<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997
REGISTRATION NO. 333-39405
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
IAC CAPITAL TRUST IRVINE APARTMENT COMMUNITIES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING
INSTRUMENTS)
</TABLE>
550 NEWPORT CENTER DRIVE, SUITE 300, NEWPORT BEACH, CALIFORNIA 92660 (714)
720-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES E. MEAD
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
IRVINE APARTMENT COMMUNITIES, INC.
550 NEWPORT CENTER DRIVE
SUITE 300
NEWPORT BEACH, CA 92660
(714) 720-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
JEFFREY SMALL GREGG A. NOEL
JAMES M. LURIE SKADDEN, ARPS, SLATE,
DAVIS POLK & WARDWELL MEAGHER & FLOM LLP
450 LEXINGTON AVENUE 300 SOUTH GRAND AVENUE
NEW YORK, NY 10017 LOS ANGELES, CALIFORNIA 90071
TELEPHONE (212) 450-4000 TELEPHONE (213) 687-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER UNIT PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred Securities of IAC Capital
Trust........................................ 6,900,000 $25.00 $172,500,000 $51,812(3)
- ---------------------------------------------------------------------------------------------------------------
Series A Preferred Limited Partnership Units of
Irvine Apartment Communities, L.P.(1)........ -- -- -- --
===============================================================================================================
</TABLE>
(1) The Series A Preferred Limited Partnership Units of Irvine Apartment
Communities, L.P. will be deposited in, and held by, IAC Capital Trust as
trust assets. No separate consideration will be received in respect of such
deposit.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(3) Includes $34,849 previously paid with respect to $115,000,000 of securities
at 1/33rd of 1%, the rate then in effect.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
PROSPECTUS
6,000,000 SERIES A PREFERRED SECURITIES
IAC CAPITAL TRUST
% SERIES A REIT TRUST ORIGINATED PREFERRED SECURITIES(SM)("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER SERIES A PREFERRED SECURITY)
------------------------------
The % Series A REIT Trust Originated Preferred Securities (the "Series A
Preferred Securities") offered hereby (the "Offering") are being sold by IAC
Capital Trust, a Delaware business trust (the "Trust"). The Trust is a limited
purpose financing vehicle established by Irvine Apartment Communities, L.P., a
Delaware limited partnership (the "Operating Partnership"), and Irvine Apartment
Communities, Inc. (the "Company"), a Maryland corporation and the sole general
partner of the Operating Partnership. The proceeds from the Offering will be
used by the Trust to purchase % Series A Preferred Limited Partner Interests
("Series A Preferred L.P. Units") in the Operating Partnership which will use
the proceeds to repay outstanding indebtedness and for general partnership
purposes. From time to time the Trust may issue additional series of preferred
securities (together with the Series A Preferred Securities, the "Preferred
Securities") and invest the proceeds therefrom in additional series of preferred
limited partner interests of the Operating Partnership (together with the Series
A Preferred L.P. Units, the "Preferred L.P. Units"). The Company and certain
members of management of the Company will own all of the common securities (the
"Common Securities") of the Trust. The Common Securities and the Preferred
Securities (collectively, the "Trust Securities") will represent undivided
beneficial interests in the assets of the Trust, subject to the priority and
payment terms of the Trust Securities. The Trust exists for the sole purpose of
issuing its Preferred Securities and Common Securities and investing the
proceeds thereof primarily in an equivalent amount of Preferred L.P. Units of
the Operating Partnership.
(continued on next page)
Application has been made to list the Series A Preferred Securities on the
New York Stock Exchange, Inc. (the "NYSE"). Trading of the Series A Preferred
Securities on the NYSE is expected to commence within a 30-day period after the
date of this Prospectus. While the Underwriters have advised the Trust that they
intend to make a market in the Series A Preferred Securities prior to
commencement of trading on the NYSE, they are under no obligation to do so and
no assurance can be given that a market for the Series A Preferred Securities
will exist prior to commencement of trading. See "Underwriting." See "Glossary"
beginning on page 107 for definitions of certain terms used in this Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF MATERIAL RISKS
RELEVANT TO AN INVESTMENT IN THE SERIES A PREFERRED SECURITIES, INCLUDING:
- - The Trust's ability to make distributions and other payments on the Series A
Preferred Securities is initially effectively dependent upon the Operating
Partnership making distributions and other payments on the Series A Preferred
L.P. Units held as trust assets. As a result, if the Operating Partnership
does not make distributions or other payments on the Series A Preferred L.P.
Units for any reason, it is expected that the Trust will not be able to make
payments on the Series A Preferred Securities;
- - The Series A Preferred Securities have no voting rights except in limited
circumstances;
- - Substantial influence of The Irvine Company over the affairs of the Operating
Partnership and conflicts of interest between The Irvine Company and the
Operating Partnership;
- - Risks associated with development or acquisition of apartment community
properties both on and off the Irvine Ranch, including land use entitlement,
construction, lease-up and financing risks; and
- - Real estate operations and development risks may adversely affect the
Operating Partnership's ability to make distributions on the Series A
Preferred L.P. Units.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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===========================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSION(2) TRUST(3)(4)
- ---------------------------------------------------------------------------------------------------------------------------
Per Series A Preferred Security................. $25.00 (3) $25.00
- ---------------------------------------------------------------------------------------------------------------------------
Total(5)........................................ $150,000,000 (3) $150,000,000
===========================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from .
(2) The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) Since the proceeds of the sale of the Series A Preferred Securities will be
invested in the Series A Preferred L.P. Units, the Operating Partnership has
agreed to pay to the Underwriters, as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such proceeds,
$ per Series A Preferred Security (or $ in the aggregate). See
"Underwriting."
(4) Expenses of the Offering which are payable by the Operating Partnership are
estimated to be $ .
(5) The Trust has granted to the Underwriters an option, exercisable for a
period of 30 days after the date of the Prospectus, to purchase up to
900,000 additional Series A Preferred Securities, solely to cover
overallotments. The Operating Partnership will pay Underwriters'
Compensation in the amount per Series A Preferred Security set forth in Note
3 with respect to such additional Series A Preferred Securities. If all such
Series A Preferred Securities are purchased, the total Price to Public,
Underwriting Commission and Proceeds to Trust will be $172,500,000,
$ and $172,500,000, respectively. See "Underwriting."
------------------------------
The Series A Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Series A Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company on or
about , 1998.
------------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
------------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
(SM)"TRUST ORIGINATED PREFERRED SECURITIES" AND "TOPRS" ARE SERVICE MARKS OF
MERRILL LYNCH & CO., INC.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
(continued from previous page)
Holders of the Series A Preferred Securities will be entitled to receive
upon declaration by the Trust cumulative preferential cash distributions at an
annual rate of % of the liquidation amount of $25 per Series A Preferred
Security, accruing from the date of original issuance of the Series A Preferred
Securities and payable quarterly in arrears on , ,
and of each year, commencing on , 1998. The Trust,
as the holder of the Series A Preferred L.P. Units, will be entitled to receive
upon declaration by the Operating Partnership cumulative preferential cash
distributions at the annual rate of % of the stated value of $25 per Series
A Preferred L.P. Unit, accumulating from the date of original issuance of the
Series A Preferred L.P. Units and payable quarterly in arrears on ,
, and of each year, commencing , 1998.
Cash distributions on the Series A Preferred Securities and the Series A
Preferred L.P. Units in arrears will accumulate without interest. If
distributions are not paid on Preferred L.P. Units deposited in the Trust as
trust assets, including the Series A Preferred L.P. Units, the Trust will not
make payments on the Series A Preferred Securities.
So long as any Series A Preferred L.P. Units are outstanding except as
otherwise described herein, no distribution shall be paid or declared on the
regular limited partner interests in the Operating Partnership (the "Common L.P.
Units"), the general partnership interest in the Operating Partnership (the
"G.P. Units") or any other series of outstanding Preferred L.P. Units of the
Operating Partnership ranking junior as to the payment of distributions to the
Series A Preferred L.P. Units (collectively, the "Junior OP Units") nor shall
any sum or sums be set aside for or applied to the purchase or redemption of the
Series A Preferred L.P. Units or any other series of outstanding Preferred L.P.
Units or the purchase, redemption or other acquisition for value of any Junior
OP Units unless, in each case, full cumulative distributions accumulated on all
Series A Preferred L.P. Units and all other outstanding series of Preferred L.P.
Units ranking on a parity with the Series A Preferred L.P. Units as to the
payment of distributions have been paid in full. Distributions with respect to
the Series A Preferred Securities will be senior to distributions on the Common
Securities and will have the same priority with respect to distributions on
other series of Preferred Securities as are set forth in this paragraph. See
"Description of Series A Preferred Securities -- Distributions."
Except as described below, the Series A Preferred L.P. Units are not
redeemable prior to . On or after , the Series A Preferred
L.P. Units may be redeemed at the option of the Operating Partnership, in whole
or from time to time in part, at a redemption price of $25 per Series A
Preferred L.P. Unit, plus accumulated and unpaid distributions, if any, to the
redemption date. The Series A Preferred L.P. Units may also be redeemed, in
whole but not in part, at any time upon the occurrence of a Tax Event or
Investment Company Act Event (each as defined herein). The redemption price of
the Series A Preferred L.P. Units (other than the portion consisting of
accumulated and unpaid distributions) will be payable solely out of the sale
proceeds of capital stock of the Company, which will be contributed by the
Company to the Operating Partnership as an additional capital contribution, or
the sale proceeds of Common L.P. Units or Preferred L.P. Units (collectively,
"L.P. Units") of the Operating Partnership, and from no other source. The Series
A Preferred L.P. Units will have a stated maturity of December 31, 2092, which
corresponds to the term of the Operating Partnership. See "Description of the
Series A Preferred L.P. Units -- Redemption." If the Operating Partnership
redeems Series A Preferred L.P. Units, the Trust will redeem in cash Series A
Preferred Securities having an aggregate liquidation amount equal to the
aggregate stated value of the Series A Preferred L.P. Units so redeemed, at $25
per Series A Preferred Security plus accumulated and unpaid distributions
thereon (the "Redemption Price") to the date of redemption. See "Description of
the Series A Preferred Securities -- Redemption." The Series A Preferred L.P.
Units and the Series A Preferred Securities will not be subject to any sinking
fund and, except as described in this Prospectus under "Description of the
Series A Preferred Securities -- Restrictions on Ownership and Transfer of
Series A Preferred Securities," neither the Series A Preferred L.P. Units nor
the Series A Preferred Securities will be convertible into any securities of the
Company, the Operating Partnership or the Trust.
(continued on next page)
2
<PAGE> 4
(continued from previous page)
Upon consummation of the Offering, the Trust will operate as an equity real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). To ensure that the Trust maintains its qualification as a
REIT, ownership by any person is generally limited to 9.8% of the outstanding
Series A Preferred Securities, with certain exceptions.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF SERIES A
PREFERRED SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.............................. 5
The Operating Partnership..................... 5
IAC Capital Trust............................. 7
Structure and Ownership....................... 8
Risk Factors.................................. 9
The Properties................................ 10
Management and Control of the Operating
Partnership................................. 10
Tax Status of the Trust....................... 11
The Offering.................................. 12
Summary Financial Data........................ 15
RISK FACTORS.................................... 17
Dependence on Operating Partnership........... 17
Ranking of Series A Preferred L.P. Units and
Series A Preferred Securities............... 17
No Voting Rights Except in Limited
Circumstances............................... 17
Adverse Consequences of Failure to Qualify as
a REIT...................................... 17
Distributions to Holders of Series A Preferred
Securities.................................. 18
Ownership Limit Necessary to Maintain REIT
Qualification............................... 18
Special Event Redemption of Series A Preferred
Securities.................................. 19
Conflicts of Interest......................... 19
The Irvine Company Controls Land Designation
and the Timing of Land Designation Pursuant
to the Land Rights Agreement; Inability of
the Irvine Company to Deliver Entitled
Properties.................................. 20
Early Termination of the Exclusive Land Rights
and Non-Competition Arrangements with The
Irvine Company and Mr. Bren Would Adversely
Affect the Operating Partnership............ 20
Potential For Additional Debt Financing and
Increased Leverage.......................... 21
Real Estate Operations and Development Risks
May Adversely Affect the Operating
Partnership's Ability to Make Distributions
on the Series A Preferred L.P. Units........ 21
Certain Participation Rights of The Irvine
Company..................................... 23
Lack of Public Market......................... 23
IAC CAPITAL TRUST............................... 24
RECENT DEVELOPMENTS............................. 27
<CAPTION>
PAGE
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<S> <C>
"Off-Ranch" Expansion......................... 27
Recently Completed Irvine Ranch Land
Acquisitions................................ 27
Issuance of 7% Notes due 2007................. 27
USE OF PROCEEDS................................. 28
OPERATING PARTNERSHIP CONSOLIDATED RATIOS OF
EARNINGS TO FIXED CHARGES AND PREFERRED L.P.
UNIT DISTRIBUTIONS............................ 28
CAPITALIZATION OF IAC CAPITAL TRUST............. 29
CAPITALIZATION OF IRVINE APARTMENT COMMUNITIES,
L.P........................................... 29
SELECTED CONSOLIDATED FINANCIAL DATA............ 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE OPERATING PARTNERSHIP.................. 32
Overview...................................... 32
Results of Operations......................... 32
Liquidity and Capital Resources............... 36
Capital Expenditures.......................... 39
Impact of Inflation........................... 40
BUSINESS AND PROPERTIES OF THE OPERATING
PARTNERSHIP................................... 41
General....................................... 41
Business Strategy............................. 42
Irvine Ranch Master Plan...................... 44
Exclusive Land Rights Agreement............... 45
The Properties................................ 46
Management and Control of the Operating
Partnership................................. 48
Competition................................... 49
Employees..................................... 49
Cyclicality................................... 49
Environmental Matters......................... 49
Regulation.................................... 50
Factors Relating to Real Estate Operations and
Development................................. 52
Legal Proceedings............................. 54
Principal Executive Offices................... 54
</TABLE>
3
<PAGE> 5
(continued from previous page)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES..... 55
Operating Partnership......................... 55
The Trust..................................... 58
MANAGEMENT...................................... 59
Executive Officers and Directors.............. 59
Board of Directors; Committees................ 62
Compensation of Directors..................... 63
Certain Rights of The Irvine Company with
Respect to the Company's Board of
Directors................................... 63
Executive Compensation........................ 64
1997 Option and Restricted Stock Unit Grants
to Named Executive Officers................. 65
New President and Chief Executive Officer..... 66
Employment Agreements and Termination of
Employment Agreements....................... 66
PRINCIPAL SECURITYHOLDERS....................... 67
Operating Partnership......................... 67
The Company................................... 68
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................. 70
Transactions with The Irvine Company.......... 70
Other Transactions............................ 73
DESCRIPTION OF THE SERIES A PREFERRED
SECURITIES.................................... 74
General....................................... 74
Common Securities............................. 74
Restrictions on Ownership and Transfer of
Series A Preferred Securities............... 75
Ranking....................................... 76
Distributions................................. 76
Redemption.................................... 78
Redemption Procedures......................... 78
Liquidation................................... 79
Merger, Consolidation or Amalgamation of the
Trust....................................... 80
Voting Rights................................. 80
Conversion Rights............................. 82
Modification and Amendment of the
Declaration................................. 82
Book-Entry Only Issuance -- The Depository
Trust Company............................... 83
PAGE
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Registrar, Transfer Agent and Paying Agent.... 85
Information Concerning the Property Trustee... 85
Governing Law................................. 86
Miscellaneous................................. 86
DESCRIPTION OF THE SERIES A PREFERRED L.P.
UNITS......................................... 87
General....................................... 87
Ranking....................................... 87
Distributions................................. 87
Liquidation................................... 88
Redemption.................................... 89
Voting Rights................................. 91
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES
AND THE PREFERRED L.P. UNITS.................. 92
OPERATING PARTNERSHIP AGREEMENT................. 93
Management.................................... 93
Transfer of L.P. Units........................ 94
Issuance of Additional L.P. Units............. 94
Exchange Rights............................... 94
Cash Tender Rights............................ 95
Funding of Investments........................ 95
Tax Accounting................................ 95
Term.......................................... 95
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......... 96
Taxation of the Trust......................... 96
Tax Aspects of the Trust's Investment in the
Operating Partnership....................... 99
Taxation of Taxable Domestic Holders.......... 99
Recent Legislation Applicable to REITs........ 100
Taxation of Tax-Exempt Holders................ 100
Taxation of Foreign Holders................... 100
Other Tax Consequences........................ 102
UNDERWRITING.................................... 103
EXPERTS......................................... 105
LEGAL MATTERS................................... 105
ADDITIONAL INFORMATION.......................... 106
GLOSSARY........................................ 107
INDEX TO FINANCIAL STATEMENTS................... F-1
</TABLE>
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
financial and other information appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus relates to the
properties of the Operating Partnership as of September 30, 1997. In addition,
all property, statistical and operating data relating to the Existing
Communities (as defined herein) in this Prospectus presented as of any date
prior to, or for any period ending on or prior to, June 30, 1997 excludes data
for The Villas of Renaissance (as defined herein), which the Operating
Partnership acquired on June 30, 1997. All data relating to the Existing
Communities presented as of June 30, 1997 or any later date, or for any period
ending after June 30, 1997, includes data for The Villas of Renaissance, unless
otherwise indicated. See "Recent Developments -- 'Off-Ranch' Expansion." Unless
otherwise indicated, all references in this Prospectus to The Irvine Company's
interest in the Operating Partnership or its ownership of Common L.P. Units
includes the interest and ownership of its affiliates. The Operating Partnership
refers to its multifamily rental apartment properties as communities.
THE OPERATING PARTNERSHIP
Irvine Apartment Communities, L.P., a Delaware limited partnership, is
engaged in the development and operation of multifamily rental apartment
communities in California. The Operating Partnership's management and operating
decisions are under the unilateral control of Irvine Apartment Communities,
Inc., a Maryland corporation, a self-administered equity real estate investment
trust. The Operating Partnership and the Company were formed in December 1993 to
continue and expand the apartment community business of The Irvine Company, a
real estate and community development company. At September 30, 1997, the
Company had a 45.2% (44.4% as of December 16, 1997) general partnership interest
in the Operating Partnership and was its sole managing general partner. At such
date, the limited partners of the Operating Partnership had a 54.8% (55.6% as of
December 16, 1997) interest in the Operating Partnership, represented by the
Common L.P. Units, with The Irvine Company and certain of its affiliates owning
a 54.6% (55.4% as of December 16, 1997) limited partnership interest in the
Operating Partnership.
As of September 30, 1997, the Operating Partnership owned and operated
14,991 units in 51 high-quality apartment communities (the "Existing
Communities") and had four additional apartment communities aggregating 1,110
units under construction (the "Communities Under Construction" and, together
with the Existing Communities, the "Properties"). Upon completion of the
Communities Under Construction, the Operating Partnership will own a total of
16,101 units in 55 apartment communities, representing an increase in units of
approximately 42% since the Company's initial public offering (the "Initial
Public Offering") in December 1993. Through July 2020, the Company and the
Operating Partnership hold the exclusive right, but not the obligation, to
acquire land from The Irvine Company, the owner and developer of the Irvine
Ranch since 1864, for development of additional apartment communities on the
Irvine Ranch. Fifty-three of the Properties aggregating 14,836 units (the
"Irvine Ranch Properties") are or will be located on the Irvine Ranch, of which
50 constitute Existing Communities (14,068 units) and three constitute
Communities Under Construction (768 units).
In 1997, the Operating Partnership commenced an "off-Ranch" expansion
program through the acquisition of rights to purchase three apartment community
development sites located in Northern California's Silicon Valley. The Operating
Partnership has exercised its right with respect to one of these sites and has
begun construction on a 342-unit apartment community on the site. On October 23,
1997, the Board of Directors of the Company authorized the Operating
Partnership, subject to receipt of necessary entitlements, to exercise another
of the options. Construction of an apartment community of approximately 155
units on this site is expected to commence in the first half of 1998.
Preliminary design and jurisdictional approvals are also in process with respect
to the remaining development site. In addition, on June 30, 1997, the Operating
Partnership purchased for $127 million an existing 923-unit apartment community
("The Villas of Renaissance") located in Northern San Diego County (the "Villas
of Renaissance Acquisition"). Two additional sites located in Northern San Diego
County were purchased in early December, 1997. See "Recent
Developments -- 'Off-Ranch' Expansion." The Operating Partnership believes that
the economic expansion
5
<PAGE> 7
being experienced by the State of California provides the Operating Partnership
with significant growth potential beyond the Irvine Ranch.
The Irvine Ranch is located in central Orange County, California between
San Diego and Los Angeles. The western boundary of the Irvine Ranch borders
approximately six miles of the Pacific Ocean. Today, the portion of the Irvine
Ranch which is still owned by The Irvine Company covers approximately 50,000
acres and includes the largest remaining privately-owned undeveloped acreage in
Orange County. The developed portion of the Irvine Ranch, which includes the
City of Irvine and significant parts of the cities of Newport Beach and Tustin,
is one of the largest urban master-planned communities in the United States. The
Irvine Ranch has been developed over the past 30 years in accordance with an
original master plan (the "Master Plan") which, over time, has been refined to
accord with locally approved general plans. The Irvine Ranch is one of the major
commercial, industrial, retail and residential centers in Southern California.
The Operating Partnership believes that a variety of factors have
contributed to the strong apartment market in Orange County, the successful
operating performance of the Existing Communities located on the Irvine Ranch
and the existence of significant opportunities for the development of additional
apartment communities on the Irvine Ranch. Most important among these factors
are:
- The dominant market position of the Operating Partnership, which owns
over 85% of all apartment communities having 100 or more units on the
Irvine Ranch;
- The Operating Partnership's 23-year exclusive right to acquire land from
The Irvine Company for development of additional rental apartment
communities on the Irvine Ranch;
- The limited supply of developable land, other than on the Irvine Ranch,
adjacent to major employment centers in Orange County;
- The Irvine Company's Master Plan strategy which emphasizes market
segmentation in order to ensure adequate and appropriate allocation of
land uses which support sustained growth for the long-term;
- The high quality of design, construction and maintenance of the Irvine
Ranch Properties and their location in or near the City of Irvine, which
was ranked by the Federal Bureau of Investigation as among the safest
cities in the United States with a population of 100,000 or more;
- The close proximity of the Irvine Ranch Properties and of future
development sites to major employment centers, the Pacific Ocean, high
quality schools, and extensive resort, recreational and open space
amenities;
- An affluent, growing population and diversified employment base in Orange
County and on the Irvine Ranch;
- The Operating Partnership's ability to defer the purchase of land on the
Irvine Ranch under its land rights agreement until site and zoning
entitlements have been obtained, the land is ready for construction and
the Operating Partnership determines favorable market conditions exist;
- The operating efficiencies available to the Operating Partnership because
the Irvine Ranch Properties are located in a single geographic area;
- An average of 20 years of experience of the Company's 11 most senior
members of management in the design, development, construction, property
management and financing of apartment communities; and
- The effectiveness of management's policies regarding property management
and expense control.
The Operating Partnership's intent is to develop or acquire new apartment
communities in California. The Operating Partnership has recently commenced
operations in the Silicon Valley and Northern San Diego County, which possess
strong rental demographics and economic growth prospects similar to those on the
Irvine Ranch.
6
<PAGE> 8
IAC CAPITAL TRUST
IAC Capital Trust is a statutory business trust formed on October 31, 1997
under the Delaware Business Trust Act (the "Business Trust Act") pursuant to a
declaration of trust, among the Trustees (as defined herein), the Company and
the Operating Partnership, and the filing of a certificate of trust with the
Secretary of State of the State of Delaware. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, as of the date the Series A Preferred
Securities are initially issued. The Company and certain members of management
of the Company will acquire all of the Common Securities of the Trust for an
aggregate consideration of $5,000. From time to time the Trust may issue
additional series of Preferred Securities and invest the proceeds of any such
issuance in an additional series of Preferred L.P. Units of the Operating
Partnership. The Trust Securities represent undivided beneficial interests in
the assets of the Trust, subject to the priority and payment terms of the Trust
Securities, and are not secured by any assets of the Operating Partnership or
any of its affiliates. The Trust is a limited purpose financing vehicle
established by the Company and the Operating Partnership and exists solely for
the purpose of (a) issuing its Preferred Securities (and, if applicable, Excess
Preferred Securities (as defined herein)), (b) issuing its Common Securities to
the persons described above and investing the proceeds thereof in an interest
bearing account in, or certificate of deposit of, a bank, (c) investing the
proceeds from the sale of each series of Preferred Securities in a series of
Preferred L.P. Units of the Operating Partnership and (d) engaging in such other
activities as are necessary, convenient or incidental thereto. The rights of the
holders of the Trust Securities, including economic rights, rights to
information and voting rights, are as set forth in the Declaration and the
Business Trust Act. The Preferred Securities have no voting rights except in
limited circumstances. The Declaration does not permit the incurrence by the
Trust of any indebtedness for borrowed money or the making of any investment
other than in Preferred L.P. Units of the Operating Partnership and as described
above in connection with the investment of the proceeds from the sale of the
Common Securities. In the Declaration, the Operating Partnership has agreed to
reimburse all obligations (other than with respect to the Trust Securities) and
all costs and expenses of the Trust, including the fees and expenses of the
Trustees and any income taxes, duties and other governmental charges, and all
costs and expenses with respect thereto, to which the Trust may become subject,
except for withholding taxes. For a more detailed description of the rights of
holders of the Series A Preferred Securities, see "-- The Offering," "IAC
Capital Trust" and "Description of the Series A Preferred Securities."
7
<PAGE> 9
STRUCTURE AND OWNERSHIP
The following diagram depicts the ownership of the Trust and the Operating
Partnership upon consummation of the Offering.
[Description]
[Depiction of the ownership of the Trust and the Operating Partnership as
well as the flow of proceeds received upon consummation of the Offering.]
8
<PAGE> 10
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE SERIES A
PREFERRED SECURITIES OFFERED HEREBY. SOME OF THE SIGNIFICANT CONSIDERATIONS
INCLUDE:
- The Trust's ability to make distributions and other payments on the
Series A Preferred Securities is initially effectively dependent upon the
Operating Partnership making distributions and other payments on the
Series A Preferred L.P. Units held as trust assets. As a result, if the
Operating Partnership does not make distributions or other payments on
the Preferred L.P. Units deposited in the Trust as trust assets,
including the Series A Preferred L.P. Units, for any reason, it is
expected that the Trust will not be able to make payments on the Series A
Preferred Securities.
- The Series A Preferred Securities have no voting rights except in limited
circumstances.
- The taxation of the Trust as a corporation if it fails to qualify as a
REIT could result in increased costs to the Operating Partnership since
it will be responsible for such taxes and may result in the redemption of
the Series A Preferred Securities. See "Description of the Series A
Preferred Securities -- Redemption" and "Description of the Series A L.P.
Units -- Redemption."
- The restriction on ownership of more than 9.8% of the outstanding Series
A Preferred Securities (the "Ownership Limit"). If the Ownership Limit is
exceeded, Series A Preferred Securities in excess of the Ownership Limit
will automatically be exchanged for Excess Preferred Securities which
have limited rights.
- Conflicts of interest with, and influence of, The Irvine Company,
including the substantial influence of The Irvine Company and its three
nominees to the Board of Directors of the Company over the affairs of the
Operating Partnership.
- The Irvine Company will determine which land will be designated for
rental apartment community development on the Irvine Ranch. Since The
Irvine Company also develops industrial, commercial and other properties
on the Irvine Ranch, the feasibility and development of additional
apartment communities by the Operating Partnership on the Irvine Ranch
may be adversely affected by the feasibility and development of
commercial, industrial and residential for-sale properties by The Irvine
Company on the Irvine Ranch. In addition, The Irvine Company will control
the application for initial land use approvals from local governing
entities ("Village Related Entitlements") and will also have certain
approval rights with respect to the architectural design and physical
layout of rental apartment communities.
- The potential for early termination of the Land Rights Agreement, as
amended, among the Company, the Operating Partnership, The Irvine Company
and Mr. Bren (the "Land Rights Agreement") upon the occurrence of certain
events, including the failure of the shareholders of the Company to elect
as directors of the Company those persons nominated by The Irvine
Company. If the Land Rights Agreement is terminated as a result of the
occurrence of one of these events, the Operating Partnership would no
longer have an option to acquire apartment community land sites from The
Irvine Company and The Irvine Company and Mr. Bren would no longer be
prohibited from acquiring or developing apartment communities on or off
the Irvine Ranch in competition with the Operating Partnership.
Accordingly, the termination of the Land Rights Agreement would likely
have a material adverse effect on the future development activities of
the Operating Partnership on the Irvine Ranch.
- Financing risks, including the ability of the Operating Partnership to
incur substantial indebtedness, subject to certain covenants in the
Operating Partnership's debt agreements, thereby permitting the Operating
Partnership to become more highly leveraged. Increased leverage and the
resulting increase in debt service requirements could adversely affect
the Operating Partnership's ability to make required distributions on the
Preferred L.P. Units, including the Series A Preferred L.P. Units, which
in turn would adversely affect the Trust's ability to make required
distributions on the Series A Preferred Securities.
- General real estate investment risks, including:
9
<PAGE> 11
-- risks associated with the development or acquisition of new apartment
communities, including the possible inability of The Irvine Company to
obtain Village Related Entitlements (as defined below); construction,
lease-up and financing risks; and the possibility that newly developed
or acquired properties will fail to perform as expected;
-- the effect of local economic conditions, such as unemployment rates,
supply of and demand for apartments, and other conditions on apartment
community cash flows and values (including the risk arising from
concentration of the Properties in Orange County); the ability of
residents to make rent payments; the ability of a property to generate
income sufficient to meet operating expenses (including real estate
taxes) and debt service; and the illiquidity of real estate
investments, all of which may affect the Operating Partnership's
ability to make expected distributions; and
-- potential losses in the event of a casualty loss (e.g., an earthquake)
that is not insured, insurable or economically insurable.
- The lack of a prior market for the Series A Preferred Securities.
THE PROPERTIES
As of September 30, 1997, the Operating Partnership owned and operated
14,991 apartment units in the Existing Communities and had four Communities
Under Construction. The Operating Partnership believes that the Properties are
high quality apartment communities with superior locations near major employment
centers and, in the case of Irvine Ranch Properties, within master-planned
villages. The Properties are located within the following individual
jurisdictions:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT OF TOTAL
LOCATION PROPERTIES (1) UNITS (1) UNITS
- ----------------------------------------------------- -------------- --------- ----------------
<S> <C> <C> <C>
ORANGE COUNTY
Irvine............................................. 37 9,849 61.2%
Newport Beach...................................... 8 2,305 14.3
Tustin............................................. 7 2,170 13.5
Newport Coast...................................... 1 512 3.2
SILICON VALLEY
Cupertino.......................................... 1 342 2.1
NORTHERN SAN DIEGO COUNTY
La Jolla........................................... 1 923 5.7
--- ------ -----
TOTAL...................................... 55 16,101 100.0%
=== ====== =====
</TABLE>
- ---------------
(1) Four of these Properties (aggregating 1,110 units) are Communities Under
Construction.
MANAGEMENT AND CONTROL OF THE OPERATING PARTNERSHIP
As sole general partner of the Operating Partnership, the Company has the
exclusive power to manage and conduct the business of the Operating Partnership.
The Company, in turn, is governed by a Board of Directors, which has a majority
of directors unaffiliated with The Irvine Company. Furthermore, the Board of
Directors of the Company has established a committee of such unaffiliated
directors (the "Independent Directors Committee") whose approval is required
with respect to all transactions involving the Operating Partnership or the
Company on the one hand and The Irvine Company, affiliates of The Irvine Company
or Mr. Bren on the other hand, such as the acquisition of additional apartment
communities or sites therefor from The Irvine Company.
Consent of The Irvine Company is required by the Second Amended and
Restated Agreement of Limited Partnership of the Operating Partnership (the
"Partnership Agreement") for, among other things, (i) the Operating Partnership
to sell all or substantially all of its assets, (ii) the Company to take title
to assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the Operating
10
<PAGE> 12
Partnership) or for the Company to conduct business other than through the
Operating Partnership, (iii) the Operating Partnership to engage in any business
other than the development and ownership of apartment communities or (iv) the
Operating Partnership to liquidate, dissolve, wind-up or terminate. The
Partnership Agreement requires, absent receipt of consent, that title to assets
be in the Operating Partnership in order to maintain a one-for-one exchange
ratio between Common L.P. Units and shares of common stock of the Company (the
"Common Stock"). See "Operating Partnership Agreement -- Management."
At the option of The Irvine Company, The Irvine Company's 54.6% (55.4% as
of December 16, 1997) limited partnership interest in the Operating Partnership
(i) is exchangeable for Common Stock of the Company pursuant to the exchange
rights (the "Exchange Rights") set forth in the Partnership Agreement (subject
to the ownership limit applicable to The Irvine Company and certain related
persons contained in the Articles of Amendment and Restatement (the "Articles of
Incorporation") of the Company), and (ii) may be tendered to the Company for
cash payable solely out of the net proceeds of an offering of Common Stock of
the Company pursuant to the cash tender rights (the "Cash Tender Rights") set
forth in the Partnership Agreement.
TAX STATUS OF THE TRUST
The Trust will elect to be taxed as a REIT under the Code, commencing with
its taxable year ending December 31, 1998, and the Trust intends to operate so
as to qualify as a REIT. In the opinion of Davis Polk & Wardwell, commencing
with the Trust's taxable year ending December 31, 1998, the Trust will be
treated as being organized in conformity with the requirements for qualification
as a REIT, and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under current law. This
opinion is based upon certain assumptions and representations made by the Trust
and the Operating Partnership as to factual matters as set forth in this
Prospectus. An opinion of counsel is not binding on the Internal Revenue Service
or the courts. If the Trust qualifies for taxation as a REIT, then under current
federal income tax laws it generally will not be subject to federal corporate
income tax on its net income that is currently distributed to holders of its
Trust Securities to the extent it currently distributes at least 95% of its net
taxable income to the holders of its Trust Securities. Even if the Trust
qualifies for taxation as a REIT, the Trust may be subject to certain federal,
state and local taxes on its income and property and to federal income and
excise tax on its undistributed income. See "Certain Federal Income Tax
Consequences."
11
<PAGE> 13
THE OFFERING
ISSUER..................... IAC Capital Trust, a Delaware business trust (the
"Trust").
SECURITIES OFFERED......... 6,000,000 % Series A REIT Trust Originated
Preferred Securities of IAC Capital Trust
(6,900,000 Series A Preferred Securities if the
Underwriters' overallotment option is exercised in
full).
ASSETS OF THE TRUST........ The Trust will invest the proceeds from the sale of
the Series A Preferred Securities in Series A
Preferred L.P. Units. The assets of the Trust will
initially consist solely of the Series A Preferred
L.P. Units and the investment made in connection
with proceeds from the sale of the Common
Securities of the Trust.
DISTRIBUTIONS; DEPENDENCE
ON DISTRIBUTIONS ON SERIES
A PREFERRED L.P. UNITS..... Distributions on the Series A Preferred L.P. Units
and the Series A Preferred Securities will accrue
from , 1998 and will be payable at an
annual rate of % of the liquidation amount of $25
per security. Distributions will be payable
quarterly in arrears on , ,
and of each year, commencing on
, 1998. The ability of the Trust to pay
distributions on the Series A Preferred Securities
is initially effectively dependent on the receipt
of distributions from the Operating Partnership on
the Series A Preferred L.P. Units. See "Description
of the Series A Preferred
Securities -- Distributions."
LIQUIDATION AMOUNT......... Upon (i) any dissolution, liquidation, winding-up
or termination of the Trust, or (ii) upon any
dissolution, liquidation, winding-up or termination
of the Operating Partnership, at which time the
Trust will also terminate, holders of Series A
Preferred Securities will be entitled to receive,
after payment or provision for payment of debts and
other liabilities of the Trust and subject to the
rights of holders of other series of Preferred
Securities ranking on a parity with the Series A
Preferred Securities upon any dissolution,
liquidation, winding-up or termination of the
Trust, $25 per Series A Preferred Security plus
accumulated and unpaid distributions thereon and no
more. See "Description of the Series A Preferred
Securities -- Liquidation."
REDEMPTION................. Except as described below, the Series A Preferred
L.P. Units are not redeemable prior to
. On or after , the Series
A Preferred L.P. Units may be redeemed at the
option of the Operating Partnership, in whole or
from time to time in part, at a redemption price of
$25 per Series A Preferred L.P. Unit, plus
accumulated and unpaid distributions, if any, to
the redemption date. The Series A Preferred L.P.
Units may also be redeemed in whole but not in part
at any time upon the occurrence and continuance of
a Tax Event (as defined herein) or Investment
Company Act Event (as defined herein). The
redemption price (other than the portion consisting
of accumulated and unpaid distributions) will be
payable solely out of the sale proceeds of capital
stock of the Company, which will be contributed by
the Company to the Operating Partnership as an
additional capital contribution, or the sale
proceeds of L.P. Units, and from no other source.
If the Operating Partnership redeems Series A
Preferred L.P. Units, the Trust must redeem in cash
a series of Preferred Securities having economic
terms substantially similar to the Series A
Preferred L.P. Units redeemed and
12
<PAGE> 14
having an aggregate liquidation amount equal to the
aggregate stated value of the Series A Preferred
L.P. Units so redeemed. Accordingly, if Series A
Preferred L.P. Units are redeemed, the Trust will
redeem Series A Preferred Securities at a
redemption price equal to $25 per Series A
Preferred Security plus accumulated and unpaid
distributions thereon to the date of redemption.
See "Description of the Series A Preferred
Securities -- Redemption" and "Description of the
Series A Preferred L.P. Units -- Redemption."
TERM OF SECURITIES......... The Series A Preferred Securities and the Series A
Preferred L.P. Units will have a stated maturity of
December 31, 2092. Unless previously redeemed, the
Series A Preferred Securities and the Series A
Preferred L.P. Units will be redeemed for cash upon
termination of the Operating Partnership. The
Operating Partnership will terminate on December
31, 2092, unless sooner dissolved.
NO CONVERSION RIGHTS; NO
SINKING FUND............... The Series A Preferred Securities and the Series A
Preferred L.P. Units will not be subject to any
sinking fund and, except as described under
"Description of the Series A Preferred
Securities -- Restrictions on Ownership and
Transfer of Series A Preferred Securities," neither
the Series A Preferred Securities nor the Series A
Preferred L.P. Units will be convertible into any
securities of the Company, the Operating
Partnership or the Trust.
VOTING RIGHTS.............. Holders of Series A Preferred Securities will have
no voting rights except in limited circumstances.
See "Description of the Series A Preferred
Securities -- Voting Rights."
RANKING.................... The Series A Preferred Securities will, with
respect to distributions and rights upon
liquidation, dissolution, winding-up or termination
of the Trust, rank (i) senior to the Common
Securities and (ii) on a parity with all other
series of Preferred Securities issued by the Trust
unless the terms of such other series specifically
provide that such other series ranks junior to the
Series A Preferred Securities. The Series A
Preferred L.P. Units will, with respect to
distributions and rights upon liquidation,
dissolution, winding-up or termination of the
Operating Partnership, rank (i) senior to the G.P.
Units and the Common L.P. Units and (ii) on a
parity with all other series of Preferred L.P.
Units issued by the Operating Partnership unless
the terms of such other series specifically provide
that such series ranks junior to the Series A
Preferred L.P. Units. See "Description of the
Series A Preferred Securities -- Ranking" and
"Description of the Series A Preferred L.P.
Units -- Ranking."
USE OF PROCEEDS............ The proceeds from the sale of the Series A
Preferred Securities will be invested by the Trust
in Series A Preferred L.P. Units of the Operating
Partnership. After payment of the Underwriters'
Compensation and other expenses associated with the
Offering, the Operating Partnership will use a
portion of the proceeds received by it upon
issuance of the Series A Preferred L.P. Units to
repay all indebtedness outstanding under the
Operating Partnership's Credit Facility (as defined
herein), and the remainder of such proceeds will be
used for general partnership purposes, including
ongoing development activities on and off the
Irvine Ranch and the possible acquisition of
additional properties off the Irvine Ranch. See
"Use of Proceeds."
13
<PAGE> 15
BOOK-ENTRY ONLY ISSUANCE... Series A Preferred Securities will be represented
by one or more permanent global securities in fully
registered form deposited with the Depository Trust
Company ("DTC") and registered in the name of DTC
or its nominee. The laws of some jurisdictions
require that certain purchasers of securities take
physical delivery of securities in definitive form.
Such laws may impair the ability to transfer
beneficial interests in a global Series A Preferred
Security. See "Description of the Series A
Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company."
NEW YORK STOCK EXCHANGE
SYMBOL..................... "IAC Pr A"
14
<PAGE> 16
SUMMARY FINANCIAL DATA
The following Summary Financial Data (other than statistical and property
data) has been derived from the Operating Partnership's or the Operating
Partnership's predecessor's (the "Predecessor's") consolidated financial
statements. Information as of December 31, 1996 and 1995 and for each of the
years in the three year period ended December 31, 1996 has been derived from the
Operating Partnership's audited consolidated financial statements included
herein. Information for the year ended December 31, 1993 has been derived from
audited financial statements not included herein of the Company and the
Predecessor and is on a combined and consolidated historical basis for the
Operating Partnership and the Predecessor. Information at December 31, 1994 and
1993 has been derived from the Company's audited financial statements not
included herein and information at and for the year ended December 31, 1992 has
been derived from the Predecessor's audited financial statements not included
herein. Information at September 30, 1997 and for the respective nine month
periods ended September 30, 1997 and 1996 has been derived from the Operating
Partnership's unaudited consolidated financial statements included herein and
which, in the opinion of the Operating Partnership, reflect all adjustments
considered necessary for a fair presentation. Results for the nine month period
ended September 30, 1997 are not necessarily indicative of results for the full
year. All such financial information is qualified in its entirety by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Operating
Partnership" and the Consolidated Financial Statements (including the notes
thereto) included herein. The Company acquired The Villas of Renaissance on June
30, 1997. See "Recent Developments -- 'Off-Ranch' Expansion." For pro forma
financial information of the Operating Partnership for the year ended December
31, 1996 and the nine months ended September 30, 1997, see the Unaudited Pro
Forma Consolidated Statements of Operations included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY INFORMATION, RATIOS AND PER UNIT AMOUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
OPERATING DATA:
Revenues:
Rental income...... $133,114 $114,000 $154,925 $133,678 $127,338 $123,101 $119,097
Other income....... 3,093 2,317 3,162 2,079 1,585 1,659 2,097
Interest income.... 659 419 611 411 1,313 60 --
-------- -------- -------- -------- -------- -------- --------
136,866 116,736 158,698 136,168 130,236 124,820 121,194
-------- -------- -------- -------- -------- -------- --------
Expenses:
Property
expenses......... 28,790 24,903 33,859 31,761 33,105 34,057 35,685
Real estate
taxes............ 10,959 10,023 13,496 12,002 11,786 10,729 9,921
Property management
fees............. 3,809 3,316 4,502 3,893 3,800 3,881 4,393
Interest expense,
net.............. 21,949 22,378 29,506 25,894 26,827 50,248 49,154
Amortization of
deferred
financing
costs............ 1,882 1,975 2,627 8,510 15,942 3,012 1,474
Depreciation and
amortization..... 21,700 20,346 27,239 23,143 21,055 20,002 19,808
General and
administrative... 4,822 4,890 6,277 5,909 5,442 3,278 2,359
-------- -------- -------- -------- -------- -------- --------
93,911 87,831 117,506 111,112 117,957 125,207 122,794
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary
item............... 42,955 28,905 41,192 25,056 12,279 (387) (1,600)
Extraordinary item --
charge related to
debt
extinguishment..... -- -- -- (23,427) -- (12,487) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).... $ 42,955 $ 28,905 $ 41,192 $ 1,629 $ 12,279 $(12,874) $ (1,600)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
unit............... $ 0.99 $ 0.75 $ 1.06 $ 0.05 $ 0.41 $ (0.43)
======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
--------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY INFORMATION, RATIOS AND PER UNIT AMOUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
STATISTICAL AND PROPERTY DATA:
Total stabilized communities
(at period end)(2)........... 51 47 48 43 43 42 42
Apartment units (at period
end)......................... 14,991 13,541 13,656 12,776 11,358 11,334 10,952
Average units in stabilized
communities(2)(3)(6)......... 13,683 11,786 12,139 11,334 11,334 10,799 10,446
Average physical occupancy in
stabilized
communities(2)(3)(6)......... 94.5% 94.8% 94.9% 94.6% 95.6% 96.3% 96.2%
OTHER DATA:
Average monthly rent per
unit(3)(4)(6)................ $ 1,101 $ 1,012 $ 1,025 $ 996 $ 981 $ 963 $ 950
Capital replacements per
unit(3)(5)(6)................ $ 234 $ 247 $ 393 $ 399 $ 490 $ 482 $ 458
EBITDA, as adjusted(7)......... $ 88,486 $ 73,604 $100,564 $ 82,603 $ 76,103 $ 72,875 $ 68,836
Ratio of EBITDA to interest
expense(7)(8)................ 4.03x 3.29x 3.41x 3.19x 2.84x 1.45x 1.40x
Cash flows provided by (used
in):
Operating activities......... $ 69,432 $ 55,748 $ 73,037 $ 55,403 $ 49,786 $ 10,249 $ 16,171
Investing activities......... $(205,807) $(44,220) $(66,616) $(128,218) $(50,918) $(23,649) $(19,285)
Financing activities......... $ 135,543 $ (8,356) $ (7,608) $ 73,739 $(23,316) $ 36,428 $ 3,516
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. $ 1,101,826 $900,998 $853,230 $757,240 $740,120 $654,694
Total debt................................ 666,826 553,064 563,286 540,689 513,943 555,491
Total liabilities......................... 706,073 580,654 588,664 566,191 527,776 564,420
Partners' capital......................... 395,753 320,344 264,566 191,049 212,344 90,274
</TABLE>
- ---------------
(1) Includes the operations of the Predecessor through December 7, 1993 and of
the Operating Partnership from December 8 through December 31, 1993.
(2) A property is stabilized at the earlier of (i) one year after completion of
construction or (ii) when it achieves 95% occupancy.
(3) With respect to each period presented for communities that have been
stabilized for less than one year, reflects data from the date of stabilized
occupancy.
(4) Average monthly rent per unit is calculated by dividing the average rental
revenue per unit by average economic occupancy.
(5) Data for the year ended December 31, 1992 excludes capital replacements
totaling $534 per unit relating to a major renovation program at the
Operating Partnership's Promontory Point apartment community due to the
nonrecurring nature of the program.
(6) Excludes The Villas of Renaissance, which was acquired on June 30, 1997. If
The Villas of Renaissance were included for the nine months ended September
30, 1997, average units in stabilized communities would have been 13,991,
average physical occupancy in stabilized communities would have been 94.4%,
average monthly rent per unit would have been $1,104 and capital
replacements per unit would have been $229.
(7) EBITDA, as adjusted, represents earnings before interest, depreciation and
amortization and extraordinary items. EBITDA is not necessarily comparable
to similarly titled measures of other companies, and should not be
considered as an alternative to operating income, as determined in
accordance with generally accepted accounting principles ("GAAP"), as an
indicator of the Operating Partnership's operating performance, or to cash
flows from operating activities (as determined in accordance with GAAP) as a
measure of liquidity.
(8) The Operating Partnership did not have any Preferred L.P. Units outstanding
in any of the periods indicated, and, therefore, the ratio of EBITDA to
interest expense and preferred securities distributions for each of the
periods indicated was equal to the ratio of EBITDA to interest expense for
such period.
16
<PAGE> 18
RISK FACTORS
Prospective investors should carefully consider the following material
risks in conjunction with the other information contained in this Prospectus
before making an investment in the Series A Preferred Securities.
DEPENDENCE ON OPERATING PARTNERSHIP
The Trust's ability to make distributions and other payments on the Series
A Preferred Securities is initially effectively dependent upon the Operating
Partnership making distributions and other payments on the Series A Preferred
L.P. Units held as trust assets. If the Operating Partnership does not make
distributions or other payments on the Preferred L.P. Units deposited in the
Trust as trust assets, including the Series A Preferred L.P. Units, for any
reason, it is expected that the Trust will not be able to make payments on the
Series A Preferred Securities.
The Declaration provides that the Operating Partnership shall reimburse all
costs, expenses and liabilities of the Trust, including any taxes and all costs
and expenses with respect thereto, to which the Trust may become subject, except
with respect to distributions on the Trust Securities and withholding taxes on
such distributions. No assurance can be given that the Operating Partnership
will have sufficient resources to enable it to pay such costs, expenses and
liabilities on behalf of the Trust.
RANKING OF SERIES A PREFERRED L.P. UNITS AND SERIES A PREFERRED SECURITIES
The Series A Preferred L.P. Units rank junior to all existing and future
debt and other liabilities of the Operating Partnership and its subsidiaries and
senior with respect to distributions and rights upon liquidation, dissolution,
winding-up or termination of the Operating Partnership to the G.P. Units, the
Common L.P. Units now or hereafter issued by the Operating Partnership and on a
parity with any other series of Preferred L.P. Units hereafter issued, unless
the terms of such other series state that such Preferred L.P. Units rank junior
to the Series A Preferred L.P. Units. There are no terms in the Series A
Preferred Securities or the Series A Preferred L.P. Units that restrict the
ability of the Operating Partnership from incurring additional debt or other
liabilities or issuing additional series of Preferred L.P. Units. See
"Description of the Series A Preferred Securities."
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Series A Preferred Securities will have limited voting rights
and, subject to the rights of holders of Preferred Securities to appoint a
Special Regular Trustee (as defined herein) upon the occurrence of an
Appointment Event (as defined herein), will not be able to appoint, remove or
replace, or to increase or decrease the number of, Trustees, which rights are
vested exclusively in the Common Securities. See "Description of the Series A
Preferred Securities -- Voting Rights" and "Description of the Series A
Preferred L.P. Units -- Voting Rights."
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Trust intends to operate so as to qualify as a REIT under the Code.
Although the Trust believes that it will be organized and will operate in
such a manner, no assurance can be given that the Trust will be able to operate
in such a manner so as to qualify as a REIT under the Code or to remain so
qualified. Qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Trust's control may affect its ability to
qualify as a REIT. In addition, no assurance can be given that legislation, new
regulations, administrative interpretations, or court decisions will not
significantly change the tax laws with respect to the qualification as a REIT or
the federal income tax consequences of such qualification; however, the Trust is
not aware of any proposal in Congress to amend the tax laws that would
materially and adversely affect the Trust's ability to operate as a REIT.
