LEHMAN BROTHERS
March 17, 1998
Board of Directors
Insignia Financial Group, Inc.
Board of Trustees
Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
Members of the Boards:
We understand that Insignia Financial Group, Inc. ("Insignia" or the
"Company") proposes to enter into a merger with Apartment Investment and
Management Company ("AIMCO"), the terms and conditions of which are set forth
in detail in the Agreement and Plan of Merger between AIMCO and the Company
(the "Agreement"), pursuant to which (i) Insignia will merge with and into
AIMCO (the "Merger") and each share of common stock of Insignia ("Insignia
Common Stock") shall be converted into the right to receive (a) such number of
shares of Series E Preferred Stock of AIMCO (the "Series E Preferred Stock") as
is determined by dividing $203,000,000 by the AIMCO Index Price (as defined in
the Agreement), subject to the right of AIMCO to substitute up to $15,000,000
cash for such shares under certain circumstances as provided in the Agreement
(the "Series E Consideration"), which shares of Series E Preferred Stock will
entitle the holders of Insignia Common Stock to receive a special dividend in
the aggregate amount of $50,000,000 and, after payment thereof, will be
automatically converted into shares of common stock of AIMCO ("AIMCO Common
Stock") and (b) such number of shares of Series F Preferred Stock of AIMCO (the
"Series F Preferred Stock") as is determined by dividing $100,000,000 by the
AIMCO Index Price (the "Series F Consideration" and, together with the Series E
Consideration, the "Merger Consideration"), which shares of Series F Preferred
Stock will be automatically converted into shares of AIMCO Common Stock upon
receipt of approval of the holders of AIMCO Common Stock, provided, however,
that if the AIMCO shareholders approve the Merger prior to its consummation,
Insignia's shareholders will receive such additional number of shares of Series
E Preferred Stock as is determined by dividing $100,000,000 by the AIMCO Index
Price and no Series F Preferred Stock. We further understand that AIMCO has
agreed to offer to acquire all of the shares of common stock (the "IPT Common
Stock") of Insignia Properties Trust ("IPT") held by persons other than
Insignia and its subsidiaries for not less than $13.25 per share (the "IPT
Consideration"). It is expected that such offer and acquisition would be
effected through a merger of IPT into AIMCO subsequent to the Merger.
We have been requested by the Board of Directors of the Company to
render our opinion with respect to the reasonableness of the allocations of the
Consideration between the Merger Consideration to be received by the holders of
Insignia Common Stock and the IPT Consideration to be offered to the holders of
IPT Common Stock. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement
and the specific terms of the Merger, (2) publicly available information
concerning the Company and AIMCO that we believe to be relevant to our
analysis, (3) financial and operating information with respect to the business,
operations and prospects of the Company, IPT and AIMCO furnished to us by the
Company and AIMCO, respectively, (4) a trading history of the common stock of
the Company from January 1, 1996 to the present and a comparison of that
trading history with those of other companies that we deemed relevant, (5) a
trading history of the common stock of AIMCO from January 1, 1996 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (6) a comparison of the historical financial results
and present financial condition of the Company with those of other companies
that we deemed relevant, (7) a comparison of the historical financial results
and present financial condition of AIMCO with those of other companies that we
deemed relevant, (8) a comparison of historical financial results and present
financial condition of IPT with those of other companies that we deemed
relevant, (9) a comparison of the financial terms of the Merger with the
financial terms of certain other recent transactions that we deemed relevant,
and (10) the potential pro forma impact of the Merger on AIMCO (including the
cost savings, operating synergies and strategic benefits expected by the
managements of the Company and AIMCO to result from the Merger), and (11)
liquidation values of the Company's and IPT's properties furnished to us by the
Company. In addition, we have had discussions with the management of the
Company and AIMCO concerning their respective businesses, operations, assets,
financial conditions and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of managements of the
Company and AIMCO that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial forecasts of the Company, IPT and AIMCO and the combined company upon
consummation of the Proposed Transaction (the "Combined Company"), upon advice
of the Company and AIMCO we have assumed that such forecasts have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of the Company and AIMCO, as the
case may be, as to the future financial performance of the Company, IPT, AIMCO
and the Combined Company, and that the Company, IPT, AIMCO and the Combined
Company will perform substantially in accordance with such forecasts. In
arriving at our opinion,
we have not conducted a physical inspection of the properties and facilities of
the Company, IPT or AIMCO and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company, IPT or AIMCO. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third party with respect to the purchase of
all or a part of the Company's business. Upon advice of the Company and its
legal and accounting advisors, we have assumed that the Merger will qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and therefore as a tax-free transaction to the
holders of the Insignia Common Stock. Our opinion necessarily is based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter. We have assumed for purposes of this opinion that
the IPT Consideration will be equal to $13.25 per share.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that the allocations of the Consideration between the Merger
Consideration to be received by the holders of Insignia Common Stock and the
IPT Consideration to be offered to the holders of IPT Common Stock are
reasonable.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services, a portion of
which is contingent upon the consummation of the Proposed Transaction. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. Lehman Brothers is currently a
lender under the Company's and IPT's credit facilities. We also have performed
various investment banking services for the Company and AIMCO in the past and
have received customary fees for such services. In addition, Lehman Brothers
and certain officers thereof own an aggregate of 510,000 shares of common stock
of IPT and will receive their respective pro rata portions of the IPT
Consideration upon consummation of any transaction resulting from the AIMCO
offer. In the ordinary course of our business, we actively trade in the debt
and equity securities of the Company and AIMCO for our own account and for the
accounts of our 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 and the Board of Trustees of IPT and is rendered to such Board of
Directors and Board of Trustees in connection with their consideration of the
Merger and the offer required to be made by AIMCO to the holders of IPT Common
Stock. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS