingly, counsel to AIMCO and
Ambassador are of the opinion that the Merger should qualify as a tax-free
reorganization.
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If the Merger did not qualify as a tax-free reorganization for federal
income tax purposes, the Merger would be treated as a taxable exchange and,
accordingly,
(i) an Ambassador stockholder would recognize gain or loss, measured
by the difference between the fair market value of the AIMCO stock and cash
received and the Ambassador stockholder's basis in the Ambassador shares
exchanged therefor. Such gain or loss would constitute capital gain or loss
if the Ambassador stock was held as a capital asset at the Effective Time;
(ii) the tax basis of the AIMCO stock received in connection with the
Merger by an Ambassador stockholder would be the fair market value at the
Effective Time; and
(iii) the holding period of the AIMCO stock received by an Ambassador
stockholder pursuant to the Merger would commence on the day following the
date of the Effective Time.
Further, if the Merger did not qualify as a tax-free reorganization, Ambassador
would recognize gain or loss equal to the difference between Ambassador's basis
in its properties and assets and the sum of the fair market value of the
consideration provided by AIMCO in the Merger and the liabilities assumed by
AIMCO. The consideration provided by AIMCO would be treated as distributed by
Ambassador in liquidation. In computing its taxable income for its taxable year
ended on the date of the Merger, Ambassador would generally be entitled to a
dividends paid deduction equal to the fair market value of the consideration
provided by AIMCO and received by the Ambassador stockholders. In addition, if
Ambassador would recognize built-in gain with respect to certain assets
previously acquired from a C corporation in a carryover basis transaction, the
gain would be subject to a corporate level tax under Treasury Regulations
announced by the IRS but not yet issued. However, Ambassador does not believe
that it has any such built-in gain. AIMCO will succeed to any tax liability of
Ambassador in the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by AIMCO and its subsidiaries under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," as amended. Purchase accounting for a
merger is the same as the accounting treatment used for the acquisition of any
group of assets. The fair market value of the consideration given by AIMCO in
the Merger will be used as the valuation basis of the combination. The assets
acquired and liabilities assumed of Ambassador will be recorded at their
relative fair market values as of the Effective Date. The financial statements
of AIMCO will reflect the combined operations of AIMCO and Ambassador from the
date of the Merger.
APPRAISAL RIGHTS
Under Maryland law, stockholders of Ambassador who dissent from the Merger
are not entitled to seek any appraisal or similar rights with respect to such
stockholders' shares of Ambassador Common Stock. The MGCL does not provide
appraisal rights to shareholders of a corporation in connection with a merger if
their shares are listed on a national securities exchange, such as the NYSE, on
the record date for determining shareholders entitled to vote on such merger.
Shares of Ambassador Common Stock were listed on the NYSE as of the Record Date.
Holders of Ambassador Preferred Stock will not be entitled to such rights
because all shares of Ambassador Preferred Stock will either be converted into
Ambassador Common Stock or redeemed pursuant to their terms in connection with
the Merger. See "Comparative Rights of Stockholders of AIMCO and Ambassador --
Appraisal Rights."
REGULATORY MATTERS
AIMCO and Ambassador believe that the Merger may be consummated without
notification being given or certain information being furnished to the FTC or
the Antitrust Division pursuant to the HSR Act, and that no waiting period
requirements under the HSR Act are applicable to the Merger. However, at any
time before or after the Effective Time, either the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin the Merger. AIMCO and
Ambassador believe that consummation of
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the Merger would not violate any antitrust laws. However, there can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if a challenge is made, what the result will be.
NYSE LISTING
The NYSE has approved AIMCO's application to list on the NYSE the shares of
AIMCO Common Stock to be issued in connection with the Merger, subject to
official notice of issuance.
DEREGISTRATION AND DELISTING OF AMBASSADOR COMMON STOCK
If the Merger is consummated, the registration of Ambassador Common Stock
under the Exchange Act will be terminated, and Ambassador will no longer be
required to file reports, proxy and information statements or other information
with the Commission, and the Ambassador Common Stock will no longer be listed on
the NYSE.
RESTRICTIONS ON RESALES BY AFFILIATES
The AIMCO Common Stock issuable in the Merger has been registered under the
Securities Act, but this registration does not cover resales by Rule 145
Affiliates. Rule 145 Affiliates of Ambassador may not sell their shares of AIMCO
Common Stock acquired in the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares, or in compliance with
the resale provisions of Rule 145 of the Securities Act or another applicable
exemption from the registration requirements of the Securities Act. AIMCO is
obligated to deliver the Registration Rights Agreement, providing for the
registration of the shares of AIMCO Common Stock held by Rule 145 Affiliates,
prior to the Effective Date. See "-- Registration Rights Agreement."
Pursuant to the Merger Agreement, Ambassador will deliver to AIMCO a letter
identifying those persons who are, and to Ambassador's knowledge, who will be at
the Closing Date, Rule 145 Affiliates. Ambassador is obligated under the Merger
Agreement to use all reasonable efforts to obtain from each Rule 145 Affiliate a
written agreement, substantially in the form attached to the Merger Agreement.
THE MERGER AGREEMENT AND TERMS OF THE MERGER
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is included as Appendix I and is incorporated herein
by reference. This summary does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement. All stockholders are urged to
read the Merger Agreement in its entirety. Capitalized terms used herein and not
otherwise defined have the same meaning as in the Merger Agreement.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the Effective Time, Ambassador will be merged with and
into AIMCO in accordance with the laws of the State of Maryland. AIMCO will be
the surviving corporation in the Merger and will continue its corporate
existence under the laws of the State of Maryland. After the Effective Time
AIMCO is sometimes referred to herein as the "Surviving Corporation."
The Merger Agreement provides that at the Effective Time (i) the Articles
of Restatement of AIMCO (the "AIMCO Charter"), as in effect immediately prior to
the Effective Time, will be the articles of incorporation of the Surviving
Corporation until thereafter amended as provided by law and the AIMCO Charter,
(ii) the by-laws of AIMCO, as in effect immediately prior to the Effective Time,
will be the by-laws of the Surviving Corporation until thereafter amended as
provided by law, the AIMCO Charter and such by-laws; and (iii) the directors and
officers of AIMCO immediately prior to the Effective Time will 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 will be as provided in the applicable
provisions of the MGCL.
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The Merger Agreement further provides that on the Closing Date, a
certificate of merger and the articles of merger shall each be executed and
filed by AIMCO and Ambassador with the Secretary of State of the State of
Maryland pursuant to the MGCL and that the Effective Time will occur upon the
certification by the Secretary of State of the State of Maryland that the
certificate of merger relating to the Merger has been duly filed.
Pursuant to the Merger Agreement, the closing of the Merger (the "Closing")
will take place on the fifth NYSE trading day immediately following the date on
which the last of the conditions set forth in the Merger Agreement is first
fulfilled or has been waived, provided that all such conditions continue to be
so satisfied or waived on such fifth trading day, and if not so satisfied or
waived, the Closing shall be automatically extended from time to time until the
first subsequent trading day on which all such conditions are again so satisfied
or waived, subject, however, to the provisions relating to termination of the
Merger Agreement described below, or at such other time, date and place as AIMCO
and Ambassador shall mutually agree (the "Closing Date"); provided however, that
unless AIMCO otherwise agrees (in which event, all closing conditions and
representations and warranties related to the matters referred to with respect
to such condition shall be deemed satisfied), the Closing and the Effective Time
shall not occur prior to April 28, 1998, unless the condition contained in the
Merger Agreement with respect to receipt of an opinion of counsel as to the tax
exempt status of certain Ambassador bonds (the "Bond Condition") is satisfied
prior to such time.
MANNER AND BASIS OF CONVERTING SHARES
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 Ambassador (including the AIMCO
Operating Partnership), each issued and outstanding share of Ambassador Common
Stock, other than shares of Ambassador Common Stock owned by AIMCO or Ambassador
directly, will be converted into and become that number of fully paid and
nonassessable shares of AIMCO Common Stock equal to the Conversion Ratio. The
term Conversion Ratio means the quotient (rounded to the nearest 1/1000)
determined by dividing $21.00 by the AIMCO Index Price (as defined below);
provided however, if the Conversion Ratio determined pursuant to the foregoing
is a number greater than 0.583, then the Conversion Ratio shall be deemed to be,
at AIMCO's option, exercisable by written notice to Ambassador not later than
three business days prior to the Effective Time, either (i) the Conversion Ratio
as calculated as described above, or (ii) 0.583 (so long as the Merger would
continue to qualify as a reorganization under Section 368(a) of the Code). The
term "AIMCO Index Price" means the aggregate of the average 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) on each of the twenty
consecutive NYSE trading days ending on the fifth NYSE trading day immediately
preceding the Effective Time, divided by 20. If the Conversion Ratio (as
calculated pursuant to the definition above, without regard to the proviso
thereof) is a number greater than 0.583 and AIMCO opts for the Conversion Ratio
to equal 0.583, then upon conversion of Ambassador Common Stock into AIMCO
Common Stock under the Merger Agreement, AIMCO will pay to each shareholder of
Ambassador Common Stock (other than shares of Ambassador Common Stock
beneficially owned by AIMCO or Ambassador either directly or through a wholly
owned subsidiary) for each share of Ambassador Common Stock held by such
shareholder an amount in cash equal to (i) $21.00 minus (ii) the product of the
AIMCO Index Price and 0.583 (the "Cash Amount"). All such shares of Ambassador
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 below) formerly representing any such shares shall cease to have any
rights with respect to such shares, except the right to receive shares of AIMCO
Common Stock and cash, if any, described above, and cash in lieu of fractional
shares and dividends and other distributions as described below.
Prior to the Effective Time, the Board of Directors of Ambassador will call
for redemption all outstanding shares of Ambassador Preferred Stock in
accordance with and at a redemption price equal to the amount set forth in
Section 8(a) of the Articles Supplementary of Ambassador with respect thereto
($27,000,000, plus accrued and unpaid dividends through May 1, 1998, assuming
the Effective Time is on that date) to be effective simultaneously with, and to
be conditioned upon, the Effective Time. Notwithstanding the foregoing, the
holders of Ambassador Preferred Stock shall have the right to convert such stock
into Ambassador
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Common Stock in the manner set forth in Section 8(a) of such Articles
Supplementary. In the Merger Agreement AIMCO agreed that for any shares of
Ambassador Preferred Stock as to which such right of conversion shall not have
been exercised as of the Effective Time, AIMCO will provide the funds for, and
cause payment to be made in respect of the redemption thereof on the date of the
Effective Time.
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 Ambassador, any shares of
Ambassador Common Stock that are owned by Ambassador as treasury stock or by
AIMCO will be canceled and retired and shall cease to exist and no stock of
AIMCO or other consideration shall be issued or delivered in exchange therefor.
The Merger Agreement provides that as soon as practicable after the
Effective Time, AIMCO will deposit, in trust for the benefit of holders of
Certificates, with BankBoston, N.A. (the "Exchange Agent"), certificates
representing shares of AIMCO Common Stock required to effect the issuance
referred to above, together with the Cash Amount, if any, and the cash payable
in respect of fractional shares as described below (collectively, the "Exchange
Fund"). The Exchange Fund shall not be used for any other purpose.
As soon as practicable after the Effective Time, AIMCO will 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 Ambassador Common Stock
("Canceled Shares") that were canceled and became instead the right to receive
shares of AIMCO Common Stock pursuant to the foregoing: (i) a Letter of
Transmittal in customary and reasonable form (which will 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 certificates representing shares of AIMCO Common Stock. Upon surrender of a
Certificate to the Exchange Agent for cancellation (or to such 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 Ambassador Common Stock formerly represented thereby, (A) a
certificate or certificates representing that number of whole shares of AIMCO
Common Stock which such holder has the right to receive pursuant to the
foregoing, (B) the Cash Amount, if any, which such holder has the right to
receive as described above, and (C) cash in lieu of fractional shares which such
holder is entitled to receive as described below. In the event of a transfer of
ownership of Canceled Shares which is not registered in the transfer records of
Ambassador, a certificate representing the proper number of shares of AIMCO
Common Stock 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 stock transfer taxes have been paid.
Until surrendered as contemplated by the Merger Agreement, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of AIMCO
Common Stock, the Cash Amount in respect thereof, and dividends and other
distributions and cash in lieu of any fractional shares of AIMCO Common Stock in
each case as contemplated by the Merger Agreement. If the OP Reorganization is
consummated concurrently with the Merger, then concurrently with the issuance of
AIMCO Common Stock contemplated by the Merger Agreement, the Surviving
Corporation will cause to be issued to the holders of OP Units, the limited
partnership interests in the AIMCO Operating Partnership issuable upon
consummation of the OP Reorganization. Notwithstanding any other provision of
the Merger Agreement, the Letter of Transmittal may, at the option of AIMCO,
provide for the ability of a holder of one or more Certificates to elect that
shares of AIMCO Common Stock to be received in exchange for the Canceled Shares
formerly represented by such surrendered Certificates be issued in
uncertificated form or to elect that such shares of AIMCO Common Stock be
credited to an account established for the holder under the dividend
reinvestment and stock purchase plan of AIMCO.
No certificates or scrip representing fractional shares of AIMCO Common
Stock will be issued upon the surrender for exchange of Certificates and such
fractional shares shall not entitle the owner thereof to vote or to any other
rights of a holder of AIMCO Common Stock. A holder of Ambassador Common Stock
who would otherwise have been entitled to a fractional share of AIMCO Common
Stock will be entitled to receive
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a cash payment in lieu of such fractional share in an amount equal to the
product of such fraction multiplied by the AIMCO Index Price, without any
interest thereon.
From and after the Effective Time, the stock transfer books of Ambassador
will be closed and no registration of any transfer of any capital stock of
Ambassador will thereafter be made on the records of Ambassador. If, after the
Effective Time, Certificates are presented to AIMCO, they will be canceled and
exchanged for certificates representing the appropriate number of shares of
AIMCO Common Stock, the appropriate Cash Amount, if any, with respect thereof
and cash in lieu of fractional shares and dividends and other distributions.
Shares of AIMCO Common Stock issued in the Merger will be issued as of, and be
deemed to be outstanding as of, the Effective Time. AIMCO will cause all such
shares of AIMCO Common 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 AIMCO Common Stock 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 described herein with respect thereto. Appropriate
procedures will 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 AIMCO Common Stock with a record date
on or after the date of the Effective Time, whether or not such Certificate
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 shareholder records of the Ambassador in determining
the identity of, and the number of shares of Ambassador Common Stock held by,
each holder of a Certificate at the Effective Time.
Any certificates representing shares of AIMCO Common Stock deposited with
the Exchange Agent and not exchanged within one year after the Effective Time
will be returned by the Exchange Agent to AIMCO, which will thereafter act as
Exchange Agent. All funds held by the Exchange Agent for payment to the holders
of unsurrendered Certificates and unclaimed at the end of one year from the
Effective Time will also be returned to AIMCO; after which time any holder of
unsurrendered Certificates shall look only to AIMCO for payment of such funds 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.
DISTRIBUTIONS WITH RESPECT TO SHARES
The Merger Agreement provides that prior to the Effective Time, each of
Ambassador and AIMCO will declare its regular quarterly dividend for the first
quarter (and for any other calendar quarter ended prior to the Effective Time)
with a record date prior to the Effective Time. In addition, in the ordinary
course of business after the Effective Time, AIMCO will declare a dividend for
the quarter in which the Effective Time occurs in the amount of its regularly
quarterly dividend amount for such quarter.
Ambassador will also declare the Special Dividend, with a record date prior
to the Effective Time, which will result in its stockholders receiving an amount
per share equal to the product of (x) the difference between (a) Ambassador's
most recent quarterly dividend amount (appropriately adjusted for any stock
splits and the like) and (b) the product of the Conversion Ratio (as determined
pursuant to the Merger Agreement) and AIMCO's most recent quarterly dividend
amount (appropriately adjusted for any stock splits and the like), and (y) the
number of days which shall have elapsed through and including the day
immediately prior to the day of the Effective Time since the end of the most
recent calendar quarter (as of the Effective Time) for which Ambassador's
dividend record date has occurred divided by 91. Thus, for example, if the
Effective Time occurs on May 1, 1998, in addition to the regular dividends
described in the immediately preceding paragraph, Ambassador stockholders would
receive a special dividend of $.0238 per share (assuming the Conversion Ratio is
0.583).
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The provisions described in this section do not limit Ambassador's rights
to take actions necessary or appropriate in complying with tax laws relating to
REITs. In addition, to the extent necessary or appropriate under such tax laws,
regular Ambassador dividends contemplated by the Merger Agreement will be paid
by Ambassador and received by its stockholders prior to the Effective Time. If
payment of any Ambassador dividends described in this section is not made prior
to the Effective Time, then, promptly following the Effective Time the Surviving
Corporation will pay such dividends to the holders entitled thereto. Concurrent
and equivalent per unit distributions for the benefit of holders of OP Units
will be made in connection with the dividends described in this section. The
parties will cooperate to implement the dividend and distribution provisions of
the Merger Agreement as may be necessary to achieve the intended economic
benefits thereof to the shareholders of the parties.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of AIMCO Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of AIMCO Common Stock represented thereby and no cash
payment in lieu of fractional shares will 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 AIMCO Common Stock issued in
consideration therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of AIMCO Common Stock
to which such holder is entitled 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 AIMCO Common Stock 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 AIMCO Common Stock.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties of the parties. AIMCO and Ambassador have made certain
representations and warranties to the other regarding, among other things: (i)
their respective organization, subsidiaries and capitalization; (ii) their
respective authority to enter into and perform their respective obligations
under the Merger Agreement; (iii) the compliance of the transactions
contemplated by the Merger Agreement with their respective articles or
certificates of incorporation and bylaws, certain agreements and applicable
laws; (iv) their respective compliance with applicable laws and certain
agreements; (v) the accuracy and completeness of their respective Exchange Act
filings with the Commission, including this Proxy Statement/Prospectus; (vi) the
absence of material adverse changes; (vii) litigation; (viii) the accuracy of
their respective disclosures; (ix) employee benefit plans; (x) tax matters; and
(xi) environmental matters. In addition, Ambassador has made representations and
warranties to AIMCO regarding, among other things: (i) properties; (ii)
indebtedness; and (iii) brokers' fees.
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by Ambassador.
In the Merger Agreement, Ambassador agrees, as to itself and as to each of
its Subsidiaries, that after the date of the Merger Agreement and prior to the
Effective Time or earlier termination of the Merger Agreement, (i) except as
expressly contemplated or permitted in the Merger Agreement, (ii) except as
AIMCO may otherwise agree in writing (which decision regarding agreement shall
be made as soon as reasonably practicable and which agreement shall not be
unreasonably withheld) and (iii) except as otherwise set forth in a schedule
delivered by Ambassador in connection with the Merger Agreement (the "Ambassador
Schedule"), or Ambassador's filings with the Commission, as follows:
(i) Ambassador will, and will cause its respective Subsidiaries to,
subject to the other provisions of the Merger Agreement, (i) carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted and (ii) use all
commercially reasonable efforts (but which shall not require the payment of
money) to preserve intact their business organizations,
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preserve relationships with customers, suppliers and others having business
dealings with them, take all actions necessary to continue to qualify as a
REIT, and subject to prudent management of work force needs and ongoing
programs currently in force, keep available the services of their present
officers and employees, provided, however, that nothing shall prohibit
Ambassador or any of its Subsidiaries from transferring operations to
Ambassador or any of its wholly owned Subsidiaries. Ambassador will not,
nor will Ambassador permit any of its Subsidiaries to, enter into a new
line of business involving any material investment of assets or resources
of, or any material exposure to liability or loss to, Ambassador and its
Subsidiaries taken as a whole.
(ii) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than to
Ambassador or Ambassador's Subsidiaries, other than (A) dividends required
to be paid on any Ambassador Preferred Stock in accordance with the terms
thereof, (B) regular quarterly dividends and distributions on Ambassador
Common Stock and OP Units with usual record and payment dates not, during
any period of any fiscal year, in excess of the quarterly dividend most
recently declared on such stock and units as of the date hereof; provided
however, that Ambassador shall declare and pay the dividend described above
and the OP Unit distribution described above shall be made (See "--
Distributions with Respect to Shares"), and (C) dividends necessary to
maintain Ambassador's status as a REIT under the Code, (ii) split, combine
or reclassify any of their capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of their capital stock as a class or (iii) except
as set forth in the Ambassador Schedule, redeem, repurchase or otherwise
acquire any shares of their capital stock, other than (A) redemptions,
purchases or acquisitions required by the terms of any series of Ambassador
Preferred Stock or (B) for the purpose of funding employee stock ownership
plans in accordance with past practice. Notwithstanding the foregoing,
Ambassador may redeem the Ambassador Preferred Stock pursuant to the Merger
Agreement, effect the conversion of the Ambassador Preferred Stock into
Ambassador Common Stock in accordance with the terms of the Ambassador
Preferred Stock, and issue shares of Ambassador Common Stock in exchange
for OP Units (or make cash payments in respect thereof as contemplated by
the Exchange Agreement).
(iii) Except as set forth in the Ambassador Schedule and except
pursuant to outstanding options, rights, agreements, obligations and
commitments as disclosed in Ambassador's SEC reports or the Ambassador
Schedule or pursuant to the terms of the Ambassador Preferred Stock, the
Exchange Agreement, or registration rights agreements referenced in the
Ambassador Schedule, Ambassador will not, nor will Ambassador permit any of
its Subsidiaries 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 their capital stock of any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such
shares or convertible or exchangeable securities, other than (i)
intercompany issuances of capital stock and (ii) issuances in the ordinary
course of business consistent with past practice of up to 10,000 shares of
(or options on) Ambassador Common Stock during any fiscal year to be issued
pursuant to employee benefit plans, stock option and other incentive
compensation plans, directors plans and stock purchase and dividend
reinvestment plans existing prior to the date of the Merger Agreement and
theretofore disclosed to AIMCO or issuances pursuant to plans adopted after
the date thereof reasonably acceptable to AIMCO. The parties will 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
the Merger Agreement, subject to obtaining customary indemnities.
(iv) Ambassador will not amend or propose to amend its charter,
by-laws or regulations, or similar organic documents, except as
contemplated in the Merger Agreement.
(v) Except as set forth in the Ambassador Schedule, Ambassador will
not, nor will Ambassador 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
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of, any business or any corporation, partnership, association or other
business organization or division thereof, nor will Ambassador acquire or
agree to acquire a material amount of assets, other than in the ordinary
course of business consistent with past practice.
(vi) Except as required by law, Ambassador will not, nor will
Ambassador permit any Subsidiary of Ambassador to, make capital
expenditures during any fiscal year (other than recurring and
rehabilitation capital expenditures made in the ordinary and usual course
of business) in excess of the amount budgeted for capital expenditures for
such fiscal year or as set forth in the Ambassador Schedule.
(vii) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, sell or dispose of any of their assets other than
dispositions in the ordinary course of business consistent with past
practice.
(viii) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, incur or guarantee any indebtedness for borrowed money or
enter into any "keep well" or other agreement to maintain the financial
condition of another person or entity other than (i) indebtedness or
guarantees or "keep well" or other agreements in the ordinary course of
business consistent with past practice (including without limitation, the
issuance of commercial paper, the use of existing credit facilities or
hedging activities), (ii) as set forth in the Ambassador Schedule, (iii)
arrangements between Ambassador and its Subsidiaries or among its
Subsidiaries, (iv) in connection with the refunding, refinancing,
securitization or purchase of existing indebtedness, (v) in connection with
the redemption of the Ambassador Preferred Stock as set forth in the Merger
Agreement, or (vi) as may be necessary in connection with acquisitions or
capital expenditures provided for in the Ambassador Schedule.
(ix) Except as may be required by applicable law or as set forth in
the Ambassador Schedule, Ambassador will not, nor will Ambassador permit
any of its Subsidiaries 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 employee benefit
contract, agreement or binding commitment, policy, arrangement or plan or
trust, or fund maintained by, contributed to or entered into by Ambassador
or any of its Subsidiaries or increase, or enter into any employee benefit
contract, agreement, or binding 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, of any
director, officer or other employee of Ambassador or any of its
Subsidiaries, except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to
Ambassador or any of its Subsidiaries; (ii) enter into or amend any
employment, severance or special pay arrangement with respect to the
termination of employment with any director or officer or other employee
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 employee benefit obligations or obligations to
directors; 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.
(x) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation, the SEC or GAAP.
(xi) Except as set forth in the Ambassador Schedule, Ambassador will
not, nor will Ambassador permit any of its Subsidiaries to, enter into any
material agreement or arrangement with any of their Affiliates (other than
wholly owned Subsidiaries) on terms materially less favorable to such party
than could be reasonably expected to have been obtained with an
unaffiliated third-party on an arm's length basis. As used in the Merger
Agreement, the term "Affiliate," except where otherwise defined therein,
means, 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") 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).
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(xii) Ambassador will, subject to applicable law (i) confer on a
regular and frequent basis with one or more representatives of AIMCO to
discuss 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 Ambassador or any of its Subsidiaries with any state or
federal court, administrative agency, commission or other governmental
authority in connection with the Merger Agreement and the transactions
contemplated thereby.
(xiii) Ambassador will, and will cause its Subsidiaries to, use all
commercially reasonable efforts (but will not be required prior to the
Effective Time to pay any money or incur any liabilities) to obtain the
FNMA Consent (as defined herein) and all other consents as requested by
AIMCO (it being understood and agreed that the failure to obtain such other
consents is not a default under the Merger Agreement or a condition to
AIMCO's obligation to consummate the Merger). Ambassador will promptly
notify AIMCO of any failure or prospective failure to obtain any such
consents and, if requested by AIMCO, will provide copies of all such
consents obtained by Ambassador to AIMCO. Upon the Effective Time, all
assumption, transfer and other fees and charges incurred or necessary in
connection therewith, and all costs and expenses related thereto, shall be
borne by the Surviving Corporation.
(xiv) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a failure of certain of the conditions set forth in the
Merger Agreement.
(xv) Ambassador will not, nor will Ambassador permit any Subsidiary of
Ambassador to, except in the ordinary course of business consistent with
past practice, or in accordance with sound business practice or for
adequate consideration, modify, amend or terminate any material contract or
agreement to which Ambassador or any Subsidiary is a party or waive,
release or assign any material rights or claims.
(xvi) Ambassador will, and will cause its Subsidiaries to, maintain
insurance in such amounts and against such risks and losses as is in effect
on the date hereof, unless it is commercially unreasonable to maintain such
policies as a result of a change in the insurance market, in which case
commercially reasonable replacement policies will be obtained, to the
extent available.
(xvii) Ambassador will, and will cause its Subsidiaries to, use
reasonable efforts to maintain in effect all existing governmental permits
which are material to the operation of Ambassador and its Subsidiaries
taken as a whole.
(xviii) Ambassador will not (i) make or rescind any material express
or deemed election relating to taxes unless such election is required by
law or is necessary to preserve Ambassador's status as a REIT or of any
Subsidiary of Ambassador 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 unless the
tax liability resulting from the increase is less than $100,000, 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.
(xix) Ambassador will not, nor will Ambassador permit any of its
Subsidiaries to, pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than such claims, liabilities or obligations which are
not material to Ambassador and its Subsidiaries taken as a whole and other
than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice (which includes the payment of final
and unappealable
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judgments) or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of Ambassador included in
Ambassador's reports filed with the SEC, or incurred in the ordinary course
of business consistent with past practice or if such payment, discharge or
satisfaction relates to the transactions contemplated by the Merger
Agreement.
(xx) Ambassador will not, and will not permit any of its Subsidiaries
to, amend any management agreement for the management of Ambassador
Properties ("Management Agreements"). Ambassador will not, and will not
permit its Subsidiaries to renew Management Agreements except on terms
which permit its cancellation by Ambassador or the applicable Subsidiary of
Ambassador on thirty days' notice or less without any charge penalty or
other cost for such cancellation.
Conduct of Business by AIMCO.
In the Merger Agreement, AIMCO agrees, as to itself and to each of its
Subsidiaries, that after the date of the Merger Agreement and prior to the
Effective Time or earlier termination thereof:
(i) AIMCO will (i) confer on a regular and frequent basis with one or
more representatives of Ambassador to discuss, subject to applicable law,
material operational matters and the general status of its ongoing
operations, (ii) promptly notify Ambassador of any significant changes in
its business, properties, assets, condition (financial or other), results
of operations or prospects, and (iii) promptly provide Ambassador 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 by the Merger Agreement.
(ii) AIMCO will, and will cause its Subsidiaries to, use all
commercially reasonable efforts to obtain all consents required pursuant to
the Merger Agreement and will use commercially reasonable efforts to assist
Ambassador in obtaining all consents to be obtained by Ambassador pursuant
to the Merger Agreement. It is understood that in connection therewith,
AIMCO will, among other things, agree to commercially reasonable
modifications to documents and other terms and conditions required to
obtain such consents. AIMCO will promptly notify Ambassador of any failure
or prospective failure to obtain any such consents and, if requested by
Ambassador, shall provide copies of all such consents obtained by AIMCO to
Ambassador.
(iii) AIMCO will not, nor will AIMCO permit any of its Subsidiaries
to, willfully take any action that would or is reasonably likely to result
in a material breach of any provision of the Merger Agreement or in any of
its representations and warranties set forth in the Merger Agreement being
untrue on and as of the Closing Date.
(iv) From the date of the Merger Agreement through the Effective Time,
except as expressly permitted or contemplated by the Merger Agreement,
AIMCO and its Subsidiaries will conduct their operations and business in
the ordinary and usual course of business and consistent with past practice
and use commercially reasonable efforts to keep available the services of
its present officers and key employees and preserve the business
relationships with those persons having business relationships with it.
(v) AIMCO will not amend its charter, except for such changes that
would affect the rights of AIMCO equity holders generally as a class.
(vi) AIMCO will not materially change its existing policy with respect
to incurring indebtedness or interest coverage.
(vii) AIMCO will not, and will cause the AIMCO Operating Partnership
and its other Subsidiaries to not, take or publicly announce any
extraordinary action (including, e.g., mergers, acquisitions, dispositions
and the like) that would reasonably be expected to cause a meaningful delay
in obtaining the effectiveness of, or continuing the effectiveness or use
of, the Registration Statement.
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(viii) AIMCO will not issue, repurchase or offer to repurchase shares
of AIMCO Common Stock from any third party if the result of such issuance,
repurchase or offer to repurchase would require the stockholders of AIMCO
to a vote to approve the Merger or the issuance of the AIMCO Common Stock
issued in the Merger.
(ix) AIMCO will not, nor will 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 will maintain its status as a REIT
under the Code.
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time, the
Surviving Corporation will, and will cause the AIMCO Operating Partnership to,
to the fullest extent permitted by applicable law, indemnify, defend and hold
harmless each person who is on the date of the Merger Agreement, or has been at
any time prior to the date of the Merger Agreement, or who becomes prior to the
Effective Time, an officer, director or employee of any of the parties thereto
or their respective Subsidiaries (each an "Indemnified Party" and collectively,
the "Indemnified Parties") against all losses, expenses (including reasonable
attorney's fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement, arising out
of actions or omissions occurring at or prior to the Effective Time (and whether
asserted or claimed prior to, at or after the Effective Time) that are, in whole
or in part, based on or arising out of the fact that such person is or was a
director, officer or employee of such party (the "Indemnified Liabilities"),
including, without limitation, all Indemnified Liabilities to the extent they
are based on or arise out of or pertain to the transactions contemplated by the
Merger Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) the Surviving
Corporation shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Surviving Corporation, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the MGCL, (ii) the Surviving Corporation will cooperate in the
defense of any such matter and (iii) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the MGCL and the certificate of incorporation or by-laws of the
Surviving Corporation shall be made by independent counsel mutually acceptable
to the Surviving Corporation and the Indemnified Party; provided, however, that
the Surviving Corporation shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld or
unreasonably delayed). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties
(provided this sentence shall not limit retention of local counsel in connection
with any Indemnified Liabilities).
The Merger Agreement also provides that for a period of six years after the
Effective Time, the Surviving Corporation will cause to be maintained in effect
policies of directors and officers' liability insurance maintained by Ambassador
and AIMCO for the benefit of those persons who were, on the date of the Merger
Agreement, covered by such policies on terms no less favorable than the terms
then applicable to the members of the AIMCO Board of Directors as of the date of
the Merger Agreement. The insurance to be maintained will, without limitation,
be applicable to all acts and omissions occurring at or prior to the Effective
Time and in any event insurance shall be maintained which provides the best
coverage available for an amount which does not exceed the amount currently paid
for AIMCO director and officer insurance.
Pursuant to the Merger Agreement, in the event the Surviving Corporation or
any of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person or entity, then and in either
such case, proper provisions will be made so that the successors and assigns of
the Surviving Corporation will assume the obligations described in this section.
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The Merger Agreement provides that to the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
of the Merger Agreement in favor of the employees, agents, directors and
officers of Ambassador, AIMCO and their respective Subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in their
respective articles of incorporation and by-laws in effect on the date thereof,
or otherwise in effect on the date of the Merger Agreement, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time.
EMPLOYEE AGREEMENTS; WORKFORCE MATTERS; AND EMPLOYEE BENEFIT AND STOCK OPTION
PLANS
The Merger Agreement provides that the Surviving Corporation and its
Subsidiaries shall honor, without modification, all contracts, agreements,
collective bargaining agreements, severance agreements between Ambassador and
certain of its officers and commitments of the parties prior to the date of the
Merger Agreement that have previously been provided to AIMCO or are disclosed in
the Ambassador Schedule and that apply to any current or former employee or
current or former director of the parties to the Merger Agreement; provided,
however, that this undertaking is not intended to prevent the Surviving
Corporation from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including, without
limitation, any reserved right to amend, modify, suspend, revoke or terminate
any such contract, agreement, collective bargaining agreement or commitment.
From the Effective Time, AIMCO will provide to Ambassador employees
benefits on the same terms applicable to other similarly situated AIMCO
employees. Without limitation of the foregoing, each participant in any benefit
plan of the Surviving Corporation and each Ambassador employee will receive
credit for service with Ambassador or AIMCO, as the case may be, for purposes of
(i) eligibility to participate (including waiting periods and without being
subject to any subsequent entry date requirement for which the waiting period
has already been satisfied), vesting and eligibility to receive benefits
(including without pre-existing conditions limitations) under any benefit plan
of the Surviving Corporation or any of its Subsidiaries or affiliates and (ii)
benefit accrual under any severance or vacation pay plan; provided, however,
that such crediting of benefit accrual service shall not operate to duplicate
any benefit to any such participant for the same period or the funding for any
such benefit.
As soon as practicable after the Effective Time, the Surviving Corporation
shall deliver to the holders of Ambassador Stock Options who do not elect to
receive cash in cancellation of such Ambassador Stock Options, as described
herein, appropriate notices setting forth such holders' rights and each
underlying stock award agreement, each as assumed by the Surviving Corporation.
On or as soon as possible after the Effective Time, the Surviving Corporation
will cause to be filed one or more registration statements on Form S-3 or Form
S-8 under the Securities Act (or any successor or other appropriate forms), in
order to register the shares of AIMCO Common Stock issuable in connection
therewith, and the Surviving Corporation will use its best efforts to maintain
the effectiveness of such registration statements (and maintain the current
status of the prospectuses contained therein) for so long as such benefits and
grants remain payable and such options remain outstanding. AIMCO will use its
best efforts to cause such registration statements to become effective
concurrently with the Effective Time. At or prior to the Effective Time, the
Surviving Corporation will take all corporate action necessary to reserve for
issuance a sufficient number of shares of AIMCO Common Stock for delivery in
connection with such options. The Surviving Corporation shall take all corporate
action necessary or appropriate to obtain shareholder approval with respect
thereto to the extent such approval is required for purposes of the Code or
other applicable law. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of the
Exchange Act with respect to equity securities of the Surviving Corporation, the
Surviving Corporation shall administer such benefits, where applicable, in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
NON-SOLICITATION; RESPONSE TO OTHER OFFERS
The Merger Agreement provides that from and after the date of the Merger
Agreement, Ambassador 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
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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 of the Merger Agreement, Ambassador may (i) at any time prior to
the time Ambassador's stockholders shall have voted to approve the Merger
Agreement, engage in discussions or negotiations with a third party who (without
any solicitation, initiation or encouragement, directly or knowingly indirectly,
by Ambassador or its representatives after the date of the Merger Agreement)
seeks to initiate such discussions or negotiations and may furnish such third
party information concerning Ambassador and its business, properties and assets
if, (A) (x) the third party has first made an Acquisition Proposal and the
Ambassador Board determines in good faith and after consultation with its
financial advisor, 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 the Ambassador Board after consultation with its financial
advisors) (a "Superior Proposal") or (y) the Ambassador Board 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 the fiduciary duties of the Ambassador Board
under applicable law and (B) prior to furnishing such information to or entering
into discussions or negotiations with such person or entity, Ambassador (x)
except to the extent inconsistent with the fiduciary obligation of the
Ambassador Board, 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 or entity and (y) receives (or has previously received) from
such person or entity an executed confidentiality agreement in reasonably
customary form (but not containing any standstill provision), (ii) comply with
Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act with regard to a
tender or exchange offer or otherwise make any disclosure required by applicable
law, and/or (iii) accept an Acquisition Proposal from a third party, provided
Ambassador concurrently terminates the Merger Agreement pursuant to the terms
thereof in connection with the determination that such Acquisition Proposal
constitutes a Superior Proposal. The Merger Agreement provides that except to
the extent inconsistent with the fiduciary obligations of the Ambassador Board,
Ambassador was required to immediately cease any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any parties
conducted theretofore by Ambassador or its representatives with respect to the
foregoing. Ambassador agreed to 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, will keep AIMCO reasonably informed of
the status and details of any such inquiry, offer or proposal. As used herein
and in the Merger Agreement, "Acquisition Proposal" means a proposal or offer
(other than by AIMCO) for a tender or exchange offer, merger, consolidation or
other business combination involving Ambassador or any material Subsidiary of
Ambassador or any proposal to acquire in any manner a substantial equity
interest in or a substantial portion of the assets of Ambassador or any material
Subsidiary of Ambassador. None of AIMCO, any Subsidiary of AIMCO, Ambassador or
any Subsidiary of Ambassador will object, or take any action to object, if any
third party makes any Acquisition Proposal or takes any action with respect
thereto in contravention of any agreement such third party may have with
Ambassador or any of its Subsidiaries or any of their respective
representatives.
CONDITIONS TO THE MERGER
Under the Merger Agreement, the respective obligations of AIMCO and
Ambassador to effect the Merger are subject to the satisfaction of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to the Merger Agreement by the
joint action of the parties to the Merger Agreement:
(i) The approval of Ambassador stockholders of the Merger Agreement
shall have been obtained.
(ii) 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, and no governmental entity shall have instituted any action or
proceeding seeking any such order.
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(iii) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(iv) The shares of AIMCO Common Stock issuable in the Merger shall
have been approved for listing on the NYSE upon official notice of
issuance.
(v) The statutory approvals required pursuant to the terms of the
Merger Agreement shall have been obtained at or prior to the Effective Time
and such approvals shall have become Final Orders (as defined below),
except to the extent that the failure to obtain any such approval would not
reasonably be expected to have a material adverse effect on AIMCO, assuming
consummation of the Merger. Such Final Orders with respect to such
approvals shall not impose terms or conditions which, individually or in
the aggregate, would have, or insofar as reasonably can be foreseen, are
likely to have a material adverse effect on the business, assets, financial
condition or results of operations of the Surviving Corporation. A "Final
Order" means action by the relevant regulatory authority which has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(vi) To the extent that the continued lawful operations of the
business of Ambassador, AIMCO or any of their Subsidiaries after the Merger
require that any license, permit or other governmental approval be
transferred to the Surviving Corporation or issued to the Surviving
Corporation, such licenses, permits or other authorizations shall have been
transferred or reissued to the Surviving Corporation at or before the
Closing Date, except where the failure to transfer or reissue such
licenses, permits or other authorizations would not have a material adverse
effect on the business, assets, financial condition, results of operations
or prospects of the Surviving Corporation and its Subsidiaries taken as a
whole immediately after the Effective Time.
(vii) Ambassador and AIMCO shall have received the opinion of Maryland
counsel to both parties, to the effect that the articles of merger are
enforceable under Maryland law.
(viii) The parties shall have received an opinion of public finance
counsel mutually acceptable to the parties that certain Florida bonds of
Ambassador shall not lose their tax exempt status as a result of the
Merger.
The obligation of AIMCO to effect the Merger is subject to the
satisfaction, on or prior to the Closing Date, of the following additional
conditions, except as they may be waived by AIMCO pursuant to the Merger
Agreement:
(i) Ambassador (and/or Ambassador's appropriate Subsidiaries) will
have performed in all material respects its material agreements and
covenants contained in or contemplated by the Merger Agreement which are
required to be performed by it at or prior to the Effective Time.
(ii) The representations and warranties of Ambassador set forth in the
Merger Agreement which are qualified by Ambassador Material Adverse Effect
(as defined in the Merger Agreement) shall be true and correct and all
other representations and warranties of Ambassador set forth in the Merger
Agreement shall be true and correct except for such failures of
representations or warranties to be true and correct (without giving effect
to any materiality qualification or standard contained in any such
representations and warranties) which, individually or in the aggregate,
would not result in an Ambassador Material Adverse Effect, as of the
Effective Time, in each case (i) on and as of the date of the Merger
Agreement 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).
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(iii) AIMCO shall have received a certificate signed by the chief
financial officer of Ambassador, on behalf of Ambassador, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in paragraphs (i) and (ii) above have been satisfied.
(iv) Since December 31, 1996, no Ambassador Material Adverse Effect
shall have occurred and be continuing.
(v) AIMCO shall have received from Skadden, Arps, Slate, Meagher &
Flom LLP, counsel to AIMCO, an opinion dated as of such date to the effect
that the Merger should constitute a "reorganization" within the meaning of
Section 368(a) of the Code and AIMCO and Ambassador should each be a party
to such reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Skadden, Arps, Slate, Meagher & Flom LLP may
require delivery of and rely upon representations contained in certificates
of officers of Ambassador, AIMCO and others.
(vi) AIMCO shall have received an opinion of counsel to Ambassador,
dated as of the Effective Time, reasonably satisfactory to AIMCO that, for
its taxable year ended December 31, 1994 and all subsequent taxable years
ending on or before the Effective Time (including the short taxable year
ending immediately prior to the Effective Time), Ambassador was organized
and has operated in conformity with the requirements for qualification as a
REIT under the Code (with customary exceptions, assumptions and
qualifications and based upon customary representations).
(vii) AIMCO shall have received agreements, duly executed by each Rule
145 Affiliate of Ambassador, as described in the Merger Agreement.
(viii) The FNMA shall have consented (the "FNMA Consent") to the
assumption by the Surviving Corporation of approximately $216.3 million of
credit enhancement for taxable and tax exempt bonds payable by Ambassador
and any Subsidiary of Ambassador outstanding as of the Effective Time,
which credit enhancement by FNMA has an initial term of 25 years.
(ix) Neither Ambassador nor any Subsidiary of Ambassador is in default
under the FNMA credit enhancements described in paragraph (viii), except
for such defaults which do not have an Ambassador Material Adverse Effect.
The obligation of Ambassador to effect the Merger is subject to the
satisfaction, on or prior to the Closing Date, of the following additional
conditions, except as they may be waived by Ambassador pursuant to the Merger
Agreement:
(i) AIMCO (and/or AIMCO's appropriate Subsidiaries) will have
performed in all material respects their agreements and covenants contained
in or contemplated by the Merger Agreement which are required to be
performed by it at or prior to the Effective Time.
(ii) The representations and warranties of AIMCO set forth in the
Merger Agreement which are qualified by AIMCO Material Adverse Effect (as
defined in the Merger Agreement) shall be true and correct and all other
representations and warranties of AIMCO set forth in the Merger Agreement
shall be true and correct except for such failures of representations or
warranties to be true and correct (without giving effect to any materiality
qualification or standard contained in any such representations and
warranties) which, individually or in the aggregate, would not result in an
AIMCO Material Adverse Effect, as of the Effective Time, in each case (i)
on and as of the date of the Merger Agreement 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).
(iii) Ambassador shall have received a certificate signed by the chief
financial officer of AIMCO, on behalf of AIMCO, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions
set forth in paragraphs (i) and (ii) above have been satisfied.
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<PAGE> 71
(iv) Ambassador shall have received from Altheimer & Gray, counsel to
Ambassador, an opinion dated as of such date to the effect that the Merger
should constitute a "reorganization" within the meaning of Section 368(a)
of the Code and AIMCO and Ambassador should each be a party to such
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Altheimer & Gray may require delivery of and rely
upon representations contained in certificates of officers of Ambassador,
AIMCO and others.
(v) Ambassador shall have received an opinion of counsel to AIMCO,
dated as of the Effective Time, reasonably satisfactory to Ambassador that,
for its taxable year ended December 31, 1994 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).
(vi) Certain required consents, the failure of which to obtain would
have an AIMCO Material Adverse Effect (assuming consummation of the
Merger), shall have been obtained.
TERMINATION
The Merger Agreement provides that it may be terminated and abandoned prior
to the Effective Time, whether before or after stockholder approval, by the
mutual written consent of the Ambassador and AIMCO Boards of Directors.
The Merger Agreement may also be terminated and abandoned prior to the
Effective Time, whether before or after stockholder approval, by either
Ambassador or AIMCO (i) if there has been any breach of any representations or
warranties on the part of the other set forth in the Merger Agreement, which
breaches individually or in the aggregate would result in an AIMCO Material
Adverse Effect or an Ambassador Material Adverse Effect, as the case may be, or
a material breach on the part of the other party of any of its material
covenants or agreements set forth in the Merger Agreement and, in any case which
breaches have not been cured within 20 business days following receipt by the
breaching 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 20
business-day period; (ii) if the Ambassador Board or any committee of the
Ambassador Board (A) shall withdraw or modify in any adverse manner its approval
or recommendation of the Merger Agreement or the Merger, (B) shall approve or
recommend any acquisition of Ambassador or a material portion of its assets or
any tender offer for shares of capital stock of Ambassador, in each case, other
than by AIMCO or an Affiliate thereof or (C) shall resolve to take any of the
actions specified in clause (A) or (B); (iii) if any state or federal law,
order, rule or regulation is adopted or issued after the date of the Merger
Agreement, which has the effect, as supported by the written opinion of outside
counsel for such party, of prohibiting the Merger; (iv) 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 or any other Transaction, and such order, judgment or
decree shall have become final and nonappealable; or (v) by written notice to
the other party, if approval of the Ambassador stockholders shall not have been
obtained at a duly held meeting, including any adjournments thereof.
The Merger Agreement may also be terminated by either party thereto, by
written notice to the other party, if the Effective Time shall not have occurred
on or before July 31, 1998 (the "Termination Date"); provided, however, that the
right to terminate the Agreement as described in this paragraph 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; and provided, further, that if on the
Termination Date the conditions to the Closing with respect to the obtaining of
required statutory approvals shall not have been fulfilled but all other
conditions to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Termination Date shall be extended to September 15, 1998.
The Merger Agreement may also be terminated by Ambassador, by written
notice to AIMCO, if the Ambassador Board shall determine in good faith that an
Acquisition Proposal constitutes a Superior Proposal;
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<PAGE> 72
provided however, that Ambassador may not terminate this Agreement as described
in this paragraph 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 Ambassador 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 a modification of the terms
and conditions of the Merger Agreement so that a business combination between
Ambassador and AIMCO may be effected, (ii) during such five day period, the
Ambassador Board 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
Ambassador Board and (iii) at the end of such five day period the Ambassador
Board shall continue to believe in good faith that such Acquisition Proposal
constitutes a Superior Proposal.
The Merger Agreement may also be terminated by Ambassador, if both Terry
Considine and Peter K. Kompaniez cease to serve as officers and directors of
AIMCO and the AIMCO Operating Partnership, other than as a result of death or
disability.
In the event of termination of the Merger Agreement by either Ambassador or
AIMCO, there will be no liability on the part of either Ambassador or AIMCO or
their respective officers or directors thereunder, except that the
Confidentiality Agreement between the parties and certain specified sections of
the Merger Agreement shall survive the termination, including the provisions
described under "Termination Fees" below. There will be no liability with
respect to facts and circumstances that give rise to any right of termination
under the Merger Agreement if the Merger Agreement is not in fact terminated and
any breach of the Merger Agreement which does not give rise to a right of
termination shall not result in any liabilities to the breaching party.
TERMINATION FEES
Pursuant to the Merger Agreement, the parties have agreed to pay certain
"Break-Up Fees" and "Break-Up Expenses" under certain circumstances, as
described below.
The "Break-Up Fee" shall be an amount equal to the lesser of (i)
approximately $8.7 million (3.5% of the sum of (A) $21.00 times the number of
shares of Ambassador Common Stock outstanding as of the date of the Merger
Agreement, plus (B) $21.00 times the number of shares of Ambassador Preferred
Stock outstanding on the date of the Merger Agreement) (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.
A party's "Break-Up Expenses" shall be an amount equal to the lesser of (i)
such party's out-of-pocket expenses incurred in connection with the Merger
Agreement and the Related Transactions (including, without limitation, all
attorney's, accountants' and investment bankers' fees and expenses) but in no
event in an amount greater than $1.0 million (the "Expense Fee Base Amount") and
(ii) the sum of (A) the maximum amount that can be paid to such party in the
Termination Year and in all relevant taxable years thereafter without causing it
to fail to meet the REIT Requirements for such year, determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
independent accountants to such party and (B) in the event such party receives a
ruling from the IRS (an "Expense Fee Ruling") holding that such party's receipt
of the Expense Fee Base Amount would either constitute Qualifying Income or
would be excluded from gross income within the meaning of the REIT Requirements,
the Expense Fee Base Amount less the amount payable under clause (A) above.
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If (i) the Merger Agreement (A) is terminated by AIMCO pursuant to clause
(i) of the second paragraph under "-- Termination" above, (B) is terminated by
Ambassador pursuant to the fourth paragraph under "-- Termination" above, (C) is
terminated as a result of Ambassador's failure to use best efforts to obtain
approval of the shareholders of Ambassador of the Merger, or (D) is terminated
because the shareholders of Ambassador do not approve the Merger, (ii) at the
time of such termination or prior to the meeting of Ambassador's shareholders
but after the date of the Merger Agreement there shall have been made an
Acquisition Proposal involving Ambassador or any of its Affiliates (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 the Merger Agreement Ambassador or any of
its Affiliates 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 Ambassador (jointly and severally with the Ambassador
Operating Partnership), 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 Ambassador becoming such a
Subsidiary or of such Acquisition Proposal, shall pay to AIMCO the Break-Up Fee
(as defined above). The payment of the Break-Up Fee will 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 neither party shall have any other
liability to the other (including, in the case of Ambassador, the party making
the Acquisition Proposal) with respect to the circumstances giving rise to the
payment of the Break-Up Fee, other than the payment of the Break-Up Fee. If the
amount payable for the Termination Year under the preceding sentence is less
than the Base Amount, Ambassador will place the remaining portion of the Base
Amount in escrow and shall not release any portion thereof to AIMCO unless and
until Ambassador receives either of the following: (i) a letter from 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 Ambassador shall pay such maximum amount, or (ii) a Break-Up Fee
ruling, in which event Ambassador shall pay to AIMCO the unpaid Base Amount.
Ambassador's obligation to pay any unpaid portion of the Break-Up Fee will
terminate three years from the date of the Merger Agreement and Ambassador shall
have no obligation to make any further payments notwithstanding that the entire
Base Amount has not been paid as of such date.
If the amount payable for the Termination Year (as determined above) is
less than the Expense Fee Base Amount, Ambassador will place the remaining
portion of the Expense Fee Base Amount in escrow and shall not release any
portion thereof to AIMCO unless and until Ambassador receives either of the
following: (i) a letter from 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 the 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 Ambassador shall pay to AIMCO
such maximum amount or (ii) an Expense Fee Ruling, in which event Ambassador
will pay to AIMCO the unpaid Expense Fee Base Amount. Ambassador's obligation to
pay any unpaid portion of the Break-Up Expenses will terminate three years from
the date of the Merger Agreement and Ambassador shall have no obligation to make
any further payments notwithstanding that the entire amount of Break-Up Expenses
has not been paid as of such date.
If the Merger Agreement is terminated by Ambassador in accordance with
clause (i) of the second paragraph under "-- Termination" and, at the time of
such termination, Ambassador has not breached any of its representations,
warranties, covenants or agreements set forth in the Merger Agreement which
would give rise to a right on the part of AIMCO to terminate this Agreement
pursuant to such clause (i), then AIMCO (jointly and severally with the AIMCO
Operating Partnership), shall pay to Ambassador the Break-Up Fee. The payment of
the Break-Up Fee shall be compensation and liquidated damages for the loss
suffered by Ambassador as the result of the failure of the Merger to be
consummated and to avoid the difficulty of determining damages under the
circumstances, and neither party shall have any other liability to the other
with respect to the circumstances giving rise to the payment of the Break-Up
Fee, other than the payment of
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the Break-Up Fee. If the amount payable for the Termination Year is less than
the Base Amount, AIMCO will place the remaining portion of the Base Amount in
escrow and shall not release any portion thereof to Ambassador unless and until
AIMCO receives either of the following: (i) a letter from Ambassador's
independent accountants indicating the maximum amount that can be paid at that
time to Ambassador without causing Ambassador to fail to meet the REIT
Requirements for any relevant taxable year, together with either an IRS Ruling
issued to Ambassador or an opinion of Ambassador's tax counsel to the effect
that such payment would not be treated as includible in the income of Ambassador
for any prior taxable year, in which event AIMCO shall pay such maximum amount,
or (ii) a Break-Up Fee Ruling, in which event AIMCO shall pay to Ambassador the
unpaid Base Amount. AIMCO's obligation to pay any unpaid portion of the Break-Up
Fee will terminate three years from the date of this Agreement and AIMCO shall
have no obligation to make any further payments notwithstanding that the entire
Base Amount has not been paid as of such date.
If the amount payable for the Termination Year (as determined above) is
less than the Expense Fee Base Amount, AIMCO shall place the remaining portion
of the Expense Fee Base Amount in escrow and shall not release any portion
thereof to Ambassador unless and until AIMCO receives either of the following:
(i) a letter from Ambassador's independent accountants indicating the maximum
amount that can be paid at that time to Ambassador without causing Ambassador to
fail to meet the REIT Requirements for any relevant taxable year, together with
either the IRS ruling issued to Ambassador or an opinion of Ambassador's tax
counsel to the effect that such payment would not be treated as includible in
the income of Ambassador for any prior taxable year, in which event AIMCO shall
pay to Ambassador such maximum amount or (ii) an Expense Fee Ruling, in which
event AIMCO shall pay to Ambassador the unpaid Expense Fee Base Amount. AIMCO's
obligation to pay any unpaid portion of the Break-Up Expenses will terminate
three years from the date of the Merger Agreement and AIMCO shall have no
obligation to make any further payments notwithstanding that the entire amount
of Break-Up Expenses has not been paid as of such date.