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The Trust is relying on the opinion of Davis Polk & Wardwell, tax counsel
to the Operating Partnership and the Trust, regarding various issues affecting
the Trust's ability to qualify, and retain qualification, as a REIT. See "Legal
Matters." Such legal opinions are not binding on the Internal Revenue Service
("IRS") or the courts. See "Certain Federal Income Tax Consequences."
If in any taxable year the Trust fails to qualify as a REIT, the Trust
would not be allowed a deduction for distributions to holders of Trust
Securities in computing its taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. This could result in increased costs to the
Operating Partnership since it will be responsible for such taxes. The taxation
of the Trust as a corporation if it fails to qualify as a REIT would generally
permit the Operating Partnership to redeem the Series A Preferred L.P. Units, in
which event the Series A Preferred Securities will also be redeemed. See
"Description of the Series A Preferred L.P. Units -- Redemption."
Notwithstanding that the Trust currently intends to operate in a manner
designed to qualify as a REIT, future economic, market, legal, tax, or other
considerations may cause the Regular Trustees (as defined herein) and the
holders of the Common Securities to determine that it is in the best interest of
the Trust to revoke the REIT election. The Trust would be disqualified from
electing treatment as a REIT for the four taxable years following the year of
such revocation. The Trust's ability to maintain REIT status will also be
dependent on the nature of the income derived by the Operating Partnership. See
"Certain Federal Income Tax Consequences."
DISTRIBUTIONS TO HOLDERS OF SERIES A PREFERRED SECURITIES
REIT REQUIREMENTS. To obtain the favorable tax treatment for REITs
qualifying under the Code, the Trust generally will be required each year to
distribute to holders of the Trust Securities at least 95% of its otherwise
taxable income (after certain adjustments). In addition, the Trust will be
subject to a 4% excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of 85% of its
ordinary income for the calendar year, 95% of its capital gains net income for
the calendar year (unless the REIT elects to retain and pay income tax on such
gains) and any undistributed taxable income from prior periods. Failure to
comply with these requirements would result in the Trust's income being subject
to tax at regular corporate rates.
INABILITY OF TRUST TO MAINTAIN ITS DISTRIBUTION POLICY; DEPENDENCE ON
OPERATING PARTNERSHIP. The Trust's income will consist solely of the Trust's
share of the income of the Operating Partnership, and the Trust's cash flow will
consist solely of its share of distributions from the Operating Partnership.
Differences in timing between the receipt of income and the payment of expenses
in arriving at taxable income (of the Operating Partnership) and the effect of
required debt amortization payments could require the Operating Partnership to
borrow funds on a short-term basis to meet its intended distribution policy.
The Trust's ability to make distributions on the Series A Preferred
Securities is initially effectively dependent upon the Operating Partnership's
ability to make distributions on the Series A Preferred L.P. Units.
Distributions by the Operating Partnership will be determined by the Board of
Directors of the Company, as general partner of the Operating Partnership.
Accordingly, there is no assurance that the Operating Partnership will declare
distributions on any Preferred L.P. Units deposited in the Trust as trust
assets, including the Series A Preferred L.P. Units, in an amount sufficient to
permit the Trust to make full quarterly distributions on the Series A Preferred
Securities.
OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of its outstanding Trust Securities may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code). In this
regard, the Declaration generally prohibits ownership of more than 9.8% of the
outstanding Series A Preferred Securities by any holder. Any change in the
Ownership Limit would require an amendment
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to the Declaration. Such an amendment to the Declaration would require the
affirmative vote of holders owning not less than two-thirds of the outstanding
Common Securities. Series A Preferred Securities have no voting rights with
respect to such an amendment.
The constructive ownership rules of the Code are complex and may cause
Series A Preferred Securities owned, directly or indirectly, by a group of
related individuals and/or entities to be deemed to be constructively owned by
one individual or entity. As a result, the acquisition of less than 9.8% of the
Series A Preferred Securities of any series (or the acquisition of an interest
in an entity which owns Series A Preferred Securities) by an individual or
entity could cause that individual or entity (or another individual or entity)
to own constructively in excess of 9.8% of the Series A Preferred Securities,
and thus subject such stock to the Ownership Limit.
Direct or constructive ownership in excess of the Ownership Limit would
cause the violative transfer or ownership to be void, and cause such securities
to be converted into Excess Preferred Securities (as defined herein), which have
limited economic rights. See "Description of Series A Preferred
Securities -- Restrictions on Ownership and Transfer of Series A Preferred
Securities."
SPECIAL EVENT REDEMPTION OF SERIES A PREFERRED SECURITIES
Upon the occurrence and during the continuation of a Tax Event or
Investment Company Event, which may occur at any time, the Operating Partnership
shall, in certain circumstances, have the right to redeem the Series A Preferred
L.P. Units, in whole but not in part, in which event a series of Preferred
Securities having economic terms substantially similar to the Series A Preferred
L.P. Units would be redeemed in full. Accordingly, if the Series A Preferred
L.P. Units are redeemed in full, the Trust will redeem Series A Preferred
Securities in full at the Redemption Price. See "Description of the Series A
Preferred L.P. Units -- Redemption."
CONFLICTS OF INTEREST
CONTROL OF THE COMPANY AND THE OPERATING PARTNERSHIP; INFLUENCE OF CERTAIN
DIRECTORS AND THE IRVINE COMPANY. The Irvine Company has the right to nominate
for election to the Board of Directors of the Company (any such person, an
"Irvine Company Board Representative") three members of such Board of Directors
so long as The Irvine Company, its stockholders or its affiliates beneficially
own at least 20% of the outstanding Common Stock of the Company (including for
these purposes shares issuable upon exercise of the right set forth in the
Partnership Agreement to exchange Common L.P. Units for shares of Common Stock
of the Company subject to the ownership limit provisions applicable to The
Irvine Company set forth in the Company's Articles of Incorporation). In the
event this ownership falls below 20% but is at least 15%, The Irvine Company has
the right to nominate two persons for election to the Board of Directors; and if
this ownership falls below 15% but is at least 10%, The Irvine Company has the
right to nominate one person for election to the Board of Directors. See
"Management -- Executive Officers and Directors." In addition, the Articles of
Incorporation and Bylaws of the Company (the "Bylaws") provide that a majority
of the total number of directors of the Company, including at least one Irvine
Company Board Representative, shall constitute a quorum for the transaction of
business and, except as provided below, that the affirmative vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of all of the Board of Directors. Notwithstanding the
foregoing, the approval of directors of the Company representing more than 75%
of the Board of Directors as a whole (the "Required Directors") is required with
respect to certain actions, and certain matters relating to the Operating
Partnership require the approval of the holders of a majority of the Common L.P.
Units. See "Management -- Certain Rights of The Irvine Company with Respect to
the Company's Board of Directors." Accordingly, The Irvine Company will have
substantial influence over the affairs of the Operating Partnership, which
influence might not be consistent with the interests of other holders of L.P.
Units or the holders of the Series A Preferred Securities.
The Company has adopted certain policies and entered into certain
agreements with The Irvine Company and Mr. Bren designed to eliminate or
minimize potential conflicts of interest. The Board of Directors of the Company
has adopted a policy and has provided in the Company's Bylaws that no
transaction between the
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Company or the Operating Partnership on the one hand and The Irvine Company,
affiliates of The Irvine Company or Mr. Bren on the other hand may be entered
into without the approval of the Independent Directors Committee of the
Company's Board of Directors. Members of the Independent Directors Committee are
unaffiliated with The Irvine Company. In addition, the Independent Directors
Committee engages an independent consultant to assist it in evaluating all land
transactions with The Irvine Company. However, there can be no assurance that
these policies will be successful in eliminating the influence of such conflicts
and, if they are not successful, decisions could be made that might fail to
reflect fully the interests of the Operating Partnership.
OTHER BUSINESS ACTIVITIES OF THE IRVINE COMPANY. The Irvine Company has
significant business interests in developed industrial, commercial and other
properties and in the future development of such properties on the Irvine Ranch,
the value of which exceeds the value of its aggregate interest in the Company
and the Operating Partnership. The feasibility and development of other
apartment communities by the Operating Partnership on the Irvine Ranch may be
affected by the feasibility and development of commercial, industrial and
residential for-sale properties by The Irvine Company on the Irvine Ranch. No
assurance can be given that The Irvine Company will not determine that certain
potential apartment community sites on undeveloped portions of the Irvine Ranch
should be developed as single family, for-sale homes or condominiums or as
industrial or commercial properties.
THE IRVINE COMPANY CONTROLS LAND DESIGNATION AND THE TIMING OF LAND DESIGNATION
PURSUANT TO THE LAND RIGHTS AGREEMENT; INABILITY OF THE IRVINE COMPANY TO
DELIVER ENTITLED PROPERTIES
Purchases of properties by the Operating Partnership from The Irvine
Company under the Land Rights Agreement may be made only with the approval of a
majority of the Independent Directors Committee. The Irvine Company determines
which land is designated for apartment community development in accordance with
the Master Plan for the Irvine Ranch, and therefore which land is eligible for
purchase by the Operating Partnership pursuant to the Land Rights Agreement. No
assurance can be given that The Irvine Company will entitle land for development
of additional apartment communities at a rate consistent with prior development.
Before an apartment may be developed on the Irvine Ranch, the Irvine Company
must obtain Village Related Entitlements. The Irvine Company controls the
application for Village Related Entitlements and also has certain approval
rights with respect to the architectural design and physical layout of the
rental apartment communities. The applications for Village Related Entitlements
will be obtained independently by The Irvine Company. The discretionary nature
of approval for Village Related Entitlements, together with the variety of
concerns which may be raised by government officials and public interest groups
during the approval process, may adversely affect The Irvine Company's ability
to entitle future apartment sites and offer them to the Operating Partnership
for development. Thus, the Operating Partnership's ability to develop future
properties on the Irvine Ranch may be delayed, reduced or prevented.
EARLY TERMINATION OF THE EXCLUSIVE LAND RIGHTS AND NON-COMPETITION ARRANGEMENTS
WITH THE IRVINE COMPANY AND MR. BREN WOULD ADVERSELY AFFECT THE OPERATING
PARTNERSHIP
The Irvine Company and Mr. Bren have agreed not to directly or indirectly
acquire or develop, or acquire an equity ownership interest in any entity that
has an ownership interest in, any apartment community, whether on or off the
Irvine Ranch. The prohibition on The Irvine Company and Mr. Bren from developing
apartment communities on the Irvine Ranch will terminate on July 31, 2020. The
Irvine Company and Mr. Bren will remain prohibited from engaging in any such
activity off the Irvine Ranch until the following two conditions are satisfied:
(i) no nominee of The Irvine Company is a member of the Company's Board of
Directors and (ii) The Irvine Company and certain related persons beneficially
own less than 20% of the outstanding Common Stock of the Company in the
aggregate (including for these purposes shares of Common Stock issuable upon
exchange of its Common L.P. Units pursuant to the Exchange Rights, subject to
the ownership limit provision applicable to The Irvine Company under the
Company's Articles of Incorporation). As of December 1, 1997, The Irvine Company
owned 1,378,385 shares of Common Stock of the Company and 24,512,046 Common L.P.
Units exchangeable for Common Stock of the Company on a one-for-one basis,
subject to adjustment. The Land Rights Agreement may be terminated earlier upon
the
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occurrence of any of the following events, none of which are within the control
of The Irvine Company: (i) the failure of the shareholders of the Company to
elect as directors of the Company the number of directors The Irvine Company is
entitled to nominate, (ii) the failure of the Company's Board of Directors to
elect a person designated by The Irvine Company to fill a vacancy created by the
departure from the Board (for any reason) of a director designated by The Irvine
Company and (iii) during the period that The Irvine Company has the right to
nominate three persons to the Board of Directors of the Company, the provisions
of the Company's Articles of Incorporation and Bylaws requiring the approval of
the Required Directors to take certain actions are repealed, modified, or
amended without the prior written consent of The Irvine Company. If the Land
Rights Agreement is terminated as a result of the occurrence of one of these
events, the Operating Partnership would no longer have an option to acquire
apartment community land sites from The Irvine Company and The Irvine Company
and Mr. Bren would no longer be prohibited from acquiring or developing, or
acquiring an equity ownership interest in any entity that has an ownership
interest in, apartment communities on or off the Irvine Ranch in competition
with the Operating Partnership. Accordingly, the termination of the Land Rights
Agreement would likely have a material adverse effect on the future development
activities of the Operating Partnership on the Irvine Ranch. See
"Management -- Certain Rights of The Irvine Company with Respect to the
Company's Board of Directors."
POTENTIAL FOR ADDITIONAL DEBT FINANCING AND INCREASED LEVERAGE
Where possible, the Operating Partnership seeks to use leverage to increase
the rate of return on its investments and to allow the Operating Partnership to
make more investments than it otherwise could. Such use of leverage presents an
element of risk in the event that the cash flow from the Properties is
insufficient to meet the Operating Partnership's debt service and other
obligations or to make distributions with respect to its partnership interests,
including the Series A Preferred L.P. Units. In addition, all debt and other
liabilities of the Operating Partnership would rank senior to the Series A
Preferred L.P. Units, with a prior claim on the assets of the Operating
Partnership. As of September 30, 1997, the Operating Partnership had
approximately $706.1 million of total liabilities reflected on the Operating
Partnership's balance sheet.
REAL ESTATE OPERATIONS AND DEVELOPMENT RISKS MAY ADVERSELY AFFECT THE OPERATING
PARTNERSHIP'S ABILITY TO MAKE DISTRIBUTIONS ON THE SERIES A PREFERRED L.P. UNITS
GENERAL. Real property investments are subject to varying degrees of risk.
The investment returns available from equity investments in real estate depend
in large part on the amount of income earned and capital appreciation generated
by the related properties as well as the expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service and capital expenditures, the Operating Partnership's income and ability
to service its debt and other obligations and to make distributions on its
partnership interests, including the Series A Preferred L.P. Units, will be
adversely affected. This in turn would adversely affect the Trust's ability to
make distributions on the Series A Preferred Securities. In addition, the
Properties consist primarily of apartment communities located in Orange County.
Income from and the performance of the Irvine Ranch Properties may therefore be
adversely affected by the general economic climate in Orange County, including
unemployment rates and local conditions such as the supply of and demand for
apartments in the area, the attractiveness of the Irvine Ranch Properties to
residents, zoning or other regulatory restrictions, competition from other
available apartments and alternative forms of housing, the affordability of
single family homes, the ability of the Operating Partnership to provide
adequate maintenance and insurance and the potential of increased operating
costs (including real estate taxes). Certain significant expenditures associated
with an investment in real estate (such as mortgage and other debt payments,
real estate taxes and maintenance costs) generally are not reduced when
circumstances cause a reduction in revenue from the investment. In addition,
income from properties and real estate values are also affected by a variety of
other factors, such as governmental regulations and applicable laws (including
real estate, zoning and tax laws), interest rate levels and the availability of
financing. The Irvine Ranch Properties in the aggregate historically have
generated positive cash flow from operations; however, no assurance can be given
that such will be the case in the future.
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In 1997, the Operating Partnership commenced an "off-Ranch" expansion
program through the acquisition of rights to purchase three apartment community
development sites located in Northern California's Silicon Valley. The Operating
Partnership commenced construction of a 342-unit apartment community on one of
such sites in May 1997 and on October 23, 1997, the Company's Board of Directors
authorized, subject to receipt of necessary entitlements, the acquisition of
another of the development sites. Construction of an apartment community of
approximately 155 units on this site is expected to commence in the first half
of 1998. On June 30, 1997, the Operating Partnership acquired an existing
923-unit apartment community located in Northern San Diego County. These new
Properties represent the Operating Partnership's first strategic expansion off
the Irvine Ranch and the Operating Partnership may make additional investments
in California in the future. The development, construction and operation of
rental apartment communities in such new markets may present risks different
from or in addition to the risks discussed above related to the Irvine Ranch
Properties, which are located entirely in Orange County. In addition, in
contrast to acquisitions of land pursuant to the Land Rights Agreement in which
a substantial portion of pre-development costs and expenses, including the cost
and expense of obtaining Village Related Entitlements, is borne solely by The
Irvine Company, all pre-development costs and expenses in connection with
"off-Ranch" expansion will be borne by the Operating Partnership and the
Operating Partnership will bear all risk relating to the failure to obtain
entitlements. For jurisdictions off the Irvine Ranch, local jurisdiction
approvals with respect to entitlements may impose requirements and conditions
different from those applicable to the Irvine Ranch. No assurance can be given
that the Operating Partnership will be successful in pursuing any additional
"off-Ranch" expansion or that any "off-Ranch" apartment communities will be
successful.
Equity real estate investments, such as the investments made by the
Operating Partnership in the Properties and any additional properties that may
be developed or acquired by the Operating Partnership, are relatively illiquid.
Such illiquidity limits the ability of the Operating Partnership to vary its
portfolio in response to changes in economic or other conditions.
The Properties are subject to all operating risks common to apartment
ownership in general. Such risks include: the Operating Partnership's ability to
rent units at the Properties, including the 1,110 units in the Communities Under
Construction; competition from other apartment communities; excessive building
of comparable properties which might adversely affect apartment occupancy or
rental rates; increases in operating costs due to inflation and other factors,
which increases may not necessarily be offset by increased rents; increased
affordable housing requirements that might adversely affect rental rates;
inability or unwillingness of residents to pay rent increases; and future
enactment of rent control laws or other laws regulating apartment housing,
including present and possible future laws relating to access by disabled
persons. If operating expenses increase, the local rental market may limit the
extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates. If any of the above occurred, the Operating
Partnership's ability to meet its debt service and other obligations and to make
distributions on its partnership interests, including with respect to the Series
A Preferred L.P. Units, could be adversely affected.
REAL ESTATE DEVELOPMENT AND ACQUISITION. A primary focus of the Operating
Partnership is on development of new apartment communities on sites acquired or
that may be acquired in the future primarily from The Irvine Company, although
the Operating Partnership also plans to develop new rental apartment communities
on sites acquired or that may be acquired in the future from third parties. The
Operating Partnership has also acquired and may continue to acquire completed
rental apartment communities. See "Recent Developments -- 'Off-Ranch'
Expansion." The real estate development business involves significant risks in
addition to those involved in the ownership and operation of established
apartment communities, including the risks that specific project approvals may
take more time and resources to obtain than expected, that construction may not
be completed on schedule or budget and that apartment communities may not
achieve anticipated rent or occupancy levels. In addition, if long-term debt or
equity financing is not available on acceptable terms to refinance new
development or acquisitions undertaken without long-term financing, further
development activities or acquisitions might be curtailed or cash available for
debt service and other obligations might be adversely affected.
INSURANCE. The Operating Partnership carries comprehensive liability, fire,
extended coverage and rental loss insurance covering all of the Properties, with
policy specifications and insured limits which the Operating
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Partnership believes are adequate and appropriate under the circumstances. There
are, however, certain types of losses (such as from earthquakes) that are not
generally insured because they are either uninsurable or not economically
insurable. The Operating Partnership does not carry earthquake insurance on any
of the Properties. Should an uninsured loss or a loss in excess of insured
limits occur, the Operating Partnership could lose its capital invested in the
Property, as well as anticipated future revenues from the Property and, in the
case of debt which is recourse to the Operating Partnership, would remain
obligated for any mortgage debt or other financial obligations related to such
Property. Any such loss would adversely affect the Operating Partnership. The
Operating Partnership believes that the Properties are adequately insured. In
addition, in light of the California earthquake risk, California building codes
since the early 1970s have established construction standards for all newly
built and renovated buildings, including apartment buildings, the current and
strictest construction standards having been adopted in 1984. Thirty-two of the
51 Existing Communities (representing approximately 68.9% of the units in the
Existing Communities) have been completed and occupied since January 1, 1985 and
the Operating Partnership believes that all of the Existing Communities were
constructed, and all of the Communities Under Construction are being
constructed, in full compliance with the applicable standards existing at the
time of construction. While earthquakes have occurred from time to time in
California, the Operating Partnership has not experienced any material losses as
a result of earthquakes. No assurance can be given that this will be the case in
the future.
CERTAIN PARTICIPATION RIGHTS OF THE IRVINE COMPANY
The Irvine Company, unlike shareholders of the Company and holders of
Preferred L.P. Units, generally has the right to purchase shares of Common Stock
of the Company or securities convertible, exchangeable or exercisable for Common
Stock of the Company upon the issuance of such securities by the Company (for
cash or property) and also has the right to purchase Common L.P. Units upon the
issuance of additional Common L.P. Units by the Operating Partnership for cash
(but not for property) in order to maintain its percentage interest in the
Company and the Operating Partnership on a consolidated basis. Holders of Series
A Preferred L.P. Units will not have such purchase rights. See "Policies with
Respect to Certain Activities -- Operating Partnership -- Financing Policies"
and "Operating Partnership Agreement -- Issuance of Additional L.P. Units."
LACK OF PUBLIC MARKET
The Series A Preferred Securities are a new issue of securities for which
there is currently no active trading market. If any of the Series A Preferred
Securities are traded after their initial issuance, they may trade at a discount
from their initial offering price, depending upon prevailing interest rates, the
market for similar securities and other factors, including general economic
conditions and the financial condition of, performance of, and prospects for,
the Operating Partnership. Although application has been made to list the Series
A Preferred Securities on the NYSE, there can be no assurance as to the
development of any market, or the liquidity of any market that may develop, for
the Series A Preferred Securities. If approved for listing, trading of the
Series A Preferred Securities on the NYSE is expected to commence within a
30-day period after the date of this Prospectus. The Underwriters have informed
the Trust that they intend to make a market in the Series A Preferred Securities
offered hereby; however, they are not obligated to do so and any such
market-making may be terminated at any time without notice to the holders of the
Series A Preferred Securities. See "Underwriting."
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IAC CAPITAL TRUST
The following description summarizes the material terms of the Declaration
and is qualified in its entirety by reference to the form of Declaration which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
IAC Capital Trust is a statutory business trust formed on October 31, 1997
under the Business Trust Act pursuant to a declaration of trust among the
Trustees of the Trust, the Company and the Operating Partnership, and the filing
of a certificate of trust with the Secretary of State of the State of Delaware.
Such declaration will be amended and restated in its entirety (as so amended and
restated, the "Declaration") substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus forms a part, as of the date
the Series A Preferred Securities are initially issued. The Company and certain
members of management of the Company will acquire all of the Common Securities
of the Trust, for an aggregate consideration of $5,000. From time to time the
Trust may issue additional series of Preferred Securities and invest the
proceeds of any such issuance in an additional series of Preferred L.P. Units of
the Operating Partnership. The Trust Securities represent undivided beneficial
interests in the assets of the Trust, subject to the priority and payment terms
of the Trust Securities, and are not secured by any assets of the Operating
Partnership or any of its affiliates. Holders of Series A Preferred Securities
will have no voting rights, except in limited circumstances, and, except as
otherwise provided in the Declaration, the exclusive voting power for all
purposes (including with respect to amendments to the Declaration) shall be
vested in the holders of the Common Securities, including the exclusive right
(subject to the terms of the Declaration) to appoint, remove or replace the
Trustees and to increase or decrease the number of Trustees, subject to the
right of holders of any series of Preferred Securities upon whom such voting
rights have been conferred, including the Series A Preferred Securities, to
appoint for all series of Preferred Securities upon whom such voting rights have
been conferred and are then exercisable one additional Regular Trustee of the
Trust (a "Special Regular Trustee") in certain limited circumstances set forth
in this Prospectus. A Special Regular Trustee so appointed shall, without any
further act or vote by the holders of any series of Preferred Securities, be
deemed to have been appointed to act in such capacity for all series of
Preferred Securities upon which like voting rights have been conferred and are,
or in the future become, exercisable. A Special Regular Trustee need not be an
employee or officer of, or otherwise affiliated with, the Company. The Special
Regular Trustee shall have the same rights, powers and privileges under the
Declaration as the Regular Trustees. The Trust exists solely for the purpose of
(a) issuing one or more series of its Preferred Securities (and, if applicable,
Excess Preferred Securities), (b) issuing its Common Securities as described
above and investing the proceeds of such issuance in an interest bearing account
in, or certificate of deposit of, a banking institution, (c) investing the
proceeds from the sale of each series of Preferred Securities in a series of
Preferred L.P. Units of the Operating Partnership having economic terms
substantially identical to the series of Preferred Securities and (d) engaging
in such other activities as are necessary, convenient or incidental thereto. The
rights of the holders of the Trust Securities, including economic rights, rights
to information and voting rights, are set forth in the Declaration and the
Business Trust Act.
The number of trustees (the "Trustees") of the Trust shall initially be
three. One or more of such Trustees (the "Regular Trustees") will be an
individual who is an officer of the Company. Initially, one Regular Trustee will
be appointed. The second trustee is The Bank of New York, which is unaffiliated
with the Company, the Operating Partnership and The Irvine Company and which
will serve as the property trustee (the "Property Trustee"). The third trustee
is an affiliate of The Bank of New York that has its principal place of business
in the State of Delaware (the "Delaware Trustee"). Pursuant to the Declaration,
legal title to each series of Preferred L.P. Units purchased by the Trust will
be held by the Property Trustee for the benefit of the holders of the Trust
Securities. In addition, the Property Trustee will maintain exclusive control of
one or more segregated non-interest bearing bank accounts (collectively, the
"Property Account") to hold, subject to the priority and payment terms of the
Preferred Securities, all payments in respect of the Preferred L.P. Units
purchased by the Trust for the benefit of the holders of the Preferred
Securities.
The duties and obligations of the Trustees of the Trust shall be governed
by the Declaration. Under the Declaration, the Trust shall not, and the Trustees
shall cause the Trust not to, engage in any activity other than in connection
with the purposes of the Trust or other than as required or authorized by the
Declaration.
24
<PAGE> 26
In particular, the Trust shall not and the Trustees shall not (a) invest any
amounts received by the Trust from holding the Preferred L.P. Units purchased by
the Trust but, shall promptly deposit such funds in the Property Account; (b)
acquire any assets other than as expressly provided in the Declaration; (c)
possess Trust property for other than a Trust purpose; (d) make any loans or
investments other than investments represented by the Preferred L.P. Units and
in connection with the investment of the proceeds of the sale of the Common
Securities as described above; (e) issue any securities or other evidences of
beneficial ownership of, or beneficial interests in, the Trust other than the
Trust Securities; or (f) incur any indebtedness for borrowed money.
The books and records of the Trust will be maintained at the principal
office of the Trust and will be open for inspection by a holder of Preferred
Securities or its representative for any purpose reasonably related to its
interest in the Trust during normal business hours.
Pursuant to the Declaration and, subject to the rights of holders of any
series of Preferred Securities hereafter issued which may rank on parity with
the Series A Preferred Securities in respect of distributions, distributions on
the Series A Preferred Securities when, as and if declared by the Regular
Trustees, must be paid on the dates payable to the extent that the Property
Trustee has cash on hand in the Property Account to permit such payment. So long
as the Series A Preferred L.P. Units are the only assets of the Trust, the funds
available for distribution to the holders of the Series A Preferred Securities
will be limited to payments received by the Property Trustee in respect of the
Series A Preferred L.P. Units that are deposited in the Trust as trust assets.
If the Preferred Securities of a series are called for redemption or are to be
repaid upon their stated maturity or upon liquidation, dissolution, winding-up
or termination of the Trust, the Property Trustee shall, subject to the priority
and payments terms of the Trust Securities, on the applicable redemption or
repayment date, pay to the holders of such series of Preferred Securities out of
funds deposited in the Property Account the amount specified in the terms of
such series of Preferred Securities to be paid on such date in accordance with
the terms of the Declaration and of such series of Preferred Securities. If the
Operating Partnership does not make distribution and other payments on the
Preferred L.P. Units deposited in the Trust as trust assets, including the
Series A Preferred L.P. Units, for any reason, it is expected that the Trust
will not be able to make distributions and other payments on the Series A
Preferred Securities. The Trust will terminate on December 31, 2092, the
termination date of the Operating Partnership, but may terminate earlier as
provided in the Declaration.
The Declaration provides that the Trustees may treat the person in whose
name a certificate representing the Preferred Securities of a series is
registered on the books and records of the Trust as the sole holder thereof and
of the Preferred Securities represented thereby for purposes of receiving
distributions and payments on redemption or liquidation of the Trust and for all
other purposes and, accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such certificate or in the Preferred Securities
represented thereby on the part of any person, whether or not the Trust shall
have actual or other notice thereof. Preferred Securities of a series will be
issued in fully registered form. The Series A Preferred Securities will be
represented by a global certificate registered on the books and records of the
Trust in the name of DTC or its nominee. Under the Declaration:
(i) the Trust and the Trustees shall be entitled to deal with the DTC
(or any successor depositary) for all purposes, including the payment of
distributions and payments on redemption or liquidation of the Trust and
receiving approvals, votes or consents under the Declaration, and except as
set forth in the Declaration with respect to the Property Trustee, shall
have no obligation to persons owning a beneficial interest in Series A
Preferred Securities ("Preferred Security Indirect Owners") registered in
the name of and held by the DTC or its nominee; and
(ii) the rights of Preferred Security Indirect Owners shall be
exercised only through the DTC (or any successor depositary) and shall be
limited to those established by law and agreements between such Preferred
Security Indirect Owners and the DTC and/or its participants. With respect
to Series A Preferred Securities registered in the name of and held by the
DTC or its nominee, all notices and other
25
<PAGE> 27
communications required under the Declaration shall be given to, and all
distributions on such Preferred Securities shall be given or made to, the
DTC (or its successor).
The specific terms of the depositary arrangement with respect to the Series
A Preferred Securities are set forth under "Description of the Series A
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company."
In the Declaration, the Operating Partnership has agreed to reimburse all
costs, expenses and liabilities of the Trust, including the fees and expenses of
its Trustees and any taxes and all costs and expenses with respect thereto, to
which the Trust may become subject, except with respect to distributions on the
Trust Securities and withholding taxes on such distributions. The foregoing
obligations of the Operating Partnership under the Declaration are for the
benefit of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Operating Partnership directly against the Operating
Partnership, and the Operating Partnership and the Company have irrevocably
waived any right or remedy to require that any such Creditor take any action
against the Trust or any other person before proceeding against the Operating
Partnership. The Operating Partnership and the Company have agreed in the
Declaration to execute such additional agreements as may be necessary or
desirable in order to give full effect to the foregoing.
The address of the Trust is c/o Irvine Apartment Communities, Inc., 550
Newport Center Drive, Suite 300, Newport Beach, California 92660, telephone
number (714) 720-5500.
26
<PAGE> 28
RECENT DEVELOPMENTS
"OFF-RANCH" EXPANSION
The Operating Partnership's intent is to develop or acquire new apartment
communities in the Silicon Valley and Northern San Diego County and other
locations in California which the Operating Partnership believes possess rental
demographics and economic growth prospects similar to those on the Irvine Ranch.
On October 23, 1997 the Board of Directors of the Company authorized the
Operating Partnership, subject to receipt of necessary entitlements, to exercise
an option for a land site located in Redwood City, California. Construction of
an apartment community of approximately 155 units on this site is expected to
commence in the first half of 1998. The site is located just off Highway 101
(the Bayshore Freeway), approximately midway between San Jose and San Francisco,
and is immediately adjacent to the 20 million square foot San
Mateo/FosterCity/Redwood City office market, in which headquarter facilities for
Oracle, Visa, Franklin Funds and Genentech are located. Preliminary design and
jurisdictional approvals are also in process with respect to the remaining
development site.
On June 30, 1997, the Operating Partnership acquired for $127 million an
existing 923-unit apartment community, known as The Villas of Renaissance,
located in Northern San Diego County. Situated in La Jolla, California, the
project is located in University Town Center ("UTC") and enjoys free access from
the La Jolla Village Road/Interstate 805 interchange. The property is within
walking distance of 4.3 million square feet of office buildings in the UTC
financial district and the 1.3 million square foot UTC regional shopping mall
that is anchored by Nordstrom's, Macy's, Sears and Robinsons-May.
In early December, 1997, the Operating Partnership completed the purchase
of two development sites located in San Diego county. The first site which was
purchased for cash is located on La Jolla Village Drive in the University Town
Center region of greater La Jolla. Construction of an apartment community of
approximately 232 units is expected to commence in mid-1998. The second site is
located in the master-planned community of Stonecrest Village in the Mission
Valley/Kearney Mesa region of San Diego county. Construction of an approximately
336-unit apartment community is scheduled to commence in early 1998, subject to
receipt of necessary entitlements. This site was acquired from an affiliate of
The Irvine Company controlled by Donald Bren, the Chairman of the Board of
Directors of the Company, in exchange for 305,707 Common L.P. Units. See
"Certain Relationships and Related Transactions -- Transactions with The Irvine
Company."
RECENTLY COMPLETED IRVINE RANCH LAND ACQUISITIONS
On October 21, 1997, the Operating Partnership acquired a 196-unit
development site from The Irvine Company pursuant to the Land Rights Agreement.
On December 16, 1997 the Operating Partnership acquired from The Irvine Company
a 393-unit development site pursuant to the Land Rights Agreement.
ISSUANCE OF 7% NOTES DUE 2007
On October 1, 1997, the Operating Partnership issued $100,000,000 aggregate
principal amount of 7% Notes due 2007 (the "7% Notes"). The Operating
Partnership used the net proceeds from the issuance of the 7% Notes to repay
outstanding borrowings under the Operating Partnership's $250 million revolving
credit facility (the "Credit Facility"), most of which was incurred in
connection with the Villas of Renaissance Acquisition.
27
<PAGE> 29
USE OF PROCEEDS
The proceeds from the sale of the Series A Preferred Securities will be
$150.0 million ($172.5 million if the Underwriters' overallotment option is
exercised in full). Such proceeds will be invested by the Trust in Series A
Preferred L.P. Units of the Operating Partnership. After paying the
Underwriters' Compensation and estimated expenses associated with the Offering,
the net proceeds to the Operating Partnership from the issuance of the Series A
Preferred L.P. Units are estimated to be $144.6 million ($166.4 million if the
Underwriters' overallotment option is exercised in full). The Operating
Partnership will use such net proceeds to repay indebtedness outstanding under
the Credit Facility and for general partnership purposes, including ongoing
development activities on and off the Irvine Ranch and the possible acquisition
of additional properties off the Irvine Ranch. Pending such use, the net
proceeds to the Operating Partnership will be invested in income-producing
short-term investments. On a pro forma basis after giving effect to the
repayment of indebtedness from the net proceeds of the offering of the 7% Notes,
as of September 30, 1997, $36.7 million would have been outstanding under the
Credit Facility with an average interest rate of 6.20% and, as of November 30,
1997, the Credit Facility had an outstanding balance of approximately $65.0
million. Indebtedness under the Credit Facility was incurred primarily to
finance the Villas of Renaissance Acquisition and for general partnership
purposes. The Company expects to use future borrowings under the Credit Facility
for general partnership purposes, including those described above.
OPERATING PARTNERSHIP CONSOLIDATED RATIOS OF EARNINGS TO
FIXED CHARGES AND PREFERRED L.P. UNIT DISTRIBUTIONS
The following table sets forth the consolidated ratios of earnings to fixed
charges for the Operating Partnership.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges........................... 2.42x 2.00x 2.07x 1.44x 1.25x .99x .96x
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense, capitalized interest
and amortization of deferred financing costs. The ratios are computed using the
amounts for the Operating Partnership, on a consolidated basis, including its
majority owned subsidiary. The Operating Partnership did not have any Preferred
L.P. Units outstanding in any of the periods indicated, and, therefore, the
ratio of earnings to combined fixed charges and Preferred L.P. Unit
distributions for each of the periods indicated was equal to the ratio of
earnings to fixed charges for such period. The Trust did not have any operations
in any of the periods indicated, and, therefore, the historical ratio with
respect to the Trust is not applicable. On a pro forma basis, the ratio of
earnings to combined fixed charges and preferred securities distributions of the
Trust is expected to be 1.00x.
Prior to completion of the Company's Initial Public Offering in December
1993, the Predecessor of the Company and the Operating Partnership operated in a
highly leveraged manner. As a result, although the Company, the Operating
Partnership and the Predecessor have historically generated positive net cash
flow, the financial statements of the Predecessor showed net losses for the
periods prior to December 8, 1993. Consequently, the computations of the ratio
of earnings to fixed charges for such periods indicate that earnings were
inadequate to cover fixed charges by approximately $0.6 million and $2.2 million
for the years ended December 31, 1993 and 1992, respectively.
28
<PAGE> 30
CAPITALIZATION OF IAC CAPITAL TRUST
The following table sets forth the capitalization of the Trust as of
October 31, 1997, and as adjusted to give effect to the issuance of Common
Securities and the offering of the Series A Preferred Securities offered hereby
(assuming no exercise of the Underwriters' overallotment option). See "Use of
Proceeds."
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED, IN
THOUSANDS)
<S> <C> <C>
Redeemable Series A Preferred Securities, no securities
outstanding at October 31, 1997; 6,000,000 securities
outstanding as adjusted.............................. $ -- $ 150,000
Common Securities, no securities outstanding at October
31, 1997; 200 securities outstanding as adjusted..... -- 5
------- -------
Total Capitalization................................... $ -- $ 150,005
======= =======
</TABLE>
CAPITALIZATION OF IRVINE APARTMENT COMMUNITIES, L.P.
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1997, and as adjusted to give effect to (i) the
sale on October 1, 1997 of $100,000,000 aggregate principal amount of the
Operating Partnership's 7% Notes and the application of the net proceeds
therefrom to repay indebtedness under the Credit Facility and (ii) the offering
of the Series A Preferred Securities offered hereby (assuming no exercise of the
Underwriters' overallotment option) and the application of the proceeds
therefrom for the purchase of Series A Preferred L.P. Units, which proceeds
after payment of the Underwriters' Compensation and estimated expenses of the
Offering will in turn be used by the Operating Partnership to repay outstanding
indebtedness under the Credit Facility and for general partnership purposes. See
"Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED, IN
THOUSANDS)
<S> <C> <C>
Mortgages and Notes
7% Notes............................................ $ -- $ 99,208
Credit Facility(1).................................. 135,000 --
Tax-exempt mortgage bond financings................. 326,569 326,569
Conventional mortgage financings.................... 132,902 132,902
Mortgage notes payable to The Irvine Company........ 50,608 50,608
Tax-exempt assessment district...................... 21,747 21,747
---------- ----------
666,826 631,034
Redeemable Series A Preferred L.P. Units, no units
outstanding at September 30, 1997; 6,000,000 units
outstanding as adjusted............................. -- 144,575(2)
Partners' Capital
43,972,813 partnership units outstanding at
September 30, 1997 and as adjusted:
General partner, 19,878,643 G.P. Units
outstanding at September 30, 1997 and as
adjusted....................................... 210,685 210,685
Limited partners, 24,094,170 Common L.P. Units
outstanding at September 30, 1997 and as
adjusted....................................... 185,068 185,068
---------- ----------
Total Capitalization.................................. $1,062,579 $ 1,171,362
========== ==========
</TABLE>
- ---------------
(1) As of November 30, 1997, the Credit Facility had an outstanding balance of
approximately $65 million, all of which will be repaid with the net proceeds
of the Offering. See "Use of Proceeds."
(2) Proceeds of the Offering invested in Series A Preferred L.P. Units net of
the Underwriters' Compensation and other expenses associated with the
Offering to be paid by the Operating Partnership.
29
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data (other than statistical
and property data) has been derived from the Operating Partnership's or the
Predecessor's consolidated financial statements. Information as of December 31,
1996 and 1995 and for each of the years in the three year period ended December
31, 1996 has been derived from the Operating Partnership's audited consolidated
financial statements included herein. Information for the year ended December
31, 1993 has been derived from audited financial statements not included herein
of the Company and the Predecessor and is on a combined and consolidated
historical basis for the Operating Partnership and the Predecessor. Information
at December 31, 1994 and 1993 has been derived from the Company's audited
financial statements not included herein and information at and for the year
ended December 31, 1992 has been derived from the Predecessor's audited
financial statements not included herein. Information at September 30, 1997 and
for the respective nine month periods ended September 30, 1997 and 1996 has been
derived from the Operating Partnership's unaudited consolidated financial
statements included herein and which, in the opinion of the Operating
Partnership, reflect all adjustments considered necessary for a fair
presentation. Results for the nine month period ended September 30, 1997 are not
necessarily indicative of results for the full year. All such financial
information is qualified in its entirety by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Operating Partnership" and the Consolidated
Financial Statements (including the notes thereto) included herein. The Company
acquired The Villas of Renaissance on June 30, 1997. See "Recent
Developments -- 'Off-Ranch' Expansion." For pro forma financial information of
the Operating Partnership for the year ended December 31, 1996 and the nine
months ended September 30, 1997, see the Unaudited Pro Forma Consolidated
Statements of Operations included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
--------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY INFORMATION, RATIOS AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Revenues:
Rental income.................. $ 133,114 $114,000 $154,925 $ 133,678 $127,338 $123,101 $119,097
Other income................... 3,093 2,317 3,162 2,079 1,585 1,659 2,097
Interest income................ 659 419 611 411 1,313 60 --
-------- -------- -------- -------- -------- -------- --------
136,866 116,736 158,698 136,168 130,236 124,820 121,194
-------- -------- -------- -------- -------- -------- --------
Expenses:
Property expenses.............. 28,790 24,903 33,859 31,761 33,105 34,057 35,685
Real estate taxes.............. 10,959 10,023 13,496 12,002 11,786 10,729 9,921
Property management fees....... 3,809 3,316 4,502 3,893 3,800 3,881 4,393
Interest expense, net.......... 21,949 22,378 29,506 25,894 26,827 50,248 49,154
Amortization of deferred
financing costs.............. 1,882 1,975 2,627 8,510 15,942 3,012 1,474
Depreciation and
amortization................. 21,700 20,346 27,239 23,143 21,055 20,002 19,808
General and administrative..... 4,822 4,890 6,277 5,909 5,442 3,278 2,359
-------- -------- -------- -------- -------- -------- --------
93,911 87,831 117,506 111,112 117,957 125,207 122,794
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item............. 42,955 28,905 41,192 25,056 12,279 (387) (1,600)
Extraordinary item -- charge
related to debt
extinguishment................. -- -- -- (23,427) -- (12,487) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................ $ 42,955 $ 28,905 $ 41,192 $ 1,629 $ 12,279 $(12,874) $ (1,600)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per unit....... $ 0.99 $ 0.75 $ 1.06 $ 0.05 $ 0.41 $ (0.43)
======== ======== ======== ======== ======== ========
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
--------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY INFORMATION, RATIOS AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATISTICAL AND PROPERTY DATA:
Total stabilized communities (at
period end)(2)................. 51 47 48 43 43 42 42
Apartment units (at period
end)........................... 14,991 13,541 13,656 12,776 11,358 11,334 10,952
Average units in stabilized
communities(2)(3)(6)........... 13,683 11,786 12,139 11,334 11,334 10,799 10,446
Average physical occupancy in
stabilized
communities(2)(3)(6)......... 94.5% 94.8% 94.9% 94.6% 95.6% 96.3% 96.2%
OTHER DATA:
Average monthly rent per
unit(3)(4)(6).................. $ 1,101 $ 1,012 $ 1,025 $ 996 $ 981 $ 963 $ 950
Capital replacements per
unit(3)(5)(6).................. $ 234 $ 247 $ 393 $ 399 $ 490 $ 482 $ 458
EBITDA, as adjusted(7)........... $ 88,486 $ 73,604 $100,564 $ 82,603 $ 76,103 $ 72,875 $ 68,836
Ratio of EBITDA to interest
expense(7)(8).................. 4.03x 3.29x 3.41x 3.19x 2.84x 1.45x 1.40x
Cash flows provided by (used in):
Operating activities........... $ 69,432 $ 55,748 $ 73,037 $ 55,403 $ 49,786 $ 10,249 $ 16,171
Investing activities........... $(205,807) $(44,220) $(66,616) $(128,218) $(50,918) $(23,649) $(19,285)
Financing activities........... $ 135,543 $ (8,356) $ (7,608) $ 73,739 $(23,316) $ 36,428 $ 3,516
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. $ 1,101,826 $900,998 $853,230 $757,240 $740,120 $654,694
Total debt................................ 666,826 553,064 563,286 540,689 513,943 555,491
Total liabilities......................... 706,073 580,654 588,664 566,191 527,776 564,420
Partners' capital......................... 395,753 320,344 264,566 191,049 212,344 90,274
</TABLE>
- ---------------
(1) Includes the operations of the Predecessor through December 7, 1993 and of
the Operating Partnership from December 8 through December 31, 1993.
(2) A property is stabilized at the earlier of (i) one year after completion of
construction or (ii) when it achieves 95% occupancy.
(3) With respect to each period presented for communities that have been
stabilized for less than one year, reflects data from the date of stabilized
occupancy.
(4) Average monthly rent per unit is calculated by dividing the average rental
revenue per unit by average economic occupancy.
(5) Data for the year ended December 31, 1992 excludes capital replacements
totaling $534 per unit relating to a major renovation program at the
Operating Partnership's Promontory Point apartment community due to the
nonrecurring nature of the program.
(6) Excludes Villas of Renaissance, which was acquired on June 30, 1997. If the
operations of The Villas of Renaissance were included for the nine months
ended September 30, 1997, average units in stabilized communities would have
been 13,991, average physical occupancy in stabilized communities would have
been 94.4%, average monthly rent per unit would have been $1,104 and capital
replacements per unit would have been $229.
(7) EBITDA, as adjusted, represents earnings before interest, depreciation and
amortization and extraordinary items. EBITDA is not necessarily comparable
to similarly titled measures of other companies, and should not be
considered as an alternative to operating income, as determined in
accordance with GAAP, as an indicator of the Operating Partnership's
operating performance, or to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity.
(8) The Operating Partnership did not have any Preferred L.P. Units outstanding
in any of the periods indicated, and, therefore, the ratio of EBITDA to
interest expense and preferred securities distributions for each of the
periods indicated was equal to the ratio of EBITDA to interest expense for
such period.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE OPERATING PARTNERSHIP
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data," the Operating Partnership's Consolidated Financial
Statements and the Notes thereto for the years ended December 31, 1996, 1995 and
1994 (the "OP Audited Financial Statements") and the Operating Partnership's
Unaudited Condensed Consolidated Financial Statements and the Notes thereto for
the nine months ended September 30, 1997 and 1996 (the "OP Unaudited Quarterly
Financial Statements").
OVERVIEW
The Operating Partnership is engaged in the development and operation of
multifamily rental apartment communities in California. The Operating
Partnership's management and operating decisions are under the unilateral
control of the Company. The Company operates as a REIT under the Code. As of
September 30, 1997, the Operating Partnership owned and operated 55 Properties
containing 14,991 apartment units and had 1,110 units under construction. Until
July 31, 2020, the Operating Partnership has the exclusive right, but not the
obligation, to acquire land from The Irvine Company for development of
additional apartment communities on the Irvine Ranch. See Note 7 to the OP
Audited Financial Statements.
At September 30, 1997, the Company had a 45.2% general partnership interest
in and was the sole managing general partner of the Operating Partnership, which
began operations as of December 8, 1993, the date of the Company's Initial
Public Offering. In connection with the Initial Public Offering, The Irvine
Company transferred 42 apartment communities and a 99% interest in a limited
partnership which owned one apartment community to the Operating Partnership. At
September 30, 1997, the limited partners of the Operating Partnership had a
54.8% limited partner interest with The Irvine Company and its affiliates having
a 54.6% limited partnership interest in the Operating Partnership.
The Trust did not have any operations prior to October 31, 1997.
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 compared to nine months ended
September 30, 1996. The Operating Partnership's net income was $43.0 million for
the nine months ended September 30, 1997, up from $28.9 million for the same
period of 1996. The improvement was due to the contribution of new rental units
from the Operating Partnership's acquisition and development program, as well as
an increase in revenues within its stabilized portfolio achieved through higher
rental rates slightly offset by lower occupancy and higher operating expenses.
32
<PAGE> 34
The following table sets forth certain operating data for the Properties
for the nine month periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
REVENUE AND EXPENSE DATA 1997 1996
- ------------------------------------------------------------------------ -------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Communities Owned and Stabilized More Than Two Years(a)
Number of communities................................................. 43 43
Number of units at end of period...................................... 11,334 11,334
Operating revenues.................................................... $104,486 $99,112
Property expenses..................................................... $ 23,520 $21,819
Real estate taxes..................................................... $ 8,058 $ 8,120
Property management fees.............................................. $ 3,018 $ 2,864
Depreciation and amortization of real estate assets................... $ 15,438 $15,525
Communities Stabilized Less Than Two Years(b)
Number of communities................................................. 5 5
Number of units at end of period...................................... 2,207 2,207
Operating revenues.................................................... $ 23,679 $17,205
Property expenses..................................................... $ 3,693 $ 3,084
Real estate taxes..................................................... $ 2,166 $ 1,902
Property management fees.............................................. $ 614 $ 453
Depreciation and amortization of real estate assets................... $ 4,303 $ 4,715
Lease-Up and Newly Acquired Communities(c)
Number of communities................................................. 3
Number of units at end of period...................................... 1,450
Operating revenues.................................................... $ 8,042
Property expenses..................................................... $ 1,577
Real estate taxes..................................................... $ 735
Property management fees.............................................. $ 177
Depreciation and amortization of real estate assets................... $ 1,784
</TABLE>
- ---------------
(a) Represents "same store" communities.
(b) Represents five communities that began leasing in 1995 and reached
stabilized occupancy (95%) at various dates in 1996.
(c) Represents Baypointe and Santa Maria communities that began leasing in 1996,
completed deliveries in June 1997, and reached stabilized occupancy (95%) in
July 1997 and The Villas of Renaissance (see Note 6 to the OP Unaudited
Quarterly Financial Statements), an apartment community acquired by the
Operating Partnership on June 30, 1997.
Operating revenues (rental and other income) increased to $136.2 million in
the first nine months of 1997, up from $116.3 million in the same period of
1996. Operating revenues rose as a result of higher occupancy and rental rates,
as well as the contribution of newly delivered rental units from five properties
which achieved stabilization during 1996, a newly acquired community and two new
lease-up communities. In total, these new units added $31.7 million to operating
revenues in the first nine months of 1997 compared to $17.2 million in the first
nine months of 1996. Within communities owned and stabilized more than two
years, operating revenues increased 5.4% from the first nine months of 1996, as
a result of improvement in average monthly rental rates and higher non-rental
income, slightly offset by a decrease in physical occupancy to 94.5% from 94.8%.
Average monthly rental rates increased to $1,068 in the first nine months of
1997 from $1,007 in the year-earlier period. Healthy job growth in the Operating
Partnership's marketplace has been a key factor in the upward trend in rental
rates.
