UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

AMERICA FIRST APARTMENT INVESTORS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies: Common Stock, par value $0.01 per share
	(2)		Aggregate number of securities to which transaction applies:
			11,046,683 shares of Common Stock 165,217 shares of Common Stock issuable upon exercise of stock options
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			In accordance with Section 14(g) of the Securities Exchange Act of 1934, the filing fee was determined by multiplying $0.0000307 by the sum of (A) 11,046,683 outstanding shares of Common Stock multiplied by $25.30 per share, and (B) outstanding options to purchase 165,217 shares of Common Stock multiplied by $10.05 per share (which is the difference between $25.30 and $15.25, the weighted average exercise price per share of all outstanding stock options).
	(4)		Proposed maximum aggregate value of transaction:
			$281,141,511
	(5)		Total fee paid:
			$8,632

þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

Dear Stockholder:

 

On behalf of the board of directors, I cordially invite you to attend a Special Meeting of Stockholders of America First Apartment Investors, Inc. (“America First”) to be held on Wednesday, September 12, 2007, at 9:00 a.m. local time at The Doubletree Hotel, 1616 Dodge Street, Omaha, Nebraska. The Notice of the Special Meeting of Stockholders and the proxy statement that follow describe the business to be conducted at the meeting.

 

The Special Meeting is being called to consider a proposal regarding the acquisition of America First by Sentinel Omaha LLC (“Sentinel”), which is to be accomplished through a merger of America First with and into Sentinel White Plains LLC, a wholly-owned subsidiary of Sentinel (the “Acquisition Subsidiary”). If the merger is completed, you will be entitled to receive $25.30 in cash, without interest, for each share of our common stock that you own at the effective time of the merger. If the merger is approved by our stockholders and consummated, America First will no longer exist as a separate company and our common stock will no longer be listed for trading on the Nasdaq Global Market.

 

Our board of directors has considered the merger proposal and has unanimously: (a) approved the merger and the related merger agreement; (b) determined that the merger is fair to, advisable and in the best interests of, America First and our stockholders on substantially the terms and conditions in the merger agreement; and (c) directed that the merger be submitted for approval at a meeting of our stockholders. In reaching this determination, our board of directors considered a variety of factors, which are discussed in the attached proxy statement. Our board of directors unanimously recommends that you vote “FOR” the approval of the merger and “FOR” approval of adjournment or postponement of the Special Meeting, if necessary or appropriate, for the purpose, among others, of soliciting additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the merger.

 

Because of the important nature of the business to be considered, it is important that your shares be represented at the Special Meeting of Stockholders. We cannot complete the merger unless it is approved by the stockholders by the affirmative vote of a majority of all votes entitled to be cast on the merger. Whether or not you plan to attend the Special Meeting, we ask that you please take the time to vote by completing the enclosed proxy card and mailing it to us or, where available through your bank or broker, authorize your proxy by telephone or via the Internet. Returning your proxy card will not prevent you from voting in person, but will assure that your vote will be counted if you are unable to attend the Special Meeting.

 

Sincerely,

 

John H. Cassidy,

President & Chief Executive Officer

 

August 9, 2007

 

AMERICA FIRST APARTMENT INVESTORS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 2007

 

 

A Special Meeting of Stockholders of America First Apartment Investors, Inc., a Maryland corporation (“America First”), will be held on Wednesday, September 12, 2007, at 9:00 a.m., local time at The Doubletree Hotel, 1616 Dodge Street, Omaha, Nebraska, to consider and vote upon the following:

 

1. a proposal to approve a merger (the “Merger”) in which each share of America First common stock will be converted into the right to receive $25.30 in cash, without interest, upon the terms and conditions of the Agreement and Plan of Merger, dated as of June 22, 2007, by and among Sentinel Omaha LLC, its subsidiary Sentinel White Plains LLC and America First (the “Merger Agreement”); and

 

2. a proposal to adjourn or postpone the Special Meeting to a later time, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger.

 

The record date for the purpose of determining the stockholders who are entitled to receive notice of and to vote at the Special Meeting is August 9, 2007. Only holders of record of America First common stock at the close of business on that date will be entitled to notice of and to vote at the Special Meeting or any adjournments or postponements thereof.

 

THE AFFIRMATIVE VOTE OF A MAJORITY OF ALL VOTES ENTITLED TO BE CAST ON THE MERGER IS REQUIRED TO APPROVE THE MERGER. The accompanying proxy statement describes the proposed Merger and the Merger Agreement, and the actions to be taken in connection with the Merger, and provides additional information about the parties involved. Please give this information your careful attention.

 

No dissenters’, appraisal or other similar rights are available with respect to the Merger.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AND FOR THE ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES.

 

Whether or not you plan to attend the Special Meeting, we ask that you please complete, sign and date the enclosed proxy card and return it promptly in the enclosed postage-paid return envelope or, where available through your bank or broker, authorize your proxy by telephone or via the Internet. You may revoke the proxy at any time prior to its exercise in the manner described in this proxy statement. Any stockholder present at the Special Meeting, including any adjournments or postponements of it, may revoke any previously granted proxy and vote in person at the Special Meeting. Executed proxy cards that are not marked with instructions will be voted for the approval of the Merger and for the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies. If you fail to return a properly signed proxy card or to vote in person at the Special Meeting, your shares effectively will be counted as a vote against the approval of the Merger.

 

PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.

 

By Order of the Board of Directors

 

Paul Beldin,

Secretary

 

Omaha, Nebraska

Dated: August 9, 2007

 

 

 

AMERICA FIRST APARTMENT INVESTORS, INC.

 

1004 FARNAM STREET
SUITE 100
OMAHA, NEBRASKA 68102

 

 

PROXY STATEMENT

for

SPECIAL MEETING OF STOCKHOLDERS

SEPTEMBER 12, 2007

 

Our Board of Directors is asking for your proxy to use at a Special Meeting of Stockholders of America First Apartment Investors, Inc. (“America First”), to be held at The Doubletree Hotel, 1616 Dodge Street, Omaha, Nebraska at 9:00 a.m., local time on Wednesday, September 12, 2007. At the Special Meeting, you will be asked to vote to approve the merger (the “Merger”) of America First with and into Sentinel White Plains LLC (the “Acquisition Subsidiary”), a wholly-owned subsidiary of Sentinel Omaha LLC (the “Acquirer”), pursuant to an Agreement and Plan of Merger dated as of June 22, 2007 (the “Merger Agreement”). If the Merger is completed, each of your shares of America First common stock will be converted into the right to receive $25.30 in cash, without interest.

 

This proxy statement explains the proposed Merger and the Merger Agreement, and provides specific information concerning the Special Meeting. We urge you to review the entire proxy statement carefully.

 

All record holders of our common stock at the close of business on August 9, 2007 (the “Record Date”) will be entitled to vote at the Special Meeting. There were 11,046,683 shares of our common stock issued and outstanding on the Record Date. Each share of common stock is entitled to one vote on each matter to be voted on at the Special Meeting.

 

Our board of directors unanimously recommends that you vote FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies.

 

Your vote is important. We cannot complete the Merger unless the Merger is approved by our stockholders by the affirmative vote of a majority of all votes entitled to be cast on the Merger. If you fail to submit a signed proxy or vote in person at the Special Meeting, it will have the same effect as a vote against the approval of the Merger. Whether or not you plan to attend the Special Meeting, please take the time to vote by completing the enclosed proxy card and mailing it to us or, where available through your bank or broker, authorize your proxy by telephone or via the Internet. If you decide to attend the Special Meeting in person, you may withdraw your proxy at any time prior to its exercise and vote in person. You can also withdraw your proxy at any time before it is voted at the Special Meeting by sending a written notice of termination to our corporate secretary or by submitting a later-dated proxy for use at the Special Meeting.

 

Our Board of Directors will vote your proxy at the Special Meeting according to your instructions as long as your proxy is properly executed and has not been revoked by you. If you simply sign and date the proxy, but do not provide any instructions as to how the proxy should be voted, your proxy will be voted FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies.

 

This proxy statement is dated August 9, 2007, and is first being mailed to America First stockholders on or about August 10, 2007.

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This summary highlights selected information from this proxy statement and may not contain all the information that is important to you. You should carefully read this entire proxy statement and the other documents to which we have referred you. See “Where You Can Find Additional Information” on page 41. Each item in this summary refers to the page of this document on which the applicable subject is discussed in more detail.

 

America First Apartment Investors, Inc.
1004 Farnam Street, Suite 100
Omaha, Nebraska 68102
Telephone: (402) 557-6360

 

America First Apartment Investors, Inc. (“America First”) is a Maryland corporation that qualifies as a real estate investment trust, for federal income tax purposes. America First is focused primarily on acquiring and operating multifamily apartment properties as long-term investments. America First commenced operation on January 1, 2003 when it merged with America First Apartment Investors, L.P., a Delaware limited partnership. As a result of the merger, America First acquired 15 multifamily apartments containing a total of 3,335 rental units and a 72,007 square foot office/warehouse facility. As of June 30, 2007, America First owned 32 multifamily apartment properties containing a total of 7,236 rental units and the office/warehouse facility. America First’s multifamily apartment properties are located in the states of Arizona, California, Florida, Illinois, Michigan, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, and Virginia.

 

Sentinel Omaha LLC
1251 Avenue of Americas, 35th Floor
New York, NY 10020
Telephone (212) 408-5000

 

Sentinel Omaha LLC (“Sentinel”) is a Delaware limited liability company which has as its members four real estate investment funds which are affiliates of Sentinel Real Estate Corporation. Sentinel Real Estate Corporation has full discretion over Sentinel and the four investment funds. The four investment funds had a combined net worth in excess of $900 million as of June 30, 2007. Sentinel Real Estate Corporation is an independently owned real estate advisory firm headquartered in New York City with 26 additional offices throughout the country. The firm currently manages approximately $5 billion in real estate assets and is among the largest holders of apartment properties in the United States. Since its inception in 1969, Sentinel Real Estate Corporation it has managed over 123,000 apartment units and has operated properties in most markets throughout the country, including 19 of the 21 markets represented in the America First portfolio.

 

Sentinel White Plains LLC
1251 Avenue of Americas, 35th Floor
New York, NY 10020
Telephone (212) 408-5000

 

Sentinel White Plains LLC (the “Acquisition Subsidiary”) is a Delaware limited liability company and a wholly-owned subsidiary of Sentinel and was formed solely for the purpose of facilitating the acquisition of America First by Sentinel. America First will be merged with and into the Acquisition Subsidiary which will be the surviving entity of the Merger.