The Merger Agreement provides that if the Merger Agreement is terminated
pursuant to clause (i) of the second paragraph under "-- Termination" above,
then, without limitation of the terminating party's right, if any, to receive
the Break-Up Fee, the other party shall pay to the terminating party the
Break-Up Expenses (subject to the limitations described above).
In the Merger Agreement, the parties agree that the agreements described
herein (under "--Termination Fees" above) are an integral part of the
transactions contemplated by the Merger Agreement and constitute liquidated
damages and not a penalty and shall be the sole and exclusive remedy of the
parties thereto with respect to the facts and circumstances giving rise to the
payment of a Break-Up Fee. Notwithstanding anything to the contrary, if
Ambassador or AIMCO fails to promptly pay to AIMCO or Ambassador, as the case
may be, any fee due under the provisions described in this section, in addition
to any amounts paid or payable pursuant to such sections, Ambassador or AIMCO,
as the case may be, shall pay the 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 or Ambassador, as the case may be, to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required to be
paid.
AMENDMENT, MODIFICATION AND WAIVER
The Merger Agreement may be amended by the Boards of Directors of the
parties thereto, at any time before or after approval hereof by the shareholders
of Ambassador and prior to the Effective Time, but after such approvals, 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 the Merger Agreement or (b)
alter or change any of the terms and conditions of the Merger Agreement if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect the rights of holders of Ambassador 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 shareholders, as applicable. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties to the Merger Agreement.
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At any time prior to the Effective Time, a party to the Merger Agreement
may (a) extend the time for the performance of any of the obligations or other
acts of the other party thereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained therein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions of the other party contained therein, to the extent
permitted by applicable law. Any agreement on the part of a party to the Merger
Agreement to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF AIMCO
The following table sets forth selected historical financial and operating
information for AIMCO. The selected historical financial information for the
years ended December 31, 1997, 1996 and 1995 is based on the audited financial
statements of AIMCO incorporated by reference herein. The selected historical
financial information for the period January 10, 1994 (the date of AIMCO's
inception) through December 31, 1994 for AIMCO and for the period from January
1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the
AIMCO Predecessors is based on the audited financial statements of AIMCO and the
AIMCO Predecessors, respectively. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of AIMCO and
notes thereto included or incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AIMCO AIMCO PREDECESSOR(A)
------------------------------------------------- -----------------------------
FOR THE FOR THE PERIOD FOR THE PERIOD
YEAR ENDED JANUARY 10, JANUARY 1, FOR THE
DECEMBER 31, 1994 THROUGH 1994 THROUGH YEAR ENDED
-------------------------------- DECEMBER 31, JULY 28, DECEMBER 31,
1997 1996 1995 1994 1994(B) 1993
---- ---- ---- -------------- -------------- ------------
(RESTATED)(C) (RESTATED)(C)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................... $ 193,006 $100,516 $ 74,947 $ 24.894 $ 5,805 $ 8,056
Property operating expenses............... (76,168) (38,400) (30,150) (10,330) (2,263) (3,200)
Owned property management expenses........ (6,620) (2,746) (2,276) (711) -- --
---------- -------- -------- -------- ------- -------
110,218 59,370 42,521 13,853 3,542 4,856
Depreciation and amortization............. (37,741) (19,556) (15,038) (4,727) (1,151) (1,702)
---------- -------- -------- -------- ------- -------
72,477 39,814 27,483 9,126 2,391 3,154
---------- -------- -------- -------- ------- -------
SERVICE COMPANY BUSINESS:
Management fees and other income.......... 13,937 8,367 8,132 3,217 6,533 8,069
Management and other expenses............. (9,910) (5,352) (4,953) (2,047) (5,823) (6,414)
Corporate overhead allocation............. (588) (590) (581) -- -- --
Owner and seller bonuses.................. -- -- -- -- (204) (468)
Depreciation and amortization............. (1,401) (718) (596) (150) (146) (204)
---------- -------- -------- -------- ------- -------
Income from service company business...... 2,038 1,707 2,002 1,020 360 983
Minority interests in service company
business................................ (10) 10 (29) (14) -- --
---------- -------- -------- -------- ------- -------
Company's shares of income from service
company business........................ 2,028 1,717 1,973 1,006 360 983
---------- -------- -------- -------- ------- -------
General and Administrative Expenses....... (5,396) (1,512) (1,804) (977) -- --
Interest Income........................... 8,676 523 658 123 -- --
Interest Expense.......................... (51,385) (24,802) (13,322) (1,576) (4,214) (3,510)
Minority Interest in Other Partnership.... 1,008 (111) -- -- -- --
Equity in Earnings of Other
Partnerships(d)......................... (1,798) -- -- -- -- --
Equity in Earnings of Unconsolidated
Subsidiaries(e)......................... 4,636 -- -- -- -- --
---------- -------- -------- -------- ------- -------
Income (Loss) Before Gain on Disposition
of Property, Extraordinary Item, Income
Taxes and Minority Interest in Operating
Partnership............................. 30,246 15,629 14,988 7,702 (1,463) 627
</TABLE>
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<TABLE>
<CAPTION>
AIMCO AIMCO PREDECESSOR(A)
------------------------------------------------- -----------------------------
FOR THE FOR THE PERIOD FOR THE PERIOD
YEAR ENDED JANUARY 10, JANUARY 1, FOR THE
DECEMBER 31, 1994 THROUGH 1994 THROUGH YEAR ENDED
-------------------------------- DECEMBER 31, JULY 28, DECEMBER 31,
1997 1996 1995 1994 1994(B) 1993
---- ---- ---- -------------- -------------- ------------
(RESTATED)(C) (RESTATED)(C)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
Gain on disposition of property........... 2,720 44 -- -- -- --
Extraordinary (loss) gain -- forgiveness
of debt................................. (269) -- -- -- -- --
Provisions for income taxes............... -- -- -- -- (36) (336)
---------- -------- -------- -------- ------- -------
Income (Loss) Before Minority Interest in
Operating Partnership................... 32,697 15,673 14,988 7,702 (1,499) 291
Minority interest in Operating
Partnership............................. (4,064) (2,689) (1,613) (559) -- --
---------- -------- -------- -------- ------- -------
Net Income (Loss)......................... $ 28,633 $ 12,984 $ 13,375 $ 7,143 $(1,499) $ 291
========== ======== ======== ======== ======= =======
BALANCE SHEET DATA
(END OF PERIOD):
Real estate, before accumulated
depreciation............................ $1,657,207 $865,222 $477,162 $406,067 $47,500 $46,819
Total assets.............................. 2,100,510 827,673 480,361 416,739 39,042 38,914
Total mortgages and notes payable......... 808,530 522,146 268,692 141,315 40,873 41,893
Mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Stock...... -- -- -- 96,600 -- --
Stockholders' equity(f)................... 1,045,300 215,749 169,032 140,319 (9,345) (7,556)
OTHER DATA:
Total owned properties (end of period).... 147 94 56 48 4 4
Total owned apartment units (end of
period)................................. 40,039 23,764 14,453 12,513 1,711 1,711
Units under management (end of period).... 69,587 19,045 19,594 20,758 29,343 28,422
Funds From Operations(g).................. 81,155 35,185 25,285 9,391 N/A N/A
Weighted Average Number of Common Shares
and OP Units Outstanding(h)............. 29,119 14,994 11,461 10,920 N/A N/A
</TABLE>
- -------------------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of AIMCO Common Stock. On
such date, AIMCO and Property Asset Management, L.L.C., Limited Liability
Company and its affiliated companies and PDI Realty Enterprises, Inc.
(collectively, the "AIMCO Predecessors") engaged in a business combination
and consummated a series of related transactions which enabled AIMCO to
continue and expand the property management and related businesses of the
AIMCO Predecessors. The 966,000 shares of convertible preferred stock and
513,514 shares of AIMCO Common Stock were repurchased by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of the
completion of the business combination with AIMCO.
(c) In the second quarter of 1996, AIMCO reorganized the ownership of the
service company, whereby the AIMCO Operating Partnership (i) owns all of the
non-voting preferred stock of the service company, Property Asset Management
Services, Inc. ("PAMS Inc."), representing a 95% economic interest, and (ii)
owns the 1% general partnership interest in Property Asset Management
Services, L.P. ("PAMS LP"). PAMS Inc. owns the 99% limited partnership
interest in PAMS LP. Substantially all the activity of PAMS Inc. is
conducted by PAMS LP. Because the AIMCO Operating Partnership owns 95% of
the economic value of PAMS Inc. and also controls the general partnership
interest in PAMS LP, thereby controlling the activity of the partnership,
the service company is consolidated. Prior to the reorganization, AIMCO
reported the service company business on the equity method. The restatement
has no impact on net income, but does increase third party and affiliate
management and other income, management and other expenses, amortization of
management company goodwill and depreciation of non-real estate assets.
AIMCO has restated the balance sheet as of December 31, 1995 and 1994, and
the statements of income and statements of cash flows for the year ended
December 31, 1995 and the period from January 10, 1994 through December 31,
1994 to reflect the change.
(d) Represents AIMCO's share of earnings from 83,431 units in which AIMCO
purchased an equity interest from the NHP Real Estate Companies.
(e) Represents AIMCO's equity earnings in the Unconsolidated Subsidiaries.
72
<PAGE> 78
(f) Subsequent to December 31, 1997, AIMCO issued 4,200,000 shares of AIMCO
Class D Preferred Stock, par value $.01 per share, for aggregate net
proceeds of approximately $101.5 million. See "AIMCO Recent
Developments -- Recent Financings."
(g) AIMCO's management believes that the presentation of Funds From Operations
("FFO"), when considered with the financial data determined in accordance
with GAAP, provides a useful measure of AIMCO's performance. However, FFO
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to AIMCO, nor should it be considered as an
alternative to net income as an indicator of operating performance. The
Board of Governors of NAREIT defines FFO as net income (loss), computed in
accordance with GAAP, excluding gains and losses from debt restructuring and
sales of property, plus real estate related depreciation and amortization
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. AIMCO calculates FFO
consistent with the NAREIT definition, adjusted for minority interest in the
AIMCO Operating Partnership, plus amortization of management company
goodwill, the non-cash deferred portion of the income tax provision for
unconsolidated subsidiaries and less the payments of dividends on preferred
stock. AIMCO's management believes that presentation of FFO provides
investors with industry-accepted measurements which help facilitate an
understanding of AIMCO's ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO's basis of computing FFO is comparable with that of other REITs.
The following is a reconciliation of Income before minority interest in
Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income before minority interest in Operating
Partnership............................................. $32,697 $15,673 $14,988
Gain on disposition of property........................... (2,720) (44) --
Extraordinary item........................................ 269 -- --
Real estate depreciation, net of minority interests....... 33,751 19,056 15,038
Amortization of management company goodwill............... 948 500 428
Equity in earnings of Unconsolidated Subsidiaries:
Real estate depreciation................................ 3,584 -- --
Amortization of management contracts.................... 1,587 -- --
Deferred taxes.......................................... 4,894 -- --
Equity in earnings of Other Partnerships:
Real estate depreciation................................ 6,280 -- --
Preferred stock dividends............................... (135) -- (5,169)
------- ------- -------
Funds from Operations..................................... $81,155 $35,185 $25,285
======= ======= =======
</TABLE>
(h) Generally, after a one-year holding period, AIMCO OP Units may be tendered
for redemption at the option of the holder and, upon tender, may be acquired
by AIMCO for shares of AIMCO Common Stock at an exchange ratio of one share
of AIMCO Common Stock for each AIMCO OP Unit (subject to adjustment).
73
<PAGE> 79
SELECTED HISTORICAL FINANCIAL INFORMATION OF AMBASSADOR
The following table sets forth selected historical financial information of
Ambassador and Prime Properties, the combined predecessor properties of
Ambassador (collectively, the "Ambassador Predecessor"). The selected historical
financial information for the years ended December 31, 1997, 1996 and 1995 is
derived from the audited consolidated financial statements of Ambassador
incorporated by reference herein. The selected historical financial information
for the period August 31, 1994 through December 31, 1994 for Ambassador and for
the period January 1, 1994 through August 30, 1994 and for the year ended
December 31, 1993 for the Ambassador Predecessor are based on the audited
financial statements of Ambassador and the Ambassador Predecessor. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Ambassador and notes thereto incorporated
by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AMBASSADOR AMBASSADOR PREDECESSOR
------------------------------------------------------ -------------------------
YEAR ENDED AUGUST 31 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
1997 1996 1995 1994 1994 1993
---- ---- ---- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, PROPERTIES AND UNITS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenue............................. $ 93,329 $ 70,194 $ 53,381 $ 14,680 $ 20,434 $ 20,024
Property operating expenses............... 36,088 27,465 22,158 5,745 9,069 9,016
General and administrative expenses....... 6,868 5,225 3,612 1,459 298 164
Property Management fees.................. -- -- -- -- 1,109 1,184
Depreciation.............................. 18,979 13,430 8,894 2,101 3,190 3,271
Amortization of deferred financing fees... 1,393 1,829 2,792 622 333 262
(Income) losses from unconsolidated real
estate limited partnerships............. (405) (233) 320 162 -- --
Merger related costs...................... 524 -- -- -- -- --
--------- --------- --------- --------- -------- --------
Income from operations.................... 29,882 22,478 15,605 4,591 6,435 6,127
Interest expense.......................... 25,594 17,417 10,369 1,738 5,776 5,748
--------- --------- --------- --------- -------- --------
Income before minority interest, gain on
sale of rental property, loss on sale of
investment, loss of interest rate cap
and extraordinary item.................. 4,288 5,061 5,236 2,853 659 379
Income allocated to minority
interest(1)............................. (1,237) (1,883) (615) (332) -- --
--------- --------- --------- --------- -------- --------
Income before gain on sale of rental
property, loss on sale of investment,
loss on sale of interest rate cap and
extraordinary item...................... 3,051 3,178 4,621 2,521 659 379
Gain on sale of rental property net of
minority interest....................... -- -- 966 -- -- --
--------- --------- --------- --------- -------- --------
Income before loss on sale of investment,
loss on sale of interest rate cap and
extraordinary item...................... 3,051 3,178 5,587 2,521 659 379
Loss on sale of investment, net of
minority interest....................... (509) -- -- -- -- --
--------- --------- --------- --------- -------- --------
Income before loss on sale of interest
rate cap and extraordinary item......... 2,542 3,178 5,587 2,521 659 379
Loss on sale of interest rate cap, net of
minority interest....................... -- (2,084) -- -- -- --
--------- --------- --------- --------- -------- --------
Income before extraordinary item.......... 2,542 1,094 5,587 2,521 659 379
Extraordinary item (net of minority
interest)............................... (1,384) (4,653) 4,360 (772) -- --
--------- --------- --------- --------- -------- --------
Net income (loss)......................... 1,158 (3,559) 9,947 1,749 659 379
Income allocated to preferred
stockholders............................ 2,296 851 -- -- -- --
--------- --------- --------- --------- -------- --------
Net (loss) income applicable to common
stockholders............................ $ (1,138) $ (4,410) $ 9,947 $ 1,749 $ 659 $ 379
========= ========= ========= ========= ======== ========
Basic Earnings Per Share:(5)
(Loss) Income per weighted average share
of common stock outstanding:
Before extraordinary item................. $ 0.02 $ 0.03 $ 0.62 $ 0.28
Extraordinary item........................ (0.14) (0.52) 0.49 (0.09)
--------- --------- --------- ---------
Net (loss) income......................... $ (0.12) $ (0.49) $ 1.11 $ 0.19
========= ========= ========= =========
Weighted average shares of common stock
outstanding -- basic.................... 9,834,710 8,958,525 8,958,525 8,847,547
Diluted Earnings Per Share:(5)
(Loss) income per weighted average share
of common stock outstanding:
Before extraordinary item................. $ 0.03 $ 0.03 $ 0.62 $ 0.28
Extraordinary item........................ (0.14) (0.52) 0.49 (0.09)
--------- --------- --------- ---------
Net (loss) income......................... $ (0.11) $ (0.49) $ 1.11 $ 0.19
========= ========= ========= =========
Weighted average shares of common stock
outstanding -- dilutive:................ 9,935,873 9,012,110 8,958,525 8,847,547
</TABLE>
74
<PAGE> 80
<TABLE>
<CAPTION>
AMBASSADOR AMBASSADOR PREDECESSOR
------------------------------------------------------ -------------------------
YEAR ENDED AUGUST 31 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED
--------------------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
1997 1996 1995 1994 1994 1993
---- ---- ---- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, PROPERTIES AND UNITS)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.............................. $ 20,732 $ 19,087 $ 21,592 $ 5,245 $ 4,935 $ 4,807
Net cash used in investing activities..... $ (39,029) $ (79,975) $ (58,530) $ (80,438) $ (1,731) $(64,155)
Net cash provided by (used in) financing
activities.............................. $ 18,743 $ 59,620 $ 39,784 $ 77,617 $ (2,405) $ 60,669
SUPPLEMENTAL INFORMATION:
Funds from Operations(2).................. $ 24,659 $ 20,762 $ 15,672 $ 5,093 $ 3,849 $ 3,650
Per share funds from operations(2)(6)..... $ 1.90 $ 1.85 $ 1.57 $ 0.51 $ 0.39 $ 0.37
Distributions/dividends per share......... $ 1.60 $ 1.60 $ 1.20 $ 0.538 -- --
Number of apartment units at end of
period(3)............................... 15,728 14,564 10,636 8,185 5,090 5,090
Number of Properties at end of
period(3)............................... 52 49 36 30 21 21
BALANCE SHEET DATA:
Rental property before accumulated
depreciation............................ $ 551,754 $ 495,292 $ 343,869 $ 235,916 $168,164 $166,433
Net rental property....................... $ 499,435 $ 461,952 $ 323,959 $ 224,436 $157,689 $159,148
Total assets.............................. $ 557,176 $ 515,784 $ 359,989 $ 244,511 $187,316 $166,407
Total debt(4)............................. $ 387,649 $ 359,329 $ 229,981 $ 112,800 $182,300 $163,900
Net equity (deficit)...................... $ 108,048 $ 90,448 $ 109,173 $ 109,962 $ (1,781) $ (2,422)
</TABLE>
- -------------------------
(1) Reflects allocation of income to minority interests (Limited Partners of the
Operating Partnership, Jupiter-I, L.P. and Jupiter-II, L.P.).
(2) The Company believes that to facilitate a clear understanding of its
operating results, Funds from Operations ("FFO") should be examined in
conjunction with net income as presented in the Consolidated Financial
Statements. Industry analysts generally consider FFO an appropriate measure
of performance of an equity REIT. FFO is defined by NAREIT as net income
(loss) computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains or (losses) from debt restructuring or sales of
property plus (i) real estate depreciation, (ii) amortization of capitalized
leasing expenses and tenant allowances or improvements, and (iii)
adjustments for unconsolidated partnerships and joint ventures.
(3) Subsequent to the initial offering, includes unconsolidated property
partnerships.
(4) Subsequent to the initial offering, excludes indebtedness in the aggregate
amount of $28,300 of bonds payable by the unconsolidated partnerships.
(5) The earnings per share amounts prior to 1997 have been reported as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share". No restatement of prior reported amounts was required.
For further discussion of earnings per share and the impact of Statement No.
128, see the notes to the consolidated financial statements.
(6) The year ended December 31, 1997 assumes 9,834,710 weighted average common
shares outstanding, conversion of all weighted average Common Units
(904,466), Jupiter-I, L.P. and Jupiter-II, L.P. (1,018,422), and conversion
of Ambassador Preferred Stock (1,246,402). The year ended December 31, 1996
assumes 8,958,525 weighted average common shares outstanding, conversion of
all weighted average Common Units (963,983), Jupiter-I, L.P. and Jupiter-II,
L.P. (910,365), and conversion of weighted average Ambassador Preferred
Stock (420,127).
75
<PAGE> 81
PRO FORMA FINANCIAL INFORMATION OF
AIMCO (MERGER)
On December 23, 1997, AIMCO and Ambassador entered into, and as of March
11, 1998, supplemented, the Merger Agreement. Pursuant to the Merger Agreement,
Ambassador will be merged with and into AIMCO, with AIMCO as the surviving
corporation. The Merger will become effective at the Effective Time. Upon
consummation of the Merger, each outstanding share of Ambassador Common Stock,
other than Ambassador Common Stock held by Ambassador or AIMCO, will be
converted into the right to receive that number of shares of AIMCO Common Stock
equal to the quotient (rounded to the nearest 1/1000) (the "Conversion Ratio")
determined by dividing $21.00 by the AIMCO Index Price (as defined below). The
term "AIMCO Index Price" means the aggregate of the average of the high and low
sales prices of AIMCO Common Stock, as reported on the NYSE, on each of the
twenty consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Effective Time, divided by 20. Notwithstanding the
foregoing, if the Conversion Ratio calculated pursuant to the foregoing is
greater than 0.583, then, at AIMCO's option, the Conversion Ratio to be used
shall be either the Conversion Ratio as calculated pursuant to the foregoing or
0.583 (so long as the Merger would continue to qualify as a reorganization under
Section 368(a) of the Code). If AIMCO opts for the Conversion Ratio to equal
0.583, then, in addition to 0.583 shares of AIMCO Common Stock, AIMCO will pay
to each holder of Ambassador Common Stock, for each share of Ambassador Common
Stock held by such shareholder, an amount in cash equal to (i) $21.00 minus (ii)
the product of the AIMCO Index Price and 0.583. In lieu of any fractional shares
of AIMCO Common Stock, each holder of Ambassador Common Stock who would
otherwise be entitled to receive such fractional shares will be paid cash equal
to the product of such fractional shares and the AIMCO Index Price. The Merger
is subject to a number of conditions, including the approval of the stockholders
of Ambassador.
The following Pro Forma Consolidated Balance Sheet (Merger) of AIMCO as of
December 31, 1997 has been prepared as if each of the following transactions had
occurred as of December 31, 1997: (i) the sale of 4,200,000 shares of Class D
8.75% Cumulative Preferred Stock for net proceeds of $101.5 million (the "1998
Stock Offering") and (ii) the Ambassador Merger.
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) the acquisition
of an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP
("the NHP Stock Purchase"); (ii) the purchase of 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"); (iii) the acquisition of (a)
45 properties for aggregate purchase consideration of $467.3 million, of which
$55.9 million was paid in the form of 1.9 million limited partnership units ("OP
Units") in the AIMCO Operating Partnership (b) partnership interests through
tender offers in certain partnerships for consideration of $34.2 million in cash
and OP Units valued at $7.3 million ((a) and (b) together are the "1997 Property
Acquisitions") and (c) 886,600 shares of common stock of Ambassador Apartments,
Inc. for consideration of $19.9 million (collectively, the "1997 Acquisitions");
(iv) the sale of (a) approximately 16,367,000 shares of AIMCO Common Stock for
aggregate net proceeds of $513.4 million; (b) 750,000 shares of Class B
Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of
Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million
(collectively, the "1997 Stock Offerings"); (v) the sale of five real estate
properties (the "1997 Dispositions"); (vi) the 1998 Stock Offering; and (vii)
the Merger.
The following Pro Forma Financial Information (Merger) is based, in part,
on the following historical financial statements, which have been previously
filed by AIMCO or are incorporated by reference in this Proxy
Statement/Prospectus: (i) the audited Consolidated Financial Statements of AIMCO
for the year ended December 31, 1997; (ii) the audited Consolidated Financial
Statements of Ambassador for the year ended December 31, 1997; (iii) the
unaudited Consolidated Financial Statements of NHP for the nine months ended
September 30, 1997; (iv) the unaudited Combined Financial Statements of the NHP
Real Estate Companies for the three months ended March 31, 1997; (v) the
unaudited Financial Statements of
76
<PAGE> 82
NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (vi) the
unaudited Combined Financial Statements of the NHP New LP Entities for the three
months ended March 31, 1997; (vii) the unaudited Combined Financial Statements
of the NHP Borrower Entities for the three months ended March 31, 1997; (viii)
the unaudited Historical Summaries of Gross Income and Certain Expenses of The
Bay Club at Aventura for the three months ended March 31, 1997; (ix) the
unaudited Historical Summary of Gross Income and Direct Operating Expenses of
Morton Towers for the six months ended June 30, 1997; (x) the unaudited Combined
Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition
Properties for the six months ended June 30, 1997; (xi) the unaudited Statement
of Revenues and Certain Expenses of First Alexandria Associates, a Limited
Partnership for the nine months ended September 30, 1997; (xii) the unaudited
Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a
Limited Partnership for the nine months ended September 30, 1997; (xiii) the
unaudited Statement of Revenues and Certain Expenses of Point West Limited
Partnership for the nine months ended September 30, 1997; and (xiv) 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 (Merger) should be read in conjunction with such
financial statements and the notes thereto. In the opinion of AIMCO's
management, all material adjustments necessary to reflect the effects of these
transactions have been made.
The unaudited Pro Forma Financial Information (Merger) has been prepared
using the purchase method of accounting whereby the assets and liabilities of
Ambassador and NHP are adjusted to estimated fair 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 value. Therefore, the allocations
reflected in the following unaudited Pro Forma Financial Information (Merger)
may differ from the amounts ultimately determined.
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.
77
<PAGE> 83
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREVIOUSLY AMBASSADOR
FILED AMBASSADOR PURCHASE PRICE AMBASSADOR
PRO FORMA(A) HISTORICAL(B) ALLOCATIONS(C) PRO FORMA
------------ ------------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Real estate................................. $1,503,922 $499,435 $169,387(D) $2,172,744
Property held for sale...................... 6,284 -- -- 6,284
Investments in securities................... 22,144 -- (18,311)(E) 3,833
Investments in and notes receivable from
unconsolidated subsidiaries............... 84,459 -- -- 84,459(P)
Investments in and notes receivable from
unconsolidated real estate partnerships... 212,150 1,243 1,257(F) 214,650
Cash and cash equivalents................... 85,481 4,448 (48,393)(G) 41,536
Restricted cash............................. 24,229 30,838 -- 55,067
Accounts receivable......................... 28,656 1,586 -- 30,242
Deferred financing costs.................... 12,793 15,404 (412)(H) 27,785
Goodwill.................................... 125,239 -- -- 125,239
Other assets................................ 43,546 4,222 (308)(I) 47,460
---------- -------- -------- ----------
$2,148,903 $557,176 $103,220 $2,809,299
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable....................... $ 681,421 $ 37,292 $ -- $ 718,713
Secured bond financing...................... 74,010 313,097 -- 387,107
Secured short-term financing................ -- 35,250 (20,993)(J) 14,257
Unsecured short-term financing.............. -- 2,010 (2,010)(J) --
Accounts payable, accrued and other
liabilities............................... 88,170 6,596 33,800(C) 128,566
Security deposits and deferred income....... 10,213 2,480 -- 12,693
---------- -------- -------- ----------
853,814 396,725 10,797 1,261,336
Minority interest in other partnerships..... 36,335 19,028 (19,028)(G) 36,335
Minority interest in Operating
Partnership............................... 111,962 9,243 9,559(K) 130,764
Class A common stock, $.01 par value........ 403 106 (42)(L) 467
Class B common stock, $.01 par value........ 2 -- -- 2
Class A Senior Cumulative Convertible
Preferred Stock, $.01 par value........... -- 24,132 (24,132)(M) --
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
Additional paid in capital.................. 974,093 147,414 85,024(N) 1,206,531
Notes receivable on common stock
purchases................................. (35,095) -- -- (35,095)
Distributions in excess of earnings......... (30,928) (39,472) 39,472(O) (30,928)
Unrealized gain on investments.............. (1,683) -- 1,570(E) (113)
---------- -------- -------- ----------
1,146,792 132,180 101,892 1,380,864
---------- -------- -------- ----------
$2,148,903 $557,176 $103,220 $2,809,299
========== ======== ======== ==========
</TABLE>
- -------------------------
(A) Represents AIMCO's pro forma consolidated financial position as reported in
AIMCO's Current Report on Form 8-K dated March 17, 1998.
(B) Represents the audited consolidated financial position of Ambassador as of
December 31, 1997, as reported in Ambassador's Annual Report on Form 10-K.
Certain reclassifications have been made to Ambassador's historical balance
sheet to conform to AIMCO's balance sheet presentation.
78
<PAGE> 84
(C) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon the assumed purchase price of $727,100
assuming a market value of $36.00 per share of AIMCO Common Stock, as
follows:
<TABLE>
<S> <C>
Issuance of 6,422,871 shares of AIMCO Common Stock based on
an assumed Conversion Ratio of 0.583 in exchange for
11,016,931 shares of Ambassador Common Stock, which
includes 1,351,351 shares of Ambassador Common Stock
resulting from the conversion of Ambassador Preferred
Stock..................................................... $231,223
Cost of 886,600 shares of Ambassador Common Stock in August
1997...................................................... 19,881
Issuance of 521,970 units of AIMCO Properties, L.P. based on
the Conversion Ratio of 0.583 in exchange for 895,318
units of Ambassador Apartments, L.P. ..................... 18,802
Consideration related to the conversion of Ambassador stock
options to AIMCO stock options............................ 1,279
Assumption of Ambassador's liabilities...................... 396,725
Redemption of limited partnership interests not owned by
Ambassador in Jupiter-I, L.P. and Jupiter-II, L.P......... 25,390
Ambassador Merger costs (see calculation below)............. 33,800
--------
$727,100
========
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the Merger:
<TABLE>
<S> <C>
Transfer and prepayment fees................................ $20,800
Expected change of control/noncompete costs................. 6,100
Legal fees.................................................. 2,000
Investment banking fees..................................... 3,200
Other professional fees, including printing................. 1,700
-------
$33,800
=======
</TABLE>
(D) Represents the adjustment to record Ambassador's real estate assets, net, to
estimated fair value.
(E) Represents the elimination of AIMCO's previous investment in Ambassador,
which was marked-to-market as of December 31, 1997 in accordance with the
provisions of Statement of Financial Accounting Standard No. 115,
Accounting For Certain Investments In Debt And Equity Securities.
(F) Represents the adjustment to record Ambassador's investment in
unconsolidated partnerships to estimated fair value.
(G) Represents (i) repayment of $37,260 of Ambassador's revolving lines of
credit upon consummation of the Merger according to the terms of the Merger
Agreement, and (ii) partial redemption of limited partnership interests not
owned by Ambassador in Jupiter-I, L.P. and Jupiter-II, L.P. in the amount of
$11,133 (the remaining distribution of $14,257 was funded through AIMCO's
Credit Facility) representing the limited partners' initial contributions of
$23,000, less previous distributions of $3,972 (together, represents current
balance of $19,028) plus a preferred return of $6,362 (which includes
amounts previously distributed).
(H) Represents the elimination of the deferred loan costs related to
Ambassador's revolving lines of credit in connection with the repayment upon
consummation of the Merger.
(I) Represents the elimination of deferred lease costs in connection with the
Merger.
(J) Represents payoff of Ambassador's revolving lines of credit of $37,260,
offset by borrowings of $14,257 to redeem the remaining limited partnership
interests not owned by Ambassador of Jupiter-I, L.P. and Jupiter-II, L.P.
79
<PAGE> 85
(K) Represents the estimated increase in Minority Interest in Operating
Partnership based upon AIMCO's purchase price per OP Unit and the adjustment
to eliminate the basis of Ambassador's Minority Interest in Operating
Partnership:
<TABLE>
<S> <C>
Purchase price of minority interest in Ambassador Operating
Partnership (see Note C).................................. $18,802
Less: historical basis of minority interest in Ambassador
Operating Partnership..................................... (9,243)
-------
Adjustment to record fair value of AIMCO OP Units issued in
exchange for OP Units..................................... $ 9,559
=======
</TABLE>
(L) Represents the elimination of Ambassador's Common Stock at $.01 par value
($106) net of the issuance of AIMCO Common Stock at $.01 par value ($64)
(see Note N).
(M) Represents the elimination of Ambassador's Preferred Stock as a result of
its redemption or conversion in connection with the Merger.
(N) Represents the increase to paid-in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of 6,422,871 shares of AIMCO Common Stock at $36.00
per share................................................. $ 231,223
Less: Par value of AIMCO Common Stock issued................ (64)
Ambassador's historical paid-in-capital................ (147,414)
Consideration related to the conversion of Ambassador stock
options to AIMCO stock options............................ 1,279
---------
$ 85,024
=========
</TABLE>
(O) Represents the elimination of Ambassador's distributions in excess of
accumulated earnings, as a result of the Merger.
80
<PAGE> 86
(P) Amount represents notes receivable from the unconsolidated subsidiaries of
$50,000 and equity in the unconsolidated subsidiaries of $34,459. The
combined historical balance sheet of the unconsolidated subsidiaries as of
December 31, 1997 is presented below. There were no pro forma adjustments
to the balance sheet as of December 31, 1997.
<TABLE>
<CAPTION>
PREVIOUSLY REPORTED
PRO FORMA
-------------------
<S> <C>
ASSETS
Real estate................................................. $ 23,317
Cash and cash equivalents................................... 5,261
Restricted cash............................................. 1,896
Management contracts........................................ 51,441
Accounts receivable......................................... 5,627
Deferred financing costs.................................... 477
Goodwill.................................................... 43,523
Other assets................................................ 13,313
--------
$144,855
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable....................................... $ 25,301
Secured short-term financing................................ 50,000
Accounts payable, accrued and other liabilities............. 20,978
Security deposits and deferred income....................... 3,013
Deferred tax liability...................................... 9,178
--------
108,470
Common stock................................................ 2,071
Preferred stock............................................. 34,459
Retained earnings........................................... (26)
Notes receivable on common stock purchases.................. (119)
--------
36,385
--------
$144,855
========
</TABLE>
81
<PAGE> 87
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREVIOUSLY AMBASSADOR
FILED AMBASSADOR PURCHASE PRICE AMBASSADOR
PRO FORMA(A) HISTORICAL(B) ADJUSTMENTS(C) PRO FORMA
------------ ------------- -------------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Rental and other property revenues.......... $ 284,174 $ 93,329 $ -- $ 377,503
Property operating expenses................. (121,274) (36,088) -- (157,362)
Owned property management expense........... (10,002) -- -- (10,002)
--------- -------- ------- ---------
Income from property operations before
depreciation.............................. 152,898 57,241 -- 210,139
Depreciation................................ (55,542) (18,979) (4,430)(D) (78,951)
--------- -------- ------- ---------
Income from property operations............. 97,356 38,262 (4,430) 131,188
--------- -------- ------- ---------
Management fees and other income............ 21,750 -- -- 21,750
Management and other expenses............... (15,304) -- -- (15,304)
Corporate overhead allocation............... (588) -- -- (588)
Depreciation and amortization............... (7,201) -- -- (7,201)
--------- -------- ------- ---------
Loss from service company business.......... (1,343) -- -- (1,343)
Minority interest in service company
business.................................. (10) -- -- (10)
--------- -------- ------- ---------
Company's share of loss from service company
business.................................. (1,353) -- -- (1,353)
--------- -------- ------- ---------
General and administrative expenses......... (6,421) (7,392) 7,392(E) (6,421)
Interest expense............................ (61,084) (26,987) 2,593(F) (85,478)(J)
Interest income............................. 10,576 -- -- 10,576
Minority interest in other partnerships..... 1,803 (851) 851(G) 1,803
Equity in (losses) income of unconsolidated
partnerships.............................. (10,462) 405 -- (10,057)
Equity in earnings of unconsolidated
subsidiaries.............................. 10,426 -- -- 10,426(L)
--------- -------- ------- ---------
Income before minority interest in
Operating Partnership................... 40,841 3,437 6,406 50,684
Minority interest in Operating
Partnership............................... (2,452) (386) (598)(H) (3,436)
--------- -------- ------- ---------
Net Income.................................. $ 38,389 $ 3,051 $ 5,808 $ 47,248(J)
========= ======== ======= =========
Income attributable to preferred
stockholders.............................. $ 19,932 $ 2,296 $(2,296)(I) $ 19,932(K)
========= ======== ======= =========
Income attributable to common
stockholders.............................. $ 18,457 $ 755 $ 8,104 $ 27,316(J)
========= ======== ======= =========
Basic earnings per common share............. $ 0.46 $ 0.59(J)
========= =========
Diluted earnings per common share........... $ 0.46 $ 0.58(J)
========= =========
Weighted average number of common shares
outstanding............................... 40,106 46,529
========= =========
Weighted average number of common shares and
common share equivalents outstanding...... 40,487 46,910
========= =========
</TABLE>
- -------------------------
(A) Represents AIMCO's pro forma consolidated results of operations as reported
in AIMCO's Current Report on Form 8-K dated March 17, 1998.
(B) 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.
(C) Represents the following adjustments occurring as a result of the 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 in interest
expense
82
<PAGE> 88
resulting from the net reduction of debt; and (iv) the elimination of the
minority interest associated with Jupiter I, L.P. and Jupiter II, L.P.
(D) Represents incremental depreciation related to the real estate assets
purchased in connection with the 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.
(E) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the 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 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.
(F) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Merger, offset by an increase in interest expense of $1,019 related to
borrowings to redeem the remaining limited partnership interests not owned
by Ambassador in Jupiter-I, L.P. and Jupiter-II, L.P.
(G) Represents elimination of minority interest in Jupiter-I, L.P. and
Jupiter-II, L.P. resulting from the redemption of limited partnership
interests not owned by Ambassador in connection with the Merger.
(H) 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 11.7%. On a pro forma basis,
giving effect to the Merger, as of December 31, 1997, the minority interest
percentage is approximately 11.2%.
(I) Represents the elimination of the preferred stock dividends of Ambassador
upon the conversion of the Ambassador Preferred Stock to Ambassador Common
Stock.
(J) 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................................ $ 69
=======
Income before minority interest in Operating Partnership.... 50,615
Minority interest in Operating Partnership.................. (3,428)
-------
Net income.................................................. $47,187
=======
Net income attributable to common stockholders.............. $27,255
=======
Basic earnings per common share............................. $ 0.59
=======
Diluted earnings per common share........................... $ 0.58
=======
</TABLE>
(K) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C 9% Cumulative Preferred Stock, and the
AIMCO Class D 8.75% Cumulative Preferred Stock as if these stock offerings
had occurred as of January 1, 1997.
83
<PAGE> 89
(L) 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 of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Merger, the NHP
Merger and the NHP Reorganization as if these transactions had occurred as
of January 1, 1997.
<TABLE>
<CAPTION>
PREVIOUSLY
REPORTED
PRO FORMA
----------
<S> <C>
Rental and other property revenues.......................... $ 12,565
Property operating expenses................................. (6,886)
Owned property management expense........................... (625)
--------
Income from property operations before depreciation......... 5,054
Depreciation................................................ (1,805)
--------
Income from property operations............................. 3,249
--------
Management fees and other income............................ 65,768
Management and other expenses............................... (32,136)
Depreciation and amortization............................... (7,743)
--------
Income from service company business........................ 25,889
General and administrative expenses......................... (6,573)
Interest expense............................................ (11,907)
Interest income............................................. 853
Minority interest in other partnerships..................... (621)
--------
Income from operations...................................... 10,890
Income tax provision........................................ (4,915)
--------
Net income.................................................. $ 5,975
========
Income attributable to preferred stockholders............... $ 5,676
--------
Income attributable to common stockholders.................. $ 299
========
</TABLE>
84
<PAGE> 90
PRO FORMA FINANCIAL INFORMATION OF
AIMCO (INSIGNIA MERGER)
On March 17, 1998, AIMCO entered into an Agreement and Plan of Merger (the
"Insignia Merger Agreement") with Insignia Financial Group, Inc. ("Insignia")
pursuant to which Insignia will be merged with and into AIMCO with AIMCO as the
survivor (for purposes of this pro forma financial information, together with
the spin-off and purchase of 25% of Insignia Properties Trust ("IPT") as
discussed below, 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 select holdings. Pursuant to
an Indemnification Agreement entered into in connection with the Insignia Merger
Agreement (the "Insignia Indemnification Agreement"), the spun off company
("SpinCo") will provide indemnification for certain liabilities arising under
the Insignia Merger Agreement.
In the Insignia Merger the common stock, par value $0.01 per share, of
Insignia ("Insignia Common Stock") will be converted, assuming the stockholders
of AIMCO and Insignia approve the Insignia Merger, into the right to receive an
aggregate of approximately $303 million of Series E Preferred Stock, par value
$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 will be entitled to a preferred dividend of $50 million in the
aggregate, and when the preferred dividend is paid, the Series E Preferred stock
will automatically convert into AIMCO Common Stock on a one-for-one basis,
subject to antidilution adjustments, if any. In addition, AIMCO will assume
approximately $307 million in outstanding indebtedness and other liabilities and
will assume approximately $150 million of 6 1/2% Trust Convertible Preferred
Securities issued by Insignia Financing I, a subsidiary of Insignia (the
"TOPRs"), 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 an approximately 75% owned subsidiary of Insignia; the
25% of the shares of IPT not owned by Insignia are valued at an aggregate of
approximately $100 million, or approximately $13.25 per share. If the Insignia
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 for
aggregate consideration of approximately $911 million. Insignia's approximately
75%-owned real estate investment trust subsidiary, IPT, owns a 32% weighted
average general and limited partnership interest in approximately 51,000 units.
The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of
AIMCO as of December 31, 1997 has been prepared as if each of the following
transactions had occurred as of December 31, 1997: (i) all the transactions
discussed in the Pro Forma Financial Statements (Merger) on pages 76-84; (ii)
the Insignia Merger; and (iii) the transfer of certain assets and liabilities of
Insignia to the Unconsolidated Subsidiaries (the "Insignia Reorganization").
The following Pro Forma Consolidated Statement of Operations (Insignia
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 (Merger) on
pages 76-84; (ii) the Insignia Merger; and (iii) the Insignia Reorganization.
The following Pro Forma Financial Information (Insignia Merger) is based,
in part, on the audited Consolidated Financial Statements of Insignia for the
year ended December 31, 1997. The following Pro Forma Financial Information
(Insignia Merger) is also based, in part, on the Pro Forma Financial Information
(Merger) of AIMCO which is located on pages 76-84. 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; and (iii)
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,
85
<PAGE> 91
September 19, 1997, October 15, 1997, December 1, 1997, and December 23, 1997.
The following Pro Forma Financial Information (Insignia Merger) should be read
in conjunction with such financial statements and notes thereto. In the opinion
of AIMCO's management, all material adjustments necessary to reflect the effects
of these transactions have been made.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of Insignia, Ambassador, and NHP are adjusted to estimated fair
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 value. Therefore, the allocations reflected in the following unaudited Pro
Forma Financial Information (Insignia Merger) may differ from the amounts
ultimately determined.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared under the assumption that the AIMCO stockholders approved the issuance
of the Series E Preferred Stock, the Series E Preferred Stock has been converted
to AIMCO Common Stock, and AIMCO purchased the remaining 25% interest in IPT not
owned by Insignia.
If the stockholders of AIMCO do not approve the Insignia Merger, 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
in 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 dividend of $50 million. Holders of Series 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
face 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-for-one basis, subject to antidilution
adjustments, if any.
The following unaudited Pro Forma Financial Information (Insignia 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.
86
<PAGE> 92
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMBASSADOR INSIGNIA INSIGNIA
PRO HISTORICAL PURCHASE PRICE
FORMA(A) (B) SPINCO(C) ALLOCATIONS(D)
---------- ---------- --------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Real estate................... $2,172,744 $ 22,357 $ -- $ 24,799(G)
Property held for sale........ 6,284 -- -- --
Investments in securities..... 3,833 -- -- --
Investments in and notes
receivable from
unconsolidated
subsidiaries................ 84,459 -- -- --
Investments in and notes
receivable from
unconsolidated
partnerships................ 214,650 215,735 (22,102) 473,580(H)
Cash and cash equivalents..... 41,536 88,847 (9,250) --
Restricted cash............... 55,067 -- -- --
Accounts receivable........... 30,242 122,180 (100,816) --
Deferred financing costs...... 27,785 1,187 --
Goodwill...................... 125,239 158,524 (138,019) (1,570)(I)
Property management
contracts................... -- 147,256 (48,614) 13,407(J)
Other assets.................. 47,460 44,137 (15,319) (1,339)(K)
---------- -------- --------- --------
$2,809,299 $800,223 $(334,120) $508,877
========== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable......... $ 718,713 $ 28,042 $ (3,547) $ --
Secured tax-exempt bond
financing................... 387,107 -- -- --
Secured short-term
financing................... 14,257 159,662 (17,344) 243,865(L)
Unsecured short-term
financing................... -- 2,000 -- --
Accounts payable, accrued and
other liabilities........... 128,566 139,838 (95,740) 7,000(M)
Deferred tax liability........ 24,865 (7,213) (3,518)(N)
Security deposits and deferred
income...................... 12,693 2,296 (638) --
---------- -------- --------- --------
1,261,336 356,703 (124,482) 247,347
Minority interest in other
partnerships................ 36,335 61,546 (390) (61,156)(O)
Minority interest in Operating
Partnership................. 130,764 -- -- --
Company-obligated mandatorily
redeemable convertible
securities of a subsidiary
trust....................... -- 144,065 -- --
Class A common stock, $.01 par
value....................... 467 302 -- (221)(P)
Class B common stock, $.01 par
value....................... 2 -- -- --
Class A Senior Cumulative
Convertible Preferred Stock,
$.01 par value.............. -- -- -- --
Class B Cumulative Convertible
Preferred Stock, $.01 par
value....................... 75,000 -- -- --
Class C Cumulative Preferred
Stock, $.01 par value....... 60,000 -- -- --
Class D Cumulative Preferred
Stock, $.01 par value....... 105,000 -- -- --
Additional paid in capital.... 1,206,531 201,597 (193,036) 342,705(Q)
Notes receivable on common
stock purchases............. (35,095) -- -- --
Distributions in excess of
earnings.................... (30,928) 36,010 (16,212) (19,798)(R)
Unrealized gain on
investments................. (113) -- -- --
---------- -------- --------- --------
1,380,864 237,909 (209,248) 322,686
---------- -------- --------- --------
$2,809,299 $800,223 $(334,120) $508,877
========== ======== ========= ========
<CAPTION>
AIMCO
BEFORE
INSIGNIA INSIGNIA
REORGANIZATION REORGANIZATION INSIGNIA
(E) (F) PRO FORMA
-------------- -------------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Real estate................... $2,219,900 $ -- $2,219,900
Property held for sale........ 6,284 -- 6,284
Investments in securities..... 3,833 -- 3,833
Investments in and notes
receivable from
unconsolidated
subsidiaries................ 84,459 13,276(S) 97,735(U)
Investments in and notes
receivable from
unconsolidated
partnerships................ 881,863 -- 881,863
Cash and cash equivalents..... 121,133 (11,264)(T) 109,869
Restricted cash............... 55,067 -- 55,067
Accounts receivable........... 51,606 (21,356)(T) 30,250
Deferred financing costs...... 28,972 -- 28,972
Goodwill...................... 144,174 -- 144,174
Property management
contracts................... 112,049 (77,410)(T) 34,639
Other assets.................. 74,939 (14,027)(T) 60,912
---------- --------- ----------
$3,784,279 $(110,781) $3,673,498
========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
Secured notes payable......... $ 743,208 $ -- $ 743,208
Secured tax-exempt bond
financing................... 387,107 -- 387,107
Secured short-term
financing................... 400,440 (50,000)(T) 350,440
Unsecured short-term
financing................... 2,000 -- 2,000
Accounts payable, accrued and
other liabilities........... 179,664 (44,989)(T) 134,675
Deferred tax liability........ 14,134 (14,134)(T) --
Security deposits and deferred
income...................... 14,351 (1,658)(T) 12,693
---------- --------- ----------
1,740,904 (110,781) 1,630,123
Minority interest in other
partnerships................ 36,335 -- 36,335
Minority interest in Operating
Partnership................. 130,764 -- 130,764
Company-obligated mandatorily
redeemable convertible
securities of a subsidiary
trust....................... 144,065 -- 144,065
Class A common stock, $.01 par
value....................... 548 -- 548
Class B common stock, $.01 par
value....................... 2 -- 2
Class A Senior Cumulative
Convertible Preferred Stock,
$.01 par value.............. -- -- --
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
Additional paid in capital.... 1,557,797 -- 1,557,797
Notes receivable on common
stock purchases............. (35,095) -- (35,095)
Distributions in excess of
earnings.................... (30,928) -- (30,928)
Unrealized gain on
investments................. (113) -- (113)
---------- --------- ----------
1,732,211 -- 1,732,211
---------- --------- ----------
$3,784,279 $(110,781) $3,673,498
========== ========= ==========
</TABLE>
- -------------------------
(A) Represents AIMCO's pro forma consolidated financial position after giving
effect to the Merger. See page 78.
87
<PAGE> 93
(B) Represents the audited consolidated financial position of Insignia as of
December 31, 1997, as reported in Insignia's Annual Report on Form 10-K.
Certain reclassifications have been made to Insignia's historical balance
sheet to conform to AIMCO's balance sheet presentation.
(C) Represents adjustments to give effect to the spin-off of SpinCo.
(D) Represents adjustments to record the Insignia Merger in accordance with the
purchase method of accounting, based upon the assumed purchase price of
$974,980, as follows:
<TABLE>
<S> <C>
Issuance of 8,134,228 shares of AIMCO Series E Preferred
Stock based on an assumed Series E Conversion Ratio of
$37.25 per share.......................................... $303,000
Special dividend to Series E Preferred stockholders......... 50,000
Purchase the 25% interest in IPT not owned by Insignia...... 100,000
Assumption of TOPRs......................................... 144,065
Consideration related to the conversion of Insignia stock
options to AIMCO stock options............................ 48,347
Assumption of Insignia liabilities.......................... 308,434
Deferred tax liability...................................... 14,134
Insignia Merger costs (see calculation below)............... 7,000
--------
$974,980
========
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the Insignia Merger:
<TABLE>
<S> <C>
Expected severance costs.................................... $2,000
Legal fees.................................................. 3,000
Other professional fees, including printing................. 2,000
------
$7,000
======
</TABLE>
(E) Represents the effects of AIMCO's purchase of Insignia immediately after
the Merger. These amounts do not give effect to the Insignia
Reorganization, which includes the transfer of certain assets of Insignia
to the 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 Insignia Merger
transaction. The assets and liabilities of Insignia are adjusted to
estimated fair value, based upon preliminary estimates, which are subject
to change as additional information is obtained.
(F) Represents adjustments related to the Insignia Reorganization, whereby
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 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.
(G) Represents the adjustment to record Insignia's consolidated real estate
assets, net, to estimated fair value.
(H) Represents the adjustment to record Insignia's investment in unconsolidated
partnerships to estimated fair value.
(I) Represents the consideration paid in excess of identifiable tangible assets
and identifiable intangible assets, based on the preliminary valuation of
tangible and intangible assets.
(J) Represents the adjustment to record Insignia's investment in property
management contracts to estimated fair value.
(K) Represents the elimination of Insignia's organization costs of $4,489,
offset by an adjustment of $3,150 to record Insignia's other assets to
estimated fair value.
88
<PAGE> 94
(L) Represents borrowings under AIMCO's Credit Facility and other financing to
fund (i) the $50 million special dividend for the Series E Preferred Stock,
(ii) the purchase price of the 25% of IPT not owned by Insignia for $100
million; and (iii) $93,865 related to the difference between Insignia's
historical liabilities (excluding deferred tax liabilities) and $308,434.
The assets related to the additional liability of $93,865 will be allocated
to SpinCo upon consummation of the spin-off. As of December 31, 1997,
AIMCO's maximum availability under its Credit Facility was $100 million.
AIMCO expects to obtain financing with rates similar to its Credit Facility
in order to pay for the amounts in excess of the availability under the
Credit Facility.
(M) Represents the liability related to the estimated Insignia Merger costs.
(N) Represents the adjustment to record deferred tax liability resulting from
the differences in the fair value and tax basis of property management
contracts and other assets.
(O) Represents the elimination of the 25% of IPT not owned by Insignia upon
AIMCO's purchase of the remaining IPT stock.
(P) Represents the elimination of Insignia's Common Stock at $.01 par value
($302) net of the issuance of AIMCO Common Stock at $.01 par value ($81)
(see Note Q).
(Q) Represents the increase to paid-in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of 8,134,228 shares of AIMCO Common Stock at $37.25
per share................................................. $303,000
Less: Par value of AIMCO Common Stock Issued................ (81)
Insignia's historical paid-in-capital................. (8,561)
Consideration related to the conversion of Insignia stock
options to AIMCO stock options............................ 48,347
--------
$342,705
========
</TABLE>
(R) Represents the elimination of Insignia's retained earnings, as a result of
the Insignia Merger.
(S) Represents the increase in AIMCO's investment in the Unconsolidated
Subsidiaries to reflect the contribution of the equity in certain assets
and liabilities to the Unconsolidated Subsidiaries.
(T) 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.
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<PAGE> 95
(U) Amount represents notes receivable from the Unconsolidated Subsidiaries of
$50,000 and equity in the Unconsolidated Subsidiaries of $47,735. The
combined historical balance sheet of the Unconsolidated Subsidiaries as of
December 31, 1997 is presented below, which reflects the effects of the
Insignia Merger and the Insignia Reorganization as if such transactions had
occurred as of December 31, 1997.
<TABLE>
<CAPTION>
AMBASSADOR INSIGNIA INSIGNIA
PRO FORMA(I) REORGANIZATION(II) PRO FORMA
------------ ------------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate.......................................... $ 23,317 $ -- $ 23,317
Cash and cash equivalents............................ 5,261 11,264(iii) 16,525
Restricted cash...................................... 1,896 -- 1,896
Management contracts................................. 51,441 77,410(iii) 128,851
Accounts receivable.................................. 5,627 21,356(iii) 26,983
Deferred financing costs............................. 477 -- 477
Goodwill............................................. 43,523 -- 43,523
Other assets......................................... 13,313 14,027(iii) 27,340
-------- -------- --------
$144,855 $124,057 $268,912
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable................................ $ 25,301 $ -- $ 25,301
Secured short-term financing......................... 50,000 50,000(iii) 100,000
Accounts payable, accrued and other liabilities...... 20,978 44,989(iii) 65,967
Security deposits and deferred income................ 3,013 1,658(iii) 4,671
Deferred tax liability............................... 9,178 14,134(iv) 23,312
-------- -------- --------
108,470 110,781 219,251
Common stock......................................... 2,071 699(v) 2,770
Preferred stock...................................... 34,459 13,276(vi) 47,735
Retained earnings.................................... (26) -- (26)
Notes receivable on common stock purchases........... (119) (699)(v) (818)
-------- -------- --------
36,385 13,276 49,661
-------- -------- --------
$144,855 $124,057 $268,912
======== ======== ========
</TABLE>
- -------------------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated
financial position after giving effect to the Merger. See page 81.