33
<PAGE> 35
Property expenses increased to $28.8 million in the first nine months of
1997 from $24.9 million in the first nine months of 1996. This increase reflects
the added expenses of newly delivered rental units from five properties which
achieved stabilization during 1996, a newly acquired community and two new
lease-up communities. Property expenses within communities owned and stabilized
more than two years increased by $1.7 million to $23.5 million in the first nine
months of 1997 from $21.8 million a year ago. In the first nine months of 1997,
average monthly property expenses at these Properties increased to $231 per unit
from $214 per unit in the first nine months of 1996, primarily as a result of
higher unit turnover and related expenses in addition to preventative
maintenance scheduled in preparation for a potentially unseasonably wet winter.
Properties stabilized less than two years added $3.7 million to property
expenses in the first nine months of 1997 and $3.1 million in the first nine
months of 1996. Lease-up and newly acquired properties added $1.6 million to
property expenses in the first nine months of 1997.
Real estate taxes totaled $11.0 million in the first nine months of 1997
compared to $10.0 million in the first nine months of 1996. Taxes increased in
the first nine months of 1997 due to the addition of rental units from lease-up
properties and an acquisition.
Property management fees increased to $3.8 million in the first nine months
of 1997 from $3.3 million in the first nine months of 1996. Management fees
increased in the first nine months of 1997 due to the addition of rental units
from development, an acquisition and an increase in revenue from communities
owned and stabilized more than two years.
Net interest expense decreased to $21.9 million in the first nine months of
1997 from $22.4 million for the same period of 1996. The decrease was largely
due to a greater amount of capitalized interest during the 1997 period partially
offset by a higher level of borrowings under the Credit Facility. The Operating
Partnership capitalizes interest on projects actively under development using
average qualifying asset balances and applicable weighted average interest
rates. The average monthly qualifying asset balances for projects under
development in the first nine months of 1997 and 1996 were approximately $66.0
million and $39.7 million, respectively. Interest capitalized totaled $3.7
million in the first nine months of 1997 compared to $2.3 million in the same
period of 1996. Interest incurred was $25.6 million and $24.7 million for the
first nine months of 1997 and 1996, respectively.
Amortization of deferred financing costs was comparable in the first nine
months of 1997 and 1996.
Depreciation and amortization expense increased to $21.7 million in the
first nine months of 1997, up from $20.3 million in the first nine months of
1996. This increase reflects the completion and delivery of newly developed
rental units from the Operating Partnership's lease-up properties and an
acquisition.
General and administrative expense of $4.8 million was comparable to the
same nine month period of the prior year.
Years Ended December 31, 1996, 1995 and 1994. The Operating Partnership's
income before extraordinary item was $41.2 million in 1996, up from $25.1
million in 1995 and $12.3 million in 1994. The Operating Partnership's financial
results improved in 1996 due to the contribution of newly delivered rental units
from its development program, cost reductions and an increase in revenues within
its stabilized portfolio achieved primarily through higher occupancy and higher
rental rates. In 1995, financial results improved largely as a result of the
contribution of newly delivered rental units and operating cost reductions
within the Operating Partnership's stabilized portfolio.
34
<PAGE> 36
The following table sets forth certain operating data for the Properties
for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
REVENUE AND EXPENSE DATA 1996 1995
- ----------------------------------------------------------------------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Communities Stabilized More Than Two Years
Number of communities................................................ 43 43
Number of units at end of period..................................... 11,334 11,334
Operating revenues................................................... $133,287 $130,082
Property expenses.................................................... $ 29,466 $ 30,325
Real estate taxes.................................................... $ 10,799 $ 11,256
Property management fees............................................. $ 3,851 $ 3,733
Depreciation and amortization of real estate assets.................. $ 20,757 $ 21,237
Communities Stabilized Less Than Two Years(a)
Number of communities................................................ 5 5
Number of units at end of period..................................... 2,207 1,442
Operating revenues................................................... $ 24,656 $ 5,675
Property expenses.................................................... $ 4,351 $ 1,436
Real estate taxes.................................................... $ 2,693 $ 746
Property management fees............................................. $ 647 $ 160
Depreciation and amortization of real estate assets.................. $ 6,304 $ 1,858
Lease-Up Communities
Number of communities................................................ 2
Number of units at end of period..................................... 115
Operating revenues................................................... $ 144
Property expenses.................................................... $ 42
Real estate taxes.................................................... $ 4
Property management fees............................................. $ 4
Depreciation and amortization of real estate assets.................. $ 26
</TABLE>
- ---------------
(a) Represents five communities that began leasing in 1995 and reached
stabilized occupancy (95%) at various dates in 1996.
Operating revenues (rental and other income) increased by 16.4% to $158.1
million in 1996, up from $135.8 million in 1995. Operating revenues in 1995 had
increased by 5.3% from $128.9 million in 1994. Operating revenues rose in 1996
as a result of higher occupancy, higher rental rates and the contribution of
newly delivered rental units from five properties which achieved stabilization
during 1996. In total, these new units added $24.7 million to operating revenues
in 1996, compared to $5.7 million in 1995. Within communities stabilized more
than two years, operating revenues increased 2.5% in 1996, primarily due to
increases in rental rates and an increase in average physical occupancy to 95.0%
from 94.6% in 1995. Average monthly rental rates per unit increased 1.9% to
$1,015 in 1996, from $996 in 1995.
Operating revenues improved in 1995 from the prior year largely as a result
of the contribution of newly delivered rental units. In total, these new units
added $5.7 million to operating revenues in 1995. They made virtually no
contribution in 1994. Within communities stabilized more than two years,
operating revenues increased less than 1% in 1995, as modest increases in rental
rates were largely offset by a decline in average physical occupancy to 94.6%
from 95.6% in 1994. Average monthly rental rates per unit increased 1.5% to $996
in 1995, from $981 in 1994.
Property expenses increased by 6.6% to $33.9 million in 1996 from $31.8
million in 1995. These expenses had decreased in 1995 by 4.1% from $33.1 million
in 1994. The increase in 1996 reflects the added expenses of
35
<PAGE> 37
newly delivered rental units from five properties which achieved stabilization
during 1996. Property expenses within communities stabilized more than two years
decreased 2.8% to $29.5 million in 1996 from $30.3 million in 1995. During the
three years ended December 31, 1996, the Operating Partnership achieved
sustained reductions in its per-unit property expenses through aggressive
bidding of external service and purchase contracts and a series of initiatives
to enhance the efficiency of customer service and property maintenance
operations. In 1996, average monthly property expenses within communities
stabilized more than two years decreased to $217 per unit from $223 per unit in
1995 and $243 per unit in 1994. Properties stabilized less than two years added
$4.4 million to property expenses in 1996 and $1.4 million in 1995.
Real estate taxes totaled $13.5 million in 1996, $12.0 million in 1995 and
$11.8 million in 1994. Taxes increased in 1996 due to the addition of rental
units, partially offset by a reduction in assessed values. In 1995, the
Operating Partnership's real estate taxes increased from the 1994 level due to
the addition of rental units.
Property management fees increased to $4.5 million in 1996 from $3.9
million in 1995 and $3.8 million in 1994. Management fees increased in 1996 and
1995 due to the addition of rental units and an increase in revenue from
communities stabilized more than two years.
Net interest expense increased to $29.5 million in 1996 from $25.9 million
in 1995 and $26.8 million in 1994. The increase in 1996 net interest expense was
due to new properties being placed in service. The Operating Partnership
capitalizes interest on projects actively under development using qualifying
asset balances and applicable weighted average interest rates. Capitalized
interest totaled $3.2 million in 1996 compared to $6.8 million in 1995 and $1.3
million in 1994. In 1995, net interest expense decreased $0.9 million from the
prior year primarily due to a higher level of capitalized interest resulting
from increased construction activity, offset by higher interest incurred as a
result of the May 1995 refinancing of tax-exempt mortgage debt and increased
borrowings under bank lines of credit. Total interest incurred was $32.7 million
in 1996 and 1995, and $27.6 million in 1994.
Interest income totaled $0.6 million in 1996, $0.4 million in 1995 and $1.3
million in 1994. The changes in interest income reflect changes in the Operating
Partnership's average cash balances.
Amortization of deferred financing costs decreased by 69.1% to $2.6 million
in 1996 from $8.5 million in 1995 and $15.9 million in 1994. The $5.9 million
decrease in 1996 and $7.4 million decrease in 1995 were largely due to the
elimination of deferred financing costs through an extraordinary charge of $23.4
million related to the refinancing of tax-exempt mortgage debt in May 1995.
Depreciation and amortization expense increased by 17.7% to $27.2 million
in 1996, up from $23.1 million in 1995. These expenses had increased in 1995 by
9.9% from $21.1 million in 1994. The increases in both years reflect the
completion and delivery of newly developed rental units.
General and administrative expense increased to $6.3 million in 1996, up
from $5.9 million in 1995. General and administrative expense had increased in
1995 from $5.4 million in 1994. These increases were largely the result of
increased staffing levels.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership believes that cash provided by operations will be
adequate to meet both operating requirements and payment of distributions on its
G.P. Units and L.P. Units in both the short and long term.
Liquidity. The Operating Partnership expects to meet its long-term
liquidity requirements, such as construction, scheduled debt maturities and
potential future property acquisitions, through the issuance or refinancing of
long-term debt, borrowings from financial institutions, or the issuance of
additional equity securities of the Company and/or L.P. Units. On June 27, 1997,
the Operating Partnership renewed its $250 million unsecured Credit Facility for
a three-year term. The new Credit Facility currently bears interest at LIBOR
plus 0.70% or prime. The Credit Facility provides for the borrowing interest
rates to be adjusted up or down reflecting the credit ratings on the Operating
Partnership's senior unsecured long-term indebtedness.
36
<PAGE> 38
Availability under the Credit Facility was $115 million at September 30, 1997
($213.3 million after giving effect to the repayment of outstanding borrowings
with the net proceeds from the issuance of the 7% Notes).
Additional Equity. On February 20, 1997 the Company sold, in a public
offering, 1.15 million shares of Common Stock at $27.50 per share, the proceeds
of which were contributed to the Operating Partnership for an additional general
partnership interest. Concurrently, The Irvine Company, pursuant to its rights
under the Partnership Agreement, purchased 1.39 million additional Common L.P.
Units at $26.06 per unit (which is equal to the public offering price of the
Common Stock less an amount equivalent to the underwriting discount) which are
exchangeable for Common Stock on a one for one basis, subject to adjustment and
certain limitations. The proceeds from the two transactions totaled
approximately $66.0 million and were used by the Operating Partnership to repay
all then outstanding indebtedness under its revolving line of credit, and for
general partnership purposes, including development of new apartment
communities.
Shelf Registration Statements. On May 14, 1997 the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, debt securities, and warrants to purchase common stock, preferred stock
and debt securities. Concurrently, the Operating Partnership filed a shelf
registration statement with the Commission providing for the issuance from time
to time of up to $350 million of debt securities. Proceeds raised from any
securities issued under the Company's shelf registration statement will be
contributed to the Operating Partnership and such proceeds, together with any
proceeds raised from any securities issued under the Operating Partnership's
shelf registration statement will be used for general partnership purposes,
including the development of new apartment communities, acquisitions and the
repayment of existing debt. On October 1, 1997 the Operating Partnership issued
$100 million aggregate principal amount of 7% Notes. Net proceeds of $98.3
million were used to repay indebtedness under the Credit Facility that had been
incurred primarily to finance the Villas of Renaissance Acquisition. See Note 6
to the OP Unaudited Quarterly Financial Statements.
Debt. The Operating Partnership's conventional and tax-exempt mortgage debt
bears interest at fixed interest rates, or variable rates that have been
effectively fixed through interest rate swap agreements. Interest rates on
conventional mortgage debt were reduced to then-current market rates at the time
of the Company's December 1993 Initial Public Offering through interest rate
buy-down agreements that are scheduled to expire at various dates prior to loan
maturity. A buy-down agreement relating to $35.8 million of conventional debt
expired in September 1997, and as a result, the interest rate on that loan
increased from 5.82% to 8.30%. The weighted average effective interest rate on
the Operating Partnership's debt, including the non-cash charges of amortization
of deferred financing costs, was 6.44% at September 30, 1997. The Operating
Partnership uses interest rate swap agreements to effectively convert its
floating rate tax-exempt mortgage bond financings to a fixed-rate basis, thus
reducing the impact of fluctuations in interest rates on future income.
37
<PAGE> 39
The following table sets forth certain information with respect to the
Operating Partnership's outstanding debt at September 30, 1997. For additional
information relating to the Operating Partnership's debt, see Note 3 to the OP
Audited Financial Statements.
<TABLE>
<CAPTION>
WEIGHTED
DEBT AVERAGE
DEBT STRUCTURE AT SEPTEMBER 30, 1997 BALANCE INTEREST RATE
- ----------------------------------------------------------------------- ------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings..................................... $ 132.9 6.45%
Mortgage notes payable to The Irvine Company......................... 50.6 5.75%
Tax-exempt mortgage bond financings.................................. 326.6 5.94%
Tax-exempt assessment district debt.................................. 5.6 6.27%
------ ----
Total fixed rate debt............................................. 515.7 6.06%
------ ----
Variable rate debt
Revolver line of credit.............................................. 135.0 6.42%
Tax-exempt assessment district debt.................................. 16.1 3.53%
------ ----
Total variable rate debt.......................................... 151.1 6.11%
------ ----
Total debt................................................... $ 666.8 6.07%
====== ====
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
BALANCE AT AVERAGE
SEPTEMBER 30, REMAINING
DEFERRED FINANCING COSTS 1997 TERM
- --------------------------------------------------------------------- ------------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest rate buy-downs on conventional mortgage financings.......... $ 8.6 9.0 yrs
Loan origination costs and other..................................... 10.1 24.9 yrs
----- --------
Total........................................................... $18.7 17.6 yrs
===== ========
</TABLE>
Operating Activities. Cash flow provided by operating activities was $69.4
million and $55.7 million in the first nine months of 1997 and 1996,
respectively. Cash provided by operating activities increased in 1997 primarily
due to higher revenues from newly developed and acquired apartment units, as
well as an increase in revenues within the Operating Partnership's stabilized
portfolio achieved through higher rental rates. Cash flow provided by operating
activities was $73.0 million, $55.4 million and $49.8 million for the years
ended 1996, 1995 and 1994, respectively. Cash provided by operating activities
increased in 1996 and 1995 compared to prior years primarily due to higher
revenues and lower per-unit operating costs in the Operating Partnership's
stabilized portfolio.
Investing Activities. Cash flow used in investing activities was $205.8
million and $44.2 million in the first nine months of 1997 and 1996,
respectively. This increase resulted from increased development activity in the
first nine months of 1997 (see "-- Capital Expenditures" below), and the
acquisition of The Villas of Renaissance (see Note 6 to the OP Unaudited
Quarterly Financial Statements). Cash flow used in investing activities was
$66.6 million, $128.2 million and $50.9 million for the years ended 1996, 1995
and 1994, respectively. Changes in levels of cash flows used in investing
activities for each year reflect the changing levels of real estate development
by the Operating Partnership. See "-- Capital Expenditures."
Financing Activities. Cash flow provided by (used in) financing activities
was $135.5 million and ($8.4) million in the first nine months of 1997 and 1996,
respectively. The Operating Partnership received an aggregate of approximately
$66.0 million from the sale of Common L.P. Units and the contribution by the
Company of the proceeds from the sale of its Common Stock in the first quarter
of 1997. See "-- Additional Equity" above. These proceeds were used to pay down
borrowings from the lines of credit. In June 1997, the Operating Partnership
borrowed $118 million under the Credit Facility to fund the acquisition of The
Villas of Renaissance. Additionally, the Operating Partnership paid $47.5
million in distributions on its G.P. Units and Common L.P. Units in the first
nine months of 1997, compared to $41.3 million in the first nine months of 1996.
Cash flow provided by (used in) financing activities was $(7.6) million, $73.7
million and $(23.3) mil-
38
<PAGE> 40
lion for the years ended 1996, 1995 and 1994, respectively. Among the factors
affecting these cash flows in 1996, the Operating Partnership received an
aggregate of approximately $60.0 million from the sale of Common L.P. Units and
the contribution by the Company of the proceeds from the sale of its Common
Stock, compared to $109.3 million in 1995. These proceeds were used to pay down
borrowings from the line of credit. In 1995, the Operating Partnership received
$8.3 million of additional proceeds from the refinancing of tax-exempt debt,
while incurring loan origination costs of $9.2 million and net borrowings from
the line of credit of $15.7 million. Distributions paid on its G.P. Units and
Common L.P. Units in 1996 increased to $56.1 million from $44.8 million in 1995.
In 1994, cash flows used in financing activities included $33.6 million in
distributions paid on its G.P. Units and Common L.P. Units, partially offset by
new borrowings in excess of principal reductions of approximately $11.1 million
and net borrowings from the line of credit of $6.3 million.
CAPITAL EXPENDITURES
Capital Expenditures on New Development. The Operating Partnership's major
cash requirements in the next twelve months are expected to be for the
construction of new apartment communities and possibly for acquisitions of
apartment communities. Currently, the Operating Partnership has four apartment
communities under development (The Colony, Santa Rosa II, Rancho Santa Fe and
The Hamptons) that will require total expenditures of approximately $162
million, of which $102 million had been incurred at September 30, 1997. Funding
for these developments came from, and funding for future development activities
is expected to come from, the Credit Facility and the proceeds from this
Offering. The Company or the Operating Partnership may issue other debt or
equity securities as discussed above under "-- Liquidity and Capital Resources."
Construction Information
<TABLE>
<CAPTION>
ESTIMATED TOTAL
COMMENCEMENT INITIAL ESTIMATED
COMMENCEMENT OF OF LEASING STABILIZED COSTS
APARTMENT COMMUNITY VILLAGE, CITY UNITS CONSTRUCTION ACTIVITY OCCUPANCY (IN MILLIONS)
- -------------------- ------------------------------ ----- --------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Colony Newport Center, Newport Beach 245 7/96 4Q '97 1Q '99 $ 44
Santa Rosa II Westpark II, Irvine 207 12/96 4Q '97 3Q '98 27
Rancho Santa Fe Tustin Ranch, Tustin 316 2/97 4Q '97 1Q '99 39
The Hamptons Cupertino 342 5/97 2Q '98 1Q '99 52
----- ----
Total 1,110 $ 162
===== ====
</TABLE>
The timing of future construction, leasing activities and initial
stabilized occupancy and estimated costs of apartment communities that are in
development are only estimates. Actual results will depend on numerous factors,
many of which are beyond the control of the Operating Partnership. These include
the extent and timing of economic growth in the Company's rental markets; future
trends in the pricing of construction materials and labor; entitlement decisions
by local government authorities; weather; changes in interest rate levels; and
other changes in capital markets. No assurance can be given that the timing or
estimates set forth in the foregoing table will not vary substantially from
actual results.
Capital Replacements on Stabilized Properties. Expenditures for capital
replacements totaled $3.2 million and $2.9 million in the first nine months of
1997 and 1996, respectively. Average capital replacements per unit for
communities owned and stabilized more than two years increased to $275 from $254
in the first nine months of 1997 and 1996, respectively, due to the nature and
timing of scheduled capital programs. Expenditures for capital replacements in
1997 are expected to be similar to 1996 levels. Expenditures for capital
replacements within communities stabilized more than two years totaled $4.7
million, $4.5 million and $5.6 million in 1996, 1995 and 1994, respectively.
Average capital replacements per unit within communities stabilized more than
two years were $415, $399 and $490 in 1996, 1995 and 1994, respectively.
Overall, these expenditures declined over this period reflecting greater
efficiency in property enhancement activities, including centralized purchasing
of major replacement materials. The Operating Partnership has a policy of
capitalizing expenditures related to asset acquisitions, costs which increase
the value of an existing asset, or
39
<PAGE> 41
costs which substantially extend an existing asset's useful life. Capital
replacements for communities stabilized more than two years were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------
TOTAL PER UNIT
------ --------
(IN
THOUSANDS)
<S> <C> <C>
Carpet replacements....................................... $1,188 $105
Exterior painting, siding and stucco...................... 669 59
Upgrades, renovations and major building items............ 466 41
Appliances, water heaters and air conditioning............ 170 15
Roofing, concrete and pavement............................ 270 24
Equipment and other....................................... 357 31
------ ----
Total........................................... $3,120 $275
====== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996
-------------------
TOTAL PER UNIT
------ --------
(IN
THOUSANDS)
<S> <C> <C>
Carpet replacements....................................... $1,462 $129
Exterior painting, siding and stucco...................... 786 69
Upgrades, renovations and major building items............ 970 86
Appliances, water heaters and air conditioning............ 401 35
Roofing, concrete and pavement............................ 542 48
Equipment and other....................................... 545 48
------ ----
Total........................................... $4,706 $415
====== ====
</TABLE>
The Operating Partnership also plans to incur approximately $5.2 million in
capital expenditures over the next two years at one of its existing apartment
communities, Promontory Point. Management believes that these capital
expenditures will generate additional revenue by enhancing the community's
appeal in the luxury segment of the marketplace. In addition, the Operating
Partnership plans to incur approximately $5.0 million in capital expenditures of
which $0.4 million had been incurred through September 30, 1997 at The Villas of
Renaissance which was acquired on June 30, 1997 (see Note 6 to the OP Unaudited
Quarterly Financial Statements). The Operating Partnership believes these
capital expenditures will generate additional revenue by enhancing the apartment
community's appeal within the luxury segment of the marketplace. Funding for
these expenditures is expected to come from the Credit Facility and proceeds of
this Offering.
IMPACT OF INFLATION
The Operating Partnership's business is affected by general economic
conditions, including the impact of inflation and interest rates. Substantially
all of the Operating Partnership's leases allow, at time of renewal, for
adjustments in the rent payable thereunder, and thus may enable the Operating
Partnership to seek increases in rents. Substantially all leases are for a
period of one year or less. The short-term nature of these leases generally
serves to minimize the risk to the Operating Partnership of the adverse effects
of inflation. For construction, the Operating Partnership has entered into
various contracts for the development and construction of new apartment
communities. These are fixed-fee contracts and thus partially insulate the
Operating Partnership from inflationary risk.
40
<PAGE> 42
BUSINESS AND PROPERTIES OF THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is engaged in the development and operation of
multifamily rental apartment communities in California. The Operating
Partnership's management and operating decisions are under the unilateral
control of the Company, a self-administered equity real estate investment trust.
The Operating Partnership and the Company were formed in December 1993 to
continue and expand the apartment community business of The Irvine Company, a
real estate and community development company. At September 30, 1997, the
Company had a 45.2% (44.4% at December 16, 1997) general partnership interest in
the Operating Partnership and was its sole managing general partner. At such
date, the limited partners of the Operating Partnership had a 54.8% (55.6% as of
December 16, 1997) interest in the Operating Partnership, represented by the
Common L.P. Units, with The Irvine Company and certain of its affiliates owning
a 54.6% (55.4% as of December 16, 1997) limited partnership interest in the
Operating Partnership.
As of September 30, 1997, the Operating Partnership owned and operated
14,991 units in 51 Existing Communities and had four additional Communities
Under Construction aggregating 1,110 units. Upon completion of the Communities
Under Construction, the Operating Partnership will own a total of 16,101 units
in 55 apartment communities, representing an increase in units of approximately
42% since the Initial Public Offering in December 1993. Through July 2020, the
Company and the Operating Partnership hold the exclusive right, but not the
obligation, to acquire land from The Irvine Company, the owner and developer of
the Irvine Ranch since 1864, for development of additional apartment communities
on the Irvine Ranch. Fifty-three of the Properties aggregating 14,836 units (the
"Irvine Ranch Properties") are or will be located on the Irvine Ranch, of which
50 constitute Existing Communities (14,068 units) and three constitute
Communities Under Construction (768 units).
In 1997, the Operating Partnership commenced an "off-Ranch" expansion
program through the acquisition of rights to purchase three apartment community
development sites located in Northern California's Silicon Valley. The Operating
Partnership has exercised its right with respect to one of these sites and has
begun construction on a 342-unit apartment community on the site. On October 23,
1997, the Board of Directors of the Company authorized the Operating
Partnership, subject to the receipt of necessary entitlements, to exercise
another of the options. Construction of an apartment community of approximately
155 units on this site is expected to commence in the first half of 1998.
Preliminary design and jurisdictional approvals are also in process with respect
to the remaining development site. In addition, on June 30, 1997, the Operating
Partnership purchased for $127 million the 923-unit Villas of Renaissance
located in Northern San Diego County. See "Recent Developments -- 'Off-Ranch'
Expansion." Two additional sites located in Northern San Diego County were
purchased in early December 1997. The Operating Partnership believes that the
economic expansion being experienced by the State of California provides the
Operating Partnership with significant growth potential beyond the Irvine Ranch.
The Irvine Ranch is located in central Orange County, California between
San Diego and Los Angeles. The western boundary of the Irvine Ranch borders
approximately six miles of the Pacific Ocean. Today, the portion of the Irvine
Ranch which is still owned by The Irvine Company covers approximately 50,000
acres and includes the largest remaining privately-owned undeveloped acreage in
Orange County. The developed portion of the Irvine Ranch, which includes the
City of Irvine and significant parts of the cities of Newport Beach and Tustin,
is one of the largest urban master-planned communities in the United States. The
Irvine Ranch has been developed over the past 30 years in accordance the Master
Plan which, over time, has been refined to accord with locally approved general
plans. The Irvine Ranch is one of the major commercial, industrial, retail and
residential centers in Southern California.
41
<PAGE> 43
The Operating Partnership believes that a variety of factors have
contributed to the strong apartment market in Orange County, the successful
operating performance of the Existing Communities located on the Irvine Ranch
and the existence of significant opportunities for the development of additional
apartment communities on the Irvine Ranch. Most important among these factors
are:
- The dominant market position of the Operating Partnership, which owns
over 85% of all apartment communities having 100 or more units on the
Irvine Ranch;
- The Operating Partnership's 23-year exclusive right to acquire land from
The Irvine Company for development of additional rental apartment
communities on the Irvine Ranch;
- The limited supply of developable land, other than on the Irvine Ranch,
adjacent to major employment centers in Orange County;
- The Irvine Company's Master Plan strategy which emphasizes market
segmentation in order to ensure adequate and appropriate allocation of
land uses which support sustained growth for the long-term;
- The high quality of design, construction and maintenance of the Irvine
Ranch Properties and their location in or near the City of Irvine, which
was ranked by the Federal Bureau of Investigation as among the safest
cities in the United States with a population of 100,000 or more;
- The close proximity of the Irvine Ranch Properties and of future
development sites to major employment centers, the Pacific Ocean, high
quality schools, and extensive resort, recreational and open space
amenities;
- An affluent, growing population and diversified employment base in Orange
County and on the Irvine Ranch;
- The Operating Partnership's ability to defer the purchase of land on the
Irvine Ranch under its land rights agreement until site and zoning
entitlements have been obtained, the land is ready for construction and
the Operating Partnership determines favorable market conditions exist;
- The operating efficiencies available to the Operating Partnership because
the Irvine Ranch Properties are located in a single geographic area;
- An average of 20 years of experience of the Company's 11 most senior
members of management in the design, development, construction, property
management and financing of apartment communities; and
- The effectiveness of management's policies regarding property management
and expense control.
The Operating Partnership's intent is to develop or acquire new apartment
communities in California. The Operating Partnership has recently commenced
operations in the Silicon Valley and Northern San Diego County, which possess
strong rental demographics and economic growth prospects similar to those on the
Irvine Ranch.
BUSINESS STRATEGY
The Operating Partnership's primary business objective is to deliver
strong, consistent total annual returns to its partners while enhancing the
long-term growth in value of its real estate portfolio. The Operating
Partnership believes it is well positioned to meet this objective given the size
and strength of the economic regions in which it operates, the quality of its
existing apartment community portfolio and the significant opportunities for new
development within its primary market, and in similar high growth regions of
California, such as the Silicon Valley and the Northern San Diego marketplace.
Through adherence to specific operating and development strategies, the most
important of which are discussed below, the Operating Partnership seeks to
achieve growth in its funds available for distribution through maximization of
cash flow from its Existing Communities and the development of new apartment
communities.
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<PAGE> 44
OPERATING STRATEGIES
- Provide an exceptional living environment for residents. The Existing
Communities on the Irvine Ranch have been developed and are maintained to
appeal to the highly educated, relatively affluent base of renters
attracted to the Irvine Ranch. As a result of the region's closely
managed master-planning process, the Irvine Ranch Properties are situated
amid parks and other open space, and in close proximity to employment
centers, schools, retail centers, and recreational facilities. They
provide generous amenities, are well maintained and offer a high standard
of customer service. The Operating Partnership's success in providing an
exceptional quality of life for its residents is evidenced in part by the
strong average rental rates the Existing Communities on the Irvine Ranch
command relative to average rental rates for Orange County as a whole. In
1996, the stabilized Existing Communities on the Irvine Ranch produced an
average monthly rent of $1,025 per unit, which was approximately $200
more than the average monthly rent in Orange County.
- Enhance efficiency of operations. Management of the Company selectively
subcontracts on-site staffing, personnel management and accounting
functions to three independent property management firms which enables it
to focus on marketing, product pricing and positioning, and approval of
operating budgets. Management additionally directs and tests the
standards of property-level activities conducted by the firms, including
training of on-site staff.
- Capitalize on strong brand identity with enhanced marketing and
merchandising programs. The Operating Partnership has enhanced certain of
its marketing programs to broaden its already strong brand name
recognition in order to attract new residents into its portfolio and
broaden the existing resident base. The Operating Partnership's marketing
programs include: a website and a single source 800 telephone number to
provide information on the Properties; rental information centers within
major shopping centers and the University of California at Irvine; and a
targeted advertising campaign promoting the Operating Partnership's
portfolio and its strong quality of life characteristics.
DEVELOPMENT STRATEGIES
- Develop new communities to complement and expand the Operating
Partnership's existing rental market base. A diverse regional economy,
continuing population growth, and an attractive quality of life all
contribute to a broad and varied demand for rental housing on the Irvine
Ranch. As a result, opportunities exist for a variety of apartment
property types and amenity levels, including projects designed for the
family, luxury and senior markets, and the area's large population of
young professionals. The Operating Partnership's development program on
the Irvine Ranch seeks to capitalize on these opportunities through
market segmentation. Supported by consumer research and focus group
studies, market segmentation decisions are made at the earliest planning
stages, when new residential villages for the Irvine Ranch are conceived
and the villages' largest and most important amenities are selected.
Location of schools, recreational facilities, retail centers, open space
and views are all important considerations. Individual development
decisions -- including site location, product design, amenities and
marketing programs -- are also geared to appeal to the needs and desires
of the target rental market.
- Utilize experienced management to create high-quality, well-built
properties designed to sustain value. The Operating Partnership brings
considerable management expertise to all aspects of the development,
construction and leasing process. Senior management of the Company is
actively involved in new project development from the inception of a new
Irvine Ranch village and is responsible for target market identification;
design of site plans, building plans, and floor plans; project and unit
amenity selection; and site-specific governmental approvals. In addition,
the Operating Partnership directs the bidding and contracting of all
major construction activities, in essence acting as general contractor.
The Operating Partnership engages experienced independent construction
managers to act as intermediaries with subcontractors and to manage
on-site activities under the close supervision of the Operating
Partnership's internal construction group. The Operating Partnership
builds properties using only high-quality construction materials and
techniques, and believes that this higher initial investment in quality
enhances long-term value creation by sustaining high community rental
income levels and reducing long-term expense levels.
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<PAGE> 45
"OFF-RANCH" EXPANSION
While the Operating Partnership's principal focus has been on the
development of apartment communities on the Irvine Ranch, the Operating
Partnership has commenced an "off-Ranch" expansion program and will continue to
consider other opportunities to develop or acquire apartment communities in
California, that offer attractive risk-adjusted returns. The Operating
Partnership's intent is to create new market positions in the Silicon Valley and
Northern San Diego County and other locations in California which possess strong
rental demographics and economic growth prospects similar to those on the Irvine
Ranch. In addition, the three senior real estate executives at Thompson
Residential Company, Inc. ("TRC"), a privately held, Northern California-based
multifamily development company, have joined the Company with primary
responsibility for the Operating Partnership's "off-Ranch" California
operations. See Note 5 to the OP Unaudited Quarterly Financial Statements.
IRVINE RANCH MASTER PLAN
The urbanization of the Irvine Ranch began in the 1960s with the adoption
of the pioneering comprehensive Master Plan for future community development
which originally constituted a large map of the Irvine Ranch and a series of
supporting maps detailing land uses. Subsequently, The Irvine Company worked
closely with the various local jurisdictions who govern the Irvine Ranch to
adopt general plans for the future development of their jurisdictions. The
Irvine Company's overall Master Plan was refined to accord with the approved
general plans and the residential, commercial, industrial, environmental and
aesthetic balance desired by each jurisdiction. As a result, today the Irvine
Ranch Master Plan is a compilation of the various interlocking general plans
described above. The Irvine Company continuously engages in planning activities
and the Master Plan refinement process is ongoing. The Irvine Company works
closely with local government representatives, community residents and other
civic and environmental groups to obtain the necessary local support and
entitlements for its developments. The goal of the Master Plan was and remains
to create innovative urban and suburban environments through the well-planned,
coordinated development of residential communities and employment centers (which
include major business and retail centers, and research and development and
industrial parks) as well as civic, cultural, recreational, educational and
other supportive facilities, all with an emphasis on improving the quality of
life and achieving long-term balanced regional economic growth.
The success of the Irvine Ranch as a master-planned development is in the
large part attributable to the early creation of a broad employment base. The
Irvine Company has emphasized the promotion of job creation on the Irvine Ranch
and has been involved in creating four major employment centers on the Irvine
Ranch, each easily accessible by apartment residents and the surrounding area.
The Irvine Company has been the sole developer of the Irvine Spectrum, a
3,600-acre research, technology and employment center which houses more than
2,200 companies and approximately 44,000 employees and includes more than 2.0
million square feet of office and other commercial space and over 15.5 million
square feet of industrial space. The Irvine Business Complex, which surrounds
the John Wayne airport, houses over 100,000 employees and includes more than 24
million square feet of office and other commercial space and over 14 million
square feet of industrial space. Newport Center contains over 4.4 million square
feet of office space, a 1.3 million square-foot regional mall (Fashion Island),
a tennis club and two country clubs. In addition, The Irvine Company donated
land to the University of California at Irvine, a 1,489-acre campus which
currently has more than 16,000 students and 5,500 employees. The proximity of
the Irvine Ranch Properties to these employment centers makes them attractive
residential locations.
MARKET SEGMENTATION AND THE VILLAGE CONCEPT
The Irvine Company's land use planning emphasizes market segmentation in
order to ensure adequate and appropriate allocation of land uses which support
sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local
44
<PAGE> 46
merchants and employers. In accordance with the Master Plan, The Irvine Company
has created twelve villages which are used as micro-planning areas in an effort
to facilitate the desired segmentation of products.
Each village across the Irvine Ranch has a thematic identity which
characterizes the primary features and attributes of the village and helps to
identify the target market for the Operating Partnership's product. For example,
Tustin Ranch, in the City of Tustin, is a family-oriented village featuring an
18-hole championship golf course, athletic fields, jogging, hiking and
equestrian trails. Along the ocean is the village of Newport Coast, an upscale
community featuring ocean views and million-dollar custom built homes. The
village of Westpark, in Irvine, caters to young professionals with growing
families and offers the highly renowned public school system and recreational
facilities of the City of Irvine.
Within each village, the Operating Partnership's target market is further
defined. The primary factor which determines the appropriate target for the
Operating Partnership's product is location. For example, the conventional
product which is targeted towards young professionals is typically located near
major business centers and in close proximity to entertainment, retail
establishments and major transportation corridors. The student product, on the
other hand, is located within walking distance of a college or university,
student-oriented retail centers, and public transportation.
Finally, the Operating Partnership specifically designs its products to
appeal to a target market. The Operating Partnership's luxury product is
typically in a unique location with ocean or golf course views. The family
products offer spacious play areas and tot lots, a children's multi-purpose room
with an activities coordinator, individual garages and in-unit washers and
dryers.
EXCLUSIVE LAND RIGHTS AGREEMENT
The Company, the Operating Partnership and The Irvine Company are parties
to the Land Rights Agreement pursuant to which, through July 31, 2020, the
Company and the Operating Partnership have the exclusive right, but not the
obligation, to acquire all land sites entitled for residential use and
designated by The Irvine Company as ready for apartment community development in
accordance with The Irvine Company's Master Plan. The determination to exercise
an option with respect to a site is made solely by the Independent Directors
Committee of the Company's Board of Directors. Under this Agreement, the
Operating Partnership has purchased ten apartment community land sites since the
Company's Initial Public Offering, seven of which are now Existing Communities
and three of which are now the Communities Under Construction. Under the terms
of the Land Rights Agreement, through July 31, 2000, the purchase price for any
apartment community sites acquired may be paid with either cash, Common Stock of
the Company or Common L.P. Units, at the option of the Company. After July 31,
2000, the choice of consideration will revert to The Irvine Company. In no event
shall the purchase price for any apartment community land site exceed 95% of the
value of such site as determined by independent appraisals. In addition, the
purchase price for apartment sites which encompassed the first 1,800 apartment
units the Operating Partnership developed commencing in mid-1995 were set at an
amount such that each project's budgeted pro forma unleveraged return on costs
for the first 12 months following stabilized occupancy was between 10.0% and
10.5%. Seven land sites for the development of apartment communities which will
contain 1,884 units have been purchased under this arrangement. See "Certain
Relationships and Related Transactions -- Transactions with The Irvine Company."
Accordingly, as of the date of this Prospectus the purchase price for all future
land sites will be no greater than 95% of the appraised value. Independent
appraisals will be obtained by each of the Operating Partnership and The Irvine
Company for all future sites, prior to the Independent Directors Committee
determining whether the Operating Partnership will exercise its right to
purchase a land site. If the Operating Partnership elects not to exercise its
option for any site, the Operating Partnership will thereafter have a right of
first refusal on the sale of such site to a third party if the terms of such
sale are more favorable than those offered to the Operating Partnership. The
determination to exercise an option or the right of first refusal under the Land
Rights Agreement with respect to any site will be made solely by a majority of
the Independent Directors Committee.
Pursuant to the Land Rights Agreement, The Irvine Company and Mr. Bren have
agreed to conduct their apartment community development and ownership activities
on the Irvine Ranch solely through the Company
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<PAGE> 47
and the Operating Partnership. These restrictions terminate upon the occurrence
of certain conditions. See "Risk Factors -- Early Termination of the Exclusive
Land Rights and Non-Competition Arrangements with The Irvine Company and Mr.
Bren Would Adversely Affect the Operating Partnership."
THE PROPERTIES
As of September 30, 1997, the Operating Partnership owned and operated
14,991 apartment units in the Existing Communities and had four Communities
Under Construction. The Operating Partnership believes that the Properties are
high quality apartment communities with superior locations near major employment
centers and, in the case of Irvine Ranch Properties, within master-planned
villages. The Properties are located within the following individual
jurisdictions:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT OF
LOCATION PROPERTIES(1) UNITS(1) TOTAL UNITS
--------------------------------------- ------------- --------- -----------
<S> <C> <C> <C>
ORANGE COUNTY
Irvine............................... 37 9,849 61.2%
Newport Beach........................ 8 2,305 14.3
Tustin............................... 7 2,170 13.5
Newport Coast........................ 1 512 3.2
SILICON VALLEY
Cupertino............................ 1 342 2.1
NORTHERN SAN DIEGO COUNTY
La Jolla............................. 1 923 5.7
--
------ -----
TOTAL.................................. 55 16,101 100.0%
== ====== =====
</TABLE>
- ---------------
(1) Four of these Properties (aggregating 1,110 units) are Communities Under
Construction.
EXISTING COMMUNITIES
The Existing Communities consist of 51 apartment communities of two, three
or four stories, containing 14,991 units. The Company believes that the Existing
Communities are well maintained and have no material deferred maintenance
requirements. The average age of the Existing Communities is approximately 11
years. The oldest of the Existing Communities was completed in 1969, and 32 of
the 51 Existing Communities, totaling 10,323 units or approximately 68.9% of the
units in the Existing Communities, have been completed since January 1, 1985.
The number of units per apartment community ranges from 58 units to 923 units,
with an average of approximately 294 units. Approximately 88% of the units are
one- or two-bedroom apartments. The apartment units average 946 square feet.
Excluding The Villas of Renaissance, 43 of the Existing Communities,
representing 11,334 units, achieved stabilized occupancy prior to January 1,
1996, and for the nine months ended September 30, 1997, these Existing
Communities had an average physical occupancy rate of 94.5% and an average
monthly rent per unit of $1,068. Five Existing Communities, containing 2,207
units, were in lease-up throughout 1995 and achieved stabilized occupancy during
1996. For the nine months ended September 30, 1997 these five Existing
Communities had an average physical occupancy of 94.5%. The Operating
Partnership also acquired The Villas of Renaissance (containing 923 units) on
June 30, 1997. See "Recent Developments -- 'Off-Ranch' Expansion." The two
remaining Existing Communities containing 527 units achieved stabilized (95%)
occupancy in July 1997.
All of the Existing Communities offer apartment residents numerous
amenities and include extensive landscaping. Approximately 80% of the 51
Existing Communities contain a swimming pool, spa, air conditioning and covered
parking. Additional amenities may include a fitness center, recreational room,
sauna and tennis courts. Each apartment unit includes a patio, entry porch or
balcony. Many apartment units offer one or more of certain additional features,
such as vaulted ceilings, fireplaces, enclosed garages, refrigerators, washers
and dryers and microwave ovens.
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<PAGE> 48
The Operating Partnership seeks to assure that the Properties remain
attractive dwellings for apartment residents and desired locations for
prospective apartment residents. Local property manager maintenance, custodial
and grounds keeping personnel perform regular maintenance and upkeep on the
Properties to preserve the enhanced physical and aesthetic attributes. The
physical appearance of, and apartment residents' satisfaction with, the
Properties and with the performance of the local property managers is monitored
and evaluated on an ongoing basis by senior management. The following table sets
forth certain information as of December 31, 1996 regarding the 48 Existing
Communities which had achieved stabilized occupancy:
STABILIZED COMMUNITY INFORMATION(1)
<TABLE>
<CAPTION>
1996
AVERAGE AVERAGE 1996
UNIT SIZE MONTHLY AVERAGE
YEAR NUMBER (SQUARE RENTAL RATE PHYSICAL
COMMUNITY COMPLETED OF UNITS FEET) PER UNIT OCCUPANCY
- --------------------------------------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED OVER TWO YEARS:
Irvine, CA:
Amherst Court........................ 1991 162 724 $ 976 94.0%
Berkeley Court....................... 1986 152 828 1,032 92.5
Cedar Creek.......................... 1985 176 811 897 94.9
Columbia Court....................... 1984 58 852 975 95.2
Cornell Court........................ 1984 109 894 1,043 95.2
Cross Creek.......................... 1985 136 935 959 95.9
Dartmouth Court...................... 1986 294 896 1,032 92.6
Deerfield............................ 1975/1983 192/96 849 879 94.8
Harvard Court........................ 1986 112 826 978 94.5
Northwood Park....................... 1985 168 944 907 95.0
Northwood Place...................... 1986 604 954 907 95.0
Orchard Park......................... 1982 60 971 1,009 99.9
Park West............................ 1970/71/72 256/276/348 1,004 934 94.1
Parkwood............................. 1974 296 886 921 94.1
Rancho San Joaquin................... 1976 368 896 975 96.2
San Carlo............................ 1989 354 1,074 1,158 96.4
San Leon............................. 1987 248 951 1,006 94.3
San Marco............................ 1988 426 923 950 95.4
San Marino........................... 1986 200 926 981 94.6
San Mateo............................ 1990 283 720 919 95.6
San Paulo............................ 1993 382 1,001 934 95.0
San Remo............................. 1986/1988 136/112 963 968 94.3
Stanford Court....................... 1985 320 799 951 95.0
The Parklands........................ 1983 121 794 1,135 99.8
Turtle Rock Canyon................... 1991 217 1,024 1,218 96.7
Turtle Rock Vista.................... 1976/1977 112/140 1,155 1,161 96.3
Windwood Glen........................ 1985 196 878 916 96.5
Windwood Knoll....................... 1983 248 906 899 95.2
Woodbridge Oaks...................... 1983 120 976 1,072 99.9
Woodbridge Pines..................... 1976 220 872 935 94.6
Woodbridge Villas.................... 1982 258 867 919 94.9
Woodbridge Willows................... 1984 200 894 937 95.9
----------- ----- ----- ----
Subtotal.......................... 8,156 923 $ 972 95.1%
----------- ----- ----- ----
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
1996
AVERAGE AVERAGE 1996
UNIT SIZE MONTHLY AVERAGE
YEAR NUMBER (SQUARE RENTAL RATE PHYSICAL
COMMUNITY COMPLETED OF UNITS FEET) PER UNIT OCCUPANCY
- --------------------------------------- ----------- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Newport Beach, CA:
Bayport.............................. 1971 104 867 $ 991 97.0%
Bayview.............................. 1971 64 1,154 1,208 96.4
Baywood.............................. 1973/1984 320/68 1,074 1,106 96.1
Mariner Square....................... 1969 114 1,104 1,109 95.0
Newport North........................ 1986 570 947 1,058 94.7
Promontory Point..................... 1974 520 1,056 1,566 92.7
----------- ----- ----- ----
Subtotal.......................... 1,760 1,020 $ 1,224 94.6%
----------- ----- ----- ----
Tustin, CA:
Rancho Alisal........................ 1988/1991 344/12 967 $ 956 93.9%
Rancho Maderas....................... 1989 266 939 1,003 94.5
Rancho Mariposa...................... 1992 238 856 973 94.4
Rancho Tierra........................ 1989 252 1,031 1,052 95.3
Sierra Vista......................... 1992 306 852 1,028 94.5
----------- ----- ----- ----
Subtotal.......................... 1,418 930 $ 1,000 94.5%
----------- ----- ----- ----
TOTAL PORTFOLIO STABILIZED OVER TWO
YEARS................................ 11,334 939 $ 1,015 95.0%
----------- ----- ----- ----
PROPERTIES STABILIZED LESS THAN TWO
YEARS:
Villa Coronado....................... 1996 513 929 $ 1,170 92.6%
Santa Rosa........................... 1996 368 895 1,110 94.8
Santa Clara.......................... 1996 378 967 1,181 95.5
Rancho Monterey...................... 1996 436 932 1,176 95.1
Newport Ridge........................ 1996 512 951 1,376 94.5
----------- ----- ----- ----
TOTAL PORTFOLIO STABILIZED LESS THAN
TWO YEARS............................ 2,207 936 $ 1,169 94.4%
----------- ----- ----- ----
TOTAL STABILIZED PORTFOLIO............. 13,541 938 $ 1,025 94.9%
=========== ===== ===== ====
</TABLE>
- ---------------
(1) Excludes The Villas of Renaissance, an apartment community acquired by the
Operating Partnership on June 30, 1997. See "Recent
Developments -- 'Off-Ranch' Expansion."
COMMUNITIES IN LEASE-UP AND COMMUNITIES UNDER CONSTRUCTION
The Operating Partnership had no communities in lease-up at September 30,
1997. Two Existing Communities (Baypointe and Santa Maria) began deliveries of
units in the fourth quarter of 1996, with the final units being delivered in
June 1997. Each such Property had achieved stabilized occupancy by July 20,
1997. The Operating Partnership had four Communities Under Construction (The
Colony, Santa Rosa II and Rancho Santa Fe on the Irvine Ranch; and The Hamptons
at Cupertino in Cupertino, California) at September 30, 1997, which will
comprise a total of 1,110 units upon completion. No units in the Communities
under Construction were ready for occupancy at September 30, 1997. The
Communities Under Construction will include amenities substantially similar to
those in the Existing Communities.
MANAGEMENT AND CONTROL OF THE OPERATING PARTNERSHIP
As sole general partner of the Operating Partnership, the Company has the
exclusive power to manage and conduct the business of the Operating Partnership.
The Company, in turn, is governed by a Board of Directors, which has a majority
of directors unaffiliated with The Irvine Company. Furthermore, the Board of
Directors of the Company has established the Independent Directors Committee,
whose approval is required with respect to all transactions involving the
Operating Partnership and The Irvine Company, affiliates of The
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<PAGE> 50
Irvine Company or Mr. Bren, such as the acquisition of additional apartment
communities or sites therefor from The Irvine Company.
In certain circumstances, consent of The Irvine Company is required by the
Partnership Agreement. Such consent is required, among other things, (i) to sell
all or substantially all of the assets of the Operating Partnership, (ii) for
the Company to take title to assets (other than temporarily in connection with
an acquisition prior to contributing such assets to the Operating Partnership)
or for the Company to conduct business other than through the Operating
Partnership, (iii) for the Operating Partnership to engage in any business other
than the development and ownership of apartment communities or (iv) in
connection with the liquidation, dissolution, winding-up or termination of the
Operating Partnership. The Partnership Agreement requires, absent receipt of
consent, that title to assets be in the Operating Partnership in order to
maintain a one-for-one exchange ratio between Common L.P. Units and shares of
Common Stock of the Company. See "Operating Partnership
Agreement -- Management."
At the option of The Irvine Company, The Irvine Company's limited
partnership interest in the Operating Partnership is exchangeable for Common
Stock of the Company pursuant to the Exchange Rights (subject to the ownership
limit applicable to The Irvine Company and certain related persons) contained in
the Company's Articles of Incorporation or pursuant to the Cash Tender Rights
may be tendered to the Company for cash payable solely out of the net proceeds
of an offering of Common Stock of the Company.
COMPETITION
The Properties are located in developed areas. There are numerous other
rental apartment properties within and around the market area of each Property.
The number of competitive rental properties in the area could have a material
effect on the Operating Partnership's ability to rent the apartments at the
Properties and the rents charged.
EMPLOYEES
As of September 30, 1997, the Company had 66 employees. None of such
employees is subject to a collective bargaining agreement and the Operating
Partnership has experienced no labor-related work stoppages. The Operating
Partnership considers its relations with its personnel to be good.
CYCLICALITY
The Operating Partnership's business, and the residential housing industry
in general, are cyclical. The Operating Partnership's operations and markets are
affected by local and regional factors such as local economies, demographic
demand for housing, population growth, property taxes, energy costs, and by
national factors such as short and long-term interest rates, federal mortgage
financing programs, federal income tax provisions and general economic trends.