 

Our board of directors carefully considered the terms of the Merger and the other strategic alternatives available to our company in deciding to enter into the Merger Agreement and to recommend that stockholders vote FOR approval of the Merger. Among others, the significant factors considered by our board of directors included:

 

 

 

 

 

Our board of directors has adopted a resolution declaring that the Merger is advisable on substantially the terms and conditions set forth in the Merger Agreement. Our board of directors unanimously recommends that our stockholders vote FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger.

 

Our board of directors received an opinion from Lazard to the effect that, as of the date of its opinion, the $25.30 in cash per share to be paid to holders of our common stock in connection with the Merger was fair, from a financial point of view, to such holders. Lazard’s opinion is subject to the assumptions, limitations and qualifications set forth in such opinion, which is attached as Annex B to this proxy statement. We encourage you to carefully read this opinion in its entirety and the section entitled “Opinion of Our Financial Advisor — Lazard Frères & Co. LLC,” beginning on page 14, for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. The opinion of Lazard was provided to our board of directors in connection with its evaluation of the Merger, and does not constitute a recommendation as to how any stockholder should vote with respect to the Merger.

 

Pursuant to our engagement letter with Lazard, Lazard will receive a fee for its services, a portion of which is contingent upon the consummation of the Merger. We have also agreed to reimburse Lazard for travel and other out-of-pocket expenses incurred in performing its services, including the fees and expenses of its legal counsel. In addition, we have agreed to indemnify Lazard against certain liabilities, including liabilities under the federal securities laws relating to or arising out of Lazard’s engagement.

 

Date, Time and Place (see page 7).  The Special Meeting of our stockholders will be held on Wednesday, September 12, 2007, at 9:00 a.m., local time, at The Doubletree Hotel, 1616 Dodge Street, Omaha, Nebraska. At the Special Meeting, our stockholders will be asked to approve the Merger and, if necessary, the adjournment or postponement of the Special Meeting to solicit additional proxies in favor of the proposal to approve the Merger.

 

Record Date, Voting Power (see page 7).  Our stockholders are entitled to vote at the Special Meeting if they are shown by our records to have owned shares of our common stock as of the close of business on August 9, 2007, the record date. On the record date, there were 11,046,683 shares of our common stock entitled to vote at the Special Meeting. Stockholders will have one vote at the Special Meeting for each share of our common stock that they owned on the record date.

 

Vote Required (see page 7).  The approval of the Merger by our stockholders requires the affirmative vote of a majority of all votes entitled to be cast on the Merger. The approval of the proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger requires the affirmative vote of a majority of the votes cast at the Special Meeting, even if less than a quorum.

 

Voting and Revocability of Proxies (see page 8).  We are asking our stockholders to complete, date and sign the accompanying proxy card and promptly return it in the pre-addressed accompanying envelope. All properly executed proxies that we receive before the vote at the Special Meeting, and that are not revoked, will be voted in

accordance with the instructions indicated on the proxies. If no direction is indicated on a properly executed proxy returned to us, then the underlying shares will be voted FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies. Failure to submit a signed proxy or vote in person at the Special Meeting will have the same effect as a vote against approval of the Merger, but will have no effect on a vote to adjourn or postpone the Special Meeting.

 

Brokers or banks holding our shares in “street name” may vote the shares on our merger proposal only if the beneficial owner of the shares instructs them on how to vote. Brokers or banks will provide stockholders for whom they hold shares with directions on how to give instructions to vote the shares.

 

A stockholder may revoke a previously given proxy at any time prior to its exercise at the Special Meeting by delivering a signed notice of revocation or a later-dated, signed proxy to America First’s corporate secretary. If a stockholder attends the Special Meeting in person, he or she may revoke a previously given proxy by either of these methods prior to the exercise of the proxy at the Special Meeting, or by voting in person. A stockholder’s attendance at the Special Meeting does not in itself result in the revocation of a previously given proxy or cause the stockholder’s shares to be voted.

 

Solicitation of Proxies and Expenses (see page 8).  We will bear the cost and expense associated with the solicitation of proxies from our stockholders. In addition to solicitation by mail, our directors, officers and employees may solicit proxies from our stockholders by telephone, Internet, facsimile or other electronic means or in person, but these persons will not receive any additional compensation for this solicitation. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. Georgeson Inc. will assist in our solicitation of proxies.

 

The Merger (see page 9).  The Merger being submitted for our stockholders’ approval as described in this proxy statement relates to the proposed acquisition of our company by Sentinel. If the Merger is completed, we will be merged with and into the Acquisition Subsidiary, a wholly-owned subsidiary of Sentinel. The Acquisition Subsidiary will be the surviving entity in the Merger, and America First will no longer exist as a separate company. As a result of the Merger, each outstanding share of our common stock (other than any shares that may be held by Sentinel or the Acquisition Subsidiary or by any of our subsidiaries) will be converted into the right to receive the cash consideration described below (see page 25). Our stockholders will have no continuing interest in America First after the Merger. Among other things, the Merger Agreement contains detailed representations and warranties made by us to Sentinel, covenants regarding the conduct of our business pending completion of the Merger, consents and approvals required for and conditions to the completion of the Merger and our ability to consider other acquisition proposals.

 

Consideration (see page 25).  Upon completion of the Merger, our stockholders will be entitled to receive, for each share of our common stock they hold as of the time immediately before the Merger takes effect, $25.30 in cash, without interest. Based on the number of shares of our common stock outstanding on August 9, 2007 and giving effect to the treatment provided for in the Merger Agreement of all stock options exercisable for our common stock, the aggregate consideration payable by Sentinel to our stockholders and holders of America First options will be approximately $281 million. The payments due to our stockholders may, in some cases, be reduced by the amount of any required tax withholding.

 

Stock Options (see page 26).  Each stock option to acquire shares of our common stock that is outstanding immediately before the completion of the Merger will be canceled and the holder of that option will be entitled to receive a cash payment equal to the excess, if any, of the $25.30 per share merger consideration over the per share exercise price of the option. The payments due to the holders of America First stock options may be reduced by the amount of any required tax withholding.

 

Employee Stock Purchase Plan (see page 26).  We accepted payroll deductions to purchase shares of our common stock under our Employee Stock Purchase Plan through June 29, 2007, at which time we applied all accumulated payroll deductions to purchase shares. We have suspended accepting any additional payroll deductions

under our Employee Stock Purchase Plan and none of our employees will have accumulated any payroll deductions to acquire shares of our common stock under this plan at the effective time of the Merger. Accordingly, no participant in the Employee Stock Purchase Plan will be entitled to any merger consideration except with respect to shares of our common stock already purchased by them under the Employee Stock Purchase Plan through June 29, 2007.

 

Anticipated Closing (see page 25).  We expect to close the Merger promptly after the approval of the Merger by our stockholders and after all other conditions to the Merger have been satisfied or waived. At present, we anticipate that the closing will occur in the third calendar quarter of 2007.

 

In considering the recommendation of our board of directors to vote for the proposal to approve the Merger, you should be aware that some of our directors and executive officers have personal interests in the Merger that are, or may be, different from, or in addition to, your interests. These interests consist of the following:

 

 

 

Our board of directors was aware of these interests and considered them, among other matters, when approving the Merger Agreement. For a more complete description, see “The Merger — Interests of Our Directors and Executive Officers in the Merger,” beginning on page 21.

 

Shares Owned by Our Directors and Executive Officers (see page 38).  On the record date, our directors and executive officers were entitled to vote shares of our common stock representing approximately 6.5% of the shares of our common stock outstanding on that date. We expect that all of these shares will be voted in favor of the Merger at the Special Meeting.

 

The receipt of $25.30 in cash for each share of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. For U.S. federal income tax purposes, generally you will realize a taxable gain or loss as a result of the Merger measured by the difference, if any, between $25.30 per share and your adjusted tax basis in that share. Generally, your adjusted tax basis in a share is the amount you paid for it reduced by that portion of dividends paid to you that were treated as a return of capital for federal income tax purposes. The receipt of cash in exchange for the outstanding stock options will be a taxable transaction for U.S. federal income tax purposes. Holders of stock options (each of whom received their stock options in connection with their employment by, or provision of services to, us) generally will recognize ordinary income equal to the excess of the amount of cash they receive over their adjusted tax basis, if any, in the options surrendered. Payments in exchange for options received in connection with employment by us generally will be subject to applicable income and employment tax withholding.

 

You should read “The Merger — Material U.S. Federal Income Tax Consequences” beginning on page 22 for a more complete discussion of the U.S. federal income tax consequences of the Merger. Tax matters can be complicated and the tax consequences to you of the Merger will depend on your particular tax situation. You are urged to consult your tax advisor as to the specific tax consequences to you of the Merger, including the applicability of federal, state, local, foreign and other tax laws.

 

We are organized as a corporation under Maryland law. Under Maryland corporate law, because shares of our common stock were listed on the Nasdaq Global Market on the record date for determining stockholders entitled to vote on the Merger, our stockholders who object to the Merger do not have any dissenters’, appraisal or other similar rights in connection with the Merger.

 

If the Merger is completed, our common stock will be delisted from the Nasdaq Global Market and will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, our shares will no longer be available for trading and we will no longer file periodic reports with the SEC.

 

Among other conditions that will need to be satisfied or waived in order to complete the Merger, the Merger must be approved by the stockholders of America First by the affirmative vote of a majority of all votes entitled to be cast on the Merger.

 

The Merger is not subject to discretionary review by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission, and we are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Merger Agreement or the completion of the Merger. Completion of the Merger requires the filing of Articles of Merger with the State Department of Assessments and Taxation of Maryland and the filing of a Certificate of Merger with the Delaware Secretary of State.

 

The Merger Agreement provides that if, at any time before obtaining stockholder approval of the Merger, we receive an unsolicited acquisition proposal that our board of directors determines in good faith to be a superior proposal (as defined in the Merger Agreement), we may terminate the Merger Agreement to enter into a definitive agreement with respect to the superior proposal if our board of directors determines in good faith, after consultation with outside counsel, that failing to take such action may be inconsistent with its obligations under applicable law. If our board of directors terminates the Merger Agreement in order for America First to enter into a definitive agreement with a third party with respect to a superior proposal, as well as in certain other circumstances, we would be obligated to pay Sentinel a termination fee of $8.43 million. See “The Merger Agreement — Fees and Expenses” on page 31.

 

The Merger Agreement contains provisions addressing the circumstances under which we or Sentinel may terminate the Merger Agreement. In addition, the Merger Agreement provides that, in certain circumstances, we may be required to pay Sentinel a termination fee of $8.43 million. We will also be required to reimburse Sentinel for up to $1 million of its merger-related expenses if the Merger Agreement is cancelled because our stockholders do not approve the Merger. The Merger Agreement also provides that if we exercise our right to terminate the Merger Agreement following a material default by Sentinel (including a failure to complete the Merger as required), Sentinel will be required to pay liquidated damages of $25 million. This right to liquidated damages is our exclusive remedy under the Merger Agreement for a breach by Sentinel.