(ii) Represents adjustments related to the Insignia Reorganization, whereby
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 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 establishment of the 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.
(vi) Represents the issuance of preferred stock to AIMCO in exchange for the
contribution of certain assets and liabilities of Insignia, valued at
AIMCO's new basis resulting from the allocation of purchase price of
Insignia.
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<PAGE> 96
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INSIGNIA
AMBASSADOR INSIGNIA PURCHASE PRICE INSIGNIA
PRO FORMA HISTORICAL ADJUSTMENTS REORGANIZATION INSIGNIA
(A) (B) SPINCO(C) (D) (E) PRO FORMA
---------- ---------- --------- -------------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues................... $ 377,503 $ 6,646 $ -- $ -- $ -- $ 384,149
Property operating
expenses................... (157,362) (3,251) -- -- -- (160,613)
Owned property management
expense.................... (10,002) -- -- -- -- (10,002)
--------- --------- --------- -------- -------- ---------
Income from property
operations before
depreciation............... 210,139 3,395 -- -- -- 213,534
Depreciation................. (78,951) (966) -- (1,321)(F) -- (81,238)
--------- --------- --------- -------- -------- ---------
Income from property
operations................. 131,188 2,429 -- (1,321) -- 132,296
--------- --------- --------- -------- -------- ---------
Management fees and other
income..................... 21,750 389,626 (295,712) -- (73,988)(M) 41,676
Management and other
expenses................... (15,304) (315,653) 256,151 3,873(G) 47,250(M) (23,683)
Corporate overhead
allocation................. (588) -- -- -- -- (588)
Depreciation and
amortization............... (7,201) (31,709) 15,490 (25,196)(H) 28,922(N) (19,694)
--------- --------- --------- -------- -------- ---------
Income from service company
business................... (1,343) 42,264 (24,071) (21,323) 2,184 (2,289)
Minority interest in service
company business........... (10) -- -- -- -- (10)
--------- --------- --------- -------- -------- ---------
Company's share of income
from service company
business................... (1,353) 42,264 (24,071) (21,323) 2,184 (2,299)
--------- --------- --------- -------- -------- ---------
General and administrative
expenses................... (6,421) (20,435) 2,644 3,700(G) 1,779(M) (18,733)
Interest expense............. (85,478) (9,353) 318 (18,166)(I) 3,725(M) (108,954)(Q)
Interest income.............. 10,576 4,571 (457) -- -- 14,690
Minority interest in other
partnerships............... 1,803 (12,448) (41) 2,486(J) -- (8,200)
Equity in losses of
Unconsolidated
Partnerships............... (10,057) 10,027 (151) (25,357)(K) -- (25,538)
Equity in earnings of
Unconsolidated
Subsidiaries............... 10,426 -- -- -- (4,382)(O) 6,044(S)
--------- --------- --------- -------- -------- ---------
Earnings before income tax
provision and minority
interest in Operating
Partnership................ 50,684 17,055 (21,758) (59,981) 3,306 (10,694)
Income tax provision......... -- (6,822) 8,703 (1,881)(L) -- --
--------- --------- --------- -------- -------- ---------
Net income (loss) before
minority interest in
Operating Partnership...... 50,684 10,233 (13,055) (61,862) 3,306 (10,694)
Minority interest in
Operating Partnership...... (3,436)(P) -- -- 3,436(P) -- --
--------- --------- --------- -------- -------- ---------
Net income (loss)............ 47,248 10,233 (13,055) (58,426) 3,306 (10,694)(Q)
Income attributable to
preferred stockholders..... 19,932 -- -- -- -- 19,932(R)
--------- --------- --------- -------- -------- ---------
Income (loss) attributable to
common stockholders........ $ 27,316 $ 10,233 $ (13,055) $(58,426) $ 3,306 $ (30,626)(Q)
========= ========= ========= ======== ======== =========
Basic earnings (loss) per
common share............... $ 0.59 $ (0.56)(Q)
========= =========
Diluted earnings (loss) per
common share............... $ 0.58 $ (0.56)(Q)
========= =========
Weighted average number of
common shares
outstanding................ 46,529 54,663
========= =========
Weighted average number of
common shares and common
share equivalents.......... 46,910 54,663
========= =========
</TABLE>
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<PAGE> 97
- -------------------------
(A) Represents AIMCO's pro forma consolidated results of operations after
giving effect to the Merger. See page 82.
(B) Represents the audited consolidated results of operations of Insignia as
of 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.
(C) Represents adjustments to give effect to the spin-off of SpinCo.
(D) Represents the following adjustments occurring as a result of the Insignia
Merger: (i) the incremental depreciation of the purchase price adjustment
related to consolidated real estate and investments in real estate
partnerships; (ii) the elimination of duplicate general and administrative
and property general and administrative expenses; (iii) the amortization of
goodwill and property management contracts resulting from the Insignia
Merger; (iv) the increase in interest expense resulting from the net
increase in debt; (v) the elimination of the income tax provision; and (vi)
the elimination of the minority interest associated with IPT.
(E) Represents adjustments related to the Insignia Reorganization, whereby
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.
(F) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the Insignia Merger. 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.
(G) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Insignia Merger, as
follows:
<TABLE>
<S> <C>
Duplication of expenses..................................... $5,245
Other....................................................... 2,328
------
$7,573
======
</TABLE>
(H) 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 as adjusted by the allocation of the purchase
price of Insignia, including amortization of property management contracts
of $37,350, goodwill of $946 and depreciation of furniture, fixtures, and
equipment of $3,119, less Insignia's historical depreciation and
amortization of $16,219. 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.
(I) Represents the increase in interest expense of $3,725 related to
borrowings to pay the special dividend of $50 million to the Series E
Preferred stockholders; $7,450 related to borrowings of $100 million to
purchase the remaining stock of IPT; and (iii) $6,991 related to
borrowings of $93,865 for the additional liabilities of Insignia assumed
by AIMCO.
(J) Represents elimination of minority interest in IPT resulting from the
purchase of the stock of IPT not owned by Insignia.
(K) 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.
(L) Represents the reversal of Insignia's income tax provision.
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<PAGE> 98
(M) 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.
(N) Represents the stepped-up 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.
(O) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(P) Represents adjustments to Minority Interest in Operating Partnership
assuming the Insignia Merger had occurred as of January 1, 1997. On a pro
forma basis, without giving effect to the Insignia Merger, as of December
31, 1997, the minority interest percentage is approximately 11.2%. On a pro
forma basis, giving effect to the Insignia Merger, as of December 31, 1997,
the minority interest percentage is approximately 9.7%.
(Q) 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................................ $ 1,078
========
Loss before minority interest in Operating Partnership...... (11,772)
Minority interest in Operating Partnership.................. --
--------
Net loss.................................................... $(11,772)
========
Net loss attributable to common stockholders................ $(31,704)
========
Basic and diluted loss per common share..................... $ (0.58)
========
</TABLE>
(R) Represents the net income allocated to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C 9% Cumulative Preferred Stock, and the
AIMCO Class D 8.75% Cumulative Preferred Stock as if these stock offerings
had occurred as of January 1, 1997.
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<PAGE> 99
(S) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries
of $1,294, plus 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 Merger, the Insignia Merger and the Insignia
Reorganization as if these transactions had occurred as of January 1,
1997.
<TABLE>
<CAPTION>
AMBASSADOR INSIGNIA INSIGNIA
PRO FORMA(I) REORGANIZATION(II) PRO FORMA
------------ ------------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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)
-------- -------- --------
Income from property operations before
depreciation....................................... 5,054 -- 5,054
Depreciation......................................... (1,805) -- (1,805)
-------- -------- --------
Income from property operations...................... 3,249 -- 3,249
-------- -------- --------
Management fees and other income..................... 65,768 73,988(iii) 139,756
Management and other expenses........................ (32,136) (47,250)(iii) (79,386)
Depreciation and amortization........................ (7,743) (28,922)(iv) (36,665)
-------- -------- --------
Income from service company business................. 25,889 (2,184) 23,705
General and administrative expenses.................. (6,573) (1,779)(iii) (8,352)
Interest expense..................................... (11,907) (3,725)(iii) (15,632)
Interest income...................................... 853 -- 853
Minority interest in other partnerships.............. (621) -- (621)
-------- -------- --------
Income from operations............................... 10,890 (7,688) 3,202
Income tax provision................................. (4,915) 3,075(v) (1,840)
-------- -------- --------
Net income........................................... $ 5,975 $ (4,613) $ 1,362
======== ======== ========
Income attributable to preferred stockholders........ $ 5,676 $ (4,382) $ 1,294
======== ======== ========
Income attributable to common stockholders........... $ 299 $ (231) $ 68
======== ======== ========
</TABLE>
- -------------------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Merger. See page 84.
(ii) Represents adjustments related to the Insignia Reorganization, whereby
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 stepped-up 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.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the operating results of the Unconsolidated Subsidiaries,
excluding amortization of goodwill, which is not deductible for tax
purposes.
94
<PAGE> 100
CAPITALIZATION OF AIMCO
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization of AIMCO at December 31,
1997: (i) on a historical basis; (ii) on an Ambassador pro forma basis to
reflect the Merger and the OP Reorganization; and (iii) on an Insignia pro forma
basis to reflect the Insignia Merger and Insignia Reorganization, applying the
assumptions described above with respect to the Pro Forma Financial Information.
The information set forth in the following table should be read in connection
with the financial statements and notes thereto incorporated by reference and
the pro forma financial information and notes thereto included herein. See "Pro
Forma Financial Information."
<TABLE>
<CAPTION>
AMBASSADOR INSIGNIA
ACCOUNT HISTORICAL PRO FORMA(1) PRO FORMA(1)
------- ---------- ------------ ------------
<S> <C> <C> <C>
Credit Facility(2)...................................... $ 33,500 $ 14,257 $ 100,000
Secured short-term financing............................ 19,599 -- 250,440
Unsecured notes payable................................. -- -- 2,000
Long-term debt:
Secured tax-exempt bond financing..................... 74,010 387,107 387,107
Secured notes payable................................. 681,421 718,713 743,208
Minority interests in other partnerships................ 36,335 36,335 36,335
Minority interests in Operating Partnership............. 111,962 130,764 130,764
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust...................... -- -- 144,065
Class A Common Stock, $.01 par value, 150,000,000
authorized, 40,439,218 issued and outstanding on a
historical basis, 46,862,089 issued and outstanding on
an Ambassador pro forma basis, and 54,996,317 issued
and outstanding on an Insignia pro forma basis(4)..... 403 467 548
Class B Common Stock, $.01 par value, 425,000
authorized, 162,500 issued and outstanding(5)......... 2 2 2
Class B Cumulative Convertible Preferred Stock, $.01 par
value, 750,000 authorized, issued and
outstanding(3)........................................ 75,000 75,000 75,000
Class C Cumulative Preferred Stock, $.01 par value,
2,760,000 authorized, 2,400,000 issued and
outstanding........................................... 60,000 60,000 60,000
Class D Cumulative Preferred Stock, $.01 par value,
4,600,000 authorized, none issued on a historical
basis, and 4,200,000 issued and outstanding on a pro
forma basis........................................... -- 105,000 105,000
Preferred Stock, $.01 par value, 2,250,000 authorized,
none issued or outstanding............................ -- -- --
Additional paid-in capital.............................. 977,601 1,206,531 1,557,797
Notes due on common stock purchases..................... (35,095) (35,095) (35,095)
Distributions in excess of earnings..................... (30,928) (30,928) (30,928)
Unrealized loss on investments.......................... (1,683) (113) (113)
---------- ---------- ----------
Total stockholders' equity.............................. 1,045,300 1,380,864 1,732,211
---------- ---------- ----------
Total Capitalization.................................... $2,002,127 $2,668,040 $3,526,130
========== ========== ==========
</TABLE>
- -------------------------
(1) The pro forma capitalization information is presented as if the transactions
detailed above occurred on December 31, 1997.
(2) As of December 31, 1997, the borrowings under the Credit Facility were $33.5
million.
(3) Convertible into 3.28407 shares of AIMCO Common Stock per share, or a total
of 2,463,053 shares at the option of the holder on or after August 4, 1998,
subject to certain and dilution adjustments.
(4) Excludes (i) 5,362,879 shares of AIMCO Common Stock which may be issued in
exchange for 5,362,879 AIMCO OP Units which may be tendered for redemption;
(ii) 162,500 shares of AIMCO Common Stock issuable upon conversion of shares
of AIMCO Class B Common Stock; (iii) 1,184,080 shares of AIMCO Common Stock
issuable upon exercise of outstanding options and warrants; and (iv)
2,463,053 shares of AIMCO Common Stock which may be issued upon conversion
of 750,000 shares of AIMCO Class B Preferred Stock.
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<PAGE> 101
(5) Convertible into 162,500 shares of AIMCO Common Stock if certain performance
standards are achieved, including 8.5% annual increases in both AIMCO's FFO
per share and the market price of AIMCO Common Stock. See "Description of
Capital Stock -- AIMCO Class B Common Stock".
BUSINESS OF AIMCO
AIMCO is the second largest owner and manager of multifamily apartment
properties in the United States, based on apartment unit data compiled by the
National Multi Housing Council as of January 1, 1998, with 193,057 apartment
units owned or under management as of December 31, 1997. As of December 31,
1997, AIMCO owned or controlled a total of 40,039 units in 147 apartment
properties, had an equity interest in non-consolidated partnerships that owned
83,431 units in 515 apartment properties and managed 69,587 units in 374
apartment communities for third parties and affiliates. In addition to the
Managed Properties, the Company manages all of the Owned Properties and a
majority of the Equity Properties. The AIMCO Properties are located in 42
states, the District of Columbia and Puerto Rico. AIMCO has elected to be taxed
as a REIT for Federal income tax purposes. AIMCO conducts substantially all of
its operations through the AIMCO Operating Partnership and its subsidiaries. As
of December 31, 1997, AIMCO held approximately an 88% interest in the AIMCO
Operating Partnership. Certain terms used herein are defined below in
"-- Accounting Policies and Definitions."
OPERATING AND FINANCIAL STRATEGIES
AIMCO uses the following operating and financing strategies to attempt to
meet its objective of providing long-term, predictable FFO per share:
- Acquisition of Properties at Less Than Replacement Cost. AIMCO attempts
to acquire properties at a significant discount to their replacement
cost, which AIMCO believes will provide it with a competitive cost
advantage in comparison to newly constructed properties.
- Geographic Diversification. AIMCO operates in 42 states, the District of
Columbia and Puerto Rico. This geographic diversification insulates
AIMCO, to some degree, from inevitable downturns in any one market. Among
Owned Properties and Equity Properties, Houston, Texas, AIMCO's largest
single regional market, and Dallas, Texas, AIMCO's second largest
regional market, accounted for approximately 13.9% and 8.0%,
respectively, of the properties in which AIMCO has an ownership interest,
on a pro rata basis.
- Market Growth. AIMCO seeks to operate in markets where population and
employment growth are expected to exceed the national average and where
it believes it can become a regionally significant owner or manager of
properties. The average annual population and employment growth rates
from 1990 to 1995 in AIMCO's five largest regional markets were 2.3% and
2.6%, respectively, compared to national averages of 1.1% and 1.7%,
respectively. For the 1996 to 1999 period, annual population and
employment growth rates in AIMCO's five largest regional markets are
forecasted to be 2.2% and 3.6%, respectively, compared with projected
national averages of 0.9% and 2.0%, respectively.
- Product Diversification. AIMCO's portfolio of apartment properties also
span a range of apartment community types, both within and among markets.
AIMCO's properties are located in both urban and suburban areas and range
from garden apartments to high rises and from luxury townhomes to
affordable properties.
- Capital Replacement. AIMCO believes that the physical condition and
amenities of its apartment communities are important factors in its
ability to maintain and increase rental rates. AIMCO also believes that a
program of regular maintenance of the quality of its apartments, rather
than episodic renovation, contributes to the reliability of earnings per
share. AIMCO presently allocates approximately $300 annually per owned
apartment unit for Capital Replacements and reserves unexpended amounts
for future capital replacements. From time to time, AIMCO reevaluates its
Capital Replacement requirements and updates the amount of its budgeted
Capital Replacements per owned apartment unit accordingly. For the year
ended December 31, 1997, AIMCO charged approximately $9.1 million for
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<PAGE> 102
Capital Replacements to its reserve, of which approximately $7.4 million
was spent, and had aggregate cumulative unexpended Capital Replacement
reserves of approximately $2.3 million at December 31, 1997.
- Debt Financing. AIMCO's strategy is generally to incur debt to increase
its return on equity while maintaining acceptable interest coverage
ratios. AIMCO seeks to match debt maturities to the character of the
assets financed. Accordingly, AIMCO uses predominantly long-term,
fixed-rate and self-amortizing debt in order to avoid the refunding or
repricing risks of short-term borrowings. AIMCO also uses short-term debt
financing to fund acquisitions and generally expects to refinance such
borrowings with proceeds from equity offerings or long-term debt
financings. As of December 31, 1997, approximately 7% of AIMCO's
outstanding debt was short-term debt and 93% was long-term debt.
- Dispositions. From time to time, AIMCO sells properties that do not meet
its return on investment criteria or that are located in areas where
AIMCO does not believe that the long-term neighborhood values justify the
continued investment in the properties. Three properties in Houston and
one property in each of Dallas and Phoenix were sold in October 1997.
AIMCO recognized a net gain of approximately $2.8 million on the sales.
- Dividend Policy. AIMCO pays dividends to share its profitability with
AIMCO's stockholders. For the years ended December 31, 1997, 1996 and
1995, AIMCO distributed 66.5%, 72.3% and 75.1% of FFO to its
stockholders. Amounts not distributed are available for reinvestment,
stock repurchases, amortization of debt and provide a margin to insulate
annual dividends from fluctuations in AIMCO's business. AIMCO's dividend
for 1997 was $1.85 per share. It is the present policy of AIMCO to
increase the dividend annually in an amount equal to one-half the rate of
the projected increase in FFO, adjusted for Capital Replacements. In
January 1998, AIMCO increased its dividend to $0.5625 per share per
quarter, commencing with the February 13, 1998 dividend payment which is
equivalent to an annualized dividend of $2.25 per share of AIMCO Common
Stock. The minimum annual distribution requirement for REITs, which
require the distribution of approximately 95% of "REIT taxable income"
(see "Federal Income Tax Considerations Related to AIMCO"), may result in
dividends increasing at a greater rate in the future.
GROWTH STRATEGIES
AIMCO seeks growth through two primary sources -- acquisition and internal
expansion.
Acquisition Strategies. AIMCO believes its acquisition strategies will
increase profitability and predictability of earnings by increasing its
geographic diversification, economies of scale and opportunities to provide
ancillary services to tenants at the AIMCO Properties. Since its initial public
offering in July 1994 (the "AIMCO IPO"), AIMCO has completed 28 acquisition
transactions involving a total of 105 properties for an aggregate purchase price
of approximately $997 million, including the assumption and incurrence of $544
million of indebtedness, through December 31, 1997.
AIMCO believes that its demonstrated ability to evaluate and complete
acquisitions, its property management record and its scale economies, to the
extent that AIMCO can operate a property more efficiently than the existing
owner or some competing purchasers, all provide credibility and advantage in
negotiating acquisitions. In addition, the ability to issue AIMCO OP Units to
sellers of properties may provide tax deferral opportunities to sellers and
could give AIMCO an advantage over competing buyers that cannot offer such tax
deferral opportunities. AIMCO acquires additional properties primarily in three
ways:
- Direct Acquisitions. AIMCO may directly acquire individual properties or
portfolios and controlling interests in entities that own or control such
properties or portfolios. During the year ended December 31, 1997, AIMCO
has directly acquired 44 apartment properties for a total consideration
of $464.8 million, consisting of $191.0 million in cash, approximately
1.9 million AIMCO OP Units valued at $53.4 million and the assumption or
incurrence of $220.4 million of indebtedness. See "-- Recent
Acquisitions."
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- Acquisition of Managed Properties. AIMCO believes that its property
management operations support its acquisition activities. Its
relationships with owners of the Managed Properties may provide it with a
means of learning of acquisition opportunities at an early stage of the
sale process. In addition, its familiarity with the property and its
ability to quickly evaluate the property give it an advantage in pursuing
and completing any such acquisition in a timely fashion. Since the AIMCO
IPO, AIMCO has acquired 12 properties comprising 3,530 units from its
managed portfolio for $129.0 million.
- Increasing its Interest in Partnerships. For properties where AIMCO owns
a general partnership interest in the property-owning partnership, AIMCO
may seek to acquire, subject to its fiduciary duties to the partnership,
the outstanding limited partnership interests for cash or, in some cases,
in exchange for AIMCO OP Units.
- In November 1996, AIMCO acquired the English Partnerships, which owned 22
apartment properties. AIMCO subsequently purchased pursuant to tender
offers to acquire all of the outstanding limited partnership interests of
25 of the English Partnerships, approximately 46%, in the aggregate, of
the outstanding limited partnership interests in such partnerships for
$15.0 million in cash and approximately 71,500 AIMCO OP Units valued at
$1.7 million.
- As of December 31, 1997, AIMCO has also commenced tender offers to
acquire all of the outstanding limited partnership interests in 26
partnerships owning 25 properties for an aggregate amount of
approximately $79.0 million. Through September 30, 1997, pursuant to such
tender offers, AIMCO has purchased approximately 20.2%, in the aggregate,
of the outstanding limited partnership interests for $16.0 million in
cash. In addition, as of September 30, 1997, AIMCO has received tenders
representing approximately an additional 18.8%, in the aggregate, of the
outstanding limited partnership interests.
Internal Growth Strategies. AIMCO pursues internal growth through the
following strategies:
- Revenue Increases. AIMCO increases rents where feasible and seeks to
improve occupancy rates. AIMCO believes that its policy of capital
improvements, amenities and customer service allows it to maintain demand
and to increase its rents above the rate of inflation in the local
market. AIMCO's "same store" revenues from the Owned Properties (based on
properties owned from period to period) have grown by 3.3% from the
fiscal year ended December 31, 1995 to that ended December 31, 1996, and
by 2.1% from the year ended December 31, 1996 to that ended December 31,
1997, compared to an urban consumer price inflation rate of 2.8% and 2.3%
over the same periods.
- Redevelopment of Properties. AIMCO believes redevelopment of selected
properties in superior locations provides advantages over development of
new properties, because, compared with new development, redevelopment
generally can be accomplished with relatively lower financial risk, in
less time and with reduced delays attributable to governmental
regulation. Recently AIMCO acquired and redeveloped Sun Katcher, a
360-unit property in Jacksonville, Florida, at a cost of $8.9 million,
including $4.9 million in redevelopment costs. AIMCO also recently
commenced the renovation and upgrading of Bay West, a 376-unit property
in Tampa, Florida, for a projected cost of $4.8 million, to reposition
the property in the marketplace. In addition, AIMCO expects to undertake
a major renovation of the Morton Towers apartments, a 1,277 unit property
located in Miami Beach, Florida, at an estimated cost of $35 million.
AIMCO generally finances redevelopment initially with borrowings from the
Credit Facility, and subsequently arranges permanent financing.
- Expansion of Properties. AIMCO believes that expansion within or adjacent
to existing AIMCO Properties also provides growth opportunities at lower
risk than new development. Such expansion can offer cost advantages to
the extent common area amenities and on-site management personnel can
service the expanded property. Recently AIMCO constructed 92 additional
units at Fairways, in Phoenix, Arizona, at a cost of $6.5 million. AIMCO
is planning the construction of 42 additional units at Township, in
Littleton, Colorado, for a projected cost of more than $3.0 million. In
addition, AIMCO owns or controls approximately 136 acres of vacant land,
adjacent to existing Owned Properties or Equity Properties, which AIMCO
believes is suitable for the development of approximately 1,300 apartment
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units. AIMCO generally finances expansions initially with borrowings from
the Credit Facility, and subsequently arranges permanent financing.
- Conversion of Affordable Properties; Improvement of Performance. AIMCO
believes that it may be able to significantly increase its return from
its portfolio of affordable properties by improving operations at some of
its properties or by converting some of its properties to conventional
properties. While management of AIMCO has commenced review of the
affordable properties, it has not yet made any determination as to the
conversion of any affordable property.
- Ancillary Services. AIMCO's management believes that its ownership and
management of the AIMCO Properties provides it with unique access to a
customer base for the sale of additional services which generate
incremental revenues. AIMCO currently provides cable television,
telephone services, appliance rental, renters' insurance and carport,
garage and storage space rental at certain AIMCO Properties. For example,
as of September 30, 1997, AIMCO has installed cable television service to
8,000 units and currently has more than 5,000 subscribers.
- Controlling Expenses. Cost reductions are accomplished by exploiting
economies of scale. As a result of the size of its portfolio and its
creation of regional concentrations of properties, AIMCO has the ability
to leverage fixed costs for general and administrative expenditures and
certain operating functions, such as insurance, information technology
and training, over a larger property base. For example, AIMCO's insurance
subsidiary provides workers' compensation and employer liability
insurance company-wide, without incurring material incremental costs as
AIMCO's property assets grow.
AIMCO also instills cost discipline in its property managers by
benchmarking their operations against the local market and other AIMCO
Properties.
PROPERTY MANAGEMENT STRATEGIES
Regional Hubs. AIMCO's property management strategy is to achieve
improvements in operating results by combining centralized financial control and
uniform operating procedures with localized property management decision making
and market knowledge. AIMCO's management operations are organized into 13
regional hubs, each supervised by a Regional Vice President, who have on average
17 years of experience in apartment management.
<TABLE>
<CAPTION>
APARTMENT
APARTMENT UNITS COMMUNITIES
REGIONAL HUBS MANAGED(1) MANAGED(1)
------------- --------------- -----------
<S> <C> <C>
Mid Atlantic I.............................................. 10,394 51
Mid Atlantic II............................................. 11,297 46
Midwest/North Midwest....................................... 16,714 97
North Florida............................................... 11,543 45
North Texas................................................. 20,276 97
Northeast................................................... 17,238 104
Rocky Mountain.............................................. 8,538 62
South Atlantic.............................................. 34,112 156
South Florida............................................... 10,717 31
South Texas................................................. 13,728 64
Southeast................................................... 11,258 62
Southwest................................................... 9,996 39
West........................................................ 5,972 54
------- ---
181,783 908
======= ===
</TABLE>
- -------------------------
(1) Includes only units and apartment communities managed by AIMCO. Does not
include 8,942 units in 116 apartment communities in which AIMCO has an
ownership interest but does not manage and 2,332 senior living units, all of
which are managed as a separate portfolio.
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Customer Service. AIMCO believes that resident satisfaction is directly
related to the experience and training of on-site management personnel. AIMCO
provides on-site management trained to respond promptly to residents' needs. To
improve customer service, AIMCO conducts annual resident satisfaction surveys,
guarantees that material defects will be corrected in 24 hours and refunds
related rent if that commitment is not met.
Personnel Policies. AIMCO has attempted to reduce turnover and retain
experienced personnel by establishing an employee mentoring program and
providing managers with incentive-based compensation. In addition, managing
properties for third parties, AIMCO believes, improves performance at Managed
Properties and Owned Properties alike by subjecting property managers to
market-based pricing and service standards.
START. Properties that are behind budget or face other significant
operating difficulties receive direct supervision and intervention from START, a
team of professionals, led by Executive Vice President Steven Ira, a founder of
AIMCO. Members of START focus on not more than 10 to 15 properties at any one
time, which allows them to focus sharply on the subject properties. START also
oversees due diligence on acquisitions and major construction activities.
Management Incentives. AIMCO believes that equity ownership by management
and equity- and incentive-based compensation are important factors in
attracting, retaining and motivating the most qualified and experienced
personnel and directors. AIMCO's goal is to align management's interests with
those of stockholders through the use of equity-based compensation plans to
direct management's efforts towards enhancing shareholder value.
The following table reflects the ownership of AIMCO Common Stock and AIMCO
OP Units by senior management of AIMCO, which, as of December 31, 1997 (assuming
full conversion of AIMCO OP Units), represented approximately 7.3% of the
outstanding AIMCO Common Stock.
<TABLE>
<CAPTION>
TOTAL SHARES OF AIMCO
COMMON STOCK AND AIMCO OP UNITS PERCENTAGE
OWNED BY MANAGEMENT OWNED INVESTMENT(1)
------------------------------- ---------- -------------
<S> <C> <C> <C>
AIMCO IPO.............................. 926,000 8.6% $ 17 million
December 31, 1995...................... 1,067,000 7.7% $ 21 million
December 31, 1996...................... 2,303,000 12.5% $ 65 million
December 31, 1997...................... 3,843,000 8.4% $141 million
March 25, 1998......................... 4,065,000 8.7% $152 million
</TABLE>
- -------------------------
(1) Encumbered by outstanding secured partially recourse notes in the amount of
$29.1 million as of March 25, 1998.
- On July 25, 1997, eleven senior managers of AIMCO purchased 1.1 million
shares of AIMCO Common Stock at a price of $30 per share in exchange for
promissory notes secured by such stock, which notes are recourse as to
25% of the principal owed. See "-- Recent Financings."
- AIMCO pays a majority of the compensation to its outside directors in
AIMCO Common Stock.
- AIMCO issues all stock options at the then-current market price, and
requires that employees own AIMCO Common Stock before receiving their
options. As of December 31, 1997, the number of outstanding options was
784,081.
ACCOUNTING POLICIES AND DEFINITIONS
AIMCO has the following accounting policies and definitions:
The Board of Governors of NAREIT defines FFO as net income (loss), computed
in accordance with generally accepted accounting principles, excluding gains and
losses from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs), and
after adjustments for unconsolidated partnerships and joint ventures. AIMCO
calculates FFO in a manner consistent with the NAREIT definition, which includes
adjustments for minority interest in the
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AIMCO Operating Partnership, plus amortization of management company goodwill,
the non-cash deferred portion of the income tax provision for unconsolidated
subsidiaries and less the payment of dividends on non-convertible preferred
stock. AIMCO's management believes that presentation of FFO provides investors
with industry accepted measurements which help facilitate understanding of
AIMCO's ability to meet required dividend payments, capital expenditures, and
principal payments on its debt. There can be no assurance that AIMCO's basis of
computing FFO is comparable with that of other REITs.
AIMCO capitalizes spending for items which generally cost more than $250
and have a useful life of more than one year, such as carpet replacement, new
appliances, new roofs or parking lot repaving. Capitalized spending which
maintains a property is termed a "Capital Replacement." In the experience of
AIMCO's management, this spending is better considered a recurring cost of
preserving an asset rather than as an additional investment.
For financial reporting purposes, AIMCO consolidates entities in which it
owns both a general partnership interest and controls investment decisions with
respect to the underlying assets. AIMCO generally has a 30% to 51% economic
interest in such entities. Entities in which AIMCO has less than a 30% economic
interest or limited control are accounted for on the equity method.
AIMCO policy is generally to hold Class C properties and affordable
properties (substantially all of which are Class C properties) in unconsolidated
partnerships. AIMCO accounts for these properties on the equity method in
accordance with GAAP.
POLICIES OF AIMCO WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The following is a discussion of certain other investment objectives and
policies, financing policies and other policies of AIMCO. These policies are
determined by the officers and directors of AIMCO and may be amended or revised
from time to time at their discretion without a vote of AIMCO's stockholders. As
the sole general partner of the AIMCO Operating Partnership, AIMCO also
determines the investment policies of the AIMCO Operating Partnership.
Investment in Others. AIMCO may also participate with other entities in
property ownership, through joint ventures or other types of co-ownership. Any
such equity investment may be subject to existing mortgage financing and other
indebtedness which would have priority over the equity of AIMCO in that
property.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. AIMCO may also acquire securities of or interests in persons engaged
in the acquisition, redevelopment and/or management of multifamily apartment
properties, if it determines that such acquisition would be accretive to FFO per
share.
Investments in Real Estate Mortgages. While AIMCO generally emphasizes
direct real estate investments, it may, in its discretion and subject to the
percentage ownership limitations and gross income tests necessary for REIT
qualification, invest in mortgage and other indirect real estate interests,
including securities of other real estate investment trusts. AIMCO has not
previously invested in mortgages or securities of other real estate investment
trusts and AIMCO does not presently intend to invest to a significant extent in
mortgages or securities of other real estate investment trusts.
Operating and Financing Policies. AIMCO seeks to maintain a ratio of EBITDA
(less a provision of approximately $300 per owned apartment unit) to debt (the
"Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to the
character of the assets financed. See "-- Operating and Financial Strategies --
Debt Financing." AIMCO, however, may from time to time re-evaluate borrowing
policies in light of then current economic conditions, relative costs of debt
and equity capital, market values of properties, growth and acquisition
opportunities and other factors. AIMCO may modify its borrowing policy and may
increase or decrease its Debt Coverage Ratio policy.
To the extent that the AIMCO Board determines to seek additional capital,
AIMCO may raise such capital through additional equity offerings, debt financing
or retention of cash flow (after consideration of provisions of the Code
requiring the distribution by a REIT of a certain percentage of taxable income
and
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taking into account taxes that would be imposed on undistributed taxable
income), or through a combination of these sources. AIMCO presently anticipates
that any additional borrowings will be made through the AIMCO Operating
Partnership, although AIMCO might incur borrowings that would be reloaned to the
AIMCO Operating Partnership. The AIMCO Operating Partnership cannot incur
indebtedness that is recourse to AIMCO without AIMCO's approval. AIMCO may
approve the AIMCO Operating Partnership's incurring additional debt that is
recourse to the Operating Partnership. Borrowings may be unsecured or may be
secured by any or all assets of AIMCO, the AIMCO Operating Partnership, or any
existing or new property and may have full or limited recourse to all or any
portion of the assets of AIMCO, the AIMCO Operating Partnership, or any existing
or new property.
AIMCO has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.
AIMCO may also determine to issue securities senior to the AIMCO Common
Stock, including preferred stock and debt securities (either of which may be
convertible into capital stock or be accompanied by warrants to purchase capital
stock). AIMCO may also determine to finance acquisitions through the exchange of
properties or issuance of additional AIMCO OP Units, shares of AIMCO Common
Stock or other securities.
If the AIMCO Board determines to raise additional equity capital, the AIMCO
Board has the authority, without stockholder approval, to issue additional
shares of AIMCO Common Stock or other capital stock (including securities senior
to the AIMCO Common Stock) in any manner (and on such terms and for such
consideration) it deems appropriate, including in exchange for property. Such
issuances might cause a dilution of a stockholder's investment in AIMCO. If the
AIMCO Board determines to raise additional equity capital to fund investments by
the AIMCO Operating Partnership, AIMCO will contribute such funds to the AIMCO
Operating Partnership as a contribution to capital and purchase of additional
general partnership interests. AIMCO may issue additional shares of AIMCO Common
Stock in connection with the acquisition of AIMCO OP Units that are tendered to
the AIMCO Operating Partnership for redemption.
The AIMCO Board also has the authority to cause the AIMCO Operating
Partnership to issue additional AIMCO OP Units in any manner (and on such terms
and for such consideration) as it deems appropriate, including in exchange for
property. Any such new AIMCO OP Units will be redeemable at the option of the
holder, which redemption AIMCO intends to cause to be made in AIMCO Common Stock
pursuant to the redemption rights.
Conflict of Interest Policies. AIMCO has adopted certain policies designed
to minimize or eliminate conflicts of interests between AIMCO and its executive
officers and directors. Without the approval of a majority of the disinterested
directors, AIMCO will not (i) acquire from or sell to any director, officer or
employee of AIMCO or any entity in which a director, officer or employee of
AIMCO owns more than a 1% interest, or acquire from or sell to any affiliate of
any of the foregoing, any assets or other property of AIMCO, (ii) make any loan
to or borrow from any of the foregoing persons, or (iii) engage in any material
transaction with the foregoing. In addition, AIMCO has entered in to employment
agreements with Messrs. Considine, Kompaniez and Ira which include provisions
intended to eliminate or minimize potential conflicts of interest, and which
provide that those persons will be prohibited from engaging directly or
indirectly in the acquisition, development, operation or management of other
multifamily apartment properties outside of AIMCO, except with respect to
certain investments currently held by such persons, as to which investments
those persons have committed to an orderly liquidation. There can be no
assurance, however, that these policies always will be successful in eliminating
the influence of such conflicts, and if they are not successful, decisions could
be made that might fail to reflect fully the interests of AIMCO's stockholders
as a whole.
Policies with Respect to Other Activities. AIMCO has authority to offer
shares of its capital stock or other securities and to repurchase or otherwise
reacquire its shares or any other securities, has done so, and may engage in
such activities in the future. From its inception, AIMCO has made loans
aggregating $5.1 million to certain entities owning properties subsequently
acquired by AIMCO. No balances remain outstanding on such loans. In the same
period, AIMCO has made loans aggregating $52.2 million to its officers for the
purchase of AIMCO Common Stock and $5.1 million to its officers and other
entities to acquire interests in subsidiaries of
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AIMCO. The outstanding balances on such loans as of December 31, 1997 were $30.5
million and $3.2 million, respectively. Messrs. Considine and Kompaniez have
repaid in part, using $2.0 million in proceeds distributed to them from the sale
of NHP Common Stock by ANHI to AIMCO, outstanding promissory notes payable by
them to ANHI in an aggregate amount of $3.2 million, which loan was made to them
by ANHI to acquire their interest in ANHI. See "-- Recent Financings." In
addition, AIMCO from time to time advances amounts for relocation and other
expenses. AIMCO has not engaged in underwriting securities of other issuers.
AIMCO intends to make investments in such a way that it will not be treated as
an investment company under the Investment Company Act of 1940, as amended.
AIMCO may invest in the securities of other issuers engaged in the
ownership, acquisition or management of multifamily apartment properties for the
purpose of exercising control.
At all times, AIMCO intends to make investments in such a manner as to be
consistent with the requirements of the Code for AIMCO to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in Treasury
Regulations), the AIMCO Board determines that it is no longer in the best
interest of AIMCO to qualify as a REIT.
AIMCO, as a REIT, is required to distribute annually to holders of AIMCO
Common Stock at least 95% of its "real estate investment trust taxable income,"
which, as defined by the Code and the Treasury regulations, is generally
equivalent to net taxable ordinary income. AIMCO measures its economic
profitability and intends to pay regular dividends to its stockholders based on
earnings during the relevant period. However, the future payment of dividends by
AIMCO will be at the discretion of the AIMCO Board and will depend on numerous
factors, including AIMCO's financial condition, its capital requirements, the
annual distribution requirements under the provisions of the Code applicable to
REITs and such other factors as the AIMCO Board deems relevant.
EXECUTIVE OFFICES
AIMCO's principal executive offices are located at 1873 South Bellaire
Street, 17th Floor, Denver, Colorado 80222, and its telephone number is (303)
757-8101.
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BOARD OF DIRECTORS AND OFFICERS OF AIMCO
The directors and executive officers of AIMCO, their ages, dates they were
first elected and their positions with AIMCO or on the AIMCO Board are set forth
below.
<TABLE>
<CAPTION>
NAME AGE FIRST ELECTED POSITION
---- --- ------------- --------
<S> <C> <C> <C>
Terry Considine................ 50 July 1994 Chairman of the Board of Directors and Chief
Executive Officer
Peter K. Kompaniez............. 53 July 1994 Vice Chairman, President and Director
Joel F. Bonder................. 49 December 1997 Executive Vice President, General Counsel
and Secretary
Robert Ty Howard............... 40 February 1998 Executive Vice President -- Ancillary
Services
Steven D. Ira.................. 47 July 1994 Executive Vice President and Co-Founder
Thomas W. Toomey............... 37 January 1996 Executive Vice President -- Finance and
Administration
David L. Williams.............. 52 January 1997 Executive Vice President -- Property
Operations
Harry G. Alcock................ 34 July 1996 Senior Vice President -- Acquisitions
Troy D. Butts.................. 33 November 1997 Senior Vice President and Chief Financial
Officer
Patricia K. Heath.............. 43 July 1994 Vice President and Chief Accounting Officer
Richard S. Ellwood............. 65 July 1994 Director; Chairman, Audit Committee
J. Landis Martin............... 52 July 1994 Director; Chairman, Compensation Committee
Thomas L. Rhodes............... 58 July 1994 Director
John D. Smith.................. 69 November 1994 Director
</TABLE>
The following is a biographical summary of the experience of the current
directors and executive officers of AIMCO for the past five years or more.
Terry Considine. Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO since July 1994. He is the sole owner of
Considine Investment Co. and prior to July 1994 was owner of approximately 75%
of Property Asset Management, L.L.C., Limited Liability Company, a Colorado
limited liability company, and its related entities (collectively, "PAM"), one
of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed
Co-Chairman and director of Asset Investors Corp. and Commercial Asset
Investors, Inc., two other public real estate investment trusts, and appointed
as a director of Financial Assets Management, LLC, a real estate investment
trust manager. Mr. Considine has been involved as a principal in a variety of
real estate activities, including the acquisition, renovation, development and
disposition of properties. Mr. Considine has also controlled entities engaged in
other businesses such as television broadcasting, gasoline distribution and
environmental laboratories. Mr. Considine received a B.A. from Harvard College,
a J.D. from Harvard Law School and is admitted as a member of the Massachusetts
Bar.
Mr. Considine has had substantial multifamily real estate experience. From
1975 through July 1994, partnerships or other entities in which Mr. Considine
had controlling interests invested in approximately 35 multifamily apartment
properties and commercial real estate properties. Six of these real estate
assets (four of which were multifamily apartment properties and two of which
were office properties) did not generate sufficient cash flow to service their
related indebtedness and were foreclosed upon by their lenders, causing pre-tax
losses of approximately $11.9 million to investors and losses of approximately
$2.7 million to Mr. Considine.
Peter K. Kompaniez. Mr. Kompaniez has been Vice Chairman, President and a
director of AIMCO since July 1994. Since September 1993, Mr. Kompaniez has owned
75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of
AIMCO's predecessors, and serves as its President and Chief Executive Officer.
From 1986 to 1993, he served as President and Chief Executive Officer of Heron
Financial Corporation ("HFC"), a United States holding company for Heron
International, N.V.'s real estate and related assets. While at HFC, Mr.
Kompaniez administered the acquisition, development and disposition of
approximately 8,150 apartment units (including 6,217 units that have been
acquired by AIMCO) and 3.1
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million square feet of commercial real estate. Prior to joining HFC, Mr.
Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had
extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from
Yale College and a J.D. from the University of California (Boalt Hall).
The downturn in the real estate markets in the late 1980s and early 1990s
adversely affected the United States real estate operations of Heron
International N.V. and its subsidiaries and affiliates (the "Heron Group").
During this period from 1986 to 1993, Mr. Kompaniez served as President and
Chief Executive Officer of Heron Financial Corporation ("HFC"), and as a
director or officer of certain other Heron Group entities. In 1993, HFC, its
parent Heron International, and certain other members of the Heron Group
voluntarily entered into restructuring agreements with separate groups of their
United States and international creditors. The restructuring agreement for the
United States members of the Heron Group generally provided for the joint
assumption of certain liabilities and the pledge of unencumbered assets in
support of such liabilities for the benefit of their United States creditors. As
a result of the restructuring, the operations and assets of the United States
members of the Heron Group were generally separated from those of Heron
International and its non-United States subsidiaries. At the conclusion of the
restructuring, Mr. Kompaniez commenced the operations of PDI Realty Enterprises,
Inc., a Delaware corporation ("PDI"), which was engaged to act as asset and
corporate manager of the continuing United States operations of HFC and the
other United States Heron Group members for the benefit of the United States
creditors. In connection with certain transactions effected at the time of the
initial public offering of AIMCO Common Stock, Mr. Kompaniez was appointed Vice
Chairman of AIMCO and substantially all of the property management assets of PDI
were transferred or assigned to AIMCO.
Joel F. Bonder. Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO effective December 8, 1997. Prior to joining AIMCO, Mr.
Bonder served as Senior Vice President and General Counsel of NHP from April
1994 until December 1997. Mr. Bonder served as Vice President and Deputy General
Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of
NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder practiced with the
Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder
practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an
A.B. from the University of Rochester and a J.D. from Washington University
School of Law.
Robert Ty Howard. Mr. Howard was appointed Executive Vice President -
Ancillary Services in February 1998. Prior to joining AIMCO, Mr. Howard served
as an officer and/or director of four affiliated companies, Hecco Ventures,
Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was
responsible for financing, mergers and acquisitions activities, investments in
commercial real estate, both nationally and internationally, cinema development
and interest rate risk management. From 1983 to 1988, he was employed by Spieker
Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard
Law School and an M.B.A. from Stanford University Graduate School of Business.
Steven D. Ira. Mr. Ira is a Co-Founder of AIMCO and has served as
Executive Vice President of AIMCO since July 1994. From 1987 until July 1994, he
served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira
acquired extensive experience in property management. Between 1977 and 1981 he
supervised the property management of over 3,000 apartment and mobile home units
in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with
others to form the property management firm of McDermott, Stein and Ira. Mr. Ira
served for several years on the National Apartment Manager Accreditation Board
and is a former president of both the National Apartment Association and the
Colorado Apartment Association. Mr. Ira is the sixth individual elected to the
Hall of Fame of the National Apartment Association in its 54-year history. He
holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment
Manager designation from the National Apartment Association, a Certified
Property Manager (CPM) designation from the National Institute of Real Estate
Management (IREM) and he is a member of the Boards of Directors of the National
Multi-Housing Council, the National Apartment Association and the Apartment
Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State
College in 1975.
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Thomas W. Toomey. Mr. Toomey has served as Senior Vice President --
Finance and Administration of AIMCO since January 1996 and was promoted to
Executive Vice President -- Finance and Administration in March 1997. From 1990
until 1995, Mr. Toomey served in a similar capacity with Lincoln Property
Company ("LPC") as Vice President/Senior Controller and Director of
Administrative Services of Lincoln Property Services where he was responsible
for LPC's computer systems, accounting, tax, treasury services and benefits
administration. From 1984 to 1990, he was an audit manager with Arthur Andersen
& Co. where he served real estate and banking clients. From 1981 to 1983, Mr.
Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey
received a B.S. in Business Administration/Finance from Oregon State University
and is a Certified Public Accountant.
David L. Williams. Mr. Williams has been Executive Vice President --
Operations of AIMCO since January 1997. Prior to joining AIMCO, Mr. Williams was
Senior Vice President of Operations at Evans Withycombe Residential, Inc. from
January 1996 to January 1997. Previously, he was Executive Vice President at
Equity Residential Properties Trust from October 1989 to December 1995. He has
served on National Multi-Housing Council Boards and NAREIT committees. Mr.
Williams also served as Senior Vice President of Operations and Acquisitions of
US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the
property management, development and acquisition of real estate properties since
1973. Mr. Williams received his B.A. in education and administration from the
University of Washington in 1967.
Harry G. Alcock. Mr. Alcock has served as a Vice President since July
1996, and was promoted to Senior Vice President -- Acquisitions in October 1997,
with responsibility for acquisition and financing activities since July 1994.
From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst
for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development
Corp., a Los Angeles based real estate developer, with responsibility for
raising debt and joint venture equity to fund land acquisitions and development.
From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his
B.S. from San Jose State University.
Troy D. Butts. Mr. Butts has served as Senior Vice President and Chief
Financial Officer of AIMCO since November 1997. Prior to joining AIMCO, Mr.
Butts served as a Senior Manager in the audit practice of the Real Estate
Services Group for Arthur Anderson LLP in Dallas, Texas. Mr. Butts was employed
by Arthur Andersen LLP for ten years and his clients were primarily
publicly-held real estate companies, including office and multi-family real
estate investment trusts. Mr. Butts holds a Bachelor of Business Administration
degree in Accounting from Angelo State University and is a Certified Public
Accountant.
Patricia K. Heath. Ms. Heath has served as Vice President and Chief
Accounting Officer of AIMCO since July 1994. From 1992 to July 1994, Ms. Heath
served as Manager of Accounting, then Chief Financial Officer, of HFC, and
effective September 1993, as Chief Financial Officer of PDI. She had
responsibility for all internal and external financial reporting, cash
management and budgeting for HFC, its subsidiaries, related joint ventures and
partnerships and for PDI. Ms. Heath served as Controller for the real estate
investment, development and syndication firms of Guilford Glazer & Associates
from 1990 to 1992, Ginarra Holdings, Inc. from 1984 to 1990, and Fox & Carskadon
Financial Corporation from 1980 to 1983. Ms. Heath worked from 1978 to 1980 as
an auditor with Deloitte, Haskins and Sells. She received her B.S. in Business
from California State University at Chico and is a Certified Public Accountant.
Richard S. Ellwood. Mr. Ellwood was appointed a director of AIMCO in July
1994 and is currently Chairman of the Audit Committee. Mr. Ellwood is the
founder and President of R.S. Ellwood & Co., Incorporated, a real estate
investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in
1987, Mr. Ellwood had 31 years experience on Wall Street as an investment
banker, serving as: Managing Director and senior banker at Merrill Lynch Capital
Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978
to 1984; general partner and then Senior Vice President and a director at White,
Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co.
from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite
Hotels, Inc.
J. Landis Martin. Mr. Martin was appointed a director of AIMCO in July 1994
and became Chairman of the Compensation Committee in March 1998. Mr. Martin has
served as President and Chief Executive Officer and a Director of NL Industries,
Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has
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<PAGE> 112
served as Chairman of Tremont Corporation, a holding company operating through
its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc.,
since 1990 and as Chief Executive Officer and a director of Tremont since 1988.
Mr. Martin has served as Chairman of TIMET, an integrated producer of titanium,
since 1987 and Chief Executive Officer since January 1995. From 1990 until its
acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served
as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an
oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a
director of Dresser, which is engaged in the petroleum services, hydrocarbon and
engineering industries.
Thomas L. Rhodes. Mr. Rhodes was appointed a Director of AIMCO in July
1994. Mr. Rhodes has served as the President and a Director of National Review
magazine since November 30, 1992, where he has also served as a Director since
1988. From 1976 to 1992, he held various positions at Goldman, Sachs & Co. and
was elected a General Partner in 1986 and served as a General Partner from 1987
until November 27, 1992. He is currently Co-Chairman of the Board, Co-Chief
Executive Officer and a Director of Commercial Assets Inc. and Asset Investors
Corporation. He also serves as a Director of Delphi Financial Group, Inc. and
its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and The
Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Impire
Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of
The Heritage Foundation, and a Trustee of The Manhattan Institute.
John D. Smith. Mr. Smith was appointed a director of AIMCO in November
1994. Mr. Smith is Principal and President of John D. Smith Developments. Mr.
Smith has been a shopping center developer, owner and consultant for over 8.6
million square feet of shopping center projects including Lenox Square in
Atlanta, Georgia. Mr. Smith is a Trustee and former President of the
International Council of Shopping Centers and was selected to be a member of the
American Society of Real Estate Counselors. Mr. Smith served as a director for
Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly
known as Continental Illinois Properties. He also serves as a director of
American Fidelity Assurance Companies and is retained as an advisor by Shop
System Study Society, Tokyo, Japan.
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<PAGE> 113
PRINCIPAL STOCKHOLDERS OF AIMCO
The following table sets forth certain information available to AIMCO, as
of February 28, 1998, with respect to shares of AIMCO Common Stock and AIMCO OP
Units held by (i) each director and the five most highly compensated executive
officers who were serving as of December 31, 1997, (ii) all directors and
executive officers of AIMCO as a group and (iii) those persons known to AIMCO to
be the beneficial owners (as determined under the rules of the Commission) of
more than 5% of such shares. The business address of each of the following is
1873 South Bellaire Street, Suite 1700, Denver, Colorado 80222-4348, unless
otherwise specified.
<TABLE>
<CAPTION>
PRO FORMA
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OF COMMON STOCK AIMCO OP OWNERSHIP OF OWNERSHIP OF
OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING UNITS(1) AIMCO(2) AIMCO(2)(3)
------------------- ------------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
Terry Considine.................. 1,777,445(4)(5) 4.8% 783,803(6) 5.5% 4.2%
Peter K. Kompaniez............... 598,030(4) 1.4 23,625 1.3 1.0
Steven D. Ira.................... 240,897(4)(7) 0.6 96,373 0.7 0.6
Thomas W. Toomey................. 239,632 0.6 -- 0.7 0.4
Harry G. Alcock.................. 19,842(8) * -- * *
Richard S. Ellwood............... 13,200(9) * -- * *
J. Landis Martin................. 21,700 * -- * *
Thomas L. Rhodes................. 39,600(10) * -- * *
John D. Smith.................... 13,700(11) * -- * *
All directors and executive
officers as a group (13
persons)....................... 3,161,425(12) 7.6 903,801 8.7 6.7
5% or Greater Holders:
Cohen & Steers Realty Shares,
Inc. .......................... 3,575,300 8.6 -- 7.7 5.9
757 Third Avenue
New York, New York 10017
ABKB/La Salle Securities Limited
Partnership.................... 2,817,018(13) 6.8 -- 6.0 4.7
100 East Pratt Street
Baltimore, Maryland 21202
</TABLE>
- -------------------------
* Less than 0.1%
(1) Through wholly owned subsidiaries, AIMCO acts as general partner of, and,
as of February 18, 1998, holds 89% of the interests in, the AIMCO Operating
Partnership. After a one-year holding period, AIMCO OP Units may be
tendered for redemption and, upon tender, may be acquired by AIMCO for
shares of AIMCO Common Stock at an exchange ratio of one share of AIMCO
Common Stock for each AIMCO OP Unit (subject to adjustment). If all AIMCO
OP Units were acquired by AIMCO for AIMCO Common Stock (without regard to
the Ownership Limit) these shares of AIMCO Common Stock would constitute
approximately 11% of the then outstanding shares of AIMCO Common Stock.
AIMCO OP Units are subject to certain restrictions on transfer.
(2) On a fully diluted basis, assuming all 5,235,337 AIMCO OP Units outstanding
as of February 18, 1998 are acquired by AIMCO for shares of AIMCO Common
Stock at the exchange ratio of one AIMCO OP Unit for each share of AIMCO
Common Stock without regard to the Ownership Limit.
(3) Assumes that 7,205,739 shares of AIMCO Common Stock are issued in the
Merger.
(4) Excludes 93,428, 41,438 and 13,821 shares of AIMCO Class B Common Stock
held by Messrs. Considine, Kompaniez and Ira, respectively, representing
57.5%, 25.5% and 8.5%, respectively of the total number of shares of AIMCO
Class B Common Stock outstanding. AIMCO Class B Common Stock is convertible
into an equal number of shares of AIMCO Common Stock over a period ending
December 31, 1998 if certain performance standards are achieved.
(5) Includes 1,494,759 shares held by entities in which Mr. Considine holds
sole voting and investment power, 74,743 shares held by Mr. Considine's
spouse, Elizabeth Considine, for which Mr. Considine
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<PAGE> 114
disclaims beneficial ownership, and 36,778 shares held by a non-profit
corporation in which Mr. Considine has shared voting and investment power
with his spouse. Mr. Considine disclaims beneficial ownership of 1,380,078
shares held by Considine Partnership in which Mr. Considine holds a 10%
general partnership interest with the remaining 90% held by trusts for
members of Mr. Considine's family.