Occupancy varies only slightly on a seasonal basis, with the lowest occupancy
typically occurring in the summer months.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The costs of any required remediation or removal of such substances
may be substantial. In addition, the owner's liability as to any property is
generally not limited under such laws, ordinances and regulations and could
exceed the value of the property and/or the aggregate assets of the owner. The
presence of such substances, or the failure to remediate such substances
properly, may also adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Under such laws,
ordinances and regulations, an owner or any entity who arranges for the disposal
of hazardous or toxic substances, such as asbestos, at a disposal facility may
also be liable for the costs of any required remediation or removal of the
hazardous or toxic substances at the facility, whether or not the facility is
owned or operated by such owner or entity. In connection with the ownership of
the
49
<PAGE> 51
Properties or the disposal of hazardous or toxic substances, the Operating
Partnership may be liable for such costs.
The groundwater underlying portions of the City of Irvine generally
contains elevated levels of certain inorganic compounds. In addition, two United
States Marine Corps air bases where soil and groundwater contamination have been
discovered are located adjacent to the Irvine Ranch. Although the Operating
Partnership believes that contamination at one of these bases is localized,
there can be no assurances that it has not migrated onto any of the Properties.
The other base is listed on the National Priorities List and activities from
this base have resulted in groundwater contamination in the vicinity of this
base. The Operating Partnership has knowledge that contamination from this base
has migrated into the groundwater underlying some of the Properties. The
Operating Partnership believes that most of the groundwater is located at a
substantial depth under the land surface. Since the Operating Partnership
believes that the Orange County Water District together with the Department of
Defense are currently conducting and will continue to conduct remediation
activities at this base and in the area, the Operating Partnership believes that
it will not incur any remediation costs in connection with the groundwater
contamination.
Other federal, state and local laws may impose liability for release of
asbestos containing materials ("ACMs") into the air or require the removal of
damaged ACMs in the event of remodeling or renovation. There are ACMs at 11 of
the Properties, primarily in floor coverings and acoustical ceiling materials.
The Operating Partnership believes that the ACMs at these properties are
generally in good condition. Comprehensive operations and maintenance plans have
been implemented for properties where ACMs are present. In addition, property
custodial and maintenance workers are trained to deal effectively with the
maintenance of existing ACMs. The Operating Partnership believes it is in
compliance in all material respects with all federal, state, and local laws
relating to ACMs and that there are no regulatory requirements that currently
require the removal of these ACMs; however, if the Operating Partnership were
required to remove all ACMs present in its properties over a short time frame,
the cost of such removal would have a material adverse effect on its financial
condition and results of operations. The Operating Partnership also believes
that ACMs are not present in the remaining Properties. The Irvine Ranch Water
District, a municipal corporation, owns and maintains underground cement water
pipes which contain asbestos and which are serving a number of the Properties.
Since these pipes are owned and maintained by the Irvine Ranch Water District,
the Operating Partnership believes that any potential environmental liabilities
associated with these pipes will be incurred by the Irvine Ranch Water District.
The Operating Partnership has not been notified by any governmental
authority of any material noncompliance, liability, or other claim in connection
with any of the Properties. In addition, environmental assessments (which
involve physical inspections without soil or groundwater analyses and generally
without radon testing) were obtained on all 48 Existing Communities in 1993 or
later except for two which were obtained more than five years ago. Environmental
assessments were performed on all sites under construction prior to their
purchase. The Operating Partnership is not aware of any environmental liability
relating to the Properties that it believes would have a material adverse effect
on its business, assets or results of operations. Nevertheless, it is possible
that the environmental assessments did not reveal all environmental liabilities
with respect to the Properties, that environmental liabilities have developed
with respect to the Properties since the environmental assessments were prepared
or that there are material environmental liabilities of which the Operating
Partnership is unaware with respect to the Properties. Moreover, no assurance
can be given that future laws, ordinances or regulations will not impose
material environmental liabilities or that the current environmental condition
of the Properties will not be affected by residents and occupants of the
Properties or by the uses or condition of properties in the vicinity of the
Properties, such as leaking underground storage tanks, or by third parties
unrelated to the Operating Partnership.
REGULATION
Apartment community properties are subject to various laws, ordinances, and
regulations, including regulations relating to recreational facilities such as
swimming pools, activity centers and other common areas. The Operating
Partnership believes that each Property has all material permits and approvals
to operate its
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business. Rent control laws currently are not applicable to any of the
Properties. However, there can be no assurance that rent control requirements
will not be initiated in the future.
The Properties and any newly acquired or developed apartment communities
must comply with Title II of the Americans with Disabilities Act (the "ADA") to
the extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires removal of
structural barriers to handicapped access in certain public areas of the
Properties where such removal is "readily achievable." The ADA does not,
however, consider residential properties, such as apartment communities, to be
public accommodations or commercial facilities, except to the extent portions of
such facilities, such as a leasing office, are open to the public. The Operating
Partnership believes that the Properties comply in all material respects with
all present requirements under the ADA and applicable state laws. Noncompliance
with the ADA could result in imposition of fines or an award of damages to
private litigants.
The Fair Housing Act ("FHA") requires, as part of the Fair Housing
Amendments Act of 1988, apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Noncompliance with the FHA could
result in the imposition of fines or an award of damages to private litigants.
The Operating Partnership believes that the Properties that are subject to the
FHA are in compliance with such law.
Approximately 2,900 units in portions of 31 of the Operating Partnership's
Existing Communities are currently subject to resident income limitations which
generally restrict rental of the affected units to low or moderate income
residents and which, in most instances, also limit the amount of rent that may
be charged for a particular unit. A brief summary of the basis and effect of
these resident income and other limitations follows:
The development of 23 of the 31 Existing Communities was financed with the
proceeds of tax-exempt multifamily housing revenue bonds issued by various local
municipalities. These bonds were refunded in May 1995 and consolidated under one
issuer, California Statewide Communities Development Authority. Regulatory
agreements applicable to such financings (a) require that a specified percentage
of the units be set aside for residents whose incomes do not exceed a specified
percentage of the area median income and (b) in most instances, limit the rent
which can be charged to a percentage of the maximum qualifying resident income
level for the affected unit. Most of these restrictions will terminate upon the
maturity date of the bond issue.
In addition to the rental restrictions imposed by the bond regulatory
agreements, many of the 23 properties and three additional properties are also
subject to resident income and rent limitations by virtue of development and
other agreements entered into with local municipalities and private and
quasi-public interest groups. These restrictions are similar in scope and
substance to the other restrictions discussed above.
Five of the 31 Existing Communities were developed with the assistance of
U.S. Department of Housing and Urban Development ("HUD") administered programs
which provided mortgage insurance to the project lender. Certain regulatory and
other agreements with HUD applicable to such financings (a) impose resident
income restrictions similar to those imposed by the bond financing agreements,
and (b) generally require the Operating Partnership to operate the Properties in
accordance with HUD's standards. With respect to one of the properties (i.e.,
The Parklands), a regulatory agreement additionally (a) limits the distribution
of income from the property to 10% of the HUD imputed equity in the property and
(b) requires that any income in excess of such 10% limit be deposited into a
residual receipts account. Amounts paid into such residual receipts account have
historically been used for capital improvements to the property, subject to
HUD's consent. At the expiration of the applicable regulatory or other
agreement, any amount remaining in such residual receipts account belongs to
HUD.
Under Section 8 of the United States Housing Act of 1937, HUD currently
provides rental assistance payments to each of these five HUD properties
pursuant to certain Housing Assistance Payments ("HAP") contracts. Under the HAP
contracts, so long as the units are rented to residents whose income levels do
not exceed specified HUD guidelines, each qualifying resident is required to pay
only 30% of their adjusted monthly income as rent and HUD pays the difference
between the 30% payment and the unit's market rents
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as established by HUD. The above-mentioned restrictions and limitations will
continue for the remainder of each HAP contract term, each HAP contract has an
initial term of 20 years with four 5-year renewal options exercisable at the
owners option. At September 30, 1997 the average remaining term of the HAP
contracts was approximately 6 years.
Each of the resident and income restricted units within the Operating
Partnership's portfolio has been subject to one or more of the foregoing
restrictions either since their initial occupancy or as a result of subsequent
agreements with the applicable governmental authority or other private or
quasi-public interest groups. Accordingly, the effect of these restrictions on
rental income from the Properties has been reflected in the historical financial
results of the Operating Partnership and its Predecessor.
The Operating Partnership believes that it is in material compliance with
all of the foregoing requirements. The failure of the Operating Partnership to
comply with the terms of any of the foregoing could adversely affect the
Operating Partnership's operations.
The Operating Partnership may purchase land in the future which as a
condition of purchase has the inclusion of units at below market rental rates.
Construction of such properties may be financed with tax-exempt debt. In any
case, the Operating Partnership will evaluate the economics inclusive of any
rental restriction and benefit of below-market, tax-exempt financing prior to
purchasing the land.
FACTORS RELATING TO REAL ESTATE OPERATIONS AND DEVELOPMENT
General. Real property investments are subject to varying degrees of risk.
The investment returns available from equity investments in real estate depend
in large part on the amount of income earned and capital appreciation generated
by the related properties as well as the expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service and capital expenditures, the Operating Partnership's income and ability
to service its debt and other obligations and to make distributions on its
partnership interests, including the Series A Preferred L.P. Units, will be
adversely affected. In addition, the Properties consist primarily of apartment
communities located in Orange County. Income from and the performance of the
Irvine Ranch Properties may therefore be adversely affected by the general
economic climate in Orange County, including unemployment rates and local
conditions such as the supply of and demand for apartments in the area, the
attractiveness of the Irvine Ranch Properties to residents, zoning or other
regulatory restrictions, competition from other available apartments and
alternative forms of housing, the affordability of single family homes, the
ability of the Operating Partnership to provide adequate maintenance and
insurance and the potential of increased operating costs (including real estate
taxes). Certain significant expenditures associated with an investment in real
estate (such as mortgage and other debt payments, real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in revenue from the investment. In addition, income from properties
and real estate values are also affected by a variety of other factors, such as
governmental regulations and applicable laws (including real estate, zoning and
tax laws), interest rate levels and the availability of financing. The Irvine
Ranch Properties in the aggregate historically have generated positive cash flow
from operations; however, no assurance can be given that such will be the case
in the future.
In 1997, the Operating Partnership commenced an "off-Ranch" expansion
program through the acquisition of rights to purchase three apartment community
development sites located in Northern California's Silicon Valley. The Operating
Partnership commenced construction of a 342-unit apartment community on one of
such sites in May 1997 and on October 23, 1997, the Company's Board of Directors
authorized, subject to receipt of necessary entitlements, the acquisition of
another of the development sites. Construction of an apartment community of
approximately 155 units on this site is expected to commence in the first half
of 1998. On June 30, 1997, the Operating Partnership acquired an existing
923-unit apartment community located in Northern San Diego County. These new
Properties represent the Operating Partnership's first strategic expansion off
the Irvine Ranch and the Operating Partnership may make additional investments
in California in the future. The development, construction and operation of
rental apartment communities in such new markets may present risks different
than or in addition to the risks discussed above related to the Irvine Ranch
Properties which are located entirely in Orange County. In addition, in contrast
to
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acquisitions of land pursuant to the Land Rights Agreement in which a
substantial portion of pre-development costs and expenses, including the cost
and expense of obtaining Village Related Entitlements, is borne solely by The
Irvine Company, all pre-development costs and expenses in connection with
"off-Ranch" expansion will be borne by the Operating Partnership and the
Operating Partnership will bear all risk relating to the failure to obtain
entitlements. For jurisdictions off the Irvine Ranch, local jurisdiction
approvals with respect to entitlements may impose requirements and conditions
different from those applicable to the Irvine Ranch. No assurance can be given
that the Operating Partnership will be successful in pursuing any additional
"off-Ranch" expansion or that any "off-Ranch" apartment communities will be
successful.
Equity real estate investments, such as the investments made by the
Operating Partnership in the Properties and any additional properties that may
be developed or acquired by the Operating Partnership, are relatively illiquid.
Such illiquidity limits the ability of the Operating Partnership to vary its
portfolio in response to changes in economic or other conditions.
The Properties are subject to all operating risks common to apartment
ownership in general. Such risks include: the Operating Partnership's ability to
rent units at the Properties, including the 1,110 units in the Communities Under
Construction; competition from other apartment communities; excessive building
of comparable properties which might adversely affect apartment occupancy or
rental rates; increases in operating costs due to inflation and other factors,
which increases may not necessarily be offset by increased rents; increased
affordable housing requirements that might adversely affect rental rates;
inability or unwillingness of residents to pay rent increases; and future
enactment of rent control laws or other laws regulating apartment housing,
including present and possible future laws relating to access by disabled
persons. If operating expenses increase, the local rental market may limit the
extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates. If any of the above occurred, the Operating
Partnership's ability to meet its debt service and other obligations and to make
distributions on its partnership interests, including with respect to the Series
A Preferred L.P. Units, could be adversely affected.
Real Estate Development and Acquisition. A primary focus of the Operating
Partnership is on the development of new apartment communities on sites acquired
or that may be acquired in the future primarily from The Irvine Company,
although the Operating Partnership also plans to develop new rental apartment
communities on sites acquired or that may be acquired in the future from third
parties. The Operating Partnership has also acquired, and may continue to
acquire, completed communities. See "Recent Developments -- 'Off-Ranch'
Expansion." The real estate development business involves significant risks in
addition to those involved in the ownership and operation of established
apartment communities, including the risks that specific project approvals may
take more time and resources to obtain than expected, that construction may not
be completed on schedule or budget and the properties may not achieve
anticipated rent or occupancy levels. In addition, if long-term debt or equity
financing is not available on acceptable terms to finance new development or
acquisitions undertaken without long-term financing, further development
activities or acquisitions might be curtailed or cash available for debt service
and other obligations might be adversely affected.
Insurance. The Operating Partnership carries comprehensive liability, fire,
extended coverage and rental loss insurance covering all of the Properties, with
policy specifications and insured limits which the Operating Partnership
believes are adequate and appropriate under the circumstances. There are,
however, certain types of losses (such as from earthquakes) that are not
generally insured because they are either uninsurable or not economically
insurable. The Operating Partnership does not carry earthquake insurance on any
of the Properties. Should an uninsured loss or a loss in excess of insured
limits occur, the Operating Partnership could lose its capital invested in the
Property, as well as the anticipated future revenues from the Property, and, in
the case of debt which is recourse to the Operating Partnership, would remain
obligated for any mortgage debt or other financial obligations related to the
Property. Any such loss would adversely affect the Operating Partnership. The
Operating Partnership believes that the Properties are adequately insured. In
addition, in light of the California earthquake risk, California building codes
since the early 1970s have established construction standards for all newly
built and renovated buildings, including apartment buildings, the current and
strictest construction standards having been adopted in 1984. Thirty-two of the
51 Existing Communities (representing approximately 68.9% of the units in the
Existing Communities) have been
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completed and occupied since January 1, 1985 and the Operating Partnership
believes that all of the Existing Communities were constructed, and all of the
Communities Under Construction are being constructed, in full compliance with
the applicable standards existing at the time of construction. While earthquakes
have occurred from time to time in California, the Operating Partnership has not
experienced any material losses as a result of earthquakes. No assurance can be
given that this will be the case in the future.
LEGAL PROCEEDINGS
None of the Operating Partnership, the Trust or the Company is currently
subject to any material litigation.
PRINCIPAL EXECUTIVE OFFICES
The principal executive offices of the Operating Partnership are located at
550 Newport Center Drive, Suite 300, Newport Beach, California 92660. The
telephone number is (714) 720-5500.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
OPERATING PARTNERSHIP
The following is a discussion of investment policies, financing policies,
conflict of interest policies and policies with respect to certain other
activities of the Operating Partnership. The policies with respect to these
activities have been determined by the Board of Directors of the Company, as
general partner of the Operating Partnership, and may be amended or revised from
time to time at the discretion of the Board of Directors, except that (i) the
approval of the Required Directors as provided in the Articles of Incorporation
and the consent of a majority of the holders of Common L.P. Units as provided in
the Partnership Agreement are required for the Company to take title to assets
(other than temporarily in connection with an acquisition prior to contributing
such assets to the Operating Partnership) or to conduct business other than
through the Operating Partnership, or for the Company or the Operating
Partnership to engage in any business other than the ownership, construction,
development and operation of apartment communities, (ii) changes in certain
policies with respect to conflicts of interest must be consistent with legal
requirements, and (iii) the policies with respect to competition by The Irvine
Company and Mr. Bren are imposed pursuant to a contract that cannot be amended
or waived without the vote of the Independent Directors Committee.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Operating
Partnership's business is focused solely on the ownership, construction,
development and operation of rental apartment communities and the Company
conducts all of its investment activities through the Operating Partnership. The
Operating Partnership's investment objective is to provide stable cash flow
available for quarterly cash distributions and achieve long-term appreciation
through increases in cash flows and the value of its Properties. The Operating
Partnership intends to pursue these objectives by (i) investing capital to
enhance investment returns on the Properties, (ii) developing rental apartment
communities on the Irvine Ranch for long-term ownership and (iii) developing or
purchasing rental apartment communities off the Irvine Ranch where the Operating
Partnership believes that opportunities exist for attractive investment returns.
The Operating Partnership may expand or improve existing properties or, subject
to the approval of the Required Directors, sell such properties in whole or in
part as determined by the Company's Board of Directors. See "Business and
Properties of the Operating Partnership -- Business Strategy -- Development
Strategies."
The Operating Partnership expects to pursue its investment objective
through the direct ownership of the Properties and future developed properties
and the ownership of interests in special purpose partnerships. Future
development or investment activities will not be limited to any specified
percentage of the Operating Partnership's assets.
Investments in Others. The Operating Partnership may also participate with
other entities in property ownership, through joint ventures or other types of
co-ownership. Equity investment may be subject to existing mortgage financing
and other indebtedness which have priority over the equity of the Operating
Partnership.
Investments in Real Estate Mortgages. While the Operating Partnership will
emphasize equity real estate investments, it may, in its discretion and subject
to the percentage ownership limitations and gross income tests necessary for the
Company's REIT qualification, invest in mortgage and other real estate interests
including securities of other real estate investment trusts. The Operating
Partnership has not previously invested in mortgages or securities of other real
estate investment trusts and the Operating Partnership does not presently intend
to invest to a significant extent in mortgages or securities of other real
estate investment trusts.
FINANCING POLICIES
The Company, as general partner of the Operating Partnership, currently
intends to maintain a conservative ratio of debt to total market capitalization
(i.e., the market value of issued and outstanding shares of Common Stock and
L.P. Units plus total debt) and in any event not greater than 60%. The Company's
ratio of debt to total market capitalization was 31.2% at September 30, 1997 and
28.0% on a pro forma basis after
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giving effect to the issuance of the 7% Notes and the Series A Preferred L.P.
Units in connection with the Offering (assuming no exercise of the Underwriters'
overallotment option). The Company, however may from time to time reevaluate
borrowing policies in light of then current economic conditions, relative costs
of debt and equity capital, market values of properties, growth and acquisition
opportunities and other factors.
The Company, as general partner of the Operating Partnership, has
established a debt policy relative to its market capitalization, a ratio
commonly employed by REITs, rather than to the book value of its assets, because
the Company believes that the book value of its assets (which to a large extent
is the depreciated value of its apartment communities) does not accurately
reflect its ability to borrow and to meet debt service requirements. The market
capitalization of the Company, however, is more variable than book value and
does not necessarily reflect the fair market value of the underlying assets of
the Operating Partnership. Although the Company, as general partner of the
Operating Partnership, will consider factors other than market capitalization in
making decisions regarding the incurrence of debt and the issuance of Preferred
L.P. Units by the Operating Partnership (such as the estimated market value of
such properties upon refinancing, and the ability of particular properties and
the Company as a whole to generate cash flow to cover expected debt services),
there can be no assurance that the Company will maintain the ratio of debt to
market capitalization (or to any other measure of asset value) described above.
To the extent that the Board of Directors of the Company determines to seek
additional capital, the Company may raise such capital through additional equity
offerings, including the issuance of additional series of Preferred L.P. Units
to the Trust or otherwise, debt refinancing or retention of cash flow by the
Operating Partnership (after consideration of provisions of the Code requiring
the distribution by a REIT of a certain percentage of taxable income and taking
into account taxes that would be imposed on undistributed taxable income), or
through a combination of these sources. The Company presently anticipates that
any additional borrowings will be made through the Operating Partnership. See
"Operating Partnership Agreement." The Operating Partnership cannot incur
indebtedness that is recourse to the Company without the Company's approval.
While the Company may approve the Operating Partnership incurring additional
debt that is recourse to the Operating Partnership, the Company does not
presently intend to approve the Operating Partnership incurring additional debt
that would be recourse to the Company other than with respect to general working
capital lines of credit and general construction financing credit facilities.
Borrowings may be unsecured or may be secured by any or all assets of the
Company, the Operating Partnership, or any existing or new property and may have
full or limited recourse to all or any portion of the assets of the Company, the
Operating Partnership, or any existing or new property.
The Company, as general partner of the Operating Partnership, has not
established any limit on the number or amount of mortgages that may be placed on
any single Property or on the Operating Partnership's portfolio as a whole.
The Operating Partnership has entered into the $250 million Credit
Facility, which is available to fund development activities, property
acquisitions and for general corporate purposes. The Company or the Operating
Partnership may also determine to issue securities including common stock,
preferred stock, L.P. Units and debt securities (any of which may be convertible
into capital stock or be accompanied by warrants to purchase capital stock). The
Company or the Operating Partnership may in the future finance acquisitions
through the exchange of properties or issuance of additional L.P. Units, shares
of Common Stock or other securities.
In the event that the Company determines to raise additional equity
capital, such capital can be raised by either the Company or the Operating
Partnership. The Board of Directors of the Company has the authority, without
shareholder approval, to issue additional shares of Common Stock or other
capital stock of the Company in any manner (and on such terms and for such
consideration) it deems appropriate, including in exchange for property. In the
event that the Company issues (whether for cash or property) any Common Stock or
securities convertible into, or exchangeable or exercisable for, Common Stock,
The Irvine Company, subject to certain limited exceptions, including the
issuance of Common Stock pursuant to any stock incentive plan adopted by the
Company or pursuant to an exercise of the Exchange Rights or the Cash Tender
Rights, will have the right to purchase Common Stock or Common L.P. Units
exchangeable for Common Stock, or
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such securities in order to maintain its percentage interest in the Company and
the Operating Partnership on a consolidated basis. However, shareholders of the
Company and holders of Preferred L.P. Units would have no such right. If the
Company's Board of Directors determines to raise additional equity capital to
fund investments by the Operating Partnership, the Company will contribute such
funds to the Operating Partnership as a contribution to capital and purchase an
additional general partnership interest; however, holders of Common L.P. Units
but not Preferred L.P. Units will have the right to participate in such funding
on a pro rata basis. In the event that holders of Common L.P. Units sell their
Common L.P. Units to the Company pursuant to their Cash Tender Rights, the
Company is authorized to raise the funds for such purchase by issuing additional
shares of Common Stock. In addition, the Company may issue additional shares of
Common Stock in connection with the exchange of Common L.P. Units for shares of
Common Stock pursuant to the exercise of Exchange Rights. See "Operating
Partnership Agreement."
The Company's Board of Directors also has the authority, without approval
of the holders of L.P. Units, to cause the Operating Partnership to issue
additional Common L.P. Units and additional series of Preferred L.P. Units
(including to the Trust) in any manner (and on such terms and for such
consideration) as it deems appropriate, including in exchange for property. In
the event that the Operating Partnership issues new Common or Preferred L.P.
Units or securities of the Operating Partnership convertible into, or
exchangeable or exercisable for, L.P. Units to any person other than The Irvine
Company for cash (but not property), The Irvine Company will have the right to
purchase such L.P. Units in order, and to the extent necessary, to maintain its
percentage ownership interest in the Operating Partnership. Any such new Common
L.P. Units will be exchangeable for Common Stock pursuant to the Exchange Rights
or may be tendered to the Company pursuant to the Cash Tender Rights. See
"Operating Partnership Agreement -- Issuance of Additional L.P. Units."
DISPOSITION POLICY
The Operating Partnership believes that its concentration of Properties and
strong market position are a substantial competitive advantage. As such, the
Operating Partnership has no current intention to dispose of any of the
Properties, although it reserves the right to do so.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into certain
agreements with The Irvine Company and Mr. Bren designed to eliminate or
minimize potential conflicts of interest. However, there can be no assurance
that these policies always will be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all shareholders of the Company and
holders of Preferred L.P. Units. The Board of Directors of the Company has
adopted a policy and has provided in its Bylaws that no transaction between the
Company or the Operating Partnership on the one hand and The Irvine Company,
affiliates of The Irvine Company or Mr. Bren on the other hand may be entered
into without the approval of the Independent Directors Committee.
Exclusive Land Rights. The Irvine Company, the Company and the Operating
Partnership have entered into the Land Rights Agreement pursuant to which
through July 2020 the Company and the Operating Partnership hold the exclusive
right, but not the obligation, to acquire land from The Irvine Company for the
development of additional apartment communities on the Irvine Ranch. The
determination to acquire a land site pursuant to the Land Rights Agreement is
made solely by the Independent Directors Committee. The Irvine Company
determines which land will be designated for rental apartment community
development. In addition, The Irvine Company controls the application for
Village Related Entitlements and also has certain approval rights with respect
to the architectural design and physical layout of rental apartment communities.
Non-Competition Arrangements. The Irvine Company and Mr. Bren have agreed
not to directly or indirectly acquire or develop, or acquire an equity ownership
interest in any entity that has an ownership interest in, any apartment
community, whether on or off the Irvine Ranch. The prohibition on The Irvine
Company and Mr. Bren from developing apartment communities on the Irvine Ranch
will terminate on
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July 31, 2020. The Irvine Company and Mr. Bren will remain prohibited from
engaging in any such activity off The Irvine Ranch until the date on which both
of the following conditions are satisfied: (i) no nominee of The Irvine Company
is a member of the Company's Board of Directors and (ii) The Irvine Company and
certain related persons beneficially own less than 20% of the outstanding Common
Stock in the aggregate (including for these purposes shares issuable upon
exchange of its Common L.P. Units pursuant to the Exchange Rights, subject to
the ownership limit provision applicable to The Irvine Company under the
Company's Articles of Incorporation). For a description of the circumstances
under which these non-competition arrangements could be earlier terminated, see
"Risk Factors -- Early Termination of the Exclusive Land Rights and
Non-Competition Arrangements with The Irvine Company and Mr. Bren Would
Adversely Affect the Operating Partnership." In the event the Land Rights
Agreement is terminated, The Irvine Company and Mr. Bren will no longer be
restricted from competing both on and off the Irvine Ranch with the Company or
the Operating Partnership with respect to the ownership and development of
rental apartment communities. As a result, conflicts of interest may arise
between The Irvine Company and Mr. Bren on the one hand and the Operating
Partnership and the Company on the other hand.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of its capital stock or other
securities, to cause the Operating Partnership to issue additional Common and
Preferred L.P. Units or other securities, and to repurchase (or cause the
Operating Partnership to repurchase) or otherwise reacquire such capital stock,
L.P. Units or any other securities and may engage in such activities in the
future. Neither the Company nor the Operating Partnership has any outstanding
loans to other entities or persons, including officers and directors of the
Company. The Company may make, or may cause the Operating Partnership in the
future to make, loans to joint ventures in which they participate in order to
meet working capital needs. Neither the Company nor the Operating Partnership
has engaged in trading, underwriting or agency distribution or sale of
securities of other issuers, and neither the Company nor the Operating
Partnership has invested in the securities of other issuers other than in the
case of the Company and the Operating Partnership for the purpose of exercising
control, and neither the Company nor the Operating Partnership intends to do so.
The Company intends to make, and to cause the Operating Partnership to make,
investments in such a way that neither will be treated as an investment company
under the Investment Company Act of 1940.
At all times, the Company intends to cause the Operating Partnership to
make investments in such a manner as to be consistent with the requirements of
the Code for each of the Company and the Trust to qualify as a REIT unless,
because of changing circumstances or changes in the Code (or in Treasury
Regulations), the Required Directors, with the consent of the holders of 66 2/3%
of the outstanding shares of Common Stock, determine that it is no longer in the
best interests of the Company to qualify as a REIT.
THE TRUST
For a discussion of the financing, investing and other policies of the
Trust, see "IAC Capital Trust."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION OF OFFICES HELD EXPIRES
- -------------------------- ---- -------------------------------------------------------- -------
<S> <C> <C> <C>
Donald Bren(1)............ 65 Chairman of the Board of Directors 1999
William H. McFarland(1)... 57 President and Chief Executive Officer and Director 1998
Richard E. Lamprecht...... 38 Senior Vice President, President, Irvine Ranch Division
James E. Mead............. 38 Senior Vice President, Chief Financial Officer and
Secretary
William W. Thompson....... 52 Senior Vice President, President, California Division
Alfred L. Baker........... 49 Vice President, Marketing
Bruce N. Dorfman.......... 37 Vice President, Development, California Division
Shawn Howie............... 42 Vice President, Corporate Finance, and Controller
Robert J. Hughes.......... 47 Vice President, Construction, California Division
David A. McAllister....... 63 Vice President, Construction, Irvine Ranch Division
Kevin P. Payne............ 39 Vice President, Development, Irvine Ranch Division
Scott A. Reinert.......... 38 Vice President, Operations
Anthony M. Frank(2)(4).... 66 Director 1998
John F.
Grundhofer(2)(4)........ 58 Director 1999
Bowen H. McCoy(1)(2)(3)... 60 Director 1999
Michael D. McKee(1)....... 51 Director 2000
Jack W.
Peltason(1)(2)(4)....... 74 Director 2000
John F. Seymour,
Jr.(2)(3)............... 59 Director 1998
Raymond L. Watson(1)...... 71 Director 1998
</TABLE>
- ---------------
(1) Member of Executive Committee
(2) Member of Independent Directors Committee
(3) Member of Compensation Committee
(4) Member of Audit Committee
The following is a biographical summary of the experience of the executive
officers and directors of the Company:
DONALD BREN. Mr. Bren has been Chairman of the Board of the Company since
its formation. He was President and Chief Executive Officer from February 1997
to July 1997. Mr. Bren has been Chairman of the Board of The Irvine Company
since 1983. Mr. Bren is a member of the Board of Overseers of the University of
California, Irvine, and is a member of the Board of Trustees of the California
Institute of Technology, the Los Angeles County Museum of Art and the Orange
County Museum of Art.
WILLIAM H. MCFARLAND. Mr. McFarland joined the Company as President and
Chief Executive Officer in July 1997 and has been a Director of the Company
since December 1996. From 1984 to 1997, Mr. McFarland was Executive Vice
President, Land and Residential Development of The Irvine Company and was
responsible for the operations and development activities of the predecessor
prior to the Company's formation in 1993. Prior to joining The Irvine Company in
1984, Mr. McFarland served as President and Chief Executive Officer of the Bren
Company. Prior to working for the Bren Company, he also served as General
Manager of Kaiser Aetna's Ponderosa Homes North Bay Division and as President of
the McCarthy Company. Mr. McFarland served three years as an officer in the U.S.
Marine Corps. He was elected to the California Building Industry Foundation Hall
of Fame in 1996.
RICHARD E. LAMPRECHT. Mr. Lamprecht has been Senior Vice President,
President, Irvine Ranch Division since May 1997, and prior to that served as
Vice President, Development since the Company's
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<PAGE> 61
formation. From 1989 to 1993, Mr. Lamprecht was Vice President, Development of
Irvine Pacific, a division of the Irvine Company. From 1987 to 1989, Mr.
Lamprecht was Controller and Vice President of The Irvine Company.
JAMES E. MEAD. Mr. Mead has been Senior Vice President, Chief Financial
Officer and Secretary since December 1996. From 1994 to 1996, Mr. Mead was
Senior Vice President and Treasurer. From 1991 to 1994, Mr. Mead was Vice
President, Corporate Finance of The Irvine Company. From 1985 to 1991, Mr. Mead
was a Vice President, Corporate Finance, at J.P. Morgan & Co. in New York.
WILLIAM W. THOMPSON. Mr. Thompson was appointed Senior Vice President,
Off-Ranch Operations in February 1997. From 1996 to 1997, Mr. Thompson was
President of TRC and from 1984 to 1995, Mr. Thompson was a Partner at Trammell
Crow Residential, Northern California, a private developer and operator of
multifamily apartment communities.
ALFRED L. BAKER. Mr. Baker has been Vice President, Marketing since January
1996. From 1992 to 1996, Mr. Baker was the principal owner of Baker Property
Advisors, a Utah real estate brokerage company. From 1986 to 1992, Mr. Baker was
Vice President, Northern California at Forest City Residential Properties
Corporation, a real estate company involved in residential development,
construction and asset management in the western United States.
BRUCE N. DORFMAN. Mr. Dorfman was appointed Vice President, Development,
Off-Ranch Operations in February 1997. From 1996 to 1997, Mr. Dorfman was Vice
President, Development of TRC and from 1992 to 1995, Mr. Dorfman was Vice
President, Finance at Trammell Crow Residential, Northern California.
SHAWN HOWIE. Mr. Howie was appointed Vice President, Corporate Finance and
Controller in February 1997. From 1993 to 1997, Mr. Howie was Vice President and
Controller. From 1986 to 1993, Mr. Howie was a Senior Manager at Ernst & Young
LLP.
ROBERT J. HUGHES. Mr. Hughes was appointed Vice President, Construction,
Off-Ranch Operations in February 1997. From 1996 to 1997, Mr. Hughes was Vice
President, Construction of TRC. From 1994 to 1996, Mr. Hughes was Vice
President, Construction at Trammell Crow Residential, Northern California. From
1987 to 1993, Mr. Hughes was President of Construction at Grancorp, a
construction company specializing in apartment communities.
DAVID A. MCALLISTER. Mr. McAllister has been Vice President, Construction
of the Company since its formation. From 1992 to 1993, Mr. McAllister was
Director of Operations at California Pacific Homes, a division of The Irvine
Company. Prior to joining the Company, Mr. McAllister had been employed by The
Irvine Company in the residential construction area since 1979.
KEVIN P. PAYNE. Mr. Payne has been Vice President, Development since August
1997. From January 1997 to August 1997, Mr. Payne was Senior Vice President and
Regional Director of the West Coast Division of Kaufman & Broad Multi-Housing
Group, a company involved in multifamily development and investment. From April
1994 to January 1997, Mr. Payne was Vice President, Development at Kaufman &
Broad. Prior to this, Mr. Payne was at Picerne Associates from April 1990 to
April 1994, where he served as Vice President of Development.
SCOTT A. REINERT. Mr. Reinert has been Vice President, Asset Management
since 1994. From 1990 to 1994, Mr. Reinert was Chief Operating Officer,
Southeast, of GFS Northstar, a third party apartment management company.
ANTHONY M. FRANK. Mr. Frank has been a Director of the Company since
December 8, 1993. Mr. Frank has been Chairman of Acrogen, Inc. and
Director/Consultant of Transamerica HomeFirst, Inc. since 1992. Prior to this,
Mr. Frank served as Postmaster General of the United States from March 1988 to
March 1992. From August 1971 through February 1988, Mr. Frank was Chairman and
Chief Executive Officer of First Nationwide Bank. He has also served as Chairman
of the Federal Home Loan Bank of San Francisco and Chairman of the California
Housing Finance Agency, and was the first Chairman of the Federal Home Loan
Mortgage Corporation Advisory Board. Mr. Frank is a director of Temple-Inland
Inc., Bedford Property
60
<PAGE> 62
Investors, Inc., General American Investors Company, Inc., Crescent Real Estate
Equities, Charles Schwab Inc. and Financial Security Assurance, Inc.
JOHN F. GRUNDHOFER. Mr. Grundhofer has been a Director of the Company since
December 8, 1993. Mr. Grundhofer has been Chairman, President and Chief
Executive Officer of First Bank System, Inc., Minneapolis, Minnesota since 1990.
From 1986 to 1990, Mr. Grundhofer served as Vice Chairman and Senior Executive
Officer for Southern California with Wells Fargo Bank, N.A. Prior to joining
Wells Fargo Bank in 1978, Mr. Grundhofer spent 18 years with Union Bank in
California. In addition to serving as Chairman of First Bank System, Mr.
Grundhofer is also a Trustee of Minnesota Mutual Life Insurance Company. Mr.
Grundhofer is Chairman of the Minnesota Business Partnership, Vice Chairman of
Minnesota Meeting, a Director of the Minneapolis Institute of Arts and of the
United Way of the Minneapolis area, an Advisory Director of the Metropolitan
Economic Development Association, and a member of the Bankers Roundtable and of
the CEO Board of the School of Business Administration at the University of
Southern California.
BOWEN H. MCCOY. Mr. McCoy has been a Director of the Company since December
8, 1993. Mr. McCoy has been a real estate and business counselor with Buzz McCoy
Associates, Inc. since 1990. Prior to this, Mr. McCoy had a 28-year career with
Morgan Stanley & Co. Incorporated, and was President and Chairman of Morgan
Stanley Realty, Inc. Mr. McCoy is a Trustee of the Urban Land Institute and The
Hoover Institution. He is also President of The Real Estate Counselors and
President of the Urban Land Foundation. He has served as Chairman of the
Advisory Board for Stanford University Center for Economic Policy Research,
Chairman of the Los Angeles American Red Cross and Trustee of the Pacific School
of Religion.
MICHAEL D. MCKEE. Mr. McKee has been a Director of the Company since
January 1995. Mr. McKee has been Executive Vice President and Chief Financial
Officer of The Irvine Company since January 1997 and was Executive Vice
President and Chief Legal Officer of The Irvine Company from April 1994 to
January 1997. Prior to joining The Irvine Company, Mr. McKee was the managing
partner of the Orange County office of Latham & Watkins, an international law
firm with which he was associated since 1979. Mr. McKee is a member of the Board
of Directors of Circus Circus Enterprises, Inc., Health Care Property Investors,
Inc. and Realty Income Corporation.
JACK W. PELTASON. Mr. Peltason has been a Director of the Company since
December 8, 1993. Mr. Peltason was President of the University of California
from 1992 until his retirement in 1995. From 1984 to 1992 Mr. Peltason served as
Chancellor for the University of California, Irvine. He is a Professor of
Political Science at University of California, Irvine and a Fellow of the
American Academy of Arts and Sciences. Mr. Peltason is a director of AST
Research, Inc. and Infotec, Inc. and a consultant to the Bren Charitable
Foundation.
JOHN F. SEYMOUR, JR. Senator Seymour has been a Director of the Company
since December 8, 1993. Senator Seymour has been the Chief Executive Officer of
Southern California Housing Development Corporation since January 1995.
Previously he served as Executive Director of the California Housing Finance
Agency from December 1992 through December 1994. Prior to that, Senator Seymour
served as a United States Senator for the State of California from January 1991
to December 1992. From April 1982 to January 1991, Senator Seymour served as a
State Senator in the California state legislature. Senator Seymour also served
as a member of the Policy Advisory Board for the Center for Real Estate and
Urban Economics, University of California, Berkeley and the National Association
of Home Builders Mortgage Roundtable and as a director of the National Council
of State Housing Agencies. Senator Seymour is a director of Inco Homes
Corporation and Countrywide Investment Trust.
RAYMOND L. WATSON. Mr. Watson rejoined the Company as a Director on July
25, 1997. The Board of Directors of the Company elected Mr. Watson as a director
of the Company to serve until the 1998 Annual Meeting of the Company's
shareholders. Mr. Watson previously served as a Director of the Company from its
formation in 1993 until January 1995. Mr. Watson has been Vice Chairman of the
Board of The Irvine Company since 1986. From 1973 to 1977, Mr. Watson was
President and Chief Executive Officer of The Irvine Company and he has been a
member of the Executive Committee of the Board of Directors of The Irvine
Company since 1983. Mr. Watson is a member of the Board of Directors of Pacific
Mutual Life
61
<PAGE> 63
Insurance Company, Mitchell Energy and Development Company, Tejon Ranch Company
and The Walt Disney Company, where he is also Chairman of the Executive
Committee.
BOARD OF DIRECTORS; COMMITTEES
Pursuant to the Company's Articles of Incorporation and Bylaws, a majority
of the Directors of the Company must be persons who are not (i) affiliates, or
an officer, director or employee, of The Irvine Company or (ii) the spouse,
ancestor or lineal descendant or brother or sister of Mr. Bren ("Unaffiliated
Directors").
The Board of Directors has the following standing committees:
Audit Committee. The Audit Committee is responsible for making
recommendations concerning the engagement of independent public accountants, for
reviewing with the independent public accountants the plans and results of the
audit engagement, for approving professional services provided by the
independent public accountants, for reviewing the independence of the
independent public accountants, for considering the range of audit and non-audit
fees and for reviewing the adequacy of the Company's accounting controls. As
required by the Company's Bylaws, the Audit Committee consists of three
Directors, at least two of whom are Unaffiliated Directors.
The members of the Audit Committee are Messrs. Grundhofer (Chairman), Frank
and Peltason.
Executive Committee. The Executive Committee has been delegated authority
in the Company's Bylaws to act in lieu of the Board of Directors on all matters
permitted by law other than with respect to matters which, pursuant to the
Company's Articles of Incorporation and Bylaws, must be approved by the
Independent Directors Committee or by a vote of more than 75% of the entire
Board of Directors (the "Required Directors").
The members of the Executive Committee are Messrs. Bren (Chairman), McCoy,
McFarland, McKee and Watson.
Independent Directors Committee. The Independent Directors Committee is
responsible for approving all transactions between the Company or the Operating
Partnership on the one hand and The Irvine Company, its affiliates or Mr. Bren
on the other hand, including, but not limited to, whether or not the Company or
the Operating Partnership shall exercise any of its rights under the Land Rights
Agreement and the terms of any agreement between the Company or the Operating
Partnership on the one hand and The Irvine Company, its affiliates or Mr. Bren
on the other hand. In addition, the Independent Directors Committee is
responsible for selecting the independent appraiser on behalf of the Company
pursuant to the Land Rights Agreement. Pursuant to the Company's Bylaws, the
Independent Directors Committee consists of at least five persons, each of whom
is an Unaffiliated Director and a person who has not been employed by The Irvine
Company or any of its subsidiaries within the five years preceding such person's
election as a director of the Company. The Independent Directors Committee has
also retained an independent real estate consultant to advise it with respect to
land acquisitions under the Land Rights Agreement.
The members of the Independent Directors Committee are Messrs. Frank
(Chairman), Grundhofer, McCoy, Peltason and Seymour.
Compensation Committee. The Compensation Committee determines compensation
for the Company's executive officers and administers the Company's stock-based
incentive plans. As required by the Company's Bylaws, the Compensation Committee
consists entirely of Unaffiliated Directors and does not include any officer of
the Company.
The members of the Compensation Committee are Messrs. McCoy (Chairman) and
Seymour.
Compensation Committee Interlocks and Insider Participation. Messrs. McCoy
and Seymour served on the Compensation Committee during 1996. No Compensation
Committee interlocks or insider participation existed in 1996.
The Company does not have a nominating committee.
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<PAGE> 64
COMPENSATION OF DIRECTORS
The Company pays its Directors who are neither officers of the Company nor
officers or directors of The Irvine Company fees for their services as
directors. Directors receive annual compensation of $30,000 plus a fee of $1,500
for attendance (in person or by telephone) at each meeting of the Board of
Directors, plus a fee of $750 for attendance, (in person or by telephone) at
each meeting of a committee of the Board of Directors, whether or not such
Committee meeting occurs on the same day as a meeting of the Board of Directors,
plus annual compensation of $3,000 for acting as Chairperson of a standing
committee of the Board of Directors. The Company has also established the 1993
Stock Option Plan for Directors, pursuant to which each Director who: (i) is not
an employee of the Company or any of its subsidiaries or affiliates, (ii) is
unaffiliated with The Irvine Company and Mr. Bren and has not been employed by
The Irvine Company within the preceding five years and (iii) has not received a
stock award within the preceding year under an employee stock plan of the
Company, is awarded an option to purchase 5,000 shares of the Company's Common
Stock upon initial appointment or election to the Board and an option to
purchase 1,000 shares of the Company's Common Stock at each subsequent annual
meeting other than an Eligible Director as defined in the plan first elected to
the Board within the twelve months immediately preceding and including such
meeting. The exercise price of any such option is equal to the fair market value
of the Common Stock on the date of grant. Such options are exercisable at all
times during the period beginning on the date of grant and ending on the earlier
of (i) the tenth anniversary of the date of grant or (ii) the first anniversary
of the date on which the optionee ceases to be an Eligible Director.
CERTAIN RIGHTS OF THE IRVINE COMPANY WITH RESPECT TO THE COMPANY'S BOARD OF
DIRECTORS
Pursuant to the Miscellaneous Rights Agreement, The Irvine Company, its
shareholders and affiliates and Mr. Bren and his affiliates (the "Irvine
Persons") have the right, and will continue to have the right so long as the
Irvine Persons beneficially own at least 20% of the outstanding Common Stock of
the Company (including for this purpose Common Stock issuable upon exchange of
Common L.P. Units pursuant to the Exchange Rights), to nominate three persons
(each, an "Irvine Company Board Representative") for election to the Board of
Directors of the Company. In the event this ownership falls below 20% but is at
least 15%, the Irvine Persons will have the right to nominate two persons for
election to the Board of Directors; and if this ownership falls below 15% but is
at least 10%, the Irvine Persons will have the right to nominate one person for
election to the Board of Directors. In connection with the foregoing, The Irvine
Company is authorized to act for the Irvine Persons. The three current Directors
nominated by the Irvine Persons are Messrs. Bren, McKee and Watson.
Two provisions of the Company's Bylaws give The Irvine Company additional
rights with respect to the Company's Board of Directors:
First, the Company's Bylaws provide that a majority of the entire Board of
Directors of the Company including at least one Irvine Company Board
Representative shall constitute a quorum for Board of Directors action at any
meeting.
Second, the Company's Bylaws provide that approval of more than 75% of the
entire Board of Directors is required to approve (i) a change of control (as
defined therein) of the Company or the Operating Partnership; (ii) any amendment
to the Company's Articles of Incorporation or Bylaws or the Partnership
Agreement; (iii) any waiver or modification of the ownership limit provisions of
the Company's Articles of Incorporation; (iv) any merger, consolidation,
statutory share exchange or sale of all or substantially all of the assets of
the Company or the Operating Partnership; (v) subject to certain exceptions, the
issuance of equity securities of the Company; (vi) the Company taking title to
assets or conducting business other than through the Operating Partnership, or
for the Company or the Operating Partnership engaging in another line of
business; (vii) the Company or the Operating Partnership making a general
assignment for the benefit of creditors or instituting (or consent to the
institution of) proceedings in bankruptcy or for the liquidation, dissolution,
reorganization or winding-up of the Company or the Operating Partnership; and
(viii) termination of the Company's status as a REIT for federal income tax
purposes.
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<PAGE> 65
EXECUTIVE COMPENSATION
The following tables present compensation information for the Company's
former chief executive officer who resigned in February 1997, the four other
most highly compensated executive officers who were serving as executive
officers at the end of 1996 (including the Company's former Senior Vice
President and Treasurer who resigned in March 1997) and the Company's former
Executive Vice President and Chief Financial Officer who resigned in December
1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) -------------------------------- ALL OTHER
-------------------------- RESTRICTED STOCK COMPENSATION($)
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($)(3) AWARDS($)(4) OPTIONS(#)(5) (6)
- ---------------------------- ---- ------------ ----------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steven P. Albert(7)......... 1996 $275,000 $ 7,563
Former Chief Executive 1995 $174,041 $ 100,000 $1,746,250 100,000 $27,058
Officer and President
James E. Mead............... 1996 $200,000 $ 145,000 $ 8,250
Senior Vice President,
Chief 1995 $200,000 $ 140,000 $ 403,125 40,000 $ 8,250
Financial Officer and 1994 $187,397 $ 150,000 30,000 $ 8,250
Secretary
Richard E. Moran Jr.(7)..... 1996 $247,500 $82,212
Former Executive Vice 1995 $270,000 $ 110,000 $ 403,125 50,000 $11,250
President, Chief Financial 1994 $270,000 $ 110,000 $11,250
Officer and Secretary
Tyler H. Rose(7)............ 1996 $180,000 $ 130,000 $ 8,250
Former Senior Vice
President 1995 $154,849 $ 110,000 $ 403,125 40,000 $ 7,938
and Treasurer
Richard E. Lamprecht........ 1996 $135,000 $ 55,000 $ 6,300
Vice President,
Development 1995 $135,000 $ 50,000 $ 161,250 35,000 $ 4,050
1994 $118,780 $ 60,000 $ 4,893
Scott A. Reinert............ 1996 $135,000 $ 55,000 $ 6,582
Vice President, Asset 1995 $135,000 $ 50,000 $ 161,250 35,000
Management 1994 $ 2,077 $52,659
</TABLE>
- ---------------
(1) The officers listed in this table receive certain personal benefits;
however, such benefits do not exceed the lesser of $50,000 or 10% of any
such officer's salary and bonus for any period reported.
(2) The start dates for Messrs. Albert, Mead, Rose and Reinert were May 1, 1995,
January 24, 1994, February 21, 1995 and December 28, 1994, respectively.
(3) The bonuses for each year were paid in February or March of the following
year.
(4) 1995 amounts represent 25,000, 25,000, 25,000, 10,000 and 10,000 restricted
stock unit awards granted to Messrs. Moran, Mead, Rose, Lamprecht and
Reinert as of March 1, 1995 and 110,000 performance unit awards granted to
Mr. Albert as of May 1, 1995. All of the foregoing awards vest as described
below based on the achievement of certain funds available for distribution
("FAD") targets established by the Compensation Committee. Dividend
equivalents are paid on all of the foregoing awards outstanding during the
vesting period. None of the restricted stock unit awards or performance unit
awards are available for vesting in the year in which the award was granted.
20% of a person's award may be earned in each of the three years following
the year the award was granted and 40% of such person's award may be earned
in the fourth year following the year of grant, in each case upon the
achievement of established FAD targets. Performance and restricted stock
unit awards not earned in any year in which they are available for vesting
may be earned in a subsequent year. The number of shares in respect of which
awards granted to Messrs. Albert, Mead, Moran Rose, Lamprecht and Reinert
were outstanding as of December 31, 1996 was 110,000, 25,000, 22,951,
25,000, 10,000 and 10,000, respectively. The value of Messrs. Albert's,
Mead's, Moran's, Rose's, Lamprecht's and Reinert's awards as of December 31,
1996 was $2,750,000, $625,000, $573,775, $625,000, $250,000 and $250,000,
respectively. Mr. Albert's,
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<PAGE> 66
Mr. Moran's and Mr. Rose's restricted stock unit awards which had not
previously vested and been earned were forfeited in connection with their
resignations in February 1997, December 1996 and March 1997, respectively,
though they did receive dividend equivalent payments for dividends paid
through, and in respect of, the fourth quarter, in the case of Messrs.