 

A COPY OF THE MERGER AGREEMENT IS INCLUDED IN THIS PROXY STATEMENT AS ANNEX A. YOU ARE STRONGLY ENCOURAGED TO READ IT CAREFULLY IN ITS ENTIRETY.

 

America First is a Maryland corporation that qualifies as a real estate investment trust, for federal income tax purposes. America First is focused primarily on acquiring and operating multifamily apartment properties as long-term investments. America First is the successor to America First Apartment Investors, L.P. (the “Partnership”), which merged with America First as of January 1, 2003. As a result of the merger with the Partnership, America First assumed the assets, liabilities and business operations of the Partnership, including 15 multifamily apartments containing a total of 3,335 rental unit and a 72,007 square foot office/warehouse facility. America First had no material assets or operations prior to its merger with the Partnership.

 

On June 3, 2004, America First merged with America First Real Estate Investment Partners, L.P. (“AFREZ”). As a result of the merger with AFREZ, America First assumed all of the assets, liabilities and business operations of AFREZ, including 14 multifamily apartment properties containing a total of 2,783 rental units.

 

As of June 30, 2006, America First owned 32 multifamily apartment properties containing a total of 7,236 rental units and a 72,007-square-foot office/warehouse facility. America First’s multifamily apartment properties are located in the states of Arizona, California, Florida, Illinois, Michigan, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, and Virginia.

 

America First was incorporated in the State of Maryland in 2002. The address of America First’s principal executive office is 1004 Farnam Street, Suite 100, Omaha, Nebraska 68102, and the telephone number at that address is (402) 557-6360. Additional information regarding America First’s business is contained in filings with the Securities and Exchange Commission. See “Where You Can Find Additional Information” on page 41.

 

Sentinel Omaha LLC (“Sentinel”) is a Delaware limited liability company which has as its members four real estate investment funds which are affiliates of Sentinel Real Estate Corporation. Sentinel Real Estate Corporation has full discretion over Sentinel and the four investment funds. The four investment funds had a combined net worth in excess of $900 million as of June 30, 2007. Sentinel Real Estate Corporation is an independently owned real estate advisory firm headquartered in New York City with 26 additional offices throughout the country. The firm currently manages approximately $5 billion in real estate assets and is among the largest holders of apartment properties in the United States. Since its inception in 1969, Sentinel Real Estate Corporation it has managed over 123,000 apartment units and has operated properties in most markets throughout the country, including 19 of the 21 markets represented in the America First portfolio.

 

The address of Sentinel’s principal executive offices is 1251 Avenue of Americas, 35th Floor, New York, NY 10020 and its telephone number is (212) 408-5000.

 

Sentinel White Plains LLC (the “Acquisition Subsidiary”) is a Delaware limited liability company and a wholly-owned subsidiary of Sentinel and was formed solely for the purpose of facilitating the acquisition of America First by Sentinel. America First will be merged with and into the Acquisition Subsidiary which will be the surviving entity of the Merger.

 

The address of the Acquisition Subsidiary’s principal executive offices is 1251 Avenue of Americas, 35th Floor, New York, NY 10020 and its telephone number is (212) 408-5000.

 

We are furnishing this proxy statement to our stockholders in connection with the solicitation of proxies by our board of directors for use at the Special Meeting.

 

The Special Meeting of our stockholders will be held on Wednesday, September 12, 2007, at 9:00 a.m., local time, at The Doubletree Hotel, 1616 Dodge Street, Omaha, Nebraska.

 

At the Special Meeting, we will ask our stockholders to approve the Merger and, if necessary, the adjournment or postponement of the Special Meeting in order to solicit additional proxies in favor of the proposal to approve the Merger. Our board of directors unanimously recommends that our stockholders vote FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies.

 

Only holders of record of our common stock at the close of business on August 9, 2007, the record date, are entitled to notice of and to vote at the Special Meeting. On the record date, 11,046,683 shares of our common stock were issued and outstanding and held by approximately 1,100 holders of record. A quorum will be considered present at the Special Meeting if stockholders entitled to cast a majority of all the votes entitled to be cast at the Special Meeting are represented at the Special Meeting in person or by a properly executed proxy. If a quorum is not present at the Special Meeting, then it is expected that the meeting will be adjourned or postponed to solicit additional proxies. Holders of record of our common stock on the record date are entitled to one vote per share on each matter submitted to a vote at the Special Meeting.

 

All votes will be tabulated by the inspector of election appointed for the Special Meeting who will separately tabulate affirmative and negative votes, abstentions and broker non-votes (described below under “Voting of Proxies”). Abstentions and properly executed broker non-votes are counted for the purposes of determining whether a quorum exists at the Special Meeting, but will not be counted as votes cast at the Special Meeting.

 

The approval of the Merger by our stockholders requires the affirmative vote of a majority of all votes entitled to be cast on the Merger. Because the required vote of our stockholders is based upon the number of outstanding shares of our common stock, rather than upon the shares actually voted, the failure by the holder of any such shares to submit a proxy or to vote in person at the Special Meeting, including abstentions and broker non-votes, will have the same effect as a vote against the approval of the Merger.

 

The approval of the proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger requires the affirmative vote of a majority of the votes cast at the Special Meeting, even if less than a quorum. Accordingly, abstentions and not voting at the Special Meeting will have no effect on the outcome of this proposal.

 

At the close of business on the record date, our directors and executive officers were entitled to vote, in the aggregate, shares of our common stock representing approximately 6.5% of the shares of our common stock outstanding on that date. We expect that all of these shares will be voted in favor of the Merger at the Special Meeting.

 

All shares represented by properly executed proxies received before the Special Meeting will be voted at the Special Meeting in the manner specified by such proxies. Properly executed proxy cards that do not contain voting instructions will be voted FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies. Shares of our common stock represented at the Special Meeting but not voting, including shares of our common stock for which proxies have been received but with respect to which holders of shares have abstained, will be treated as present at the Special Meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 

Only shares affirmatively voted for the approval of the Merger, including shares represented by properly executed proxy cards that do not contain voting instructions, will be counted as votes in favor of the Merger. If a stockholder abstains from voting or does not furnish a valid proxy, the stockholder’s shares effectively will count as being voted against the approval of the Merger. Brokers or banks who hold shares of our common stock in “street name” for customers who are the beneficial owners of such shares may not give a proxy to vote those customers’ shares in the absence of specific instructions from those customers. If no instructions are given to the broker or bank holding shares, or if instructions are given to the broker or bank indicating that the broker or bank does not have authority to vote on the proposal to approve the Merger, then, in either case, the shares will not be voted on the proposal to approve the Merger and will effectively count as being votes against the approval of the Merger. This is known as a “broker non-vote.” Properly executed broker non-votes will be counted as shares present for the purposes of determining the presence of a quorum. Broker non-votes will have no effect on the vote with respect to a proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger.

 

You can change a vote or revoke a previously given proxy at any time before your proxy is exercised at the Special Meeting. You can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new proxy bearing a later date. If you choose either of these two methods, then you must submit your notice of revocation or your new proxy to us at the following address before your original proxy is exercised at the Special Meeting: America First Apartment Investors, Inc., 1004 Farnam Street, Suite 100, Omaha, Nebraska 68102, Attention: Corporate Secretary. Third, you can attend the Special Meeting and vote in person or deliver a later-dated duly executed proxy, in either case prior to the exercise of your original proxy at the Special Meeting. Your attendance at the Special Meeting will not, in and of itself, result in the revocation of a proxy or cause your shares to be voted. If you have instructed your broker to vote your shares, you must follow the directions provided by your broker to change these instructions.

 

We will bear the cost of the solicitation of proxies from our stockholders. In addition to solicitation by mail, our directors, officers and employees may solicit proxies from stockholders by telephone or other electronic means or in person. We will cause brokerage houses and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of stock held of record by such persons. We will reimburse such custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in doing so.

 

Georgeson, Inc. (“Georgeson”) will assist us in our solicitation of proxies. We will pay Georgeson a fee (which we do not expect will exceed $7,500), and will reimburse Georgeson for certain out-of-pocket expenses.

 

STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.  A transmittal form with instructions for the surrender of certificates representing shares of our common stock in exchange for the $25.30 per share merger consideration will be mailed to stockholders shortly after completion of the Merger.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies if we have not received sufficient proxies to constitute a quorum or sufficient votes for

approval of the Merger at the special meeting of stockholders. Any adjournments or postponements to a date not more than 120 days from the record date may be made without notice, other than by an announcement at the Special Meeting, by affirmative vote of holders of a majority of the voting power present in person or represented by proxy at the special meeting, whether or not a quorum exists. Any signed proxies received by us and not containing any contrary instructions will be voted in favor of an adjournment in these circumstances. Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use.

 

Since commencing operations as a real estate investment trust (a “REIT”) on January 1, 2003, we have followed a strategic plan that is focused on acquiring and managing multifamily apartment properties as long-term investments with the goal of generating increasing amounts of net rental income from these properties to provide our stockholders with a secure and growing dividend as well as an increasing net asset value. In addition to the organic growth we have accomplished through acquisitions of individual properties, we completed a merger with America First Real Estate Investment Partners, L.P. in June 2004, through which we acquired 14 multifamily apartment properties containing 2,783 rental units. That merger essentially doubled the size of our property portfolio.

 

Although the implementation of our strategic plan has increased our funds from operations, allowed us to pay regular dividends at increasing rates and generally resulted in increased trading prices for our common stock, over the past several months a number of factors led our senior management and board of directors to consider alternatives to continuing to implement our strategic plan as a stand-alone company. In particular, our senior management and board of directors took note that our company has a relatively small market capitalization and a relatively high cost of capital. These factors limit our ability to grow our company profitably through acquisitions, which is one of the principal components of our strategic plan, since it is difficult to compete with other acquirers of multifamily apartments that have lower capital costs and greater access to capital. Our relatively small size also causes our general and administrative costs, including the costs we incur to be a publicly traded company, to represent a higher percentage of our revenues than some of our larger competitors. Also, due to our small market capitalization, there are no securities analysts publishing research on our company and we have low stock trading volumes. These factors make it difficult to attract institutional investors to invest in our stock. Management and our board of directors believe that these and other factors have resulted in our common stock trading at prices that, in the opinion of our management and directors, do not fully reflect the value of our company.

 

From time to time we receive unsolicited expressions of interest to engage in various strategic transactions. On November 1, 2006, we received an unsolicited indication of interest from Municipal Capital Appreciation Partners (“MCAP”) to acquire the company for $20.25 per share. The closing price per share for our common stock on November 1, 2006 was $17.71. Our board determined that the price offered by MCAP was inadequate and declined to pursue discussions with MCAP.