(6) Includes 161,816 AIMCO OP Units held by entities in which Mr. Considine has
sole voting and investment power, 2,300 AIMCO OP Units held by the
Considine Partnership for 90% of which Mr. Considine disclaims beneficial
ownership, and 157,698 AIMCO OP Units held by Mr. Considine's spouse, for
which Mr. Considine disclaims beneficial ownership.
(7) Includes 48,800 shares subject to options that are exercisable within 60
days.
(8) Includes 5,241 shares subject to options that are exercisable within 60
days.
(9) Includes 1,500 shares subject to options that are exercisable within 60
days.
(10) Includes 8,900 shares subject to options that are held by the Rhodes Family
Foundation.
(11) Includes 9,000 shares subject to options that are exercisable within 60
days.
(12) Includes 64,521 shares subject to options that are exercisable within 60
days.
(13) Includes 937,508 shares beneficially owned by LaSalle Advisors Capital
Management, Inc.
BUSINESS OF AMBASSADOR
GENERAL
Ambassador is a self-administered and self-managed REIT engaged in the
ownership and management of garden style apartment properties leased primarily
to middle income tenants. As of December 31, 1997, Ambassador owned 52 apartment
communities (the "Ambassador Properties") with a total of 15,728 units located
in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas. In
addition, Ambassador manages one property containing 252 units for an unrelated
third party.
Ambassador's management believes its overall portfolio size, management
operations and property concentrations in selected geographic markets provide
economies of scale regarding operating expenses, advertising, marketing, and
insurance. Management also believes that a geographic distribution of the
properties in a number of strategically selected markets helps insulate the
overall portfolio's economic returns from regional economic fluctuations.
Ambassador's focus has been on acquisitions in its principal markets which
represent metropolitan areas in which Ambassador owns more than 1,000 apartments
("Principal Markets"). Ambassador's Principal Markets currently include Phoenix
and Tucson, Arizona; Tampa, Florida; Atlanta, Georgia; and Austin, Houston and
San Antonio, Texas.
BUSINESS PHILOSOPHY AND BACKGROUND
Ambassador's mission is to deliver long term growth in value and increasing
earnings for its stockholders by providing:
1. An organization dedicated to excellence,
2. Affordable, quality housing for its residents,
3. Respect and opportunity for its employees, and
4. Socially responsible corporate behavior to its customers and the
communities in which it invests.
Ambassador seeks to increase the value and size of its portfolio using the
following strategies:
Increase property net operating income -- Ambassador believes it
experiences higher revenue collections and reasonably predictable operating
expenses at many of its Ambassador Properties through professional
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<PAGE> 115
management, economies of scale and improving local rental markets. Ambassador
believes its property management teams are experts in their markets and provide
the level of service necessary to generate growth in revenues. The key elements
of attracting and retaining high quality residents are having a thorough
understanding of all of Ambassador's customers and focusing on communications
between all levels of Ambassador.
Operating expenses, other than property taxes, have remained relatively
stable for the past year at Ambassador-owned properties. This has been due to
effective management policies, renovation and preventive maintenance
expenditures that reduced annual operating expenses and increases in buying
power in those markets where Ambassador has a strong presence.
Tax-exempt bond financing -- Ambassador believes that it is the only
publicly traded real estate investment company using long term, low cost
tax-exempt bond financing as its principal source of permanent financing.
Tax-exempt bonds provide one of the lowest cost of debt capital available in the
market and can be used to finance acquisition and renovation of properties as
well as new construction. Ambassador believes that this financing strategy helps
provide a superior level of total return to shareholders on a risk adjusted
basis. In particular, Ambassador believes that the enhanced return on its equity
investment that it receives from the use of tax-exempt bonds out weighs any
offsetting disadvantage from resident income and/or rent restrictions as well as
other costs imposed by such financing.
THE INDUSTRY/PRINCIPAL MARKETS
Ambassador believes that firms that compete in the middle income sector of
the apartment industry differentiate themselves based upon the level of service
they provide to their customers. Prospective residents have many similarly
priced choices for housing. In most of the markets where Ambassador owns
property, the rental rates have been increasing over the past three years. As
market occupancies exceed 95%, there is an upward pressure on rental rates that
typically grow faster than the median income levels. This situation can create
higher turnover of existing residents and higher operating expenses. Ambassador
believes that its customer service program allows for increases in market rental
rates while maintaining lower overall resident turnover; this results in lower
operating expenses than most of its competition.
COMPETITION
All of Ambassador's properties are located in metropolitan areas. There are
numerous other apartment properties within the market area of each property
which could have a material effect on the rental rates charged at the
properties, as well as Ambassador's ability to rent apartments at the
properties. Ambassador competes for residents and apartment property
acquisitions with others who may have greater resources than Ambassador and
whose officers, employees and directors may have more experience in operating
and acquiring apartment properties than that of Ambassador's officers, employees
and directors. In addition, single-family housing and all forms of multifamily
residential properties provide housing alternatives to potential tenants of
Ambassador's properties.
EMPLOYEES/PROPERTY MANAGEMENT
Ambassador's headquarters are located at 77 West Wacker Drive, Suite 4040,
Chicago, Illinois, 60601, telephone (312) 917-1600. Regional offices are located
in Atlanta, Georgia, San Antonio, Texas and Phoenix, Arizona. There were
approximately 546 employees as of March 17, 1998.
Ambassador provides complete property management services to each property
in its portfolio including on-site management supervision, leasing, marketing,
accounting and training. Ambassador does not utilize third party management
companies. Each of the 53 on-site property managers and their staff report to an
area/district manager located in each market who reports to the Director of
Property Management. Each property is treated as an individual business
operation established with an annual budget, defined policies and procedures,
full time on-site professional staffing and supervision. Ambassador uses
property management and accounting computer systems that are linked to the
regional and corporate offices to provide timely information to senior
management. Ambassador's asset management system utilizes the leasing, marketing
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<PAGE> 116
and accounting information created at each site to permit senior management to
monitor the performance and operations of each property.
PROPERTIES
As of December 31, 1997, Ambassador owned 52 apartment complexes (the
"Ambassador Properties") located in seven states. The Ambassador Properties
consist of garden or townhouse style apartments that appeal primarily to tenants
with middle level incomes. Of the apartments, 2.2% are efficiency apartments,
58.9% are one-bedroom apartments, 38.3% are two-bedroom apartments and the
remaining 0.5% are three-bedroom apartments. The Ambassador Properties typically
consist of two- and three-story buildings in a landscaped setting. The size of
the apartments range from 400 to 2,000 square feet and average approximately 780
square feet.
The average number of apartments per Ambassador Property is 302 apartments
and the average monthly rent per apartment and per square foot during the twelve
months ended December 31, 1997 was $567 and $0.72, respectively.
Tenant leases at the Ambassador Properties are generally for six to
twelve-month terms and require security deposits which range up to one month's
rent. The Ambassador Properties contain common area amenities, which may include
swimming pools, clubhouses, tennis courts, security gates and extensive
landscaping, and interior apartment amenities, such as vaulted ceilings,
wood-burning fireplaces, washers/ dryers, ceiling fans, microwaves, mini blinds,
cable television connections and monitored security systems. Ambassador believes
that the amenity packages at the Ambassador Properties are comparable to those
of competitive multifamily properties in their respective markets.
Fee title to each of the Ambassador Properties is held in a property
partnership (the "Property Partnership") in which the Ambassador Operating
Partnership or another direct or indirect subsidiary of Ambassador is a general
partner. Ambassador (or a direct or indirect subsidiary of Ambassador) and the
Ambassador Operating Partnership own 100% of the partnership interests in, and
control, the Property Partnerships that own 37 of the Ambassador Properties.
Ambassador (or a direct or indirect subsidiary of Ambassador) and the Ambassador
Operating Partnership own a 1% general partnership interest and 49.1% limited
partnership interest in two partnerships that own 9 and 4 properties,
respectively. Ambassador (or a direct or indirect subsidiary of Ambassador) and
the Ambassador Operating Partnership own a 50% and 49.9% general partnership
interest, respectively, in the Property Partnerships that own the Williamsburg
Property and the Brook Run Property. The third parties that own the remaining
interests in these Property Partnerships have equal voting rights with respect
to certain significant decisions of such partnerships. These two Property
Partnerships are not consolidated in Ambassador's financial statements.
RECENT EVENTS
As of January 30, 1998, Ambassador amended its existing revolving credit
agreement dated as of May 28, 1997, with Credit Lyonnais New York Branch
("CLNY") (as it had been previously amended, the "Original Credit Lyonnais Line
of Credit"). The amendment to the Original Credit Lyonnais Line of Credit (the
"Amendment") provides Ambassador with $10 million of borrowing capacity to be
used by Ambassador solely to meet, or to reimburse itself for previous payments
made to meet, margin calls from CLNY made on or after January 12, 1998 relating
to Ambassador's outstanding swap agreements with CLNY. This $10 million of
availability is in addition to the $6.25 million working capital availability
provided under the Original Credit Lyonnais Line of Credit, but does not
increase the aggregate $25 million availability under the Original Credit
Lyonnais Line of Credit. Ambassador paid $200,000, plus expenses, for the
Amendment. The Amendment further provides for a method of required pay-downs to
the Original Credit Lyonnais Line of Credit under various circumstances.
On February 4, 1998, Ambassador's partner (the "Jupiter I Limited Partner")
in the Jupiter-I, L.P., executed a Second Amended and Restated Agreement of
Limited Partnership dated as of January 28, 1998 for Jupiter-I, L.P. and
approved a related agreement (collectively, the "Reversing Amendments"), the
combined effect of which is to reverse certain amendments to the Jupiter-I, L.P.
limited partnership
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agreement and related document entered into without FNMA's prior consent as
required by the terms of Ambassador's existing credit enhancement facility with
FNMA ("FNMA Facility"). As consideration for executing the Reversing Amendments,
Ambassador paid the Jupiter I Limited Partner $100,000. As a result of the
Reversing Amendments, FNMA released a $20 million standby commitment (the
"Standby Commitment") for the benefit of FNMA. Ambassador has no further
obligations to Bank of America with respect to the Standby Commitment.
On March 5, 1998, The Industrial Development Authority of the City of
Phoenix, Arizona issued $6.0 million of variable rate, tax-exempt bonds (the
"Heather Ridge Bonds") for the benefit of the Heather Ridge property. The
Heather Ridge Bonds, which are collateralized by the Heather Ridge property, are
credit enhanced under the FNMA Facility. The Heather Ridge Bonds will mature on
December 15, 2037 and bear interest at a floating rate that is reset weekly by
the remarketing agent at the minimum rate required to remarket the bonds at par.
Ambassador used net proceeds of $5.5 million to repay a portion of the
outstanding principal balance on a secured revolving credit facility with Nomura
Asset Capital Corporation (as amended, the "NACC Revolving Loan") and the
remainder to fund a portion of the working capital.
Effective March 5, 1998, Ambassador entered into an interest rate cap
agreement with CLNY at a purchase price of $9,000 to protect itself against
interest rate fluctuations with respect to the Heather Ridge Bonds. Pursuant to
the terms of the interest rate cap agreement, the interest rate is limited to
4.8% per annum on a notional amount of $6.0 million. The interest rate cap
agreement terminates on March 15, 1999.
Additional information concerning Ambassador is included in the Ambassador
Incorporated Documents. See "Available Information" and "Incorporation by
Reference."
PRINCIPAL STOCKHOLDERS OF AMBASSADOR
The following table sets forth as of March 17, 1998, the number and
percentage of outstanding shares of Ambassador Common Stock and OP Units
beneficially owned by each director and executive officer of Ambassador, and by
all directors and executive officers of Ambassador as a group. Unless otherwise
indicated, the persons indicated below have sole voting power and investment
power with respect to the shares of Ambassador Common Stock and OP Units shown
as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF PERCENT OF
COMMON STOCK OP UNITS COMMON STOCK COMMON STOCK
BENEFICIAL OWNER OWNED(1) OWNED (2) AND OP UNITS(3)
---------------- ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C>
David M. Glickman(4)................... 329,350 0 3.03% 2.83%
Thomas J. Coorsh(5).................... 25,000 0 * *
Michael W. Reschke(6).................. 703,105 555,605 6.19% 6.09%
Norman R. Bobins(7).................... 16,500 0 * *
Richard F. Levy(7)..................... 27,000 0 * *
Jane R. Patterson(7)................... 16,000 0 * *
David B. Heller(7)(8).................. 509,400 0 4.55% 4.27%
Debra A. Cafaro(9)..................... 80,000 32,990 * *
Matthew W. Kaplan...................... 0 0 * *
All directors and executive officers as
a group(9 persons)(10)............... 1,706,355 588,595 15.36% 14.40%
</TABLE>
- -------------------------
* Less than 1%
(1) Number of shares includes options currently exercisable, options which will
become exercisable immediately prior to the Effective Time (including
options which, absent the Merger, would become exercisable within 60 days
of March 17, 1998) and OP Units beneficially owned by such person.
(2) Assumes exchange only of those OP Units beneficially owned by such person,
exercise of options currently exercisable and exercise of options which
will become exercisable immediately prior to the
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<PAGE> 118
Effective Time (including options which, absent the Merger, would become
exercisable within 60 days of March 17, 1998) beneficially owned by such
person.
(3) Assumes the exercise of options currently exercisable and exercise of
options which will become exercisable immediately prior to the Effective
time (including options which, absent the Merger, would become exercisable
within 60 days of March 17, 1998), beneficially owned by such person.
(4) The number of shares of Ambassador Common Stock beneficially owned includes
170,000 shares of Ambassador Common Stock issuable upon the exercise of
currently exercisable options.
(5) The number of shares of Ambassador Common Stock beneficially owned includes
25,000 shares of Ambassador Common Stock issuable upon the exercise of
currently exercisable options.
(6) The number of shares of Ambassador Common Stock and number of OP Units
beneficially owned include the OP Units beneficially owned by Prime Group,
Inc. (310,105 OP Units); and Prime Group IV, L.P. ("PGIV") (215,995 OP
Units). PGIV is affiliated with Prime Group, Inc. (and, collectively with
Prime Group, Inc. and its affiliates, referred to as "Prime"), of which Mr.
Reschke is Chairman, President and Chief Executive Officer and beneficially
owns 43.1% of the outstanding equity interests. The number of shares of
Ambassador Common Stock beneficially owned includes 92,656 shares of
Ambassador Common Stock issuable upon the exercise of options held by Mr.
Reschke that are exercisable within 60 days of March 17, 1998, and includes
4,844 shares of Ambassador Common Stock issuable upon the exercise of other
options which will become exercisable immediately prior to the Effective
Time. Includes 402,982 OP Units which are subject to pledges.
(7) Includes 10,156 shares of Ambassador Common Stock issuable upon the
exercise of options that are exercisable within 60 days of March 17, 1998,
and includes 4,844 shares of Ambassador Common Stock issuable upon the
exercise of other options which will become exercisable immediately prior
to the Effective Time.
(8) The number of shares of Ambassador Common Stock includes 474,400 shares of
Ambassador Common Stock owned by advisory clients of Mr. Heller, as to
which he has voting and dispositive power.
(9) All of the 32,990 OP Units owned by Ms. Cafaro are pledged to the
Ambassador Operating Partnership to secure the repayment of a $700,000 loan
made by the Ambassador Operating Partnership to Ms. Cafaro to enable her to
purchase such OP Units. The number of shares of Ambassador Common Stock
beneficially owned includes 32,990 shares of Ambassador Common Stock
issuable upon the exchange of OP Units and includes 23,505 shares of
Ambassador Common Stock issuable upon the exercise of options that are
exercisable within 60 days of March 17, 1998 and includes 23,505 shares of
Ambassador Common Stock issuable upon the exercise of other options which
will become exercisable immediately prior to the Effective Time.
(10) The number of shares of Ambassador Common Stock beneficially owned includes
351,785 shares of Ambassador Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 17, 1998, includes
588,595 shares of Ambassador Common Stock issuable upon the exchange of OP
Units, and includes 47,725 shares of Ambassador Common Stock issuable upon
the exercise of other options which will become exercisable immediately
prior to the Effective Time. See footnotes (6), (7) and (9) above.
To the best of Ambassador's knowledge, the following persons are the only
persons who are beneficial owners of more than five percent of the Ambassador
Common Stock (assuming as to any person, exchange of OP Units held by such
person for shares of Ambassador Common Stock) or Ambassador Preferred Stock as
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<PAGE> 119
of March 17, 1998. Unless otherwise indicated, the persons indicated below have
sole voting power and investment power with respect to the Common Stock and OP
Units shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF NUMBER OF SHARES OF PERCENT OF
COMMON STOCK OP UNITS PREFERRED STOCK PERCENT OF PERCENT OF COMMON STOCK
NAME AND BUSINESS ADDRESS BENEFICIALLY BENEFICIALLY BENEFICIALLY PREFERRED COMMON AND
OF BENEFICIAL OWNER OWNED(1) OWNED OWNED STOCK STOCK(2) OP UNITS(3)
------------------------- ------------ ------------ --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Five Arrows Realty.............. 1,351,351(4) 0 1,351,351 100% 11.21% 10.56%
Securities L.L.C.
Rothschild Realty Investors II
L.L.C.
1251 Ave. of the Americas
New York, NY 10020
AIMCO Properties, L.P........... 886,600 0 0 0 8.28 7.74
c/o Apartment Investment
Management Company
1873 South Bellaire Street
Denver, CO 80222-4348
Merrill Lynch & Co., Inc.(5).... 905,400 0 0 0 8.46 7.91
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10281
Franklin Resources, Inc. ....... 862,500 0 0 0 8.05 7.53
777 Mariners Island Boulevard
San Mateo, CA 94404
Michael W. Reschke(6)........... 703,105 555,605 0 0 6.19 6.09
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
The Prime Group, Inc.(7)........ 526,100 526,100 0 0 4.68 4.60
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Brinson Partners, Inc.(8)....... 567,700 0 0 0 5.30 4.96
209 South LaSalle St.
Chicago, IL 60604
</TABLE>
- -------------------------
(1) Number of shares of Ambassador Common Stock beneficially owned includes
exercise of exercisable options (including those options that will become
exercisable immediately prior to the Effective Time), exchange of OP Units
beneficially owned by such person and conversion of Ambassador Preferred
Stock beneficially owned by such person.
(2) Assumes exchange only of the OP Units beneficially owned by such person,
conversion of the Ambassador Preferred Stock beneficially owned by such
person and exercise of exercisable options beneficially owned by such person
(including those options that will become exercisable immediately prior to
the Effective Time).
(3) Assumes conversion of Ambassador Preferred Stock beneficially owned by such
person and exercise of exercisable options beneficially owned by such person
(including those options that will become exercisable immediately prior to
the Effective Time).
(4) As the managing member of Five Arrows, Rothschild Realty Investors II,
L.L.C. is also deemed to be the beneficial owner of such 1,351,351 shares of
Ambassador Preferred Stock beneficially owned by Five Arrows and the
1,351,351 shares of Ambassador Common Stock issuable upon conversion of such
shares.
(5) In addition to Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc., World
Financial Center, North Tower, 250 Vesey St., New York, NY 10281; Princeton
Services Inc., 800 Scudders Mills Road, Plainsboro, New Jersey 08536; and
Merrill Lynch Asset Management, L.P., 800 Scudders Mills Road,
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Plainsboro, New Jersey 08536 each may be considered beneficial owners of
such 905,400 shares of Ambassador Common Stock. This beneficial ownership
includes 872,900 shares beneficially owned by Merrill Lynch Global
Allocation Fund, Inc., 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(6) The number of shares of Ambassador Common Stock and the number of OP Units
beneficially owned include the 526,100 OP Units beneficially owned by Prime.
The number of shares of Ambassador Common Stock beneficially owned also
includes 92,656 shares of Common Stock issuable upon the exercise of options
that are exercisable within 60 days of March 17, 1998 and includes 4,844
other options that will become exercisable immediately prior to the
Effective Time. Includes 402,982 OP Units subject to a pledge.
(7) The number of shares of Ambassador Common Stock and the number of OP Units
beneficially owned include OP Units owned by Prime Group (310,105 OP Units)
and PGIV (215,995 OP Units). Does not include 50,000 shares of Ambassador
Common Stock, 29,505 OP Units and 97,500 shares of Ambassador Common Stock
issuable upon exercise of options owned by Michael W. Reschke, who owns a
43.1% general partnership interest in Prime. Includes 402,982 OP Units
subject to pledges.
(8) In addition to Brinson Partners, Inc., Brinson Holdings, Inc., 209 South
LaSalle St., Chicago, Illinois 60604; SBC Holding (USA), Inc., 222 Broadway,
New York, New York 10038, and Swiss Bank Corporation, Aeschenplatz 6
CH-4002, Basel, Switzerland are each beneficial owners of these 567,700
shares of Ambassador Common Stock.
AIMCO RECENT DEVELOPMENTS
RECENT ACQUISITIONS
AIMCO has during the past three years increased substantially the number of
properties owned or managed by it from 33,271 units in 185 properties at
December 31, 1994, to 193,057 units in 1,036 properties at December 31, 1997.
AIMCO completed the following acquisitions (among others) during the year ended
December 31, 1997:
On May 5, 1997, pursuant to a Stock Purchase Agreement dated as of April
16, 1997, the Company acquired 2,866,073 shares of common stock ("NHP Common
Stock") of NHP Incorporated ("NHP") from Demeter Holdings ("Demeter"), Capricorn
Investors, L.P. ("Capricorn") and certain of Capricorn's limited partners
(collectively, the "NHP Sellers") in exchange for 2,142,857 shares of the
Company's Class A Common Stock with a recorded value of $57.3 million.
Subsequent to the purchase, AIMCO contributed the NHP Common Stock to the
AIMCO Operating Partnership in exchange for additional AIMCO OP Units. The AIMCO
Operating Partnership then contributed the NHP Common Stock to AIMCO's
unconsolidated subsidiary, AIMCO/NHP Holdings, Inc. ("ANHI") in exchange for all
of the shares of ANHI's non-voting preferred stock, representing a 95% economic
interest in ANHI. Concurrently, ANHI obtained a loan in the amount of $72.6
million (the "ANHI Credit Facility") and used the proceeds from the loan to
purchase an additional 3,630,000 shares of NHP common stock from the NHP
Sellers. Upon the completion of this transaction, ANHI owned 6,496,073 shares of
NHP Common Stock, representing 51.3% of NHP's outstanding common stock as of May
31, 1997.
In separate transactions, occurring in August and September 1997, ANHI sold
to AIMCO 5,717,000 shares of NHP Common Stock for an aggregate purchase price of
$114.4 million. ANHI used $74.3 million of the proceeds from the sale to repay
the principal and accrued interest outstanding under the ANHI Credit Facility
and distributed $40.0 million to the AIMCO Operating Partnership and other
shareholders. In addition, AIMCO acquired an additional 434,049 shares of NHP
Common Stock from the NHP Sellers, bringing the total number of shares of NHP
Common Stock owned by the Company to 6,930,122.
On December 8, 1997, AIMCO/NHP Acquisition Corp., a wholly-owned subsidiary
of AIMCO merged with and into NHP, with NHP being the surviving corporation and
becoming a wholly owned subsidiary of ANHI. As a result of the merger, each
outstanding share of NHP Common Stock, other than those shares owned by ANHI,
was converted into the right to receive either (i) 0.74766 shares of AIMCO
Common Stock
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or (ii) at the election of the holder, 0.37383 shares of AIMCO Class A Common
Stock and $10.00 in cash. The conversion of the NHP Common Stock resulted in the
issuance of an additional 4,554,827 shares of AIMCO Common Stock and cash
payments of $8.1 million, including $7.8 million paid to ANHI.
Immediately following the NHP Merger, AIMCO engaged in a restructuring (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 ANHI and/or other unconsolidated subsidiaries of AIMCO
(together with ANHI, the "Unconsolidated Subsidiaries"). The Unconsolidated
Subsidiaries have an ownership structure similar to ANHI, in which the Company
holds a 95% economic interest through ownership of shares of non-voting
preferred stock, and certain directors and officers of AIMCO hold a 5% economic
interest through direct or indirect preferred stock and certain directors and
officers of AIMCO hold a 5% economic interest through direct or indirect
ownership of all of the outstanding shares of ANHI common stock. In connection
with the NHP Reorganization, AIMCO contributed all of the NHP Common Stock to
ANHI in exchange for 291,240 shares of AIMCO Common Stock and $4.5 million in
cash.
NHP provides a broad array of real estate services nationwide, including
property management and asset management, as well as a group of related
services, including equity investments, purchasing, risk management and home
health care. As of September 30, 1997, NHP's management portfolio included 732
properties containing 79, 208 conventional units and 55,102 affordable units
located in 38 states, the District of Columbia and Puerto Rico.
Foxchase. In December 1997, AIMCO acquired the Foxchase Apartments, a
2,113-unit apartment community with 200 buildings located in over 80 landscaped
acres in Alexandria, Virginia for approximately $107.7 million, including
assumption of outstanding indebtedness. AIMCO purchased Foxchase from a limited
partnership for which the Company serves as a general partner and majority
limited partner.
Fisherman's Landing. In December 1997, AIMCO acquired Fisherman's Landing,
a 256-unit apartment complex in Tampa, Florida for approximately $8.5 million
including assumption of outstanding indebtedness.
Winthrop. In October 1997, AIMCO acquired a portfolio of 35 garden-style
apartment communities (collectively, the "Winthrop Portfolio") from 27 limited
partnerships affiliated with Winthrop Financial Associates. The 35 properties
are located in seven states, have an average age of 17 years and contain a total
of 8,175 apartment units. Fifteen of the apartment communities are located in
Arizona, with 2,602 units in Phoenix and 816 units in Tucson; eleven apartment
communities with 2,075 units are located throughout Texas; two apartment
communities with 1,223 units are located in Florida; two apartment communities
with 494 units are located in Michigan; three apartment communities with 536
units are located in Georgia; one apartment community with 293 units is located
in Illinois; and one apartment community with 136 units is located in North
Carolina.
The aggregate purchase price for the Winthrop Portfolio, including
estimated transaction costs, was approximately $263.0 million. AIMCO paid
aggregate consideration of $115.6 million in cash to the partnerships affiliated
with Winthrop Financial Associates, assumed $8.3 million in mortgage
indebtedness and incurred $139.1 million of new indebtedness secured by the
properties, to complete the purchase. AIMCO has also budgeted an additional
$16.0 million in initial capital expenditures.
Windward at the Villages. In October 1997, AIMCO purchased Windward at the
Villages Apartments("Windward"), a 196-unit apartment community built in 1988,
located in West Palm Beach, Florida, for approximately $10.8 million. Windward
is adjacent to the Bear Lakes Country Club and Golf Course in the Villages of
Palm Beach Lakes, a master planned golf course community.
Morton Towers. In September 1997, AIMCO, through two subsidiary limited
partnerships in which AIMCO is the sole general partner and has an aggregate
interest of approximately 77%, acquired the Morton Towers apartments, a
1,277-unit, twin tower high rise apartment complex built in 1960, located in
Miami Beach, Florida, for $63 million, including approximately 1.4 million OP
Units valued at $42 million. AIMCO expects to undertake a major renovation of
the complex at an estimated total cost of $35 million.
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Los Arboles. In September 1997, AIMCO acquired Los Arboles Apartments, a
232-unit apartment community built in 1985, located in Chandler, Arizona, for
approximately $11.3 million. Los Arboles is adjacent to Vista del Lagos, a
200-unit apartment community in which AIMCO has an equity interest.
Sawgrass. In July 1997, AIMCO purchased Sawgrass Apartments, a 208-unit
apartment community built in 1989, located in Orlando, Florida, for
approximately $9.6 million. Sawgrass was formerly a Managed Property.
Tustin East Village/The Californian. In June 1997, AIMCO acquired Tustin
East Village and The Californian, two garden-style apartment communities
consisting of 292 units built in 1970, and Red Hill Plaza, an adjacent shopping
plaza built in 1970, located in Tustin, California, for $21.4 million including
approximately 0.5 million OP Units valued at $13.9 million. These properties are
contiguous to Brookside Apartments, another Owned Property, consisting of 336
units, purchased in April 1996 from the same seller and are operated with
Brookside as one property.
The Vinings. In June 1997, AIMCO acquired The Vinings at the Waterways, a
180-unit luxury garden-style apartment community built in 1991, located in
Aventura, Florida, for approximately $16.4 million. The Vinings is located by a
yacht basin and marina directly accessing the Intracoastal Waterway and is also
adjacent to a commercial center.
Stonebrook. In May 1997, AIMCO acquired the Stonebrook Apartments, a
244-unit apartment community in Orlando, Florida, for approximately $11 million.
Stonebrook is less than a mile from the location of a proposed interchange on a
beltway around Orlando and is near a regional airport being expanded for
commercial aviation.
Bay Club. In April 1997, AIMCO acquired The Bay Club at Aventura, a
702-unit luxury high rise apartment complex, consisting of two towers built in
1990, in Aventura, Florida, for approximately $71 million. The property includes
approximately 3.5 acres of land with permits to construct a third tower
consisting of 225 units. Aventura is a coastal city located near North Miami
Beach.
Properties Subject to Letter of Intent or Contract. In the ordinary course
of AIMCO's business, AIMCO is engaged in discussions and negotiations with
property owners regarding the purchase of apartment properties or interests in
apartment properties. AIMCO frequently enters into letters of intent, which may
be binding or nonbinding, and contracts with respect to the purchase of real
property which are subject to certain conditions which permit AIMCO to terminate
the contract in its sole and absolute discretion if it is not satisfied with the
results of its due diligence investigation of the properties under contract.
AIMCO's management believes that such contracts essentially result in the
creation of an option on the property subject to the contract and give AIMCO
greater flexibility in seeking to acquire properties. As of March 18, 1998,
AIMCO had under letter of intent or contract an aggregate of 21 multi-family
apartment properties with a maximum aggregate purchase price of $224 million,
including estimated capital improvements, which, in some cases, may be paid in
the form of assumption of existing debt. All such contracts are subject to
termination by AIMCO as described above. Due diligence with respect to these
properties is generally not completed and there is no assurance that any
transaction will occur or that they will occur on the terms currently
contemplated.
RECENT CONTRACTS
On January 31, 1998 AIMCO entered into a Contribution Agreement (the
"Contribution Agreement") with CK Services, Inc. ("CK") and the stockholders of
CK to cause certain assets of AIMCO to be contributed to CK and to distribute
all outstanding stock of CK to the stockholders of AIMCO. CK is a corporation
wholly-owned by Terry Considine, AIMCO's Chairman and Chief Executive Officer,
and by Peter Kompaniez, AIMCO's President and Vice Chairman.
It is AIMCO's intent to use CK as a vehicle for holding property and
performing services that AIMCO is limited or prohibited from holding or
providing due to AIMCO's election to be taxed as a REIT. AIMCO is finalizing
which assets will be contributed to CK. Any transfer of assets or services to CK
will be at market
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rates and approved by the independent members of the Board of Directors of
AIMCO, and if market rates are difficult to ascertain, the pricing will favor
AIMCO.
Pursuant to the Contribution Agreement, AIMCO will contribute certain
assets to CK and, in return, the stock of CK will be contributed to AIMCO or a
subsidiary of AIMCO. Following the contribution of CK stock, AIMCO will agree to
contribute additional assets to CK with the intent of creating a stand-alone
entity meeting the requirements for listing on the NYSE or NASDAQ National
Market, and if AIMCO is successful in listing the CK stock on the NYSE or NASDAQ
National Market, the stock of CK will be distributed to the stockholders of
AIMCO. If AIMCO is unable to list the CK stock on the NYSE or NASDAQ National
Market, CK will remain a direct or indirect subsidiary of AIMCO and AIMCO will
pay to the former stockholders of CK an amount necessary to compensate the
former CK stockholders for the value of such stock on January 31, 1998.
Consummation of the transaction is subject to the approval of AIMCO's
independent members of the AIMCO Board.
RECENT FINANCINGS
In July 1997, AIMCO sold 1,100,000 newly issued shares of AIMCO Class A
Common Stock at a price of $30 per share, the closing price of the stock on the
date of purchase, to certain members of senior management of AIMCO. In payment
for the stock, such members of senior management executed notes payable to AIMCO
totaling $33.0 million (of which $15.8 million has been repaid as of February
28, 1998), bearing interest at 7.25% per annum, payable quarterly, and due in
ten years. The stock purchase notes are secured by the stock purchased and are
recourse as to 25% of the principal owed.
In August 1997, AIMCO sold 750,000 shares of newly issued Class B Preferred
Stock for gross proceeds of $75 million in cash to an institutional investor in
a private transaction. Holders of the AIMCO Class B Preferred Stock are entitled
to receive, when, as and if declared by the AIMCO Board, quarterly cash
dividends per share equal to the greater of (i) $1.78125 and (ii) the cash
dividends declared on the number of shares of AIMCO Common Stock into which one
share of AIMCO Class B Preferred Stock is convertible. On or after August 4,
1998, each share of AIMCO Class B Preferred Stock is convertible at the option
of the holder into 3.28407 shares of AIMCO Common Stock, subject to certain
anti-dilution adjustments. The AIMCO Class B Preferred Stock is senior to the
AIMCO Common Stock as to dividends and liquidation. See "Description of AIMCO's
Capital Stock -- AIMCO Class B Common Stock." The proceeds from the sale of the
AIMCO Class B Preferred Stock were used to repay borrowings outstanding under
the Credit Facility and to provide working capital.
In August and September, 1997, AIMCO issued an aggregate of 5,052,418
shares of AIMCO Class A Common Stock to institutional investors for aggregate
net proceeds of $156.9 million. AIMCO used $114.4 million of such proceeds to
purchase 5,717,000 shares of NHP Common Stock from ANHI, used $7.0 million to
purchase 351,795 additional shares of NHP Common Stock from Demeter Holdings
Corporation and contributed the remaining $35.5 million to the AIMCO Operating
Partnership. ANHI used $74.3 million of proceeds from its sale of NHP Common
Stock to AIMCO to repay in full outstanding borrowings under the ANHI Credit
Facility, including accrued interest, and terminated the ANHI Credit Facility.
Borrowings under the ANHI Credit Facility were incurred to purchase NHP Common
Stock in the NHP Stock Purchase. ANHI also distributed $40.0 million of proceeds
from the sale of shares of NHP Common Stock to the AIMCO Operating Partnership,
which holds a 95% interest in ANHI, and Messrs. Considine and Kompaniez, who
hold in the aggregate a 5% interest in ANHI. Messrs. Considine and Kompaniez
received a distribution of $2.0 million in connection with such sale and used
such proceeds to repay in part outstanding promissory notes payable by them to
ANHI in an aggregate principal amount of $3.2 million. The loans were incurred
by them to acquire their interest in ANHI.
In October 1997, AIMCO sold 7,000,000 shares of AIMCO Class A Common Stock
in an underwritten public offering for net proceeds of $242.5 million. AIMCO
used approximately $23 million in such net proceeds to repay an intercompany
loan from the Operating Partnership, and contributed all of the remaining
approximately $218.5 million of such net proceeds to the AIMCO Operating
Partnership, which will use such proceeds for the repayment of outstanding
indebtedness and for general business purposes.
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In December 1997, AIMCO issued 2,400,000 shares of AIMCO 9% Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $58.1 million. AIMCO contributed the net proceeds to the AIMCO
Operating Partnership in exchange for a preferred interest in the AIMCO
Operating Partnership. The AIMCO Operating Partnership used approximately $35.0
million of such amount to repay outstanding indebtedness, and the remaining
$23.1 million to fund general business activities.
In February 1998, AIMCO issued 4,200,000 shares of AIMCO Class D Preferred
Stock in an underwritten public offering for net proceeds of approximately
$101.7 million. AIMCO contributed the net proceeds to the AIMCO Operating
Partnership in exchange for a preferred interest in the AIMCO Operating
Partnership. The AIMCO Operating Partnership used approximately $69.2 million of
such amount to repay outstanding indebtedness, and the remaining $32.5 million
to fund general business activities.
INSIGNIA MERGER AND RELATED TRANSACTIONS
Insignia Merger
On March 17, 1998, AIMCO, the AIMCO Operating Partnership and Insignia and
its subsidiary, Insignia/ESG, Inc., entered into the Insignia Merger Agreement.
Pursuant to the Insignia Merger Agreement, if stockholders holding a majority of
the common stock of Insignia vote in favor of the Insignia Merger Agreement,
Insignia will be merged with and into AIMCO, with AIMCO as the surviving
corporation. If the Insignia Merger is consummated, AIMCO expects to assume
property management of approximately 192,000 multifamily units, consisting of
115,000 units owned by partnerships which will be controlled by AIMCO and 77,000
units owned by third parties, and AIMCO will acquire Insignia's approximately
75% ownership interest in Insignia's real estate investment trust subsidiary,
IPT, which owns a 32% weighted average general and limited partnership interest
in approximately 51,000 units.
Assuming the stockholders of AIMCO and Insignia approve the Insignia
Merger, Insignia Common Stock will be converted into the right to receive an
aggregate of approximately $303 million in 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 will automatically convert into AIMCO Common Stock on a one-for-one basis,
subject to antidilution adjustments, if any. In addition, AIMCO will assume
approximately $307 million in outstanding indebtedness and other liabilities and
will assume approximately $150 million aggregate liquidation amount under the
TOPRs, 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 IPT not held by
Insignia 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. The 25% of IPT not owned by Insignia is
valued at an aggregate of approximately $100 million, or approximately $13.25
per IPT 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 $203 million in Series E
Preferred Stock and $100 million aggregate liquidation value of 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 cash dividends 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.
The Series E Preferred Stock and Series F Preferred Stock will be valued at
the "AIMCO/Insignia Merger Index Price" which is defined in the Insignia Merger
Agreement as 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 consummation of the Insignia Merger,
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divided by 20; provided, however, that if the AIMCO/Insignia Merger Index Price
is greater than $38.00, then the AIMCO/Insignia Merger Index Price shall be
deemed to be $38.00. In addition, if the AIMCO/Insignia Merger Index Price is
less than $36.50, then AIMCO may elect to pay part of the merger consideration
in cash by giving notice to Insignia 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 lesser of (i) $15,000,000
and (ii) the product of (x) $36.50 less the AIMCO/Insignia Merger Index Price,
multiplied by (y) the number of shares of Insignia Common Stock (including the
shares of Insignia Common Stock into which outstanding convertible securities
are exercisable, other than the TOPRs) outstanding as of the consummation of the
Insignia Merger.
Related Transactions
The Spin Off. At least ten days prior to consummation of the Insignia
Merger, Insignia will effect a spin off to its stockholders of the stock of
SpinCo (the "Spin Off"), which will own, directly or indirectly, all of the
assets related to Insignia's 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. Insignia
intends for the Spin Off to qualify as a tax-free distribution under Section 355
and Section 368(a)(1)(D) of the Code.
Insignia Indemnification Agreement. In connection with the Insignia Merger
Agreement, SpinCo and AIMCO entered into the Insignia Indemnification Agreement.
The Insignia Indemnification Agreement provides generally that following
consummation of the Insignia Merger, SpinCo will indemnify and hold harmless
AIMCO from and against all losses in excess of $9.122 million resulting from (i)
breaches of representations, warranties or covenants of Insignia or SpinCo in
the Insignia Merger Agreement, (ii) actions taken by or on behalf of Insignia
prior to consummation of the Insignia Merger and (iii) the Spin Off; SpinCo will
also indemnify and hold harmless AIMCO from and against all losses (without
regard to any dollar value limitation) resulting from (x) amounts paid or
payable to employees of Insignia, other than those employees AIMCO has agreed to
retain following the consummation of the Insignia Merger, (y) obligations to
third parties for goods, services, taxes or indebtedness incurred prior to the
consummation of the Insignia Merger, other than as agreed to by AIMCO and (z)
Insignia's ownership of its commercial real estate brokerage services and
related businesses and its ownership of SpinCo.
The Insignia Indemnification Agreement also provides generally that
following consummation of the Insignia Merger, AIMCO will indemnify and hold
harmless SpinCo from all losses that arise out of the operation of the Insignia
business following consummation of the Insignia Merger and for all losses in
excess of $9.122 million arising from breach of any representation, warranty or
covenant of AIMCO in the Insignia Merger Agreement.
MAE Asset Sale Agreement. Also in connection with the Insignia Merger
Agreement, AIMCO entered into an Asset Purchase Agreement (the "MAE Asset Sale
Agreement") with Metropolitan Asset Enhancement, L.P. and CRPTEX II, Inc. (the
"Sellers"), which are entities controlled by Andrew L. Farkas, Insignia's
Chairman, President and Chief Executive Officer. The MAE Asset Sale Agreement
provides that the AIMCO Operating Partnership will purchase all the outstanding
general partner and limited partner interests in MAE-SPI, L.P. from the Sellers
for $1.0 million in cash to be delivered at the closing which will be
contemporaneous with the closing of the Insignia Merger. Consummation of the
Spin Off and Insignia Merger are conditions to the closing of the sale.
Call Option, Put Option and Purchase Price Adjustment Agreements. In
connection with the Insignia Merger Agreement, AIMCO entered into Call Option,
Put Option and Purchase Price Adjustment Agreements (the "Call Agreements") with
(i) Andrew L. Farkas, Insignia's Chairman, President and Chief Executive
Officer, and an estate planning trust established by Mr. Farkas, (ii) Frank M.
Garrison, Insignia's Executive Managing Director and President of its Financial
Services Division, (iii) James A. Aston, Insignia's Chief Financial Officer, and
(iv) Ronald Uretta, Insignia's Chief Operating Officer and Treasurer
(collectively, the "Insignia Executives"). The Call Agreements provide that if
the Insignia Merger Agreement is terminated for any reason (other than due to
AIMCO's breach of representations, warranties or covenants,
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failure to satisfy conditions or failure to obtain approval under the
Hart-Scott-Rodino Act or a permanent injunction or order is issued by a federal
or state court preventing the Insignia Merger) AIMCO has the right to purchase
some or all of the Insignia Common Stock held by the Insignia Executives. If the
Spin Off has not occurred or a superior offer to purchase Insignia has been made
(unless the offer relates to SpinCo) which allows Insignia to terminate the
Insignia Merger Agreement, AIMCO will have the right to purchase 45% of the
Insignia Common Stock at a purchase price of $25 per share; and if the Spin Off
has occurred or a superior offer has been made, AIMCO will have the right to
purchase 100% of the Insignia Common Stock held by the Insignia Executives at a
purchase price of $11 per share (if the Spin Off has occurred) or $25 per share.
In each case the purchase price will be increased to reflect an increase in
merger consideration offered by AIMCO in response to a third party proposal to
acquire Insignia. If the Insignia Merger Agreement is terminated by Insignia due
to AIMCO's breach of representations, warranties and covenants and failures to
satisfy conditions and AIMCO did not have the right to terminate the Insignia
Merger Agreement due to Insignia's breaches, each Insignia Executive has the
right to cause AIMCO to purchase his Insignia Common Stock and IPT shares at the
per share prices set forth above.
Voting Agreements. Each of the Insignia Executives entered into a Voting
Agreement and an Irrevocable Proxy in connection with the Call Agreements (the
"Voting Agreements"). The Voting Agreements provide that each Insignia Executive
will vote his shares of Insignia Common Stock in favor of the Insignia Merger
and against any competing transaction and, to the extent the Insignia Executives
fail to do so, grant AIMCO the right to vote such shares.
Conditions to the Insignia Merger
The respective obligations of AIMCO and Insignia to effect the Insignia
Merger are subject to the satisfaction or waiver of a number of conditions,
including (i) the receipt of all authorizations, consents and approvals
necessary from the Department of Justice or the Federal Trade Commission
relating to filings under the Hart Scott Rodino Antitrust Improvements Act
necessary for consummation of the Insignia Merger, (ii) the absence of any
injunction or other court order that would prohibit the consummation of the
Insignia Merger, (iii) the effectiveness of the AIMCO registration statement
relating to the registration of the Series E Preferred Stock and Series F
Preferred Stock to be issued in connection with the Insignia Merger, (iv) the
approval of the Insignia Merger Agreement by the Insignia stockholders, (v) the
receipt of opinions of tax counsel to the effect that the Insignia Merger should
constitute a reorganization within the meaning of Section 368(a) of the Code,
and (vi) the continued accuracy, subject to certain materiality standards, of
the representations and warranties made by the other party in the Insignia
Merger Agreement. The obligation of AIMCO to consummate the Insignia Merger is
further conditioned upon, among other things, the Spin Off having occurred at
least ten business days prior to the effectiveness of the Insignia Merger. The
obligation of Insignia to consummate the Insignia Merger is further conditioned
upon, among other things, the approval for listing on the NYSE of the shares of
Series E Preferred Stock and (under certain circumstances) Series F Preferred
Stock to be issued pursuant to the Insignia Merger and the release of SpinCo
from the obligation to guarantee certain outstanding indebtedness of Insignia.
AIMCO does not anticipate waiving any of the conditions to the Insignia Merger
specified in the Insignia Merger Agreement.
Accounting Treatment
The Insignia Merger will be accounted for by AIMCO and its subsidiaries
under the purchase method of accounting in accordance with Accounting Principles
Board Opinion No. 16, "Business Combinations," as amended. Purchase accounting
for a merger is the same as the accounting treatment used for the acquisition of
any group of assets. The fair market value of the consideration given by AIMCO
in the Insignia Merger will be used as the valuation basis of the combination.
The assets acquired and liabilities assumed of Insignia will be recorded at
their relative fair values as of the effectiveness of the Insignia Merger. The
financial statements of AIMCO will reflect the combined operations of AIMCO and
Insignia from the date of the Insignia Merger.
Terms of the Insignia Merger Agreement
The following is a brief summary of certain provisions of the Insignia
Merger Agreement. This summary does not purport to be complete and is qualified
in its entirety by reference to the Insignia Merger Agreement.
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Capitalized terms used herein and not otherwise defined have the same meaning as
in the Insignia Merger Agreement.
Effective Time of the Insignia Merger. The Insignia Merger Agreement
provides that, upon the terms and subject to the conditions thereof, at the
effective time, Insignia will be merged with and into AIMCO in accordance with
the laws of the States of Maryland and Delaware. AIMCO will be the surviving
corporation in the Insignia Merger and will continue its corporate existence
under the laws of the State of Maryland.
The Insignia Merger Agreement provides that at the effective time (i) the
AIMCO Charter, as in effect immediately prior to the effective time, will be the
articles of incorporation of the surviving corporation until thereafter amended
as provided by law and the AIMCO Charter; (ii) the by-laws of AIMCO, as in
effect immediately prior to the effective time, will be the by-laws of the
surviving corporation until thereafter amended as provided by law, the AIMCO
Charter and such by-laws; and (iii) the directors and officers of AIMCO
immediately prior to the effective time will 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 Insignia Merger will be as provided in the applicable provisions of the
MGCL.
The Insignia Merger Agreement further provides that on the closing date, a
certificate of merger shall be executed by AIMCO and Insignia and filed with the
Secretary of State of the State of Delaware pursuant to the Delaware General
Corporations Law, articles of merger shall be executed by AIMCO and Insignia and
filed with the Maryland Department of Assessment and Taxation pursuant to the
MGCL, and that the effective time will occur upon the certification by the
Maryland Department of Assessment and Taxation that the articles of merger
relating to the Insignia Merger has been duly filed.
Pursuant to the Insignia Merger Agreement, the closing of the Insignia
Merger will take place on the fifth NYSE trading day immediately following the
date on which the last of the conditions set forth in the Insignia Merger
Agreement is first fulfilled or has been waived, provided that all such
conditions continue to be so satisfied or waived on such fifth trading day, and
if not so satisfied or waived, the closing shall be automatically extended from
time to time until the first subsequent trading day on which all such conditions
are again so satisfied or waived, subject, however, to the provisions relating
to termination of the Insignia Merger Agreement described below, or at such
other time, date and place as AIMCO and Insignia shall mutually agree.
Manner and Basis of Converting Shares. If approved by the stockholders of
AIMCO and Insignia, as of the effective time, by virtue of the Insignia Merger
and without any action on the part of any holder of any capital stock of
Insignia, each issued and outstanding share of Insignia Common Stock, other than
shares of Insignia Common Stock owned by AIMCO or Insignia directly or through
wholly-owned subsidiaries, will be converted into and become that number of
fully paid and nonassessable shares of Series E Preferred Stock equal to the
Series E Conversion Ratio. The term "Series E Conversion Ratio" means the
quotient (rounded to the nearest 1/1000) determined by dividing (x) the sum of
$303 million plus the aggregate exercise price of outstanding options, warrants
and convertible securities (other than the TOPRs) by (y) by the product of (a)
the number of outstanding shares and share equivalents of Insignia Common Stock
(including shares of Insignia Common Stock into which outstanding securities are
exercisable, whether or not vested, other than the TOPRs) multiplied by (b) the
AIMCO/Insignia Merger Index Price; provided, however, if the AIMCO/Insignia
Merger Index Price is greater than $38.00, the AIMCO/Insignia Merger Index Price
will be deemed to be $38.00, provided, further, if the AIMCO Index Price is less
than $36.50, then AIMCO may elect to pay part of the merger consideration in
cash (the "Insignia Cash Amount"), but such amount may not exceed the lesser of
(i) $15,000,000 and (ii) the product of (x) $36.50 less the AIMCO/Insignia
Merger Index Price multiplied by (y) the outstanding number of shares and share
of Insignia Common Stock (including shares of Insignia Common Stock into which
outstanding securities are exercisable, whether or not vested, other than the
TOPRs) as of the consummation of the Insignia Merger. If the Stockholders of
AIMCO do not approve the Insignia Merger, then each issued and outstanding share
of Insignia Common Stock, other than shares of Insignia Common Stock owned by
AIMCO or Insignia directly or through wholly-owned subsidiaries, will be
converted into and become (A) that number of fully paid and non-assessable
shares of Series E Preferred Stock equal to the product of the Series E
Conversion Ratio times 203/303 and
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(B) that number of fully paid and non-assessable shares of Series F Preferred
Stock equal to the product of the Series E Conversion Ratio times 100/303. The
term "AIMCO/Insignia Merger Index Price" means the aggregate of the average 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) on each of the
twenty consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the effective time of the Insignia Merger, divided by 20.
All such shares of Insignia 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 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,
described above, and cash in lieu of fractional shares and dividends and other
distributions as described below.
The Insignia Merger Agreement provides that as soon as practicable after
the effective time of the Insignia Merger, AIMCO will deposit, in trust for the
benefit of holders of certificates for Insignia Common Stock, with an exchange
agent, certificates representing shares of Series E Preferred Stock and (if
applicable) Series F Preferred Stock required to effect the issuance referred to
above, together with the Insignia Cash Amount, if any, and the cash payable in
respect of fractional shares as described below (collectively, the "Exchange
Fund"). The Exchange Fund shall not be used for any other purpose.
As soon as practicable after the effective time, AIMCO will cause the
exchange agent to mail to each holder of record of a certificate or certificates
which immediately prior to the effective time represented outstanding shares of
Insignia Common Stock that were canceled and became instead the right to receive
shares of Series E Preferred Stock and/or Series F Preferred Stock pursuant to
the foregoing: (i) a Letter of Transmittal in customary and reasonable form
(which will 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 certificates representing shares of Series E
Preferred Stock and/or Series F Preferred Stock. Upon surrender of a certificate
to the exchange agent for cancellation (or to such 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 Insignia
Common Stock formerly represented thereby, (A) a certificate or certificates
representing that number of whole shares of Series E Preferred Stock and/or
Series F Preferred Stock which such holder has the right to receive pursuant to
the foregoing, (B) the Insignia Cash Amount, if any, which such holder has the
right to receive as described above, and (C) cash in lieu of fractional shares
which such holder is entitled to receive as described below. In the event of a
transfer of ownership of canceled shares which is not registered in the transfer
records of Insignia, certificates representing the proper number of shares of
Series E Preferred Stock and/or Series F Preferred Stock 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 stock transfer taxes have been paid. Until surrendered as
contemplated by the Insignia Merger Agreement, each certificate shall be deemed
at any time after the effective time to represent only the right to receive upon
such surrender the certificate representing shares of Series E Preferred Stock
and/or Series F Preferred Stock, the Insignia Cash Amount in respect thereof,
and dividends and other distributions and cash in lieu of any fractional shares
of Series E Preferred Stock and/or Series F Preferred Stock.
No certificates or scrip representing fractional shares of Series E
Preferred Stock and/or Series F Preferred Stock will be issued upon the
surrender for exchange of certificates and such fractional shares shall not
entitle the owner thereof to vote or to any other rights of a holder of Series E
Preferred Stock and/or Series F Preferred Stock. A holder of Insignia Common
Stock who would otherwise have been entitled to a fractional share of Series E
Preferred Stock and/or Series F Preferred Stock will be entitled to receive a
cash payment in lieu of such fractional share in an amount equal to the product
of such fraction multiplied by the AIMCO/Insignia Merger Index Price (determined
without regard to the $38.00 cap thereon), without any interest thereon.
Information regarding the business of Insignia obtained from the Form 10-K
of Insignia for the year ended December 31, 1997, as filed with the SEC is
attached hereto as Appendix III.
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DESCRIPTION OF AIMCO'S CAPITAL STOCK
GENERAL
AIMCO's Articles of Incorporation, as amended, supplemented and restated
(the "AIMCO Charter") authorizes the issuance of up to 150,000,000 shares of
AIMCO Common Stock with a par value of $.01 per share. As of December 31, 1997,
there were 40,439,218 shares of AIMCO Common Stock issued and outstanding. In
addition, up to 1,150,000 shares of AIMCO Common Stock have been reserved for
issuance under the 1994 Stock Plan, the 1996 Stock Plan and the Non-Qualified
Employee Stock Option Plan. The 1997 Stock Plan provides for the issuance of 10%
of the shares of AIMCO Common Stock outstanding as of the first day of the
fiscal year during which any award is made, but in no event more than 20,000,000
shares. The AIMCO Common Stock is traded on the NYSE under the symbol "AIV."
BankBoston, N.A. serves as transfer agent and registrar of the AIMCO Common
Stock. In addition, the AIMCO Charter originally authorized 750,000 shares of
AIMCO Class B Common Stock (together with the AIMCO Common Stock, the
"Authorized Common Stock"), which number of authorized shares is subject to
automatic reduction by the number of shares of AIMCO Class B Common Stock that
have been converted into AIMCO Common Stock. As of December 31, 1997, 587,500
shares of AIMCO Class B Common Stock had been so converted, leaving a total of
162,500 shares of AIMCO Class B Common Stock authorized and outstanding. See
"-- AIMCO Class B Common Stock" below. In addition, the AIMCO Charter authorizes
the issuance of up to 9,250,000 shares of preferred stock with a par value of
$.01 per share, the terms of which may be established at the time of issuance,
of which none are issued and outstanding, and 750,000 shares of AIMCO Class B
Preferred Stock, all of which are issued and outstanding and 2,400,000 shares of
AIMCO Class C Preferred Stock, all of which are issued and outstanding.