Albert and Rose, and third quarter, in the case of Mr. Moran, of 1996. The
Company did not grant any restricted stock unit awards to the Named
Executive Officers in 1996.
(5) Reflects options granted pursuant to the 1993 Long-Term Stock Incentive
Plan. The Company did not grant any options to the Named Executive Officers
in 1996.
(6) These amounts represent the Company's aggregate contributions to the
Company's 401(k) savings plan except that, with respect to Mr. Albert, the
1995 amount solely represents relocation expenses, with respect to Mr.
Moran, the 1996 amount includes $22,500 of consulting payments and $48,462
of accrued vacation pay, and with respect to Mr. Reinert, the 1994 amount
solely represents relocation expenses. See "-- Employment Agreements and
Termination of Employment Agreements."
(7) Mr. Albert, Mr. Moran and Mr. Rose resigned from the Company in February
1997, December 1996 and March 1997, respectively. Upon Mr. Albert's
resignation, Mr. Bren, the Chairman of the Board of Directors of the
Company, assumed the position of Chief Executive Officer and President.
William H. McFarland replaced Mr. Bren as President and Chief Executive
Officer on July 25, 1997. See "-- New President and Chief Executive
Officer." Mr. Bren did not receive any compensation from the Company for
serving as Chief Executive Officer and President.
OPTION EXERCISES IN 1996 AND
DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
SHARES UNDERLYING UNEXERCISED AT
ACQUIRED ON VALUE OPTIONS AT DECEMBER 31, DECEMBER 31,
NAME EXERCISE(1) REALIZED(1) 1996(#) 1996($)(2)
- ------------------------------- ----------- ----------- ------------------------ --------------------
<S> <C> <C> <C> <C> <C>
Steven P. Albert............... Exercisable 33,333
Unexercisable 66,667 $912,500
James E. Mead.................. Exercisable 33,333
Unexercisable 36,667 $580,000
Tyler H. Rose.................. Exercisable 13,333
Unexercisable 26,667 $355,000
Richard E. Lamprecht........... Exercisable 26,666
Unexercisable 23,334 $423,125
Scott A. Reinert............... Exercisable 11,666
Unexercisable 23,334 $310,625
Richard E. Moran Jr............ 66,667 $ 472,386 0 0
</TABLE>
- ---------------
(1) Other than Mr. Moran, none of the Named Executive Officers exercised any
stock options in 1996.
(2) Represents the difference between the closing price of the Company's Common
Stock on the NYSE on December 31, 1996 of $25.00 per share and the exercise
price of the options, but not less than zero.
1997 OPTION AND RESTRICTED STOCK UNIT GRANTS TO NAMED EXECUTIVE OFFICERS
On February 4, 1997, the Company granted to its executive officers options
exercisable for an aggregate of 115,000 shares of Common Stock, at an exercise
price of $26.875 per share. Of such options, 25,000, 10,000 and 10,000 options
were granted to Messrs. Mead, Lamprecht and Reinert, respectively. Additionally,
on April 25, 1997, 20,000 options were granted to Mr. Lamprecht at an exercise
price of $26.625. On February 4, 1997, the Company made a restricted stock unit
grant of 5,000 units to Mr. Mead and on April 25, 1997, made a restricted stock
unit grant of 10,000 units to Mr. Lamprecht. All restricted stock units vest
over a five-year period (0%, 20%, 20%, 20%, 40%); provided that certain
performance targets are met. The recipients receive dividend equivalents during
the vesting periods.
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<PAGE> 67
NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER
On July 15, 1997, William H. McFarland was appointed President and Chief
Executive Officer of the Company. Mr. McFarland's base salary for 1997 (on an
annualized basis) will be $400,000, and he is eligible for a bonus of 0% to 100%
of his base salary, with $183,000 and $400,000 guaranteed for 1997 and 1998,
respectively. In addition, Mr. McFarland received 100,000 options with an
exercise price of $29.50 per share. Mr. McFarland also received for 1997 a grant
of 27,500 restricted stock units, and will receive an annual award of 27,500
restricted stock units in each of the years 1998 through 2000 assuming continued
employment. The restricted stock unit awards will have terms similar to those
described above under "-- 1997 Option and Restricted Stock Unit Grants to Named
Executive Officers," except that Mr. McFarland's restricted stock unit awards do
not require that any performance targets be met and the 1998-2000 awards each
vest over periods ending in 2001. In addition, upon Mr. McFarland's death or
disability or if Mr. McFarland is terminated without cause, all unvested
restricted stock unit awards will vest immediately and all then ungranted
restricted stock units will also be granted to Mr. McFarland and will
immediately vest.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
Mr. Albert was appointed as Chief Executive Officer and President of the
Company on May 1, 1995. Pursuant to an offer letter, Mr. Albert received an
annualized base salary of $275,000 for 1995, subject to increases in future
years at the discretion of the Board, and is eligible to earn an annual bonus of
up to 60% of his base salary based upon both his and the Company's performance.
For 1995, Mr. Albert was guaranteed a minimum cash bonus of $90,000 assuming his
continued employment through December 31, 1995. In addition, the letter provides
that Mr. Albert will be a participant in the Company's fringe benefits programs
and long-term incentive plans. Upon hire, he received stock options with respect
to 100,000 shares of Common Stock and performance unit awards with respect to
110,000 shares of Common Stock. If Mr. Albert's employment had been terminated
by the Company prior to December 31, 1996 for reasons other than gross
misconduct, he would have been entitled to receive a lump-sum severance payment
of $182,500. On February 7, 1997, Mr. Albert entered into a Confidentiality
Agreement and General Release with the Company whereby he resigned from the
Company. Pursuant to the Agreement, Mr. Albert will provide consulting services
to the Company in exchange for 12 monthly payments of $22,917 each. Mr. Albert
also received a severance payment in the amount of $141,000, stock dividend
equivalent payments for dividends paid in respect of the fourth quarter of 1996,
and the Company agreed to continue his coverage, at the Company's expense, under
the Company's group insurance plans through February 28, 1997 and to pay him
$2,500 per month for twelve months thereafter in order to assist him with
purchasing his own benefits. In consideration of the foregoing, Mr. Albert is
subject to a confidentiality covenant and has given the Company and its owners,
directors, officers, employees, representatives and agents a general release.
On November 1, 1996, Mr. Moran entered into a Confidentiality Agreement and
General Release with the Company whereby he resigned from the Company as of
December 1, 1996. Pursuant to the Agreement, Mr. Moran will provide consulting
services to the Company in exchange for 12 monthly payments of $22,500 each. Mr.
Moran also received $38,000 of stock dividend equivalent payments for dividends
paid in respect of the third quarter of 1996, 11/12ths of his restricted stock
units available for vesting in 1996 were earned upon achievement of FAD targets
as determined by the Compensation Committee in February 1997, and the Company
agreed to continue his coverage, at the Company's expense, under the Company's
group insurance plans through December 31, 1996 and to pay him $2,500 per month
for twelve months thereafter in order to assist him with purchasing his own
benefits. In consideration of the foregoing, Mr. Moran is subject to a
confidentiality covenant and has given the Company and its owners, directors,
officers, employees, representatives and agents a general release.
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<PAGE> 68
PRINCIPAL SECURITYHOLDERS
OPERATING PARTNERSHIP
The following table sets forth certain information with respect to
beneficial ownership of Common L.P. Units by each of the Company's directors;
the Company's new Chief Executive Officer, William H. McFarland, who became
Chief Executive Officer in July 1997; each of the four most highly compensated
executive officers (including the Company's former Senior Vice President and
Treasurer) who were serving as executive officers at the end of 1996, other than
the Company's former Chief Executive Officer; the Company's former Chief
Executive Officer; the Company's former Executive Vice President and Chief
Financial Officer; all directors and current executive officers as a group; and
each person who is known by the Operating Partnership to beneficially own five
percent or more of the Common L.P. Units and G.P. Units as of September 30,
1997.
<TABLE>
<CAPTION>
NUMBER OF COMMON L.P. PERCENT OF ALL COMMON
NAME UNITS AND G.P. UNITS L.P. UNITS AND G.P. UNITS
- ------------------------------------------------ --------------------- -------------------------
<S> <C> <C>
DIRECTORS AND OFFICERS
Donald Bren..................................... *(1) *(1)
Anthony M. Frank................................ * *
John F. Grundhofer.............................. * *
Bowen H. McCoy.................................. * *
William H. McFarland............................ * *
Michael D. McKee................................ * *
Jack W. Peltason................................ * *
John F. Seymour, Jr............................. * *
Raymond L. Watson............................... * *
Steven P. Albert(2)............................. * *
Richard E. Moran Jr.(3)......................... * *
James E. Mead................................... * *
Tyler H. Rose(4)................................ * *
Richard E. Lamprecht............................ * *
Scott A. Reinert................................ * *
All current directors and current executive
officers as a group (19 persons).............. *(1) *(1)
HOLDERS OF 5% OF THE COMMON L.P. UNITS AND G.P.
UNITS
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660....................... 19,878,643 45.2%
The Irvine Company(1)(5)
550 Newport Center Drive
Newport Beach, CA 92660....................... 24,019,647 54.6%
</TABLE>
- ---------------
* Less than 1.0%
(1) Mr. Bren may be deemed the beneficial holder of the Common L.P. Units owned
by The Irvine Company due to his status as the sole stockholder and Chairman
of the Board of Directors of The Irvine Company.
(2) Mr. Albert resigned as the Chief Executive Officer and President and a
Director of the Company in February 1997.
(3) Mr. Moran resigned as the Executive Vice President, Chief Financial Officer
and Secretary of the Company in December 1996.
(4) Mr. Rose resigned as Senior Vice President and Treasurer of the Company in
March 1997.
(5) Represents Common L.P. Units owned directly or indirectly by The Irvine
Company and its affiliates.
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<PAGE> 69
THE COMPANY
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock by each of the Company's
directors; the Company's new Chief Executive Officer, William H. McFarland, who
became Chief Executive Officer in July 1997; each of the four most highly
compensated executive officers (including the Company's former Senior Vice
President and Treasurer) who were serving as executive officers at the end of
1996, other than the Company's former Chief Executive Officer; the Company's
former Chief Executive Officer; the Company's former Executive Vice President
and Chief Financial Officer; all directors and current executive officers as a
group; and each person who is known by the Company to beneficially own five
percent or more of any class of the Company's voting securities as of September
30, 1997. The Company has relied upon information supplied by its officers,
directors, and certain shareholders and upon information contained in filings
with the Commission.
<TABLE>
<CAPTION>
PERCENT OF
ALL SHARES
NUMBER OF OF
SHARES OF PERCENT OF PERCENT OF COMMON
COMMON ALL SHARES NUMBER OF ALL STOCK/
STOCK OF COMMON COMMON COMMON
BENEFICIALLY COMMON L.P. L.P. L.P.
NAME OWNED STOCK UNITS UNITS UNITS(1)
- ----------------------------------- ------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND OFFICERS
Donald Bren(2)..................... 183,325(3) * -- -- *
Anthony M. Frank................... 10,000(4) * -- -- *
John F. Grundhofer................. 9,000(5) * -- -- *
Bowen H. McCoy..................... 13,000(4) * -- -- *
William H. McFarland............... 20,647 * -- -- *
Michael D. McKee................... 5,000 * -- -- *
Jack W. Peltason................... 8,600(4) * -- -- *
John F. Seymour, Jr................ 8,100(4) * -- -- *
Raymond L. Watson.................. 20,000 * -- -- *
Steven P. Albert................... 35,333(6) * -- -- *
Richard E. Moran Jr................ 35,500(7) * -- -- *
James E. Mead...................... 15,500 * -- -- *
Tyler H. Rose...................... 150(8) * -- -- *
Richard E. Lamprecht............... 39,333(9) * -- -- *
Scott A. Reinert................... 2,333(9) * -- -- *
All current directors and officers
as a group (19 persons)(2)....... 386,994(10) 2.0%(10) -- -- *
5% SHAREHOLDERS(11)
The Irvine Company(2)(12).......... 1,216,882 6.1% 24,019,647 99.7% 57.5%
550 Newport Center Drive
Newport Beach, CA 92660
Cohen & Steers Capital
Management, Inc.(13)............. 1,925,700 9.7% -- -- 4.4%
757 Third Avenue
New York, NY 10017
LaSalle Advisors Limited
Partnership and ABKB/LaSalle
Securities Limited
Partnership(14).................. 1,314,600 6.6% -- -- 3.0%
11 South LaSalle Street
Chicago, IL 60603
Travelers Group Inc.(15)........... 1,292,219 6.5% -- -- 2.9%
388 Greenwich Street
New York, NY 10013
</TABLE>
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<PAGE> 70
- ---------------
* Less than 1.0%
(1) Assumes all of the Common L.P. Units beneficially owned by The Irvine
Company are exchanged for shares of Common Stock, without regard to certain
ownership limit provisions set forth in the Company's Articles of
Incorporation. It is not anticipated that these ownership limit provisions
will be waived. The Irvine Company has the right, once in every twelve
month period beginning on December 8 of each year, generally to exchange up
to one third of the Common L.P. Units for shares of Common Stock, at an
exchange ratio of one Common L.P. Unit for each share of Common Stock,
subject to adjustment. The Company's Articles of Incorporation place a
limit on ownership by The Irvine Company, Mr. Bren and their affiliates, in
the aggregate, of 20% of the outstanding Common Stock.
(2) Mr. Bren may be deemed the beneficial holder of the shares and Common L.P.
Units owned by The Irvine Company due to his status as the majority
stockholder and Chairman of the Board of Directors of The Irvine Company.
In addition, three officers of the Company not named in the table may be
deemed the beneficial owners of 74,523 Common L.P. Units held by TRC.
Assuming the exchange of all Common L.P. Units beneficially owned by The
Irvine Company for shares of Common Stock, Mr. Bren would be deemed to
beneficially own 57.9% of the Common Stock. Assuming the exchange of all
Common L.P. Units beneficially owned by The Irvine Company and TRC, all
directors and officers as a group (19 persons) would be deemed to
beneficially own 58.2% of the Common Stock.
(3) Shares are held by a trust of which Mr. Bren is trustee.
(4) Includes currently exercisable options to purchase 8,000 shares of Common
Stock at prices ranging from $15.625 to $26.75 per share granted to each of
Messrs. Frank, McCoy, Peltason and Seymour pursuant to the 1993 Stock
Option Plan for Directors.
(5) Includes 1,000 shares held in Mr. Grundhofer's Individual Retirement
Account and currently exercisable options to purchase 1,000 shares of
Common Stock at $26.75 per share granted to Mr. Grundhofer pursuant to the
1993 Stock Option Plan for Directors.
(6) Mr. Albert resigned as the Chief Executive Officer and President and a
Director of the Company in February 1997. Since his resignation, Mr. Albert
has not made a Form 4 or 5 filing under the Securities Exchange Act of
1934, as amended, and therefore, the Operating Partnership has no
information for Mr. Albert after such date.
(7) Mr. Moran resigned as the Executive Vice President, Chief Financial Officer
and Secretary of the Company in December 1996. Since his resignation, Mr.
Moran has not made a Form 4 or 5 filing under the Securities Exchange Act
of 1934, as amended, and therefore, the Operating Partnership has no
information for Mr. Moran after such date.
(8) Mr. Rose resigned as Senior Vice President and Treasurer of the Company in
March 1997. Since his resignation, Mr. Rose has not made a Form 4 or 5
filing under the Securities Exchange Act of 1934, as amended, and
therefore, the Operating Partnership has no information for Mr. Rose after
such date.
(9) All of such shares represent currently exercisable options to purchase
shares of Common Stock granted pursuant to the 1993 Long-Term Stock
Incentive Plan except for 1,000 shares of Common Stock owned by each such
person.
(10) Includes 257,495 shares of Common Stock and currently exercisable options
to purchase 152,665 shares of Common Stock under the 1993 Long-Term Stock
Incentive Plan and the 1993 Stock Option Plan for Directors.
(11) Information based on a review of Schedule 13Ds or 13Gs filed with the
Commission as of October 31, 1997.
(12) Represents Common Stock and Common L.P. Units owned by of The Irvine
Company or its subsidiaries. On September 19, 1997, The Irvine Company
announced its intention to acquire approximately 1,000,000 additional
shares of Common Stock.
(13) Based on information provided in Amendment No. 3 to a Schedule 13G filed on
February 4, 1997 by Cohen & Steers Capital Management ("Cohen & Steers").
As of December 31, 1996, Cohen & Steers had sole dispositive power with
respect to all of such shares, and sole voting power with respect to
1,665,600 of such shares.
(14) Based on information provided in a Schedule 13G filed on February 14, 1997
by LaSalle Advisors Limited Partnership ("LALP"), ABKB/LaSalle Securities
Limited Partnership ("ABKB"), and two of their principals. As of December
31, 1996 (i) LALP had sole voting and dispositive power with respect to
354,700 shares, shared voting power with respect to 131,300 shares and
shared dispositive power with respect to 361,500 shares; (ii) ABKB had sole
voting and dispositive power with respect to 122,400 shares, shared voting
power with respect to 369,675 shares and shared dispositive power with
respect to 476,000 shares; and (iii) each of the principals of LALP and
ABKB had sole voting and dispositive power with respect to 477,100 shares,
shared voting power with respect to 500,975 shares and shared dispositive
power with respect to 837,500 shares.
(15) Based on information provided in Amendment No. 3 to a Schedule 13G filed on
January 30, 1997 by Travelers Group Inc. ("TGI") and Smith Barney Holdings
Inc. ("SBHI"), a wholly-owned subsidiary of TGI. As of December 31, 1996,
SBHI and TGI had shared voting and dispositive power with respect to all of
such shares. Each of TGI and SBHI disclaim beneficial ownership of all such
shares.
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<PAGE> 71
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE IRVINE COMPANY
In connection with the Company's Initial Public Offering in December 1993,
in which 11,800,000 shares of Common Stock were sold to the public, the Company,
the Operating Partnership and The Irvine Company entered into a series of
transactions resulting in, inter alia, (i) the Company becoming the sole general
partner of, and holding a 39.0% partnership interest in, the Operating
Partnership; (ii) The Irvine Company and certain of its subsidiaries becoming
the sole limited partners of, and holding in the aggregate a 61.0% partnership
interest in, the Operating Partnership; (iii) the transfer of all 43 apartment
communities previously owned by The Irvine Company and its subsidiaries to the
Operating Partnership; and (iv) the assumption by the Operating Partnership of
certain debt of The Irvine Company related to such apartment communities.
On August 9, 1995, the Company sold, pursuant to a public offering
5,175,000 shares of Common Stock at $17.25 per share. Concurrently with such
offering, The Irvine Company, pursuant to its rights under the Partnership
Agreement, purchased 1,500,000 Common L.P. Units at $17.25 per unit. Such Common
L.P. Units are exchangeable for Common Stock on a one for one basis, subject to
adjustment and certain limitations.
On July 3, 1996, the Company sold in a direct placement 1,490,700 shares of
Common Stock at $20.125 per share. Concurrently therewith, The Irvine Company,
pursuant to its rights under the Partnership Agreement, purchased 1,490,700
Common L.P. Units at $20.125 per unit. In addition, during 1996 the Company sold
in the aggregate 13,280 shares of Common Stock at varying prices ranging from
$19.784 to $23.875 per share pursuant to its Dividend Reinvestment and
Additional Cash Investment Plan. In connection with such sales, The Irvine
Company, pursuant to its rights under the Partnership Agreement, purchased an
aggregate of 15,851 Common L.P. Units at varying prices ranging from $19.784 to
$23.875 per Common L.P. Unit. All of the foregoing Common L.P. Units are
exchangeable for Common Stock on a one for one basis, subject to adjustment and
certain limitations.
On February 20, 1997, the Company sold, pursuant to a public offering,
1,150,000 shares of Common Stock at $27.50 per share. Currently with such
offering, The Irvine Company, pursuant to its rights under the Partnership
Agreement, purchased 1,394,194 Common L.P. Units at $26.06 per unit (which is
equal to the public offering price of the Common Stock in such offering less an
amount equivalent to the underwriting discount). In addition, during the first
nine months of 1997 the Company sold in the aggregate 16,472 shares of Common
Stock at varying prices ranging from $26.338 to $28.656 per share pursuant to
its Dividend Reinvestment and Additional Cash Investment Plan. In connection
with such sales, The Irvine Company, pursuant to its rights under the
Partnership Agreement and Miscellaneous Rights Agreement, purchased an aggregate
of 19,900 Common L.P. Units and 858 shares of Common Stock at varying prices
ranging from $26.338 to $28.656. All of the foregoing Common L.P. Units are
exchangeable for Common Stock on a one for one basis, subject to adjustment and
certain limitations.
The Company and The Irvine Company have entered into an administrative
services agreement, as amended, pursuant to which The Irvine Company provides
the Company with certain administrative services, including, but not limited to,
income tax services, risk management and other support services. During the
first nine months of 1997 and in 1996, 1995 and 1994, the Company incurred costs
of approximately $95,000, $108,000, $106,000 and $160,000, respectively,
pursuant to the administrative services agreement.
The Company and The Irvine Company have also entered into a lease pursuant
to which the Company leases space from The Irvine Company. Pursuant to the
lease, $239,000, $230,000 and $179,000 was incurred in 1996, 1995 and 1994,
respectively, and $182,000 was incurred in the first nine months of 1997. Base
rent payable by the Company under the lease is approximately $242,000 per annum
through 1998. The Company also incurred parking costs to The Irvine Company of
approximately $33,000, $33,000 and $24,000 in 1996, 1995 and 1994, respectively,
and $28,000 in the first nine months of 1997. The Company also commenced
renting, in November 1995, retail space for its Leasing and Information Center
from an affiliate of The Irvine Company. Pursuant to such lease approximately
$57,000, $74,000 and $11,000 was incurred in the first nine
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<PAGE> 72
months of 1997 and in 1996 and 1995, respectively. Base rent payable by the
Company under such lease is approximately $77,000 per annum through 1997.
Additionally, the Company has entered into a short term lease with The Irvine
Company to provide for offsite parking adjacent to one of the Company's
construction sites for storing materials and parking for laborers. The lease
commenced September 1, 1996 at $1,500 per month. The total amount incurred in
1996 was $6,000.
Two of the Operating Partnership's apartment communities are financed by
mortgage notes payable to The Irvine Company. These mortgage notes totaled
$50,608,000, $51,227,000, $52,011,000 and $52,751,000 at September 30, 1997,
December 31, 1996, 1995 and 1994, respectively. The mortgage notes are
collateralized by all-inclusive trust deeds on each of the apartment communities
financed, bore fixed interest rates of 5.75% at September 30, 1997 and December
31, 1996, are fully amortizing, and mature in 2015 and 2024. Interest incurred
on the mortgage notes payable to The Irvine Company totaled $2,194,000 for the
nine months ended September 30, 1997 and $2,966,000, $3,010,000 and $3,055,000
for the years ended December 31, 1996, 1995 and 1994, respectively. The mortgage
notes payable to The Irvine Company "wrap around" secured first trust deed notes
payable to third party financial institutions. The secured first trust deed
notes totaled $50,834,000, $51,363,000, $52,030,000 and $52,654,000 as of
September 30, 1997 and December 31, 1996, 1995 and 1994, respectively. The
largest aggregate amount of indebtedness outstanding under each note was
$17,676,000 and $34,334,000 during 1996, $18,093,000 and $34,657,000 during 1995
and $18,487,000 and $34,962,000 during 1994. As of September 30, 1997, the
amount outstanding under each note was $17,178,000 and $33,656,000.
The Company, the Operating Partnership and The Irvine Company are parties
to the Land Rights Agreement. This agreement, which extends through July 31,
2020, provides the Company the exclusive right, but not the obligation, to
acquire additional land sites which have been entitled for residential use and
designated by The Irvine Company as ready for apartment development in
accordance with the Master Plan. The determination to exercise an option with
respect to a site is made solely by a majority of the Independent Directors
Committee of the Company's Board of Directors. In addition, The Irvine Company
and Donald Bren have agreed to conduct their apartment community development and
ownership activities on the Irvine Ranch solely through the Operating
Partnership.
Pursuant to the Land Rights Agreement, The Irvine Company and Mr. Bren have
agreed not to directly or indirectly acquire or develop, or acquire an equity
interest in any entity that has an ownership interest in, any rental apartment
community whether on or off the Irvine Ranch. This prohibition terminates, with
respect to communities on the Irvine Ranch, on July 31, 2020, and with respect
to communities off the Irvine Ranch, when (i) no nominee of The Irvine Company
is a member of the Company's Board of Directors and (ii) The Irvine Company and
certain related persons beneficially own less than 20% of the outstanding Common
Stock in the aggregate (including for this purpose Common Stock issuable upon
exchange of Common L.P. Units).
The Land Rights Agreement is subject to early termination upon the
occurrence of certain events including (i) the failure of the shareholders of
the Company to elect as directors of the Company the number of directors which
The Irvine Company is entitled to nominate to the Company's Board of Directors,
(ii) in the event of a vacancy on the Board of Directors of an Irvine Company
Board Representative, the remaining directors shall not promptly elect a person
designated by The Irvine Company to fill such vacancy and (iii) during the
period The Irvine Company has the right to nominate three persons to the
Company's Board of Directors, the provisions of the Articles of Incorporation
and the Bylaws requiring approval of the Required Directors to take certain
actions shall be repealed, modified or amended without the prior written consent
of The Irvine Company.
Under the terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, Common Stock or Common L.P. Units, at the option of the Company.
After July 31, 2000, the choice of consideration will revert to The Irvine
Company. In no event shall the purchase price for any community land site exceed
95% of the value of such site as determined by independent appraisals. In
addition, the purchase price for apartment sites encompassing the first 1,800
apartment units the Operating Partnership develops starting in mid-1995 will be
set at an amount such that each project's budgeted pro forma unleveraged return
on costs for the first 12 months following stabilized occupancy will be between
10.0% and 10.5%. Seven land sites discussed below have been
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<PAGE> 73
purchased under this arrangement which will contain a total of 1,884 apartment
units. Accordingly, as of the date of this prospectus the purchase price for all
future land acquisitions under the Land Rights Agreement will be no greater than
95% of the appraised value.
In the third quarter of 1994, the Operating Partnership acquired four sites
for development of 1,695 units for $19,703,000 from The Irvine Company. As
partial financing for these four sites, the Operating Partnership elected to
assume $15,656,000 in tax-exempt assessment district debt and paid $4,047,000 in
cash.
In March 1995, the Operating Partnership acquired a 512-unit development
site known as Newport Ridge for $9,542,000 from The Irvine Company. As partial
financing for the acquisition of the site, The Company elected to assume
$4,184,000 in tax-exempt assessment district debt. The balance of $5,358,000 was
paid through the issuance of 336,432 additional Common L.P. Units in the
Operating Partnership to The Irvine Company. In November 1995, the Operating
Partnership acquired a 300-unit development site known as Baypointe from The
Irvine Company for $4,190,000, of which $2,223,000 was paid in cash and
$1,967,000 was paid through the issuance of 113,372 additional Common L.P. Units
in the Operating Partnership to The Irvine Company. The L.P. Units are
exchangeable for Common Stock of the Company on a one for one basis, subject to
adjustment and certain limitations.
In March 1996, the Operating Partnership acquired a 227-unit development
site known as Santa Maria for $3,343,000 from The Irvine Company. As partial
financing for the acquisition of the site, the Operating Partnership elected to
assume $2,771,000 in tax-exempt assessment district debt. The balance of
$572,000 was paid through the issuance of 28,358 additional Common L.P. Units in
the Operating Partnership to The Irvine Company. In July 1996, the Operating
Partnership acquired a 245-unit development site known as The Colony for
$3,545,000 from The Irvine Company. The purchase price for this site consisted
of the issuance of 115,544 additional Common L.P. Units in the Operating
Partnership and $1,143,000 in cash. In December 1996, the Operating Partnership
acquired a 207-unit development site known as Santa Rosa II for $5,999,000 from
The Irvine Company. The purchase price was paid through the issuance of 244,857
additional Common L.P. Units in the Operating Partnership. The foregoing Common
L.P. Units are exchangeable for Common Stock of the Company on a one for one
basis, subject to adjustment and certain limitations.
On February 10, 1997, the Operating Partnership acquired a 316-unit
development site known as Rancho Santa Fe for $8,408,000 from The Irvine
Company. The purchase price was paid through the issuance of 313,439 additional
Common L.P. Units in the Operating Partnership. On October 21, 1997, the
Operating Partnership acquired a 196-unit development site for $5,697,000 from
The Irvine Company and on December 16, 1997 the Operating Partnership acquired a
393-unit development site for $10,325,000 from The Irvine Company. The purchase
price for these two sites was paid through the issuance of 179,433 and 332,060
additional Common L.P. Units, respectively, in the Operating Partnership.
Pursuant to the terms of each of these three acquisitions, a portion of the
purchase price is refundable through the forfeiture of a portion of the Common
L.P. Units issued in the transaction, if the apartment community to be
constructed on the site does not achieve a 10% unleveraged return on costs for
the first twelve months following stabilized occupancy. The foregoing Common
L.P. Units are exchangeable for Common Stock of the Company on a one for one
basis, subject to adjustment and certain limitations.
Independent appraisals were obtained for each of the sites referred to
above, prior to the Independent Directors Committee determining that the
Operating Partnership would exercise its right to purchase such land sites. If
the Operating Partnership elects not to exercise its option for any site, the
Operating Partnership will thereafter have a right of first refusal on the sale
of such site to a third party if the terms of such sale are more favorable than
those offered to the Operating Partnership. The determination to exercise an
option or the right of first refusal under the Land Rights Agreement with
respect to any site will be made solely by a majority of the Independent
Directors Committee.
In December 1997, the Operating Partnership acquired a 336-unit development
site in the master planned community of Stonecrest Village in San Diego County
from an affiliate of The Irvine Company controlled by Donald Bren, the Chairman
of the Board of Directors of the Company. The purchase price for the site of
$9,475,00 was paid through the issuance of 305,707 additional Common L.P. Units
in the Operating
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<PAGE> 74
Partnership, of which 191,011 Common L.P. Units are exchangeable for Common
Stock of the Company on a one for one basis, subject to adjustment and certain
limitation, with the remainder not being exchangeable for Common Stock absent
approval of the stockholders of the Company. Independent appraisals were
obtained for this site prior to the Independent Directors Committee determining
that the Operating Partnership would purchase such site.
Three directors of the Company, Messrs. Bren, Watson and McKee, are
affiliated with The Irvine Company. Mr Bren is Chairman of the Board and the
majority stockholder of The Irvine Company. Mr. Watson is Vice Chairman of the
Board of The Irvine Company. Mr. McKee is Executive Vice President and Chief
Financial Officer of The Irvine Company.
OTHER TRANSACTIONS
Mr. Grundhofer is Chairman, President and Chief Executive Officer of First
Bank System, Inc. which, through an affiliate, is a member of the bank syndicate
that has provided the Operating Partnership's $250 million Credit Facility. This
facility replaced various prior facilities in which this bank also participated.
$36.0 million was outstanding under the Credit Facility as of October 31, 1997.
Based on this bank's percentage participation in the Credit Facility (and the
predecessor facilities), the Company estimates that the amount of interest and
fees paid to the affiliate totaled $271,000 during the first nine months of 1997
and $245,000, $388,000 and $96,000 for 1996, 1995 and 1994, respectively. In
addition, an affiliate of First Bank System, Inc. acts as trustee for the 7%
Notes and will receive customary compensation therefor.
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<PAGE> 75
DESCRIPTION OF THE SERIES A PREFERRED SECURITIES
The Common Securities and the Series A Preferred Securities will be issued
pursuant to the terms of the Declaration. The following summarizes the material
terms and provisions of the Common Securities and the Series A Preferred
Securities and is qualified in its entirety by reference to the Business Trust
Act and the Declaration, which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Declaration authorizes the Trust to issue up to 25 million Preferred
Securities in one or more series, including the Series A Preferred Securities,
up to 10,000 Common Securities and up to 25 million securities of a class
designated Excess Preferred Securities issuable in one or more series as
described below under "Restrictions on Ownership and Transfer of Series A
Preferred Securities." The Regular Trustees have the authority to establish the
terms of each series of Preferred Securities, including the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption, if any, by
amending the Declaration. Such amendments do not require any vote or action of
the holders of the Preferred Securities except as otherwise set forth in the
Declaration or as required by law or the rules of any stock exchange or
automated quotation system on which the Preferred Securities are listed. The
Preferred Securities and the Common Securities represent undivided beneficial
interests in the assets of the Trust, subject to the priority and payment terms
of the Trust Securities, and are not secured by any assets of the Operating
Partnership or any of its affiliates. All of the Common Securities will be
owned, directly or indirectly, by the Company and certain members of the
management of the Company. The Declaration does not permit the issuance by the
Trust of any securities or other evidences of beneficial ownership of, or
beneficial interests in, the Trust other than the Preferred Securities which
have terms substantially similar to the series of Preferred L.P. Units of the
Operating Partnership purchased by the Trust with the proceeds from the issuance
of such series of Preferred Securities, the Excess Preferred Securities and the
Common Securities, the incurrence of any indebtedness for borrowed money by the
Trust or the making of any investment other than in Preferred L.P. Units of the
Operating Partnership and the investment of the proceeds of the sale of the
Common Securities in an interest bearing account at, or certificate of deposit
of, a bank. Pursuant to the Declaration, the Property Trustee will own and hold
the Preferred L.P. Units of the Operating Partnership as trust assets for the
benefit of the holders of the Trust Securities.
Application will be made to list the Series A Preferred Securities on the
NYSE under the symbol "IAC Pr A". If approved for listing, trading of the Series
A Preferred Securities on the NYSE is expected to commence within 30 days after
the date of this Prospectus. While the Underwriters have advised the Trust that
they intend to make a market in the Series A Preferred Securities prior to
commencement of trading on the NYSE, they are under no obligation to do so and
no assurance can be given that a market for the Series A Preferred Securities
will exist prior to commencement of trading.
COMMON SECURITIES
Subject to the preferential rights of the Series A Preferred Securities
(and the related series of Excess Preferred Securities as described below) and
such preferential rights as may be granted by the Regular Trustees in connection
with the future issuance of Preferred Securities (and any related series of
Excess Preferred Securities as described below), holders of Common Securities
are entitled to one vote per security on all matters submitted for a vote to the
holders of Common Securities and, subject to the terms of the Declaration or any
series of Preferred Securities hereafter established, the exclusive voting power
for all purposes (including amendments to the Declaration) are vested in the
holders of the Common Securities. Subject to the preferential rights of the
Series A Preferred Securities and any series of Preferred Securities hereafter
established, the holders of Common Securities are entitled to receive ratably
such distributions as may be declared from time to time on the Common Securities
by a majority of the Regular Trustees in their discretion from funds legally
available therefor. In the event of the liquidation, dissolution, winding-up or
termination of the Trust, after payment of all debt and other liabilities and
any liquidation amount with respect
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<PAGE> 76
to outstanding series of Preferred Securities (and any related series of Excess
Preferred Securities as described below), each holder of Common Securities is
entitled to receive, ratably with each other holder of Common Securities, all
remaining assets of the Trust available for distribution to the holders of
Common Securities. Holders of Common Securities have no subscription,
redemption, conversion or preemptive rights. Matters submitted for approval to
holders of Common Securities generally require a majority vote of the Common
Securities present and voting thereon. The holders of Common Securities have the
exclusive right (subject to the terms of the Declaration) to appoint, remove or
replace Trustees and to increase or decrease the number of Trustees, subject to
the right of holders of the Series A Preferred Securities (and any other series
of Preferred Securities having a similar right which is then exercisable) to
appoint a Special Regular Trustee upon the occurrence of an Appointment Event.
The outstanding shares of Common Securities are fully paid and nonassessable.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SERIES A PREFERRED SECURITIES
Ownership Limit Provisions. The Declaration contains certain restrictions
on the number of Series A Preferred Securities that individual holders may own.
For the Trust to qualify as a REIT under the Code, no more than 50% in value of
the outstanding Trust Securities may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Trust Securities must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because the Trust
expects to qualify as a REIT, the Declaration contains restrictions on the
acquisition of Series A Preferred Securities intended to ensure compliance with
these requirements.
Subject to certain exceptions specified in the Declaration no holder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8%, (the "Ownership Limit") of the issued and outstanding Series A
Preferred Securities. The Regular Trustees may, with a ruling from the IRS or an
opinion of counsel satisfactory to it, waive the Ownership Limit with respect to
a holder if such holder's ownership will not then or in the future jeopardize
the Trust's status as a REIT.
If Series A Preferred Securities in excess of the Ownership Limit are
issued or transferred to any person, or Series A Preferred Securities which
would cause the Trust to be beneficially owned by fewer than 100 persons are
transferred to any person, such issuance or transfer shall be null and void and
the intended transferee will acquire no rights to the stock.
In addition, Series A Preferred Securities owned, or deemed to be owned, or
transferred to a holder in excess of the Ownership Limit will automatically be
exchanged for a series of a separate class of preferred securities of the Trust
("Excess Preferred Securities") that shall be deemed to have been transferred to
a person as trustee of a trust for the exclusive benefit of one or more
charitable organizations designated by the Regular Trustees. While Excess
Preferred Securities are held in trust, the trustee of the trust will be deemed
to hold the Excess Preferred Securities for the exclusive benefit of the
charitable beneficiary, the intended original transferee-holder will acquire no
rights to such securities except as described below, and the trustee of the
trust will have all distribution and voting rights pertaining to the transferred
securities. Upon liquidation, dissolution or winding-up of the Trust, the
intended original transferee-holder's ratable share of the Trust's assets would
be limited to the price paid by the original transferee-holder for the Series A
Preferred Securities in the purported transfer that resulted in the Excess
Preferred Securities or, if no value was given, the price per security equal to
the closing market price on the date of the purported transfer that resulted in
the Excess Preferred Securities.
Excess Preferred Securities are not transferable except as hereinafter
described. The original transferee-holder may, at any time the Excess Preferred
Securities are held in trust as provided above, transfer the Excess Preferred
Securities to any person whose ownership of such Preferred Securities would be
permitted under the Ownership Limit, at a price per security not in excess of
the lesser of (i) the price per security paid by the original transferee-holder
for the Series A Preferred Securities that resulted in the Excess Preferred
Securities or, if no value was given, the price per security equal to the
closing market price on the date of the purported
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transfer that resulted in the Excess Preferred Securities or (ii) the price per
security received by the original transferee-holder in the transfer to the
person whose ownership of such securities would be permitted under the Ownership
Limit. Immediately upon transfer to such permitted transferee, the Excess
Preferred Securities will automatically be exchanged for Series A Preferred
Securities. In addition, the Trust (or its designee) would have the right, for a
period of 90 days during the time the Excess Preferred Securities are held in
trust, to purchase all or any portion of the Excess Preferred Securities from
the original transferee-holder at a price per security equal to the lesser of
(i) the price per security paid by the original transferee-holder in the
transaction that created such Excess Preferred Securities (or, in the case of a
devise or gift, the closing market price at the time of such devise or gift) and
(ii) the closing market price for the security on the date the Trust (or its
designee) exercises its option to purchase. The 90-day period begins on the date
of the violative transfer if the original transferee-holder gives notice to the
Trust of the transfer or (if no such notice is given) the date the Regular
Trustees determine that a violative transfer has been made.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Any change in the Ownership Limit would require an amendment to the
Declaration. Such an amendment to the Declaration would require the affirmative
vote of holders owning not less than 66 2/3% of the outstanding Common
Securities. No vote of holders of Preferred Securities will be required in
connection with any such act.
All certificates representing Series A Preferred Securities will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 0.5% (or such other percentage between 0.5% and 5%, as
determined by the Regular Trustees) of the outstanding Series A Preferred
Securities must file an affidavit with the Trust containing the information
specified in the Declaration within 30 days after January 1 of each year. In
addition, each holder of Series A Preferred Securities shall upon demand be
required to disclose to the Trust in writing such information with respect to
the direct, indirect and constructive ownership of Series A Preferred Securities
as the Regular Trustees deem necessary to comply with the provisions of the Code
applicable to a REIT or to comply with the requirements of any taxing authority
or governmental agency.
If the Trust authorizes the issuance of any other series of Preferred
Securities in the future, the Regular Trustees will at the time of authorization
establish ownership limits applicable to such series to ensure compliance with
the REIT qualification provisions of the Code.
RANKING
The Series A Preferred Securities will, with respect to distributions and
rights upon liquidation, dissolution, winding-up or termination of the Trust,
rank (i) senior to the Common Securities and (ii) on a parity with all other
series of Preferred Securities issued by the Trust unless the terms of such
other series specifically provide that such other series ranks junior to the
Series A Preferred Securities.
DISTRIBUTIONS
Subject to the rights of holders of other series of Preferred Securities
ranking on a parity with the Series A Preferred Securities as to the payment of
distributions which may from time to time be issued by the Trust, holders of
Series A Preferred Securities will be entitled to receive, when, as and if
declared by the Regular Trustees out of funds legally available therefor,
cumulative cash distributions at the rate per annum of % of the stated
liquidation amount of $25 per Series A Preferred Security. Distributions on the
Series A Preferred Securities will be cumulative, will accrue from the original
date of issuance and will be payable quarterly in arrears, on ,
, and (each a "Series A Distribution Payment
Date") of each year, commencing on , 1998. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and for any period shorter than a full quarterly
period for which distributions are computed, the amount of the distribution
payable will be computed on the basis of the actual number of days elapsed in
such a 30-day month. If any Series A
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Distribution Date is not a Business Day, the payment of the distribution to be
made on such Series A Distribution Payment Date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. "Business Day" shall mean any day other than Saturday, Sunday or
any other day on which banking institutions in New York, New York or Los
Angeles, California are authorized or required by any applicable law to close.
Distributions on the Series A Preferred Securities will accrue whether or not
the Trust has earnings, whether or not there are funds legally available for the
payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent they are not
paid, as of the Series A Distribution Payment Date on which they first become
payable. Accumulated and unpaid distributions will not bear interest.
If declared by the Regular Trustees as provided above, distributions on the
Series A Preferred Securities must be paid on the dates payable to the extent
that the Property Trustee has cash on hand in the Property Account to permit
such payment. So long as the Series A Preferred L.P. Units are the sole assets
of the Trust, the funds available for distribution to the holders of the Series
A Preferred Securities will be limited to payments received by the Property
Trustee in respect of the Series A Preferred L.P. Units that are deposited in
the Trust as trust assets. See "Description of the Series A Preferred L.P.
Units." If the Operating Partnership does not make a distribution on the Series
A Preferred L.P. Units, the Property Trustee will not make distributions on the
Series A Preferred Securities.
So long as any Series A Preferred Securities are outstanding, no
distribution shall be paid or declared on or with respect to the Common
Securities or any other series of outstanding Preferred Securities ranking
junior as to the payment of distributions to the Series A Preferred Securities
(collectively, the "Junior Securities"), nor shall any sum or sums be set aside
for or applied to the purchase or redemption of the Series A Preferred
Securities or any other series of outstanding Preferred Securities or the
purchase, redemption or other acquisition for value of any Junior Securities
unless, in each case, full cumulative distributions accumulated on all Series A
Preferred Securities and all other series of outstanding Preferred Securities
ranking on a parity with the Series A Preferred Securities as to the payment of
distributions have been paid in full, provided that the foregoing will not
prohibit distributions payable solely in Junior Securities and the purchase of
Preferred Securities of any series as described under "-- Restrictions on
Ownership and Transfer of Series A Preferred Securities." When distributions
have not been paid in full upon the Series A Preferred Securities on the
applicable Series A Distribution Payment Date (or a sum sufficient for such full
payment is not set apart therefor), all distributions declared and paid on the
Series A Preferred Securities and any other series of outstanding Preferred
Securities ranking on a parity with the Series A Preferred Securities as to the
payment of distributions shall be declared and paid so that the amount of
distributions declared and paid on the Series A Preferred Securities and such
other series of Preferred Securities shall in all cases bear to each other the
same ratio that the respective distribution rights of the Series A Preferred
Securities and such other series of Preferred Securities (which shall not
include any accumulation in respect of unpaid distributions for prior
distribution periods if such other series of Preferred Securities do not have
cumulative distribution rights) bear to each other. Holders of Series A
Preferred Securities shall not be entitled to any distributions, whether payable
in cash, property or otherwise, in excess of the full cumulative distributions
described herein.
Distributions on the Series A Preferred Securities will be made to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which, as long as the Series A Preferred Securities
remain in book-entry form, will be one Business Day prior to the relevant Series
A Distribution Payment Date. Distributions on the Series A Preferred Securities
will be paid through the Property Trustee who will hold amounts received in
respect of the Preferred L.P. Units in the Property Account. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment to the Series A Preferred Securityholders will be made as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company" below. In
the event that the Series A Preferred Securities do not continue to remain in
book-entry only form, the Regular Trustees shall have the right to select
relevant record dates, which shall be more than one Business Day prior to the
relevant Series A Distribution Payment Dates.
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REDEMPTION
The Series A Preferred Securities cannot be redeemed prior to
except in the case of a Special Event as defined under "Description of the
Series A Preferred L.P. Units -- Redemption."
Upon the repayment of the Series A Preferred L.P. Units or another series
of Preferred L.P. Units issued by the Trust in the future, whether at their
stated maturity, upon termination of the Operating Partnership, upon redemption
or otherwise, the proceeds from such repayment or payment will be promptly
applied to redeem a series of Preferred Securities having economic rights
substantially similar to the Preferred L.P. Units so repaid, any such redemption
to be in an aggregate liquidation amount equal to the aggregate stated value of
the Preferred L.P. Units so repaid, upon not less than 30 nor more than 60 days'
notice. Accordingly, if the Series A Preferred L.P. Units are repaid, whether at
their stated maturity, upon termination of the Operating Partnership, upon
redemption or otherwise, Series A Preferred Securities having an aggregate
liquidation amount equal to the Series A Preferred L.P. Units so repaid will be
redeemed for cash by the Trust at the Redemption Price. In the event fewer than
all outstanding Series A Preferred Securities are to be redeemed, Series A
Preferred Securities registered in the name of and held by DTC or its nominee
will be redeemed as described under "-- Book-Entry Only Issuance -- The
Depository Trust Company" below. The Operating Partnership will terminate on
December 31, 2092, unless sooner dissolved.
If a partial redemption of the Series A Preferred Securities would result
in the delisting of the Series A Preferred Securities by any national securities
exchange or other organization on which the Series A Preferred Securities are
then listed, the Trust will only redeem the Series A Preferred Securities in
whole.
The Series A Preferred Securities have a stated maturity of December 31,
2092 (see "Liquidation" below) and will not be subject to any sinking fund. The
Series A Preferred Securities may be mandatorily purchased by the Trust as
described under "-- Restrictions on Ownership and Transfer of Series A Preferred
Securities."
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all the outstanding Series A Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Series A Preferred Securities for all quarterly distribution periods terminating
on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Series A Preferred
Securities (which notice will be irrevocable) then by 12:00 noon, New York City
time, on the redemption date and provided that the Property Trustee has funds
sufficient to pay the Redemption Price the Property Trustee will deposit
irrevocably with the DTC (or its successor) funds sufficient to pay such
Redemption Price and will give the DTC (or its successor) irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Series A Preferred Securities entitled thereto. See "-- Book-Entry Only
Issuance -- The Depository Trust Company." If notice of redemption shall have
been given as provided above and funds deposited as required, then, on the date
of such deposit, distributions will cease to accrue on the Series A Preferred
Securities called for redemption, such Series A Preferred Securities will no
longer be deemed to be outstanding and all rights of holders of such Series A
Preferred Securities so called for redemption will cease, except the right of
the holders of such Series A Preferred Securities to receive the Redemption
Price but without interest thereon. Neither the Trustees nor the Trust shall be
required to register or cause to be registered the transfer of any Series A
Preferred Securities which have been so called for redemption. If any date fixed
for redemption of Series A Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date fixed for redemption. If payment of the Redemption Price in respect of
Series A Preferred Securities is improperly withheld or refused and not paid by
the Property Trustee, distributions on such Series A Preferred Securities will
continue to accrue, from the original redemption date to the date of payment, in
which case the actual payment date will be used for purposes of calculating the
Redemption Price.
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The Regular Trustees, on behalf of the Trust, will provide notice of any
redemption of the Series A Preferred Securities to the holders of record thereof
not less than 30 nor more than 60 days prior to the date of redemption. Such
notice shall be provided by mailing notice of such redemption, first class
postage prepaid, to each holder of Series A Preferred Securities to be redeemed,
at such holder's address as it appears on the transfer records of the Trust.
Each notice shall state the following: (i) the redemption date; (ii) the
Redemption Price; (iii) the place or places where certificates for the Series A
Preferred Securities may be surrendered for payment; (iv) the number of Series A
Preferred Securities to be redeemed from each holder; (v) that payment of the
Redemption Price will be made upon presentation and surrender of such Series A
Preferred Securities; and (vi) that on or after the redemption date
distributions on the Series A Preferred Securities to be redeemed will cease to
accrue. No failure to give or defect in a notice of redemption shall affect the
validity of the proceedings for redemption except as to the holder to which
notice was defective or not given.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Operating Partnership or any of its
subsidiaries may at any time and from time to time purchase outstanding Series A
Preferred Securities by tender, in the open market or by private agreement
unless at such time, the Operating Partnership would be prohibited from
purchasing or redeeming Series A Preferred L.P. Units pursuant to the terms
thereof. See "Description of the Series A Preferred L.P. Units --
Distributions."
LIQUIDATION
Subject to the rights of holders of any other series of Preferred
Securities which the Trust may issue in the future which rank on a parity with
the Series A Preferred Securities upon any voluntary or involuntary dissolution,
liquidation, winding-up or termination of the Trust, the holders of the Series A
Preferred Securities will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Trust out of the assets of the
Trust legally available for distribution, after payment or provision for payment
of debts and other liabilities of the Trust (to the extent not satisfied by the
Operating Partnership as provided in the Declaration), an amount per Series A
Preferred Security equal to $25 per Series A Preferred Security plus accrued and
unpaid distributions thereon to the date of payment (such amount being the
"Liquidation Distribution") and no more.