 

Around the time we received this indication of interest, our management team, having considered the general market conditions and trends in our industry, determined that a review of strategic alternatives might be appropriate. At that time, capital flows into public and private real estate were strong and REIT valuations, including those of multifamily REITs such as our company, were at all-time highs on a relative and absolute basis. Market conditions were leading to a series of sales of REITs, including a REIT that was similar to us in many respects, at valuations that by historical standards appeared attractive. It appeared to our management team that the conditions producing this phenomenon included substantial liquidity (cash available for investment) and heightened interest in the entire real estate asset class from various kinds of investors, including investors that traditionally had not been focused on real estate. At the same time, our management concluded that macroeconomic factors suggested an uncertain long-term outlook for our sector and there was reason to believe that the favorable market conditions might be temporary, in which case the current time might represent a limited window of opportunity within which to explore transactions that might help maximize shareholder value. Our management team presented these views to our board of directors

and, with the approval of our board, interviewed several investment banks with a view to selecting one to advise the board on our strategic alternatives. At a board meeting held on January 19, 2007, the board authorized our management to retain Lazard to advise it regarding strategic alternatives, including a possible sale of the entire company. An engagement letter with Lazard was executed on February 6, 2007. Our board selected Lazard based on management’s recommendation, taking into account Lazard’s reputation and expertise and the quality of the presentations made by Lazard.

 

Representatives of Lazard, Clifford Chance US LLP, special transaction counsel to the company, Kutak Rock LLP, regular outside counsel to the company, and management met with our board of directors at its regular quarterly meeting on February 8, 2007 to discuss potential strategic alternatives that America First could pursue in order to maximize shareholder value. Following the discussion, our directors authorized Lazard to approach a limited number of parties to assess their interest in pursuing a possible purchase of America First. The board directed that if possible, the process should be conducted on a confidential basis, so as to minimize potential disruption in our ongoing business operations.

 

On February 21, 2007, a real estate investment banking firm submitted an unsolicited cash offer to acquire the company for $22.00 per share. The closing price per share for our common stock on February 21, 2007 was $19.50.

 

On March 6, 2007, MCAP issued a press release announcing its intention to nominate an alternative slate of directors for election at our annual stockholders meeting scheduled for May 23, 2007. Among other things, MCAP suggested that their nominees would encourage us to explore strategic alternatives, including a possible sale. The closing price per share for our common stock on March 6, 2007 was $19.66.

 

In mid-March, 2007, Lazard initiated a limited solicitation of indications of interest from parties it had identified following consultation with our senior management and board of directors. Representatives of Lazard contacted approximately 25 parties, which included both potential strategic and financial buyers. Of this group, 14 executed confidentiality agreements and received copies of a confidential information memorandum regarding America First and its business that was prepared by Lazard with the assistance of our management.

 

On April 2, 2007, we announced publicly that we had initiated a process to review strategic alternatives. Our board decided to do so because, following MCAP’s public announcement, the goal of minimizing disruption by keeping our process confidential no longer was realistic. Following our public announcement, representatives of Lazard contacted 12 additional potential acquirers, all of which executed confidentiality agreements and received copies of the confidential information memorandum. The closing price per share for our common stock on April 2, 2007 was $20.26.

 

One of the potential acquirers approached on our behalf by representatives of Lazard was Winthrop Realty Trust, which at that time was our largest shareholder, with a 7.2% ownership position. Winthrop declined to sign the form of confidentiality agreement provided to the other parties approached by Lazard. On April 11, 2007, Winthrop notified us that it believed the process being utilized by us to explore a potential sale of the Company was flawed to the detriment of all non-management shareholders. In particular, Winthrop objected to the standstill provisions of the confidentiality agreement on the basis that significant shareholders (such as Winthrop) should receive more favorable treatment in any strategic review process than other parties. Winthrop repeated this contention in a filing it made with the SEC on April 12, 2007. The closing price per share for our common stock on April 12, 2007 was $22.05.

 

By May 2, 2007, 14 written (and two verbal) preliminary indications of interest to acquire America First had been submitted to Lazard. These written indications of interest ranged from $19.00 to $24.50 per share and included a new indication of interest from the party which had submitted an unsolicited indication of interest on February 21, 2007. Following our public announcement on April 2, 2007 that we had engaged Lazard to assist in our review of strategic alternatives, no other proposals or indications of interest regarding an acquisition of our company were received by Lazard or us from MCAP or Winthrop. The closing price per share for our common stock on May 2, 2007 was $22.36.

 

On May 7, 2007, our board of directors held a telephonic meeting with senior management and representatives of Lazard, Clifford Chance and Kutak Rock. At this meeting, representatives of Lazard reviewed with the board the indications of interest that had been received and the process that had been undertaken since the board’s meeting on

February 8. Representatives of Clifford Chance reviewed with the board a draft of a proposed Merger Agreement that had been prepared for use in connection with a potential sale of the Company. The board authorized Lazard to continue discussions and provide additional diligence opportunities to six parties that had been identified as the most likely to be able to conclude a strategic transaction on terms that would be acceptable to the board and the Company’s shareholders, and instructed Lazard to encourage the six parties to improve the indicative prices contained in their indications of interest. Those indicative prices ranged from $23.00 per share to $24.50 per share. On May 15, 2007, one of the potential acquirers which was not initially selected to participate in further discussions submitted an improved preliminary indication of interest to acquire the company and was subsequently invited to participate. The closing price per share for our common stock on May 15, 2007 was $22.25. During the week of May 20, 2007, one of the parties that was invited to participate in further discussions withdrew from the process.

 

On May 22, 2007, representatives of Lazard distributed the draft form of Merger Agreement to the six remaining participants in the process for use in connection with definitive proposals to acquire America First, along with formal instructions on the process to be followed by the participants in making their proposals. Among other things, the instructions required that comments on the draft Merger Agreement were to be furnished to Clifford Chance by June 11, 2007 and final written proposals were to be submitted to Lazard on June 18, 2007.

 

On May 23, 2007, our board of directors held its regular quarterly meeting in Omaha, Nebraska, during which it received reports from senior management on our year-to-date financial performance, plans for property acquisitions and dispositions and other information germane to our operations. In addition, senior management updated the directors regarding the process for exploring a strategic transaction and responded to questions from directors regarding the process.

 

On June 11, 2007, four parties submitted comments on the proposed form of Merger Agreement. On June 14, 2007, our board of directors met telephonically with representatives of Lazard, Clifford Chance, Kutak Rock and management to review and discuss these comments. Our board gave guidance on how to respond to these various comments. Also at the meeting, representatives of Lazard briefed our directors regarding current trends in the market for REIT stocks, including the recently increased level of volatility in REIT share prices that appeared to have resulted, among other things, from some sharp increases in interest rates. Following these developments, the share prices of several multifamily apartment REITs had declined significantly from their highs earlier in the year. Lazard also provided the board with illustrative examples of the impact that rising interest rates might have on the price a potential buyer would be willing to pay to acquire the company. The closing price per share for our common stock on June 11, 2007 was $22.12. Over the next several days, at the direction of the board, Clifford Chance spoke with counsel to each of the four prospective acquirers that submitted comments on the form of Merger Agreement about various improvements each should consider making to the proposals reflected in their comments.

 

On June 18, 2007, three definitive proposals to acquire America First were submitted in writing to Lazard. The prices reflected in the definitive proposals ranged from $19.00 to $25.30 per share. A fourth participant provided a verbal indication of interest, subject to finalization of financing arrangements, but ultimately did not submit a written proposal to acquire America First. Each of the final bidders was one of the companies identified by Lazard and discussed with our directors at the meeting on May 7, 2007.

 

Our board of directors met telephonically on June 19, 2007, with representatives of Lazard, Clifford Chance, Kutak Rock and management. During the meeting, Lazard reported on the three written proposals received and representatives of Clifford Chance reviewed certain revisions that the prospective acquirers had agreed to make to the forms of merger agreements they had previously submitted. Based on the terms of the proposals submitted, our directors instructed Lazard and Clifford Chance to continue negotiations with the parties who submitted the two highest proposals.

 

Our directors met telephonically on June 21, 2007 with representatives of Lazard, Clifford Chance, Kutak Rock and management, who indicated that negotiations were still ongoing and that they expected to have a definitive proposal for consideration by the board on the following day.

 

On June 22, 2007, our board of directors, with all directors present, met telephonically with representatives of Lazard, Clifford Chance, Kutak Rock and management. Prior to the meeting, a draft of a proposed definitive Merger Agreement among Sentinel, the Acquisition Subsidiary and America First and related materials prepared by

Clifford Chance, together with a report from Lazard on the financial aspects of the transaction, had been circulated to our directors. Mr. Cassidy reported to our directors that a definitive proposal for a merger had been negotiated with Sentinel, subject to two minor open issues, and that senior management was ready to recommend the merger to the board subject only to the resolution of the two open items and final confirmation of Sentinel’s equity and debt commitments. Representatives of Clifford Chance reviewed in detail the principal terms of the proposed Merger Agreement and answered questions from the directors regarding those terms. Representatives of Lazard described the price negotiations and noted that the price then being offered by Sentinel represented a significant increase from the price reflected in Sentinel’s indication of interest. They advised that, despite being pressed to do so, Sentinel had declined to further increase the price it was willing to offer for our shares. The Lazard representatives then reviewed the financial aspects of the proposed transaction and rendered Lazard’s opinion (orally, which was subsequently confirmed in writing) to the effect that the price of $25.30 per share proposed by Sentinel was fair, from a financial point of view, to our stockholders. Our management told our board that they recommended acceptance of Sentinel’s proposal and described the reasons for the recommendation. After a discussion, our directors voted unanimously in favor of the merger and approved the Merger Agreement on the terms presented to it, subject to final resolution of the two remaining open items, and authorized management to finalize negotiations consistent with these terms. Later that evening, the terms of the Merger Agreement were finalized and the Merger Agreement was executed.

 

Our board of directors consulted with our senior management team and with our financial and legal advisors and considered a number of factors, including (but not limited to) those set forth below, in reaching its decision to approve the Merger Agreement, declare the Merger advisable and recommend that our stockholders vote FOR approval of the Merger:

 

 

 

 

 

In addition to taking into account the foregoing factors, our board of directors considered the following potentially negative factors in reaching its decision to approve the Merger Agreement, declare the Merger advisable and recommend that our stockholders vote FOR approval of the Merger:

 

 

 

The foregoing discussion of the information and factors considered by our board of directors, while not exhaustive, includes the material factors considered by our board of directors in determining whether to approve the Merger Agreement, declare the Merger advisable and recommend approval of the Merger to our stockholders. In view of the variety of factors considered in connection with its evaluation of the Merger, our board of directors did not find it practicable to, and did not, quantify, rank or otherwise assign relative or specific weight or values to any of these factors, and individual directors may have given different weights to different factors. Our board of directors considered all of the factors as a whole and considered the factors in their totality to be favorable to and supportive of its decision.