Holders of the AIMCO Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board, out of funds legally available therefor. The
holders of shares of AIMCO Common Stock, upon any liquidation, dissolution or
winding up of AIMCO, are entitled to receive ratably any assets remaining after
payment in full of all liabilities of AIMCO and the liquidation preferences of
preferred stock. The shares of AIMCO Common Stock possess ordinary voting rights
for the election of Directors and in respect of other corporate matters, each
share entitling the holder thereof to one vote. Holders of shares of AIMCO
Common Stock do not have cumulative voting rights in the election of Directors,
which means that holders of more than 50% of the shares of AIMCO Common Stock
voting for the election of Directors can elect all of the Directors if they
choose to do so and the holders of the remaining shares cannot elect any
Directors. Holders of shares of AIMCO Common Stock do not have preemptive
rights, which means they have no right to acquire any additional shares of AIMCO
Common Stock that may be issued by AIMCO at a subsequent date.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Because the AIMCO Board believes that it is essential for AIMCO to continue to
qualify as a REIT, the AIMCO Board has adopted, and the stockholders have
approved, provisions of the AIMCO Charter restricting the acquisition of shares
of Authorized Common Stock.
Subject to certain exceptions specified in the AIMCO Charter, no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Code and Rule 13d-3 under the Exchange Act, more
than 8.7% (or 15% in the case of certain pension trusts described in the Code,
investment companies registered under the Investment Company Act of 1940 and Mr.
Considine) of the outstanding shares of Authorized Common Stock. The AIMCO Board
may waive the Ownership Limit if evidence satisfactory to the AIMCO Board and
AIMCO's tax counsel is presented that such ownership will not then or in the
future jeopardize AIMCO's status as a REIT. However, in no event may such
holder's direct or indirect ownership of Authorized Common Stock exceed 9.8% of
the total outstanding shares of Authorized Common Stock. As a condition of such
waiver, the AIMCO Board may require opinions of counsel satisfactory to it
and/or an undertaking from the applicant with respect to preserving the REIT
status of AIMCO. The
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foregoing restrictions on transferability and ownership will not apply if the
AIMCO Board determines that it is no longer in the best interests of AIMCO to
attempt to qualify, or to continue to qualify as a REIT and a resolution
terminating AIMCO's status as a REIT and amending the AIMCO Charter to remove
the foregoing restrictions is duly adopted by the AIMCO Board and a majority of
AIMCO's stockholders. If shares of Authorized Common Stock in excess of the
Ownership Limit, or shares of Authorized Common Stock which would cause the REIT
to be beneficially owned by fewer than 100 persons, or which would result in
AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or
which would otherwise result in AIMCO failing to qualify as a REIT, are issued
or transferred to any person, such issuance or transfer shall be null and void
to the intended transferee, and the intended transferee would acquire no rights
to the stock. Shares of Authorized Common Stock transferred in excess of the
Ownership Limit or other applicable limitations will automatically be
transferred to a trust for the exclusive benefit of one or more qualifying
charitable organizations to be designated by AIMCO. Shares transferred to such
trust will remain outstanding, and the trustee of the trust will have all voting
and dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Ownership Limit or other applicable limitation. Upon a sale of such shares
by the trustee, the interest of the charitable beneficiary will terminate, and
the sales proceeds would be paid, first, to the original intended transferee, to
the extent of the lesser of (a) such transferee's original purchase price (or
the original market value of such shares if purportedly acquired by gift or
devise) and (b) the price received by the trustee, and, second, any remainder to
the charitable beneficiary. In addition, shares of stock held in such trust are
purchasable by AIMCO for a 90-day period at a price equal to the lesser of the
price paid for the stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the stock on the date that AIMCO determines to purchase the
stock. The 90-day period commences on the date of the violative transfer or the
date that the AIMCO Board determines in good faith that a violative transfer has
occurred, whichever is later. All certificates representing shares of Authorized
Common Stock bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code and Rule 13d-3 under the Exchange Act, more than a specified percentage
of the outstanding shares of Authorized Common Stock must file an affidavit with
AIMCO containing the information specified in the AIMCO Charter within 30 days
after January 1 of each year. In addition, each stockholder shall upon demand be
required to disclose to AIMCO in writing such information with respect to the
direct, indirect and constructive ownership of shares as the AIMCO Board deems
necessary to comply with the provisions of the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by a third party unless the AIMCO Board determines that
maintenance of REIT status is no longer in the best interests of AIMCO.
AIMCO CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of AIMCO Class B Preferred
Stock to an institutional investor (the "Preferred Share Investor") for $75
million. The AIMCO Class B Preferred Stock ranks prior to AIMCO Common Stock,
with respect to dividends, liquidation, dissolution, and winding-up, and has an
aggregate liquidation value of $75 million. Holders of the AIMCO Class B
Preferred Stock are entitled to receive, when, as and if declared by the AIMCO
Board, quarterly cash dividends per share equal to the greater of (i) $1.78125
(the "Base Rate") and (ii) the cash dividends declared on the number of shares
of AIMCO Common Stock into which one share of AIMCO Class B Preferred Stock is
convertible. On or after August 4, 1998, each share of AIMCO Class B Preferred
Stock may be converted at the option of the holder into 3.28407 shares of AIMCO
Common Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any
or all of the AIMCO Class B Preferred Stock on or after August 4, 2002, at a
redemption price of $100 per share, plus unpaid dividends accrued on the shares
redeemed.
Holders of AIMCO Class B Preferred Stock, voting as a class with the
holders of all AIMCO capital stock that ranks on a parity with the AIMCO Class B
Preferred Stock with respect to the payment of dividends or upon liquidation,
dissolution, winding up or otherwise ("Parity Stock"), will be entitled to elect
(i) two directors of AIMCO if six quarterly dividends (whether or not
consecutive) on the AIMCO Class B
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Preferred Stock or any Parity Stock are in arrears, and (ii) one director of
AIMCO if for two consecutive quarterly dividend periods AIMCO fails to pay at
least $0.4625 in dividends on the AIMCO Common Stock. The affirmative vote of
the holders of 662/3% of the outstanding shares of AIMCO Class B Preferred Stock
will be required to amend the AIMCO Charter in any manner that would adversely
affect the rights of the holders of AIMCO Class B Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the AIMCO Class B
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise. If the IRS were to make a final
determination that AIMCO does not qualify as a real estate investment trust in
accordance with Sections 856 through 860 of the Code, the Base Rate for
quarterly cash dividends on the AIMCO Class B Preferred Stock would be increased
to $3.03125 per share.
The agreement pursuant to which AIMCO issued the AIMCO Class B Preferred
Stock (the "Preferred Share Purchase Agreement") provides that the Preferred
Share Investor may require AIMCO to repurchase such investor's AIMCO Class B
Preferred Stock in whole or in part at a price of $105 per share, plus accrued
and unpaid dividends on the purchased shares, if (i) AIMCO shall fail to
continue to be taxed as a real estate investment trust pursuant to Sections 856
through 860 of the Code, or (ii) upon the occurrence of a change of control (as
defined in the Preferred Share Purchase Agreement). The Preferred Share Purchase
Agreement also provides that, so long as the Preferred Share Investor owns AIMCO
Class B Preferred Stock with an aggregate liquidation preference of at least
$18.75 million, neither AIMCO, the AIMCO Operating Partnership nor any
subsidiary of AIMCO may issue preferred securities or incur indebtedness for
borrowed money if immediately following such issuance and after giving effect
thereto and the application of the net proceeds therefrom, AIMCO's ratio of
aggregate consolidated earnings before income taxes, depreciation and
amortization; to aggregate consolidated fixed charges (earnings before income
taxes depreciation and amortization) for the four fiscal quarters immediately
preceding such issuance would be less than 1.5 to 1.
AIMCO CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Messrs. Considine,
Kompaniez and Ira and Robert Lacy, a former officer of AIMCO, acquired an
aggregate of 650,000 shares of AIMCO Class B Common Stock. The AIMCO Class B
Common Stock does not have voting or dividend rights and, unless converted into
AIMCO Common Stock, as described below, is subject to repurchase by AIMCO as
described below. As of December 31 of each of the years 1994 through 1998 (each,
a "Year-End Testing Date"), a number of the shares of AIMCO Class B Common Stock
outstanding as of such date (the "Eligible Class B Shares") become eligible for
automatic conversion (subject to the Ownership Limit) into an equal number of
shares of AIMCO Common Stock (subject to adjustment upon the occurrence of
certain events in respect of the AIMCO Common Stock, including stock dividends,
subdivisions, combinations and reclassifications). Once AIMCO Class B Common
Stock has been converted into AIMCO Common Stock, holders of such shares of
converted AIMCO Common Stock will have voting and dividend rights of AIMCO
Common Stock generally. Once converted or forfeited, the AIMCO Class B Common
Stock may not be reissued by AIMCO.
The Eligible Class B Shares convert to AIMCO Common Stock if (i) AIMCO's
FFO Per Share (as defined below) reaches certain annual and cumulative growth
targets and (ii) the average market price for a share of AIMCO Common Stock for
a 90-calendar day period beginning on any day on or after the October 1
immediately preceding the relevant Year-End Testing Date equals or exceeds a
specified target price. "FFO Per Share" means, for any period, (i) net income
(loss), computed in accordance with generally accepted accounting principles,
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures, less any preferred stock dividend payments,
divided by (ii) the sum of (a) the number of shares of the AIMCO Common Stock
outstanding on the last day of such period (excluding any shares of the AIMCO
Common Stock into which shares of the AIMCO Class B Common Stock shall have been
converted as a result of the conversion of shares of the AIMCO Class B Common
Stock on the last day of such period) and (b) the number of shares of the AIMCO
Common Stock issuable to acquire units of limited partnership that (x) may be
tendered for redemption in any limited partnership in which AIMCO serves as
general partner and (y) are outstanding on the last day of such period.
Set forth below for the remaining Year-End Testing Date is (i) the number
of shares of AIMCO Class B Common Stock that become Eligible Class B Shares as
of such date, (ii) the annual FFO Per Share growth
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target (as a percentage increase in FFO Per Share from the prior year), (iii)
the cumulative FFO Per Share target (in FFO Per Share) and (iv) the average
market price target:
<TABLE>
<CAPTION>
ANNUAL FFO CUMULATIVE FFO AVERAGE
ELIGIBLE CLASS B PER SHARE PER SHARE MARKET PRICE
YEAR-END TESTING DATE SHARES(1) GROWTH TARGET TARGET TARGET
--------------------- ---------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
December 31, 1998.................. 162,500 8.5% $2.760 $26.373
</TABLE>
- -------------------------
(1) Assumes that only the shares of AIMCO Class B Common Stock outstanding as of
December 31, 1997 remain outstanding until converted into shares of AIMCO
Common Stock.
Any AIMCO Class B Common Stock that has not been converted into AIMCO
Common Stock following December 31, 1998 will be subject to repurchase by AIMCO
at a price of $0.10 per share. AIMCO Class B Common Stock is also subject to
automatic conversion upon the occurrence of certain events, including a change
of control (as defined in AIMCO Charter). The AIMCO Board may increase the
number of shares which are eligible for conversion as of any Year-End Testing
Date and may under certain circumstances, accelerate the conversion of
outstanding AIMCO Class B Common Stock at such time and in such amount as it may
determine appropriate.
All of the 65,000 shares of AIMCO Class B Common Stock eligible for
conversion as of the December 31, 1994 Year-End Testing Date, all of the 130,000
shares of AIMCO Class B Common Stock eligible for conversion as of the December
31, 1995 Year-End Testing Date, all of the 130,000 shares of AIMCO Class B
Common Stock eligible for conversion as of the December 31, 1996 Year-End
Testing Date and all of the 162,500 shares of AIMCO Class B Common Stock
eligible for conversion as of the December 31, 1997 Year-End Testing Date have
been converted into shares of AIMCO Common Stock. As of December 31, 1997, the
outstanding AIMCO Class B Common Stock was held as follows: 93,428 shares by Mr.
Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by Mr. Ira and 13,813
shares by Robert P. Lacy.
AIMCO CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of AIMCO Class C
Preferred in an underwritten public offering, netting approximately $57.9
million in proceeds. The AIMCO Class C Preferred (a) ranks prior to AIMCO Common
Stock and AIMCO Class B Common Stock, if the holders of the AIMCO Class C
Preferred are be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series ("Junior Stock"), (b)
ranks on parity with AIMCO Class B Preferred and with any other class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class of
stock or series, the holders of such class of stock or series and the AIMCO
Class C Preferred shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Parity Stock")
and (c) ranks junior to any class or series of capital stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the AIMCO Class C Preferred ("Senior Stock").
Holders of Class C Preferred are entitled to receive cash dividends at the
rate of 9% per annum of the $25 liquidation preference (equivalent to $2.25 per
annum per share). Such dividends shall be cumulative from the date of original
issue, and shall be payable quarterly on or before January 15, April 15, July 15
and October 15 of each year, commencing April 15, 1998. Upon any liquidation,
dissolution or winding up of AIMCO, before payment or distribution by AIMCO
shall be made to or set apart for the holders of any shares of Junior Stock, the
holders of AIMCO Class C Preferred shall be entitled to receive a liquidation
preference of $25 per share (the "Liquidation Preference"), plus an amount equal
to all accumulated, accrued and unpaid dividends to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. If proceeds available for distribution shall be insufficient to
pay the preference described
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above on any liquidating payments on any other shares of any class or series of
Parity Stock, then such proceeds shall be distributed among the holders of AIMCO
Class C Preferred and any such other Parity Stock ratably in the same proportion
as the respective amounts that would be payable on such AIMCO Class C Preferred
and any such other Parity Stock if all amounts payable thereon were paid in
full.
On and after December 23, 2002, AIMCO may redeem shares of AIMCO Class C
Preferred, in whole or in part, at a cash redemption price equal to 100% of the
Liquidation Preference plus all accrued and unpaid dividends to the date fixed
for redemption. The AIMCO Class C Preferred has no stated maturity and will not
be subject to any sinking find or mandatory redemption provisions.
Holders of shares of AIMCO Class C Preferred have no voting rights, except
that if distributions on AIMCO Class C Preferred or any series or class of
Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of AIMCO Class C Preferred (voting together as a single class
with all other shares of Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the AIMCO Class C Preferred called for the purpose.
AIMCO CLASS D PREFERRED STOCK
On February 13, 1998, AIMCO issued 4,200,000 shares of AIMCO Class D
Preferred in an underwritten public offering, netting approximately $101.5
million in proceeds. The AIMCO Class D Preferred (a) ranks prior to AIMCO Common
Stock and AIMCO Class B Common Stock, if the holders of the AIMCO Class D
Preferred are to be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series ("Junior Stock"), (b)
ranks on parity with AIMCO Class B Preferred, AIMCO Class C Preferred and with
any other class or series of capital stock of AIMCO, if, pursuant to the
specific terms of such class of stock or series, the holders of such class of
stock or series and the AIMCO Class D Preferred shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other ("Parity Stock") and (c) ranks junior to any class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class of
stock or series, the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of the AIMCO Class D
Preferred ("Senior Stock").
Holders of Class D Preferred are entitled to receive cash dividends at the
rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to
$2.1875 per annum per share). Such dividends shall be cumulative from the date
of original issue, and shall be payable quarterly on or before January 15, April
15, July 15 and October 15 of each year, commencing April 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Junior
Stock, the holders of AIMCO Class D Preferred shall be entitled to receive a
liquidation preference of $25 per share (the "Liquidation Preference"), plus an
amount equal to all accumulated, accrued and unpaid dividends to the date of
final distribution to such holders; but such holders shall not be entitled to
any further payment. If proceeds available for distribution shall be
insufficient to pay the preference described above on any liquidating payments
on any other shares of any class or series of Parity Stock, then such proceeds
shall be distributed among the holders of AIMCO Class D Preferred and any such
other Parity Stock ratably in the same proportion as the respective amounts that
would be payable on such AIMCO Class D Preferred and any such other Parity Stock
if all amounts payable thereon were paid in full.
On and after February 19, 2003, AIMCO may redeem shares of AIMCO Class D
Preferred, in whole or in part, at a cash redemption price equal to 100% of the
Liquidation Preference plus all accrued and unpaid dividends to the date fixed
for redemption. The AIMCO Class D Preferred has no stated maturity and will not
be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of AIMCO Class D Preferred have no voting rights, except
that if distributions on AIMCO Class D Preferred or any series or class of
Parity Stock shall be in arrears for six or more quarterly
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periods, the number of directors constituting the AIMCO Board of Directors shall
be increased by two and the holders of AIMCO Class D Preferred (voting together
as a single class with all other shares of Parity Stock, which are entitled to
similar voting rights) will be entitled to vote for the election of the two
additional directors of AIMCO at any annual meeting of stockholders or at a
special meeting of the holders of the AIMCO Class D Preferred called for the
purpose.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation, voting together
as a single voting group, and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder or an affiliate or associate of the Interested
Stockholder with whom the business combination is to be effected, unless, among
other conditions, the corporation's stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. The business combination statute could have the effect of discouraging
offers to acquire AIMCO and of increasing the difficulty of consummating any
such offer. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. AIMCO's Board has not passed such a resolution.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority or
(iii) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the corporation's board of directors to
call a special meeting of stockholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares were considered and
not approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of the appraisal rights may not
be less than the
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highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. No
such exemption appears in the AIMCO Charter or Bylaws. The control share
acquisition statute could have the effect of discouraging offers to acquire
AIMCO and of increasing the difficulty of consummating any such offer.
FEDERAL INCOME TAX CONSEQUENCES RELATED TO AIMCO
The following is a summary of Federal income tax considerations regarding
an investment in AIMCO Common Stock. This discussion is based upon the Code, the
Treasury regulations, rulings issued by the IRS, and judicial decisions, all in
effect as of the date of this Proxy Statement/Prospectus and which are subject
to change, possibly retroactively. This discussion is for general information
only and does not purport to discuss all aspects of Federal income taxation
which may be important to a particular investor in light of his individual
investment or tax circumstances, or to certain types of investors subject to
special tax rules (including insurance companies, financial institutions or
broker-dealers, foreign investors and, except to the extent discussed below,
tax-exempt organizations). This Summary assumes that investors will hold their
AIMCO stock as a "capital asset" (generally, property held for investment). No
advance ruling has been or will be sought from the IRS regarding any matter
discussed herein.
THE FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH
AMBASSADOR STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES TO HIM OF ACQUIRING, HOLDING, EXCHANGING OR OTHERWISE
DISPOSING OF AIMCO COMMON STOCK, AND OF AIMCO'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING ANY STATE, LOCAL AND NON-U.S. TAX
CONSEQUENCES.
TAXATION OF AIMCO
General. The REIT provisions of the Code are highly technical and complex.
The following sets forth the material aspects of the provisions of the Code that
govern the Federal income tax treatment of a REIT and its shareholders. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, possibly
retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. AIMCO believes that it was organized in conformity with the
requirements for qualification as a REIT, and that its method of operation since
formation and proposed method of future operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. Such
qualification and taxation as a REIT depends upon AIMCO's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code as
discussed below. Accordingly, no assurance can be given that the actual results
of AIMCO's operations for any one taxable year will satisfy such requirements.
See "-- Failure to Qualify." No assurance can be given that the IRS will not
challenge AIMCO's eligibility for taxation as a REIT.
Provided AIMCO qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, notwithstanding AIMCO's qualification as a
REIT, AIMCO will be subject to Federal income tax as follows: First, AIMCO will
be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain circumstances,
AIMCO may be subject to the "alternative minimum tax" on its items of tax
preference.
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Third, if AIMCO has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily for sale
to customers in the ordinary course of business other than foreclosure
property), such income will be subject to a 100% tax. Fourth, if AIMCO should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which AIMCO fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect AIMCO's profitability. Fifth, if AIMCO should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year (excluding certain retained long-term capital gains, discussed below),
and (iii) any undistributed taxable income from prior periods, AIMCO would be
subjected to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. In addition, AIMCO could also be subject to
tax in certain situations and on certain transactions not presently
contemplated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for the special Code provisions applicable to REITs;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) in which, during the last half of each taxable year,
not more than 50% in value of the outstanding stock is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) which meets certain other tests described below
(including with respect to the nature of its income and assets). The Code
provides that conditions (1) through (4) must be met during the entire taxable
year, and that condition (5) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a taxable year of less than
12 months. AIMCO's Charter provides certain restrictions regarding transfers of
its shares, which provisions are intended to assist AIMCO in continuing to
satisfy the share ownership requirements described in conditions (5) and (6)
above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are to disclose the
actual owners of the shares (i.e., the persons required to include in gross
income the REIT dividends). A list of those persons failing or refusing to
comply with this demand must be maintained as part of AIMCO's records. A
stockholder who fails or refuses to comply with the demand must submit a
statement with its tax return disclosing the actual ownership of the shares and
certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests. In the case of a REIT that is a partner
in a partnership, regulations provide that the REIT is deemed to own its
proportionate share of the partnership's assets and to earn its proportionate
share of the partnership's income. In addition, the assets and gross income of
the partnership retain the same character in the hands of the REIT for purposes
of the gross income and asset tests applicable to REITs as described below.
Thus, AIMCO's proportionate share of the assets, liabilities and items of income
of the AIMCO Operating Partnerships will be treated as assets, liabilities and
items of income of AIMCO for purposes of applying the REIT requirements
described herein. A summary of certain rules governing the Federal income
taxation of partnerships and their partners is provided below in "Tax Aspects of
AIMCO's Investments in Partnerships."
Income Tests. In order to maintain qualification as a REIT, AIMCO annually
must satisfy two gross income requirements. First, at least 75% of AIMCO's gross
income (excluding gross income from "prohibited transactions," i.e., certain
sales of property held primarily for sale to customers in the ordinary course of
business) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of AIMCO's gross
income (excluding gross
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income from prohibited transactions) for each taxable year must be derived from
such real property investments, and from other dividends, interest and gain from
the sale or disposition of stock or securities (or from any combination of the
foregoing).
Rents received by AIMCO through the Subsidiary Partnerships will qualify as
"rents from real property" in satisfying the gross income requirements described
above, only if several conditions are met, including the following. If rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services (other than certain de minimis services) to the
tenants of such property, other than through an "independent contractor" from
which the REIT derives no revenue. However, AIMCO (or its affiliates) is
permitted to directly perform services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant of the property.
The Management Subsidiaries will receive management fees and other income.
A portion of such fees and other income will accrue to AIMCO through the AIMCO
Operating Partnership's general partnership interest in PAMS LP. Such fee and
other income generally will not qualify under the 95% gross income test. AIMCO
also expects to indirectly receive distributions from the Management
Subsidiaries that will be classified as dividend income to the extent of the
earnings and profits of the Management Subsidiaries. Such distributions will
qualify under the 95% gross income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if AIMCO's failure to meet such tests was
due to reasonable cause and not due to willful neglect, AIMCO attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances AIMCO would be
entitled to the benefit of these relief provisions. If these relief provisions
are inapplicable to a particular set of circumstances involving AIMCO, AIMCO
will not qualify as a REIT. As discussed above in "-- General," even where these
relief provisions apply, a tax is imposed with respect to the excess net income.
Asset Tests. AIMCO, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of AIMCO's total assets must be represented by real estate
assets (including its allocable share of real estate assets held by the AIMCO
Operating Partnership and the Subsidiary Partnerships), stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of AIMCO, cash,
cash items and U.S. government securities. Second, not more than 25% of AIMCO's
total assets may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by AIMCO may not exceed 5% of the value of
AIMCO's total assets, and AIMCO may not own more than 10% of any one issuer's
outstanding voting securities.
AIMCO indirectly owns interests in the Management Subsidiaries. As set
forth above, the ownership of more than 10% of the voting securities of any one
issuer by a REIT is prohibited by the asset tests. AIMCO believes that its
indirect ownership interests in the Management Subsidiaries qualify under these
rules. However, no independent appraisals have been obtained to support AIMCO's
conclusions as to the value of the Operating Partnership's total assets and the
value of the Operating Partnership's interest in the Management Subsidiaries and
these values are subject to change in the future. Accordingly, there can be no
assurance that the IRS will not contend that the AIMCO Operating Partnership's
ownership interests in the Management Subsidiaries disqualifies AIMCO from
treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning
of the Code. Qualified REIT subsidiaries are not treated as separate entities
from their parent REIT for Federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of AIMCO.
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Each qualified REIT subsidiary therefore will not be subject to Federal
corporate income taxation, although it may be subject to state or local
taxation. In addition, AIMCO's ownership of the voting stock of each qualified
REIT subsidiary does not violate the general restriction against ownership of
more than 10% of the voting securities of any issuer.
Annual Distribution Requirements. AIMCO, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of AIMCO's
"REIT taxable income" (computed without regard to the dividends paid deduction
and AIMCO's net capital gain) and (ii) 95% of the net income (after tax), if
any, from foreclosure property, minus (B) the sum of certain items of noncash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before AIMCO timely files
its tax return for such year and if paid with or before the first regular
dividend payment after such declaration. To the extent that AIMCO distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at ordinary corporate tax rates. AIMCO may elect
to retain, rather than distribute, its net long-term capital gains and pay tax
on such gains. To the extent such an election is made, AIMCO's stockholders
would include their proportionate share of such undistributed long-term capital
gains in income and receive a credit for their share of the tax paid by AIMCO,
and AIMCO's shareholders would increase the adjusted basis of their AIMCO shares
by the difference between the designated amounts included in their long-term
capital gains and the tax deemed paid with respect to their shares. If AIMCO
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year and (ii) 95% of its REIT capital gain
income for such year (excluding retained long-term capital gains), and (iii) any
undistributed taxable income from prior periods, AIMCO would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. AIMCO believes that it has made, and intends to make, timely
distributions sufficient to satisfy this annual distribution requirement.
It is possible that AIMCO, from time to time, may not have sufficient cash
or other liquid assets to meet the 95% distribution requirement due to timing
differences between (i) the actual receipt of income (including receipt of
distributions from the AIMCO Operating Partnership) and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of AIMCO. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, AIMCO may
find it necessary to arrange for short-term, or possibly long-term, borrowings
or to pay dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest based on the amount of any deduction taken for
deficiency dividends.
Failure to Qualify. If AIMCO fails to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, AIMCO will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
AIMCO fails to qualify as a REIT will not be deductible by AIMCO nor will they
be required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, AIMCO will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances AIMCO would be entitled to such statutory relief.
TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General. Substantially all of AIMCO's investments are held indirectly
through the AIMCO Operating Partnership. In general, partnerships are
"pass-through" entities that are not subject to Federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and
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credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership.
AIMCO will include in its income its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests and in the
computation of its REIT taxable income. Moreover, for purposes of the REIT asset
tests, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "-- Taxation of AIMCO -- Ownership of Partnership
Interests."
Entity Classification. AIMCO's direct and indirect investment in
partnerships involves special tax considerations, including the possibility of a
challenge by the IRS of the status of any of such partnerships as a partnership
(as opposed to an association taxable as a corporation) for Federal income tax
purposes. If any of these entities were treated as an association for Federal
income tax purposes, it would be taxable as a corporation and therefore subject
to an entity-level tax on its income. In such a situation, the character of
AIMCO's assets and items of gross income would change and could preclude AIMCO
from satisfying the asset tests and the income tests (see "-- Taxation of
AIMCO -- Asset Tests" and "-- Taxation of AIMCO -- Income Tests"), and in turn
could prevent AIMCO from qualifying as a REIT. See "-- Taxation of
AIMCO -- Failure to Qualify" above for a discussion of the effect of AIMCO's
failure to meet such tests for a taxable year.
Tax Allocations with Respect to the Properties. Pursuant to the Code and
the regulations thereunder, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. Tax
allocations must, however, be made in a manner consistent with these
requirements. Where a partner contributes cash to a partnership that holds
appreciated property, the Treasury regulations provide for a similar allocation
of such items to the other partners. These rules apply to the contribution by
AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain holders of AIMCO OP Units will be allocated lower
amounts of depreciation deductions for tax purposes and increased taxable income
and gain on sale by the AIMCO Operating Partnership of contributed properties.
This will tend to eliminate the Book-Tax Difference over the life of the AIMCO
Operating Partnership and Subsidiary Partnerships. However, the special
allocations do not always entirely rectify the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of contributed properties in the hands of the AIMCO
Operating Partnership may cause AIMCO to be allocated lower depreciation and
other deductions, and possibly greater amounts of taxable income in the event of
a sale of such contributed assets in excess of the economic or book income
allocated to it as a result of such sale. This may cause AIMCO to recognize
taxable income in excess of cash proceeds, which might adversely affect AIMCO's
ability to comply with the REIT distribution requirements. See "-- Taxation of
AIMCO -- Annual Distribution Requirements."
With respect to any property purchased or to be purchased by the AIMCO
Operating Partnership (other than through the issuance of AIMCO OP Units), such
property will initially have a tax basis equal to its fair market value and the
special allocation provisions described above will not apply.
Sale of the Properties. AIMCO's share of any gain realized by the AIMCO
Operating Partnership on the sale of any property held as inventory or primarily
for sale to customers in the ordinary course of business will be treated as
income from a prohibited transaction and subject to a 100% penalty tax. See
"-- Requirements for Qualification -- Income Tests." Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The AIMCO
Operating Partnership intends to hold its assets for investment with a view to
long-term appreciation, to engage in the business of acquiring,
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developing, owning, and operating its properties (and other apartment
properties) and to make such occasional sales of its properties, including
peripheral land, as are consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the Management Subsidiaries held
by the AIMCO Operating Partnership, distributions paid to the AIMCO Operating
Partnership as the general partner of PAMS LP, and interest paid by the
Management Subsidiaries on certain notes held by the AIMCO Operating
Partnership. In general, the Management Subsidiaries pay Federal, state and
local income taxes on their taxable income at normal corporate rates. Any
Federal, state or local income taxes that the Management Subsidiaries are
required to pay will reduce AIMCO's cash flow from operating activities and its
ability to make payments to holders of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
General. As long as AIMCO qualifies as a REIT, distributions made to
AIMCO's taxable domestic stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions (and retained long-term
capital gains) that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent that they do not exceed AIMCO's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares, they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less) provided that the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by AIMCO in October, November or
December of any year and payable to a stockholder of record on a specified date
in any such month shall be treated as both paid by AIMCO and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by AIMCO during January of the following calendar year. Stockholders may
not include in their individual income tax returns any net operating losses or
capital losses of AIMCO.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from AIMCO required to be treated by such stockholder as long-term
capital gain.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. Federal income
and estate tax consequences of the ownership and disposition of AIMCO Stock
applicable to Non-U.S. Holders of such stock. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, (iii) an estate whose income is
includible in gross income for U.S. Federal income tax purposes regardless of
its source or (iv) a trust if a United States court is able to exercise primary
supervision over the administration of such trust and one or more United States
fiduciaries have the authority to control all substantial decisions of such
trust. The discussion is based on current law and is for general information
only. The discussion addresses only certain and not all aspects of U.S. Federal
income and estate taxation.
Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of AIMCO's earnings and profits which are not attributable to
capital gains of AIMCO and which are not effectively connected with a U.S. trade
or business of the Non-U.S. Holder will be subject to U.S. withholding tax at
the
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rate of 30% (unless reduced by treaty). In general, Non-U.S. Holders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of AIMCO Stock. In cases where the dividend income from a Non-U.S.
Holder's investment in AIMCO Stock is (or is treated as) effectively connected
with the Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S.
Holder generally will be subject to U.S. tax at graduated rates, in the same
manner as U.S. stockholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax in the case of a Non-U.S. Holder
that is a corporation).
Non-Dividend Distributions. Unless AIMCO Stock constitutes a United States
Real Property Interest (a "USRPI"), distributions by AIMCO which are not
dividends out of the earnings and profits of AIMCO will not be subject to U.S.
income or withholding tax. If it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of AIMCO. If AIMCO Stock constitutes a USRPI, such
distributions will be subject to 10% withholding and taxed pursuant to the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at a rate of 35%
to the extent such distributions exceed a stockholder's basis in his or her
AIMCO Stock.
Capital Gain Dividends. Under FIRPTA, a distribution made by AIMCO to a
Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs
such as the properties beneficially owned by AIMCO ("USRPI Capital Gains"), will
be considered effectively connected with a U.S. trade or business of the Non-
U.S. Holder and subject to U.S. income tax at the rate applicable to U.S.
individuals or corporations, without regard to whether such distribution is
designated as a capital gain dividend. In addition, AIMCO will be required to
withhold tax equal to 35% of the amount of dividends to the extent such
dividends constitute USRPI Capital Gains. Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax in the hands of Non-U.S. Holder that
is a corporation.
Disposition of Stock of AIMCO. Unless AIMCO Stock constitutes a USRPI, a
sale of such stock by a Non-U.S. Holder generally will not be subject to U.S.
taxation under FIRPTA. The stock will not constitute a USRPI if AIMCO is a
"domestically controlled REIT." A domestically controlled REIT is a REIT in
which, at all times during a specified testing period, less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Holders. AIMCO believes
that it is, and it expects to continue to be a domestically controlled REIT, and
therefore that the sale of AIMCO Stock will not be subject to taxation under
FIRPTA. Because the AIMCO Stock is publicly traded, however, no assurance can be
given that AIMCO will continue to be a domestically controlled REIT.
If AIMCO does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of stock generally will still not be subject to tax under FIRPTA
as a sale of a USRPI provided that (i) the stock is "regularly traded" (as
defined by applicable Treasury regulations) on an established securities market
(e.g., the New York Stock Exchange, on which AIMCO Common Stock is listed) and
(ii) the selling Non-U.S. Holder held 5% or less of AIMCO's outstanding stock at
all times during a specified testing period.
If gain on the sale of stock of AIMCO were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the AIMCO Common Stock is effectively connected with a U.S. trade
or business conducted by such Non-U.S. holder, the Non-U.S. Holder will be
subject to the same treatment as a U.S. stockholder with respect to such gain,
or (ii) if the Non-U.S. Holder is a nonresident alien individual who was present
in the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, the nonresident alien individual will be subject to
a 30% tax on the individual's capital gain.
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Estate Tax. AIMCO Common Stock owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. Federal estate
tax purposes) of the United States at the time of death will be includible in
the individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may be
subject to U.S. Federal estate tax on the property includible in the estate for
U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
AIMCO must report annually to the IRS and to each Holder the amount of
dividends (including any capital gain dividends) paid to, and the tax withheld
with respect to, each Holder. These reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which a
Non-U.S. Holder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
AIMCO Stock to a Non-U.S. Holder at an address outside the United States.
The payment of the proceeds from the disposition of AIMCO Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the IRS.
Recently, adopted United States Treasury Regulations (the "Final
Regulations") require AIMCO to follow certain procedures in complying with
United States Federal withholding, backup withholding and information reporting
rules. The Final Regulations are effective for payments made after December 31,
1998. Under the Final Regulations (and under current law), Holders are required
to provide certain information to AIMCO to avoid the imposition of backup
withholding and, for Non-U.S. Holders, to claim the benefits of an income tax
treaty. Holders are urged to consult their tax advisors regarding the tax
consequences, if any, of the Final Regulations on the purchase, ownership and
disposition of AIMCO Stock.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Based upon a published ruling by the IRS, distributions by AIMCO to a
stockholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the meaning
of the Code and the shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the
dividends paid by AIMCO may be treated as UBTI to certain domestic private
pension trusts if AIMCO is treated as a "pension-held REIT." AIMCO believes that
it is not, and does not expect to become, a "pension-held REIT." If AIMCO were
to become a pension-held REIT, these rules generally would only apply to certain
pension trusts that hold more than 10% of AIMCO Stock.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective investors in shares of AIMCO Common Stock should recognize that
the present Federal income tax treatment of an investment in AIMCO may be
modified by legislative, judicial or administrative action at any time, and that
any such action may affect investments and commitments previously made. For
example, a proposal issued by President Clinton on February 2, 1998, if enacted
into law, may adversely affect the ability of AIMCO to expand the present
activities of its Management Subsidiaries. The rules dealing with
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Federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions of regulations and revised interpretations of established concepts
as well as statutory changes. Revisions in Federal tax laws and interpretations
thereof could adversely affect an investment in the AIMCO Operating Partnership
or AIMCO. It cannot be predicted whether, when, in what forms, or with what
effective dates, the tax laws applicable to AIMCO or AIMCO Common Stock will be
changed.
STATE AND LOCAL TAXES
The AIMCO Operating Partnership and its partners and AIMCO and its
stockholders may be subject to state or local taxation in various state or local
jurisdictions, including those in which they transact business or reside. The
state and local tax treatment of the AIMCO Operating Partnership and its
partners and AIMCO and its stockholders may not conform to the Federal income
tax consequences discussed above. Consequently, prospective investors should
consult their own tax advisors regarding the application and effect of state and
local tax laws on an investment in the AIMCO Operating Partnership or AIMCO.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF AIMCO AND AMBASSADOR
Upon consummation of the Merger, the stockholders of Ambassador will become
stockholders of AIMCO. Accordingly, the rights of stockholders of Ambassador
following the Merger will be governed by the AIMCO Charter and AIMCO's Amended
and Restated Bylaws (the "AIMCO Bylaws").
The following is a summary of the material differences between the rights
and privileges of Ambassador stockholders and those of holders of AIMCO Common
Stock. This summary is not meant to be relied upon as an exhaustive description
of such differences and is qualified in its entirety by reference to the AIMCO
Charter, the AIMCO Bylaws, Ambassador's Articles of Incorporation (the
"Ambassador Charter") and Bylaws (the "Ambassador Bylaws") and the MGCL.
RESTRICTIONS ON SHARE TRANSFERS
AIMCO. Subject to certain exceptions and conditions specified in the AIMCO
Charter, no holder may own, or be deemed to own by virtue of various attribution
and constructive ownership provisions of the Code and Rule 13d-3 under the
Exchange Act, more than 8.7% (or 15% in the case of certain pension trusts
described in the Code, investment companies registered under the Investment
Company Act of 1940, as amended, and Mr. Considine) of the outstanding shares of
Authorized Common Stock. See "Description of AIMCO's Capital Stock --
Restrictions on Transfer" for additional details regarding these restrictions
and the exceptions and conditions to them.
Ambassador. Subject to certain exceptions and conditions specified in the
Ambassador Charter, no person may acquire or beneficially or constructively own
shares of capital stock of Ambassador to the extent that such acquisition or
beneficial or constructive ownership would result in Ambassador being "closely
held" within the meaning of the Code, or otherwise failing to qualify as a REIT.
In addition, the Ambassador Charter specifically provides that no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Code and Rule 13d-3, more than 9.9% of the
outstanding shares of Ambassador Common Stock.
AMENDMENT OF CHARTER DOCUMENTS AND BYLAWS
Under the MGCL, unless otherwise provided in a corporation's charter, a
proposed charter amendment requires an affirmative vote of two-thirds of the
outstanding stock entitled to be cast on the matter. Under the MGCL, the power
to adopt, alter, and repeal the bylaws is vested in the stockholders, except to
the extent that the charter or the bylaws vest it in the board of directors.
AIMCO. The AIMCO Charter provides that it may be amended upon the
affirmative vote of a majority (or, as applicable, two-thirds) of the stock
entitled to be cast generally in the election of directors ("voting stock"). The
AIMCO Bylaws provide that they may be amended by vote of a majority of the AIMCO
Board.
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An amendment to any provision of the AIMCO Bylaws relating to their repeal or
the removal of directors may be effected only by the vote of two-thirds of the
voting stock.
Ambassador. The Ambassador Charter provides that it may be amended upon
approval by the affirmative vote of the holders of a majority of the aggregate
number of votes entitled to be cast generally in the election of directors,
provided that amendment of certain specified provisions (those relating to
common stock voting rights, classification of the board of directors and removal
of directors) requires the affirmative vote of the holders of two-thirds of such
votes, and amendment of certain other provisions (inapplicability of the MGCL's
business combination statute and certain REIT requirements) requires the
unanimous approval of the holders of the outstanding stock entitled to vote
generally in the election of directors. The Ambassador Bylaws provide that they
may be amended as provided in the Ambassador Charter, which provides that the
Ambassador Board has the power to adopt, amend, alter, change and repeal any of
the Ambassador Bylaws by vote of a majority of the directors of Ambassador then
in office. The Ambassador Charter further provides that any adoption, amendment,
alteration, change or repeal of the Ambassador Bylaws by the stockholders of
Ambassador shall require the affirmative vote of a majority of the aggregate
number of votes then entitled to be cast generally in the election of directors.
The Ambassador Charter further provides that no such amendment, alteration,
change or repeal of any provision of the Ambassador Bylaws (a) relating to the
classification or removal of directors; (b) relating to the vote of stockholders
required for amendment or repeal of the Ambassador Bylaws or (c) adopted by the
stockholders subject to the condition that it may only be amended or repealed by
vote of the stockholders, shall be effected without the vote of two-thirds of
the aggregate number of such votes.
BUSINESS COMBINATIONS
Generally, under the MGCL, the approval by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter is required for
mergers, consolidations, share exchanges and any transfers of all or
substantially all of the assets of a corporation, unless the charter increases
or reduces the vote to not less than a majority. Neither the AIMCO Charter nor
the Ambassador Charter alters the two-thirds vote requirement.
Subtitle 6 of Title 3 of the MGCL prohibits any business combination
(defined to include a variety of transactions, including mergers,
consolidations, share exchanges, sales or dispositions of assets, issuances of
stock, liquidations, reclassification and benefits from the corporation,
including loans or guarantees) between a Maryland corporation and any interested
stockholder (defined generally as any person who, directly or indirectly,
beneficially owns 10% or more of the voting power of the outstanding voting
stock of the corporation) for a period of five years after the most recent date
such stockholder became an interested stockholder. After such five-year period,
a business combination between a Maryland corporation and such interested
stockholder is prohibited unless either certain "fair-price" provisions are
complied with or the business combination is approved by certain supermajority
stockholder votes. The MGCL restrictions do not apply to a business combination
with an interested stockholder if such business combination is approved or
exempted from the MGCL by a resolution of the board of directors adopted prior
to the date on which the interested stockholder became an interested
stockholder.
A Maryland corporation also may adopt an amendment to its charter electing
not to be subject to the business combination provisions of the MGCL in whole or
in part. Any such amendment generally must be approved by the affirmative vote
of at least 80 percent of the votes entitled to be cast by all holders of
outstanding shares of voting stock and two-thirds of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not interested
stockholders.
AIMCO. The AIMCO Board has not adopted a resolution to exempt AIMCO from
the MGCL's restrictions and no amendment to the AIMCO Charter has been adopted,
electing not to be subject to the business combination provisions of the MGCL.
Ambassador. The Ambassador Charter provides that the business combination
provisions of the MGCL, described above, shall be inapplicable to Ambassador.
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APPRAISAL RIGHTS
Under the MGCL, except as otherwise provided by the MGCL, stockholders have
the right to demand and receive payment of the "fair value" of their stock in
the event of (i) a merger or consolidation, (ii) a share exchange, (iii) a
transfer of all or substantially all assets not in the ordinary course of
business, (iv) an amendment to the charter which alters the contract rights, as
expressly set forth in the charter, of any outstanding stock and which
substantially adversely affects the stockholder's rights, unless the right to do
so is preserved by the charter (which it is not, in the case of each of AIMCO
and is, in the case of Ambassador), (v) certain business combinations with
interested stockholders or (vi) unless the charter or bylaws otherwise provide,
after an approval by the stockholders of voting rights for control shares which
constitute a majority of the voting power of the corporation. However, except as
otherwise provided by the provisions of the MGCL regarding business combinations
with interested stockholders, stockholders do not have appraisal rights if,
among other things, the stock is listed on a national securities exchange (as is
the case with respect to Ambassador and AIMCO).
PREEMPTIVE RIGHTS
Neither AIMCO nor Ambassador stockholders have preemptive rights with
respect to issuances of capital stock.
INDEMNIFICATION
Under the MGCL, a corporation may indemnify any director or officer made a
party to any proceeding unless it is established that (i) the director's or
officer's act or omission was material to the matter giving rise to the
proceeding and was committed in bad faith or resulted from active and deliberate
dishonesty, (ii) the director or officer actually received an improper benefit
in money, property or services, or (iii) in the case of criminal proceedings,
the director or officer had reasonable cause to believe the act or omission was
unlawful.
The MGCL provides that a determination must be made that a director or
officer has met the standard of conduct set forth above before the director or
officer may be indemnified. The determination may be made by a majority vote of
disinterested directors, by special legal counsel (generally selected by the
disinterested directors) or by the stockholders.
The MGCL also establishes several mandatory rules for indemnification. In a
stockholder derivative suit, a corporation may not indemnify a director or
officer if he or she is adjudged to be liable to the corporation, except for
expenses as determined by a court. A corporation may not indemnify a director or
officer in respect of any proceeding charging improper personal benefit to the
director, whether or not involving action in his or her official capacity, in
which the director is adjudged to be liable on the basis that personal benefit
was improperly received, except for expenses as determined by a court. A
director or officer who is successful, on the merits or otherwise, in the
defense of any proceeding for which indemnification is permitted, must be
indemnified by the corporation against reasonable expenses in connection with
the proceeding (including attorneys' fees).
The MGCL permits a corporation to advance reasonable expenses to directors
and officers upon the director's or officer's written affirmation of his or her
good faith belief that he or she has met the required standard of conduct and
after his or her written undertaking to repay the corporation if it is
determined that the standard has not been met.
AIMCO. The AIMCO Charter provides that AIMCO will indemnify its directors
and its officers to the fullest extent permitted by Maryland law. The AIMCO
Charter provides further that AIMCO will indemnify any other persons permitted
to be indemnified by the MGCL, including employees and agents, to the extent
such indemnification is authorized and determined to be appropriate by the AIMCO
Board, the majority of stockholders entitled to vote on the matter or special
legal counsel appointed by the AIMCO Board.
AIMCO has entered into indemnification agreements with each of its
directors and officers. The indemnification agreements require, among other
things, that AIMCO indemnify its directors and officers to
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the fullest extent permitted by law, and advance to the directors and officers
all related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.
Ambassador. The Ambassador Charter and the Ambassador Bylaws each provide
that Ambassador shall indemnify its directors and officers to the fullest extent
permitted by Maryland law. In addition, Ambassador shall pay or reimburse all
reasonable expenses incurred by a director or officer in connection with any
proceeding in which such person is a party because of any action alleged to have
been taken or omitted in such capacity, to the fullest extent permitted by
Maryland law. The Ambassador Charter and the Ambassador Bylaws each further
provide that Ambassador may indemnify any other persons permitted but not
required to be indemnified under Maryland law, if and to the extent
indemnification is authorized and determined to be appropriate, in each case in
accordance with applicable law.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The MGCL provides that a corporation's charter may include a provision
eliminating or limiting the personal liability of a director or officer to the
corporation or its stockholders for money damages except (i) to the extent that
it is proved that the person actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in money,
property, or services actually received or (ii) to the extent that a court finds
that the person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in the
proceeding.
AIMCO. The AIMCO Charter provides that its directors and officers have no
personal liability to Ambassador or its stockholders for money damages to the
maximum extent permitted by Maryland law.
Ambassador. The Ambassador Charter provides that, to the fullest extent
permitted by Maryland law, no person who at any time was or is a director or
officer of Ambassador shall be personally liable to Ambassador or its
stockholders for money damages.
CLASSIFIED BOARD OF DIRECTORS
The MGCL permits, but does not require, a classified board of directors.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of a board of directors. More than one
annual meeting of stockholders will generally be required to effect a change in
the majority of a classified board. Such a delay may help ensure that incumbent
directors, if confronted by a holder attempting to force a proxy contest, a
tender or exchange offer or other extraordinary corporate transaction, would
have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interests of the stockholders. On the other hand, the classification of
directors may delay, defer or prevent a takeover attempt that a stockholder
might consider in its best interest.
AIMCO. The AIMCO Bylaws provide that directors are elected for one-year
terms by the stockholders at their annual meeting. Consequently, AIMCO does not
currently have a classified board of directors. The AIMCO Charter and Bylaws
provide that AIMCO shall have at least three and not more than nine directors,
which numbers may be amended in accordance with the AIMCO Bylaws, but shall not
be less than three.
Ambassador. Pursuant to the Ambassador Charter, the Ambassador Board is
classified into three classes, as nearly equal in number as possible. The
Ambassador Bylaws provide that each class of directors serves for a three-year
term.
CUMULATIVE VOTING FOR DIRECTORS
Neither AIMCO nor Ambassador uses cumulative voting in the election of
directors.
REMOVAL OF DIRECTORS
Under the MGCL, except as otherwise provided in a corporation's charter,
the stockholders generally may remove any director, with or without cause, by
the vote of a majority of all the votes entitled to be cast in the election of
the directors.
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AIMCO. The AIMCO Charter provides that a director may be removed only for
cause, and by the vote of two-thirds of all the votes entitled to be cast in the
election of the directors.
Ambassador. The Ambassador Charter provides that directors may be removed
only for cause and only by the affirmative vote of two-thirds of the aggregate
number of votes then entitled to be cast generally in the election of directors.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
AIMCO. Consistent with the MGCL, the AIMCO Charter provides that a majority
of the remaining directors, even if less than a quorum or, if applicable, a sole
remaining director, may appoint a director to fill a vacancy which results from
any cause except an increase in the number of directors, and a majority of the
entire board may fill a vacancy which results from an increase in the number of
directors. Any director elected to fill a vacancy shall serve until the next
annual meeting of stockholders, upon which a successor director shall be elected
to serve the remaining term, if any.
Ambassador. The Ambassador Bylaws provide that vacancies on the Ambassador
Board may be filled by the majority vote of the remaining directors then in
office, even if less than a quorum of the Ambassador Board, or by the
stockholders at a special meeting called for that purpose. Any director elected
by the Ambassador Board to fill a vacancy shall serve until the next annual
meeting of stockholders of Ambassador and until a successor shall have been
elected and qualified, while any director elected by the stockholders to fill a
vacancy shall serve the remaining term of the director seat filled by such
election and until a successor shall have been elected and qualified.
SPECIAL MEETINGS
AIMCO. The MGCL provides that a special meeting of stockholders may be
called by the President or a majority of the AIMCO Board. The AIMCO Bylaws
further provide that the Chairman or Vice Chairman may call a special meeting of
stockholders. In addition, the MGCL provides that the Secretary shall call a
special meeting of stockholders on the written request of stockholders entitled
to cast at least 25% of all the votes entitled to be cast at the meeting.
Ambassador. The Ambassador Bylaws provides that special meetings of
stockholders may be called by resolution of the Ambassador Board or by the
President of Ambassador, and shall be called by the President or the Secretary
at the request in writing of one or more directors or of the holders of 25% or
more of the issued and outstanding shares of capital stock of Ambassador
entitled to be voted at the meeting, which request must state the purpose or
purposes of the proposed meeting.
RIGHTS AGREEMENT
Neither AIMCO nor Ambassador has adopted a stockholder rights or similar
plan.
LEGAL MATTERS
Certain legal matters relating to the Merger will be passed upon for AIMCO
by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, and for
Ambassador by Altheimer & Gray, Chicago, Illinois. The validity of the AIMCO
Common Stock offered hereby will be passed on for AIMCO by Piper & Marbury
L.L.P., Baltimore, Maryland. Altheimer & Gray and Skadden, Arps, Slate, Meagher
& Flom LLP may rely on Piper & Marbury L.L.P. as to certain matters of Maryland
law.
EXPERTS
The consolidated financial statements of AIMCO appearing in AIMCO's Annual
Report on Form 10-K for the year ended December 31, 1997 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial
142
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statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Ambassador Apartments, Inc.
appearing in Ambassador's Annual Report (Form 10-K) for the year ended December
31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Insignia Financial Group, Inc. for
the year ended December 31, 1997 appearing in AIMCO's Current Report on Form 8-K
dated March 17, 1998, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
AIMCO
Any proposals of AIMCO stockholders intended to be presented at AIMCO's
1998 Annual Meeting must have been received by AIMCO for inclusion in the proxy
statement and form of proxy relating to the meeting not later than December 1,
1997. If the date of such annual meeting is advanced or delayed, AIMCO will
comply with any applicable provision concerning submission of stockholder
proposals under Regulation 14A under the Exchange Act.
AMBASSADOR
In anticipation of completion of the Merger, Ambassador has not set a date
for its annual meeting of stockholders for 1998 and anticipates postponing the
holding of the annual meeting from the date prescribed in Ambassador's by-laws.
If the Merger is not completed prior to July 31, 1998, Ambassador intends to set
a date for an annual meeting at that time. Any proposals of Ambassador
stockholders intended to be presented at Ambassador's 1998 Annual Meeting must
have been received by Ambassador for inclusion in the proxy statement and form
of proxy relating to the meeting not later than January 15, 1998. If the date of
such annual meeting is advanced or delayed, Ambassador will comply with any
applicable provision concerning submission of stockholder proposals under
Regulation 14A under the Exchange Act.
143
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APPENDIX I
AGREEMENT AND PLAN OF MERGER
BETWEEN
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AMBASSADOR APARTMENTS, INC.