If, upon any liquidation, dissolution, winding-up or termination of the
Trust, there are insufficient assets to permit full payment to holders of Series
A Preferred Securities and any other series of outstanding Preferred Securities
ranking on a parity upon liquidation, dissolution, winding-up or termination of
the Trust with the Series A Preferred Securities, the holders of Series A
Preferred Securities and such other series of Preferred Securities shall be paid
ratably in proportion to the full distributable amounts to which holders of
Series A Preferred Securities and such other series of Preferred Securities are
respectively entitled upon liquidation, dissolution, winding-up or termination.
The full preferential amount payable to holders of Series A Preferred Securities
and such other series of outstanding Preferred Securities upon any such
liquidation, dissolution, winding-up or termination will be paid in full before
any distribution or payment is made to holders of Common Securities or Preferred
Securities of any series ranking junior to the Series A Preferred Securities
upon liquidation, dissolution, winding up or termination of the Trust. Neither
the consolidation or merger of the Trust with or into any trust, corporation or
other entity (or of any trust, corporation or other entity with or into the
Trust) nor the sale, lease or conveyance of all or substantially all of the
property of the Trust in conformity with the terms of the Declaration shall be
deemed to constitute a liquidation, dissolution, winding-up or termination of
the Trust.
Pursuant to the Declaration, the Trust shall terminate: (i) on December 31,
2092, unless sooner dissolved as provided in the Declaration, (ii) upon
termination of the Operating Partnership on December 31, 2092, unless sooner
dissolved, or (iii) when (A) Preferred Securities of all series shall have been
repaid in accordance with the terms thereof or called for redemption and the
amounts necessary for redemption thereof shall have been paid to the holders
thereof in accordance with the priority and payment terms of the Preferred
Securities and (B) all of the Common Securities are no longer outstanding.
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MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or convey,
transfer or lease its assets substantially as an entirety to, any corporation or
other entity, except as described below. The Trust may, at the request of the
holders of the Common Securities and with the consent of the Regular Trustees,
but without the consent of the holders of the Preferred Securities, the Property
Trustee or the Delaware Trustee consolidate, amalgamate, merge with or into, any
trust, partnership, corporation or other entity organized under the laws of any
State of the United States or the District of Columbia; provided, that (i) if
the Trust is not the survivor, such successor entity either (x) expressly
assumes all of the obligations of the Trust under the Trust Securities or (y)
substitutes for the Preferred Securities of each series outstanding other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities"), so long as each series of Successor Securities rank the
same as the Preferred Securities rank with respect to distributions and payments
upon liquidation, dissolution, winding-up or termination, (ii) the Company and
the Operating Partnership expressly acknowledge a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Preferred Securities but only if in the opinion of nationally
recognized independent counsel to the Trust experienced in matters under the
Investment Company Act of 1940, as amended (the "1940 Act"), such action is
necessary so that the successor entity will not be required to register as an
"investment company" under the 1940 Act, (iii) the Preferred Securities or any
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange, interdealer
quotation system or with another organization on which the Preferred Securities
are then listed or quoted, (iv) such merger, consolidation or amalgamation does
not cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization or (v)
such merger, consolidation, amalgamation does not adversely affect the powers,
special rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect.
VOTING RIGHTS
Except as provided below, under "-- Modification and Amendment of the
Declaration" and as otherwise required by the Business Trust Act and the
Declaration, the holders of the Series A Preferred Securities will have no
voting rights.
If the Trust fails to make distributions in full on the Series A Preferred
Securities for six consecutive quarterly distribution periods, (an "Appointment
Event"), then the holders of the Series A Preferred Securities (voting
separately as a class with all other series of Preferred Securities upon which
like voting rights have been conferred and are then exercisable) will be
entitled, by the vote of holders of such Preferred Securities representing a
majority in aggregate liquidation amount of such outstanding Preferred
Securities, to appoint a Special Regular Trustee (who need not be an officer or
an employee of or otherwise affiliated with the Company or the Operating
Partnership) who shall have the same rights, powers and privileges under the
Declaration as a Regular Trustee. The Special Regular Trustee so appointed
shall, without any further act or vote by the holders of any other series of
Preferred Securities, be deemed to have been appointed to act in such capacity
for all series of Preferred Securities upon which like voting rights have been
conferred and are, or in the future become, exercisable. Any holder of Series A
Preferred Securities (other than the Company or the Operating Partnership or any
of their affiliates) shall have the right to nominate any person to be appointed
as Special Regular Trustee. For purposes of determining whether the Trust has
failed to pay distributions in full for six consecutive quarterly distribution
periods, distributions shall be deemed to remain in arrears, notwithstanding any
payments in respect thereof, until full cumulative distributions have been or
contemporaneously are paid with respect to all quarterly distribution periods
terminating on or prior to the date of payment of such cumulative distributions.
Not later than 30 days after such right to appoint a Special Regular Trustee
arises, the Regular Trustees will convene a meeting for the purpose of
appointing a Special Regular Trustee. If the Regular Trustees fails to convene
such meeting within such 30-day period, the holders of Series A Preferred
Securities and any other series of Preferred Securities upon which like voting
rights have been conferred and are then exercisable representing 10% in
aggregate liquidation amount of such outstanding Preferred Securities will be
entitled to convene such meeting. The provisions of the Declaration relating to
the
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convening and conduct of the meetings of the holders will apply with respect to
any such meeting. If, at any such meeting, holders of less than a majority in
aggregate liquidation amount of Preferred Securities of all series entitled to
vote for the appointment of a Special Regular Trustee vote for such appointment,
no Special Regular Trustee shall be appointed. Any Special Regular Trustee may
be removed without cause at any time by vote of the holders of a majority in
liquidation amount of each series of Preferred Securities upon which like voting
rights have been conferred and are then exercisable voting as a single class.
The holders of 10% in liquidation amount of the Series A Preferred Securities
will be entitled to convene such a meeting. Any Special Regular Trustee
appointed shall cease to be a Special Regular Trustee if the Appointment Event
pursuant to which the Special Regular Trustee was appointed and all other
Appointment Events have been cured and cease to be continuing.
If any proposed amendment or modification of the Declaration would
materially and adversely affect the powers, privileges, preferences or special
rights of the Series A Preferred Securities, then the holders of outstanding
Series A Preferred Securities will be entitled to vote on such amendment or
proposal as a class, and such amendment or proposal shall not be effective
except with the approval of the holders of Series A Preferred Securities
representing 66 2/3% in liquidation amount of the outstanding Series A Preferred
Securities; provided, however, that any such amendment or modification which
would (i) increase the number of authorized securities that the Trust is
authorized to issue, (ii) decrease the number of Preferred Securities of a
series but not below the number of Preferred Securities of the series then
outstanding or (iii) authorize, create or issue any additional series of
Preferred Securities on a parity with or junior to the Series A Preferred
Securities as to distributions or upon liquidation, dissolution, winding-up or
termination of the Trust shall be deemed not to materially and adversely affect
such powers, special rights, preferences or privileges; and provided, further,
if holders of Series A Preferred Securities have a right to vote as provided in
this paragraph but such amendment or proposal arises out of, or is substantially
similar to, an amendment or modification of the Partnership Agreement as
described in the following paragraph and with respect to which the Property
Trustee is required to obtain the direction of holders of Series A Preferred
Securities as described below, then, to the extent permitted by applicable law,
no separate vote pursuant to the Declaration shall be required and the vote
obtained in connection with the Property Trustee seeking the direction of
holders of Series A Preferred Securities shall constitute complete and
sufficient action with respect to such amendment or modification of the
Declaration.
The Property Trustee shall take any legal action which arises out of or in
connection with the holding of Preferred L.P. Units or the Property Trustee's
duties and obligations under the Declaration or the Business Trust Act. If the
Property Trustee fails to take such legal action, a majority in aggregate
liquidation amount of the Preferred Securities may direct the Property Trustee
to take such legal action. If the Property Trustee fails to enforce its rights
under the Operating Partnership Limited Partnership Agreement, any holder of
Preferred Securities may institute a legal proceeding directly against the
Operating Partnership to enforce such rights, without first instituting a legal
proceeding against the Property Trustee or any other person.
In the event the consent or vote of the Property Trustee as the holder of
the Series A Preferred L.P. Units of the Operating Partnership is required with
respect to any amendment or modification of the Partnership Agreement, the
Property Trustee shall request the direction of the holders of the Series A
Preferred Securities with respect to such amendment or modification. With
respect to such amendment or modification, the Property Trustee shall vote the
Series A Preferred L.P. Units as directed by a majority in aggregate liquidation
amount of the Series A Preferred Securities; provided that where such amendment
or modification under the Partnership Agreement requires the consent of holders
of Series A Preferred L.P. Units representing a specified percentage greater
than a majority in aggregate liquidation amount of the Series A. Preferred L.P.
Units, the Property Trustee may only give such consent at the direction of the
holders of Series A Preferred Securities representing such specified percentage
of the aggregate liquidation amount of the Series A Preferred Securities.
Any required approval or direction of holders of Series A Preferred
Securities may be given at a separate meeting of holders of Series A Preferred
Securities convened for such purpose, at a meeting of all of the holders of
Preferred Securities of the Trust or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of Series A
Preferred Securities are entitled to vote, or of any matter
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upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Series A Preferred Securities. Each such
notice will include a statement setting forth (i) the date of such meeting or
the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the holders of Series A Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities of any series.
Notwithstanding that holders of Series A Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Series A Preferred Securities at such time that are owned by the Company, the
Operating Partnership or by any entity directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or the
Operating Partnership shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which persons owning Series A Preferred Securities
registered in the name of and held by DTC or its nominee may exercise their
voting rights are described under "-- Book-Entry Only Issuance -- The Depository
Trust Company" below.
Subject to the right of holders of Series A Preferred Securities to appoint
a Special Regular Trustee upon the occurrence of an Appointment Event, holders
of the Series A Preferred Securities will have no rights to increase or decrease
the number of Trustees or to appoint, remove or replace a Trustee, which rights
are vested exclusively in the holders of the Common Securities.
CONVERSION RIGHTS
Except as otherwise provided under "-- Restrictions on Ownership and
Transfer of Series A Preferred Securities," the Series A Preferred Securities
are not convertible into or exchangeable or exercisable for any other property
or securities of the Trust, the Company or the Operating Partnership.
MODIFICATION AND AMENDMENT OF THE DECLARATION
The Declaration may be modified and amended by a majority of the Regular
Trustees, provided, that, (i) if any proposed modification or amendment provides
for, or the Regular Trustees otherwise propose to effect, (A) any action that
would materially and adversely affect the powers, preferences, privileges or
special rights of any series of the Preferred Securities, whether by way of
amendment to the Declaration or otherwise, or (B) the dissolution, liquidation,
winding-up or termination of the Trust other than pursuant to the terms of the
Declaration, then, subject to the terms of any such series of Preferred
Securities, the holders of each affected series of outstanding Preferred
Securities will be entitled to vote on such amendment, modification or proposal
and such amendment, modification or proposal shall not be effective with respect
to such an affected series except with the approval of at least 66 2/3% in
liquidation amount of such series.
Notwithstanding any other provision in the Declaration, in the event the
holders of Series A Preferred Securities have the right to vote with respect to
a matter pursuant to the Declaration which voting right arises out of, or is
substantially similar to, a matter arising under the Partnership Agreement on
which the Property Trustee is required to obtain the direction of holders of
Series A Preferred Securities as described under "Voting Rights" above, then, to
the extent permitted by applicable law, no separate vote pursuant to the
Declaration shall be required and the vote obtained in connection with the
Property Trustee seeking the direction of holders of the Series A Preferred
Securities shall constitute complete and sufficient action with respect to such
matter under the Declaration.
Notwithstanding the foregoing, (i) no amendment or modification may be made
to the Declaration unless the Regular Trustees shall have obtained (A) subject
to certain exceptions, either a ruling from the Internal Revenue Service or a
written unqualified opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that the Trust will continue to be
treated as a REIT for purposes of United States federal income taxation and (B)
a written unqualified opinion of nationally recognized independent counsel
experienced in such matters to the effect that such amendment or modification
will not
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cause the Trust to be an investment company which is required to be registered
under the 1940 Act; (ii) certain specified provisions of the Declaration may not
be amended without the consent of all of the holders of the Trust Securities,
(iii) no amendment which adversely affects the rights, powers and privileges of
the Property Trustee shall be made without the consent of the Property Trustee,
(iv) the Article of the Declaration relating to the obligation of the Company
and certain members of management of the Company to purchase the Common
Securities may not be amended without the consent of the Company, and the
Article of the Declaration relating to the restriction on the transfer of Common
Securities shall not be amended without the consent of the holders of all Common
Securities, (v) the Article of the Declaration relating to the obligation of the
Operating Partnership to pay certain obligations and expenses of the Trust as
described under "IAC Capital Trust" may not be amended without the consent of
the Operating Partnership, (vi) the rights of holders of Common Securities under
the Declaration to increase or decrease the number of, and to appoint, replace
or remove, Trustees (other than a Special Regular Trustee) shall not be amended
without the consent of all holders of Common Securities, (vii) the rights of
holders of Series A Preferred Securities under the Declaration to appoint or
remove a Special Regular Trustee shall not be amended without the consent of
each holder of Series A Preferred Securities and (viii) the Section of the
Declaration relating to the purpose of the Trust may not be amended without the
consent of a majority in liquidation amount of each series of outstanding
Preferred Securities.
The Declaration further provides that it may be amended without the consent
of the holders of the Trust Securities to (i) cure any ambiguity, (ii) correct
or supplement any provision in the Declaration that may be defective or
inconsistent with any other provision of the Declaration, (iii) to add to the
covenants, restrictions or obligations of the Company or the Operating
Partnership, and (iv) to conform to changes in, or a change in interpretation or
application of certain 1940 Act requirements by the Commission, which amendment
does not materially and adversely affect the rights, preferences or privileges
of the holders of Preferred Securities.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Series A Preferred
Securities. The Series A Preferred Securities will be issued only as fully
registered securities registered in the name of DTC or its nominee. One or more
fully-registered global Series A Preferred Securities certificates (each a
"Series A Preferred Securities Global Certificate"), representing the total
aggregate number of Series A Preferred Securities, will be issued and will be
deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Series A
Preferred Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission.
Upon issuance of a Series A Preferred Securities Global Certificate, DTC
will credit on its book-entry registration and transfer system the number of
Series A Preferred Securities represented by such Series A Preferred Securities
Global Certificate to the accounts of institutions that have accounts with DTC.
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Ownership of beneficial interests in a Series A Preferred Securities Global
Certificate will be limited to Participants or persons that may hold interests
through Participants. The ownership interest of each actual purchaser of each
Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct
and Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Series A Preferred Securities.
Transfers of ownership interests in the Series A Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners.
DTC has no knowledge of the actual Beneficial Owners of the Series A
Preferred Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Series A Preferred Securities are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the owner of a Series A Preferred Securities
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner and holder of record of the Series A Preferred Securities
represented by such Series A Preferred Securities Global Certificate for all
purposes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Series A Preferred Securities are being redeemed, DTC will reduce the amount of
interest of each Direct Participant in the Series A Preferred Securities in
accordance with its procedures.
Although voting with respect to the Series A Preferred Securities is
limited, in those instances in which a vote is required, neither DTC nor Cede &
Co. itself will consent or vote with respect to the Series A Preferred
Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to the
Trust as soon as possible after the record date. The Omnibus Proxy assigns Cede
& Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Series A Preferred Securities are credited on the record date
(identified in a listing attached to the Omnibus proxy).
Distribution payments on the Series A Preferred Securities represented by a
Preferred Series Global Certificate will be made by the Property Trustee to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and not of DTC, the Trust or the Operating Partnership,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Series A
Preferred Security certificate will not be entitled to receive physical delivery
of Series A Preferred Securities. Accordingly, each Beneficial Owner must rely
on the procedures of DTC to exercise any rights under the Series A Preferred
Securities.
DTC may discontinue providing its services as securities depository with
respect to the Series A Preferred Securities at any time by giving reasonable
notice to the Trust. Under such circumstances, if a successor securities
depository is not obtained, Series A Preferred Security certificates will be
required to be printed and delivered. Additionally, the Trust may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the Series A Preferred
Securities will be printed and delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust and the Operating Partnership
believe to be reliable. Neither the Trust nor the Operating Partnership has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described hereunder or under the rules and procedures
governing their respective operations.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
In the event the Series A Preferred Securities do not remain in book-entry
only form, the following provisions will apply:
Payment of distributions and payments on redemption of the Series A
Preferred Securities will be payable, the transfer of the Series A Preferred
Securities will be registrable, and Series A Preferred Securities will be
exchangeable for Series A Preferred Securities of other denominations of a like
aggregate liquidation amount, at the principal corporate trust office of the
Property Trustee in The City of New York; provided that payment of distributions
may be made at the option of the Regular Trustees on behalf of the Trust by
check mailed to the address of the persons entitled thereto and that the payment
on redemption of any Series A Preferred Security will be made only upon
surrender of such Series A Preferred Security to the Property Trustee.
The Bank of New York or one of its affiliates will act as registrar and
transfer agent for the Series A Preferred Securities. The Bank of New York will
also act as paying agent and, with the consent of the Regular Trustees, may
designate additional paying agents.
Registration of transfers of Series A Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Operating Partnership may require) in
respect of any tax or other governmental charges that may be imposed in relation
to it.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any Series A Preferred
Securities during a period beginning at the opening of business 15 days before
any selection for redemption of Series A Preferred Securities and ending at the
close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Series A Preferred
Securities to be redeemed and (ii) register the transfer of or exchange any
Series A Preferred Securities so selected for redemption, in whole or in part,
except the unredeemed portion of any Series A Preferred Securities being
redeemed in part. Holders of Series A Preferred Securities to be redeemed shall
surrender such Series A Preferred Securities at the place designated in the
notice of redemption and shall be entitled to the redemption price and any
accumulated and unpaid distributions payable upon such redemption following such
surrender.
Upon presentation of any Certificate for Series A Preferred Securities
redeemed in part only, the Trust shall execute and deliver, at the expense of
the Trust, a new Certificate equal to the unredeemed portion of the Certificate
so presented.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee undertakes to perform only such duties as are
specifically set forth in the Declaration and shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provision, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Declaration at the request of
any holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Property Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Property Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
The Company, the Operating Partnership and certain of their affiliates may
maintain a deposit account and banking relationship with the Property Trustee.
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GOVERNING LAW
The Declaration and the Trust Securities will be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to take such action as
they deem reasonable in order that the Trust (i) will not be deemed to be an
"investment company" required to be registered under the 1940 Act and (ii) that
the Trust will be classified for United States federal income tax purposes as a
REIT. In this connection, the Regular Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust or the
Declaration, that the Regular Trustees determine in their discretion to be
reasonable and necessary or desirable for such purposes, as long as such action
does not materially and adversely affect the interests of holders of the Trust
Securities.
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DESCRIPTION OF THE SERIES A PREFERRED L.P. UNITS
The Series A Preferred L.P. Units will be issued pursuant to the
Partnership Agreement. The following summarizes the material terms and
provisions of the Series A Preferred L.P. Units and is qualified in its entirety
by reference to the Partnership Agreement, which has been filed as an exhibit to
the registration statement of which this Prospectus forms a part.
GENERAL
The Operating Partnership is authorized to issue Preferred L.P. Units in
one or more series. The General Partner has the authority to establish the terms
of each series, including the preferences, conversion, and other rights, voting
powers, restrictions, limitations as to distributions, qualifications, and terms
and conditions of redemption, if any, by amending the Partnership Agreement.
Such an amendment does not require any vote or action by the holders of L.P.
Units, except as provided under applicable law.
The Partnership Agreement does not contain any limitation on the number of
Preferred L.P. Units that may be issued or on the number of series that may be
established.
RANKING
The Series A Preferred L.P. Units will, with respect to distributions and
rights upon liquidation, dissolution, winding-up or termination of the Operating
Partnership, rank (i) senior to the G.P. Units and the Common L.P. Units and
(ii) on a parity with all other series of Preferred L.P. Units issued by the
Operating Partnership unless the terms of such other series specifically provide
that such series ranks junior to the Series A Preferred L.P. Units.
DISTRIBUTIONS
Subject to the rights of holders of other series of Preferred L.P. Units
ranking on a parity with the Series A Preferred L.P. Units as to the payment of
distributions, the Trust, as the holder of the Series A Preferred L.P. Units,
will be entitled to receive, when, as and if declared by the Operating
Partnership, acting through the Company as the sole general partner of the
Operating Partnership, out of funds legally available for the payment of
distributions, cumulative preferential cash distributions at the rate per annum
of % of the stated value of $25 per Series A Preferred L.P. Unit.
Distributions will be cumulative, will accrue from the original date of issuance
and will be payable quarterly in arrears, on , ,
and of each year (each a "Series A Preferred L.P.
Unit Distribution Payment Date"), commencing on , 1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any date on which distributions are to be
made on the Series A Preferred L.P. Units is not a Business Day, then payment of
the distribution to be made on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
Distributions on the Series A Preferred L.P. Units will be made to the Property
Trustee as the holder of record of the Series A Preferred L.P. Units.
No distributions on the Series A Preferred L.P. Units shall be declared or
paid or set apart for payment by the Operating Partnership at such time as the
terms and provisions of any agreement of the Operating Partnership, including
any agreement relating to its indebtedness, prohibits such declaration, payment
or setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law. The Credit Facility provides that the Operating Partnership may make
distributions to its partners to the extent necessary to enable the Company to
make dividend payments to its shareholders as required for the Company to
maintain its status as a REIT under the Code.
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Distributions on the Series A Preferred L.P. Units will accrue regardless
of whether or not the Operating Partnership has earnings, whether or not there
are funds legally available for the payment of such distributions, and whether
or not such distributions are declared and will accumulate to the extent that
they are not paid as of the Series A Preferred L.P. Unit Distribution Payment
Date on which they first become payable. Accumulated and unpaid distributions
will not bear interest. So long as any Series A Preferred L.P. Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common L.P. Units or the G.P. Units or any other series of outstanding Preferred
L.P. Units ranking junior as to the payment of distributions to the Series A
Preferred L.P. Units (collectively, "Junior OP Units"), nor shall any sum or
sums be set aside for or applied to the purchase or redemption of the Series A
Preferred L.P. Units or any other series of outstanding Preferred L.P. Units or
the purchase, redemption or other acquisition for value of any Junior OP Units
unless, in each case, full cumulative distributions accumulated on all Series A
Preferred L.P. Units and all other series of outstanding Preferred L.P. Units
ranking on a parity with the Series A Preferred L.P. Units as to the payment of
distributions have been paid in full, provided that the foregoing will not
prohibit distributions payable solely in Junior OP Units, the exchange of Common
L.P. Units for Common Stock of the Company in accordance with the Exchange
Rights set forth in the Partnership Agreement, the repurchase of Common L.P.
Units in connection with the exercise by the holders thereof of the Cash Tender
Rights set forth in the Partnership Agreement, the exchange of Common L.P. Units
for G.P. Units as provided in the Partnership Agreement or the repayment,
return, forfeiture and cancellation of Common L.P. Units issued in connection
with land acquisitions by the Operating Partnership as and to the extent
provided pursuant to the purchase agreement relating to any such acquisition.
When distributions have not been paid in full upon the Series A Preferred L.P.
Units on the applicable Preferred L.P. Unit Distribution Payment Date (or a sum
sufficient for such full payment is not set apart therefor), all distributions
declared and paid on the Series A Preferred L.P. Units and any other series of
outstanding Preferred L.P. Units ranking on a parity with the Series A Preferred
L.P. Units as to the payment of distributions shall be declared and paid so that
the amount of distributions declared and paid on the Series A Preferred L.P.
Units and such other series of Preferred L.P. Units shall in all cases bear to
each other the same ratio that the respective distribution rights of the Series
A Preferred L.P. Units and such other series of Preferred L.P. Units (which
shall not include any accumulation in respect of unpaid distributions for prior
distribution periods if such other series of Preferred L.P. Units do not have
cumulative distribution rights) bear to each other. Holders of Series A
Preferred L.P. Units shall not be entitled to any distributions, whether payable
in cash, property or otherwise, in excess of the full cumulative distributions
described herein.
LIQUIDATION
Subject to the rights of holders of any other series of Preferred L.P.
Units ranking on a parity with the Series A Preferred L.P. Units, upon any
voluntary or involuntary dissolution, liquidation, winding-up or termination of
the Operating Partnership, the holders of the Series A Preferred L.P. Units will
be entitled to receive out of the assets of the Operating Partnership legally
available for distribution, after payment or provision for payment of debts and
other liabilities of the Operating Partnership an amount equal to the stated
value of $25 per Series A Preferred L.P. Unit, plus accumulated and unpaid
distributions thereon to the date of payment and no more. If upon any such
liquidation, dissolution, winding-up or termination, there are insufficient
assets to permit full payment to the holders of Series A Preferred L.P. Units
and any other series of outstanding Preferred L.P. Units ranking on a parity
upon liquidation, dissolution, winding-up or termination of the Operating
Partnership with the Series A Preferred L.P. Units, the holders of Series A
Preferred L.P. Units and such other series of Preferred L.P. Units shall be paid
ratably in proportion to the full distributable amount to which holders of
Series A Preferred L.P. Units and such other series of Preferred L.P. Units are
respectively entitled upon liquidation, dissolution, winding-up or termination.
The full preferential amount payable to holders of the Series A Preferred L.P.
Units and such other series of outstanding Preferred L.P. Units upon any such
liquidation, dissolution, winding-up or termination will be paid in full before
any distribution or payment is made to the holders of Common L.P. Units, G.P.
Units or any other series of outstanding Preferred L.P. Units ranking junior to
the Series A Preferred L.P. Units on liquidation, dissolution, winding-up or
termination of the Operating Partnership. The consolidation or merger of the
Operating Partnership with or into any corporation, trust, or other entity (or
of any corporation, trust or entity
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with or into the Operating Partnership) shall not be deemed to constitute a
liquidation, dissolution, winding-up or termination of the Operating
Partnership.
REDEMPTION
Except in the case of a Special Event, the Series A Preferred L.P. Units
may not be redeemed prior to . On or after such date, the
Operating Partnership shall have the right to redeem the Series A Preferred L.P.
Units, in whole or in part, from time to time, upon not less than 30 nor more
than 60 days' notice, at a redemption price equal to $25 per Series A Preferred
L.P. Unit plus accumulated and unpaid distributions to the date of payment.
Except in connection with a dissolution, liquidation, winding-up or termination
of the Operating Partnership as described under "Liquidation" above, the
redemption price of the Series A Preferred L.P. Units (other than the portion
thereof consisting of accumulated but unpaid distributions) is payable solely
out of the sale proceeds of capital stock of the Company, which will be
contributed by the Company to the Operating Partnership as an additional capital
contribution, or L.P. Units of the Operating Partnership and from no other
source. Unless previously redeemed, the Series A Preferred L.P. Units will be
redeemed for cash upon termination of the Operating Partnership. Unless sooner
dissolved, the Operating Partnership will terminate on December 31, 2092, which
is the stated maturity date of the Series A Preferred L.P. Units.
If, at any time, a Tax Event or Investment Company Event or (each, a
"Special Event") shall occur and be continuing, the Operating Partnership shall
have the right to redeem the Series A Preferred L.P. Units in whole but not in
part, as set forth below, provided, however, that, if at the time there is
available to the Operating Partnership or the Trust the opportunity to
eliminate, within a 90-day period, the Special Event by taking some ministerial
action (collectively, "Ministerial Actions"), such as filing a form or making an
election, or pursuing some other similar reasonable measure, which in the sole
judgment of the Company, as general partner of the Operating Partnership, has or
will cause no adverse effect on the Trust, the Operating Partnership, the
Company or the holders of the Preferred Securities and will involve no material
cost, the Operating Partnership and the Trust will pursue such measure in lieu
of such redemption, provided further that the Operating Partnership shall have
no right to redeem the Series A Preferred L.P. Units while the Operating
Partnership or the Regular Trustees on behalf of the Trust are pursuing any such
Ministerial Action. The Operating Partnership shall have the right, upon not
less than 30 nor more than 60 days' notice, to redeem the Series A Preferred
L.P. Units in whole for cash as provided in the preceding paragraph within 90
days following the occurrence of such Special Event (subject to extension for
the number of days Ministerial Actions are pursued).
"Investment Company Event" means that the Operating Partnership and the
Regular Trustees shall have received an opinion of nationally recognized
independent counsel experienced in practice under the 1940 Act, that as a result
of the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), there is more than
an insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the 1940 Act, which Change in
1940 Act Law becomes effective on or after the date of this Prospectus.
"Tax Event" means that the Operating Partnership and the Regular Trustees
shall have received an opinion of nationally recognized independent tax counsel
experienced in such matters that there is more than an insubstantial risk that
the Trust does not qualify, or within 90 days of the date of such opinion will
no longer qualify, as a REIT under the Code for any reason whatsoever, provided
that a Tax Event shall not include the voluntary election by the Regular
Trustees and/or the holders of the Common Securities to terminate the Trust's
status as a real estate investment trust for federal income tax purposes.
If the Operating Partnership gives a notice of redemption in respect of
Series A Preferred L.P. Units (which notice will be irrevocable) then, by 12:00
noon, New York City time, on the redemption date, the Operating Partnership will
deposit irrevocably in trust for the benefit of the Series A Preferred L.P.
Units being redeemed funds sufficient to pay the applicable redemption price and
will give irrevocable instructions and authority to pay such redemption price to
the holders of the Series A Preferred L.P. Units. If notice of
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redemption shall have been given and funds deposited as required, then upon the
date of such deposit, distributions will cease to accumulate on the Series A
Preferred L.P. Units called for redemption, such Series A Preferred L.P. Units
will no longer be deemed to be outstanding and all rights of holders of such
Series A Preferred L.P. Units so called for redemption will cease, except the
right of the holders of such Series A Preferred L.P. Units to receive the
applicable redemption price, but without interest on such redemption price. If
any date fixed for redemption of Series A Preferred L.P. Units is not a Business
Day, then payment of the redemption price payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the redemption price in respect
of the Series A Preferred L.P. Units is improperly withheld or refused and not
paid by the Operating Partnership, distributions on such Series A Preferred L.P.
Units will continue to accumulate from the original redemption date to the date
of payment, in which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the applicable redemption
price. If fewer than all of the Series A Preferred L.P. Units are to be
redeemed, the Series A Preferred L.P. Units to be redeemed shall be selected by
lot or pro rata (as nearly as practicable without creating fractional units) or
in some other equitable manner determined by the Operating Partnership.
In the event of any redemption in part, the Operating Partnership shall not
be required to (i) issue, register the transfer of or exchange any Series A
Preferred L.P. Units during a period beginning at the opening of business 15
days before any selection for redemption of Series A Preferred L.P. Units and
ending at the close of business on the earliest date on which the relevant
notice of redemption is deemed to have been given to all holders of Series A
Preferred L.P. Units to be redeemed and (ii) register the transfer of or
exchange any Series A Preferred L.P. Units so selected for redemption, in whole
or in part, except the unredeemed portion of any Series A Preferred L.P. Units
being redeemed in part. Holders of Series A Preferred L.P. Units to be redeemed
shall surrender such Series A Preferred L.P. Units at the place designated in
the notice of redemption and shall be entitled to the redemption price and any
accumulated and unpaid distributions payable upon such redemption following such
surrender.
The Operating Partnership may not redeem fewer than all the outstanding
Series A Preferred L.P. Units unless all accumulated and unpaid distributions
have been paid on all Series A Preferred L.P. Units for all quarterly
distribution periods terminating on or prior to the date of redemption.
Notice of redemption will be mailed by the Operating Partnership, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series A Preferred L.P.
Units to be redeemed at their respective addresses as they appear on the
transfer records of the Operating Partnership. No failure to give or defect in
such notice shall affect the validity of the proceedings for the redemption of
any Series A Preferred L.P. Units except as to the holder to whom notice was
defective or not given. Each notice shall state: (i) the redemption date; (ii)
the redemption price; (iii) the number of Series A Preferred L.P. Units to be
redeemed; (iv) the place or places where the Series A Preferred L.P. Units is to
be surrendered for payment of the redemption price; (v) that distributions on
the Series A Preferred L.P. Units to be redeemed will cease to accumulate on
such redemption date and (vi) that payment of the redemption price will be made
upon presentation and surrender of such Series A Preferred Limited Partner
Units. If fewer than all of the Series A Preferred L.P. Units held by any holder
are to be redeemed, the notice mailed to such holder shall also specify the
number of Series A Preferred L.P. Units to be redeemed from such holder.
The holders of Series A Preferred L.P. Units at the close of business on a
distribution record date will be entitled to receive the distribution payable
with respect to such Series A Preferred L.P. Units on the corresponding
distribution payment date notwithstanding the redemption thereof between such
distribution record date and the corresponding distribution payment date or the
Operating Partnership's default in the payment of the distribution due. Except
as provided above, the Operating Partnership will make no payment or allowance
for unpaid distributions, regardless of whether in arrears, on Series A
Preferred L.P. Units called for redemption.
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The Series A Preferred L.P. Units have a stated maturity of December 31,
2092, and will not be subject to any sinking fund or mandatory redemption and
will not be convertible into any other securities of the Company or the
Operating Partnership.
VOTING RIGHTS
Holders of the Series A Preferred L.P. Units will not have any voting
rights, except as set forth below and as otherwise required by law and the
Partnership Agreement.
If any proposed amendment or modification of the Partnership Agreement
would materially and adversely affect the powers, special rights, preferences or
privileges of the Series A Preferred L.P. Units, then the holders of outstanding
Series A Preferred L.P. Units will be entitled to vote on such amendment or
modification as a class, and such amendment or modification shall not be
effective except with the approval of the holders of at least 66 2/3% in stated
value of the outstanding Series A Preferred L.P. Units; provided, however, that
any such amendment or modification that would authorize, create or issue any
additional series of Preferred L.P. Units ranking on a parity with or junior to
the Series A Preferred L.P. Units as to distributions or upon liquidation,
dissolution, winding-up or termination of the Operating Partnership shall be
deemed not to materially and adversely effect such powers, special rights,
preferences or privileges; and, provided further, that prior to , any
amendment or modification to the definition of Tax Event shall be deemed to
materially and adversely affect such powers, special rights, preferences and
privileges.
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RELATIONSHIP BETWEEN THE PREFERRED SECURITIES
AND THE PREFERRED L.P. UNITS
As set forth in the Declaration, the Trust exists for the sole purpose of
(a) issuing its Preferred Securities (and, if applicable, Excess Preferred
Securities), (b) issuing its Common Securities as described herein and investing
the proceeds of such issuance in an interest bearing account at, or a
certificate of, a bank, (c) investing the proceeds from the sale of each series
of Preferred Securities in a series of Preferred L.P. Units of the Operating
Partnership and (d) engaging in such other activities as are necessary,
convenient or incidental thereto.
The Trust's ability to make distributions and other payments on the Series
A Preferred Securities is initially effectively dependent upon the Operating
Partnership making distributions and other payments on the Series A Preferred
L.P. Units held as trust assets. If the Operating Partnership does not make
distributions or other payments on the Preferred L.P. Units for any reason, it
is expected that the Trust will not be able to make payments on the Series A
Preferred Securities.
Initially, as long as distributions and other payments are made on the
Series A Preferred L.P. Units, such payments will be sufficient to cover
distributions and other payments due on the Series A Preferred Securities
primarily because (i) the aggregate stated value of Series A Preferred L.P.
Units held as trust assets will be equal to the aggregate liquidation amount of
the Series A Preferred Securities; (ii) the distribution rate and distribution
and other payment dates on the Series A Preferred L.P. Units will match the
distribution rate and distribution and other payment dates on the Series A
Preferred Securities; (iii) the Declaration provides that the Operating
Partnership shall reimburse all costs, expenses and liabilities of the Trust,
including any taxes and all costs and expenses with respect thereto, to which
the Trust may become subject, except with respect to distributions on the Trust
Securities and withholding taxes on such distributions; and (iv) the Declaration
further provides that the Trustees shall not cause or permit the Trust, among
other things, to engage in any activity that is not consistent with the limited
purposes of the Trust. With respect to clause (iii) above, however, no assurance
can be given that the Operating Partnership will have sufficient resources to
enable it to pay such costs, expenses and liabilities on behalf of the Trust.
The Property Trustee will have the power to exercise all rights, powers and
privileges under the Operating Partnership Limited Partnership Agreement with
respect to the Limited Partnership Units of the Operating Partnership held by
the Trust. In addition, the holders of at least a majority in liquidation amount
of the Preferred Securities will have the right to direct the Property Trustee
with respect to taking certain legal actions under the Declaration. If the
Property Trustee fails to enforce its rights under the Operating Partnership
Limited Partnership Agreement, any holder of Preferred Securities may institute
a legal proceeding against the Operating Partnership to enforce such rights. See
"Description of the Series A Preferred Securities."
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OPERATING PARTNERSHIP AGREEMENT
The following summary of certain provisions of the Partnership Agreement,
including the descriptions of certain provisions set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Partnership
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. Generally, pursuant to the
Partnership Agreement, the Company, as the sole general partner of the Operating
Partnership, will have full, exclusive and complete responsibility and
discretion in the management, operation and control of the Operating
Partnership, including the ability to cause the Operating Partnership to enter
into certain major transactions including acquisitions, refinancings and the
selection of property managers and any changes in the Operating Partnership's
distribution policies. The Board of Directors of the Company will manage the
affairs of the Operating Partnership. The Irvine Company has the right to
nominate three persons for election to the Board of Directors so long as The
Irvine Company, its stockholders or its affiliates beneficially own at least 20%
of the outstanding shares of Common Stock (including for these purposes shares
issuable upon exercise of Exchange Rights set forth in the Partnership Agreement
subject to the ownership limit provision of the Company's Articles of
Incorporation applicable to The Irvine Company). In the event that this
ownership falls below 20% but is at least 15%, The Irvine Company will have the
right to nominate two persons for election to the Board of Directors; and if
this ownership falls below 15% but is at least 10%, The Irvine Company will have
the right to nominate one person for election to the Board of Directors.
Dispositions of properties are subject to the condition that there will be
sufficient cash distributed to partners of the Operating Partnership to allow,
subject to certain limitations, all such partners (including the Company) to pay
may tax liabilities arising from the disposition and on the distribution itself.
The consent of a majority of the outstanding Common L.P. Units will be
required with respect to certain extraordinary actions involving the Operating
Partnership including (i) the amendment, modification or termination of the
Partnership Agreement, (ii) a general assignment for the benefit of creditors or
the appointment of a custodian, receiver or trustee for any of the assets of the
Operating Partnership, (iii) the institution of any proceeding for bankruptcy of
the Operating Partnership, (iv) the transfer of any general partnership interest
in the Operating Partnership, including through any merger, consolidation or
liquidation of the Company, subject to certain exceptions, (v) the admission of
any additional or substitute general partner in the Operating Partnership; (vi)
for the Company to take title to assets (other than temporarily in connection
with an acquisition prior to contributing such assets to the Operating
Partnership) or to conduct business other than through the Operating
Partnership; and (vii) for the Company or the Operating Partnership to engage in
any business other than the ownership, construction, development and operation
of apartment communities. The Partnership Agreement requires, absent receipt of
consent, that title to assets be in the Operating Partnership in order to
maintain a one-for-one exchange ratio between Common L.P. Units and shares of
Common Stock. If such consent is obtained, the Company and The Irvine Company
agree to negotiate in good faith to amend the Partnership Agreement, including
the mechanics for calculating the exchange ratio, in order to reflect such
direct ownership of assets by the Company.
In addition, until such time as the Company owns 90% or more of the total
Common L.P. Units in the Operating Partnership, the consent of the limited
partners holding a majority interest in the Common L.P. Units will also be
required with respect to the liquidation of the Operating Partnership, the sale
or other transfer of all or substantially all of the assets of the Operating
Partnership and certain mergers and business combinations resulting in the
complete disposition of all Common L.P. Units.
Holders of Preferred L.P. Units will have no voting rights except as
described under "Description of the Series A Preferred L.P. Units -- Voting
Rights."
The Company has unilateral control over the Operating Partnership but The
Irvine Company and its nominees to the Company's Board of Directors will have
substantial influence over the affairs of the Company
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and thus the Operating Partnership. The Partnership Agreement prohibits the
Operating Partnership from lending money to any Irvine Person.
TRANSFER OF L.P. UNITS
The Preferred L.P. Units held by the Trust as trust assets may not be
transferred except to a successor entity as provided under "Description of the
Series A Preferred Securities -- Merger, Consolidation or Amalgamation of the
Trust."
The Partnership Agreement provides that limited partners may transfer their
Common L.P. Units subject to certain limitations. Other than transfers to or
among The Irvine Company or affiliates of The Irvine Company, transfers
resulting from a dividend or other distribution by The Irvine Company to its
stockholders or pledges securing loans made by financial institutions, holders
of Common L.P. Units may only transfer their Common L.P. Units to a purchaser
who is an accredited investor within the meaning of Regulation D under the
Securities Act.
In addition, no transfer of Common L.P. Units by the limited partners may
be made in violation of certain regulatory and other restrictions set forth in
the Partnership Agreement. Any other transfers may be made only with the prior
written consent of the Company as the sole general partner of the Operating
Partnership. Other than with respect to transfers to or among The Irvine Company
or affiliates of The Irvine Company, transfers resulting from a dividend or
other distribution by The Irvine Company to its stockholders or pledges securing
loans made by financial institutions, the Exchange Rights and the Cash Tender
Rights will no longer be applicable to Common L.P. Units so transferred and the
transferee will not have any rights to nominate persons to the Board of
Directors of the Company.
ISSUANCE OF ADDITIONAL L.P. UNITS
As general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional G.P. Units and
L.P. Units in the Operating Partnership. In addition, in the event of the
exercise of an option or the delivery of stock pursuant to the 1993 Stock Plan,
the 1996 Stock Plan, the 1993 Stock Plan for Directors and the Company's
Dividend Reinvestment and Additional Cash Investment Plan, the Operating
Partnership will issue additional G.P. Units to the Company. See "Policies With
Respect to Certain Activities -- Operating Partnership -- Financing Policies"
for certain participation rights granted to The Irvine Company in connection
with issuances of L.P. Units.
EXCHANGE RIGHTS
The Irvine Company and certain related persons have the right (subject to
the ownership limit provision of the Company's Articles of Incorporation
applicable to The Irvine Company), exercisable once in each twelve-month period,
to exchange up to one-third of the number of Common L.P. Units owned by them for
shares of Common Stock or if The Irvine Company and certain related persons own
6,149,000 Common L.P. Units or less, then they may, subject to such ownership
limit provision, exchange all of their Common L.P. Units for shares of Common
Stock. As of October 31, 1997, The Irvine Company and its affiliates owned
24,199,080 Common L.P. Units in the aggregate. The exchange ratio is one share
of Common Stock for each Common L.P. Unit, subject to adjustment in certain
events, including the Company paying a dividend or making a distribution on the
Common Stock in shares of Common Stock and subdivisions and combinations of the
Common Stock. Common L.P. Units that are acquired by the Company pursuant to the
exercise of Exchange Rights will be converted automatically into G.P. Units in
the Operating Partnership.
The exercise of Exchange Rights is subject to (i) the expiration or
termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, and (ii) the satisfaction
of the applicable ownership limit provision of the Articles of Incorporation,
after giving effect to the exchange. For purposes of determining the number of
Common L.P. Units which may be exchanged for shares of Common Stock pursuant to
the Exchange Rights at any point in time, there shall be taken into account the
number of issued and outstanding shares of Common Stock which are beneficially
owned by The Irvine Company and its affiliates at such time. Accordingly,
beneficial ownership by The Irvine Company and its
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affiliates of shares of Common Stock reduces the number of Common L.P. Units
which may be exchanged pursuant to the Exchange Rights at any point in time.
CASH TENDER RIGHTS
The Irvine Company and certain related persons have the right, exercisable
once in any twelve-month period, subject to certain limitations, to sell to the
Company for cash up to one-third of the number of Common L.P. Units owned by
them or if The Irvine Company and certain related persons own 6,149,000 Common
L.P. Units or less, then they may tender all of their Common L.P. Units to the
Company. Common L.P. Units that are acquired by the Company as a result of the
exercise of Cash Tender Rights will be converted automatically into G.P. Units
in the Operating Partnership.
The Company will have to pay for such Common L.P. Units solely out of the
proceeds of a registered offering of newly issued shares of Common Stock. The
price payable for a Common L.P. Unit tendered will be equal to the average of
the daily market prices for the Common Stock for the 10 consecutive trading days
immediately preceding the date of receipt by the Company of a notice of cash
tender (each Common L.P. Unit being equivalent to one share of Common Stock,
subject to adjustment as described above), except that the purchase price for
such Common L.P. Units will be reduced by any decrease in the price of the
Common Stock that occurs between the exercise date and the pricing of the Common
Stock being sold pursuant to the registered offering and underwriting discounts
and commissions. The Irvine Company will thus bear the risk of any such
reduction, subject to certain withdrawal rights. Any proceeds in excess of the
purchase price will be for the sole benefit of the Company. The Company shall be
required to promptly file with the Commission a registration statement with
respect to any registered offering.
After an exercise of Cash Tender Rights, The Irvine Company may not
exercise its Cash Tender Rights until 90 days after the completion of the
registered offering of shares of Common Stock if applicable.
FUNDING OF INVESTMENTS
The Partnership Agreement provides that if the Operating Partnership
requires additional funds to pursue its investment objectives, the Company may
fund such investments by raising additional equity capital and making a capital
contribution to the Operating Partnership or by borrowing such funds and lending
the net proceeds thereof to the Operating Partnership. If the Company funds an
investment as a contribution to capital and purchase of G.P. Units or lends
funds to the Operating Partnership, the holders of Common L.P. Units (subject to
certain minor exceptions) will have the right to participate in such funding or
loan on a pro rata basis. In the event that such holders do not participate in
such funding, the Company's interest in the Operating Partnership will be
increased based upon the amount of such additional capital contributions and the
value of the Operating Partnership at the time of such contributions. See
"Policies With Respect to Certain Activities -- Operating
Partnership -- Financing Policies." The amount of any such loan may be limited
by the requirement that the Company derive at least 75% of its gross income from
certain investments related to real property. See "Certain Federal Income Tax
Consequences."
TAX ACCOUNTING
The Operating Partnership has a taxable year ending on December 31,
pursuant to a Code provision that requires a partnership to adopt the same tax
year as its majority in interests partner.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2092 or until sooner dissolved pursuant to the terms of the
Partnership Agreement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax considerations
regarding an investment in Series A Preferred Securities is based on current law
and is for general information only. See "Recent Legislation Applicable to
REITs," below, for a discussion of changes to the Code made by the Taxpayer
Relief Act of 1997. Such changes generally do not apply to the Trust until its
taxable year beginning January 1, 1998. This discussion addresses initial
holders only, and does not purport to deal with all aspects of taxation that may
be relevant to particular investors in light of their personal investment or tax
circumstances, or, except to the extent discussed under the headings "Taxation
of Tax-Exempt Holders" and "Taxation of Foreign Holders" below, to certain types
of investors (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) that are subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF
PREFERRED SECURITIES AND OF THE TRUST'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN INCOME AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION.
TAXATION OF THE TRUST
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the provisions of the Code that
govern the federal income tax treatment of a REIT and its beneficial owners.
This summary is qualified in its entirety by the applicable Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change which may apply
retroactively.
The Trust will elect to be taxed as a REIT under the Code commencing with
its taxable year ending December 31, 1998, and the Trust intends to operate so
as to qualify as a REIT. In the opinion of Davis Polk & Wardwell, commencing
with the Trust's taxable year ending December 31, 1998, the Trust will be
treated as being organized in conformity with the requirements for qualification
as a REIT, and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion is based and conditioned upon certain assumptions
and representations made by the Trust and the Company as to factual matters
concerning the business and properties as set forth in this Prospectus. The
opinion is expressed as of its date and Davis Polk & Wardwell has no obligation
to advise holders of Preferred Securities of any subsequent change in the
matters stated, represented or assumed or any subsequent change in the
applicable law. Moreover, qualification and taxation as a REIT depends upon the
Trust's ability to meet, through actual annual operating results, distribution
levels, diversity of ownership and various other qualification tests imposed
under the Code (as discussed below), the results of which will not be reviewed
by Davis Polk & Wardwell. Accordingly, no assurance can be given that the actual
results of the Trust's operation for any one taxable year will satisfy such
requirements. See "-- Failure to Qualify." An opinion of counsel is not binding
on the Internal Revenue Service (the "IRS"), and no assurance can be given that
the Service will not challenge the Trust's eligibility for taxation as a REIT.
If the Trust qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to holders of Trust Securities. This treatment substantially
eliminates the "double taxation" (at the corporate and stockholder levels) that
generally results from investment in an entity that is taxable as a corporation.
However, the Trust will be subject to federal income tax as follows: First, the
Trust will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains, if any. Second, under certain
circumstances, the Trust may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if the Trust has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fourth, if the Trust should fail to satisfy the 75% gross income test or the
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95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Trust fails the 75% or
95% test multiplied by (b) a fraction intended to reflect the Trust's
profitability. Fifth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. In addition, the Trust could also be subject to tax in
certain situations and on certain transactions not presently contemplated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or Directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for the special Code provisions applicable to REITs;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) in which, during the last half of each taxable year,
not more than 50% in value of the outstanding stock is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) which meets certain other tests described below
(including with respect to the nature of its income and assets). The Code
provides that conditions (1) to (4), inclusive, must be met during the entire
taxable year, and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. The Declaration provides for restrictions regarding the
transfer of Preferred Securities, which provisions are intended to assist the
Trust in continuing to satisfy the ownership requirements described in
conditions (5) and (6) above. Such transfer restrictions are described in
"Description of the Series A Preferred Securities -- Restrictions on Ownership
and Transfer of Series A Preferred Securities."
To monitor the Trust's compliance with the ownership requirements, the
Trust is required to maintain records regarding the actual ownership of the
Trust Securities. To do so, the Trust must demand written statements each year
from the record holders of certain percentages of Trust Securities in which the
record holders are to disclose the actual owners of the securities (i.e., the
persons required to include in gross income the REIT dividends). A list of those
persons failing or refusing to comply with this demand must be maintained as
part of the Trust's records. A holder of Trust Securities who fails or refuses
to comply with the demand must submit a statement with its tax return disclosing
the actual ownership of the securities and certain other information.
In addition, a corporation or trust may not elect to become a REIT unless
its taxable year is the calendar year. The Trust satisfies this requirement.
Ownership of Partnership Interests. In the case of a REIT that is a partner
in a partnership, regulations provide that the REIT will be deemed to own its
proportionate share of the partnership's assets and to earn its proportionate
share of the partnership's income. In addition, the assets and gross income of
the partnership retain the same character in the hands of the REIT for purposes
of the gross income and asset tests applicable to REITs as described below.