 

The foregoing discussion of our board of directors’ considerations relating to the Merger is forward-looking in nature. This information should be read in light of the discussions under the heading “Special Note Regarding Forward-Looking Statements.”

 

Our board of directors has adopted a resolution declaring that the Merger is advisable on substantially the terms and conditions set forth in the Merger Agreement. Our board of directors unanimously recommends that our stockholders vote FOR the approval of the Merger and FOR the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger.

 

Under an engagement letter dated February 6, 2007, we retained Lazard to render an opinion to our board of directors as to the fairness, from a financial point of view, of the consideration to be paid in the Merger. On June 22, 2007, Lazard rendered its oral opinion to our board of directors, subsequently confirmed in writing, that, as of such date, the merger consideration of $25.30 in cash per share to be paid to the holders of our common stock in the Merger was fair, from a financial point of view, to such holders.

 

The full text of the Lazard opinion is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference. The description of the Lazard opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the Lazard opinion set forth in Annex B. You are urged to read the Lazard opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Lazard in connection with the Lazard opinion. Lazard’s written opinion was directed to our board of directors in connection with its consideration of the Merger and only addressed the fairness to the holders of our common stock of the merger consideration to be paid to such holders in the Merger from a financial point of view as of the date of the Lazard opinion. Lazard’s written opinion did not address the merits of the underlying decision by us to engage in the Merger, and was not intended to and does not constitute a recommendation to our stockholders as to how such stockholders should vote with respect to the Merger or any matter relating thereto. Lazard expressed no opinion as to the price at which our common stock may trade prior to consummation of the Merger. Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the Lazard opinion. Lazard assumed no responsibility for updating or revising the Lazard opinion based on circumstances or events occurring after the date of the Lazard opinion. The following is only a summary of the Lazard opinion. You are urged to read the entire Lazard opinion.

In the course of performing its review and analyses in rendering the Lazard opinion, Lazard:

 

 

Lazard relied upon the accuracy and completeness of the foregoing information and did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of our company, or concerning the solvency or fair value of our company. With respect to financial forecasts, Lazard assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of our management as to the future financial performance of our company. Lazard assumed no responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.

 

In rendering the Lazard opinion, Lazard assumed that the Merger would be consummated on the terms described in the Merger Agreement without any waiver or modification of any material terms or conditions by our company, and that obtaining the necessary regulatory approvals for the Merger would not have an adverse effect on our company or the Merger. Lazard also assumed that the executed agreements in connection with the Merger would conform in all material respects to the draft agreements reviewed by Lazard. Lazard did not express any opinion as to any tax or other consequences that might result from the Merger, nor did the Lazard opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that our company obtained such advice we deemed necessary from qualified professionals.

 

The following is a summary of the material financial and comparative analyses that Lazard deemed appropriate for this type of transaction and that were performed by Lazard in connection with rendering the Lazard opinion. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances, and, therefore, is not readily susceptible to summary description. In arriving at its opinion, Lazard considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

 

In its analyses, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of our company. No company, transaction or business used in Lazard’s analyses as a comparison is identical to our company or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be

sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses are inherently subject to substantial uncertainty.

 

The financial analyses summarized below include information presented in tabular format. In order to fully understand Lazard’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.

 

Public Market Valuation Analysis.  Lazard reviewed and analyzed selected public companies that it viewed as reasonably comparable to our company. In performing this analysis, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to the selected comparable companies and compared such information to the corresponding information for our company.

 

The companies included in this analysis were:

 

 

Using publicly available information and market data as of June 21, 2007, Lazard calculated and analyzed the price per share of each of the comparable companies listed above as a multiple of its respective estimated 2007 and 2008 Funds From Operations, or FFO, per share.

 

The analysis indicated the following multiples:

 

 

Based on the foregoing, Lazard determined a price per share based on estimated 2008 FFO multiples range of 12.0x to 24.8x, and applied that range to America First’s estimated 2008 FFO per share, resulting in a range of implied share prices for our common stock of $17.63 to $36.42.

 

Comparable Peers Valuation Analysis.  Lazard reviewed and analyzed selected public companies that it viewed as most comparable to our company with respect to asset quality and geographic location of assets. In performing this analysis, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to the selected comparable companies and compared such information to the corresponding information for our company. The four comparable companies that Lazard selected for this analysis were a subset of the 12 companies that Lazard selected for the public market valuation analysis.

The companies included in this analysis were:

 

 

Using publicly available information and market data as of June 21, 2007, Lazard calculated and analyzed the price per share of each of the comparable companies listed above as a multiple of their respective estimated 2007 and 2008 FFO per share.

 

The analysis indicated the following multiples:

 

 

Based on the foregoing, Lazard determined a price per share based on estimated 2008 FFO multiples range of 12.0x to 15.1x, and applied that range to America First’s estimated 2008 FFO per share, resulting in a range of implied share prices for our common stock of $17.63 to $22.19.

 

Unlevered Discounted Cash Flow Analysis.  Lazard performed an unlevered discounted cash flow analysis in order to calculate a range of implied share prices for our common stock based on the present value (as of May 31, 2007) of our projected unlevered free cash flows during the years 2007 through 2013 and the present value of the estimated terminal value of America First in 2013, based on 2014 estimated net operating income, or NOI, after recurring capital expenditures. The unlevered discounted cash flow analysis was based on financial forecasts provided by our management.

 

In calculating the terminal value of America First in 2013, Lazard assumed capitalization rates ranging from 6.75% to 7.50%, and applied that range to America First’s estimated 2014 NOI, after recurring capital expenditures. The projected unlevered free cash flows were then discounted to present value using discount rates ranging from 7.5% to 9.0%, based on prevailing unlevered return expectations for institutional investors. Based on this analysis, Lazard calculated an implied enterprise value range for America First of approximately $464.4 million to $539.1 million. Assuming net debt and other balance sheet adjustments as of May 31, 2007 of approximately $245.5 million, Lazard calculated a range of implied share prices for our common stock of $19.71 to $26.42.

 

Adjusted NAV Analysis.  Lazard performed an adjusted NAV analysis in order to calculate a range of implied share prices for America First’s common stock based on the private market value of our operating real estate. In calculating the market value of our operating real estate, Lazard assumed capitalization rates ranging from 6.20% to 6.70%, and applied such ranges to our estimated 2007 GAAP NOI after recurring capital expenditures.

 

Lazard then calculated the implied total equity value of our company, based on America First’s net debt (as adjusted for a mark to market) as of May 31, 2007, net other assets as of May 31, 2007 and transaction costs, resulting in a calculated range of implied share prices for our common stock of $21.07 to $24.53.

 

Comparable Transactions Analysis.  Lazard reviewed and analyzed 49 recent precedent merger and acquisition transactions involving public real estate investment companies with transaction enterprise values greater than $400 million. In performing this analysis, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to companies in the selected transactions and compared such information to the corresponding information for America First.

 

Lazard reviewed the offer price per share in each of the precedent transactions as a multiple of the target company’s estimated FFO per share. For precedent transactions in which the announcement date of the transaction occurred prior to April 30 of the relevant year, Lazard reviewed the target company’s estimated FFO per share as of the announcement date for the year in which the transaction was announced. For precedent transactions in which the announcement date of the transaction occurred after April 30 of the relevant year, Lazard reviewed the target

company’s estimated FFO per share as of the announcement date for the first full year after the year in which the transaction was announced.

 

The precedent transactions were (listed by acquirer followed by the acquired company and the date the transaction was publicly announced):

 

 

The analysis indicated the following multiples:

 

 

Based on this analysis, Lazard determined a price per share based on estimated FFO per share multiple range of 6.8x to 24.4x, and applied that range to our estimated 2008 FFO per share, resulting in a range of implied share prices for our common stock of $9.98 to $35.86.

 

Dividend Discount Analysis.  Lazard performed a dividend discount analysis in order to calculate a range of implied share prices for our common stock based on the present value of our projected future dividend stream during the years 2007 through 2011 and the present value of the estimated terminal value of our common stock in 2011. The dividend discount analysis was based on financial forecasts (including dividend policies) for America First, as provided by our management.

 

This analysis was based on a range of discount rates from 7.82% to 8.82% and a terminal value of our common stock based on a one-year forward FFO multiple range of 13.5x to 16.5x, applied to our estimated 2012 FFO. Lazard calculated a range of implied share prices for our common stock of $19.88 to $24.34.

Stock Price Comparison.  Lazard compared the merger consideration to the historical price performance of our common stock. The following table details the comparison:

 

 

Lazard observed that the proposed merger consideration of $25.30 per share exceeded the trading price of our common stock as of June 21, 2007, which was the high price of our common stock for the 52-week period ending June 21, 2007, the all-time high price of our common stock as of June 21, 2007 and the average price of our common stock for the 60-day period ending June 21, 2007.

 

Premiums Paid Analysis.  Using publicly available information, Lazard performed a premiums paid analysis in order to calculate a range of implied share prices for our common stock based on the implied premiums paid in 48 precedent transactions involving public real estate investment companies that were announced from May 2003 through June 2007 with transaction enterprise values in excess of $300 million.

 

The analysis was based on the one-day implied premiums paid in the precedent transactions indicated. Lazard calculated the implied premiums by comparing the per share offer price at the announcement of the transaction to the target company’s stock price one day prior to the announcement of the transaction.

 

The analysis indicated the following premiums paid:

 

 

Based on the foregoing, Lazard determined a premium reference range of (6.5%) to 42.1%, and applied that range to the closing price for our common stock on March 23, 2007 of $19.75 per share, which reflected, in their view, a closing price for our common stock that was undisturbed by speculation regarding a potential strategic transaction. Lazard calculated a range of implied share prices for our stock of $18.46 to $28.06.

 

Miscellaneous.  Lazard’s opinion and financial analyses were not the only factors considered by our board of directors in its evaluation of the Merger and should not be viewed as determinative of the views of our board of directors or the management of our company. Lazard has consented to the inclusion of and references to the Lazard opinion in this proxy statement.

 

Pursuant to our engagement letter with Lazard, we paid Lazard (i) a retainer fee of $150,000 at the time we entered into the engagement letter and (ii) an opinion fee of $1 million at the time they provided their opinion to our board of directors regarding the Merger. We will also pay Lazard a transaction fee equal to 0.85% of the aggregate merger consideration, (including the amount of our debt assumed by the Acquisition Subsidiary), but only if and when the Merger is consummated. The estimated amount of the transaction fee is approximately $4.5 million. If the transaction fee becomes payable to Lazard, the amount of the retainer fee and opinion fee will be credited against it. We have also agreed to reimburse Lazard for travel and other out-of-pocket expenses incurred in performing its services, including the fees and expenses of its legal counsel. In addition, we have agreed to indemnify Lazard

against certain liabilities, including liabilities under the federal securities laws relating to or arising out of Lazard’s engagement. Lazard may have provided and may provide investment banking services to Sentinel Omaha LLC or to one or more of its portfolio companies or other affiliates, for which Lazard has received customary fees. In addition, in the ordinary course of their respective businesses, Lazard, Lazard Capital Markets LLC (an entity owned in large part by managing directors of Lazard) and/or their respective affiliates may actively trade securities of our company for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities.