Dated as of December 23, 1997
<PAGE> 150
LIST OF DISCLOSURE SCHEDULES
AMBASSADOR DISCLOSURE SCHEDULES
Section 4.2 -- Subsidiaries
Section 4.3 -- Stock Plans
Section 4.4(b) -- Conflicts and Consents
Section 4.4(c) -- Statutory Approvals
Section 4.7 -- Litigation
Section 4.9 -- Taxes
Section 4.10 -- Employee Matters
Section 4.11 -- Environmental
Section 4.14 -- Properties
Section 6.1 -- Ambassador Budget
Section 7.12(b) -- Executive Compensation Plans
AIMCO DISCLOSURE SCHEDULES
Section 5.2 -- Subsidiaries
Section 5.3 -- Stock Plans
Section 5.4(b) -- Conflicts and Consent
Section 5.4(c) -- Statutory Approvals
Section 5.7 -- Litigations
Section 5.9 -- Taxes
Section 5.10 -- Employee Matters
Section 5.11 -- Environmental
<PAGE> 151
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger.................................................. 1
Section 1.2 Effects of the Merger....................................... 1
Section 1.3 Effective Time of the Merger................................ 2
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock....................... 2
Section 2.2 Issuance of New Certificates................................ 3
ARTICLE III
THE CLOSING
Section 3.1 Closing..................................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMBASSADOR
Section 4.1 Organization and Qualification.............................. 5
Section 4.2 Subsidiaries................................................ 6
Section 4.3 Capitalization.............................................. 6
Authority; Non-Contravention; Statutory Approvals;
Section 4.4 Compliance.................................................. 7
Section 4.5 Reports and Financial Statements............................ 8
Section 4.6 Absence of Certain Changes or Events........................ 8
Section 4.7 Litigation.................................................. 9
Section 4.8 Registration Statement and Proxy Statement.................. 9
Section 4.9 Tax Matters................................................. 9
Section 4.10 Employee Matters; ERISA..................................... 11
Section 4.11 Environmental Protection.................................... 12
Section 4.12 Vote Required............................................... 13
Section 4.13 Opinion of Financial Advisor................................ 13
Section 4.14 Property.................................................... 13
Section 4.15 Ambassador Indebtedness..................................... 14
Section 4.16 Ambassador Knowledge........................................ 14
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AIMCO
Section 5.1 Organization and Qualification.............................. 14
Section 5.2 Subsidiaries................................................ 14
Section 5.3 Capitalization.............................................. 14
Authority; Non-Contravention; Statutory Approvals;
Section 5.4 Compliance.................................................. 15
Section 5.5 Reports and Financial Statements............................ 16
Section 5.6 Absence of Certain Changes or Events........................ 16
Section 5.7 Litigation.................................................. 17
Section 5.8 Registration Statement and Proxy Statement.................. 17
Section 5.9 Tax Matters................................................. 17
Section 5.10 Employee Matters; ERISA..................................... 18
Section 5.11 Environmental Protection.................................... 19
Section 5.12 Properties.................................................. 20
Section 5.13 Vote Not Required........................................... 20
Section 5.14 AIMCO Knowledge............................................. 20
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Covenants of Ambassador..................................... 20
Section 6.2 Covenants of AIMCO.......................................... 24
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information....................................... 25
Section 7.2 Proxy Statement and Registration Statement.................. 25
Section 7.3 Regulatory Matters.......................................... 26
Section 7.4 Shareholder Approval........................................ 26
Section 7.5 Directors' and Officers' Indemnification.................... 26
Section 7.6 Public Announcements........................................ 27
Section 7.7 Rule 145 Affiliates......................................... 27
Section 7.8 Employee Agreements and Workforce Matters................... 28
Section 7.9 Employee Benefit Plans...................................... 28
Section 7.10 Stock Option and Other Stock Plans.......................... 28
Section 7.11 No Solicitations............................................ 29
Section 7.12 Expenses.................................................... 30
Section 7.13 Tax-Free Status............................................. 31
Section 7.14 Further Assurances.......................................... 31
Section 7.15 Interim Dividends........................................... 31
Section 7.16 REIT Status................................................. 31
Section 7.17 NYSE Listing................................................ 31
Section 7.18 OP Reorganization........................................... 31
Section 7.19 Transfer Taxes.............................................. 32
Section 7.20 Payment of Ambassador Debt.................................. 32
Section 7.21 Best Efforts................................................ 32
ARTICLE VIII
CONDITIONS
Conditions to Each Party's Obligation to Effect the
Section 8.1 Merger...................................................... 32
Section 8.2 Conditions to Obligation of AIMCO to Effect the Merger...... 33
Conditions to Obligation of Ambassador to Effect the
Section 8.3 Merger...................................................... 34
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination................................................. 35
Section 9.2 Effect of Termination....................................... 36
Section 9.3 Termination Fee; Expenses................................... 36
Section 9.4 Amendment................................................... 38
Section 9.5 Waiver...................................................... 38
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and Warranties...... 38
Section 10.2 Brokers..................................................... 38
Section 10.3 Notices..................................................... 39
Section 10.4 Miscellaneous............................................... 39
Section 10.5 Interpretation.............................................. 40
Section 10.6 Counterparts; Effect........................................ 40
Section 10.7 Parties' Interest........................................... 40
Section 10.8 Waiver of Jury Trial and Certain Damages.................... 40
Section 10.9 Enforcement................................................. 40
Section 10.10 Severability................................................ 40
Section 10.11 Anti-dilution............................................... 40
</TABLE>
ii
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Acquisition Proposal........................................ 30
Affiliate................................................... 22
Affiliate Agreement......................................... 28
Aggregate Unissued Share Value.............................. 31
Agreement................................................... 1
AIMCO....................................................... 1
AIMCO Articles.............................................. 1
AIMCO Benefit Plans......................................... 18
AIMCO Class B Common Stock.................................. 14
AIMCO Class B Preferred..................................... 14
AIMCO Class C Preferred..................................... 14
AIMCO Common Stock.......................................... 2
AIMCO Disclosure Schedule................................... 14
AIMCO Financial Statements.................................. 16
AIMCO Index Price........................................... 2
AIMCO Material Adverse Effect............................... 16
AIMCO Operating Partnership................................. 1
AIMCO Preferred Stock....................................... 14
AIMCO Required Consents..................................... 15
AIMCO Required Statutory Approvals.......................... 15
AIMCO SEC Reports........................................... 16
AIMCO Subsidiary............................................ 14
AIMCO Units................................................. 1
Ambassador.................................................. 1
Ambassador Benefit Plans.................................... 11
Ambassador Common Stock..................................... 2
Ambassador Disclosure Schedule.............................. 5
Ambassador Employees........................................ 28
Ambassador Financial Statements............................. 8
Ambassador Material Adverse Effect.......................... 8
Ambassador Meeting.......................................... 26
Ambassador Operating Partnership............................ 1
Ambassador Preferred........................................ 6
Ambassador Preferred Stock.................................. 6
Ambassador Price............................................ 2
Ambassador Properties....................................... 13
Ambassador Required Consents................................ 7
Ambassador Required Statutory Approvals..................... 7
Ambassador SEC Reports...................................... 8
Ambassador Shareholders' Approval........................... 13
Ambassador Stock Option..................................... 28
Ambassador Stock Plans...................................... 6
Ambassador Subsidiary....................................... 6
Base Amount................................................. 36
Break-Up Expenses........................................... 37
Break-Up Fee................................................ 36
Break-Up Fee ruling......................................... 51
Canceled Shares............................................. 3
Cash Amount................................................. 2
Certificate................................................. 3
</TABLE>
i
<PAGE> 154
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Certificates................................................ 3
Change...................................................... 28
CLNY........................................................ 14
Closing..................................................... 5
Closing Agreement........................................... 10
Closing Date................................................ 5
Code........................................................ 1
Confidentiality Agreement................................... 25
Conversion Ratio............................................ 2
Effective Time.............................................. 2
Environmental Claim......................................... 12
Environmental Laws.......................................... 13
Environmental Permits....................................... 12
ERISA....................................................... 11
Excess Common Stock......................................... 6
Excess Preferred Stock...................................... 6
Exchange Act................................................ 8
Exchange Agent.............................................. 3
Exchange Agreement.......................................... 21
Exchange Fund............................................... 3
Expense Fee Base Amount..................................... 37
Expense Fee Ruling.......................................... 37
Final Order................................................. 32
FNMA........................................................ 34
FNMA Consent................................................ 34
FNMA Credit Enhancement..................................... 34
GAAP........................................................ 8
Governmental Authority...................................... 7
Hazardous Materials......................................... 13
HSR Act..................................................... 26
Indemnified Liabilities..................................... 26
Indemnified Parties......................................... 26
Indemnified Party........................................... 26
Individual Option Value..................................... 31
IRS......................................................... 11
Jupiter Redemption.......................................... 3
LDP......................................................... 13
Line of Credit.............................................. 14
Management Agreements....................................... 24
Manager..................................................... 13
Merger...................................................... 1
Merrill Lynch............................................... 13
MGCL........................................................ 2
Mortgages................................................... 13
NACC........................................................ 14
Nomura Debt................................................. 14
NYSE........................................................ 2
OP Reorganization........................................... 1
OP Units.................................................... 1
PBGC........................................................ 11
PCBs........................................................ 13
Person...................................................... 5
</TABLE>
ii
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<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Proxy Statement............................................. 9
Qualifying Income........................................... 36
Registration Rights Agreement............................... 1
Registration Statement...................................... 9
Reimbursable Expenses....................................... 30
REIT........................................................ 1
REIT Requirements........................................... 36
Release..................................................... 13
Representatives............................................. 25
SEC......................................................... 8
Securities Act.............................................. 8
Subsidiary.................................................. 5
Superior Proposal........................................... 30
Surviving Corporation....................................... 1
Surviving Corporation Stock Benefits........................ 29
Tax Return.................................................. 9
Tax Ruling.................................................. 10
Taxes....................................................... 9
Termination Date............................................ 35
Termination Year............................................ 36
Transactions................................................ 1
Violation................................................... 7
Voting Debt................................................. 6
</TABLE>
iii
<PAGE> 156
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December 23,
1997, by and between Apartment Investment and Management Company, a Maryland
corporation ("AIMCO"), and Ambassador Apartments, Inc., a Maryland corporation
("Ambassador").
WHEREAS, the respective boards of directors of Ambassador and AIMCO have
approved the merger of Ambassador 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, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, in connection with the Merger, the following additional
transactions will be effected (the Merger, together with the other documents,
agreements and transactions contemplated by this Agreement, being referred to
collectively herein as the "Transactions"): (i) AIMCO Properties, L.P., a
Delaware limited partnership which is the operating partnership of AIMCO (the
"AIMCO Operating Partnership"), and Ambassador Apartments, L.P., a Delaware
limited partnership which is the operating partnership of Ambassador (the
"Ambassador Operating Partnership") will use their reasonable best efforts to
effect a business combination as contemplated by Section 7.18 hereof, with AIMCO
Operating Partnership as the survivor (the "OP Reorganization") and will perform
their respective obligations thereunder; and (ii) AIMCO will enter into a
Registration Rights Agreement (the "Registration Rights Agreement"), with
certain holders (after giving effect to the Merger and the OP Reorganization) of
limited partnership interests in the Ambassador Operating Partnership ("OP
Units") and/or AIMCO Common Stock (as defined in Section 2.1(a)) and/or limited
partnership interests in the AIMCO Operating Partnership (the "AIMCO Units");
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; and
WHEREAS, AIMCO and Ambassador 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), Ambassador
shall be merged with and into AIMCO in accordance with the laws of the State of
Maryland. AIMCO shall be the surviving corporation in the Merger and shall
continue its corporate existence under the laws of the 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 (the "AIMCO Articles"), as in effect immediately prior
to the Effective Time, 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
<PAGE> 157
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").
Section 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1), a certificate of merger and the articles of merger shall each
be executed and filed by AIMCO and Ambassador with the Secretary of State of the
State of Maryland pursuant to the MGCL. The Merger shall become effective upon
the certification by the Secretary of State of the State of Maryland that the
certificate of merger relating to the Merger has been duly filed (the "Effective
Time").
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK.
(a) CAPITAL STOCK OF AMBASSADOR. 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
Ambassador (including the AIMCO Operating Partnership), subject to Section
2.1(b) and (c), each issued and outstanding share of Common Stock, par value
$0.01 per share, of Ambassador ("Ambassador Common Stock"), other than shares of
Ambassador Common Stock owned by AIMCO or Ambassador directly, shall be
converted into and become that number of fully paid and nonassessable shares of
Class A Common Stock, par value $0.01 per share, of AIMCO ("AIMCO Common Stock")
equal to the Conversion Ratio. The term "Conversion Ratio" means the quotient
(rounded to the nearest 1/1000) determined by dividing $21.00 (the "Ambassador
Price") by the AIMCO Index Price (as defined below); provided however, if the
Conversion Ratio is a number greater than 0.583, then the Conversion Ratio shall
be deemed to be, at AIMCO's option, exercisable by written notice to Ambassador
not later than three business days prior to the Effective Time, either (i) the
Conversion Ratio as calculated hereunder, or (ii) 0.583 (so long as the Merger
continues to qualify as a reorganization under Section 368(a) of the Code). The
term "AIMCO Index Price" means the aggregate of the average of the high and low
sales prices of AIMCO Common Stock (as reported on the New York Stock Exchange
(the "NYSE") Composite Transactions reporting system as published in The Wall
Street Journal or, if not published therein, in another authoritative source) on
each of the twenty consecutive NYSE trading days ending the fifth NYSE trading
day immediately preceding the Effective Time, divided by 20. All such shares of
Ambassador 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 AIMCO Common 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.
(b) EXCESS CONVERSION RATIO PAYMENT. If the Conversion Ratio (as calculated
pursuant to the definition of Conversion Ratio without regard to the proviso
thereof) is a number greater than 0.583 and AIMCO opts for the Conversion Ratio
to equal 0.583, then upon conversion of Ambassador Common Stock into AIMCO
Common Stock hereunder, AIMCO shall pay to each shareholder of Ambassador Common
Stock (other than shares of Ambassador Common Stock beneficially owned by AIMCO
or Ambassador either directly or through a wholly owned Subsidiary) for each
share of Ambassador Common Stock held by such shareholder an amount in cash
equal to (i) $21.00 minus (ii) the product of (x) the AIMCO Index Price and (y)
0.583 (the "Cash Amount").
(c) CANCELLATION OF CERTAIN AMBASSADOR COMMON STOCK. 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 Ambassador, any shares of Ambassador Common Stock that
are owned by Ambassador as treasury stock or by AIMCO shall be canceled and
retired and shall cease to exist and no stock of AIMCO or other consideration
shall be issued or delivered in exchange therefor.
(d) REDEMPTION OF AMBASSADOR PREFERRED. Prior to the Effective Time, the
Board of Directors of Ambassador shall call for redemption all outstanding
shares of Ambassador Preferred (as defined in Section 4.3), in accordance with,
and at a redemption price equal to the amount set forth in Section 8(a) of
2
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the Articles Supplementary of Ambassador with respect thereto, to be effective
simultaneously with, and to be conditioned upon, the occurrence of, the
Effective Time. Notwithstanding the foregoing, the parties understand and agree
that the holders of such Ambassador Preferred shall nonetheless have the right
to convert such stock into Ambassador Common Stock in the manner set forth in
Section 8(a) of such Articles Supplementary. To the extent any Ambassador
Preferred shall not have been converted as of the Effective Time, AIMCO shall
provide the funds for, and cause payment to be made in respect of, the
redemption thereof on the date of the Effective Time.
(e) JUPITER. At or prior to the Effective Time, Ambassador shall call for
redemption the limited partnership interests not owned by Ambassador or its
affiliates in Jupiter-I, L.P. and Jupiter-II, L.P. (the "Jupiter Redemption") in
accordance with their respective partnership agreements and subject to and
simultaneously with the Effective Time, the Surviving Corporation shall provide
the funds for, and cause payment to be made in respect of, the redemption
thereof upon the Effective Time.
Section 2.2 ISSUANCE OF NEW CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the Effective
Time, AIMCO shall deposit, in trust for the benefit of holders of Certificates,
with Bank of Boston (the "Exchange Agent"), certificates representing shares of
AIMCO Common Stock required to effect the issuance referred to in Section
2.1(a), 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) ISSUANCE 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
Ambassador Common Stock (the "Canceled Shares") that were canceled and became
instead the right to receive shares of AIMCO Common Stock pursuant to Section
2.1(a): (i) a letter of transmittal in customary and reasonable form (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 certificates representing shares of AIMCO Common
Stock. Without limitation to the rights under Section 2.2(c), upon surrender of
a Certificate to the Exchange Agent for cancellation (or to such 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 Ambassador Common Stock formerly represented thereby, (A) a
certificate or certificates representing that number of whole shares of AIMCO
Common Stock which such holder has the right to receive pursuant to the
provisions of Section 2.1(a), (B) the Cash Amount which such holder has the
right to receive pursuant to Section 2.1(b) and (C) 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 Ambassador, a certificate representing the
proper number of shares of AIMCO Common Stock 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
stock 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 the certificate
representing shares of AIMCO Common Stock, the Cash Amount in respect thereof,
and dividends and other distributions and cash in lieu of any fractional shares
of AIMCO Common Stock as contemplated by this Section 2.2. If the OP
Reorganization is consummated concurrently with the Merger, then concurrently
with the issuance contemplated by this Section 2.2(b), the Surviving Corporation
shall cause to be issued to the holders of OP Units, the limited partnership
interests in the AIMCO Operating Partnership issuable upon consummation of the
OP Reorganization.
(c) DISTRIBUTIONS WITH RESPECT TO SHARES.
(i) Each of AIMCO and Ambassador shall declare a dividend to their
respective shareholders, the record date for which shall be the close of
business on the last business day prior to the Effective Time.
3
<PAGE> 159
The dividend of each shall be equal to such party's most recent quarterly
dividend rate, multiplied by the number of days elapsed since the last
dividend record date through and including the Effective Time, and divided
by 91. Such dividend shall be paid in the ordinary course of business
consistent with the past practice of AIMCO or Ambassador, as the case may
be, as to the manner and timing of payment. If payment of such dividends is
made after the Effective Time, the Surviving Corporation shall pay such
dividends to such holders. Concurrently with any such dividends on the
Ambassador Common Stock, an equivalent OP Unit distribution shall be made.
(ii) No dividends or other distributions declared or made after the
Effective Time with respect to shares of AIMCO Common Stock with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of AIMCO Common Stock
represented thereby and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to Section 2.2(d) 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 AIMCO Common Stock issued in
consideration therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
AIMCO Common Stock 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 AIMCO Common Stock 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 AIMCO Common Stock.
(d) NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of AIMCO Common Stock shall be issued upon the surrender for
exchange of Certificates and such fractional shares shall not entitle the owner
thereof to vote or to any other rights of a holder of AIMCO Common Stock. A
holder of Ambassador Common Stock who would otherwise have been entitled to a
fractional share of AIMCO Common Stock shall be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to the product of
such fraction multiplied by the AIMCO Index Price, without any interest thereon.
(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 AIMCO Common Stock to be received in exchange for the Canceled Shares
formerly represented by such surrendered Certificates be issued in
uncertificated form or to elect that such shares of AIMCO Common Stock be
credited to an account established for the holder under the dividend
reinvestment and stock purchase plan of AIMCO.
(f) CLOSING OF TRANSFER BOOKS; ETC. From and after the Effective Time, the
stock transfer books of Ambassador shall be closed and no registration of any
transfer of any capital stock of Ambassador shall thereafter be made on the
records of Ambassador. 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 AIMCO Common Stock, the appropriate Cash Amount,
if any, with respect thereof and cash in lieu of fractional shares and dividends
and other distributions, as provided in this Section 2.2. Shares of AIMCO Common
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
AIMCO Common 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 AIMCO Common Stock 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
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vote on all matters subject to the vote of holders of AIMCO Common Stock with a
record date on or after the date of the Effective Time, whether or not such
Certificate 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 shareholder records of the
Ambassador in determining the identity of, and the number of Ambassador Common
Shares held by, each holder of a Certificate at the Effective Time.
(g) TERMINATION OF EXCHANGE AGENT. Any certificates representing shares of
AIMCO Common 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 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 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.
ARTICLE III
THE CLOSING
Section III.1 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 333 West
Wacker Drive, Chicago, Illinois, 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 first fulfilled or has been waived, provided
that all such conditions continue to be so satisfied or waived on such fifth
trading day, and if not so satisfied or waived, the Closing shall be
automatically extended from time to time until the first subsequent trading day
on which all such conditions are again so satisfied or waived, subject, however,
to Article IX hereof, or at such other time, date and place as AIMCO and
Ambassador shall mutually agree (the "Closing Date"); provided however, that
unless AIMCO otherwise agrees (in which event, all closing conditions and
representations and warranties related to the matters referred to in Section
8.1(h) shall be deemed satisfied), the Closing and the Effective Time shall not
occur prior to April 28, 1998, unless the condition set forth in Section 8.1(h)
is satisfied prior to such time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMBASSADOR
Ambassador makes the following representations and warranties to AIMCO.
Except as set forth in the letter of even date herewith signed by the President
and the Chief Executive Officer of Ambassador on behalf of Ambassador and
delivered to AIMCO concurrently herewith (the "Ambassador Disclosure Schedule")
or as set forth in the Ambassador SEC Reports (as defined below):
Section 4.1 ORGANIZATION AND QUALIFICATION. Ambassador and each of the
Ambassador 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. Ambassador and each Subsidiary of
Ambassador 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 any of the foregoing would not have an Ambassador Material
Adverse Effect (as defined in Section 4.6). As used in this Agreement, the term
"Subsidiary" of a person shall mean any corporation or other entity (including
partnerships and other business associations) of which at least a majority of
the voting power represented by the outstanding capital stock or other voting
securities or interests having voting power under ordinary circumstances to
elect directors or similar members of the governing body
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of such corporation or entity shall at the time be held, directly or indirectly,
by such person. The term "Ambassador Subsidiary" shall mean the Ambassador
Operating Partnership and each other Subsidiary of Ambassador in which
Ambassador's equity investment exceeds $250,000.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Ambassador Disclosure Schedule
sets forth a list as of the date hereof of all the Ambassador Subsidiaries.
Except as set forth in Section 4.2 of the Ambassador Disclosure Schedule, all of
the issued and outstanding shares of capital stock of each Ambassador Subsidiary
are validly issued, fully paid, nonassessable and free of preemptive rights, and
are owned, directly or indirectly, by Ambassador free and clear of any liens,
claims, encumbrances, security interests, charges and options 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 Ambassador 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 4.3 CAPITALIZATION. As of the date hereof, the authorized capital
stock of Ambassador consists of (i) 100,000,000 shares of Ambassador Common
Stock, par value $0.01 per share, (ii) 20,000,000 shares of Preferred Stock, par
value $0.01 per share ("Ambassador Preferred"), and (iii) 120,000,000 shares of
Excess Stock, par value $0.01 per share, of which 100,000,000 shares shall be
designated Excess Common Stock ("Excess Common Stock") and 20,000,000 shares
shall be designated Excess Preferred Stock ("Excess Preferred Stock")
(Ambassador Preferred, Excess Common Stock and Excess Preferred Stock
hereinafter collectively referred to as "Ambassador Preferred Stock"). At the
close of business on December 20, 1997 (i) 10,552,180 shares of Ambassador
Common Stock were issued, and not more than 2,319,000 shares of Ambassador
Common Stock were reserved for issuance pursuant to The 1994 Stock Incentive
Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc.,
Ambassador Apartments, L.P. and Subsidiaries, as amended, The 1996 Stock
Incentive Plan for Officers, Directors and Key Employees of Ambassador
Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries, and The 1997
Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador
Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries (such Plans,
collectively, the "Ambassador Stock Plans"), (ii) 447,510 shares of Ambassador
Common Stock are subject to outstanding options under the Ambassador Stock
Plans, (iii) no shares of Ambassador Common Stock were held by Ambassador in its
treasury or by its wholly owned Subsidiaries, (iv) 1,351,351 shares of
Ambassador Preferred were issued and of such issued shares, none were held by
Ambassador in its treasury or by its wholly owned Subsidiaries, (v) no shares of
Excess Common Stock were outstanding, (vi) 895,318 shares of Ambassador Common
Stock were reserved for issuance upon the exchange of outstanding OP Units,
(vii) no shares of Excess Preferred Stock were outstanding, (viii) 925,006
shares of Ambassador Common Stock were reserved for issuance upon the exchange
of outstanding limited partnership interests in Jupiter I, L.P., (ix) 270,227
shares of Ambassador Common Stock were reserved for issuance upon the exchange
of outstanding limited partnership interests in Jupiter II, L.P. 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. All
outstanding shares of Ambassador Common Stock and Ambassador Preferred 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
Ambassador Disclosure Schedule or pursuant to this Agreement and the Ambassador
Stock Plans, there are no options, warrants, calls, rights, commitments or
agreements of any character to which Ambassador or any Subsidiary of Ambassador
is a party or by which any of them are bound obligating Ambassador or any
Subsidiary of Ambassador to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or any Voting Debt
securities of Ambassador or any Subsidiary of Ambassador or obligating
Ambassador or any Subsidiary of Ambassador to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. Each share of
outstanding Ambassador Preferred is by its terms redeemable by Ambassador, for
cash or Ambassador Common Stock, after certain times for a stated value or
percentage of issue price, plus accrued and unpaid dividends. Except as set
forth in Section 4.3 of the Ambassador Disclosure Schedule, or other than in
connection with the Ambassador Stock Plans, after the Effective Time, there will
be no option, warrant, call, right, commitment or agreement obligating
Ambassador or any Subsidiary of Ambassador to issue, deliver or sell, or cause
to be
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issued, delivered or sold, any shares of capital stock or any Voting Debt of
Ambassador or any Subsidiary of Ambassador, or obligating Ambassador or any
Subsidiary of Ambassador to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Ambassador has all requisite corporate power and authority
to enter into this Agreement and, subject to the receipt of the applicable
Ambassador Shareholders' Approval (as defined in Section 4.12) and the
applicable Ambassador 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 Ambassador of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Ambassador, subject to obtaining the applicable
Ambassador Shareholders' Approval. This Agreement has been duly and validly
executed and delivered by Ambassador and, assuming the due authorization,
execution and delivery hereof by AIMCO, constitutes the valid and binding
obligation of Ambassador enforceable against it in accordance with the terms of
this Agreement.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
Ambassador Disclosure Schedule, the execution and delivery of this Agreement by
Ambassador does not, and the consummation of the transactions contemplated
hereby will not, in any respect, violate, conflict with or result in a material
breach of any 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, including tax exempt financing status, under, or result in the
creation of any material lien, security interest, charge or encumbrance upon any
of the properties or assets of Ambassador or any of the Ambassador 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 Ambassador and such term when used in
Article V having a correlative meaning with respect to AIMCO) pursuant to any
provisions of (i) the Articles of Incorporation, by-laws or similar governing
documents of Ambassador or any of the Ambassador Subsidiaries, (ii) subject to
obtaining the Ambassador Required Statutory Approvals and the receipt of the
Ambassador Shareholders' 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 Ambassador
or any of the Ambassador Subsidiaries or any of their respective properties or
assets or (iii) subject to obtaining the third-party consents set forth in
Section 4.4(b) of the Ambassador Disclosure Schedule (the "Ambassador Required
Consents"), any material note, bond, mortgage, indenture, credit enhancement
agreement, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Ambassador or any of the Ambassador Subsidiaries is a party or by which it or
any of its properties or assets may be bound or affected, except in the case of
clause (ii) or (iii) for any such Violation which would not have an Ambassador
Material Adverse Effect. Without any implication that the contrary would
otherwise be true, the foregoing representation and warranty does not address
the financial, business, operation or like matters of AIMCO or any of its
Subsidiaries or, from and after the Effective Time, the Surviving Corporation or
any of its Subsidiaries.
(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" expressly
excluding for purposes of this definition the Federal National Mortgage
Association, state or local municipal finance authorities and other similar
quasi-governmental entities) is necessary for the execution and delivery of this
Agreement by Ambassador or the consummation by Ambassador of the transactions
contemplated hereby except as described in Section 4.4(c) of the Ambassador
Disclosure Schedule or the failure of which to obtain would not result in an
Ambassador Material Adverse Effect (the "Ambassador Required Statutory
Approvals," it being understood that references in this Agreement to "obtaining"
such Ambassador 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 4.4(b) of the Ambassador
Disclosure Schedule, or as disclosed in the Ambassador SEC Reports (as defined
in Section 4.5) filed prior to the date hereof, neither Ambassador nor any of
the Ambassador Subsidiaries is, to the knowledge of Ambassador, in violation of
or under investigation with respect to any violation of, or has been given
written notice of, or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for violations or possible violations which individually or in
the aggregate would not have an Ambassador Material Adverse Effect. Except as
set forth in Section 4.4(b) of the Ambassador Disclosure Schedule or as
disclosed in the Ambassador SEC Reports filed prior to the date hereof,
Ambassador and the Ambassador Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted other than those
permits, licenses, franchises and other governmental authorizations, consents
and approvals the failure of which to possess would not have an Ambassador
Material Adverse Effect. Ambassador and each of the Ambassador 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 Ambassador or any
Ambassador Subsidiary under (i) its articles 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 Ambassador or any Ambassador 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 Ambassador Material Adverse
Effect. No representation or warranty is made with respect to the Americans with
Disabilities Act.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Ambassador and the Ambassador Subsidiaries since August 24, 1994 under
the Securities Act of 1933, as amended (the "Securities Act"); the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); have been filed with the
Securities and Exchange Commission (the "SEC") including all forms, statements,
reports, 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. "Ambassador SEC Reports" shall mean each report,
schedule, registration statement and definitive proxy statement filed with the
SEC by Ambassador pursuant to the requirements of the Securities Act or Exchange
Act since August 24, 1994 (as such documents have since the time of their filing
been amended). As of their respective dates, the Ambassador 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 Ambassador included in the Ambassador SEC Reports (collectively,
the "Ambassador Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("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 Ambassador 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. True, accurate
and complete copies of the Articles of Incorporation and by-laws of Ambassador,
as in effect on the date hereof, are included (or incorporated by reference) in
the Ambassador SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Ambassador SEC Reports filed prior to the date hereof, since December 31,
1996, Ambassador and each of the Ambassador Subsidiaries have conducted their
business only in the ordinary course of business consistent with past practice
and there has not been any Ambassador Material Adverse Effect. For purposes of
this Agreement, a "Ambassador Material Adverse Effect" shall mean the existence
of any fact or condition (other than as disclosed in the Ambassador SEC Reports
filed prior to the date hereof or as set forth in the Ambassador Disclosure
Schedule) which has had or is reasonably likely to have a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of Ambassador and the Ambassador Subsidiaries taken as a whole;
provided, however, that adverse effects on the business, assets, financial
condition, results of operations or prospects of Ambassador or the Ambassador
Subsidiaries due to general economic conditions or
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conditions affecting generally the multi-family apartment property market or any
of the markets in which Ambassador operates shall not be deemed to be an
Ambassador Material Adverse Effect and shall not be taken into account in
determining the existence of an Ambassador Material Adverse Effect.
Section 4.7 LITIGATION. Except as disclosed in the Ambassador SEC Reports
filed prior to the date hereof or as set forth in Sections 4.7, 4.9 or 4.11 of
the Ambassador Disclosure Schedule, (a) there are no claims, suits, actions or
proceedings by any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, pending or, to the knowledge of
Ambassador, threatened, nor are there, to the knowledge of Ambassador, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened,
against, relating to or affecting Ambassador or any of the Ambassador
Subsidiaries which would have an Ambassador Material Adverse Effect, (b) there
have not been any significant developments since December 31, 1996 with respect
to such disclosed claims, suits, actions, proceedings, investigations or reviews
that would have an Ambassador Material Adverse Effect and (c) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
specifically applicable to Ambassador or any of the Ambassador Subsidiaries,
except for such that would not have an Ambassador Material Adverse Effect. The
challenge asserted by an advisor to certain investors who held Class B
certificates in TEB Municipal Trust I (on behalf of such investors) has been
settled and releases have been obtained from such advisor (on behalf of such
investors) and Ambassador is not aware that any party intends to bring any
claim, suit, action or proceeding concerning Ambassador's actions with respect
to such Class B certificates.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Ambassador for
inclusion or incorporation by reference in (a) the registration statement on
Form S-4 or S-8 or any post-effective amendment to a registration statement on
Form S-4 or S-8 to be filed with the SEC by AIMCO in connection with the
issuance of shares of AIMCO Common Stock in the Merger (as amended or
supplemented, the "Registration Statement") will, at the time the Registration
Statement is filed 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, in definitive
form, relating to the meeting of Ambassador shareholders 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 shareholders
and at the times of the meetings of shareholders 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 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, 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 Ambassador or any Ambassador Subsidiary
or AIMCO or any AIMCO Subsidiary, as the case may be.
Except as set forth in Section 4.9 of the Ambassador Disclosure Schedule
and except as would not result in an Ambassador Material Adverse Effect:
(a) FILING OF TIMELY TAX RETURNS. Ambassador and each of the
Ambassador Subsidiaries have filed (or there has been filed on its behalf)
all Tax Returns required to be filed by each of them under
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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. Ambassador and each of the Ambassador
Subsidiaries have, within the time and in the manner prescribed by law,
paid all Taxes that are currently due and payable, except for those
contested in good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. Ambassador and the Ambassador Subsidiaries have
established on their books and records reserves adequate to pay all Taxes
and reserves for deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of Ambassador or
any of the Ambassador Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. Ambassador and each of the Ambassador
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 the initial public
offering of Ambassador, Ambassador has been organized and operated in
conformity with the REIT Requirements (as defined in Section 9.3(a)).
(g) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Ambassador or any of the Ambassador
Subsidiaries.
(h) TAX RULINGS. Neither Ambassador nor any of the Ambassador
Subsidiaries has received 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.
(i) TAX SHARING AGREEMENTS. Except as between affiliates of Ambassador
as set forth in Section 4.2 of the Ambassador Disclosure Schedule, neither
Ambassador nor any Ambassador Subsidiary is a party to any agreement
relating to allocating or sharing of Taxes.
(j) CODE SECTION 280G. Neither Ambassador nor any of the Ambassador
Subsidiaries is a party to any agreement, contract or arrangement that
could result in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code or any amount that would be
non-deductible pursuant to Section 162(m) of the Code.
(k) LIABILITY FOR OTHERS. Neither Ambassador nor any of the Ambassador
Subsidiaries has any liability for Taxes of any person other than
Ambassador and the Ambassador 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 Ambassador nor any of the Ambassador
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 Ambassador or any of the Ambassador
Subsidiaries.
(m) BUILT-IN GAINS. None of Ambassador or the Ambassador Subsidiaries
has a net unrealized built-in gain within the meaning of Section 1374(d)(1)
of the Code that would be subject to IRS Notice 88-19.
(n) SUBCHAPTER C. None of Ambassador or the Ambassador Subsidiaries
has any earnings and profits accumulated in any non-REIT year within the
meaning of Section 857 of the Code.
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Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 4.10
of the Ambassador Disclosure Schedule:
(a) BENEFIT PLANS. As of the date hereof, Section 4.10(a) of the
Ambassador Disclosure Schedule contains a true and complete list of each
written material employment agreement, employee benefit plan, policy or
agreement covering employees, former employees or directors of Ambassador
and each of the Ambassador 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 employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and any severance or change in
control agreement (collectively, the "Ambassador Benefit Plans"). Since
September 30, 1997, there have been no new plans adopted nor changes,
additions or modification to any existing plan.
(b) CONTRIBUTIONS. All material contributions and other payments
required to have been made by Ambassador or any of the Ambassador
Subsidiaries to any Ambassador 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 Ambassador Financial
Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the Ambassador 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 Ambassador, no circumstances exist that
are reasonably expected by Ambassador to result in the revocation of any
such determination. Ambassador is in compliance in all material respects
with, and each of the Ambassador Benefit Plans is and has been operated in
all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and
the Code. Each Ambassador 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. No prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred for
which a statutory exemption is not available with respect to any Ambassador
Benefit Plan, and which could give rise to liability on the part of
Ambassador, any Ambassador Benefit Plan, or any fiduciary, party in
interest or disqualified person with respect thereto that would be material
to Ambassador or would be material to Ambassador if it were Ambassador's
liability.
(d) LIABILITIES. With respect to the Ambassador Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the
knowledge of Ambassador, there does not now exist any condition or set of
circumstances, that could reasonably subject Ambassador or any of the
Ambassador 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")), or under any indemnity agreement to which Ambassador or any of
the Ambassador Subsidiaries is a party, excluding liability relating to
benefit claims and funding obligations payable in the ordinary course.
(e) WELFARE PLANS. Other than continuation coverage required to be
provided under Section 4980B of the Code or Part 6 of Title I of ERISA or
otherwise as provided by state law, none of the Ambassador Benefit Plans
that are "welfare plans," within the meaning of Section 3(1) of ERISA,
provide for any benefits with respect to current or former employees for
periods extending beyond their retirement or other termination of service
which would have an Ambassador Material Adverse Effect,
(f) PAYMENTS RESULTING FROM THE MERGER. The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or as a pre-condition to and 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 Ambassador or any of the Ambassador Subsidiaries) result in any (i)
payment (whether of severance pay or otherwise) becoming due from
Ambassador or any of the Ambassador 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 Ambassador Benefit
Plan becoming accelerated, vested or payable.
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(g) BREACHES CUMULATIVE. No inaccuracy of any of the foregoing
representations and warranties in this Section 4.10 shall be deemed to
exist unless such inaccuracy, either individually or with other
inaccuracies of this Section 4.10, would be deemed material to Ambassador
and its Subsidiaries taken as a whole.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 4.11 of the Ambassador Disclosure
Schedule or in the Ambassador SEC Reports filed prior to the date hereof:
(i) COMPLIANCE. Ambassador and each of the Ambassador Subsidiaries is
in compliance with all applicable Environmental Laws (as defined in Section
4.11(b)(ii)) and neither Ambassador nor any of the Ambassador Subsidiaries
has received any written communication from any person or Governmental
Authority that alleges that Ambassador or any of the Ambassador
Subsidiaries is not in such compliance with applicable Environmental Laws
except in each foregoing case where the failure to so comply would not have
an Ambassador Material Adverse Effect. To the knowledge of Ambassador,
compliance with all applicable Environmental Laws will not require
Ambassador or any Ambassador Subsidiary to incur costs in excess of amounts
reserved against in the Ambassador Financial Statements, which excess would
result in an Ambassador Material Adverse Effect.
(ii) ENVIRONMENTAL PERMITS. Ambassador and each of the Ambassador
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 except where the failure to so obtain
would not have an Ambassador Material Adverse Effect, 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
Ambassador and the Ambassador Subsidiaries are in material compliance with
all terms and conditions of all such Environmental Permits.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim (as
defined in Section 4.11(b)(i)) which would have an Ambassador Material
Adverse Effect pending (A) against Ambassador or any of the Ambassador
Subsidiaries, (B) to the knowledge of Ambassador, against any person or
entity whose liability for any Environmental Claim Ambassador or any of the
Ambassador Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (C) or, to the knowledge of
Ambassador, against any real or personal property or operations which
Ambassador or any of the Ambassador Subsidiaries owns, leases or manages,
in whole or in part.
(iv) RELEASES. Ambassador has no knowledge of any 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 Ambassador or any of the Ambassador
Subsidiaries or against any person or entity whose liability for any
Environmental Claim Ambassador or any of the Ambassador Subsidiaries has
retained or assumed either contractually or by operation of law except for
any such Environmental Claim which would not have an Ambassador Material
Adverse Effect.
(v) PREDECESSORS. Ambassador has no knowledge, with respect to any
predecessor of Ambassador or any of the Ambassador Subsidiaries of any
pending or threatened Environmental Claim which would have an Ambassador
Material Adverse Effect, or of any Release of Hazardous Materials that
would be reasonably likely to form the basis of any Environmental Claim
which would have an Ambassador 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
(in each case in writing) by any person or entity (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
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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 Ambassador or any of the Ambassador
Subsidiaries (for purposes of this Section 4.11) or by AIMCO or any of the
AIMCO Subsidiaries (for purposes of Section 5.11); or (B) circumstances
known to Ambassador (for purposes of this Section 4.11) or known to AIMCO
(for purposes of Section 5.11) to form 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, in each case as known to Ambassador (for purposes
of this Section 4.11) or known to AIMCO (for purposes of Section 5.11).
(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 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 Ambassador or any of the Ambassador Subsidiaries
operates (for purposes of this Section 4.11) or AIMCO or any of the AIMCO
Subsidiaries operates (for purposes of Section 5.11).
(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. Provided that the Ambassador Preferred Stock
has been redeemed pursuant to Section 2.1, the affirmative vote of the holders
of at least two-thirds of the shares of Ambassador Common Stock outstanding on
the record date for the meeting at which such vote is taken (the "Ambassador
Shareholders' Approval") is the only vote of the holders of any class or series
of the capital stock of Ambassador or any of its Subsidiaries that is required
to approve this Agreement, the Merger and the other transactions contemplated
hereby.
Section 4.13 OPINION OF FINANCIAL ADVISOR. Ambassador has received the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
dated as of the date hereof, to the effect that, as of the date hereof, the
consideration to be received by the holders of Ambassador Common Stock (other
than AIMCO and its affiliates) in the Merger is fair from a financial point of
view.
Section 4.14 PROPERTY.
(a) TRANSFERABILITY. The properties listed in Section 4.14 of the
Ambassador Disclosure Schedule are all the real estate properties owned by
Ambassador or a Subsidiary of Ambassador (the "Ambassador Properties"). Each
outstanding loan secured by an Ambassador Property (the "Mortgages") is listed
opposite such Ambassador Property in Section 4.14 of the Ambassador Disclosure
Schedule, and lists, individually, the unpaid principal on the Mortgage and the
accrued but unpaid interest, if delinquent, on the Mortgage.
(b) NO LDP'S. None of Ambassador, any Subsidiary of Ambassador or any party
which manages an Ambassador Property (a "Manager") is subject to any limited
denial of participation ("LDP") issued by the United States Department of
Housing and Urban Development, or any office or agency thereof, and Ambassador
knows of no facts which could reasonably be expected to result in an LDP being
issued to Ambassador, any Subsidiary of Ambassador or any Manager, in any case
which would be material to Ambassador and its Subsidiaries taken as a whole.
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Section 4.15 AMBASSADOR INDEBTEDNESS.
(a) CREDIT LYONNAIS DEBT. As of November 30, 1997 the aggregate principal
on the unsecured revolving credit facility (the "Line of Credit") with Credit
Lyonnais New York Branch ("CLNY") incurred pursuant to that certain line of
credit agreement entered into as of May 28, 1997 and amended on June 27, 1997,
was $2,010,000.
(b) NOMURA DEBT. As of November 30, 1997 the aggregate principal on the
secured revolving credit facility (the "Nomura Debt") with Nomura Asset Capital
Corporation ("NACC") incurred pursuant to that loan agreement entered into as of
June 22, 1997 and amended on September 30, 1997, was $35,250,000.
Section 4.16 AMBASSADOR KNOWLEDGE. For the purposes hereof, the knowledge
of Ambassador and its Subsidiaries shall be limited to the actual knowledge of
the senior executive officers of Ambassador.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AIMCO
AIMCO makes the following representations and warranties to Ambassador.
Except as set forth in the letter of even date herewith signed by the President
of AIMCO on behalf of AIMCO and delivered to Ambassador concurrently herewith
(the "AIMCO Disclosure Schedule") or as set forth in the AIMCO SEC Reports (as
defined in Section 5.5):
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. AIMCO and each Subsidiary of AIMCO 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 (as defined in Section 5.6). As used in this
Agreement, the term "AIMCO Subsidiary" shall mean a Subsidiary of AIMCO in which
AIMCO's equity investment exceeds $250,000.
Section 5.2 SUBSIDIARIES. Section 5.2 of the AIMCO Disclosure Schedule sets
forth a list as of the date hereof of all the AIMCO Subsidiaries. Except as set
forth in Section 5.2 of the AIMCO Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each AIMCO Subsidiary are validly issued,
fully paid, nonassessable and free of preemptive rights, and are owned, directly
or indirectly, by AIMCO free and clear of any liens, claims, encumbrances,
security interests, charges and options 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 Common Stock, par
value $0.01 per share, (ii) 425,000 shares of Class B Common Stock, par value
$0.01 per share (the "AIMCO Class B Common Stock"), (iii) 750,000 shares of
Class B Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"AIMCO Class B Preferred") and (iv) 2,760,000 shares of Class C Cumulative
Preferred Stock, par value $0.01 per share (the "AIMCO Class C Preferred" and,
together with the AIMCO Class B Common Stock, the "AIMCO Preferred Stock"). At
the close of business on December 20, 1997, (i) 40,000,326 shares of AIMCO
Common Stock were issued and outstanding, and of such issued shares, none were
held by AIMCO in its treasury or by its wholly owned Subsidiaries, (ii) 325,000
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 its wholly owned
Subsidiaries, (iii) 750,000 shares of AIMCO Class B Preferred were issued and
outstanding, and of
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such issued shares, none were held by AIMCO in its treasury or by its wholly
owned Subsidiaries, (iv) no shares of AIMCO Class C Preferred were issued and
outstanding, (v) 4,938,710 shares of AIMCO Common Stock were reserved for
issuance upon the exchange of units of limited partnership in the AIMCO
Operating Partnership, (vi) 325,000 shares of AIMCO Common Stock were reserved
for issuance upon conversion of the AIMCO Class B Common Stock, (vii) 953,645
shares of AIMCO Common Stock were reserved for issuance upon exercise of
outstanding options, (viii) 2,463,053 shares of AIMCO Common Stock were reserved
for issuance upon conversion of AIMCO Class B Preferred Stock, (ix) 2,400,000
shares of AIMCO Class C Preferred were reserved for issuance upon the
consummation of an offering expected to close on December 23, 1997, and (x) 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. 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 Schedule 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
Subsidiary of AIMCO is a party or by which any of them are bound obligating
AIMCO or any Subsidiary of AIMCO 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 Subsidiary of AIMCO or obligating AIMCO or any
Subsidiary of AIMCO to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. AIMCO has all requisite corporate power and authority to
enter into this Agreement and 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, subject to obtaining the
applicable AIMCO Shareholders' Approval. This Agreement has been duly and
validly executed and delivered by AIMCO and, assuming the due authorization,
execution and delivery hereof by Ambassador, constitutes the valid and binding
obligation of AIMCO enforceable against it in accordance with the terms of this
Agreement.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the AIMCO
Disclosure Schedule, the execution and delivery of this Agreement by AIMCO does
not, and the consummation of the transactions contemplated hereby will not,
result in a 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 Schedule (the "AIMCO Required Consents"), 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 by which it or any of
its properties or assets may be bound or affected, 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 Schedule or the failure of
which to 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 5.7 of the AIMCO Disclosure
Schedule or as disclosed in the AIMCO SEC Reports filed prior to the date
hereof, neither AIMCO nor any of the AIMCO Subsidiaries is, to the knowledge of
AIMCO, in violation of or under investigation with respect to any violation of,
or has been given written notice of, or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
Governmental Authority, except for possible violations which individually or in
the aggregate would not have an AIMCO Material Adverse Effect. Except as
disclosed in the AIMCO SEC Reports filed prior to the date hereof, AIMCO and the
AIMCO Subsidiaries have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted other than those permits, licenses, franchises and other
governmental authorizations, consents and approvals the failure of which to
possess 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) 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 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. No representation or warranty is made with respect to the Americans with
Disabilities Act.
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, the 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, 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. "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, 1994 as such documents have since the time of their filing
been amended. 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 audit and year-end adjustments. True, accurate and complete copies of
the AIMCO Articles and AIMCO By-Laws, as in effect on the date hereof, are
included (or incorporated by reference) in the AIMCO SEC Reports.
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, 1996,
AIMCO and each of the AIMCO Subsidiaries have conducted their business only in
the ordinary course of business (except for acquisitions and dispositions) 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 (other than as disclosed in the AIMCO SEC Reports filed prior
to the date hereof or as set forth in the AIMCO Disclosure Schedule) which has
or is reasonably likely to have a material adverse effect on the business,
assets, financial condition, results of operations or prospects of AIMCO and the
AIMCO Subsidiaries taken as a whole, provided, however, that adverse effects on
the business, assets, financial condition, results of operations or prospects of
AIMCO and the AIMCO Subsidiaries taken as a whole due to general economic
conditions or conditions affecting generally the multi-family apartment property
market in which AIMCO operates shall not be deemed to be an
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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
Schedule, (a) there are no claims, suits, actions or proceedings by any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator, pending or, to the knowledge of AIMCO, threatened, nor are there, to
the knowledge of AIMCO, any investigations or reviews by any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
pending or threatened against, relating to or affecting AIMCO or any of the
AIMCO Subsidiaries which would have an AIMCO Material Adverse Effect, (b) there
have not been any significant developments since December 31, 1996 with respect
to such disclosed claims, suits, actions, proceedings, investigations or reviews
that would have an AIMCO Material Adverse Effect and (c) there are no judgments,
decrees, injunctions, rules or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator specifically
applicable to AIMCO or any of the AIMCO Subsidiaries, except for such that would
not have an AIMCO Material Adverse Effect.
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 shareholders and at the times of the
meetings of shareholders 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
Registration Statement 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 Schedule and except as would not result in an AIMCO Material Adverse
Effect:
(a) FILING OF TIMELY TAX RETURNS. AIMCO and each of the AIMCO
Subsidiaries 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 AIMCO Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that
are currently due and payable, except for those contested in good faith and
for which adequate reserves have been taken.
(c) TAX RESERVES. AIMCO and the AIMCO Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of AIMCO or any
of the AIMCO Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. AIMCO and each of the AIMCO 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 the initial public
offering of AIMCO, AIMCO has been organized and operated in conformity with
the REIT Requirements and its proposed method of operation will enable it
to continue to meet the REIT Requirements.
(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
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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 date of this Agreement.
(h) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of AIMCO or any of the AIMCO
Subsidiaries.
(i) TAX RULINGS. Neither AIMCO nor any of the AIMCO Subsidiaries has a
pending Tax Ruling or has entered into a Closing Agreement with any taxing
authority.
(j) TAX SHARING AGREEMENTS. Except as between affiliates of AIMCO as
set forth in Section 5.2 of the AIMCO Disclosure Schedule, neither AIMCO
nor any AIMCO Subsidiary is a party to any agreement relating to allocating
or sharing of Taxes.
(k) CODE SECTION 280G. Except for the AIMCO Benefit Plans, neither
AIMCO nor any of the AIMCO Subsidiaries is a party to any agreement,
contract or arrangement that could result in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code or any
amount that would be non-deductible pursuant to Section 162(m) of the Code.
(l) LIABILITY FOR OTHERS. Neither AIMCO nor any of the AIMCO
Subsidiaries has any liability for 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.
(m) SECTION 341(F). Neither AIMCO nor any of the AIMCO 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 AIMCO or any of the AIMCO Subsidiaries.
Section 5.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 5.10
of the AIMCO Disclosure Schedule:
(a) BENEFIT PLANS. As of the date hereof, Section 5.10(a) of the AIMCO
Disclosure Schedule contains a true and complete list of each written
material 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
employee benefit plans within the meaning of Section 3(3) of ERISA and any
severance or change in control agreement (collectively, the "AIMCO Benefit
Plans"). Since September 30, 1997, there have been no new plans adopted nor
changes, additions or modification to any existing plan.
(b) CONTRIBUTIONS. All material contributions and other 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.
(c) QUALIFICATION; COMPLIANCE. 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. AIMCO is in compliance
in all material respects with, and each of the AIMCO Benefit Plans is and
has been operated in all material respects in compliance with, all
applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code. 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. No prohibited
transactions (as defined in Section 406 or 407 of ERISA or Section 4975 of
the Code) have occurred for which a statutory exemption is not available
with respect to any AIMCO
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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 with respect thereto that would be material to AIMCO or would be
material to AIMCO if it were AIMCO's liability.
(d) LIABILITIES. With respect to the AIMCO Benefit Plans, 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 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), or under any indemnity agreement to which AIMCO or any of the AIMCO
Subsidiaries is a party, excluding liability for benefit claims and funding
obligations payable in the ordinary course.
(e) WELFARE PLANS. Other than continuation coverage required to be
provided under Section 4980B of the Code or Part 6 of Title I of ERISA or
otherwise as provided by state law, none of the AIMCO Benefit Plans that
are "welfare plans," within the meaning of Section 3(1) of ERISA, provide
for any benefits with respect to current or former employees for periods
extending beyond their retirement or other termination of service which
would have an AIMCO Material Adverse Effect.
(f) PAYMENTS RESULTING FROM THE MERGER. The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or as a pre-condition to and 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.
(g) BREACHES CUMULATIVE. No inaccuracy of any of the foregoing
representations and warranties in this Section 5.10 shall be deemed to
exist unless such inaccuracy, either individually or with other
inaccuracies of this Section 5.10, would be deemed material to AIMCO and
its Subsidiaries taken as a whole.
Section 5.11 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 5.11 of the AIMCO Disclosure Schedule or
in the AIMCO SEC Reports filed prior to the date hereof:
(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 written communication 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 except in each foregoing case where the failure to so comply would not
have an AIMCO Material Adverse Effect. To the knowledge of AIMCO,
compliance with all applicable Environmental Laws will not require AIMCO or
any AIMCO Subsidiary to incur costs in excess of amounts reserved against
in the AIMCO Financial Statements, which excess would result in an 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 except
where the failure to so obtain would not have an AIMCO Material Adverse
Effect, 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 material
compliance with all terms and conditions of all such Environmental Permits.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim which
would have an AIMCO Material Adverse Effect pending (A) against AIMCO or
any of the AIMCO Subsidiaries, (B) to the knowledge of AIMCO, 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
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operation of law, or (C) or, to the knowledge of AIMCO 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.
(iv) RELEASES. AIMCO has no knowledge of any 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 retained or assumed either
contractually or by operation of law except for any such Environmental
Claim which would not have an AIMCO Material Adverse Effect.
(v) PREDECESSORS. AIMCO has no knowledge, with respect to any
predecessor of AIMCO or any of the AIMCO Subsidiaries of any pending or
threatened, Environmental Claim which would have an AIMCO Material Adverse
Effect or threatened, or of any Release of Hazardous Materials that would
be reasonably likely to form the basis of any Environmental Claim which
would have an AIMCO Material Adverse Effect.
Section 5.12 PROPERTIES. Neither AIMCO nor any Subsidiary of AIMCO is
subject to any LDP, and AIMCO knows of no facts which could reasonably be
expected to result in an LDP being issued to AIMCO or any Subsidiary of AIMCO.
Section 5.13 VOTE NOT REQUIRED. The approval of this Agreement, the Merger
and the issuance of the AIMCO Common Stock to be issued in the Merger and the
other transactions contemplated hereby, does not require the vote of the holders
of any class or series of the capital stock of AIMCO or any of its Subsidiaries.
Section 5.14 AIMCO KNOWLEDGE. For the purposes hereof, the knowledge of
AIMCO and its Subsidiaries shall be limited to the actual knowledge of the
senior executive officers of AIMCO.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 COVENANTS OF AMBASSADOR. Ambassador agrees, as to itself and as
to each of its Subsidiaries, that after the date hereof and prior to the
Effective Time or earlier termination of this Agreement, (i) except as expressly
contemplated or permitted in this Agreement, (ii) except as AIMCO may otherwise
agree in writing (which decision regarding agreement shall be made as soon as
reasonably practicable and which agreement shall not be unreasonably withheld)
and (iii) except as otherwise set forth in the Ambassador Disclosure Schedule,
the Ambassador SEC Reports or Section 6.1 of the Ambassador Disclosure Schedule;
provided, however, Ambassador shall confer on a regular and frequent basis with
representatives of AIMCO in the course of Ambassador's implementation of the
policies enumerated in Section 6.1 of the Ambassador Disclosure Schedule:
(a) ORDINARY COURSE OF BUSINESS. Ambassador shall, and shall cause its
respective Subsidiaries to, subject to the other provisions of this
Agreement, (i) carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted and (ii) use all commercially reasonable efforts (but which shall
not require the payment of money) to preserve intact their present business
organizations, preserve relationships with customers, suppliers and others
having business dealings with them, take all actions necessary to continue
to qualify as a REIT, and subject to prudent management of work force needs
and ongoing programs currently in force, keep available the services of
their present officers and employees, provided, however, that nothing shall
prohibit Ambassador or any of its Subsidiaries from transferring operations
to Ambassador or any of its wholly owned Subsidiaries. Ambassador shall
not, nor shall Ambassador permit any of its Subsidiaries to, enter into a
new line of business involving any material investment of assets or
resources of, or any material exposure to liability or loss to, Ambassador
and the Ambassador Subsidiaries taken as a whole.