Thus, the Trust's proportionate share of the assets, liabilities and items of
income of the Operating Partnership will be treated as assets, liabilities and
items of income of the Trust for purposes of applying the REIT requirements
described below. A summary of the rules governing the federal income taxation of
partnerships and their partners is provided below in "-- Tax Aspects of the
Trust's Investment in the Operating Partnership."
Income Tests. In order to maintain qualification as a REIT, the Trust
annually must satisfy three gross income requirements. First, at least 75% of
the Trust's gross income (excluding gross income from "prohibited transactions,"
i.e., certain sales of property held primarily for sale to customers in the
ordinary course of business) for each taxable year must be derived directly or
indirectly from investments in real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property
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investments, and from other dividends, interest and gain from the sale or
disposition of stock or securities (or from any combination of the foregoing).
Rents received by the Trust through the Operating Partnership will qualify
as "rents from real property" in satisfying the gross income requirements
described above only if several conditions are met, including the following. If
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an "independent contractor" from which the REIT derives no revenue.
However, the Trust or its affiliates are permitted to, and do directly perform
services that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered rendered to
the occupant of the property.
If the Trust fails to satisfy one or both of the 75% or 95% gross income
tests (though not the 30% gross income test) for any taxable year, it may
nevertheless qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will be generally
available if the Trust's failure to meet such tests was due to reasonable cause
and not due to willful neglect, the Trust attaches a schedule of the sources of
its income to its return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances the Trust would be entitled to the benefit of these
relief provisions. If these relief provisions are inapplicable to a particular
set of circumstances involving the Trust, the Trust will not qualify as a REIT.
As discussed above, even where these relief provisions apply, a tax is imposed
with respect to the excess net income.
Asset Tests. The Trust, at the close of each quarter of its taxable year,
must also satisfy two tests relating to the nature of its assets. First, at
least 75% of the value of the Trust's total assets must be represented by real
estate assets (including its allocable share of real estate assets held by the
Operating Partnership), stock or debt instruments held for not more than one
year purchased with the proceeds of an offering of beneficial interests of the
Trust, cash, cash items and government securities. Second, the remaining 25% of
the Trust's total assets may be invested in securities, subject to the following
restrictions: (i) the value of any one issuer's securities owned by the Trust
may not exceed 5% of the value of the Trust's total assets, and (ii) the Trust
may not own more than 10% of any one issuer's outstanding voting securities. The
Trust does not intend to invest in securities other than Preferred L.P. Units
and certain interest bearing obligations.
Annual Distribution Requirements. The Trust, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
beneficial owners in an amount at least equal to (A) the sum of (i) 95% of the
Trust's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Trust's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the Trust
timely files its tax return for such year and if paid with or before the first
regular dividend payment after such declaration. To the extent that the Trust
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its "REIT taxable income," as adjusted, it will be subject to
tax thereon at the capital gains or ordinary corporate tax rates, as the case
may be. Furthermore, if the Trust should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. The Trust intends to make timely distributions sufficient to
satisfy this annual distribution requirement.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
holders of Trust Securities in a later year, which may be included in the
Trust's deduction for dividends paid for the earlier year. Thus, the Trust may
be able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Trust will be required to pay interest based on the amount of any
deduction taken for deficiency dividends.
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Failure to Qualify. If the Trust fails to qualify for taxation as a REIT in
any taxable year, and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to beneficial owners in any
year in which the Trust fails to qualify will not be deductible by the Trust nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to beneficial owners will be
taxable as ordinary income, and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Trust will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Trust would be entitled to such statutory
relief.
TAX ASPECTS OF THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP
General. In the opinion of Davis Polk & Wardwell under current law the
Trust, and not the holders of the Preferred Securities, will be treated as the
owner of the Preferred L.P. Units for federal income tax purposes. Accordingly,
the Trust will include in its income its proportionate share of partnership
items for purposes of the various REIT income tests. Moreover, for purposes of
the REIT asset tests, the Trust will include its proportionate share of assets
held by the Operating Partnership. See "-- Taxation of the Trust -- Ownership of
Partnership Interests."
Sale of the Properties. The Trust's share of any gain realized by the
Operating Partnership on the sale of any property held as inventory or primarily
for sale to customers in the ordinary course of business will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax. See
"--Taxation of the Trust -- Requirements for Qualification" and "-- Taxation of
the Trust -- Income Tests." Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a
partnership's trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold the Properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Properties (and other apartment properties) and to
make such occasional sales of the Properties, including peripheral land, as are
consistent with the Trust's investment objectives.
TAXATION OF TAXABLE DOMESTIC HOLDERS
General. As long as the Trust qualifies as a REIT, distributions made to
the Trust's taxable domestic holders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
that they do not exceed the Trust's actual net capital gain for the taxable
year) without regard to the period for which the holder has held its Preferred
Security. It is expected that all distributions from the Trust will be
designated as ordinary income.
Gain from the sale of Preferred Securities will be included in income as
capital gain assuming the securities are a capital asset in the hands of the
holder. Capital gains of individuals derived in respect of capital assets held
for more than one year are eligible for reduced rates of taxation depending upon
the holding period of such assets. In addition, any dividend declared by the
Trust in October, November or December of any year and payable to a holder of
record on a specified date in any such month shall be treated as both paid by
the Trust and received by the holder on December 31 of such year, provided that
the dividend is actually paid by the Trust during January of the following
calendar year.
In general, any loss upon a sale or exchange of shares by a holder who has
held such shares for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust required to be treated by such holder as long-term
capital gain.
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RECENT LEGISLATION APPLICABLE TO REITS
The Taxpayer Relief Act of 1997 enacted on August 5, 1997 (the "Act") made
various changes to the Code, including to the provisions that govern the federal
income tax treatment of REITs. These changes to the REIT provisions are
generally effective for taxable years beginning after the date of the enactment
of the Act. For most REITs, including the Trust, these changes to the REIT
provisions are therefore not effective until taxable years beginning on January
1, 1998.
Changes to the REIT provisions under the Act include the following. First,
a REIT will be able to provide certain services directly without disqualifying
all of the rent from the property where the services are provided if the amount
treated as received for those services does not exceed 1% of the gross income
from the property. Second, a REIT's wholly-owned subsidiary will be treated as a
"qualified REIT subsidiary" even where the REIT had not always owned that
subsidiary. Third, the Act repeals the requirement that a REIT must derive less
than 30% of its gross income from the sale of stock or securities held for less
than one year, real property held less than four years, and property sold or
disposed of in a "prohibited transaction." Finally, a REIT will be able to elect
to retain and pay income tax on net long-term capital gains. In that event, REIT
shareholders would include in income their share of the long-term capital gains
retained by the REIT and would receive a credit for their share of the taxes
paid by the REIT.
TAXATION OF TAX-EXEMPT HOLDERS
Based upon a published IRS ruling, distributions by the Trust to a holder
that is a tax-exempt entity will not constitute "unrelated business taxable
income" ("UBTI"), provided that the tax-exempt entity has not financed the
acquisitions of its shares with "acquisition indebtedness" within the meaning of
the Code and the Preferred Securities are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the
dividends paid by the Trust may be treated as UBTI to certain domestic private
pension trusts if the Trust is treated as a "pension-held REIT." The Trust does
not expect to become a "pension-held REIT." If the Trust were to become a
pension-held REIT, these rules generally would only apply to certain pension
trusts that hold more than 10% of the Trust's stock.
TAXATION OF FOREIGN HOLDERS
The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of the Preferred
Securities applicable to Non-U.S. Holders of such securities. A "Non-U.S.
Holder" is any holder other than (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any state thereof, (iii) an estate
whose income is includible in gross income for U.S. federal income tax purposes
regardless of its source, or (iv) a trust whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source. The
discussion is based on current law and is for general information only. The
discussion addresses only certain and not all aspects of U.S. federal income and
estate taxation.
Recently issued United States Treasury Regulations (the "New Withholding
Tax Regulations") will be effective with respect to dividends paid after
December 31, 1998, subject to certain transition rules. The discussion below is
not intended to be a complete discussion of the New Withholding Tax Regulations,
and prospective investors are urged to consult their tax advisors with respect
to the effect the New Withholding Tax Regulations would have if adopted.
Distributions From the Trust
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of the Trust's current and accumulated earnings and profits
that is not attributable to capital gains of the Trust and that is not
effectively connected with a U.S. trade or business of the Non-U.S. Holder will
be subject to U.S. withholding tax at the rate of 30% (unless reduced by
treaty). In general, Non-U.S. Holders will not be considered engaged in a U.S.
trade or business solely as a result of their ownership of Preferred Securities.
In
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cases where the dividend income from a Non-U.S. Holder's investment in Preferred
Securities is (or is treated as) effectively connected with the Non-U.S.
Holder's conduct of a U.S. trade or business, the Non-U.S. Holder generally will
be subject to U.S. tax at graduated rates, in the same manner as a U.S. Holders
are taxed with respect to such dividends (and may also be subject to the 30%
branch profits tax in the case of a Non-U.S. Holder that is a foreign
corporation).
Under the New Withholding Tax Regulations, to obtain a reduced rate of
withholding under a treaty, a Non-U.S. Holder will generally be required to
provide an IRS Form W-8 certifying such Non-U.S. Holder's entitlement to
benefits under the treaty. The New Withholding Tax Regulations will also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an
entity should be treated as paid to the entity or those holding an interest in
that entity.
2. Capital Gain Dividends. Although the Operating Partnership intends to
allocate only ordinary income to the Trust, the IRS could take the position, in
the event the Operating Partnership sells property at a gain, that a portion of
the gain should be allocated to the Trust. Under the Foreign Investment in Real
Property Act of 1980 ("FIRPTA"), a distribution made by the Trust to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the Properties ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or business
of the Non-U.S. holder and subject to U.S. income tax at the rate applicable to
U.S. individuals and corporations, without regard to whether the distribution is
designated by the Trust as a capital gain dividend. In addition, the Trust will
be required to withhold tax equal to 35% of the amount of dividends to the
extent the dividends constitute USRPI Capital Gains. Distributions subject to
FIRPTA may also be subject to a 30% branch profits tax in the hands of a foreign
corporate holder that is not entitled to treaty exemption.
Disposition of Stock of the Trust. Unless the Trust's stock constitutes a
USRPI, a sale of such stock by a Non-U.S. Holder generally will not be subject
to U.S. taxation under FIRPTA. The stock will not constitute a USRPI if the
Trust is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which, at all times during a specified testing period, less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Holders.
If the Trust does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of Preferred Securities generally will still not be subject to tax
under FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the NYSE, on which the Preferred Securities will be
listed) and (ii) the selling Non-U.S. Holder held 5% or less of the Trust's
outstanding stock at all times during a specified testing period.
If gain on the sale of Preferred Securities were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to taxation in accordance with
Section 897 of the Code, and the purchaser of the Preferred Securities could be
required to withhold 10% of the purchase price and remit such amount to the IRS.
Capital gains on the sale of Preferred Securities that are not subject to
FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in
two cases: (i) if the Non-U.S. Holder's investment in Preferred Securities is
effectively connected with a U.S. trade or business conducted by the Non-U.S.
Holder, the Non-U.S. Holder will generally be subject to the same treatment as a
U.S. Holder with respect to such gain; and (ii) if the Non-U.S. Holder is a
nonresident alien who was present in the United States for 183 days or more
during the taxable year and certain other requirements are met, the nonresident
alien individual will be subject to a 30% tax on the individual's capital gain.
Estate Tax. Preferred Securities owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. federal estate
tax purposes) of the United States at the time of death will be includible in
the individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may be
subject to U.S. federal estate tax on the property includible in the estate for
U.S. federal estate tax purposes.
Information Reporting and Backup Withholding. The Trust must report
annually to the Service and to each Non-U.S. Holder the amount of dividends
(including any capital gain dividends) paid to, and the tax
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withheld with respect to, each Non-U.S. Holder. These reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these returns may also be made available under
the provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.
Under current law, U.S. backup withholding (which generally is imposed at
the rate of 31% on certain payments to persons that fail to furnish the
information required under the U.S. information reporting requirements) and
information reporting will generally not apply to dividends (including any
capital gain dividends) paid on Preferred Securities to a Non-U.S. Holder at an
address outside the United States.
The New Withholding Tax Regulations will alter the foregoing rules in
certain respects. Among other things, the New Withholding Tax Regulations will
provide certain presumptions under which a Non-U.S. Holder would be subject to
backup withholding and information reporting unless the Trust receives
certification from the holder of its non-U.S. status.
The payment of the proceeds from the disposition of Preferred Securities to
or through a U.S. office of a broker will be subject to information reporting
and backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting.
OTHER TAX CONSEQUENCES
Possible Legislative or Other Actions Affecting Tax
Consequences. Prospective holders of Preferred Securities should recognize that
the present federal income tax treatment of an investment in the Trust may be
modified by legislative, judicial or administrative action at any time, and that
any such action may affect investments and commitments previously made.
Revisions in federal tax laws and interpretations thereof could adversely affect
the tax consequences of an investment in the Trust.
State and Local Taxes. The Trust and its holders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
it, the Operating Partnership or they transact business or reside. The state and
local tax treatment of the Trust and its holders may not conform to the federal
income tax consequences discussed above. Consequently, prospective holders of
Preferred Securities should consult their tax advisors regarding the effect of
state and local tax laws on an investment in the Trust.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the Underwriters
named below, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated and Salomon Brothers are
acting as representatives (collectively, the "Representatives"), has severally
agreed to purchase the number of Series A Preferred Securities set forth
opposite its name below. In the Purchase Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Series A Preferred Securities offered hereby if any of the Series A
Preferred Securities are purchased. In the event of default by an Underwriter,
the Purchase Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting Underwriters may be increased or the Purchase
Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Goldman, Sachs & Co. .............................................................
J.P. Morgan Securities Inc. ......................................................
Morgan Stanley & Co. Incorporated.................................................
Salomon Brothers .................................................................
---------
Total................................................................ 6,000,000
=========
</TABLE>
The Representatives have advised the Trust that the Underwriters propose to
offer the Series A Preferred Securities in part directly to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and in part to certain securities dealers at such price less a concession not in
excess of $ per Series A Preferred Security. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
Series A Preferred Security to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to of the Series A Preferred
Securities offered hereby to be sold to certain officers, directors and
employees of the Company. The number of Series A Preferred Securities available
for sale to the general public will be reduced to the extent such persons
purchase such reserved Series A Preferred Securities. Any Series A Preferred
Securities which are not orally confirmed for purchase within one day of the
pricing of the Offering will be offered by the Underwriters to the general
public on the same terms as the other Series A Preferred Securities offered
hereby.
The Trust has granted an option to the Underwriters, exercisable for a
period of 30 days after the date of this Prospectus, to purchase up to 900,000
additional Series A Preferred Securities solely to cover overallotments, if any,
at the price to public, less the underwriting discount set forth on the cover
page of this Prospectus. If the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of Series A
Preferred Securities to be purchased by it in the foregoing table bears to the
6,000,000 Series A Preferred Securities initially offered hereby.
Since the proceeds of the sale of Series A Preferred Securities will be
used to purchase the Series A Preferred L.P. Units of the Operating Partnership,
the Purchase Agreement provides that the Operating Partnership will pay as
compensation ("Underwriters' Compensation") for the Underwriters' arranging the
investment therein of such proceeds, an amount in immediately available funds of
$ per Series A Preferred Security (or $ in the aggregate)
($ in the aggregate if the Underwriters' over allotment option is
exercised in full) for the accounts of the several Underwriters.
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The Trust and the Operating Partnership, have agreed that they will not,
directly or indirectly, for a period of 90 days after the date of the Purchase
Agreement, except with the prior written consent of Merrill Lynch, offer, sell,
or enter into any agreement to sell, or otherwise dispose of (a) any securities
of the Trust (other than the Series A Preferred Securities offered hereby and
the Common Securities) and (b) any Preferred L.P. Units (other than the Series A
Preferred L.P. Units to be sold to the Trust as described in this Prospectus) or
any other security of the Operating Partnership that is substantially similar to
the Series A Preferred L.P. Units.
Application has been made to list the Series A Preferred Securities on the
NYSE under the symbol "IAC Pr A." If approved for listing, trading of the Series
A Preferred Securities on the NYSE is expected to commence within 30 days after
initial delivery of the Series A Preferred Securities. The Representatives have
advised the Trust that they intend to make a market in the Series A Preferred
Securities prior to the commencement of trading on the NYSE. The Representatives
will have no obligation to make a market in the Series A Preferred Securities,
however, and may cease market making activities, if commenced, at any time.
Prior to this Offering, there has been no public market for the Series A
Preferred Securities. In order to meet one of the requirements for listing the
Series A Preferred Securities on the NYSE, the Underwriters will undertake to
sell lots of 100 or more Series A Preferred Securities to a minimum of 400
beneficial holders.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
The Underwriters have informed the Trust that the Underwriters do not
intend to confirm sales accounts over which they exercise discretionary
authority in excess of 5%.
Until the distribution of the Series A Preferred Securities is completed,
rules of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Series A Preferred Securities.
As an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Series A Preferred
Securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Series A Preferred Securities.
If the Underwriters create a short position in the Series A Preferred
Securities in connection with the Offering, i.e., if they sell more shares of
Series A Preferred Securities than are set forth on the cover page of this
Prospectus, the Representatives may reduce that short position by purchasing
Series A Preferred Securities in the open market. The Representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Series A Preferred Securities in the open market to reduce the
Underwriters' short position or to stabilize the price of the Series A Preferred
Securities, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
discourage resales of the security.
Neither the Trust nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Series A Preferred Securities. In
addition, neither the Trust nor any of the Underwriters makes any representation
that the Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Trust has been advised that affiliates of Salomon Brothers may be
deemed to own approximately 977,627 shares of the Common Stock of the Company,
representing approximately 4.92% of the outstanding shares of Common stock of
the Company.
Each of the Underwriters engages in transactions with, and from time to
time has performed services for, the Company and the Operating Partnership in
the ordinary course of business. J.P. Morgan Securities Inc.,
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one of the Underwriters, is syndication agent, and Morgan Guaranty Trust Company
of New York, an affiliate of J.P. Morgan Securities Inc., is a lender, under the
Credit Facility. Approximately $ million of the net proceeds from the
Offering will be used to repay Morgan Guaranty Trust Company of New York for a
portion of the outstanding borrowings of the Operating Partnership under the
Credit Facility. See "Use of Proceeds." Since the amount to be repaid to Morgan
Guaranty Trust Company of New York exceeds 10% of the net proceeds from the sale
of the Series A Preferred Securities, the offering of the Series A Preferred
Securities is being made pursuant to the provisions of Rule 2710(c)(8) of the
Conduct Rules of the National Association of Securities Dealers, Inc. See
"Certain Relationships and Related Transactions -- Other Transactions."
EXPERTS
The balance sheet of IAC Capital Trust at October 31, 1997 and the
consolidated financial statements of Irvine Apartment Communities, L.P. at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included herein in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The statement of revenues and certain operating expenses of The Villas of
Renaissance for the year ended December 31, 1996, appearing in this Prospectus
and Registration Statement has been audited by Deloitte & Touche LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and is included herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Series A Preferred Securities offered hereby will be
passed upon for the Trust by Skadden, Arps, Slate, Meagher & Flom LLP,
Wilmington, Delaware. The validity of the Series A Preferred L.P. Units will be
passed upon for the Operating Partnership by Davis Polk & Wardwell, New York,
New York. Davis Polk & Wardwell and Skadden, Arps, Slate, Meagher & Flom LLP
will rely as to matters of Maryland law on Piper & Marbury L.L.P., Baltimore,
Maryland. Certain legal matters relating to the offering of the Series A
Preferred Securities will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California.
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ADDITIONAL INFORMATION
The Trust and the Operating Partnership have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (of which this
Prospectus forms a part) on Form S-11 under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules hereto. For further information
regarding the Trust, the Operating Partnership and the Series A Preferred
Securities offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules.
The Operating Partnership and the Company are each subject to, and
following this offering, the Trust will be subject to, the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file or will file reports and other
information with the Commission. Reports, proxy statements and other information
filed by the Company, the Operating Partnership or the Trust with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
its Regional Offices located at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and at Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
listed on the NYSE and the Pacific Stock Exchange, Inc. (the "Pacific Stock
Exchange"). In addition, reports, proxy statements and other information
concerning the Company can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 and at the offices of the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
Upon request, the Trust intends to furnish its securityholders with annual
reports containing consolidated financial statements of the Trust and the
Operating Partnership audited by their respective independent auditors and with
quarterly reports of the Trust and the Operating Partnership containing
unaudited condensed consolidated financial statements for each of the three
quarters of each fiscal year.
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GLOSSARY
"ACM" means asbestos-containing material.
"Act" means the Taxpayer Relief Act of 1997.
"ADA" means the Americans with Disabilities Act.
"Appointment Event" means the failure of the Trust to make distributions in
full on the Series A Preferred Securities for six consecutive quarterly
distribution periods.
"Articles of Incorporation" means the Articles of Amendment and Restatement
of the Company.
"Beneficial Owner" means an actual purchaser of each Preferred Security.
"Business Day" means any day other than Saturday, Sunday or any other day
on which banking institutions in New York, New York or Los Angeles, California
are authorized or required by any applicable law to close.
"Business Trust Act" means the Delaware Business Trust Act.
"Bylaws" means the bylaws of the Company.
"Cash Tender Rights" means the right of holders of Common L.P. Units,
exercisable once in each twelve month period beginning December 8 of each year,
generally to tender to the Company for cash up to one-third of the Common L.P.
Units owned by such parties.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common L.P. Units" means the regular limited partner interests in the
Operating Partnership.
"Common Securities" means the common securities of the Trust.
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Communities Under Construction" means four apartment communities
aggregating 1,110 units under construction as of September 30, 1997.
"Company" means Irvine Apartment Communities, Inc., a Maryland corporation
and the sole general partner of the Operating Partnership.
"Credit Facility" means the Operating Partnership's $250 million revolving
credit facility.
"Creditor" means any person to whom any debts, obligations, costs, expenses
and taxes are owed by the Operating Partnership.
"Declaration" means the declaration of trust of the Trust, as amended and
restated as of the initial date of issuance of the Series A Preferred
Securities.
"Delaware Trustee" means an affiliate of The Bank of New York that has its
principal place of business in the State of Delaware.
"Direct Participants" means direct Participants in DTC, including
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations.
"DTC" means the Depository Trust Company.
"Excess Preferred Securities" means a separate class of preferred
securities of the Trust that shall be deemed to have been transferred to a
person as trustee of a trust for the exclusive benefit of one or more charitable
organizations designated by the Regular Trustees if Series A Preferred
Securities in excess of the Ownership Limit are issued or transferred to any
person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Rights" means the right of holders of Common L.P. Units,
exercisable once in each twelve month period beginning December 8 of each year,
generally to exchange (subject to the applicable ownership limit provision in
the Articles of Incorporation) up to one third of the Common L.P. Units owned by
such parties for shares of Common Stock.
"Existing Communities" means the 51 high-quality apartment communities
aggregating 14,991 units owned and operated by the Operating Partnership as of
September 30, 1997.
"FAD" means funds available for distribution.
"FHA" means the Fair Housing Amendments Act of 1988.
"FIRPTA" means the Foreign Investment in Real Property Act of 1980.
"GAAP" means generally accepted accounting principles.
"G.P. Units" means the general partnership interest in the Operating
Partnership.
"HAP" means Housing Assistance Payments.
"HUD" the U.S. Department of Housing and Urban Development.
"Independent Directors" means the five members of the Board of Directors of
the Company who are unaffiliated with The Irvine Company and Mr. Bren and who
have not been employed by The Irvine Company within the previous five years.
"Independent Directors Committee" means a committee consisting solely of
the Independent Directors.
"Indirect Participants" means indirect Participants in DTC, such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly.
"Initial Public Offering" means the Company's initial public offering of
Common Stock in December 1993.
"Investment Company Event" means that the Operating Partnership and the
Regular Trustees shall have received an opinion of nationally recognized
independent counsel experienced in practice under the 1940 Act, that as a result
of the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), there is more than
an insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the 1940 Act, which Change in
1940 Act Law becomes effective on or after the date of this Prospectus.
"IRS" means the United States Internal Revenue Service.
"Irvine Company Board Representative" means any of three persons nominated
for election to the Board of Directors of the Company so long as The Irvine
Company, its stockholders or affiliates beneficially own at least 20% of the
outstanding Common Stock of the Company.
"Irvine Persons" means The Irvine Company, its shareholders and affiliates
and Mr. Bren and his affiliates.
"Irvine Ranch Properties" means fifty-three of the Properties aggregating
14,836 units which are or will be located on the Irvine Ranch, of which 50
constitute Existing Communities (14,068 units) and three constitute Communities
Under Construction (768 units).
"Junior OP Units" means the Common L.P. Units, the G.P. Units and any other
series of outstanding Preferred L.P. Units of the Operating Partnership ranking
junior as to the payment of distributions to the Series A Preferred L.P. Units.
"Junior Securities" means the Common Securities or any other series of
outstanding Preferred Securities ranking junior as to the payment of
distributions to the Series A Preferred Securities.
108
<PAGE> 110
"Land Rights Agreement" means the Exclusive Land Rights and Non-Competition
Agreement, as amended, among the Company, the Operating Partnership, The Irvine
Company and Mr. Bren.
"Liquidation Distribution" means an amount per Series A Preferred Security
equal to $25 per Series A Preferred Security plus accrued and unpaid
distributions thereon to the date of payment.
"L.P. Units" means the Common L.P. Units and the Preferred L.P. Units.
"Master Plan" means the comprehensive master plan for the future
development of the Irvine Ranch under which the master-planned community located
on the Irvine Ranch has been developed over the past 30 years.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Named Executive Officers" means the Company's former chief executive
officer who resigned in February 1997, the four other most highly compensated
executive officers who were serving as executive officers at the end of 1996
(including the Company's former Senior Vice President and Treasurer who resigned
in March 1997) and the Company's former Executive Vice President and Chief
Financial Officer who resigned in December 1996.
"New Withholding Tax Regulations" means recently issued United States
Treasury Regulations effective with respect to dividends paid after December 31,
1998, subject to certain transition rules.
"Non-U.S. Holder" means any holder other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof,
(iii) an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source, or (iv) a trust whose income is
includible in gross income for U.S. federal income tax.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of the Series A Preferred Securities pursuant
to the Prospectus.
"OP Audited Financial Statements" means the Operating Partnership's
Consolidated Financial Statements and the Notes thereto for the years ended
December 31, 1996, 1995 and 1994.
"OP Unaudited Quarterly Financial Statements" means the Operating
Partnership's Unaudited Condensed Consolidated Financial Statements and the
Notes thereto for the nine months ended September 30, 1997 and 1996.
"Operating Partnership" means Irvine Apartment Communities, L.P., a
Delaware limited partnership.
"Ownership Limit" means the restriction on ownership of more than 9.8% of
the outstanding Series A Preferred Securities.
"Pacific Stock Exchange" means the Pacific Stock Exchange, Inc.
"Participants" means participants in DTC.
"Partnership Agreement" means the second amended and restated agreement of
limited partnership of the Operating Partnership.
"Predecessor" means the Operating Partnership's predecessor.
"Preferred L.P. Units" means the Series A Preferred L.P. Units and any
additional series of preferred limited partner interests issued by the Operating
Partnership.
"Preferred Securities" means the Series A Preferred Securities and any
additional series of preferred securities issued by the Trust.
"Preferred Security Indirect Owners" means persons owning a beneficial
interest in Series A Preferred Securities.
109
<PAGE> 111
"Properties" means the Communities Under Construction and the Existing
Communities.
"Property Account" means one or more segregated non-interest bearing bank
accounts to hold, subject to the priority and payment terms of the Preferred
Securities, all payments in respect of the Preferred L.P. Units purchased by the
Trust for the benefit of the holders of the Preferred Securities.
"Property Trustee" means The Bank of New York.
"Purchase Agreement" means a purchase agreement to be entered into among
the Trust, the Operating Partnership, the Company and the Representatives
relating to the offering of the Series A Preferred Securities.
"Redemption Price" means $25 per Series A Preferred Security plus
accumulated and unpaid distributions thereon.
"Regular Trustees" means one or more of the Trustees who is an officer of
the Company.
"REIT" means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code, or any successor provisions thereof.
"Representatives" means Merrill Lynch, Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated and Salomon Brothers, acting
as representatives for the Underwriters.
"Required Directors" means directors of the Company representing more than
75% of the Company's Board of Directors as a whole.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Distribution Payment Date" means , , and
of each year, commencing on , 1998.
"Series A Preferred L.P. Unit Distribution Payment Date" means ,
, and of each year, commencing on , 1998.
"Series A Preferred L.P. Units" means the % Series A Preferred
Limited Partner Interests in the Operating Partnership.
"Series A Preferred Securities" means the % Series A REIT Trust
Originated Preferred Securities of the Trust.
"Series A Preferred Securities Global Certificate" means one or more
fully-registered global Series A Preferred Securities certificates.
"Special Event" means a Tax Event or Investment Company Event.
"Special Regular Trustee" means an additional Regular Trustee appointed
under certain limited circumstances.
"Successor Securities" means other securities, having substantially the
same terms as the Preferred Securities, issued by a successor entity to the
Trust.
"Tax Event" means that the Operating Partnership and the Regular Trustees
shall have received an opinion of nationally recognized independent tax counsel
experienced in such matters that there is more than an insubstantial risk that
the Trust does not qualify, or within 90 days of the date of such opinion will
no longer qualify, as a REIT under the Code for any reason whatsoever, provided
that a Tax Event shall not include the voluntary election by the Regular
Trustees and/or the holders of the Common Securities to terminate the Trust's
status as a real estate investment trust for federal income tax purposes.
"The Villas of Renaissance" means an existing 923-unit apartment community
located in Northern San Diego County and purchased by the Operating Partnership
on June 30, 1997.
110
<PAGE> 112
"TOPrS(SM)" means Trust Originated Preferred Securities(SM).
"TRC" means Thompson Residential Company, Inc., a privately held, Northern
California-based multifamily development company.
"Trust" means IAC Capital Trust, a business trust formed under Delaware
law.
"Trust Securities" means the Common Securities and the Preferred
Securities.
"Trustees" means the trustees of the Trust.
"UBTI" means unrelated business taxable income.
"Unaffiliated Directors" means directors who are not (i) affiliates, or an
officer, director or employee, of The Irvine Company or (ii) the spouse,
ancestor or lineal descendant or brother or sister of Mr. Bren.
"Underwriters' Compensation" means the amount the Operating Partnership has
agreed to pay to the Underwriters for their arranging the investment of the
proceeds of the offering of the Series A Preferred Securities in the Series A
Preferred L.P. Units.
"USRPI Capital Gains" means gains from distributions of USRPIs.
"USRPIs" means United States Real Property Interests.
"UTC" means University Town Center.
"Village Related Entitlements" means all entitlement issues relating to the
village in which a specific apartment community is located. These include:
zoning and unit density parameters for each site in the village; compliance with
environmental laws; compliance with other general plan and specific requirements
of the local jurisdiction, such as affordable housing and open space dedication;
approval and recordation of the final map for the village; approval of general
village architectural theme, community walls, streetscape and landscape plan and
traffic circulation plan; and developer's construction obligations with respect
to streets, utilities and other infrastructure which will serve the village.
"Villas of Renaissance Acquisition" means the acquisition of The Villas of
Renaissance.
"1940 Act" means the Investment Company Act of 1940, as amended.
"7% Notes" means $100,000,000 aggregate principal amount of the Operating
Partnership's 7% Notes due 2007.
111
<PAGE> 113
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
IAC CAPITAL TRUST
Report of Independent Auditors..................................................... F-2
Balance Sheet as of October 31, 1997............................................... F-3
Notes to Balance Sheet............................................................. F-4
IRVINE APARTMENT COMMUNITIES, L.P.
Report of Independent Auditors..................................................... F-5
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995.................... F-6
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994.................................................................. F-7
Consolidated Statements of Changes in Partners' Capital for the years ended
December 31, 1996, 1995 and 1994............................................... F-8
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.................................................................. F-9
Notes to Consolidated Financial Statements...................................... F-10
Schedule III -- Consolidated Real Estate and Accumulated Depreciation........... F-21
Unaudited Condensed Consolidated Financial Information:
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996.............................................................. F-24
Unaudited Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1996.............................................. F-25
Unaudited Condensed Consolidated Statements of Changes in Partners' Capital for
the nine months ended September 30, 1997 and 1996.............................. F-26
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996.............................................. F-27
Notes to Unaudited Condensed Consolidated Financial Statements.................. F-28
Unaudited Pro Forma Consolidated Financial Information:
Unaudited Consolidated Statement of Operations for the nine months ended
September 30, 1997............................................................. F-32
Unaudited Consolidated Statement of Operations for the year ended December 31,
1996........................................................................... F-33
Notes to Unaudited Pro Forma Consolidated Statements of Operations.............. F-34
THE VILLAS OF RENAISSANCE
Independent Accountants' Report.................................................... F-36
Statements of Revenues and Certain Operating Expenses for the six months ended June
30, 1997 (unaudited) and the year ended December 31, 1996....................... F-37
Notes to Financial Statements...................................................... F-38
</TABLE>
F-1
<PAGE> 114
REPORT OF INDEPENDENT AUDITORS
To the Trustees
IAC Capital Trust
We have audited the accompanying balance sheet of IAC Capital Trust, a
Delaware Business Trust, as of October 31, 1997. This balance sheet is the
responsibility of management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of IAC Capital Trust at October 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
November 1, 1997
F-2
<PAGE> 115
IAC CAPITAL TRUST
BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-----------
<S> <C>
ASSETS
Cash............................................................................ $10
---
$10
===
LIABILITIES AND EQUITY
Redeemable Preferred Securities, 25,000,000 authorized
Redeemable Series A Preferred Securities, 6,900,000 securities authorized, no
securities issued or outstanding............................................. $--
Equity
Common Securities, 10,000 securities authorized, no securities issued or
outstanding................................................................. --
Contributed Trust Estate..................................................... 10
---
$10
===
</TABLE>
See accompanying notes.
F-3
<PAGE> 116
IAC CAPITAL TRUST
NOTES TO BALANCE SHEET
NOTE 1 -- ORGANIZATION AND FORMATION
IAC Capital Trust (the "Trust") is a business trust formed on October 31,
1997 under the Delaware Business Trust Act. Irvine Apartment Communities, Inc.
(the "Company") and certain members of management of the Company will acquire
all of the Common Securities of the Trust, representing common undivided
beneficial interests in all of the assets of the Trust, for an aggregate
consideration of $5,000. The Company has established a trust estate as of
October 31, 1997 through a cash contribution of $10.
Upon issuance by the Trust of Series A Preferred Securities as contemplated
by this Prospectus and Registration Statement (the "Offering"), the holders
thereof will own all of the issued and outstanding Series A Preferred Securities
of the Trust. From time to time the Trust may issue additional series of
Preferred Securities and invest the proceeds of any such issuances in additional
series of Preferred L.P. Units of Irvine Apartment Communities, L.P. (the
"Operating Partnership.") Each series of Preferred Securities will represent a
preferred undivided beneficial interest in the assets of the Trust subject to
its priority and payment terms, and are not secured by any assets of the
Operating Partnership or any of its affiliates. The Series A Preferred
Securities will bear a cumulative cash distribution rate which will be
established when the securities are issued and will have a stated maturity of
December 31, 2092.
The Trust is a limited purpose financing vehicle established by the Company
and the Operating Partnership and exists for the purpose of (a) issuing its
Common Securities as described above, (b) issuing its Preferred Securities (c)
investing the proceeds from the sale of each series of Preferred Securities in a
series of Preferred L.P. Units of the Operating Partnership and (d) engaging in
such other activities as are necessary, convenient or incidental thereto. The
proceeds from the sale of the Common Securities of the Trust will be invested in
an interest bearing account in, or a certificate of deposit of, a bank. The
rights of the holders of the Preferred Securities and the Common Securities
(collectively, the "Trust Securities"), including economic rights, rights to
information and voting rights, are as set forth in the Trust's Declaration and
related Business Trust Act. The Preferred Securities have no voting rights
except in limited circumstances. The Trust's Declaration does not permit the
incurrence by the Trust of any indebtedness for borrowed money or the making of
any investment other than in the Preferred L.P. Units of the Operating
Partnership and as described above in connection with the investment of the
proceeds from the sale of Common Securities.
The Operating Partnership has agreed to reimburse all obligations (other
than with respect to the Trust Securities) and all costs and expenses of the
Trust, including the fees and expenses of the Trustees and any income taxes,
duties and other governmental charges, and all costs and expenses with respect
thereto, to which the Trust may become subject, except for withholding taxes.
NOTE 2 -- INVESTMENT IN IRVINE APARTMENT COMMUNITIES, L.P.
Upon closing of the Offering and the related investment of the proceeds in
the Preferred L.P. Units of the Operating Partnership, the Trust will account
for its investment in the Operating Partnership using the equity method of
accounting.
NOTE 3 -- INCOME TAXES
After the Offering, the Trust intends to make an election to be taxed as a
real estate investment trust ("REIT") under the Internal Revenue Code (the
"Code"). As a REIT, the Trust generally will not be subject to federal income
tax if it distributes at least 95% of its REIT taxable income to its
shareholders. REITs are subject to a number of organizational and operational
requirements. If the Trust fails to qualify as a REIT in any taxable year, the
Trust will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.
Even if the Trust qualifies for taxation as a REIT, the Trust may be subject to
state and local taxes on its income and property and to federal income and
excise taxes on its undistributed income.
F-4
<PAGE> 117
REPORT OF INDEPENDENT AUDITORS
To the Partners
Irvine Apartment Communities, L.P.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, L.P., a Delaware limited partnership, as of December 31,
1996 and 1995, and the related consolidated statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedule
beginning on page F-22. These financial statements and schedule are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Irvine
Apartment Communities, L.P. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
January 31, 1997
F-5
<PAGE> 118
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land.............................................................. $ 176,070 $ 163,169
Buildings and improvements........................................ 849,924 768,737
---------- ---------
1,025,994 931,906
Accumulated depreciation.......................................... (219,193) (192,106)
---------- ---------
806,801 739,800
Under development, including land................................. 58,241 73,727
---------- ---------
865,042 813,527
Cash and cash equivalents........................................... 3,205 4,392
Restricted cash..................................................... 1,376 1,181
Deferred financing costs, net of accumulated amortization of $8,290
in 1996 and $5,663 in 1995........................................ 20,187 22,814
Other assets........................................................ 11,188 11,316
---------- ---------
$ 900,998 $ 853,230
========== =========
LIABILITIES
Mortgages and notes payable
Line of credit.................................................... $ 16,000 $ 22,000
Tax-exempt mortgage bond financings............................... 329,248 332,602
Conventional mortgage financings.................................. 134,761 136,960
Mortgage notes payable to The Irvine Company...................... 51,227 52,011
Tax-exempt assessment district debt............................... 21,828 19,713
---------- ---------
553,064 563,286
Accounts payable and accrued liabilities............................ 21,496 20,254
Security deposits................................................... 6,094 5,124
---------- ---------
580,654 588,664
---------- ---------
PARTNERS' CAPITAL
General partner, 18,556 partnership units at December 31, 1996 and
16,975 at December 31, 1995....................................... 180,017 155,433
Limited partner, 22,292 partnership units at December 31, 1996 and
20,397 at December 31, 1995....................................... 140,327 109,133
---------- ---------
320,344 264,566
---------- ---------
$ 900,998 $ 853,230
========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 119
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT
AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Rental income.............................................. $154,925 $133,678 $127,338
Other income............................................... 3,162 2,079 1,585
Interest income............................................ 611 411 1,313
-------- -------- --------
158,698 136,168 130,236
-------- -------- --------
EXPENSES:
Property expenses.......................................... 33,859 31,761 33,105
Real estate taxes.......................................... 13,496 12,002 11,786
Property management fees................................... 4,502 3,893 3,800
Interest expense, net...................................... 29,506 25,894 26,827
Amortization of deferred financing costs................... 2,627 8,510 15,942
Depreciation and amortization.............................. 27,239 23,143 21,055
General and administrative................................. 6,277 5,909 5,442
-------- -------- --------
117,506 111,112 117,957
-------- -------- --------
Income before extraordinary item........................... 41,192 25,056 12,279
Extraordinary item -- charge related to debt
extinguishment........................................... -- (23,427) --
-------- -------- --------
NET INCOME................................................. $ 41,192 $ 1,629 $ 12,279
======== ======== ========
ALLOCATION OF NET INCOME (LOSS):
General partner............................................ $ 18,746 $ 8,465 $ 7,273
Limited partner............................................ $ 22,446 $ (6,836) $ 5,006
PARTNERSHIP UNIT DATA:
Weighted average partnership units outstanding............. 38,953 33,191 30,247
Income before extraordinary item per unit.................. $ 1.06 $ 0.75 $ 0.41
Net income per unit........................................ $ 1.06 $ 0.05 $ 0.41
</TABLE>
See accompanying notes.
F-7
<PAGE> 120
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
IRVINE THE
APARTMENT IRVINE
COMMUNITIES, INC. COMPANY TOTAL
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PARTNERS' CAPITAL:
Balance, January 1, 1994............................ $ 87,578 $124,766 $212,344
Net income........................................ 7,273 5,006 12,279
Distributions..................................... (13,098) (20,476) (33,574)
-------- -------- --------
Balance, December 31, 1994.......................... 81,753 109,296 191,049
Net income........................................ 8,465 (6,836) 1,629
Contributions..................................... 83,454 33,200 116,654
Distributions..................................... (18,239) (26,527) (44,766)
-------- -------- --------
Balance, December 31, 1995.......................... 155,433 109,133 264,566
Net income........................................ 18,746 22,446 41,192
Contributions..................................... 31,385 39,327 70,712
Distributions..................................... (25,547) (30,579) (56,126)
-------- -------- --------
Balance, December 31, 1996.......................... $ 180,017 $140,327 $320,344
======== ======== ========
PARTNERSHIP UNITS OUTSTANDING:
Balance, January 1, 1994............................ 11,800 18,447 30,247
Additional units issued........................... -- -- --
-------- -------- --------
Balance, December 31, 1994.......................... 11,800 18,447 30,247
Additional units issued........................... 5,175 1,950 7,125
-------- -------- --------
Balance, December 31, 1995.......................... 16,975 20,397 37,372
Additional units issued........................... 1,581 1,895 3,476
-------- -------- --------
Balance, December 31, 1996.......................... $ 18,556 $ 22,292 $ 40,848
======== ======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE> 121
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 41,192 $ 1,629 $ 12,279
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item -- charge related to debt
extinguishment....................................... -- 23,427 --
Amortization of deferred financing costs................ 2,627 8,510 15,942
Depreciation and amortization........................... 27,239 23,143 21,055
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Restricted cash...................................... (195) (150) 16
Other assets......................................... (104) (4,882) (975)
Accounts payable and accrued liabilities............. 1,308 3,147 895
Security deposits.................................... 970 579 574
-------- --------- --------
Net Cash Provided by Operating Activities................. 73,037 55,403 49,786
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements to operating real estate assets...... (4,766) (4,520) (5,555)
Investment in real estate assets, net of construction
payables................................................ (61,850) (123,698) (45,363)
-------- --------- --------
Net Cash Used in Investing Activities..................... (66,616) (128,218) (50,918)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit.......................... 78,900 143,344 6,256
Payments on lines of credit............................... (84,900) (127,600) --
Proceeds from tax-exempt mortgage bond financings and
notes payable........................................... -- 334,190 9,833
Payments on tax-exempt mortgage bond financings........... -- (325,845) --
Principal payments........................................ (7,101) (5,676) (4,999)
Additions to deferred financing costs..................... -- (9,237) (832)
Contributions from partners............................... 61,619 109,329 --
Distributions to partners................................. (56,126) (44,766) (33,574)
-------- --------- --------
Net Cash (Used in) Provided by Financing Activities....... (7,608) 73,739 (23,316)
-------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (1,187) 924 (24,448)
Cash and Cash Equivalents at Beginning of Year............ 4,392 3,468 27,916
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 3,205 $ 4,392 $ 3,468
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized................. $ 29,644 $ 25,165 $ 25,860
Tax-exempt assessment district debt assumed............. $ 2,771 $ 4,184 $ 15,656
</TABLE>
See accompanying notes.
F-9
<PAGE> 122
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Operating Partnership"), was formed on November 15, 1993. In connection with an
initial public offering of common shares on December 8, 1993, Irvine Apartment
Communities, Inc. (the "Company") obtained a general partnership interest in and
became the sole managing general partner of the Partnership. The Irvine Company
(the "Limited Partner") transferred 42 apartment communities and a 99% interest
in a limited partnership which owns one apartment community to the Operating
Partnership. The Operating Partnership's management and operating decisions are
under the unilateral control of the Company. All management powers over the
business and affairs of the Operating Partnership are vested exclusively in the
Company. No limited partner of the Operating Partnership has any right to
exercise control or management power over the business and affairs of the
Operating Partnership. As of December 31, 1996, the Company had a 45.4% general
partnership interest and The Irvine Company had a 54.6% limited partnership
interest in the Operating Partnership.
The Operating Partnership owns, operates and develops apartment communities
in Orange County, California. The Operating Partnership utilizes independent
third-party property management and construction management firms. As of
December 31, 1996 the Operating Partnership owned and operated 52 properties
containing 13,656 operating apartment units and 864 units under construction
(collectively, the "Properties"). Until July 31, 2020, the Operating Partnership
has the exclusive right, but not the obligation, to acquire land from The Irvine
Company for development of additional apartment communities on the Irvine Ranch
(see Note 7 to the consolidated financial statements).
Profits and losses are generally allocated to the Company and to the
Limited Partner based upon their respective ownership interests in the Operating
Partnership. The partnership agreement provides for the allocation of certain
costs to The Irvine Company. As of December 31, 1995, all such allocations had
been completed.
The accompanying financial statements include the consolidated accounts of
the Operating Partnership and its financially controlled subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.
Under the terms of the partnership agreement, all costs incurred by the
Company relating to the ownership of interests in and operation of the Operating
Partnership, including the compensation of its officers and employees, stock
incentive plans, director fees and the costs and expenses of being a public
company, are reimbursed by the Operating Partnership. In addition, the Limited
Partner has the right, but not the obligation, to match on the same terms and
conditions any capital contributions made by the Company based on the pro rata
ownership interest at the time of such contribution.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1996 and 1995, and the revenues and expenses for the three years
ended December 31, 1996. Actual results could differ from those estimates.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate Assets and Depreciation: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets are impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts. Land and infrastructure costs are allocated to properties
based on relative fair value. Costs related to the development and construction
of properties are capitalized as incurred. Interest and property taxes are
capitalized to apartment communities
F-10
<PAGE> 123
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
which are under active development. When a building within a community under
construction is completed and held available for occupancy, the related costs
are expensed.
Repair and maintenance expenditures are expensed as incurred. Major replacements
and betterments are capitalized and depreciated over their useful lives.
Depreciation is computed on a straight-line basis over the useful lives of the
properties (principally forty years for buildings; twenty years for siding,
roofs and balconies; fifteen years for plumbing and air conditioning equipment;
ten years for pools, tennis courts, parking lots and driveways; and five to ten
years for furniture and fixtures).
Cash and Cash Equivalents: The Operating Partnership considers all highly
liquid investments with a maturity when purchased of three months or less to be
cash equivalents.
Restricted Cash: Restricted cash is comprised of reserve accounts for
capital replacements, property taxes and insurance. These restricted funds are
subject to supervision and approval by a lender or a government agency. The
terms of the contract with the government agency contain certain restrictions
concerning operating policies, rental charges, operating expenditures,
distributions to owners and other matters.
Deferred Financing Costs: Costs incurred in obtaining long-term financing
or costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
Revenue Recognition: The Operating Partnership leases apartment units to a
diverse resident base for terms of one year or less. Credit investigations are
performed for all prospective residents and security deposits are also obtained.
Resident receivables are evaluated for collectibility. Rental revenue is
recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
Interest Expense: Interest rates are substantially fixed for specified
periods through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
Income Taxes: The Operating Partnership's taxable income is reportable by
its partners. Accordingly, no provision has been made for federal income taxes
in the accompanying statements of operations.
Per Unit Data: The computation of net income per partnership unit is based
on the weighted average number of partnership units outstanding and excludes the
effect of the Company's stock options and performance awards since their
dilutive effect is minimal.
Reclassifications: Certain amounts in the 1995 and 1994 financial
statements have been reclassified to conform with financial statement
presentations in 1996.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
Line Of Credit: In November 1995, the Operating Partnership obtained a $175
million unsecured revolving credit facility. The line of credit facility has a
term of two years and at the Operating Partnership's option may be converted to
a two-year term loan at maturity. This revolving credit facility is available to
finance the Operating Partnership's ongoing rental property development program
and for general working capital needs. Borrowings under the line of credit bear
interest at the Operating Partnership's option at variable rates based on the
Eurodollar rate plus a spread of 1.5% or the Prime rate. The Operating
Partnership is also obligated to pay a fee on the average daily amount of the
unused portion of the commitment, and quarterly agent fees on the commitment
amount. The Company and the Operating Partnership must comply with certain
affirmative and negative covenants, including limitations on distributions to
its partners,
F-11
<PAGE> 124
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
limitations on payment of distributions, and the maintenance of certain net
worth, cash flow and financial ratios. At December 31, 1996 the Company and the
Operating Partnership were in compliance with all of these covenants. As of
December 31, 1996, $16 million was outstanding and $159 million was available
under the line of credit. In February 1997, the Operating Partnership's line of
credit was increased to $250 million.
Tax-Exempt Mortgage Bond Financings: On May 25, 1995, the Operating
Partnership refinanced all $324,816 of its outstanding tax-exempt mortgage debt.
As a result of a new 30-year refunding agreement, which is backed by credit and
liquidity support from the Federal National Mortgage Association ("Fannie Mae"),
the Operating Partnership obtained tax-exempt mortgage bond financings of
$334,190 maturing in June 2025. Standard & Poor's Rating Group assigned ratings
of AAA/A-1+ to the bonds based on the collateral agreement with Fannie Mae. In
connection with the refinancing transaction, the Operating Partnership recorded
an extraordinary charge of $23,427 to write off deferred financing costs related
to the debt that was refinanced.