 

Lazard is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for real estate, corporate and other purposes. Lazard was selected to act as investment banker to our company because of its expertise, its reputation in investment banking and mergers and acquisitions and its independence with respect to the Merger and the other transactions contemplated by the Merger Agreement.

 

Sentinel’s obligation to complete the Merger is not conditioned upon its ability to obtain funds sufficient to do so. Sentinel has represented to us that it has, and as of the closing of the Merger will have, the funds necessary to consummate the Merger. The total amount of funds required by Sentinel to consummate and to pay all the merger consideration and related fees and expenses in connection with the Merger is estimated to be approximately $293.3 million. Sentinel has advised us that it expects to obtain the required funds from existing cash resources (including commitments to contribute equity capital from the four investment funds which are its members) and through debt financing for which it has obtained a commitment, subject to standard closing conditions, from a lender. In connection with the Merger, the Acquisition Subsidiary expects to also assume the long-term debt of America First which equaled approximately $250 million as of June 30, 2007.

 

In considering the recommendation of our board of directors with respect to the Merger, our stockholders should be aware that some of our directors and executive officers have personal interests in the Merger that are, or may be, different from, or in addition to, your interests. Our board of directors was aware of the interests described below and considered them, among other matters, when approving the Merger Agreement and recommending that stockholders vote to approve the Merger.

 

Employment Agreements with Executive Officers.  We currently have employment agreements in place with each of our executive officers, John H. Cassidy, James Egan and Paul Beldin, that provide for severance payments to them if their employment is terminated within twelve months after, or in contemplation of, a “change in control” of America First. These agreements generally provide, among other things, that if, in contemplation of or within twelve months after a “change in control,” such person’s employment is terminated (i) by America First without cause (other than on account of specified causes, death or disability), or (ii) by the executive for certain defined reasons, the executive will be entitled to the following: (a) a severance payment equal to twelve months of his base salary as of the date of the termination plus an amount representing a bonus for year-to-date performance as determined by the Compensation Committee, but which will be not less than 20% of the threshold-level bonus for that year; and (b) an additional cash payment equal to $1,000,000 in the case of Mr. Cassidy, $375,000 in the case of Mr. Egan, and $187,500 in the case of Mr. Beldin. In no event, however, may the total severance payments (including, among other things, the value of any early vesting of stock options or other equity-based awards which may occur as a result of a change in control) made to any executive officer exceed the maximum amount which may be paid without imposition of the excise tax imposed by Section 4999 of the Internal Revenue Code or resulting in a loss of tax deduction to America First under Section 280G of the Internal Revenue Code. The Merger qualifies as a “change in control” under these employment agreements.

 

Messrs. Cassidy, Egan, and Beldin are subject to certain non-competition arrangements that will restrict each executive’s ability to compete with America First for a period of time after each executive’s employment ends.

Outstanding Stock Options.  Each outstanding unexercised stock option to purchase our common stock will become vested and be canceled upon the completion of the Merger in exchange for a cash payment equal to the excess, if any, of the $25.30 per share merger consideration over the per share option exercise price, multiplied by the number of shares of our common stock subject to the option.

 

The directors and executive officers identified in the following table will benefit from the acceleration of the vesting of and exercisability of their stock options. The information contained in the table is as of August 9, 2007.

 

 

 

 

Indemnification.  The terms of the Merger Agreement provide for the continued indemnification of our current and former directors and officers, as more fully described under “The Merger Agreement — Covenants — Directors’ and officers’ indemnification, advancement of expenses, exculpation and insurance.”

 

The following is a summary of certain material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) whose shares of our common stock are converted into the right to receive cash in the Merger and to persons who receive cash in exchange for our outstanding stock options. The discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to particular holders. The discussion is based on current law, which is subject to change, possibly with retroactive effect. The discussion applies only to U.S. holders who hold shares of our common stock as capital assets and to holders of our outstanding stock options who are U.S. holders. This discussion does not apply to certain types of holders (such as U.S. holders who acquired the stock under our Employee Stock Purchase Plan, insurance companies, tax-exempt organizations and retirement plans (including, without limitation, our 401(k) plan), banks and other financial institutions, traders, broker-dealers, dealers in securities or foreign currencies, S corporations, partnerships, or mutual funds, persons

who hold or have held our common stock as part of a straddle or a hedging, integrated constructive sale or conversion transaction for tax purposes, persons subject to alternative minimum tax, or persons with a functional currency other than the U.S. dollar) who may be subject to special rules. In addition, this discussion does not address the tax consequences to a holder who, for U.S. federal income tax purposes is not a U.S. holder. Any holder who is not a U.S. holder may be subject to different tax consequences than those described below and is urged to consult its tax advisors regarding its tax treatment under U.S. and non U.S. tax laws.

 

This discussion does not address any state, local or foreign tax consequences of the Merger.

 

For purposes of this discussion, a U.S. holder is any individual, corporation, estate or trust that is a beneficial holder of our common stock or options and that is for U.S. federal income tax purposes:

 

 

If a partnership or other pass-through entity holds shares of our common stock or options, the tax treatment of a partner or owner of such partnership or other pass-through entity generally will depend upon the status of the partner or owner and the activities of the partnership or pass-through entity. Accordingly, we urge partnerships and other pass-through entities that hold shares of our common stock or options and partners or owners in such partnerships or pass-through entities to consult their tax advisors regarding the tax consequences to them of the Merger.

 

The receipt of cash for shares of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder who surrenders shares of our common stock for cash in the Merger will recognize a capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the U.S. holder’s adjusted tax basis in the shares of our common stock surrendered at the effective time of the Merger. Generally, a U.S. holder’s adjusted tax basis in shares of our common stock will be the amount the U.S. holder paid for such shares reduced by that portion of dividends paid to such holder that were treated as a return of capital for federal income tax purposes, if any. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered for cash pursuant to the Merger. Such gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for such shares is more than one year at the effective time of the Merger. Capital gains of individuals derived in respect of capital assets held for more than one year are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

The receipt of cash in exchange for the outstanding stock options will be a taxable transaction for U.S. federal income tax purposes. U.S. holders of options (other than those persons who received such options in connection with their employment by, or provision of services to, us) will recognize a gain or loss equal to the difference, if any, between the amount of cash they receive and their adjusted tax basis, if any, in the options surrendered. Such gain or loss will be a capital gain or loss if the stock underlying the option would have been a capital asset in the hands of the taxpayer and will be long-term capital gain or loss provided that a U.S. holder’s holding period for the options is more than one year at the effective time of the Merger. Persons who received their options in connection with their employment by or provision of services to us generally will recognize ordinary income equal to the excess of the amount of cash they receive over their adjusted tax basis, if any, in the options surrendered. A holder’s basis in an option generally will equal the amount (if any) paid for that option. Payments in exchange for options received in connection with employment by us generally will be subject to applicable income and employment tax withholding.

 

Federal backup withholding tax generally will be withheld from all cash payments to which a U.S. holder of shares or other payee is entitled pursuant to the Merger Agreement, if: (a) the IRS notifies us or our paying agent that the taxpayer identification number (typically, the social security number, in the case of individuals, or employer identification number, in the case of other holders) provided by the holder of shares of common stock or other payee

is incorrect; (b) the U.S. holder does not have a taxpayer identification number and does not provide one to us within 60 days of signing the Substitute Form W-9; (c) the U.S. holder of shares of common stock or other payee underreports interest and dividend payments that he or she receives on his or her tax return and the IRS notifies us or our paying agent that withholding is required; (d) the U.S. holder or other payee fails to certify under penalties of perjury that he or she is not subject to backup withholding; or (e) the U.S. holder or other payee fails to certify under penalties of perjury that he or she is a U.S. person or U.S. resident alien. Each of our eligible holders and, if applicable, each other payee should complete and sign the Substitute Form W-9 included as part of the letter of transmittal to be returned to the paying agent, in order to provide the information and certification necessary to avoid backup withholding tax, unless an exemption applies and is established in a manner satisfactory to the paying agent. A holder who is not a U.S. holder should complete and sign a Form W-8 BEN and return it to the paying agent in order to provide the information and certification necessary to avoid back-up withholding or otherwise establish an exemption from back-up withholding.

 

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that you furnish the required information to the IRS.

 

THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER AND IS NOT TAX ADVICE. THEREFORE, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

 

The Merger is not subject to customary discretionary review by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission, and we are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Merger Agreement or the completion of the Merger. Completion of the Merger requires the filing of Articles of Merger with the State Department of Assessments and Taxation of Maryland and the filing of a Certificate of Merger with the Delaware Secretary of State.

 

Under Maryland corporate law, because shares of our common stock were listed on the Nasdaq Global Market on August 9, 2007, the record date for determining stockholders entitled to vote at the Special Meeting, our common stockholders who object to the Merger do not have any dissenters’, appraisal or other similar rights in connection with the Merger.

 

If the Merger is completed, our common stock will be delisted from the Nasdaq Global Market and will be deregistered under the Exchange Act. As a result, our shares will no longer be available for trading and we will no longer file periodic reports with the Securities and Exchange Commission (the “SEC”).

 

The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement, we will be merged with and into the Acquisition Subsidiary and our separate corporate existence will thereupon cease, and the Acquisition Subsidiary will be the surviving entity. As a result, the Acquisition Subsidiary will acquire all of the assets of America First and assume all of the liabilities of America First as of the effective time of the Merger. The liabilities assumed will include long-term debt of America First which equaled approximately $250 million as of June 30, 2007.

 

As a result of the Merger, each share of our common stock issued and outstanding immediately before the Merger, other than shares held by Sentinel, the Acquisition Subsidiary or any subsidiary of America First, automatically will be canceled and will cease to exist and will be converted into the right to receive $25.30 in cash,

without interest. After the Merger is effective, each holder of a certificate representing shares of our common stock will no longer have any rights with respect to the shares, except for the right to receive the $25.30 per share merger consideration. Each share of our common stock held by Sentinel, the Acquisition Subsidiary or any subsidiary of America First at the time of the Merger will be canceled without any payment.