(b) DIVIDENDS. Ambassador shall not, nor shall Ambassador permit any
of its Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock
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other than to Ambassador or Ambassador's Subsidiaries other than (A)
dividends required to be paid on any Ambassador Preferred Stock in
accordance with the terms thereof, (B) regular quarterly dividends and
distributions on Ambassador Common Stock and OP Units with usual record and
payment dates not, during any period of any fiscal year, in excess of the
quarterly dividend most recently declared on such stock and units as of the
date hereof; provided however, that Ambassador shall declare and pay the
dividend provided in Section 2.2(c)(i) hereof, and the OP Unit distribution
contemplated by Section 2.2(c)(i) shall be made, and (C) dividends
necessary to maintain Ambassador's status as a REIT under the Code, (ii)
split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of their capital stock as a class
or (iii) except as set forth in Section 6.1 of the Ambassador Disclosure
Schedule, redeem, repurchase or otherwise acquire any shares of their
capital stock, other than (A) redemptions, purchases or acquisitions
required by the terms of any series of Ambassador Preferred Stock or (B)
for the purpose of funding employee stock ownership plans in accordance
with past practice. Notwithstanding the foregoing, Ambassador may redeem
the Ambassador Preferred pursuant to the provisions of Section 2.1, effect
the conversion of the Ambassador Preferred into Ambassador Common Stock in
accordance with the terms of the Ambassador Preferred, and issue shares of
Ambassador Common Stock in exchange for the Ambassador OP Units (or make
cash payments in respect thereof as contemplated by that certain Exchange
Rights Agreement of Ambassador, as amended (the "Exchange Agreement")).
(c) ISSUANCE OF SECURITIES. Except as set forth in Section 6.1 of the
Ambassador Disclosure Schedule and except pursuant to outstanding options,
rights, agreements, obligations and commitments as disclosed in the
Ambassador SEC Reports or the Ambassador Disclosure Schedule or pursuant to
the terms of the Ambassador Preferred, the Exchange Agreement, or the
Registration Rights Agreements (as defined in the Ambassador Disclosure
Schedule), Ambassador shall not, nor shall Ambassador permit any of its
Subsidiaries 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 their capital stock of any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such
shares or convertible or exchangeable securities, other than (i)
intercompany issuances of capital stock and (ii) issuances in the ordinary
course of business consistent with past practice of up to 10,000 shares of
(or options on) Ambassador Common Stock during any fiscal year to be issued
pursuant to employee benefit plans, stock option and other incentive
compensation plans, directors plans and stock purchase and dividend
reinvestment plans existing prior to the date hereof and heretofore
disclosed to AIMCO or issuances pursuant to plans adopted after the date
hereof which shall be reasonably acceptable to AIMCO. 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, subject to obtaining customary
indemnities.
(d) CHARTER DOCUMENTS. Ambassador shall not amend or propose to amend
its charter, by-laws or regulations, or similar organic documents, except
as contemplated herein.
(e) NO ACQUISITIONS. Except as set forth in Section 6.1 of the
Ambassador Disclosure Schedule, Ambassador shall not, nor shall Ambassador
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 Ambassador acquire or agree to
acquire a material amount of assets, other than in the ordinary course of
business consistent with past practice.
(f) CAPITAL EXPENDITURES. Except as required by law, Ambassador shall
not, nor shall Ambassador permit any Subsidiary of Ambassador to, make
capital expenditures during any fiscal year (other than recurring and
rehabilitation capital expenditures made in the ordinary and usual course
of business) in
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excess of the amount budgeted for capital expenditures for such fiscal year
or as set forth in Section 6.1 of the Ambassador Disclosure Schedule.
(g) NO DISPOSITIONS. Ambassador shall not, nor shall Ambassador permit
any of its Subsidiaries to, sell or dispose of any of their assets other
than dispositions in the ordinary course of business consistent with past
practice.
(h) INDEBTEDNESS. Ambassador shall not, nor shall Ambassador permit
any of its Subsidiaries to, incur or guarantee any indebtedness for
borrowed money or enter into any "keep well" or other agreement to maintain
the financial condition of another person or entity other than (i)
indebtedness or guarantees or "keep well" or other agreements in the
ordinary course of business consistent with past practice (including
without limitation, the issuance of commercial paper, the use of existing
credit facilities or hedging activities), (ii) as set forth in item 5 of
Section 6.1 of the Ambassador Disclosure Schedule, (iii) arrangements
between Ambassador and its Subsidiaries or among its Subsidiaries, (iv)
except as set forth in Section 6.1 of the Ambassador Disclosure Schedule,
(v) in connection with the refunding, refinancing, securitization or
purchase of existing indebtedness, (vi) in connection with the redemption
of the Ambassador Preferred as set forth in Section 2.1, or (vii) as may be
necessary in connection with acquisitions or capital expenditures provided
for in Section 6.1 of the Ambassador Disclosure Schedule.
(i) COMPENSATION, BENEFITS. Except as may be required by applicable
law or as set forth in Section 6.1 of the Ambassador Disclosure Schedule,
Ambassador shall not, nor shall Ambassador permit any of its Subsidiaries
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 employee benefit contract, agreement or binding
commitment, policy, arrangement or plan or trust, or fund maintained by,
contributed to or entered into by Ambassador or any of its Subsidiaries or
increase, or enter into any employee benefit contract, agreement, or
binding 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, of any director, officer
or other employee of Ambassador or any of its Subsidiaries, except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to Ambassador or any of its Subsidiaries;
(ii) enter into or amend any employment, severance or special pay
arrangement with respect to the termination of employment with any director
or officer or other employee 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 employee benefit obligations
or obligations to directors; 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.
(j) ACCOUNTING. Ambassador shall not, nor shall Ambassador permit any
of its Subsidiaries to, make any changes in their accounting methods,
except as required by law, rule, regulation, the SEC or GAAP.
(k) AFFILIATE TRANSACTIONS. Except as set forth in Section 6.1 of the
Ambassador Disclosure Schedule, Ambassador shall not, nor shall Ambassador
permit any of its Subsidiaries to, enter into any material agreement or
arrangement with any of their Affiliates (other than wholly owned
Subsidiaries) on terms materially less favorable to such party than could
be reasonably expected to have been obtained with an unaffiliated
third-party on an arm's length basis. As used in this Agreement, the term
"Affiliate," except where otherwise defined herein, 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).
(l) COOPERATION, NOTIFICATION. Ambassador shall, subject to applicable
law (i) confer on a regular and frequent basis with one or more
representatives of AIMCO to discuss material operational matters and the
general status of its ongoing operations, (ii) promptly notify AIMCO of any
significant changes
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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 Ambassador 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.
(m) THIRD-PARTY CONSENTS. Ambassador shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts (but shall not be
required prior to the Effective Time to pay any money or incur any
liabilities) to obtain the FNMA Consent (as defined herein) and all other
Ambassador Required Consents as requested by AIMCO (it being understood and
agreed that the failure to obtain such other Ambassador Required Consents
is not a default hereunder or a condition to AIMCO's obligation to
consummate the Merger). Ambassador shall promptly notify AIMCO of any
failure or prospective failure to obtain any such consents and, if
requested by AIMCO, shall provide copies of all Ambassador Required
Consents obtained by Ambassador to AIMCO. Upon the Effective Time, all
assumption, transfer and other fees and charges incurred or necessary in
connection therewith, and all costs and expenses related thereto, shall be
borne by the Surviving Corporation.
(n) NO BREACH, ETC. Ambassador shall not, nor shall Ambassador permit
any of its Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a failure of the conditions set forth in
Sections 8.2(a) or 8.2(b) hereof.
(o) CONTRACTS. Ambassador shall not, nor shall Ambassador permit any
Subsidiary of Ambassador to, except in the ordinary course of business
consistent with past practice, or in accordance with sound business
practice or for adequate consideration, modify, amend or terminate any
material contract or agreement to which Ambassador or any Subsidiary is a
party or waive, release or assign any material rights or claims.
(p) INSURANCE. Ambassador shall, and shall cause its Subsidiaries to,
maintain insurance in such amounts and against such risks and losses as is
in effect on the date hereof, unless it is commercially unreasonable to
maintain such policies as a result of a change in the insurance market, in
which case commercially reasonable replacement policies will be obtained,
to the extent available.
(q) PERMITS. Ambassador shall, and shall cause its Subsidiaries to,
use reasonable efforts to maintain in effect all existing governmental
permits which are material to the operation of Ambassador and its
Subsidiaries taken as a whole.
(r) TAX MATTERS. Ambassador shall not (i) make or rescind any material
express or deemed election relating to taxes unless such election is
required by law or is necessary to preserve Ambassador's status as a REIT
or of any Subsidiary of Ambassador 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 unless the
tax liability resulting from the increase is less than $100,000, 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.
(s) DISCHARGE OF LIABILITIES. Ambassador shall not, nor shall
Ambassador permit any of its Subsidiaries to, pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than such claims, liabilities
or obligations which are not material to Ambassador and its Subsidiaries
taken as a whole and other than the payment, discharge or satisfaction in
the ordinary course of business consistent with past practice (which
includes the payment of final and unappealable judgments) or in accordance
with their terms, of liabilities
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reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of Ambassador
included in Ambassador's reports filed with the SEC, or incurred in the
ordinary course of business consistent with past practice or if such
payment, discharge or satisfaction relates to the transactions contemplated
by this Agreement.
(t) MANAGEMENT CONTRACTS. Ambassador will not, and will not permit any
of its Subsidiaries to, amend any management agreement for the management
of Ambassador Properties ("Management Agreements"). Ambassador will not,
and will not permit its Subsidiaries to renew Management Agreements except
on terms which permit its cancellation by Ambassador or the applicable
Subsidiary of Ambassador on thirty days' notice or less without any charge
penalty or other cost for such cancellation.
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 Ambassador to discuss,
subject to applicable law, material operational matters and the general
status of its ongoing operations, (ii) promptly notify Ambassador of any
significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects, and (iii)
promptly provide Ambassador 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) THIRD-PARTY CONSENTS. AIMCO shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts to obtain all
AIMCO Required Consents and will use commercially reasonable efforts to
assist Ambassador in obtaining all Ambassador Required Consents. It is
understood that in connection therewith, AIMCO will, among other things,
agree to commercially reasonable modifications to documents and other terms
and conditions required to obtain such consents. AIMCO shall promptly
notify Ambassador of any failure or prospective failure to obtain any such
consents and, if requested by Ambassador, shall provide copies of all AIMCO
Required Consents obtained by AIMCO to Ambassador.
(c) NO BREACH, ETC. AIMCO shall not, nor shall AIMCO permit any of its
Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or
in any of its representations and warranties set forth in this Agreement
being untrue on and as of the Closing Date.
(d) CONDUCT OF BUSINESS OF AIMCO PENDING THE EFFECTIVE TIME. From the
date hereof through the Effective Time, except as expressly permitted or
contemplated by this Agreement, AIMCO and its Subsidiaries shall conduct
their operations and business in the ordinary and usual course of business
and consistent with past practice and use commercially reasonable efforts
to keep available the services of its present officers and key employees
and preserve the business relationships with those persons having business
relationships with it.
(e) CHARTER DOCUMENTS. AIMCO shall not amend its charter, except for
such changes that would affect the rights of AIMCO equity holders generally
as a class.
(f) INDEBTEDNESS. AIMCO shall not materially change its existing
policy with respect to incurring indebtedness or interest coverage.
(g) DELAY. AIMCO shall not, and shall cause the AIMCO Operating
Partnership and the other AIMCO Subsidiaries to not, take or publicly
announce any extraordinary action (including, e.g., mergers, acquisitions,
dispositions and the like) that would reasonably be expected to cause a
meaningful delay in obtaining the effectiveness of, or continuing the
effectiveness or use of, the Registration Statement.
(h) REPURCHASES. AIMCO will not issue, repurchase or offer to
repurchase shares of AIMCO Common Stock from any third party if the result
of such issuance, repurchase or offer to repurchase would require the
stockholders of AIMCO to a vote to approve the Merger or the issuance of
the AIMCO Common Stock issued in the Merger.
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(i) 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.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Subject to any restrictions of
applicable law or third party confidentiality agreements, upon reasonable
notice, each party shall, and shall cause its Subsidiaries to, afford to the
officers, directors, employees, accountants, counsel, investment bankers,
financial advisors, financing sources and other representatives of the other
(collectively, "Representatives") reasonable access, during normal business
hours throughout the period prior to 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 shareholders 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. Nothing in
this Section 7.1 shall require Ambassador 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, or as contemplated by
Section 7.11 hereof. In addition, nothing herein shall require Ambassador to
provide information other than with respect to Ambassador 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 that certain confidentiality agreement dated
December 22, 1997 between the parties (the "Confidentiality Agreement"), which
shall continue in full force and effect until the Effective Time.
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 and
the Registration Statement. The parties hereto shall each use reasonable best
efforts to cause the Proxy Statement and Registration Statement 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 AIMCO Common Stock issuable in connection with the Merger 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. The parties shall use reasonable best efforts to cause the shares of
AIMCO Common Stock issuable in the Merger to be approved for listing on the NYSE
upon official notice of issuance. The information provided by any party hereto
for use in the Proxy Statement and Registration Statement 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 and
Registration Statement.
(b) LETTER OF AMBASSADOR'S ACCOUNTANTS. Ambassador shall use its 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 accountants in connection with
registration statements on Form S-4 or Form S-8.
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(c) LETTER OF AIMCO'S ACCOUNTANTS. AIMCO shall use its best efforts to
cause to be delivered to Ambassador a letter of Ernst & Young LLP, dated a date
within two business days before the date of the Proxy Statement and Registration
Statement, and addressed to Ambassador, in form and substance reasonably
satisfactory to Ambassador and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements on Form S-4 or Form S-8.
(d) FAIRNESS OPINION. It shall be a condition to the mailing of the Proxy
Statement to the shareholders of Ambassador that the opinion of Merrill Lynch
described in Section 4.13 hereof shall not have been withdrawn.
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) 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 Ambassador Required Statutory
Approvals and the AIMCO Required Statutory Approvals.
Section 7.4 SHAREHOLDER APPROVAL.
(a) APPROVAL OF AMBASSADOR SHAREHOLDERS. Subject to the provisions of
Sections 7.4(b) and 7.4(d), Ambassador shall, as soon as reasonably practicable
after the date hereof (i) take all steps necessary to duly call, give notice of,
convene and hold a meeting of its shareholders (the "Ambassador Meeting") for
the purpose of securing the Ambassador Shareholders' Approval, (ii) distribute
to its shareholders the Proxy Statement in accordance with applicable federal
and state law and with its Articles of Incorporation and by-laws, (iii) subject
to a good faith determination, upon advice of outside counsel, that to do so
would be inconsistent with the fiduciary duties of its Board of Directors,
recommend to its shareholders 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,
Ambassador 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 the Exchange Act, comply with Rule 14d-9 thereunder and
make all other disclosures required by applicable law.
(b) FAIRNESS OPINION NOT WITHDRAWN. It shall be a condition to the
obligation of Ambassador to hold the Ambassador Meeting, that the opinion of
Merrill Lynch, referred to in Section 4.13, shall not have been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. From and after the Effective Time, the Surviving
Corporation shall, and shall cause the AIMCO Operating Partnership to, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, an officer, director or employee of any of
the parties hereto or their respective Subsidiaries (each an "Indemnified Party"
and collectively, the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of such party
(the "Indemnified Liabilities"), including, without limitation, all
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Indemnified Liabilities to the extent they are based on or arise out of or
pertain to the transactions contemplated by this Agreement. In the event of any
such loss, expense, claim, damage or liability (whether or not arising before
the Effective Time), (i) the Surviving Corporation shall pay the reasonable fees
and expenses of counsel selected by the Indemnified Parties, which counsel shall
be reasonably satisfactory to the Surviving Corporation, promptly after
statements therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the MGCL, (ii) the Surviving Corporation
will cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the MGCL and the certificate of
incorporation or by-laws of the Surviving Corporation shall be made by
independent counsel mutually acceptable to the Surviving Corporation and the
Indemnified Party; provided, however, that the Surviving Corporation shall not
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld or unreasonably delayed). The Indemnified
Parties as a group may retain only one law firm with respect to each related
matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of such Indemnified Party
and any other Indemnified Party or Indemnified Parties (provided this sentence
shall not limit retention of local counsel in connection with any Indemnified
Liabilities).
(b) INSURANCE. For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect policies of
directors and officers' liability insurance maintained by Ambassador and AIMCO
for the benefit of those persons who are currently covered by such policies on
terms no less favorable than the terms then applicable to the members of the
AIMCO Board of Directors as of the date hereof. The insurance to be maintained
shall, without limitation, be applicable to all acts and omissions occurring at
or prior to the Effective Time and in any event insurance shall be maintained
which provides the best coverage available for an amount which does not exceed
the amount currently paid for AIMCO director and officer insurance.
(c) SUCCESSORS. In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in either such case,
proper provisions shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations set forth in this Section
7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
hereof in favor of the employees, agents, directors and officers of Ambassador,
AIMCO and their respective Subsidiaries with respect to their activities as such
prior to the Effective Time, as provided in their respective articles of
incorporation and by-laws in effect on the date thereof, or otherwise in effect
on the date hereof, shall survive the Merger and shall continue in full force
and effect for a period of not less than six years from the Effective Time.
(e) BENEFIT. The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, Ambassador 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). It is understood and agreed
that this Section 7.6 is intended to address matters with respect to this
Agreement and the transactions contemplated hereby (e.g., status, terms, etc.),
and is not intended to address disclosure of confidential or non-public
information of a party obtained by the other party in connection with this
Agreement and the transactions contemplated hereby, which information is subject
to the Confidentiality Agreement and Section 7.1 hereof.
Section 7.7 RULE 145 AFFILIATES. Ambassador shall identify in a letter to
AIMCO all persons who are, and to Ambassador's knowledge who will be at the
Closing Date, "affiliates" of Ambassador as such term is used
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in Rule 145 under the Securities Act. Ambassador shall use all reasonable
efforts to cause its affiliates (including any person who may be deemed to have
become such an affiliate after the date of the letter referred to in the prior
sentence) to deliver to AIMCO on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit 7.7 (each an "Affiliate
Agreement"). AIMCO agrees to enter into, effective as of the Effective Time, the
Registration Rights Agreement with each person who executes an Affiliate
Agreement or who owns AIMCO Units as a result of conversion of OP Units in the
OP Reorganization or who owns OP Units as of the Effective Time, with respect to
AIMCO Common Stock received in connection with the Merger or the exchange of the
OP Units or the AIMCO Units, as the case may be. The Registration Rights
Agreement will have the terms set forth on Section 7.7 of the AIMCO Disclosure
Schedule and such other terms as are customary in agreements of this nature, as
the parties, each acting in good faith, shall reasonably agree.
Section 7.8 EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS. The Surviving
Corporation and its Subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements, severance agreements
between Ambassador and certain of its officers and commitments of the parties
prior to the date hereof that have previously been provided to AIMCO or are
disclosed in Section 4.10 of the Ambassador Disclosure Schedule and that apply
to any current or former employee or current or former director of the parties
hereto; provided, however, that this undertaking is not intended to prevent the
Surviving Corporation from enforcing such contracts, agreements, collective
bargaining agreements and commitments in accordance with their terms, including,
without limitation, any reserved right to amend, modify, suspend, revoke or
terminate any such contract, agreement, collective bargaining agreement or
commitment. Without implication that the contrary would otherwise be true, (i)
no amendment, modification, suspension, revocation or termination ("Change") of
any bonus program listed on Section 4.10 of the Ambassador Disclosure Schedule
shall result in employees of the Surviving Corporation who were employees of
Ambassador prior to the Effective Time ("Ambassador Employees") receiving less
money for any bonus period which has expired prior to the Effective Time, (ii)
no Change of the vacation or sick time policy of Ambassador shall result in
Ambassador Employees having less accumulated vacation or sick time than
immediately before such Change and (iii) no Change in Ambassador Benefit Plans
shall be effective to reduce benefits for those expenses or occurrences which
have occurred before the Change. This Section 7.8 is intended and shall be
construed to satisfy the successor provision in the employment agreements listed
in Section 4.10 of the Ambassador Disclosure Schedule. Nothing in this Section
7.8 shall be deemed to limit the obligations that the Surviving Corporation and
that its Subsidiaries would otherwise have.
Section 7.9 EMPLOYEE BENEFIT PLANS.
(a) AMBASSADOR PLANS. From the Effective Time, AIMCO shall provide to
Ambassador Employees benefits on the same terms applicable to other similarly
situated AIMCO employees.
(b) CREDIT FOR PAST SERVICE. Without limitation of the foregoing provisions
of this Section 7.9, each participant in any benefit plan of the Surviving
Corporation and each Ambassador Employee shall receive credit for service with
Ambassador or AIMCO, as the case may be, for purposes of (i) eligibility to
participate (including waiting periods and without being subject to any
subsequent entry date requirement for which the waiting period has already been
satisfied), vesting and eligibility to receive benefits (including without pre-
existing conditions limitations) under any benefit plan of the Surviving
Corporation or any of its Subsidiaries or affiliates and (ii) benefit accrual
under any severance or vacation pay plan; provided, however, that such crediting
of benefit accrual service shall not operate to duplicate any benefit to any
such participant for the same period or the funding for any such benefit.
(c) RETIREMENT CONTRIBUTION. The Board of Directors of Ambassador may
determine to make a profit sharing contribution to the Ambassador Retirement
Plan with respect to 1997 in an amount up to $750 for each participant in the
Ambassador Retirement Plan.
Section 7.10 STOCK OPTION AND OTHER STOCK PLANS.
(a) AMBASSADOR STOCK OPTIONS. Immediately prior to the Effective Time, each
option to purchase shares of Ambassador Common Stock (an "Ambassador Stock
Option") which is outstanding at such time
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shall be vested and exercisable. Holders of Ambassador Stock Options may elect
prior to the Effective Time to have the Ambassador Stock Options with respect to
which such election is made canceled and in consideration for such cancellation,
such electing holders of Ambassador Stock Options shall receive on the day of
the Effective Time for each share subject to the Ambassador Stock Options with
respect to which the election has been made, an amount (subject to any
applicable withholding tax) in cash equal to the excess, if any, of the
Ambassador Price over the per share exercise price of such Ambassador Stock
Option. As of the Effective Time, each Ambassador Stock Option which is
outstanding as of the Effective Time and for which an election pursuant to the
preceding sentence has not been made shall be assumed by the Surviving
Corporation and converted into an option (or a new substitute option shall be
granted) to purchase the number of shares of AIMCO Common Stock (rounded up to
the nearest whole share) equal to the number of shares of Ambassador Common
Stock subject to such option multiplied by the Conversion Ratio (as calculated
pursuant to the definition of Conversion Ratio without regard to the proviso
thereof), at an exercise price per share of AIMCO Common Stock (rounded down to
the nearest penny) equal to the former exercise price per share of Ambassador
Common Stock under such option immediately prior to the Effective Time divided
by the Conversion Ratio (as calculated pursuant to the definition of Conversion
Ratio without regard to the proviso thereof); provided, however, that in the
case of any Ambassador Stock Option to which Section 421 of the Code applies by
reason of its qualification under Section 422 of the Code, the conversion
formula shall be adjusted, if necessary, to comply with Section 424(a) of the
Code. Except as provided above, the converted or substituted Ambassador Stock
Options shall be subject to the same terms and conditions (including, without
limitation, expiration date, vesting and exercise provisions) as were applicable
to Ambassador Stock Options immediately prior to the Effective Time, except that
all converted or substituted Ambassador Stock Options shall be vested and fully
exercisable and optionees may exercise their options through the expiration date
unless their employment is terminated for cause or they are removed as directors
for cause. Except as provided in the immediately preceding sentence, the Merger
shall not be treated as an event which shall affect the period for exercising
Ambassador Stock Options. Ambassador Stock Options shall not be treated as
expiring as of the Effective Time solely due to the fact that Ambassador shall
cease to exist as of the Effective Time. Ambassador and AIMCO shall take such
necessary action to effectuate the terms of this Section 7.10(a), including the
amendment by the Board of Directors of Ambassador of the Ambassador Stock Plans
and the filing of any registration statements or other documents.
(b) SURVIVING CORPORATION ACTION. As soon as practicable after the
Effective Time, the Surviving Corporation shall deliver to the holders of
Ambassador Stock Options appropriate notices setting forth such holders' rights
(the "Surviving Corporation Stock Benefits") and each underlying stock award
agreement, each as assumed by the Surviving Corporation. On or as soon as
possible after the Effective Time, the Surviving Corporation will cause to be
filed one or more registration statements on Form S-3 or Form S-8 under the
Securities Act (or any successor or other appropriate forms), in order to
register the shares of AIMCO Common Stock issuable in connection with the
Surviving Corporation Stock Benefits, and the Surviving Corporation shall use
its best efforts to maintain the effectiveness of such registration statements
(and maintain the current status of the prospectuses contained therein) for so
long as such benefits and grants remain payable and such options remain
outstanding. AIMCO shall use its best efforts to cause such registration
statements to become effective concurrently with the Effective Time. At or prior
to the Effective Time, the Surviving Corporation shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of AIMCO Common
Stock for delivery in connection with the Surviving Corporation Stock Benefits.
The Surviving Corporation shall take all corporate action necessary or
appropriate to obtain shareholder approval with respect to the Surviving
Corporation Stock Benefits to the extent such approval is required for purposes
of the Code or other applicable law. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act with respect to equity securities of the
Surviving Corporation, the Surviving Corporation shall administer such Surviving
Corporation Stock Benefits, where applicable, in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act.
Section 7.11 NO SOLICITATIONS. From and after the date hereof, Ambassador
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
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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, Ambassador may (i) at any time prior to the time Ambassador=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 Ambassador or its
Representatives after the date hereof) seeks to initiate such discussions or
negotiations and may furnish such third party information concerning Ambassador
and its business, properties and assets if, (A) (x) the third party has first
made an Acquisition Proposal and the Board of Directors of Ambassador determines
in good faith and after consultation with its financial advisor, 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 Ambassador's
Board of Directors after consultation with its financial advisors) (a "Superior
Proposal") or (y) Ambassador'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 the fiduciary duties of the Ambassador Board of Directors
under applicable law and (B) prior to furnishing such information to or entering
into discussions or negotiations with such person or entity, Ambassador (x)
except to the extent inconsistent with the fiduciary obligation of the Board of
Directors of Ambassador, 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 or entity and (y) receives (or has previously received) from
such person or entity an executed confidentiality agreement in reasonably
customary form (but not containing any standstill provision), (ii) comply with
Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act with regard to a
tender or exchange offer or otherwise make any disclosure required by applicable
law, and/or (iii) accept an Acquisition Proposal from a third party, provided
Ambassador concurrently terminates this Agreement pursuant to Section 9.1(e).
Except to the extent inconsistent with the fiduciary obligations of the Board of
Directors of Ambassador, Ambassador shall immediately cease any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Ambassador or its Representatives with
respect to the foregoing. Ambassador 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 identify 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) for a tender or exchange offer, merger, consolidation or other
business combination involving Ambassador or any material Subsidiary of
Ambassador or any proposal to acquire in any manner a substantial equity
interest in or a substantial portion of the assets of Ambassador or any material
Subsidiary of Ambassador. None of AIMCO, any Subsidiary of AIMCO, Ambassador or
any Subsidiary of Ambassador shall object , or take any action to object, if any
third party makes any Acquisition Proposal or takes any action with respect
thereto in contravention of any agreement such third party may have with
Ambassador or any of its Subsidiaries or any of their respective
representatives.
Section 7.12 EXPENSES.
(a) PARTIES' PAYMENT OF EXPENSES. Subject to subsection 7.12(b) and Section
9.3, all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses; in particular, those expenses incurred in connection with printing the
Joint Proxy/Registration Statement, as well as the filing fee relating thereto,
shall be shared equally by Ambassador and AIMCO.
(b) PAYMENT OF CERTAIN EXPENSES. Immediately prior to consummation of the
Merger, Ambassador shall pay or cause to be paid the Reimbursable Expenses (as
defined below) of Ambassador directly to the party entitled to payment of such
amounts, up to an aggregate amount equal to the excess of $12.8 million over the
Aggregate Unissued Share Value (as defined below). The term "Reimbursable
Expenses" is defined as (i) the reasonable and customary fees and expenses of
Merrill Lynch, one nationally recognized accounting firm and one legal counsel
designated by Ambassador incurred in connection with the negotiation, execution
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and consummation of this Agreement, the Merger and the transactions contemplated
by this Agreement in an aggregate amount not to exceed $5.5 million; and (ii)
the payments made to the senior managers and directors of Ambassador pursuant to
the agreements set forth on Section 7.12(b) of the Ambassador Disclosure
Schedule which are required to be made by Ambassador or the Surviving
Corporation as a result of the consummation of the Merger. "Aggregate Unissued
Share Value" is defined as the aggregate of all positive Individual Option
Values. "Individual Option Value" is defined and calculated with respect to each
Ambassador Stock Option as the excess of $21.00 over the strike price of such
Ambassador Stock Option immediately prior to the Effective Time. It is
understood and agreed that this section shall not impact (i) the consideration
to be received in the Merger, (ii) the obligations of the parties hereto to
consummate the Merger or (iii) any obligations that the Surviving Corporation
and its Subsidiaries would otherwise have.
Section 7.13 TAX-FREE STATUS. Each party hereto 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, except as expressly contemplated
or permitted in this Agreement, neither party hereto shall, nor shall either
party hereto permit any of its Subsidiaries or any employees, officers or
directors of such party or of any of its Subsidiaries to, take any actions which
would, or would be reasonably likely to, adversely affect the ability of the
Merger to qualify for tax-free treatment under the Code, and each party hereto
shall use all reasonable efforts to achieve such result.
Section 7.14 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 7.15 INTERIM DIVIDENDS. The last record date of each of Ambassador
and AIMCO on or prior to the Effective Time which relates to a regular quarterly
dividend on Ambassador Common Stock or AIMCO Common Stock, as the case may be,
shall be the same date and shall be prior to the Effective Time.
Section 7.16 REIT STATUS. Notwithstanding anything to the contrary set
forth in this Agreement, nothing in this Agreement shall prohibit Ambassador
from taking and Ambassador hereby agrees to take, any action at any time or from
time to time that in the reasonable judgment of Ambassador is legally necessary
for Ambassador 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 dividend or
distribution payments to shareholders of Ambassador.
Section 7.17 NYSE LISTING. AIMCO shall use its reasonable best efforts to
cause the shares of AIMCO Common Stock to be issued in the Merger to be approved
for listing on the NYSE and any other national securities exchange on which
shares of AIMCO Common Stock may at such time be listed, subject to official
notice of issuance, prior to the Effective Time.
Section 7.18 OP REORGANIZATION. The parties shall use their reasonable best
efforts to effect a business combination of the Ambassador Operating Partnership
with the AIMCO Operating Partnership immediately following the Effective Time,
with the AIMCO Operating Partnership as the surviving entity which business
combination shall have, to the extent possible, for the holders of the OP Units,
the same economic and tax consequences for the holders of OP Units as the Merger
has for holders of Ambassador Common Stock. If such a business combination is
not effected due to failure to obtain consents of all persons entitled to give
or withhold such consents which are necessary for such business combination,
then (i) such partnerships shall remain and be operated as separate entities and
(ii) AIMCO shall execute and deliver to each limited partner in the Ambassador
Operating Partnership the agreement contemplated by Section 14 of the Exchange
Agreement (and be bound thereby) relating to the exchange rights of holders of
OP Units. At the request of either party hereto, the parties shall cooperate to
restructure the transactions contemplated hereby to permit the condition set
forth in Section 8.1(h) to be satisfied as soon as practicable after the date
hereof and prior to April 28, 1998 without changing the economic and other
provisions hereof and without unreasonable expense or delay.
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Section 7.19 TRANSFER TAXES. AIMCO and Ambassador shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. The Surviving
Corporation shall pay, without deduction or withholding from any amount payable
to the holders of Ambassador Common Stock or OP Units, any such taxes or fees
imposed by any Governmental Authority (and any penalties and interest with
respect to such taxes and fees), which become payable in connection with the
transactions contemplated by this Agreement, on behalf of their respective
stockholders.
Section 7.20 PAYMENT OF AMBASSADOR DEBT. Ambassador and AIMCO agree that
immediately prior to, or upon, the Effective Time, the Surviving Corporation
shall (i) pay to CLNY the amount necessary to discharge and terminate the Line
of Credit and (ii) pay to NACC the amount necessary to discharge and terminate
the Nomura Debt.
Section 7.21 BEST EFFORTS. Upon the terms and subject to the conditions
herein provided, and, in the case of Ambassador, not inconsistent with the
fiduciary duties of its Board of Directors, each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including obtaining any consents,
authorizations, exemptions and approvals from, and making filings with, any
Governmental Authority which are necessary or, in the judgment of AIMCO or
Ambassador, desirable in connection with the transactions contemplated by this
Agreement.
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) SHAREHOLDER APPROVAL. The Ambassador Shareholders' Approval shall
have been obtained.
(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, and no Governmental Entity shall have instituted any
action or proceeding seeking any such order.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stOP order suspending such effectiveness shall have been issued and
remain in effect.
(d) LISTING OF SHARES. The shares of AIMCO Common Stock issuable in
the Merger pursuant to Article II shall have been approved for listing on
the NYSE upon official notice of issuance.
(e) REQUIRED STATUTORY APPROVALS. The Ambassador Required Statutory
Approvals and the AIMCO Required Statutory Approvals shall have been
obtained at or prior to the Effective Time and such approvals shall have
become Final Orders (as defined below), except to the extent that the
failure to obtain any such Required Statutory Approval would not reasonably
be expected to have an AIMCO Material Adverse Effect assuming consummation
of the Merger. Such Final Orders with respect to the Ambassador Required
Statutory Approvals and the AIMCO Required Statutory Approvals shall not
impose terms or conditions which, individually or in the aggregate, would
have, or insofar as reasonably can be foreseen, are likely to have a
material adverse effect on the business, assets, financial condition or
results of operations of the Surviving Corporation. A "Final Order" means
action by the relevant regulatory authority which has not been reversed,
stayed, enjoined, set aside, annulled or suspended, with
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respect to which any waiting period prescribed by law before the
transactions contemplated hereby may be consummated has expired, and as to
which all conditions to the consummation of such transactions prescribed by
law, regulation or order have been satisfied.
(f) PERMITS. To the extent that the continued lawful operations of the
business of Ambassador or any Ambassador Subsidiary or AIMCO or any AIMCO
Subsidiary after the Merger require that any license, permit or other
governmental approval be transferred to the Surviving Corporation or issued
to the Surviving Corporation, such licenses, permits or other
authorizations shall have been transferred or reissued to the Surviving
Corporation at or before the Closing Date, except where the failure to
transfer or reissue such licenses, permits or other authorizations would
not have a material adverse effect on the business, assets, financial
condition, results of operations or prospects of the Surviving Corporation
and its Subsidiaries taken as a whole immediately after the Effective Time.
(g) OPINION OF MARYLAND COUNSEL. Ambassador and AIMCO shall have
received the opinion of Piper & Marbury L.L.P., which is acting at the
request and consent of both parties as Maryland counsel, to the effect that
the articles of merger are enforceable under Maryland law.
(h) OPINION OF PUBLIC FINANCE COUNSEL. The parties hereto shall have
received an opinion of public finance counsel mutually acceptable to the
parties hereto that the Florida Bonds (as defined in Ambassador's Form 10-Q
for the quarterly period ended September 30, 1997) shall not lose their tax
exempt status as a result of the Merger.
Section 8.2 CONDITIONS TO OBLIGATION OF AIMCO TO EFFECT THE MERGER. The
obligation of AIMCO to effect the Merger shall be further 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) PERFORMANCE OF OBLIGATIONS OF AMBASSADOR. Ambassador (and/or
Ambassador's appropriate Subsidiaries) will have performed in all material
respects its material agreements and covenants contained in or contemplated
by this Agreement which are required to be performed by it at or prior to
the Effective Time including, without limitation, agreements and covenants
contained in Section 2.1(d) hereof.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Ambassador set forth in this Agreement which are qualified by Ambassador
Material Adverse Effect shall be true and correct and all other
representations and warranties of Ambassador set forth in this Agreement
shall be true and correct except for such failures of representations or
warranties to be true and correct (without giving effect to any materiality
qualification or standard contained in any such representations and
warranties) which, individually or in the aggregate, would not result in an
Ambassador Material Adverse Effect, as of the Effective Time, in each case
(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).
(c) CLOSING CERTIFICATES. AIMCO shall have received a certificate
signed by the chief financial officer of Ambassador, on behalf of
Ambassador, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in Section 8.2(a) and Section
8.2(b) have been satisfied.
(d) AMBASSADOR MATERIAL ADVERSE EFFECT. Since December 31, 1996, no
Ambassador Material Adverse Effect shall have occurred and be continuing.
(e) TAX OPINION. AIMCO shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to AIMCO, an opinion dated as of such date to
the effect that the Merger should constitute a "reorganization" within the
meaning of Section 368(a) of the Code and AIMCO and Ambassador should each
be a party to such reorganization within the meaning of Section 368(b) of
the Code. In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom
LLP may require delivery of and rely upon representations contained in
certificates of officers of Ambassador, AIMCO and others.
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(f) REIT OPINION. AIMCO shall have received an opinion of counsel to
Ambassador, dated as of the Effective Time, reasonably satisfactory to
AIMCO that, for its taxable year ended December 31, 1994 and all subsequent
taxable years ending on or before the Effective Time (including the short
taxable year ending immediately prior to the Effective Time), Ambassador
was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code (with customary exceptions,
assumptions and qualifications and based upon customary representations).
(g) AFFILIATE AGREEMENTS. AIMCO shall have received Affiliate
Agreements, duly executed by each "Affiliate" of Ambassador, substantially
in the form of Exhibit 7.7, as provided in Section 7.7.
(h) FNMA CREDIT ENHANCEMENT. The Federal National Mortgage Association
("FNMA") shall have consented (the "FNMA Consent") to the assumption by the
Surviving Corporation of approximately $216.3 million of credit enhancement
for taxable and tax exempt bonds payable by Ambassador and any Subsidiary
of Ambassador outstanding as of the Effective Time, which credit
enhancement by FNMA has an initial term of 25 years (the "FNMA Credit
Enhancement").
(i) NO DEFAULT. Neither Ambassador nor any Subsidiary of Ambassador is
in default under the FNMA Credit Enhancements, except for such defaults
which do not have an Ambassador Material Adverse Effect.
Section 8.3 CONDITIONS TO OBLIGATION OF AMBASSADOR TO EFFECT THE
MERGER. The obligation of Ambassador to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by Ambassador in writing pursuant to Section
9.5.
(a) PERFORMANCE OF OBLIGATIONS OF AIMCO. AIMCO (and/or AIMCO's
appropriate Subsidiaries) will have performed in all material respects
their agreements and covenants contained in or contemplated by this
Agreement which are required to be performed by it at or prior to the
Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of AIMCO set forth in this Agreement which are qualified by AIMCO Material
Adverse Effect shall be true and correct and all other representations and
warranties of AIMCO set forth in this Agreement shall be true and correct
except for such failures of representations or warranties to be true and
correct (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which, individually
or in the aggregate, would not result in an AIMCO Material Adverse Effect,
as of the Effective Time, in each case (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).
(c) CLOSING CERTIFICATES. Ambassador shall have received a certificate
signed by the chief financial officer of AIMCO, on behalf of AIMCO, dated
the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 8.3(a) and Section 8.3(b)
have been satisfied.
(d) TAX OPINION. Ambassador shall have received from Altheimer & Gray,
counsel to Ambassador, an opinion dated as of such date to the effect that
the Merger should constitute a "reorganization" within the meaning of
Section 368(a) of the Code and AIMCO and Ambassador should each be a party
to such reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Altheimer & Gray may require delivery of and rely
upon representations contained in certificates of officers of Ambassador,
AIMCO and others.
(e) REIT OPINION. Ambassador shall have received an opinion of counsel
to AIMCO, dated as of the Effective Time, reasonably satisfactory to
Ambassador that, for its taxable year ended December 31, 1994 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
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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).
(f) AIMCO REQUIRED CONSENTS. The AIMCO Required Consents and the
Ambassador Required Consents the failure of which to obtain would have an
AIMCO Material Adverse Effect (assuming consummation of the Merger) shall
have been obtained.
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 shareholders of
Ambassador contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Ambassador
and AIMCO;
(b)(i) by either party if there has been any breach of any
representations or warranties on the part of the other set forth in this
Agreement, which breaches individually or in the aggregate would result in
an AIMCO Material Adverse Effect or an Ambassador Material Adverse Effect,
as the case may be, or a material breach on the part of the other party of
any of its material covenants or agreements set forth in this Agreement
and, in any case which breaches have not been cured within 20 business days
following receipt by the breaching 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 20 business-day period, (ii) by either
party, if the Ambassador Board of Directors or any committee of the
Ambassador Board of Directors (A) shall withdraw or modify in any adverse
manner its approval or recommendation of this Agreement or the Merger, (B)
shall approve or recommend any acquisition of Ambassador or a material
portion of its assets or any tender offer for shares of capital stock of
Ambassador, in each case, other than by AIMCO or an Affiliate thereof or
(C) shall resolve to take any of the actions specified in clause (A) or
(B), or (iii) by either party, 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 or any other Transaction, and such order,
judgment or decree shall have become final and nonappealable;
(c) by either party hereto, by written notice to the other party, if
the Effective Time shall not have occurred on or before July 31, 1998 (the
"Termination Date"); provided, however, that the right to terminate the
Agreement 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; and provided, further, that if on the Termination Date
the conditions to the Closing set forth in Section 8.1(e) shall not have
been fulfilled but all other conditions to the Closing shall be fulfilled
or shall be capable of being fulfilled, then the Termination Date shall be
extended to September 15, 1998;
(d) by either party hereto, by written notice to the other party, if
the Ambassador Shareholders' Approval shall not have been obtained at a
duly held Ambassador Meeting, including any adjournments thereof;
(e) by Ambassador, by written notice to AIMCO, if the Board of
Directors of Ambassador shall determine in good faith that an Acquisition
Proposal constitutes a Superior Proposal; provided however, that Ambassador
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 Ambassador 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 a modification of the terms and conditions
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of this Agreement so that a business combination between Ambassador and
AIMCO may be effected, (ii) during such five day period, the 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 Ambassador and (iii) at the end of such five day
period such Board of Directors shall continue to believe in good faith that
such Acquisition Proposal constitutes a Superior Proposal; or
(f) by Ambassador, if both Terry Considine and Peter K. Kompaniez
cease to serve as officers and directors of AIMCO and the AIMCO Operating
Partnership, other than as a result of death or disability.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Ambassador or AIMCO pursuant to Section 9.1 there shall be
no liability on the part of either Ambassador or AIMCO or their respective
officers or directors hereunder, except that the Confidentiality Agreement,
Section 7.12, Section 9.3, Section 10.8 and Section 10.9 shall survive the
termination. There shall be no liability with respect to facts and circumstances
that give rise to any right of termination hereunder if this Agreement is not in
fact terminated and any breach of this Agreement which does not give rise to a
right of termination under Section 9.1(b)(i) shall not result in any liabilities
to the breaching party.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) AMBASSADOR TERMINATION FEE. If (i) this Agreement (A) is terminated by
AIMCO pursuant to Section 9.1(b)(i), (B) is terminated by Ambassador pursuant to
Section 9.1 (e), (C) is terminated as a result of Ambassador's breach of Section
7.4(a), or (D) is terminated because the shareholders of Ambassador do not
approve the Merger, (ii) at the time of such termination or prior to the meeting
of Ambassador's shareholders but after the date hereof there shall have been
made an Acquisition Proposal involving Ambassador or any of its Affiliates
(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 Ambassador or any of
its Affiliates 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 Ambassador (jointly and severally with the Ambassador
Operating Partnership), 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 Ambassador 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 neither party shall have any other liability to the other
(including, in the case of Ambassador, the party making the Acquisition
Proposal) with respect to the circumstances giving rise to the payment of the
Break-Up Fee, other than the payment of the Break-Up Fee. The "Break-Up Fee"
shall be an amount equal to the lesser of (i) 3.5% of the sum of (A) the
Ambassador Price times the number of shares of Ambassador Common Stock
outstanding as of the date hereof, plus (B) the Ambassador Price times the
number of shares of Ambassador Preferred Stock outstanding on the date hereof
(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, Ambassador shall place the
remaining portion of the Base Amount in escrow and shall not release any portion
thereof to AIMCO unless and until Ambassador receives either of the following:
(i) a letter from 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
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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 Ambassador shall pay such maximum amount, or
(ii) a Break-Up Fee ruling, in which event Ambassador shall pay to AIMCO the
unpaid Base Amount. Ambassador's obligation to pay any unpaid portion of the
Break-Up Fee shall terminate three years from the date of this Agreement and
Ambassador shall have no obligation to make any further payments notwithstanding
that the entire Base Amount has not been paid as of such date. A party's
"Break-Up Expenses" shall be an amount equal to the lesser of (i) such party's
out-of-pocket expenses incurred in connection with this Agreement and the
Transactions (including, without limitation, all attorney's, accountants' and
investment bankers' fees and expenses) but in no event in an amount greater than
$1.0 million (the "Expense Fee Base Amount") and (ii) the sum of (A) the maximum
amount that can be paid to such party in the Termination Year and in all
relevant taxable years thereafter without causing it to fail to meet the REIT
Requirements for such year, determined as if the payment of such amount did not
constitute Qualifying Income, as determined by independent accountants to such
party and (B) in the event such party receives a ruling from the IRS (an
"Expense Fee Ruling") holding that such party's receipt of the Expense Fee Base
Amount would either constitute Qualifying Income or would be excluded from gross
income within the meaning of the REIT Requirements, the Expense Fee Base Amount
less the amount payable under clause (A) above. Ambassador's obligation to pay
any unpaid portion of the Break-Up Expenses shall terminate three years from the
date of this Agreement and Ambassador shall have no obligation to make any
further payments notwithstanding that the entire amount of Break-Up Expenses has
not been paid as of such date. If the amount payable for the Termination Year
(as determined above) is less than the Expense Fee Base Amount, Ambassador shall
place the remaining portion of the Expense Fee Base Amount in escrow and shall
not release any portion thereof to AIMCO unless and until Ambassador receives
either of the following: (i) a letter from 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 the 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
Ambassador shall pay to AIMCO such maximum amount or (ii) an Expense Fee Ruling,
in which event Ambassador shall pay to AIMCO the unpaid Expense Fee Base Amount.
(b) AIMCO TERMINATION FEE. If this Agreement is terminated by Ambassador in
accordance with Section 9.1(b)(i) and, at the time of such termination,
Ambassador has not breached any of its representations, warranties, covenants or
agreements set forth in this Agreement which would give rise to a right on the
part of AIMCO to terminate this Agreement pursuant to Section 9.1(b)(i), then
AIMCO (jointly and severally with the AIMCO Operating Partnership), shall pay to
Ambassador the Break-Up Fee. The payment of the Break-Up Fee shall be
compensation and liquidated damages for the loss suffered by Ambassador as the
result of the failure of the Merger to be consummated and to avoid the
difficulty of determining damages under the circumstances, and neither party
shall have any other liability to the other with respect to the circumstances
giving rise to the payment of the Break-Up Fee, other than the payment of the
Break-Up Fee. If the amount payable for the Termination Year is less than the
Base Amount, AIMCO shall place the remaining portion of the Base Amount in
escrow and shall not release any portion thereof to Ambassador unless and until
AIMCO receives either of the following: (i) a letter from Ambassador's
independent accountants indicating the maximum amount that can be paid at that
time to Ambassador without causing Ambassador to fail to meet the REIT
Requirements for any relevant taxable year, together with either an IRS Ruling
issued to Ambassador or an opinion of Ambassador's tax counsel to the effect
that such payment would not be treated as includible in the income of Ambassador
for any prior taxable year, in which event AIMCO shall pay such maximum amount,
or (ii) a Break-Up Fee ruling, in which event Ambassador shall pay to Ambassador
the unpaid Base Amount. AIMCO's obligation to pay any unpaid portion of the
Break-Up Fee shall terminate three years from the date of this Agreement and
AIMCO shall have no obligation to make any further payments notwithstanding that
the entire Base Amount has not been paid as of such date. AIMCO's obligation to
pay any unpaid portion of the Break-Up Expenses shall terminate three years from
the date of this Agreement and AIMCO shall have no obligation to make any
further payments notwithstanding that the entire amount of Break-Up Expenses has
not been paid as of such date. If the amount payable for the
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Termination Year (as determined above) is less than the Expense Fee Base Amount,
AIMCO shall place the remaining portion of the Expense Fee Base Amount in escrow
and shall not release any portion thereof to Ambassador unless and until AIMCO
receives either of the following: (i) a letter from Ambassador's independent
accountants indicating the maximum amount that can be paid at that time to
Ambassador without causing Ambassador to fail to meet the REIT Requirements for
any relevant taxable year, together with either the IRS ruling issued to
Ambassador or an opinion of Ambassador's tax counsel to the effect that such
payment would not be treated as includible in the income of Ambassador for any
prior taxable year, in which event AIMCO shall pay to Ambassador such maximum
amount or (ii) an Expense Fee Ruling, in which event AIMCO shall pay to
Ambassador the unpaid Expense Fee Base Amount.
(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 and shall be the
sole and exclusive remedy of the parties hereto with respect to the facts and
circumstances giving rise to the payment of a Break-Up Fee. Notwithstanding
anything to the contrary contained in this Section 9.3, if Ambassador or AIMCO
fails to promptly pay to AIMCO or Ambassador, as the case may be, any fee due
under Section 9.3(a) or 9.3(b), as the case may be, in addition to any amounts
paid or payable pursuant to such sections, Ambassador or AIMCO, as the case may
be, shall pay the 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 or Ambassador, as the case may be, to collect payment,
together with interest on the amount of any unpaid fee at the publicly announced
prime rate of Citibank, N.A. from the date such fee was required to be paid.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the shareholders of Ambassador and prior to the Effective Time, but after such
approvals, 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 Ambassador 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 shareholders, as applicable. 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.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. No
representations or warranties in this Agreement or in any instruments delivered
pursuant hereto shall survive the Effective Time, except as otherwise provided
in this Agreement.
Section 10.2 BROKERS. Ambassador represents and warrants that, except for
Merrill Lynch 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
Ambassador. 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.
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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 Ambassador, to:
Ambassador Apartments, Inc.
77 West Wacker Drive, Suite 4040
Chicago, Illinois 60601
Attn: Debra A. Cafaro
Telecopy: (312) 917-1665
Telephone: (312) 917-4444
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Attn: Peter Lieberman, Esq.
Telecopy: (312) 715-4800
Telephone: (312) 715-4000
(ii) If to AIMCO, to:
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado
Attn: Peter K. Kompaniez
Telecopy: (303) 757-8735
Telephone: (303) 757-8101
with a copy to:
Skadden, Arps, Slate, Meagher & Flom, LLP
919 Third Avenue
New York, New York 10022
Attn: Patrick J. Foye, Esq.
Telecopy: (212) 735-2000
Telephone: (212) 735-3000
Section 10.4 MISCELLANEOUS. This Agreement (including the disclosure
schedules, exhibits, documents and instruments referred to herein) (a) together
with the Confidentiality Agreement constitutes the entire agreement and
supersedes 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 either party and (c) shall be governed by and
construed in accordance with the laws of the State of Delaware 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. Any
disclosure set forth in the Ambassador Disclosure Schedule or the Ambassador SEC
Reports or any Ambassador press release or other public statement shall be
applicable to each representation and warranty herein of Ambassador to which it
is reasonably evident that such disclosure relates. Any disclosure set forth in
the AIMCO Disclosure Schedule or the AIMCO SEC Reports or any AIMCO press
release or other public
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statement shall be applicable to each representation and warranty herein of
AIMCO to which it is reasonably evident that such disclosure relates.
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, except for rights of
Indemnified Parties as set forth in Section 7.5, 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
as provided in Section 7.5, 7.8 and 7.9 hereto.
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (a) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (b) without
limitation to Section 9.3, any right it may have to receive damages from any
other party based on any theory of liability for any special, indirect,
consequential (including lost profits) or punitive damages.
Section 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms 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 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 10.10 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 10.11 ANTI-DILUTION. The AIMCO Index Price and the Conversion Ratio
and any AIMCO share price referred to in this Agreement shall be appropriately
adjusted in the case of any stock or extraordinary dividend or distribution,
reclassification, recapitalization, split-up, combination or subdivision with
respect to the common stock of AIMCO.
* * * * *
40
<PAGE> 196
IN WITNESS WHEREOF, Ambassador and AIMCO have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
AMBASSADOR APARTMENTS, INC.
By:
------------------------------------
Name: David M. Glickman
Title: Chairman and Chief Executive
Officer
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By:
------------------------------------
Name: Peter K. Kompaniez
Title:
41
<PAGE> 197
AMBASSADOR APARTMENTS, INC.
77 WEST WACKER DRIVE
CHICAGO, IL 60601
MARCH 11, 1998
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, CO 80222
Gentlemen:
This letter agreement is entered into in connection with that certain
Agreement and Plan of Merger ("Merger Agreement") dated as of December 23, 1997
between Apartment Investment and Management Company ("AIMCO") and Ambassador
Apartments, Inc. ("Ambassador"). Reference is made to the Merger Agreement.
Terms used in this letter that are defined terms in the Merger Agreement but
which are not defined in this letter will have the same meaning as in the Merger
Agreement. To clarify the Merger Agreement, and notwithstanding anything to the
contrary contained in the Merger Agreement, the parties agree as follows:
1. Dividends. In lieu of the payment of the special dividends contemplated
by Section 2.2(c)(i) of the Merger Agreement:
(a) Regular Quarterly Dividends. Consistent with Section 7.15 of the
Merger Agreement, each party will declare its regular quarterly dividend
for the first quarter (and for any other calendar quarter ended prior to
the Effective Time) with a record date prior to the Effective Time. In
addition, in the ordinary course of business after the Effective Time,
AIMCO will declare a dividend for the quarter in which the Effective Time
occurs in the amount of its regularly quarterly dividend amount for such
quarter.