 

In addition, each outstanding option to acquire shares of our common stock will be immediately vested and will be canceled in exchange for an amount in cash determined by multiplying (i) the excess, if any, of $25.30 over the per share exercise price of the option by (ii) the number of shares of our common stock issuable upon exercise of the option. All such options were issued under our 2006 Equity Incentive Plan (or its predecessor plan). There are 165,217 options outstanding with a weighted average exercise price of $15.25.

 

The Merger will become effective when the articles of merger are filed with and accepted for record by the State Department of Assessments and Taxation of Maryland or such later time designated in the articles of merger (not to exceed 30 days after the articles have been accepted for record) and the filing of a Certificate of Merger with the Delaware Secretary of State. Such filing will be made no later than the third business day after the satisfaction or waiver of the conditions to the completion of the Merger described in the Merger Agreement. See “The Merger Agreement — Conditions to the Completion of the Merger,” below. At present, we anticipate that the Merger will become effective in the third calendar quarter of 2007.

 

The Merger Agreement provides that:

 

 

As a result of the Merger, each share of our common stock issued and outstanding immediately before the Merger, other than shares held by Sentinel, the Acquisition Subsidiary or any subsidiary of America First, automatically will be canceled and will cease to exist and will be converted into the right to receive $25.30 in cash, without interest.

 

No interest will accrue or be paid on the merger consideration. Until holders of certificates previously representing shares of our common stock have surrendered those certificates to the paying agent for exchange, holders will not receive the merger consideration due in respect of the shares formerly represented by such certificates.

 

In some circumstances, the payment to a stockholder may be reduced by the amount of any required tax withholding. This is described more fully under “The Merger — Material U.S. Federal Income Tax Consequences.”

 

Each stock option outstanding immediately prior to the Merger will become vested and be canceled and converted into the right of the holder to receive a cash payment equal to the product of:

 

 

The payments due to the holders of stock options may be reduced by the amount of any required tax withholding.

 

After we issued shares of our common stock under our Employee Stock Purchase Plan on June 29, 2007 (the end of the offering period in effect on the date we entered the Merger Agreement), our board of directors suspended the operation of the Employee Stock Purchase Plan. As a result, we are not accepting any additional payroll deductions for purchases of common stock under this plan and none of our employees have accumulated any payroll deductions to acquire shares of our common stock under this plan. Accordingly, no participant in the Employee Stock Purchase Plan will be entitled to any merger consideration except with respect to shares of our common stock already purchased by them under the Employee Stock Purchase Plan through June 29, 2007. The Employee Stock Purchase Plan will be permanently terminated immediately prior to the Merger.

 

At or before the effective time of the Merger, Sentinel is required to designate a bank or trust company reasonably acceptable to us to act as paying agent in the Merger and deposit with the paying agent the cash necessary to pay the merger consideration to our stockholders and holders of our stock options.

 

The Merger Agreement requires that not later than the first business day following the effective time of the Merger, Sentinel must cause the paying agent to mail each record holder of our common stock immediately prior to the effective time of the Merger a letter of transmittal and instructions for its use in delivering certificates to the paying agent in exchange for the merger consideration due in respect of the shares formerly represented by such certificates. After the paying agent receives a stockholder’s share certificates, together with a properly completed and executed letter of transmittal and any other documents specified in the instructions that the paying agent may reasonably require, the paying agent will deliver to the stockholder the $25.30 per share merger consideration multiplied by the number of shares formerly represented by the certificate(s) surrendered by the stockholder. If a transfer of ownership of shares has occurred but has not been registered in our transfer records, then a check for the merger consideration applicable to such shares may be issued to the transferee if the certificate representing the shares is presented to the paying agent accompanied by all documents and endorsements required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid.

 

If you do not hold the physical share certificates, but instead hold your shares in “street name” with a stockbroker or a bank, your broker or bank will be able to assist you in arranging to receive payment for your shares.

 

YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.  A transmittal form with instructions for the surrender of certificates representing shares of our common stock will be mailed to stockholders shortly after completion of the Merger.

 

If any certificate representing shares of our common stock is lost, stolen or destroyed, the paying agent will deliver the applicable merger consideration due in respect of the shares formerly represented by that certificate if:

 

 

Any portion of the exchange fund that remains undistributed to our stockholders after the first anniversary of the effective time of the Merger will be delivered by the paying agent to Sentinel, and any of our stockholders who have not previously surrendered their stock certificates, or made arrangements with their brokers or banks if their shares are uncertificated, will be entitled to look only to Sentinel or the Acquisition Subsidiary for payment of the merger consideration due in respect of the shares formerly represented by their certificates. None of the paying agent, America First, the Acquisition Subsidiary or Sentinel will be liable for any amounts properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

The following description summarizes the material provisions of the Merger Agreement and is qualified in its entirety by reference to the complete text of the Merger Agreement. The Merger Agreement included in this proxy statement as Annex A contains the complete terms of that agreement and stockholders should read it carefully and in its entirety.

 

Each party’s obligation to effect the Merger and to consummate the other transactions described in the Merger Agreement is subject to the satisfaction or waiver of various conditions which include, in addition to other customary closing conditions, the following:

 

 

Sentinel’s obligation to effect the Merger and to consummate the other transactions described in the Merger Agreement is further subject to satisfaction or waiver of the following additional conditions:

 

 

Under the Merger Agreement, a “material adverse effect” is defined to mean any event, circumstance, change or effect that has a material adverse effect on the business, assets or financial condition of America First and its subsidiaries, taken as a whole, other than effects due to (i) general economic, market or political conditions, (ii) matters generally affecting the industries or market sectors in which America First operates, (iii) the announcement or expectation of the Merger (including any impact on relationships with our tenants or employees), (iv) any of the requirements or limitations imposed on America First under the Merger Agreement, (v) changes in law, (vi) changes in accounting principles, (vii) acts of war or terrorism, (viii) fluctuations in the price of our common stock, (ix) earthquakes, hurricanes or other natural disasters or acts of God or (x) damage or destruction of any real property.

Our obligation to effect the Merger and to consummate the other transactions described in the Merger Agreement is further subject to satisfaction or waiver of the following additional conditions:

 

 

Under the Merger Agreement, we are required to cease all discussions, negotiations or communications with any parties with respect to any acquisition proposals (as defined below). Additionally, the Merger Agreement provides that until the Merger is effective or the Merger Agreement is terminated, neither we nor persons acting on our behalf will, directly or indirectly:

 

 

Under the Merger Agreement, an “acquisition proposal” is defined as any proposal or offer, whether in one transaction or a series of related transactions (a) for a merger, consolidation, dissolution, recapitalization or other business combination involving us or any of our subsidiaries, (b) for the issuance of 25% or more of the equity securities of America First or any of our subsidiaries as consideration for the assets or securities of another person or (c) for the acquisition in any manner, directly or indirectly, of 25% or more of the equity securities of America First or assets (including equity securities or assets of any subsidiary) that represent 25% or more of the consolidated assets of America First and our subsidiaries, taken as a whole, in each case other than the transactions described in or expressly permitted by the Merger Agreement.

 

The Merger Agreement provides that notwithstanding the restrictions described above, until our stockholders have approved the Merger, if we receive an unsolicited written acquisition proposal from a third party that our directors determine in good faith to constitute a superior proposal, or reasonably could be expected to lead to a superior proposal, then we may:

 

 

In the event that we receive an unsolicited acquisition proposal, the Merger Agreement requires that we promptly notify Sentinel of our receipt of such proposal and its material terms and conditions.

Under the Merger Agreement, a “superior proposal” is defined as any bona fide written acquisition proposal (but replacing references to “25% or more” in the definition of acquisition proposal above with “50% or more”) on terms that our board of directors determines in good faith, after consultation with our financial advisor, to be superior from a financial point of view to the Merger taking into account all of the terms and conditions of the proposal and the Merger Agreement (including any proposal by Sentinel to amend the terms of the Merger Agreement), and including in each case the risks and probabilities of consummation.

 

The Merger Agreement also provides that if, at any time prior to obtaining approval of the Merger from our stockholders, we receive an acquisition proposal which our board of directors determines to be a superior proposal, and we may terminate the Merger Agreement and enter into a definitive agreement with respect to such superior proposal:

 

 

Additionally, prior to terminating the Merger Agreement in order to enter into a superior proposal, we must provide written notice to Sentinel of our intention to terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal. This notice must be given to Sentinel at least 72 hours prior to terminating the Merger Agreement and must specify the material terms and conditions of the superior proposal and be accompanied by a copy of a draft of the definitive agreement proposed to be entered into. The Merger Agreement provides that for a period of three days Sentinel may propose changes to the Merger Agreement and we are required to negotiate the terms of any such changes.

 

The Merger Agreement provides that, at any time before the approval of the Merger by our stockholders, our board of directors may withdraw or modify its recommendation that our stockholders approve the Merger and postpone the Special Meeting if it determines in good faith, after taking into account the advice of outside legal counsel, that the withdrawal or modification of such recommendation or the postponement of the Special Meeting is appropriate and consistent with the obligations of the board of directors to our stockholders under applicable law.

 

The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the effective time of the Merger, regardless of whether our stockholders have approved the Merger:

 

 

 

If the Merger Agreement is terminated before the Special Meeting is held, we are not required to hold the Special Meeting.

 

Expenses.  The Merger Agreement generally provides that each party will pay its own fees and expenses in connection with the Merger Agreement and the transactions described in the Merger Agreement. However, we are required to reimburse Sentinel for its reasonable expenses and fees not to exceed $1 million if (A) the Merger Agreement is terminated by either party due to the failure of our stockholders to approve the Merger and if prior to such termination an acquisition proposal by a third party has been publicly disclosed or announced and not subsequently withdrawn, or (B) the Merger Agreement is terminated by Sentinel due to our breach of the Merger Agreement other than a breach of our covenants relating to acquisition proposals from other parties. In the event that we pay any of Sentinel’s expenses, the amount of such expenses paid will be credited against the termination fee discussed below if such termination fee subsequently becomes payable to Sentinel.

 

Termination Fee.  We must pay Sentinel an $8.43 million termination fee if the Merger Agreement is terminated:

 

 

 

In these cases, the termination fee is payable upon termination of the Merger Agreement.

 

In addition, the termination fee will be payable by us to Sentinel if the Merger Agreement is terminated for any of the following reasons: (A) if prior to such termination an acquisition proposal by a third party has been publicly disclosed or announced and not subsequently withdrawn and (B) if within one year after termination of the Merger Agreement we consummate a transaction relating to any acquisition proposal (but replacing references to “25% or more” in the definition of acquisition proposal with “33% or more”) including a tender offer or exchange offer or enter into any agreement relating to any such alternative transaction:

 

 

In each of these cases, the termination fee will be payable on the earlier of the consummation of such alternative transaction or the date we enter into a definitive agreement or an agreement in principle providing for such a transaction.

 

Finally, we must pay the termination fee to Sentinel upon the consummation of a tender offer or exchange offer constituting an acquisition proposal that is consummated prior to the termination of the Merger Agreement, regardless of whether our board of directors recommended for or against acceptance of such tender offer or exchange offer or took no position with respect thereto.

 

Liquidated Damages.  The Merger Agreement also provides that Sentinel must pay us $25 million in liquidated damages if the agreement is terminated:

 

 

The right to receive these liquidated damages will be our exclusive remedy against Sentinel and the Acquisition Subsidiary if the Merger Agreement is terminated for any reason. The liquidated damages shall be payable by Sentinel within three business days after the date of such termination, subject to certain restrictions designed to preserve our status as a real estate investment trust for federal income tax purposes. Promptly following receipt of the liquidated damages, unless and solely to the extent otherwise prohibited by law, we will cause the liquidated damages to be distributed pro rata to our stockholders and holders of dividend equivalent rights of record on a record date selected by our directors.

 

The Merger Agreement contains customary representations and warranties made by us to Sentinel. The representations and warranties are not intended to provide you with factual information about America First. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Merger Agreement, which subsequent information may or may not be fully reflected in our public disclosure. The representations and warranties include those relating to, among other things:

 

 

 

The Merger Agreement also contains customary representations and warranties made by Sentinel and the Acquisition Subsidiary to us. The representations and warranties include those relating to, among other things:

 

 

General.  We have undertaken certain covenants in the Merger Agreement concerning the conduct of our business between the date of the Merger Agreement and the completion of the Merger. In general, these covenants require us to continue to conduct our business in the ordinary course and to use our reasonable best efforts to preserve our present business organization and goodwill and keep available the services of our officers and key employees and to maintain our relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with us. Also, unless Sentinel consents in writing (which consent may not be unreasonably withheld or conditioned) or except as required by law, we have agreed that we will not (and will not agree in writing to):

 

 

 

 

Efforts to consummate the Merger.  The Merger Agreement requires each of the parties to use (and to cause their respective subsidiaries to use) their reasonable best efforts to take all actions and to do all things necessary, proper or advisable to consummate the Merger and the other transactions contemplated by the Merger Agreement as promptly as practicable, including using its reasonable best efforts to (i) make any filing with and obtain any consent, authorization, order or approval of, or any exemption by, any governmental authority that is required to be made or obtained in connection with the Merger and the other transactions contemplated by the Merger Agreement, (ii) prepare, execute and deliver such instruments and take or cause to be taken such actions as any other party shall reasonably request and (iii) after consultation with the other parties, obtain any consent, waiver, approval or authorization from any third party required in order to maintain in full force and effect any of our permits or contracts, licenses or other rights following the Merger and the other transactions contemplated by the Merger Agreement.

 

Directors’ and Officers’ Indemnification, Advancement of Expenses, Exculpation and Insurance.  The Merger Agreement provides that all rights to indemnification and related rights to advancement of expenses held by each of our current or former directors and officers in effect on the date of the Merger Agreement will survive the Merger and continue in full force and effect until 180 days after the expiration of the longest applicable statute of limitation. Sentinel has agreed that it will indemnify all such persons to the fullest extent permitted by applicable law with respect to all actual or alleged acts or omissions prior to the Merger occurring in connection with or arising out of such individuals’ service as our officers or directors or as trustees, fiduciaries or administrators of any plan for the benefit of our employees. In addition, Sentinel shall cause the Acquisition Subsidiary to maintain directors and officers insurance coverage in effect for not less than six years after the Merger for our current and former directors and officers providing at least the same coverage as we had provided prior to the Merger, except that the Acquisition Subsidiary shall not be required to pay an annual premium for such coverage in excess of 300% of the last annual premium paid by us prior to the date of the Merger Agreement. If the Acquisition Subsidiary is unable to obtain such insurance, it must obtain as much comparable insurance as possible for an annual premium equal to such maximum amount.

 

Employee Benefits.  The Merger Agreement provides that Sentinel must honor, and cause the Acquisition Subsidiary to honor, each of our existing employee benefit plans and the related funding arrangements in accordance with their terms and to interpret such plans in accordance with our past practices. Among other things, Sentinel must honor, and cause the Acquisition Subsidiary to honor, all rights to vacation, personal and sick days accrued by our employees through the effective date of the Merger. Until the date that is fifteen months after the effective time of the Merger, Sentinel must provide, and cause the Acquisition Subsidiary to provide, employee benefits to our employees and former employees that are, in the aggregate, no less favorable than those provided to such persons by us on the date of the Merger Agreement; provided, however, that if any of our employee benefit plans provides for severance or retention payments or other related benefits (payable following a change of control transaction or otherwise), that plan or portion thereof must be maintained in effect and honored by Sentinel and the Acquisition Subsidiary in accordance with its terms. Nothing in the Merger Agreement prohibits any changes to our employee benefit plan that are (i) required by law (including any applicable qualification requirements of Section 401(a) of the Code); (ii) necessary as a technical matter to reflect the transactions contemplated by the Merger Agreement; or (iii) required for the Acquisition Subsidiary to provide for or permit investment in its securities or Sentinel’s securities. In addition, except plans or portions thereof providing for severance or retention

payments or other related benefits, Sentinel is not required to continue any particular employee benefit plan maintained by us.

 

The Merger Agreement requires Sentinel and the Acquisition Subsidiary to refrain from taking any action after the effective time of the Merger that is inconsistent with our qualification as a REIT prior to the effective time of the Merger and to take all necessary and desirable actions to preserve our qualification as a REIT for all periods before the effective time of the Merger.

 

We have agreed with Sentinel as to the manner in which the aggregate merger consideration will be allocated among our assets for tax purposes and have agreed to report and file any tax returns in a manner consistent with such allocations and to not take any position (whether in audits, tax returns or otherwise) that is inconsistent with such allocation. The parties to the Merger Agreement have also agreed to cooperate in the preparation, execution and filing of, and shall duly and timely file, all tax returns required to be filed by them, including any tax returns regarding any conveyance or transfer taxes that may become payable in connection with the transactions contemplated by the Merger Agreement. We have agreed to cooperate with Sentinel and the Acquisition Subsidiary to structure such transactions in a manner so as to minimize any conveyance, real property transfer, mortgage, sales, recording, registration or similar taxes and fees that become payable in connection with such transactions; provided, however, that (i) no such cooperation or structuring shall delay or prevent the completion of the Merger, (ii) we are not required to take any action in contravention of any laws, (iii) we are not required to take any action that could adversely affect our qualification as a REIT or that could reasonably be expected to result in any taxes being imposed on, or any adverse tax consequences to, us or our stockholders that are incrementally greater than the taxes or any adverse consequences in connection with the consummation of the Merger.

 

The Merger Agreement may not be amended except by action authorized by the respective boards of directors of Sentinel and America First taken before or after our stockholders’ approval to the Merger is obtained and prior to the time of the Merger filing; provided, however, that after our stockholders’ approval to the Merger is obtained, the Merger Agreement may not be amended to (i) change the amount or kind of the merger consideration to be received by holders of our common stock upon conversion of their shares; or (ii) change any of the other terms or conditions of this Agreement if the change (A) would adversely affect our stockholders in any material respect or (B) by law would require further approval by our stockholders.

 

Additionally, at any time prior to the effective time of the Merger, America First, Sentinel and the Acquisition Subsidiary may, by written instrument signed on behalf of such party, extend the time for performance of the obligations or other acts of any other party to the Merger Agreement, waive inaccuracies in representations and warranties of any other party contained in the Merger Agreement or in any related document and waive compliance by any other party with any agreement or condition in the Merger Agreement. No party may grant any extension or waiver to its affiliate.

 

The following table and notes set forth information with respect to the beneficial ownership of shares of our common stock by each of our directors and executive officers and by such persons as a group. We do not believe that there are any stockholders that beneficially own 5% or more of our common stock. Unless otherwise indicated, the information is as of August 9, 2007, and is based upon information furnished to us by such persons or entities or has been obtained from publicly available information. For purposes of this table, and as used elsewhere in this proxy statement, the term “beneficial owner” means any person who, directly or indirectly, has or shares the power to vote, or to direct the voting of, a security or the power to dispose, or to direct the disposition of, a security or has the right to acquire shares within 60 days.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of the date of this proxy statement, we know of no matters that will be presented for consideration at the Special Meeting other than as described in this proxy statement.

 

Our 2008 annual meeting of stockholders is not yet scheduled to take place. We will hold the 2008 annual meeting of stockholders only if the Merger is not completed. If the Merger is not completed, under Rule 14a-8 of the Exchange Act, our stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the 2008 annual meeting by submitting their proposal in writing to our Secretary. In submitting such proposals, stockholders must comply with the requirements set forth in both our Bylaws and in Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act. In order to curtail any controversy as to the date on which a proposal was received by America First, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested. The deadline for submission of proposals by stockholders pursuant to Rule 14a-8 under the Exchange Act, which are intended for inclusion in the proxy statement to be furnished to all stockholders entitled to vote at the 2008 annual meeting of stockholders, if any, is December 21, 2007. The period for submission of proposals of stockholders intended to be presented at the 2008 annual meeting of stockholders (which are not otherwise submitted for inclusion in the proxy statement in accordance with the preceding sentence) is no earlier than February 23, 2008 and no later than March 24, 2008.

 

The information contained in this proxy statement contains forward-looking statements within the meaning of Section 21E of the Exchange Act. These forward-looking statements include statements about our ability to complete the Merger.

 

When used in this proxy statement, we intend the words “may,” “believe,” “anticipate,” “plan,” “expect,” “predict,” “estimate,” “require,” “intend” and similar words to identify “forward-looking statements.” These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements, to be far different from that suggested by our forward-looking statements. Such risks and uncertainties include our inability to complete the Merger and the other risks and factors identified from time to time in reports we file with the Securities and Exchange Commission or in public statements issued by us. You should not place undue reliance on our forward-looking statements. We disclaim any obligation to update any of these factors or to publicly announce the results of any revisions to any of these forward-looking statements, and we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the Securities and Exchange Commission at the facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or at the offices of the National Association of Securities Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C. 20006. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on its public reference rooms. Our Securities and Exchange Commission filings also are available to the public at its Web site at www.sec.gov.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.

 

THIS PROXY STATEMENT IS DATED AUGUST 9, 2007. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

By Order of the Board of Directors

 

 

Paul Beldin, Secretary

 

Omaha, Nebraska

August 9, 2007

 

 

AGREEMENT AND PLAN OF MERGER
Dated as of June 22, 2007
by and among
SENTINEL OMAHA LLC,
SENTINEL WHITE PLAINS LLC
and
AMERICA FIRST APARTMENT INVESTORS, INC.

 

TABLE OF CONTENTS

 

INDEX OF DEFINED TERMS