(b) Special Ambassador Dividend. Ambassador will also declare a
special dividend, with a record date prior to the Effective Time, which
will result in its stockholders receiving an amount per share equal to the
product of (x) the difference between (a) Ambassador's most recent
quarterly dividend amount (appropriately adjusted for any stock splits and
the like) and (b) the product of the Conversion Ratio (as determined
pursuant to the Merger Agreement) and AIMCO's most recent quarterly
dividend amount (appropriately adjusted for any stock splits and the like),
and (y) the number of days which shall have elapsed through and including
the day immediately prior to the day of the Effective Time since the end of
the most recent calendar quarter (as of the Effective Time) for which
Ambassador's dividend record date has occurred divided by 91. Thus, for
example, if the Effective Time occurs on May 1, 1998, in addition to the
regular dividends provided for in paragraph (a) above, Ambassador
stockholders would receive a special dividend of $.0238 per share (assuming
the Conversion Ratio is 0.583).
(c) Miscellaneous. This Section 1 shall not be construed to limit
Ambassador's rights to take actions necessary or appropriate in complying
with tax laws relating to REITs. In addition, to the extent necessary or
appropriate under such tax laws, regular Ambassador dividends contemplated
hereby will be paid by Ambassador and received by its stockholders prior to
the Effective Time. If payment of any Ambassador dividends provided for in
this Section 1 is not made prior to the Effective Time, then, promptly
following the Effective Time the Surviving Corporation shall pay such
dividends to the holders entitled thereto. Concurrent and equivalent per
unit distributions for the benefit of holders of OP Units shall be made in
connection with the dividends contemplated by this letter. The parties
shall cooperate to implement the dividend and distribution provisions of
the Merger Agreement and this letter as may be necessary to achieve the
intended economic benefits thereof to the shareholders of the parties.
2. AIMCO Break-Up Expenses. If the Merger Agreement is terminated by AIMCO
pursuant to Section 9.1(b)(i), then, without limitation of AIMCO's right, if
any, to receive the Break-Up Fee,
<PAGE> 198
Ambassador shall pay to AIMCO the Break-Up Expenses (subject to the limitations
contained in the Merger Agreement with respect to the payment of such Break-Up
Expenses).
3. Ambassador Break-Up Expenses. If the Merger Agreement is terminated by
Ambassador pursuant to Section 9.1(b)(i), then, without limitation of
Ambassador's right, if any, to receive the Break-Up Fee, AIMCO shall pay to
Ambassador the Break-Up Expenses (subject to the limitations contained in the
Merger Agreement with respect to the payment of such Break-Up Expenses).
Please indicate your agreement with the foregoing by executing this letter
in the space provided below.
AMBASSADOR APARTMENTS, INC.
By: /s/ DEBRA A. CAFARO
------------------------------------
Name: Debra A. Cafaro
Title: President
Agreed to and accepted:
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ THOMAS W. TOOMEY
- --------------------------------------
Name: Thomas W. Toomey
Title: Executive Vice President
<PAGE> 199
APPENDIX II
INVESTMENT BANKING
CORPORATE AND INSTITUTIONAL
CLIENT GROUP
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1326
(LOGO) 212 449 1000
December 22, 1997
Board of Directors
Ambassadors Apartments, Inc.
77 West Wacker Drive
Suite 4040
Chicago, Illinois 60601
Members of the Board of Directors:
Apartment Investment and Management Company (the "Acquiror") and Ambassador
Apartments, Inc. (the "Company") propose to enter into an Agreement and Plan of
Merger, dated as of December 22, 1997 (the "Agreement"), pursuant to which the
Company will be merged with and into the Acquiror (a qualified Real Estate
Investment Trust ("REIT")) in a transaction (the "Transaction") in which each
issued and outstanding share of Company common stock, par value $0.01 per share
(the "Company Shares"), other than Company Shares owned by the Acquiror or its
wholly-owned subsidiaries, will be converted into the right to receive that
number of fully paid and non-assessable shares of Class A Common Stock, par
value $0.01 per share, of the Acquiror (the "Acquiror Shares") equal to the
ratio (the "Conversion Ratio") determined by dividing (i) $21.00 by (ii) the
aggregate of the average of the high and the low sales prices of the Acquiror
Shares on each of the twenty consecutive trading days ending on the fifth
trading day immediately preceding the effective time of the Transaction, divided
by twenty (the "AIMCO Index Price").
The Agreement further provides that if the Conversion Ratio is a number
greater than .583, the Acquiror may elect to set the Conversion Ratio at .583
and include additional cash consideration in an amount equal to (i) $21.00 minus
(ii) the product of (x) the AIMCO Index Price and (y) .583 so that the Company
shareholders other than the Acquiror and its wholly-owned subsidiaries shall
receive a combination of Acquiror Shares and cash having a value equal to $21.00
per Company Share. The Acquiror Shares issued in the Transaction together with
any cash consideration offered to the Company's shareholders, other than the
Acquiror and its wholly-owned subsidiaries, shall be referred to herein as the
"Consideration".
You have asked us whether, in our opinion, the Consideration to be received
by the shareholders of the Company pursuant to the Transaction is fair from a
financial point of view to such holders (other than the Acquiror and its
affiliates).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Acquiror and the Company which we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, funds from operations, adjusted funds from
operations, cash flow, assets, liabilities and prospects of the Acquiror and the
Company furnished to us by the Acquiror and the Company, as well as the amount
and timing of the cost savings and related expenses and synergies expected to
result from the Transaction (the "Expected Synergies") furnished to us by the
Acquiror and the Company;
<PAGE> 200
(LOGO)
(3) Conducted discussions with members of senior management of the
Acquiror and the Company concerning the matters described in clauses (1) and (2)
above, as well as their respective businesses and prospects before and after
giving effect to the Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Acquiror
Shares and the Company Shares and compared them with those of certain publicly
traded companies that we deemed relevant;
(5) Reviewed the results of operations of the Acquiror and the Company and
compared them with those of certain publicly traded companies that we deemed to
be relevant;
(6) Compared the proposed financial terms to the Transaction with the
financial terms of certain other transactions which we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Acquiror and the Company and their financial and legal
advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed a draft dated December 22, 1997 of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Acquiror or the Company or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Acquiror
or the Company. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Acquiror or the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Acquiror's or Company's
management as to the expected future financial performance of the Acquiror or
the Company, as the case may be, and the Expected Synergies. We have further
assumed that the Transaction will qualify as a tax-free reorganization for
United States federal income tax purposes. We have also assumed that the final
form of the Agreement will be substantially similar to the last draft thereof
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction. We have also assumed
that the combined entity will continue to qualify after the Transaction as a
REIT for federal income tax purposes.
At the Company's request, we have contacted over 40 potential acquirors of
the Company. Such potential acquirors were selected by the Company and us from a
group of companies and other parties likely to be interested in an acquisition
of the Company.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our
2
<PAGE> 201
(LOGO)
engagement. We have, in the past, provided financial advisory services to the
Company and the Acquiror and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the securities of the Company or
the Acquiror, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote on the proposed Transaction.
We are not expressing any opinion herein as to the prices at which the
Company Shares or the Acquiror Shares will trade following the announcement or
consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the shareholders of
the Company pursuant to the Transaction is fair from a financial point of view
to such holders (other than the Acquiror and its affiliates).
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
3
<PAGE> 202
APPENDIX III
DESCRIPTION OF BUSINESS OF INSIGNIA
The following information has been obtained from the Form 10-K of Insignia
for the year ended December 31, 1997, as filed with the SEC. Capitalized terms
used in this appendix have the meanings set forth in this appendix and are not
applicable to the remainder of this Proxy Statement/Prospectus.
BUSINESS
General. 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 organization specializing in the ownership and
operation of securitized real estate assets. As the largest manager of
multifamily residential properties in the United States and one of the largest
managers of commercial properties, 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, including approximately 900 limited partnerships having approximately
350,000 limited partners. Insignia commenced operations in December 1990 and
since then has grown to provide property and/or asset management services for
over 2,700 properties, which include approximately 280,000 residential units
(including cooperative and condominium units) and approximately 160 million
square feet of commercial space, located in over 500 cities in 48 states, Italy
and the United Kingdom.
Insignia's principal business strategy is to expand its real estate
services business in four primary ways. First, the Company seeks to acquire, or
to have an affiliate acquire, controlling positions in entities that own or
control real estate properties, and then, subject to their fiduciary duties to
such entities, engage Insignia to provide management services. Second, Insignia
seeks to enter into special contractual relationships with non-affiliated third
parties that own or control portfolios of real estate properties pursuant to
which Insignia will provide management services to some or all of the properties
within their portfolios. Third, the Company seeks to expand its management of
properties which are owned by non-affiliated third parties, such as large
insurance companies, banks, government or quasi-government agencies, and other
institutional investors and lenders. Fourth, Insignia seeks to make
opportunistic real estate investments in controlled entities, primarily through
Insignia Properties Trust ("IPT"), a majority owned real estate investment trust
("REIT") subsidiary of the Company, or through institutional co-investments for
both real estate cash flows and profits and additional service revenues.
Real Estate Interests. Insignia's real estate interests consist primarily
of limited partner interests in controlled partnerships which own real estate
properties ranging from residential apartment complexes to commercial office,
retail, and industrial parks. Insignia began making such investments in December
1994 in connection with the ConCap acquisition, and has since acquired
additional interests through tender offers, the National Properties Investors,
Inc. ("NPI") acquisition in January 1996, negotiated block purchases, secondary
market purchases and co-investment ventures with institutional partners. In
addition, in October 1997, the Company acquired an interest in First Winthrop
Corporation, together with a substantial investment in limited partner
interests.
Acquisitions. Insignia completed the acquisition of ten property management
and brokerage companies during 1997. These acquisitions include the following:
Rostenberg Doern Company, Inc., HMB Property Services, Inc., Frain, Camins &
Swartchild, Inc. ("FC&S"), The Related Companies of Florida, Radius Retail
Advisors, Forum Properties, Inc., Realty One, Inc. and affiliated companies,
100% of the Class B stock of First Winthrop Corporation and a general
partnership interest in Winthrop Financial Associates ("Winthrop"), Barnes,
Morris, Pardoe & Foster, and expansion internationally through the purchase of
60% of the stock in Compagnia di Amministrazione e Gestioni Immobiliare S.p.A.
("CAGISA"). CAGISA is one of the leading property management companies in Italy
with management of approximately 10,000 units of mostly residential housing,
primarily in Rome and Milan.
1
<PAGE> 203
The aggregate purchase price paid for these businesses, including CAGISA,
was approximately $136.7 million paid from cash on hand of $101.6 million ($95.8
million, net of acquired cash from acquisition entities of $5.8 million), $4.2
million of the Company's Class A Common Stock, notes payable of $528,000 (net of
$8.0 million in notes receivable), and $30.4 million in acquisition liabilities
and deferred taxes.
On February 26, 1998, the Company completed the acquisition of 100% of the
stock of Richard Ellis Group Limited ("Richard Ellis"). Richard Ellis is a real
estate services firm located in the United Kingdom. The purchase price paid for
Richard Ellis was approximately $81.5 million, including $24 million of the
Company's Class A Common Stock and existing stock options, $14.7 million in
contingencies based on future performance measures and the balance in cash.
Angeles Mortgage Investment Trust Merger. On July 18, 1997, IPT entered
into a definitive merger agreement to merge with Angeles Mortgage Investment
Trust ("AMIT"). The definitive agreement provides that each AMIT Class A share
will be exchanged for 1.625 IPT common shares. The exchange ratios will be
appropriately adjusted based on the respective amounts of per-share dividends
declared or paid by AMIT since January 1, 1997 and by IPT since January 31,
1997. The proposed transaction is contingent upon, among other conditions,
AMIT's receipt of a fairness opinion and the approval of the proposed
transaction by certain governmental authorities and by the shareholders of AMIT.
Stock Repurchase. The Board of Directors of the Company approved the
repurchase of outstanding Class A Common Stock of the Company in amounts up to
$50 million. On July 18, 1997, the Company obtained the approval of its
requisite lenders to amend its revolving credit facility to permit such
repurchases. At December 31, 1997, 166,400 shares of the Company's Class A
Common Stock, aggregating approximately $3.3 million, have been repurchased.
Purchase of Limited Partner Interests. On June 17, 1997, the Company
completed, for $15.5 million in cash, the purchase of limited partner interests
in partnerships controlled by IPT. Certain of those interests, aggregating
approximately $12.6 million, were contributed to IPT, effective June 30, 1997,
for common stock of IPT. The remaining $2.9 million was contributed to IPT,
effective December 31, 1997, for limited partnership units in Insignia
Properties, L.P. ("IPLP"), the controlled operating partnership of IPT.
Private Placement. During the second and third quarters of 1997, IPT sold
$52 million of its common stock of IPT shares through a private placement
offering. In the fourth quarter of 1997, IPT sold an additional $10 million of
its common shares in an unrelated private placement transaction. All such
amounts are reflected in minority interests on Insignia's consolidated balance
sheet at December 31, 1997.
Stock Repricing and Related Amendments. On April 18, 1997, Insignia
approved the repricing of certain employee stock options issued during 1996. The
274,900 options involved were issued primarily to new employees joining the
Company through acquisitions. The Company believes that this repricing is
important to its employee retention and incentive programs. The repriced options
have an exercise price of $17.50 per share over the five year vesting period,
compared to a weighted average exercise price of $23.65 prior to repricing. On
April 30, 1997, the Company's stockholders approved amendments to the
Certificate of Incorporation, as previously amended, authorizing 50 million
additional shares of the Company's Class A Common Stock and to the 1992 Stock
Incentive Plan increasing the aggregate number of shares of Common Stock
authorized for grant of awards from 4,666,666 to 5,250,000.
Amended and Restated Credit Agreement. In the first quarter of 1997, the
Company completed an amendment to its revolving credit facility, increasing the
credit limit from $200 million to $275 million. The amended revolving credit
facility involves a syndicate of 15 national and international financial
institutions. At December 31, 1997, the Company had $144 million outstanding
under the credit facility.
Reorganization of Operations. In January 1997, Insignia reorganized its
operations from six units to four units to achieve greater operating
efficiencies and separate its real estate investment activities. Insignia's
operating units now include Insignia Residential Group ("IRG"), Insignia/ESG,
Inc. ("Insignia/ESG"), Insignia Financial Services ("IFS") and Insignia
Properties Trust ("IPT"), through which the Company performs its various
services. IRG and Insignia/ESG provide management, consulting, brokerage,
investment
2
<PAGE> 204
and related services for residential and commercial properties, respectively.
IFS provides financial services including real estate investment banking and
co-investment.
Formation of IPT. During 1996, the Company formed IPT for the purpose of
acquiring and owning interests in multifamily residential and commercial
properties, including limited and general partner interests in partnerships
which hold such real estate properties. IPT has been organized in a manner that
will allow it to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986. The Company and certain of its affiliates have
transferred to IPT equity interests in entities comprising or controlling the
general partners of certain public real estate limited partnerships in exchange
for shares of beneficial interest of IPT.
IPT is the sole general partner of Insignia Properties L.P. ("IPLP"), which
functions as the operating partnership of IPT. The Company has transferred to
IPLP certain of its limited partner interests in real estate limited
partnerships (or equity interests in entities which own such interests) in
exchange for units of limited partner interest in IPLP, which units are
redeemable for cash (subject, however, to a first right of IPT to acquire any
such units for which redemption is sought in exchange for common shares of IPT).
As a result of these transactions, the Company held a 76% fully-diluted
ownership interest in the combined IPT entity at December 31, 1997.
Trust Based Convertible Preferred Securities. In November 1996, Insignia
Financing I, a Delaware trust and a consolidated subsidiary of the Company (the
"Trust"), issued and sold 2,990,000 shares of Trust Based Convertible Preferred
Securities (the "Securities") with an aggregate liquidation amount of $149.5
million, sold pursuant to exemptions under the Securities Act of 1933, as
amended, and the rules thereunder. All of the outstanding common securities of
the Trust are owned by the Company. The sole assets of the Trust are the $154.1
million principal amount of 6.5% convertible subordinated debentures of the
Company due September 30, 2016. The Company has certain obligations relating to
the Securities which amount to a full and unconditional guarantee of the Trust's
obligations under the Securities. The debentures issued by the Trust and the
common securities of the Trust purchased by the Company are eliminated in the
balance sheet. The Securities are entitled to distributions at the rate per
annum of 6.5% of the stated liquidation amount, with quarterly distributions
payable in arrears. The Company has the option to defer distributions from time
to time, not to exceed 20 consecutive quarters. The Company has made
distributions of approximately $10.0 million for the year ended December 31,
1997, which are reflected in minority interests in the consolidated statement of
income. The Securities are convertible into the Company's Class A Common Stock
at $26.50 per share through September 30, 2016, or upon the Company's option to
redeem the Securities after November 1, 1999. The Securities are structured such
that the distributions are tax deductible to the Company.
Acquisition History. Insignia and its affiliates have acquired control of,
or management rights to, 43 portfolios of properties since 1990. The Company
believes that there are a significant number of other portfolios which may be
available for future acquisitions. However, there can be no assurance that the
closing of any such potential acquisitions will be consummated. The following
table summarizes the portfolio
3
<PAGE> 205
acquisitions completed in 1997, 1996 and 1995 only, and their size in
residential units and commercial square feet.
<TABLE>
<CAPTION>
CONTRACTUALLY THIRD CONTRACTUALLY
YEAR OF AFFILIATED RESTRICTED PARTY AFFILIATED RESTRICTED
ACQUISITION PORTFOLIO NAME PROPERTIES(1) PROPERTIES(2) PROPERTIES(3) PROPERTIES(1) PROPERTIES(2)
- ----------- -------------- ------------- ------------- ------------- ------------- -------------
<C> <S> <C> <C> <C> <C> <C>
1997 Barnes Morris.....................
1997 Winthrop.......................... 16,500
1997 Realty One........................
1997 CAGISA............................ 10,000
1997 Forum.............................
1997 Radius Retail Advisors, Inc.......
1997 Related Companies of Florida...... 10,370
1997 Frain, Camins & Swartchild,
Inc...............................
1997 HMB Property Services, Inc........
1997 Rostenberg-Doern Company, Inc.....
1996 GSSW(1)........................... 6,161
1996 Edward S. Gordon Company, Inc.....
1996 Paragon...........................
1996 National Property Investors, 34,265 3,735 3,885
Inc...............................
1995 Propsys/Compass Ventures.......... 565 138
1995 Douglas Elliman-Gibbons & 54,301
Ives/Kreisel Company, Inc.......
1995 Gleichman & Company, Inc.......... 1,500
1995 O'Donnell Property Services....... 3,496
<CAPTION>
THIRD
YEAR OF PARTY
ACQUISITION PROPERTIES(3)
- ----------- -------------
<C> <C>
1997 9,000
1997
1997
1997
1997 2,400
1997 1,231
1997
1997 4,930
1997 1,078
1997 1,289
1996
1996 25,500
1996 21,800
1996
1995
1995
1995
1995 20,102
</TABLE>
- -------------------------
(1) The GSSW acquisition added additional affiliated management contracts as
well as the general partner interest on third party properties acquired in
1994.
(2) Affiliated properties are ones in which some form of general partner
interest or other control mechanism resides with the Company or an
affiliate.
(3) Contractually restricted properties are ones in which the general partner
interest has not been relinquished to Insignia or an affiliate, but ones in
which restrictions and protection clauses have been put in the management
agreements to strengthen the stability of the relationship.
(4) Third party properties are ones in which no control exists, and the
contracts on the properties are cancelable at the option of either party.
In addition, over the past 24 months the Company has co-invested, with
institutional partners, in the acquisition of 18 limited partnerships owning
residential and commercial properties. The Company's ownership percentages in
these co-investment partnerships range from 10% to 35% at December 31, 1997.
These co-investment partnerships, which are a major source of growth for
Insignia, own assets in the aggregate valued at approximately $575 million and
own 54 properties comprising 10,300 apartment units and 3.9 million square feet
of commercial space.
Services. The Company's services include property management, providing all
of the day-to-day services necessary to operate a property, whether residential
or commercial; tenant representation; corporate real estate consulting; asset
management, including long-term financial planning, monitoring and implementing
capital improvement plans, and development and execution of refinancings and
dispositions; maintenance and construction services; marketing and advertising;
investor reporting and accounting, including preparation of quarterly reports
and annual K-1 tax reporting forms for limited partners, as well as regular
reporting under the Securities Exchange Act of 1934 where applicable; investment
banking, including assistance in workouts and restructurings, mergers and
acquisitions, debt and equity securitizations, and acquisitions of limited
partner interests; and real estate brokerage.
The U.S. Department of Housing and Urban Development ("HUD") has approved
Insignia to provide property management services for certain properties subject
to regulations by HUD. Approximately 13% of the residential units managed by the
Company were housing projects subsidized under various government programs
administered by HUD. The programs administered by HUD have been under continuing
review by the United States Congress. Recent changes could result in reductions
of rents, on which management fees generally are based, in some HUD-subsidized
projects. In addition, rent subsidies which currently are tied to
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<PAGE> 206
projects may be converted to "tenant-based" assistance, permitting tenants in
subsidized projects to retain their subsidies while moving elsewhere. The
occupancy level or rental rates of such projects could be affected and,
accordingly, the management fee paid to the property manager could be reduced.
It is possible that changes in programs administered by HUD could result in
lower rental revenue and project cash flow from which management and other fees
are derived; however, the details of the implementation of recent changes are
not yet sufficiently specific to determine their actual impact on such fees.
Affiliated Entities. Metropolitan Asset Enhancement, L.P. ("MAE") was
formed prior to 1991 to be the principal vehicle for acquiring general partner
interests in limited partnerships owning real estate and real estate related
assets that would be managed or serviced by the Company. Insignia holds a 19.1%
limited partnership interest in MAE. As of January 1, 1998 this interest was
transferred to Andrew Farkas under his amended employment agreement. Andrew L.
Farkas, the Chairman of the Board, President and Chief Executive Officer of
Insignia, owns the general partner of MAE, which has a 1% partnership interest.
In August 1993, the Company entered into an agreement with MAE whereby (i) the
Company agreed to assist MAE as its advisor and agent in connection with MAE's
acquisition, asset management, property management, and securitization
activities and in connection therewith to perform all services relating to the
foregoing, (ii) the Company agreed to render to MAE full investment banking,
financial advisory, recapitalization, asset restructuring, securitization and
mortgage banking services (as sole compensation for the provision of such
services, the Company receives certain cost reimbursements, incentive management
fees, and transaction fees as defined in such agreement), and (iii) the Company
and MAE agreed that, in the event either obtains an opportunity to acquire
interests in real estate or in entities which own or control real estate, the
Company will have the first right to acquire such interests. If the Company
elects not to acquire any such interests, but MAE does elect to acquire such
interests and the Company elects to provide any financing to MAE for such
acquisition, then such financing shall be by means of loans that will bear
interest at a rate equal to the rate then paid by the Company on indebtedness
under a revolving credit facility. If the Company is not a party to a revolving
credit facility, such rate will be the estimated rate the Company would pay on
indebtedness incurred under a revolving credit facility.
Environmental Regulation. Under various federal and state environmental
laws and regulations, a current or previous owner or operator of real estate may
be required to investigate and remediate certain hazardous or toxic substances
or petroleum product releases at the property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contamination may adversely affect the owner's ability to sell or
lease real estate or to borrow using the real estate as collateral. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
There can be no assurance that Insignia, or any assets owned or controlled by
Insignia, currently are in compliance with all of such laws and regulations, or
that Insignia will not become subject to liabilities that arise in whole or in
part out of any such laws, rules, or regulations. Moreover, there can be no
assurance that any of such liabilities to which Insignia may become subject will
not have a material adverse effect upon the business or financial condition of
Insignia.
Employees. At December 31, 1997, Insignia had approximately 11,000
employees. Of these employees, approximately 68% were employed as on-site
personnel such as resident managers and maintenance people involved in property
management. Fewer than 4% of such employees are covered by collective bargaining
agreements. Approximately 89% of Insignia's employees are full time; part-time
employees include those employed as housekeepers, porters, pool staff, lawn
maintenance, and other service positions at site locations. Insignia believes
that its employee relations are excellent. The Company's benefit programs
include group comprehensive health and life insurance plans, paid vacations, a
sick leave program, a disability plan, and a 401(k) plan.
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PROPERTIES
The Company's principal executive office is located in a 244,000 square
foot office building at One Insignia Financial Plaza, in Greenville, South
Carolina. Its lease calls for a term of ten years and six months and expires on
March 31, 2005 with two five-year renewal options exercisable by Insignia.
Presently, the Company occupies 110,000 square feet and will assume an
additional 9,000 square feet in the building as the space becomes available. The
Company has a first right of refusal to lease an additional 16,299 square feet
in the building, subject to its expansion plans. The lease contains an option to
cancel at the end of the seventh year or ninth year, each with a cancellation
penalty.
The Company also occupies approximately 21,000 square feet at Insignia
Financial Center, in Greenville, South Carolina. The lease expires on August 31,
2004 with two five-year renewal options and termination options during the
third, sixth, and eighth years of the lease. Both buildings are owned by
non-affiliated third parties. The current aggregate annual lease obligation for
both locations is $1,800,000. Nationally, the Company leases office space in 98
locations and 26 states, all from non-affiliated third parties, under leases
expiring at various dates between 1997 and 2005. Insignia believes its
facilities are adequate for their current and planned uses.
LEGAL PROCEEDINGS
1997 Tender Offer Litigation. In August 1997, IPLP Acquisition I LLC, a
wholly-owned subsidiary of IPLP (the "Purchaser"), commenced tender offers for
limited partner interests in six partnerships: Century Property Fund XVII,
Century Property Fund XIX, Century Property Fund XXII, National Property
Investors 4, Consolidated Capital Properties IV and Fox Strategic Housing Income
Partners (the "Tender Partnerships").
As previously reported on Forms 10-Q, three actions were commenced arising
out of these tender offers. All three cases have been discontinued.
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 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.
Including the $5 million Release Fee, 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
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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.
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.
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 lawsuits will be resolved
without material loss to the Company or its subsidiaries.
SUBSEQUENT EVENTS
Cohen Financial Transactions. On January 7, 1998, Insignia acquired the
rights to perform property management, leasing and construction supervision
services for approximately 4.1 million square feet of commercial real estate
from Cohen Financial. The purchase price was approximately $1 million, all of
which was paid in cash.
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Goldie B. Wolfe & Company. On January 20, 1998, Insignia acquired 100% of
the stock of Goldie B. Wolfe & Company, a commercial real estate services firm.
The purchase price was approximately $5.3 million, all of which was paid in
cash.
MAE GP Merger. Effective as of March 7, 1998, MAE GP Corporation ("MAE
GP"), which until then was a wholly-owned subsidiary of MAE, was merged with and
into IPT, with IPT surviving the merger (the "MAE GP Merger"). As consideration
for the MAE GP Merger, IPT issued 332,300 shares of the common stock of IPT to
MAE valued for purposes of the MAE GP Merger at $10.53 per share.
MAE GP owned or controlled equity interests in entities which comprised or
controlled the general partners of 29 public and 76 private real estate limited
partnerships (collectively, the "MAE Partnerships"). The MAE Partnerships own,
in the aggregate, 169 properties containing approximately 32,000 residential
apartment units and approximately 2.3 million square feet of commercial space.
In connection with the MAE GP Merger, all of the shares of Class B common stock
of AMIT, a real estate investment trust that has entered into a definitive
agreement to be merged with IPT, which were until then owned by MAE GP, were
transferred by dividend to MAE prior to the MAE GP Merger.
In connection with the MAE GP Merger, on February 17, 1998, IPT's operating
partnership ("IPLP") purchased certain assets described below from MAE for
approximately $596,000. The assets purchased by IPLP from MAE consisted of (i) a
99% limited partner interest in Insignia Jacques Miller, L.P. ("IJM"), which in
turn owns non-controlling equity interests in entities that comprise or control
the general partners of 30 of the MAE Partnerships and various notes receivable
(the 1% general partner interest in IJM was acquired by IPT from MAE GP in the
MAE GP Merger), and (ii) a 6.557% limited partner interest in Buccaneer Trace
Limited Partnership, which owns a 208-unit residential apartment complex located
in Savannah, Georgia.
Also in connection with the MAE GP Merger, on February 17, 1998, Insignia
contributed all of the limited partner interests it owned in the MAE
Partnerships to IPLP in exchange for units of limited partnership in IPLP
("IPLPOP Units"). The value of the interests contributed was approximately
$5,460,000, for which Insignia received 518,528 IPLPOP Units (based on a value
of $10.53 per unit).
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The AIMCO Charter limits the liability of AIMCO's directors and officers to
AIMCO and its stockholders to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of or its stockholders to obtain other relief, such
as an injunction or rescission.
The AIMCO Charter and AIMCO Bylaws require AIMCO to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Maryland law. The MGCL permits a corporation to indemnify
its directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the corporation, unless it is established
that (i) the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and (x) was committed in bad faith or (y) was the
result of active and deliberate dishonesty, (ii) the indemnified party actually
received an improper personal benefit in money, property or services or (iii) in
the case of any criminal proceeding, the indemnified party had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Securities and
Exchange Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act.
AIMCO has entered into agreements with certain of its officers, pursuant to
which AIMCO has agreed to indemnify such officers to the fullest extent
permitted by applicable law.
The Agreement of Limited Partnership (the "AIMCO Operating Partnership
Agreement") of the AIMCO Operating Partnership, also provides for
indemnification of AIMCO, or any director or officer of AIMCO, in its capacity
as the previous general partner of the AIMCO Operating Partnership, from and
against all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees), fines, settlements and other amounts incurred in
connection with any actions relating to the operations of the AIMCO Operating
Partnership, as set forth in the AIMCO Operating Partnership Agreement.
Section 11.6 of the 1997 Stock Award and Incentive Plan (the "1997 Plan"),
Section 2.8 of the Non-Qualified Employee Stock Option Plan (the "Non-Qualified
Plan"), Section 2.8 of the 1996 Stock Award and Incentive Plan (the "1996
Plan"), and Section 6.7 of the 1994 Stock Option Plan (the "1994 Plan"),
specifically provide that, to the fullest extent permitted by law, each of the
members of the Board of Directors of AIMCO, the Compensation Committee of the
AIMCO Board and each of the directors, officers and employees of AIMCO, any
AIMCO subsidiary, the AIMCO Operating Partnership and any subsidiary of the
AIMCO Operating Partnership shall be held harmless and indemnified by AIMCO for
any liability, loss (including amounts paid in settlement), damages or expenses
(including reasonable attorneys' fees) suffered by virtue of any determinations,
acts or failures to act, or alleged acts or failures to act, in connection with
the
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administration of the 1997 Plan, Non-Qualified Plan, the 1996 Plan or the 1994
Plan, as the case may be, so long as such person is not determined by a final
adjudication to be guilty of willful misconduct with respect to such
determination, action or failure to act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The exhibits to this Registration Statement are listed in the Exhibit
Index, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedule III, Real Estate and Accumulated Depreciation, is incorporated by
reference from AIMCO's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1997. All other schedules are omitted because they are not
applicable or the required information is shown in the financial statements of
AIMCO or the notes thereto incorporated by reference herein.
(c) Reports, Opinions or Appraisals
The opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated is
included as Appendix II of the Proxy Statement/Prospectus constituting Part I of
this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b)(sec.230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
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therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party which is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the 30th day of March, 1998.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ TERRY CONSIDINE
------------------------------------
Terry Considine,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE Chairman of the Board and
- ------------------------------------------ Chief Executive Officer
Terry Considine (Principal Executive Officer) March 30, 1998
/s/ PETER K. KOMPANIEZ Vice Chairman, President and Director March 30, 1998
- ------------------------------------------
Peter K. Kompaniez
/s/ TROY D. BUTTS Senior Vice President and
- ------------------------------------------ Chief Financial Officer
Troy D. Butts (Principal Financial Officer) March 30, 1998
/s/ PATRICIA K. HEATH Vice President and Chief Accounting
- ------------------------------------------ Officer
Patricia K. Heath (Principal Accounting Officer) March 30, 1998
/s/ RICHARD S. ELLWOOD Director March 30, 1998
- ------------------------------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN Director March 30, 1998
- ------------------------------------------
J. Landis Martin
/s/ THOMAS L. RHODES Director March 30, 1998
- ------------------------------------------
Thomas L. Rhodes
/s/ JOHN D. SMITH Director March 30, 1998
- ------------------------------------------
John D. Smith
</TABLE>
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<PAGE> 214
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 23, 1997
by and between Apartment Investment and Management Company
and Ambassador Apartments, Inc., as supplemented by letter
dated as of March 11, 1998 (incorporated by reference to
Appendix I to the Proxy Statement/Prospectus of Apartment
Investment and Management Company and Ambassador Apartments,
Inc. included in this Registration Statement).
4.1 Specimen certificate for AIMCO Common Stock (incorporated by
reference to AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994).
5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of
the AIMCO Common Stock offered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
8.2 Opinion of Altheimer & Gray regarding tax matters.
23.1 Consent of Ernst & Young LLP, Dallas, Texas.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in their opinion filed as Exhibit 8.1).
23.3 Consent of Piper & Marbury L.L.P. (included in their opinion
filed as Exhibit 5.1).
23.4 Consent of Ernst & Young LLP, Chicago, Illinois.
23.5 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
23.6 Consent of Altheimer & Gray (included in their opinion filed
as Exhibit 8.2).
23.7 Consent of Ernst & Young LLP, Greenville, South Carolina.
99.1 Letter to stockholders of Ambassador Apartments, Inc. by
David M. Glickman, Chairman and Chief Executive Officer,
dated March 31, 1998.
99.2 Notice of special meeting to stockholders of Ambassador
Apartments, Inc., dated March 31, 1998.
99.3 Proxy Card with respect to special meeting of stockholders
of Ambassador Apartments, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF PIPER & MARBURY]
March 25, 1998
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Ladies and Gentlemen:
We have acted as special Maryland counsel to Apartment Investment and
Management Company, a Maryland corporation (the "Company"), in connection with
the registration under the Securities Act of 1933, as amended (the "Act"), of
7,205,739 shares (which number may be increased up to 8,419,444 pursuant to the
Agreement referred to below) (the "Shares") of its Class A Common Stock, par
value $.01 per share, pursuant to a Registration Statement of the Company on
Form S-4 (the "Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission"). The Shares will be issued in connection
with the proposed merger pursuant to the Agreement and Plan of Merger (the
"Agreement"), dated as of December 23, 1997, by and between the Company and
Ambassador Apartments, Inc., a Maryland corporation ("Ambassador"). This opinion
is being provided at your request in connection with the filing of the
Registration Statement.
In rendering the opinion expressed herein, we have examined the
Registration Statement (including, the Proxy Statement/Prospectus of the Company
and Ambassador (the "Proxy Statement") included therein), the Charter and
By-Laws of the Company, the Agreement, the proceedings of the Board of Directors
of the Company relating to the reservation and issuance of the Shares, a
Certificate of the Secretary of the Company (the "Certificate"), and such other
statutes, certificates, instruments, and documents relating to the Company and
matters of law as we have deemed necessary to the issuance of this opinion. In
such examination, we have assumed, without independent investigation, the
genuineness of all signatures, the legal capacity of all individuals who have
executed any of the aforesaid documents, the authenticity of all documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies (and the authenticity of the originals of such
copies), and that all public records reviewed are accurate and complete. As to
factual matters, we have relied on the Certificate and have not independently
verified the matters stated therein.
Based upon the foregoing and having regard for such legal considerations as
we deem relevant, we are of the opinion and so advise you that, as of the date
hereof the Shares have been duly authorized and, assuming that they are issued
in accordance with the terms of the Agreement, the Proxy Statement, and the
resolutions authorizing their issuance and that the Agreement is approved by the
stockholders of Ambassador in accordance with Maryland law, will be validly
issued, fully paid, and nonassessable.
<PAGE> 2
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
March 25, 1998
Page 2
The opinion expressed above is limited to the laws of the State of
Maryland, exclusive of the securities or "blue sky" laws of the State of
Maryland. The foregoing opinion is rendered as of the date hereof. We assume no
obligation to update such opinion to reflect any facts or circumstances which
may hereafter come to our attention or changes in the law which may hereafter
occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Proxy Statement included in the Registration Statement. In
giving our consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF SASM&F LLP]
March 31, 1998
Apartment Investment and Management Company
1873 South Bellaire Street
Denver, Colorado 80222
Ladies and Gentlemen:
We have acted as counsel to you, Apartment Investment and Management
Company, a corporation organized under the laws of Maryland ("AIMCO"), in
connection with the proposed merger (the "Merger") of Ambassador Apartments,
Inc., a Maryland corporation ("Ambassador") with and into AIMCO. This opinion is
being furnished pursuant to Section 8.2(e) of the Agreement and Plan of Merger,
between AIMCO and Ambassador, dated as of December 23, 1997 (the "Agreement").
Except as otherwise defined herein, capitalized terms have the meanings set
forth in the Agreement.
In rendering our opinion, we have reviewed and relied upon the Agreement,
the Proxy Statement/Prospectus filed with the Securities and Exchange Commission
on March 30, 1998 (the "Prospectus"), and such other documents as we have deemed
necessary or appropriate as a basis for our opinion. In addition, we have relied
upon certain statements, representations and covenants made by AIMCO, Ambassador
and certain stockholders of Ambassador, including representations and covenants
in letters from AIMCO, Ambassador and certain stockholders of Ambassador (the
"Tax Certificates") and we have assumed that the Tax Certificates will be
complete and accurate, and will be re-executed as of the Effective Time.
In rendering our opinion, we have assumed that the Merger will be
consummated in accordance with the Agreement. We have also assumed that the
Prospectus and the Agreement accurately describe the material facts of the
Merger and all other transactions related to the Merger and reflect the material
facts pertinent to AIMCO and Ambassador. In addition, as to any facts material
to our opinion which we did not independently establish or verify, we have
relied upon facts, statements, representations and covenants of officers and
other representatives of AIMCO and Ambassador, and of other persons, including
statements, representations and covenants in the Tax Certificates. Our opinion
is conditioned on, among other things, the accuracy of such facts, statements,
representations and covenants, as of the date of the closing of the Merger and,
to the extent provided, thereafter.
In our examination of documents in connection with this opinion, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such documents.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986 (the "Code"), Treasury regulations promulgated
thereunder, pertinent judicial opinions, rulings of the Internal Revenue
Service, and such other authorities as we have considered relevant.
Based solely upon and subject to the foregoing, we are of the opinion that
under current law, the Merger should qualify as a "reorganization" for U.S.
federal income tax purposes under Section 368(a) of the Code, and AIMCO and
Ambassador should each be a party to such reorganization within the meaning of
Section 368(b) of the Code. We are also of the opinion that the descriptions of
the law contained in the Prospectus under the caption "Federal Income Tax
Consequences of the Merger" and the caption "Federal Income Tax Consequences
Related to AIMCO" are correct in all material respects, and the discussion
thereunder fairly summarizes the material federal income tax consequences of the
Merger to an Ambassador stockholder and the U.S. federal income taxation of
AIMCO generally.
<PAGE> 2
Apartment Investment and Management Company
March 31, 1998
Page 2
Except as expressly set forth above, we express no other opinion. We
disclaim any undertaking to advise you of any subsequent changes of the facts
stated or assumed herein or any subsequent changes in applicable law. This
opinion is for your benefit and is not to be used, circulated, quoted or
otherwise referred to for any purpose, except that we consent in accordance with
the requirements of Item 601(a)(23) of Regulation S-K under the Securities Act,
to the filing of this opinion as Exhibit 8.1 of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
2
<PAGE> 1
EXHIBIT 8.2
[A&G LETTERHEAD]
March 31, 1998
Ambassador Apartments, Inc.
77 W. Wacker Drive
Chicago, IL 60601
Ladies and Gentlemen:
At your request, we have examined the registration statement to which this
opinion is an Exhibit (the "Registration Statement") of Apartment Investment and
Management Company, a Maryland corporation ("AIMCO"), in connection with the
registration under the Securities Act of 1933, as amended, of shares of Class A
Common Stock of AIMCO to be issued in connection with the proposed merger (the
"Merger") of Ambassador Apartments, Inc., a Maryland corporation ("Ambassador"),
with and into AIMCO. Our opinion has been requested regarding certain federal
income tax consequences of this Merger.
The terms of the proposed Merger are contained in the Agreement and Plan of
Merger dated as of December 23, 1997, between Ambassador and AIMCO, and
supplemented by a letter dated March 11, 1998 (the "Merger Agreement"). Terms
not otherwise defined in this letter shall have the meanings assigned to them in
the Merger Agreement.
We assume in rendering this opinion that the Merger will be consummated in
accordance with the terms, conditions and other provisions of the Merger
Agreement, and that all of the factual information, descriptions,
representations and assumptions set forth in the Merger Agreement and in the
letters to us from AIMCO and Ambassador, which were dated March 26, 1998, were
accurate and complete at the respective dates of such letters or other writings,
and will be accurate and complete at the time the Merger becomes effective (the
"Effective Time"), and that the disclosure set forth in the Proxy
Statement/Prospectus ("Proxy Statement/ Prospectus") contained in the
Registration Statement that is to be mailed to Ambassador stockholders in
connection with the special meeting of stockholders (at which Ambassador
stockholders will be asked to approve the Merger Agreement and the transactions
contemplated thereby, among other proposals) is accurate and complete. We have
made no independent investigation as to the facts set forth in any of the
foregoing. Nothing has come to our attention, however, that would indicate in
any material respect that such facts as so set forth are not accurate or
complete or do not include all material facts relevant to our opinion.
Subject to and based on the foregoing and on the other matters set forth
herein, it is our opinion that the Merger should qualify as a "reorganization"
for U.S. federal income tax purposes under Section 368(a) of the Code, and that
AIMCO and Ambassador should each be a party to such reorganization within the
meaning of Section 368(b) of the Code. We are also of the opinion that the
descriptions of the law contained in the Prospectus under the caption "Federal
Income Tax Consequences of the Merger" appearing on pages 49, 50 and 51 of the
Proxy Statement/Prospectus, are correct in all material respects, and the
discussion thereunder fairly summarizes the material federal income tax
consequences of the Merger to an Ambassador stockholder.
Our opinion is based on the understanding that the relevant facts are, and
will be at the Effective Time, as set forth or referred to in this letter. If
this understanding is incorrect or incomplete in any respect, our opinion could
be affected.
This opinion is based on the Code and the regulations thereunder, and on
the interpretations thereof by the Internal Revenue Service and courts having
jurisdiction over such matters, none of which squarely addresses every precise
factual circumstance present in connection with the Merger but all of which,
taken together, in our opinion provide a sufficient legal basis for our opinions
set forth herein. However, the possibility exists that our opinion as to the
proper application of the law to the facts of the Merger would not be accepted
by the Internal Revenue Service or would not prevail in court. In addition, the
authorities upon
<PAGE> 2
Ambassador Apartments, Inc.
March 31, 1998
Page 2
which we have relied are all subject to change and such change may be made with
retroactive effect. We can give no assurance that after any such change, our
opinion would not be different. Lastly, any variation or difference in the facts
as incorporated herein might affect the conclusions stated herein.
This opinion is for your benefit and is not to be used, circulated, quoted
or otherwise referred to for any purpose, except that we consent in accordance
with the requirements of Item 601(a)(23) of Regulation S-K under the Securities
Act, to the filing of this opinion as Exhibit 8.2 of the Registration Statement,
and to the use of our name under the captions "The Merger and Related
Transactions -- Federal Income Tax Consequences of the Merger" and "Legal
Matters" in the Proxy Statement/Prospectus. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ ALTHEIMER & GRAY
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Apartment Investment
and Management Company for the registration of up to 7,205,739 shares of Class A
Common Stock and to the incorporation by reference therein of our report dated
March 6, 1998, except for Note 25, as to which the date is March 17, 1998, with
respect to the consolidated financial statements and schedule of Apartment
Investment and Management Company included in its Annual Report (Form 10-K) for
the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 30, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related prospectus of Apartment Investment
and Management Company (AIMCO) pertaining to the merger of AIMCO and Ambassador
Apartments, Inc. (Ambassador), and to the incorporation by reference therein of
our report dated January 30, 1998 (except for Note 19, as to which the date is
March 5, 1998) with respect to the consolidated financial statements of
Ambassador included in Ambassador's Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 30, 1998
<PAGE> 1
EXHIBIT 23.5
INVESTMENT BANKING
CORPORATE AND INSTITUTIONAL
CLIENT GROUP
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1326
(LOGO) 212 449 1000
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated December 22, 1997
to the Board of Directors of Ambassador Apartments, Inc. included as Appendix II
to the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Ambassador Apartments,
Inc. with and into Apartment Investment and Management Company and to the
references to such opinion in such Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ ALEXANDER S. RUBIN
---------------------------------------
March 30, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Apartment Investment
and Management Company for the registration of up to 7,205,739 shares of Class A
Common Stock and to the incorporation by reference therein of our report dated
February 13, 1998, except for Note 20, as to which the date is March 19, 1998,
with respect to the consolidated financial statements of Insignia Financial
Group, Inc. included in Apartment Investment and Management Company's Current
Report on Form 8-K dated March 17, 1998, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 31, 1998
<PAGE> 1
AMBASSADOR LETTERHEAD TOP
APRIL 2, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
(the "Special Meeting") of Ambassador Apartments, Inc. ("Ambassador") to be held
on April 30, 1998 at 9:00 a.m., local time, at 77 West Wacker Drive, Chicago,
Illinois 60601. As described in the enclosed Proxy Statement/Prospectus, at the
Special Meeting, the stockholders of Ambassador will be asked to consider and
vote upon the adoption, approval and authorization of an Agreement and Plan of
Merger, dated as of December 23, 1997 and supplemented by letter dated as of
March 11, 1998 (the "Merger Agreement"), among Apartment Investment and
Management Company ("AIMCO") and Ambassador, and the transactions contemplated
thereby.
Pursuant to, and subject to the terms and conditions of, the Merger
Agreement, Ambassador will be merged with and into AIMCO (the "Merger"). In the
Merger, each holder of the common stock, par value $.01 per share, of Ambassador
(the "Ambassador Common Stock") will receive for each share of Ambassador Common
Stock, that number of shares of AIMCO Class A Common Stock, par value $.01 per
share ("AIMCO Common Stock"), equal to the quotient (rounded to the nearest
1/1000) (the "Conversion Ratio") determined by dividing $21.00 by the AIMCO
Index Price (as defined below). The term "AIMCO Index Price" means the aggregate
of the average of the high and low sales prices of AIMCO Common Stock, as
reported on the New York Stock Exchange ("NYSE"), on each of the twenty
consecutive NYSE trading days ending on the fifth NYSE trading day immediately
preceding the effective time of the Merger (the "Effective Time"), divided by
20. If the Conversion Ratio calculated pursuant to the foregoing is greater than
0.583, then, at AIMCO's option, the Conversion Ratio to be used shall be either
the Conversion Ratio as calculated pursuant to the foregoing or 0.583 (so long
as the Merger would continue to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code")). If AIMCO opts
for the Conversion Ratio to equal 0.583, then, in addition to 0.583 shares of
AIMCO Common Stock, AIMCO will pay to each holder of Ambassador Common Stock,
for each share of Ambassador Common Stock held by such stockholder, an amount in
cash equal to (i) $21.00 minus (ii) the product of the AIMCO Index Price and
0.583. On March 27, 1998, the closing price of AIMCO Common Stock on the NYSE
was $38.5625. Ambassador stockholders are urged to obtain current market
quotations for the AIMCO Common Stock.
The Ambassador Board of Directors has carefully reviewed and considered the
terms and conditions of the proposed Merger. THE BOARD OF DIRECTORS BELIEVES
THAT THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AMBASSADOR STOCKHOLDERS,
HAS APPROVED THE MERGER AGREEMENT AND THE MERGER, AND HAS RECOMMENDED THAT
STOCKHOLDERS VOTE FOR APPROVAL, ADOPTION AND AUTHORIZATION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Prior to the Effective Time, the Board of Directors of Ambassador will call
for redemption all of the outstanding shares of Ambassador Class A Senior
Cumulative Convertible Preferred Stock ("Ambassador Preferred Stock") in
accordance with, and at a redemption price equal to the amount set forth, in
Section 8(a) of the Articles Supplementary of Ambassador with respect thereto
($27,000,000, plus accrued and unpaid dividends through May 1, 1998, assuming
the Effective Time is on that date) to be effective simultaneously with, and to
be conditioned upon, the Effective Time.
AMBASSADOR LETTERHEAD BOTTOM
<PAGE> 2
The accompanying Proxy Statement/Prospectus provides a detailed description
of the Merger Agreement and other information regarding matters to be considered
at the Special Meeting. A copy of the Merger Agreement is attached to the Proxy
Statement/Prospectus as Appendix I. SPECIAL NOTE SHOULD BE TAKEN OF THE RISK
FACTORS RELATING TO THE PROPOSED MERGER, WHICH ARE DISCUSSED BEGINNING ON PAGE
22 OF THE ATTACHED PROXY STATEMENT/PROSPECTUS.
The investment banking firm of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") has delivered its opinion to the Board of
Directors, dated December 22, 1997, to the effect that, as of such date and
based upon the assumptions made, matters considered and limits of review set
forth therein, the consideration to be received by the holders of Ambassador
Common Stock (other than AIMCO and its affiliates) in the Merger is fair to such
stockholders from a financial point of view. A copy of Merrill Lynch's opinion
is attached to the Proxy Statement/Prospectus as Appendix II.
Your vote on these matters is very important. Approval of the Merger
requires approval and authorization by holders of at least 66 2/3% of the
outstanding shares of Ambassador Common Stock and Ambassador Preferred Stock,
voting together as a class, so a failure to vote is equivalent to a vote against
the Merger. AIMCO owns 8.3% of the Ambassador Common Stock and has agreed to
vote in favor of the Merger. We urge you to review carefully the enclosed
materials and to return your proxy promptly. STOCKHOLDERS WITH QUESTIONS
REGARDING THE MERGER OR OTHER TRANSACTIONS OR MATTERS DESCRIBED HEREIN MAY
CONTACT DEBRA A. CAFARO, PRESIDENT OF AMBASSADOR, AT (312) 917-1600.
Also enclosed please find a copy of Ambassador's Annual Report on Form 10-K
for the year ended December 31, 1997.
Whether or not you plan to attend the Special Meeting, please sign and
promptly return your proxy card in the enclosed postage paid envelope. If you
attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
Sincerely,
David M. Glickman Sig
David M. Glickman
Chairman and Chief Executive Officer
<PAGE> 1
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 30, 1998
TO THE STOCKHOLDERS OF AMBASSADOR APARTMENTS, INC.:
Notice is hereby given that the Special Meeting of the Stockholders of
Ambassador Apartments, Inc., a Maryland corporation ("Ambassador"), will be held
at 9:00 a.m., local time, at 77 West Wacker Drive, Chicago, Illinois 60601 on
April 30, 1998, for the following purposes:
1. To consider and act upon a proposal to approve, adopt and authorize
an Agreement and Plan of Merger dated as of December 23, 1997 and
supplemented by letter dated as of March 11, 1998 between Apartment
Investment and Management Company ("AIMCO"), and Ambassador (the "Merger
Agreement"), a copy of which is included as Appendix I to the Proxy
Statement/Prospectus accompanying this Notice, and the transactions
contemplated thereby, pursuant to which each holder of Ambassador common
stock, par value $.01 per share (the "Ambassador Common Stock"), will
receive for each share of Ambassador Common Stock that number of shares of
Apartment Investment and Management Company Class A Common Stock, par value
$.01 per share ("AIMCO Common Stock"), equal to the quotient (rounded to
the nearest 1/1000) (the "Conversion Ratio") determined by dividing $21.00
by the AIMCO Index Price (as defined below). The term "AIMCO Index Price"
means the aggregate of the average of the high and low sales prices of
AIMCO Common Stock, as reported on the New York Stock Exchange ("NYSE"), on
each of the twenty consecutive NYSE trading days ending on the fifth NYSE
trading day immediately preceding the effective time of the Merger, divided
by 20. If the Conversion Ratio calculated pursuant to the foregoing is
greater than 0.583, then, at AIMCO's option, the Conversion Ratio to be
used shall be either the Conversion Ratio as calculated pursuant to the
foregoing or 0.583 (so long as the Merger would continue to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended). If AIMCO opts for the Conversion Ratio to equal 0.583, then,
in addition to 0.583 shares of AIMCO Common Stock, AIMCO will pay to each
holder of Ambassador Common Stock, for each share of Ambassador Common
Stock held by such stockholder, an amount in cash equal to (i) $21.00 minus
(ii) the product of the AIMCO Index Price and 0.583.
2. To transact any and all other business that may properly come
before the Special Meeting or any adjournment or postponement thereof.
All Ambassador stockholders of record at the close of business on March 19,
1998 are entitled to notice of and to vote at this Special Meeting.
Ambassador stockholders are requested to sign and date the enclosed proxy
and return it in the enclosed envelope. The envelope requires no postage if
mailed in the United States.
By Order of the Board of Directors
Thomas J. Coorsh Sig
Thomas J. Coorsh,
Secretary
Chicago, Illinois
April 2, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 1
AMBASSADOR APARTMENTS, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 30, 1998.
The undersigned hereby appoints David M. Glickman, Debra A. Cafaro and
Richard F. Levy, or any of them, with individual power of substitution, proxies
to vote all shares of Common Stock of Ambassador Apartments, Inc. (the
"Company") which the undersigned may be entitled to vote at the Special Meeting
of Stockholders of the Company to be held in Chicago, Illinois, at 9:00 a.m.
Chicago time, on April 30, 1998 and at any adjournment thereof, as designated on
the reverse side of this proxy card, and in their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
meeting. You are encouraged to specify your choice by marking the appropriate
box on the reverse side. If you do not mark any box, your proxy will be voted in
accordance with the Board of Directors' recommendations. The proxies cannot vote
your shares unless you sign and return this card. The undersigned hereby
acknowledges receipt of the Notice of the Special Meeting of Stockholders and
the related Proxy Statement and Prospectus (with all annexes and enclosures)
dated March 31, 1998.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR authority to vote for the proposal and if any other matters should
properly come before the Special Meeting, such shares will be voted with respect
to such matters in accordance with the judgment of the persons voting such
proxies.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 2
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT
THE MERGER.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Proposal to approve and adopt the Agreement and Plan of
Merger dated as of December 23, 1997 between Ambassador
Apartments, Inc. and Apartment Investment and Management
Company, as supplemented by letter dated as of March 11,
1998, and the transactions contemplated thereby [ ] [ ] [ ]
</TABLE>
Please check this box if you plan to attend the Special Meeting [ ]
SIGNATURE(S)
- ------------------------------------------------------------ DATE
- ---------------------------
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
IMPORTANT: Please date this proxy and sign exactly as your name or names
appear(s) hereon. If the stock is held jointly, signatures should
include both names. Executors, administrators, trustees, guardians
and others signing in a representative capacity should give full
title. In order to insure that your shares will be represented at the
Special Meeting of Stockholders, please sign, date and return this
proxy promptly in the enclosed business reply envelope. If you do
attend the meeting, you may, if you wish, withdraw your proxy and
vote in person.