The tax-exempt financings represent loans payable that are collateralized
by twenty-three properties with a net book value of $281,211 as of December 31,
1996. Monthly principal and interest payments are made to a trustee, which in
turn pays the bondholders when interest is due. The bonds are remarketed
periodically and bear interest at short-term floating rates. The floating rates
have been fixed through interest rate swap agreements. (See Interest Rate Swap
Agreements.) Principal payments are amortized over a 30-year period and are held
in a principal payment fund. The tax-exempt mortgage bond financings, before
giving effect to the swap agreements, had an average floating interest rate
inclusive of fees of 4.76% in December 1996.
Conventional Mortgage Financings: Conventional mortgages are collateralized
by apartment communities with a net book value of $148,493 as of December 31,
1996. The mortgages are generally due in monthly installments and mature at
various dates through 2018. Prior to the Offering, interest rates were fixed at
rates which ranged from 7.75% to 9.63%, with a weighted average rate of 8.69%.
In connection with the Offering, the interest rates were adjusted to market
rates for specified periods of time and currently range from 5.82% to 7.75%. As
of December 31, 1996 the weighted average interest rate was 6.45%. Including the
amortization of deferred financing costs the all-in interest rate was 8.16%. The
interest reduction periods expire prior to or at the loan maturity dates and
range from 1997 to 2008.
Mortgage Notes Payable to The Irvine Company: Two of the Operating
Partnership's apartment communities are financed by mortgage notes payable to
The Irvine Company. These mortgage notes totaled $51,227 and $52,011 at December
31, 1996 and 1995, respectively. The mortgage notes are collateralized by
all-inclusive trust deeds on each of the apartment communities financed. They
bore fixed interest rates of 5.75% at December 31, 1996, are fully amortizing
and mature in 2015 and 2024. Interest incurred on the mortgage notes payable to
The Irvine Company totaled $2,966, $3,010 and $3,055 for the years ended
December 31, 1996, 1995 and 1994, respectively. The mortgage notes payable to
The Irvine Company "wrap around" secured first trust deed notes payable to
third-party financial institutions. The secured first trust deed notes totaled
$51,363 and $52,030 as of December 31, 1996 and 1995, respectively.
Tax-Exempt Assessment District Debt: In conjunction with the purchase of
land, the Operating Partnership assumed $2,771 in 1996 and $4,184 in 1995 in
tax-exempt assessment district debt which represents debt issued by municipal
government authorities to finance the construction of infrastructure and
improvements. The debt obligations are repaid by the Operating Partnership
through assessments.
Interest Rate Swap Agreements: The Operating Partnership uses interest rate
swap agreements to effectively convert its floating rate tax-exempt mortgage
bond financings to a fixed-rate basis, thus reducing the impact on future income
of fluctuations in interest rates. At December 31, 1996, the Operating
Partnership had interest rate swap agreements on notional amounts totaling
$329,248 which pay fixed rates of interest and receive floating rates of
interest based on a municipal bond index that is remarketed weekly. The
F-12
<PAGE> 125
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
swap agreement periods mature from 2002 to 2007. The swap counterparties are
primarily financial institutions rated AAA by Standard & Poor's. The differences
to be paid or received are accrued and included in interest expense as a yield
adjustment and the related amount payable or receivable from counterparties is
included in other assets or accrued liabilities. Additionally, the Operating
Partnership restructured several interest rate swaps related to the retired
tax-exempt bonds in May 1995. These transactions reduce the interest expense on
tax-exempt mortgage bond financings by approximately 30 basis points per year
through 2001. At December 31, 1996, the average fixed interest rate paid to the
counterparties was 5.10% and the average variable interest rate received was
3.64%. This resulted in a net interest payable of $381 which was settled in the
first week of January 1997. Based on prevailing interest rates at December 31,
1996, the interest rate swap agreements have a fair value of negative $4
million.
Capitalized Interest: The Operating Partnership capitalizes interest on
projects actively under development using qualifying asset balances and
applicable weighted average interest rates. The average qualifying asset balance
for projects under development was approximately $40 million for the year ended
December 31, 1996. Interest capitalized was $3,151, $6,779 and $1,261 in 1996,
1995 and 1994, respectively. Interest incurred totaled $32,657, $32,673 and
$27,617 for the years ended December 31, 1996, 1995 and 1994, respectively.
Other Matters: Mortgages and notes payable totaling $183,829 at December
31, 1996 are subject to prepayment penalties.
<TABLE>
<CAPTION>
MORTGAGES AND NOTES PAYABLE
(AT DECEMBER 31, 1996)
------------------------------------------------------------------------
EXPIRATION OF
OUTSTANDING INTEREST RATE
PRINCIPAL EFFECTIVE REDUCTION INTEREST RATE MATURITY
TYPE OF DEBT BALANCE INTEREST RATE PERIOD AFTER STEP-UP DATE
- ----------------------------------------- ----------- ------------- --------------- ------------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings...... $ 329,248 5.82% n/a n/a 6/25
-------- ---- -----
Conventional mortgage financings:
Bayport................................ 4,862 6.91% 7/08 9.25% 7/18
Bayview................................ 3,510 6.91% 7/08 9.25% 7/18
Baywood................................ 20,972 6.91% 7/08 9.25% 7/18
Deerfield Phase I...................... 7,462 6.57% 7/02 8.90% 7/08
Mariner Square......................... 5,637 6.32% 9/00 8.50% 8/08
The Parklands.......................... 6,512 6.15% n/a n/a 4/04
Parkwood............................... 12,642 6.31% 8/00 8.50% 7/08
Promontory Point....................... 36,303 5.82% 9/97 8.30% 8/00
Rancho Mariposa........................ 12,839 7.75% n/a 7.75% 6/03
San Paulo.............................. 1,458 4.00% n/a n/a 1/13
San Paulo.............................. 700 3.00% n/a n/a 1/08
Turtle Rock Vista...................... 13,405 6.31% 8/00 8.50% 7/08
Woodbridge Pines....................... 8,459 6.91% 9/08 9.25% 8/18
-------- ---- ---- -----
134,761 6.45% 8.42% 6/07
-------- ---- ---- -----
Mortgage notes payable to The Irvine
Company:
Park West............................ 33,993 5.75% n/a n/a 7/24
Rancho San Joaquin................... 17,234 5.75% n/a n/a 1/15
-------- ---- -----
51,227 5.75% 3/20
-------- ---- -----
Tax-exempt assessment district debt:
Fixed rate............................. 5,554 6.27% n/a n/a 1/16
Variable rate.......................... 16,274 3.95% n/a n/a 2/17
-------- ---- -----
21,828 4.54% 10/16
-------- ---- -----
Line of credit........................... 16,000 7.50% n/a n/a 12/97
-------- ---- -----
Total/weighted average.......... $ 553,064 5.97% 7/18
======== ==== =====
</TABLE>
F-13
<PAGE> 126
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE
(AT DECEMBER 31, 1996)
--------------------------------------------------------------------------------------------
MORTGAGE
TAX-EXEMPT NOTES TAX-EXEMPT
MORTGAGE CONVENTIONAL PAYABLE TO ASSESSMENT
LINE OF BOND MORTGAGE THE IRVINE DISTRICT PERCENTAGE OF
YEAR OF MATURITY CREDIT FINANCINGS FINANCINGS COMPANY DEBT TOTALS TOTAL DEBT
- -------------------- ------- ---------- ------------ ----------- ------------- -------- -------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997................ $16,000 $ 3,604 $ 2,504 $ 830 $ 284 $ 23,222 4.2%
1998................ 3,876 2,717 879 303 7,775 1.4%
1999................ 4,165 2,958 931 326 8,380 1.5%
2000................ 4,478 36,754 986 522 42,740 7.7%
2001................ 4,813 2,773 1,044 583 9,213 1.7%
Thereafter.......... 308,312 87,055 46,557 19,810 461,734 83.5%
------- -------- -------- ------- ------- -------- -----
Total..... $16,000 $329,248 $134,761 $51,227 $21,828 $553,064 100.0%
======= ======== ======== ======= ======= ======== =====
Number of loans..... 1 25 11 2 6 45
======= ======== ======== ======= ======= ========
</TABLE>
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial
instruments approximate their fair value except as discussed below. The fair
values of mortgage notes payable to The Irvine Company are estimated using
discounted cash flow analyses and the Operating Partnership's current estimated
borrowing rates for similar types of borrowing arrangements. The interest rate
used in the fair value calculation was 7.72% based on the terms of the loans. As
of December 31, 1996, the fair value of the mortgage notes payable to The Irvine
Company was $42,590. See Note 3 to the consolidated financial statements for a
discussion of the fair value of the interest rate swap agreements.
NOTE 5 -- PARTNERS' CAPITAL
On May 8, 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission providing for the issuance from time to time
of up to $250 million of common stock, preferred stock, debt securities, and
warrants to purchase common stock, preferred stock and debt securities. The
Operating Partnership plans to use the proceeds raised from any securities
issued under the shelf registration and any matching issuance of partnership
units to the Limited Partner for general corporate purposes, including the
development of new apartment communities, acquisitions and the repayment of
existing debt.
On August 9, 1995, the Company sold, pursuant to its shelf registration
statement, 5.175 million shares of common stock at $17.25 per share.
Concurrently, the Limited Partner, pursuant to its rights under the partnership
agreement, purchased 1.5 million partnership units at $17.25 per unit. Such
units are exchangeable for common stock on a one-for-one basis, subject to
adjustment and certain limitations. The net proceeds from the two transactions
totaled $109,329. Proceeds of $80,100 were used to repay amounts outstanding
under construction and revolving lines of credit. The balance of $29,229 was
used to fund new construction.
Pursuant to its shelf registration statement, on July 3, 1996, the Company
completed the sale of 1.49 million shares of common stock at $20.125 per share.
The proceeds from this offering of $30 million together with proceeds from the
sale of newly issued partnership units to the Limited Partner (see Note 6 to the
consolidated financial statements), totaled $60 million. Proceeds were used to
repay $43 million of debt outstanding under the revolving line of credit. The
remaining proceeds were used to fund ongoing development programs and for
general corporate purposes. Availability under the Company's shelf registration
statement was $130.7 million at December 31, 1996.
F-14
<PAGE> 127
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
On February 20, 1997, the Company sold, pursuant to its shelf registration
statement, 1.15 million shares of common stock at $27.50 per share.
Concurrently, the Limited Partner purchased 1.39 million additional partnership
units at $26.06 per unit (which is equal to the public offering price of the
common stock less an amount equivalent to the underwriting discount) which are
exchangeable for common stock on a one-for-one basis, subject to adjustment and
certain limitations. The proceeds from the two transactions totaled $66 million
and were used to repay all indebtedness outstanding under the revolving line of
credit, and will be used for general corporate purposes, including ongoing
development activities on and off the Irvine Ranch. After the above transaction,
availability under the Company's shelf registration statement is approximately
$99 million.
<TABLE>
<CAPTION>
RECONCILIATION OF PARTNERSHIP UNITS OUTSTANDING
---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
----------------------------------- ----------------------------------- -----------------------------------
IRVINE IRVINE IRVINE
APARTMENT APARTMENT APARTMENT
COMMUNITIES, THE IRVINE COMMUNITIES, THE IRVINE COMMUNITIES, THE IRVINE
INC. COMPANY TOTAL INC. COMPANY TOTAL INC. COMPANY TOTAL
------------- ---------- ------ ------------- ---------- ------ ------------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period......... 16,975 20,397 37,372 11,800 18,447 30,247 11,800 18,447 30,247
Stock awards
issued and
options
exercised...... 77 -- 77 -- -- -- -- -- --
Dividend
reinvestment
plan........... 13 16 29 -- -- -- -- -- --
Common stock
offerings and
related cash
contributions
from The Irvine
Company........ 1,491 1,491 2,982 5,175 1,500 6,675 -- -- --
Contributions of
property by The
Irvine
Company........ -- 388 388 -- 450 450 -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at end of
period......... 18,556 22,292 40,848 16,975 20,397 37,372 11,800 18,447 30,247
------ ------ ------ ------ ------ ------ ------ ------ ------
Ownership
interest at end
of period...... 45.4% 54.6% 100% 45.4% 54.6% 100% 39.0% 61.0% 100%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) ALLOCATION
--------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
THE IRVINE COMPANY:
Specific allocations to The Irvine Company............................. $ -- $(17,741) $(6,370)
Income allocated to The Irvine Company based on its ownership
interest............................................................. 22,446 10,905 11,376
------- ------- -------
22,446 (6,836) 5,006
------- ------- -------
IRVINE APARTMENT COMMUNITIES, INC.:
Income allocated to Irvine Apartment Communities, Inc. based on its
ownership interest................................................... 18,746 8,465 7,273
------- ------- -------
NET INCOME............................................................. $41,192 $ 1,629 $12,279
======= ======= =======
</TABLE>
Prior to December 31, 1995, the Operating Partnership incurred debt
extinguishment costs and swap amortization costs that were allocated 100% to The
Irvine Company in accordance with the partnership agreement. As of December 31,
1995, all such allocations had been completed.
F-15
<PAGE> 128
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 6 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the Company are borne by the Operating
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative service agreement covering
services for risk management, income taxes and other services of $108 for the
year ended December 31, 1996. The amounts for the corresponding periods in 1995
and 1994 were $106 and $160, respectively. The Irvine Company and the Operating
Partnership jointly purchase employee health care insurance and property and
casualty insurance. In addition, the Operating Partnership incurred rent
totaling $349, $270 and $203 for the years ended December 31, 1996, 1995 and
1994, respectively, related to leases with The Irvine Company that expire in
1997 and 1998. For the year ended December 31, 1996, The Irvine Company
contributed $354, or the maximum allowable in connection with stock issuances
under the dividend reinvestment and additional cash investment plan.
In the third quarter of 1994, the Operating Partnership acquired four sites
for development of 1,695 units for $19,703 from The Irvine Company. As partial
financing for these four sites, the Operating Partnership elected to assume
$15,656 in tax-exempt assessment district debt and paid $4,047 in cash.
In March 1995, the Operating Partnership acquired a 512-unit development
site known as Newport Ridge for $9,542 from The Irvine Company. As partial
financing for the acquisition of the site, the Operating Partnership elected to
assume $4,184 of tax-exempt assessment district debt. The balance of $5,358 was
paid through the issuance of 336,432 additional partnership units in the
Operating Partnership to The Irvine Company. In November 1995, the Operating
Partnership acquired a 300-unit development site known as Baypointe from The
Irvine Company for $4,190, of which $1,967 was paid through the issuance of
113,372 additional partnership units in the Operating Partnership to The Irvine
Company. The partnership units are exchangeable for common stock of the Company
on a one-for-one basis, subject to adjustment and certain limitations.
In March 1996, the Operating Partnership acquired a land site for $3.3
million from The Irvine Company for the development of 227 rental units,
pursuant to the Land Rights Agreement between the Operating Partnership and The
Irvine Company. The Company's board committee of independent directors approved
the purchase in accordance with the Land Rights Agreement. As partial financing
for the site acquisition, the Operating Partnership assumed $2.8 million in
tax-exempt assessment district debt. The balance of the purchase price was paid
through the issuance of 28,358 additional partnership units in the Operating
Partnership to The Irvine Company.
Concurrent with the Company's common stock offering on July 3, 1996 (see
Note 5 to the consolidated financial statements), The Irvine Company, pursuant
to its rights under the partnership agreement, purchased 1.49 million
partnership units at a price equal to the public offering price of $20.125 per
common share of stock, or a total of $30 million. These units are exchangeable
for common stock on a one-for-one basis, subject to adjustment and certain
limitations.
On July 29, 1996, the Operating Partnership acquired a land site for $3.5
million from The Irvine Company for the development of 245 rental units pursuant
to the Land Rights Agreement between the Operating Partnership and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. Of the total purchase
price, $2.4 million was paid through the issuance of 115,544 additional
partnership units in the Operating Partnership to The Irvine Company.
On December 23, 1996, the Operating Partnership acquired a land site for
$6.0 million from The Irvine Company for the development of 207 rental units
pursuant to the Land Rights Agreement between the Operating Partnership and The
Irvine Company. The Company's board committee of independent directors
F-16
<PAGE> 129
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
approved the purchase in accordance with the Land Rights Agreement. The purchase
price was paid through the issuance of 244,857 additional partnership units in
the Operating Partnership to The Irvine Company.
One of the Company's directors is chairman of a bank which participates in
the Operating Partnership's line of credit. Based on the bank's percentage
participation in the credit facility, the Operating Partnership estimates that
the amount of interest and fees paid to the bank totaled $245, $388 and $96 in
1996, 1995 and 1994, respectively.
NOTE 7 -- LAND RIGHTS AGREEMENT WITH THE IRVINE COMPANY
The Operating Partnership and The Irvine Company are parties to an
exclusive land rights and non-competition agreement (the "Land Rights
Agreement"). This agreement, which extends through July 31, 2020, provides the
Operating Partnership with the exclusive right, but not the obligation, to
acquire additional land sites which have been entitled for residential use and
designated by The Irvine Company as ready for apartment development in
accordance with the Master Plan. The determination to exercise an option with
respect to a site is made solely by a majority of a committee of independent
directors of the Company (the "Independent Directors Committee"), whose members
are unaffiliated with The Irvine Company. In addition, The Irvine Company and
its chairman, Donald Bren, have agreed to conduct their apartment community
development and ownership activities on the Irvine Ranch solely through the
Operating Partnership.
Under terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, common stock or limited partnership units at the option of the
Company. After July 31, 2000, the choice of consideration will revert to The
Irvine Company. In addition, the purchase price for future apartment sites
encompassing the next 505 apartment units the Operating Partnership develops
will be set at an amount such that each project's budgeted pro forma unleveraged
return on costs for the first twelve months following stabilized occupancy will
be between 10.0% and 10.5%. However, in no event shall the purchase price for
each such site exceed 95% of the value of such site as determined by independent
appraisals.
NOTE 8 -- STOCK PLANS
Under the terms of the partnership agreement, payments under the Company's
stock incentive plans are reimbursed by the Operating Partnership.
F-17
<PAGE> 130
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Employee Stock Option Plan: The Company has adopted long-term stock
incentive plans that provide for awards of non-qualified or incentive stock
options, stock appreciation rights, performance awards, restricted stock,
restricted stock units and stock unit awards. The plans limit the number of
shares of common stock, and matching partnership units, to be issued with
respect to these awards to 5% of the total partnership units and common stock
outstanding at the end of each year. The non-qualified stock options in the
table below vest in equal installments over a three-year period and expire ten
years from the grant dates.
<TABLE>
<CAPTION>
NON-QUALIFIED
STOCK OPTION TRANSACTIONS
------------------------------
NUMBER
OF EXERCISE PRICE
OPTIONS PER SHARE
-------- -----------------
<S> <C> <C>
Granted in 1993................................. 149,000 $17.50
Outstanding at December 31, 1993................ 149,000 $17.50
Granted......................................... 55,000 $17.50
Canceled........................................ (15,000) $17.50
------- ----------------
Outstanding at December 31, 1994................ 189,000 $17.50
Granted......................................... 384,000 $15.88 to $16.13
Canceled........................................ (74,000) $16.13 to $17.50
------- ----------------
Outstanding at December 31, 1995................ 499,000 $15.88 to $17.50
Granted......................................... 10,000 $20.00
Exercised....................................... (66,667) $16.13 to $17.50
Canceled........................................ (33,333) $16.13
------- ----------------
Outstanding at December 31, 1996................ 409,000 $15.88 to $20.00
======= ================
Vested and exercisable at December 31, 1996..... 170,667 $15.88 to $17.50
======= ================
</TABLE>
In addition, restricted stock performance awards issued to certain officers
of the Company vest over a five-year period provided that the Company meets
certain financial targets.
<TABLE>
<CAPTION>
NUMBER
OF
PERFORMANCE AWARD TRANSACTIONS AWARDS
------------------------------------------------------------------ --------
<S> <C>
Granted in 1993................................................... 200,000
Granted in 1995................................................... 235,000
Canceled in 1995.................................................. (110,000)
--------
Outstanding at December 31, 1995.................................. 325,000
--------
Granted in 1996................................................... 10,000
Awarded in 1996................................................... (20,000)
Canceled in 1996.................................................. (82,049)
--------
Outstanding at December 31, 1996.................................. 232,951
========
Vested at December 31, 1996....................................... 62,951
========
</TABLE>
The total number of shares, and matching partnership units, available to be
granted at December 31, 1996 under these plans was 1,323,770.
F-18
<PAGE> 131
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Directors' Stock Option Plan: The 1993 Stock Option Plan for Directors was
established with 100,000 shares of common stock that may be granted to
independent directors. Grants of fully vested options to purchase 5,000 shares
of common stock, and matching partnership units, at the market price on the
grant date were made to each independent director immediately following the
Offering. Additionally, grants of fully vested options to purchase 1,000 shares
of common stock, and matching partnership units, at the market price on the
grant date were made to each independent director immediately following each
annual shareholders' meeting beginning in 1995. These options are fully vested
when granted and are exercisable for ten years from the grant dates.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
DIRECTORS' OPTION TRANSACTIONS OPTIONS PER SHARE
------------------------------------------------ --------- -----------------
<S> <C> <C>
Granted in 1993................................. 25,000 $17.44
Granted in 1995................................. 5,000 $15.63
------ ----------------
Outstanding at December 31, 1995................ 30,000 $15.63 to $17.44
Granted in 1996................................. 5,000 $20.06
------ ----------------
Outstanding at December 31, 1996................ 35,000 $15.63 to $20.06
====== ================
Available for future grant...................... 65,000
======
</TABLE>
Equity Compensation Plans: The Operating Partnership applies APB Opinion 25
and related interpretations in accounting for its equity compensation plans as
described above. Accordingly, no compensation cost has been recognized for its
stock option plans. Compensation cost for the Company's other stock-based
compensation plans has been determined utilizing the fair value of the award
over the service period. Had the Operating Partnership applied FAS Statement 123
for stock-based compensation, it would result in net income and earnings per
unit amounts that approximate the amounts reported. Under FAS Statement 123, the
fair value for options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1995
and 1996, respectively: risk-free interest rates of 7.15% and 6.46%; dividend
yields of 8.49% and 7.09%; volatility factors of the expected market price of
the Company's common stock of 0.242 and 0.204; and a weighted average expected
life of the options of seven years.
NOTE 9 -- SAVINGS PLAN
Effective January 1, 1994, the Company implemented a defined contribution
401(k) benefit plan covering substantially all employees who have satisfied
minimum age and service requirements. The Company matches employee contributions
up to 50%, within certain limits, which is accrued as incurred. The Company also
makes contributions to this plan for each participant, generally equal to 3% of
the participant's base salary. The aggregate cost of these contributions was
$122, $95 and $82 in 1996, 1995 and 1994, respectively.
NOTE 10 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
Management Agreements: The Operating Partnership has management agreements
with unaffiliated property management companies to maintain and manage the
operations of the properties. Management fees range from 2.5% to 3.25% of
revenues depending on the size of the property (resulting in a weighted average
rate of approximately 2.8% of revenues). These agreements are renewable annually
and are generally cancelable on 30 days' notice. Included in operating expenses
are costs incurred by the management companies on behalf of the Operating
Partnership.
Litigation: The Operating Partnership is party to various legal actions
which are incidental to its business. Management believes that these actions
will not have a material adverse effect on the Operating Partnership's
consolidated financial position.
F-19
<PAGE> 132
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Assessment Districts: In some of the local jurisdictions within Orange
County where the Predecessor developed property, assessment districts were
formed by local governments to finance major infrastructure improvements. At
December 31, 1996, the Operating Partnership had $39.0 million of assessment
district debt, of which $21.9 million was reflected in the balance sheet.
Exchange Rights: The Irvine Company has the right to exchange up to
one-third of the total partnership units it owns for shares of common stock of
the Company in each twelve-month period commencing on December 1 of each year at
an exchange ratio of one-to-one, subject to adjustment in certain events. These
exchanges are subject to certain restrictions including percentage ownership
limits.
Company's Obligation to Purchase Tendered Partnership Units: The Limited
Partner has the right to sell to the Company for cash generally up to one-third
of its partnership units in each twelve-month period commencing on December 1 of
each year. These sales are subject to certain restrictions. The Company is to
purchase the tendered interests at a purchase price equal to the average of the
daily market prices for the common stock of the Company for the ten consecutive
trading days immediately preceding the date of receipt by the Company of a
notice of cash tender. The Company is to pay for these interests solely with the
net proceeds of an offering of the Company's common stock. The Company would
bear the costs of sale (other than underwriting discounts and commissions). The
Limited Partner would bear all market risk if the market price at closing was
less than the purchase price as determined on the date of tender. Any proceeds
of the offering in excess of the purchase price would be for the sole benefit of
the Company.
Rent Restrictions: As of December 31, 1996, 21% of the apartment units
within the Operating Partnership's portfolio were required to be set aside for
residents within certain income levels and had limitations on the rent that
could be charged to such tenants. The rental revenue from five of these projects
includes governmental rent subsidy payments of $3,977, $4,023 and $3,932 for the
years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 11 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------------- -------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
Revenues..................... $37,089 $ 38,967 $ 40,680 $41,962
Expenses..................... 28,401 29,811 29,619 29,675
Net income................... 8,688 9,156 11,061 12,287
Net income per unit.......... $ 0.23 $ 0.24 $ 0.27 $ 0.30
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues..................... $32,584 $ 33,170 $ 34,328 $36,086
Expenses..................... 28,777 27,912 27,068 27,355
Net income................... 3,807 (18,169) 7,260 8,731
Net income per unit.......... $ 0.13 $ (0.59) $ 0.21 $ 0.23
</TABLE>
F-20
<PAGE> 133
SCHEDULE III
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996(a)(b)
---------------------------------
CITY, STATE NUMBER BUILDINGS AND ACCUMULATED DATE OF DEPRECIABLE
APARTMENT COMMUNITY NAME OF UNITS ENCUMBRANCES(c) LAND(d) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION LIFE(e)
- ---------------------------- -------- --------------- -------- ------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stabilized More Than Two
Years
Irvine, California
Amherst Court........... 162 $ 1,430 $ 11,247 $ 12,677 $ 2,255 1991 5-40 yrs.
Berkeley Court.......... 152 $ 7,808 858 8,257 9,115 2,821 1986 5-40 yrs.
Cedar Creek............. 176 8,586 519 8,614 9,133 3,021 1985 5-40 yrs.
Columbia Court.......... 58 2,601 321 2,683 3,004 881 1984 5-40 yrs.
Cornell Court........... 109 5,202 785 5,044 5,829 1,597 1984 5-40 yrs.
Cross Creek............. 136 6,754 561 7,287 7,848 2,568 1985 5-40 yrs.
Dartmouth Court......... 294 17,303 2,674 17,230 19,904 5,513 1986 5-40 yrs.
Deerfield............... 288 10,812 3,810 11,495 15,305 4,383 1975/83 5-40 yrs.
Harvard Court........... 112 5,158 1,034 5,864 6,898 1,952 1986 5-40 yrs.
Northwood Park.......... 168 7,759 1,246 8,459 9,705 3,058 1985 5-40 yrs.
Northwood Place......... 604 30,143 4,613 34,096 38,709 11,191 1986 5-40 yrs.
Orchard Park............ 60 1,138 2,099 3,237 837 1982 5-40 yrs.
Park West............... 880 33,992 18,768 53,522 72,290 25,328 1970/71/72 5-40 yrs.
Parkwood................ 296 12,642 7,667 12,698 20,365 4,850 1974 5-40 yrs.
Rancho San Joaquin...... 368 17,234 7,910 28,325 36,235 12,972 1976 5-40 yrs.
San Carlo............... 354 2,715 25,720 28,435 5,907 1989 5-40 yrs.
San Leon................ 248 12,380 1,726 14,507 16,233 4,449 1987 5-40 yrs.
San Marco............... 426 24,327 2,873 24,355 27,228 6,199 1988 5-40 yrs.
San Marino.............. 200 9,849 1,376 11,567 12,943 3,756 1986 5-40 yrs.
San Mateo............... 283 1,444 18,621 20,065 3,696 1990 5-40 yrs.
San Paulo............... 382 26,591 1,906 26,785 28,691 2,487 1993 5-40 yrs.
San Remo................ 248 13,832 1,765 14,287 16,052 4,457 1986/88 5-40 yrs.
Stanford Court.......... 320 13,877 2,202 14,226 16,428 5,202 1985 5-40 yrs.
The Parklands........... 121 6,512 68 7,068 7,136 2,216 1983 5-40 yrs.
Turtle Rock Canyon...... 217 18,791 1,889 19,969 21,858 3,703 1991 5-40 yrs.
Turtle Rock Vista....... 252 13,405 6,327 13,340 19,667 5,120 1976/77 5-40 yrs.
Windwood Glen........... 196 9,852 1,266 9,668 10,934 3,124 1985 5-40 yrs.
Windwood Knoll.......... 248 1,111 11,575 12,686 3,724 1983 5-40 yrs.
Woodbridge Oaks......... 120 832 6,718 7,550 2,217 1983 5-40 yrs.
Woodbridge Pines........ 220 8,459 5,755 10,484 16,239 3,985 1976 5-40 yrs.
Woodbridge Villas....... 258 4,353 9,105 13,458 3,729 1982 5-40 yrs.
Woodbridge Willows...... 200 9,655 1,421 11,468 12,889 4,888 1984 5-40 yrs.
------ -------- -------- -------- -------- --------
8,156 333,524 92,363 466,383 558,746 152,086
------ -------- -------- -------- -------- --------
</TABLE>
F-21
<PAGE> 134
SCHEDULE III
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996(a)(b)
---------------------------------
CITY, STATE NUMBER BUILDINGS AND ACCUMULATED DATE OF DEPRECIABLE
APARTMENT COMMUNITY NAME OF UNITS ENCUMBRANCES(c) LAND(d) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION LIFE(e)
- ---------------------------- -------- --------------- -------- ------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Newport Beach, California
Bayport................. 104 4,862 3,146 4,226 7,372 1,678 1971 5-40 yrs.
Bayview................. 64 3,510 2,353 2,925 5,278 1,193 1971 5-40 yrs.
Baywood................. 388 20,972 10,809 20,362 31,171 7,450 1973/84 5-40 yrs.
Mariner Square.......... 114 5,637 392 5,030 5,422 3,106 1969 5-40 yrs.
Newport North........... 570 37,970 8,849 31,314 40,163 9,963 1986 5-40 yrs.
Promontory Point........ 520 36,303 18,775 41,153 59,928 16,083 1974 5-40 yrs.
------ -------- -------- -------- -------- --------
1,760 109,254 44,324 105,010 149,334 39,473
------ -------- -------- -------- -------- --------
Tustin, California Rancho
Alisal.................. 356 20,625 3,558 19,894 23,452 5,884 1988/91 5-40 yrs.
Rancho Maderas.......... 266 19,372 1,144 16,263 17,407 3,732 1989 5-40 yrs.
Rancho Mariposa......... 238 12,839 683 16,241 16,924 2,535 1992 5-40 yrs.
Rancho Tierra........... 252 19,622 1,215 16,470 17,685 3,918 1989 5-40 yrs.
Sierra Vista............ 306 2,318 22,667 24,985 3,405 1992 5-40 yrs.
------ -------- -------- -------- -------- --------
1,418 72,458 8,918 91,535 100,453 19,474
------ -------- -------- -------- -------- --------
Total Stabilized More Than
Two Years................. 11,334 $ 515,236 $145,605 $ 662,928 $808,533 $211,033
====== ======== ======== ======== ======== ========
Stabilized Less Than Two
Years
Irvine, California
Villa Coronado.......... 513 $ 5,842 $ 37,985 $ 43,827 $ 2,058 1995/96 5-40 yrs.
Santa Rosa.............. 368 3,169 27,615 30,784 1,410 1995/96 5-40 yrs.
Santa Clara............. 378 3,624 31,126 34,750 1,468 1995/96 5-40 yrs.
------ -------- -------- -------- --------
1,259 12,635 96,726 109,361 4,936
------ -------- -------- -------- --------
Tustin, California
Rancho Monterey......... 436 6,823 33,970 40,793 1,385 1995/96 5-40 yrs.
------ -------- -------- -------- --------
436 6,823 33,970 40,793 1,385
------ -------- -------- -------- --------
Newport Coast, California
Newport Ridge........... 512 9,357 45,265 54,622 1,813 1995/96 5-40 yrs.
------ -------- -------- -------- --------
512 9,357 45,265 54,622 1,813
------ -------- -------- -------- --------
Total Stabilized Less Than
Two Years................. 2,207 $ 28,815 $ 175,961 $204,776 $ 8,134
====== ======== ======== ======== ========
</TABLE>
F-22
<PAGE> 135
SCHEDULE III
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996(a)(b)
-----------------------------------
APARTMENT COMMUNITY NAME NUMBER BUILDINGS AND ACCUMULATED DATE OF DEPRECIABLE
(CITY) OF UNITS ENCUMBRANCES(c) LAND(d) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION LIFE(e)
- -------------------------- -------- --------------- -------- ------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Delivered Units In
Projects Under
Construction
Baypointe (Newport
Beach)................ 68 $ 953 $ 6,609 $ 7,562 $ 13 1996 5-40 yrs.
Santa Maria
(Irvine)............ 47 697 4,426 5,123 13 1996 5-40 yrs.
------ -------- -------- ---------- --------
Total Delivered Units..... 115 $ 1,650 $ 11,035 $ 12,685 $ 26
------ -------- -------- -------- ---------- --------
Total Stabilized and
Delivered............... 13,656 $ 515,236 $176,070 $ 849,924 $1,025,994 $219,193
------ -------- -------- -------- ---------- --------
Units Under Construction
Baypointe (Newport
Beach).................. 232 $ 3,237 $ 18,602 $ 21,839
Santa Maria (Irvine)...... 180 2,646 11,638 14,284
The Colony (Newport
Beach).................. 245 3,545 9,772 13,317
Santa Rosa II (Irvine).... 207 5,999 1,323 7,322
Other..................... 1,479 1,479
------ -------- -------- ----------
Total Units Under
Construction............ 864 $ 15,427 $ 42,814 $ 58,241
------ -------- -------- -------- ---------- --------
Total............ 14,520 $ 515,236 $191,497 $ 892,738 $1,084,235 $219,193
====== ======== ======== ======== ========== ========
</TABLE>
- ---------------
Notes:
(a) The aggregate cost of land and buildings for federal income tax purposes is
approximately $654,007 (unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of construction.
Prior to the General Partner's December 1993 initial public offering, the
gross land, buildings and improvements amounts represent The Irvine
Company's historical cost basis.
(c) Encumbrances represent debt secured by deeds of trust.
(d) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
(e) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
REAL ESTATE
--------------------------------------
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Balance at beginning of year................................................. $1,005,633 $ 869,756 $792,510
Additions:
Through cash expenditures.................................................. 66,857 124,368 61,590
Through assumption of tax-exempt assessment district debt.................. 2,771 4,184 15,656
Through issuance of partnership units...................................... 8,973 7,325
---------- ---------- --------
Balance at end of year....................................................... $1,084,234 $1,005,633 $869,756
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
--------------------------------------
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Balance at beginning of year................................................. $ 192,106 $ 169,039 $148,052
Charges to depreciation expense.............................................. 27,087 23,067 20,987
---------- ---------- --------
Balance at end of year....................................................... $ 219,193 $ 192,106 $169,039
========== ========== ========
</TABLE>
See report of independent auditors and accompanying notes.
F-23
<PAGE> 136
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land............................................................. $ 205,595 $ 176,070
Buildings and improvements....................................... 994,117 849,924
---------- ----------
1,199,712 1,025,994
Accumulated depreciation......................................... (240,718) (219,193)
---------- ----------
958,994 806,801
Under development, including land................................ 105,265 58,241
---------- ----------
1,064,259 865,042
Cash and cash equivalents.......................................... 2,373 3,205
Restricted cash.................................................... 1,434 1,376
Deferred financing costs, net...................................... 18,722 20,187
Other assets....................................................... 15,038 11,188
---------- ----------
$ 1,101,826 $ 900,998
========== ==========
LIABILITIES
Mortgages and notes payable
Line of credit................................................... $ 135,000 $ 16,000
Tax-exempt mortgage bond financings.............................. 326,569 329,248
Conventional mortgage financings................................. 132,902 134,761
Mortgage notes payable to The Irvine Company..................... 50,608 51,227
Tax-exempt assessment district debt.............................. 21,747 21,828
---------- ----------
666,826 553,064
Accounts payable and accrued liabilities........................... 31,762 21,496
Security deposits.................................................. 7,485 6,094
---------- ----------
706,073 580,654
---------- ----------
PARTNERS' CAPITAL
General partner, 19,879 partnership units at September 30, 1997 and
18,556 at December 31, 1996...................................... 210,685 180,017
Limited partners, 24,094 partnership units at September 30, 1997
and 22,292 at December 31, 1996.................................. 185,068 140,327
---------- ----------
395,753 320,344
---------- ----------
$ 1,101,826 $ 900,998
========== ==========
</TABLE>
- ---------------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
F-24
<PAGE> 137
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
-------------- --------------
(IN THOUSANDS, EXCEPT PER UNIT
AMOUNTS)
<S> <C> <C>
REVENUES:
Rental income................................................ $133,114 $114,000
Other income................................................. 3,093 2,317
Interest income.............................................. 659 419
-------- --------
136,866 116,736
-------- --------
EXPENSES:
Property expenses............................................ 28,790 24,903
Real estate taxes............................................ 10,959 10,023
Property management fees..................................... 3,809 3,316
Interest expense, net........................................ 21,949 22,378
Amortization of deferred financing costs..................... 1,882 1,975
Depreciation and amortization................................ 21,700 20,346
General and administrative................................... 4,822 4,890
-------- --------
93,911 87,831
-------- --------
NET INCOME................................................... $ 42,955 $ 28,905
======== ========
ALLOCATION OF NET INCOME:
General partner.............................................. $ 19,399 $ 13,148
Limited partner.............................................. $ 23,556 $ 15,757
PARTNERSHIP UNIT DATA:
Weighted average partnership units outstanding............... 43,350 38,410
Net income per unit.......................................... $ 0.99 $ 0.75
Cash distributions declared and paid per unit................ $ 1.105 $ 1.075
</TABLE>
See accompanying notes.
F-25
<PAGE> 138
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
IRVINE APARTMENT LIMITED
COMMUNITIES, INC. PARTNERS TOTAL
------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at January 1, 1996........................... $ 155,433 $109,133 $264,566
Net income......................................... 13,148 15,757 28,905
Contributions...................................... 30,151 33,185 63,336
Distributions...................................... (18,800) (22,534) (41,334)
-------- -------- --------
Balance at September 30, 1996........................ $ 179,932 $135,541 $315,473
======== ======== ========
Balance at January 1, 1997........................... $ 180,017 $140,327 $320,344
Net income......................................... 19,399 23,556 42,955
Contributions...................................... 32,698 47,286 79,984
Distributions...................................... (21,429) (26,101) (47,530)
-------- -------- --------
Balance at September 30, 1997........................ $ 210,685 $185,068 $395,753
======== ======== ========
PARTNERSHIP UNITS OUTSTANDING:
Balance at January 1, 1996........................... 16,975 20,397 37,372
Additional partnership units issued................ 1,509 1,644 3,153
-------- -------- --------
Balance at September 30, 1996........................ 18,484 22,041 40,525
======== ======== ========
Balance at January 1, 1997........................... 18,556 22,292 40,848
Additional partnership units issued................ 1,323 1,802 3,125
-------- -------- --------
Balance at September 30, 1997........................ 19,879 24,094 43,973
======== ======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 139
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 42,955 $ 28,905
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred financing costs............................ 1,882 1,975
Depreciation and amortization....................................... 21,700 20,346
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Restricted cash.................................................. (58) (169)
Other assets..................................................... (4,050) (1,283)
Accounts payable and accrued liabilities......................... 5,612 5,050
Security deposits................................................ 1,391 924
--------- --------
Net Cash Provided by Operating Activities............................. 69,432 55,748
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements to operating real estate assets.................. (3,199) (2,914)
Investment in real estate assets, net of construction payables........ (202,608) (41,306)
--------- --------
Net Cash Used in Investing Activities................................. (205,807) (44,220)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit...................................... 153,000 55,900
Payments on lines of credit........................................... (34,000) (77,900)
Payments on tax-exempt mortgage bond financings....................... (2,679) (2,493)
Principal payments.................................................... (2,559) (2,916)
Deferred financing costs.............................................. (417)
Contributions from partners........................................... 69,728 60,387
Distributions to partners............................................. (47,530) (41,334)
--------- --------
Net Cash Provided by (Used in) Financing Activities................... 135,543 (8,356)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (832) 3,172
Cash and Cash Equivalents at Beginning of Period...................... 3,205 4,392
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 2,373 $ 7,564
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized........................... $ 21,348 $ 22,605
Tax-exempt assessment district debt assumed......................... $ -- $ 2,771
</TABLE>
See accompanying notes.
F-27
<PAGE> 140
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Irvine Apartment Communities, Inc. (the "Company"), operates as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. In connection with the Company's initial public offering of common
stock (the "Offering"), the Company obtained a general partnership interest in
and became the sole managing general partner of Irvine Apartment Communities,
L.P., a Delaware limited partnership (the "Operating Partnership"). The
Operating Partnership was formed on November 15, 1993 and began operations as of
December 8, 1993, the date of the Offering. In connection with the Offering, The
Irvine Company transferred 42 apartment communities and a 99% interest in a
limited partnership which owns one apartment community to the Operating
Partnership. At September 30, 1997 the Company had a 45.2% general partnership
interest in and was the sole managing general partner of the Operating
Partnership. At September 30, 1997, The Irvine Company had a 54.6% limited
partnership interest in the Operating Partnership. On February 4, 1997, the
Operating Partnership acquired the assets of Thompson Residential Company, Inc.
(see Note 5). The purchase price was paid by the issuance of 74,523 limited
partnership units in the Operating Partnership. At September 30, 1997, Thompson
Residential Company, Inc. had a 0.2% limited partnership interest in the
Operating Partnership. The Operating Partnership's management and operating
decisions are under the unilateral control of the Company. The Company was
incorporated in Delaware on September 10, 1993. On May 2, 1996, the Company
changed its state of incorporation from Delaware to Maryland.
The Company is a self-administered equity REIT engaged in the operation and
development (through the Operating Partnership) of apartment communities in
Orange County, California and, beginning in 1997, other locations in California.
The Operating Partnership utilizes independent third party property management
and construction management firms. As of September 30, 1997 the Operating
Partnership owned 55 apartment communities representing 14,991 apartment units
and 1,110 units under construction (collectively, the "Properties"). The
Operating Partnership broke ground on its first "off-Ranch" apartment community,
located in Northern California's Silicon Valley, in May 1997. On June 30, 1997,
the Operating Partnership acquired a 923-unit apartment community in the La
Jolla region of north San Diego County (see Note 6). Until July 31, 2020, the
Operating Partnership has the exclusive right, but not the obligation, to
acquire land from The Irvine Company for development of additional apartment
communities on the Irvine Ranch.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying financial statements include the consolidated accounts of
the Operating Partnership and its financially controlled subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.
Profits and losses are generally allocated to the Company and to the
limited partners based upon their respective ownership interests in the
Operating Partnership. Under the terms of the partnership agreement, all costs
incurred by the Company relating to the ownership of its interest in and
operation of the Operating Partnership, including the compensation of its
officers and employees, stock incentive plans, director fees and the costs and
expenses of being a public company, are paid by the Operating Partnership. In
addition, The Irvine Company generally has the right, but not the obligation, to
match on the same terms and conditions any capital contributions made by the
Company and the Operating Partnership based on the pro rata ownership interest
at the time of such contribution.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
September 30, 1997 and December 31, 1996 and the revenues and expenses for the
three months and nine months ended September 30, 1997 and 1996. Actual results
could differ from those estimates.
F-28
<PAGE> 141
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. All such adjustments are of a normal, recurring nature. Operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. These unaudited condensed financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto of the
Operating Partnership included in this Prospectus and Registration Statement.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
Line of Credit: In June 1997, the Operating Partnership renewed its $250
million unsecured revolving credit facility. The credit facility has a term of
three years and currently bears interest at LIBOR plus 0.70% or prime. The
credit facility provides for the borrowing interest rates to be adjusted up or
down reflecting credit ratings on the Operating Partnership's senior unsecured
long-term indebtedness. Under the credit facility, the Operating Partnership is
able to borrow funds from the participating banks through a competitive bid
process to obtain a lower interest rate. At September 30, 1997, outstanding
borrowings under the credit facility priced on a competitive bid basis were $70
million at an average interest spread of 0.46% over LIBOR. This revolving credit
facility, which is guaranteed by the Company, is available to finance the
Operating Partnership's ongoing rental property development program and for
general working capital needs. The Company and the Operating Partnership must
comply with certain affirmative and negative covenants, including limitations on
distributions, and the maintenance of certain net worth, cash flow and financial
ratios. At September 30, 1997 the Company and the Operating Partnership were in
compliance with all of these covenants. As of September 30, 1997, $135 million
was outstanding and $115 million was available under the line of credit.
Shelf Registration Statements: On May 14, 1997 the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, debt securities, and warrants to purchase common stock, preferred stock
and debt securities. This registration statement replaced the Company's previous
registration statement. The Company plans to use the proceeds raised from any
securities issued under its shelf registration statement for general corporate
purposes, including the development of new apartment communities, acquisitions
and the repayment of existing debt. Availability under the Company's shelf
registration statement was $350 million at September 30, 1997. Concurrently, the
Operating Partnership filed a shelf registration statement with the Securities
and Exchange Commission providing for the issuance from time to time of up to
$350 million of debt securities. The Operating Partnership plans to use the
proceeds raised from any securities issued under its shelf registration
statement for general corporate purposes, including the development of new
apartment communities, acquisitions and the repayment of existing debt.
Availability under the Operating Partnership's shelf registration statement was
$350 million at September 30, 1997.
Subsequent Event: On October 1, 1997 the Operating Partnership issued $100
million aggregate principal amount of 7% senior unsecured notes (the "Notes")
pursuant to its shelf registration statement. The Notes are due on October 1,
2007 and were priced at 99.21% to yield 7.10%, or 99 basis points over the rate
on U.S. Treasury securities with comparable maturity on the date such rate was
set. Net proceeds from the offering of $98.3 million were used to repay
indebtedness under the Operating Partnership's revolving credit facility, which
was used to finance The Villas of Renaissance acquisition (see Note 6).
NOTE 4 -- PARTNERS' CAPITAL
On February 20, 1997 the Company sold, in a public offering, 1.15 million
shares of common stock at $27.50 per share. Concurrently, The Irvine Company
(see Note 7), pursuant to its rights under the
F-29
<PAGE> 142
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
partnership agreement, purchased 1.39 million additional limited partnership
units at $26.06 per unit (which is equal to the public offering price of the
common stock less an amount equivalent to the underwriting discount) which are
exchangeable for common stock on a one for one basis, subject to adjustment and
certain limitations. The proceeds from the two transactions totaled $66 million
and were used to repay all indebtedness then outstanding under the revolving
line of credit, and for general corporate purposes, including ongoing
development activities on and off the Irvine Ranch.
The Operating Partnership paid cash distributions of $0.365 per partnership
unit on February 28 and May 30, 1997 and $0.375 per partnership unit on August
29, 1997. On October 23, 1997 the Operating Partnership declared a cash dividend
of $0.375 per partnership unit that is payable on November 26, 1997. During the
first and second quarters of 1996, the Operating Partnership paid a cash
dividend of $0.355 per partnership unit and $0.365 per partnership unit during
the third quarter of 1996.
As of September 30, 1997 the Company had $350 million of availability under
its shelf registration statement, which provides for the issuance from time to
time of common stock, preferred stock, debt securities, and warrants to purchase
common stock, preferred stock and debt securities (see Note 3).
The computation of primary earnings per partnership unit for the Operating
Partnership is based on a weighted average of 43,920,321 and 43,349,958 units of
partnership interest outstanding during the three and nine months ended
September 30, 1997, respectively.
RECONCILIATION OF PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
NINE MONTHS ENDED SEPTEMBER 30, 1997 30, 1996
------------------------------------- ----------------------------
THE IRVINE THE IRVINE
COMPANY COMPANY OTHER TOTAL COMPANY COMPANY TOTAL
------- ---------- ----- ------ ------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period..... 18,556 22,292 40,848 16,975 20,397 37,372
Stock awards issued and options
exercised........................ 156 156 10 10
Dividend reinvestment plan......... 17 20 37 9 9 18
Common stock offering and related
cash contribution from The Irvine
Company.......................... 1,150 1,394 2,544 1,490 1,491 2,981
Acquisition of Thompson
Residential assets............ 75 75
Contributions of property by The
Irvine Company................... 313 313 144 144
------ ------ --- ------ ------ ------ ------
Balance at end of period........... 19,879 24,019 75 43,973 18,484 22,041 40,525
====== ====== === ====== ====== ====== ======
Ownership interest at end of
period........................... 45.2 % 54.6% 0.2% 100% 45.6 % 54.4% 100%
====== ====== === ====== ====== ====== ======
</TABLE>
NOTE 5 -- ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
On February 4, 1997, the Operating Partnership acquired for $2 million the
assets of Thompson Residential Company, Inc. ("TRC"), a privately held, Northern
California-based multifamily development company. Included in the purchase were
options to purchase three development sites located in Northern California's
Silicon Valley. The purchase price was paid by the issuance of 74,523 limited
partnership units in the Operating Partnership, exchangeable for common stock of
the Company, with the price per unit of $26.838 which was based on the average
closing price of the Company's common stock for the 10 trading days preceding
the acquisition's closing date. In addition, TRC may be paid up to an additional
$2 million in cash or limited partnership units if the apartment community (The
Hamptons) achieves certain performance targets. The three senior real estate
executives at TRC have also joined the Company with primary responsibility for
the Company's operations outside of the Irvine Ranch.
F-30
<PAGE> 143
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- ACQUISITION OF THE VILLAS OF RENAISSANCE
On June 30, 1997 the Operating Partnership acquired a 923-unit apartment
community located in the La Jolla region of north San Diego County from an
unrelated third party for $127.0 million. $118.0 million of the purchase price
was funded by borrowings under the Operating Partnership's $250 million
unsecured line of credit (see Note 3) and $9.0 million was funded from cash on
hand. A more detailed description of the transaction is described in the
Company's and the Operating Partnership's Current Report on Form 8-K filed with
the Securities Exchange Commission on July 15, 1997, as amended on July 23,
1997.
NOTE 7 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the Company are borne by the Operating
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative services agreement covering
services for risk management, income taxes and other services of $95,000 and
$80,000 for the nine months ended September 30, 1997 and 1996, respectively. The
Irvine Company and the Operating Partnership jointly purchase employee health
care insurance and property and casualty insurance. In addition, the Operating
Partnership incurred rent totaling $264,000 and $233,000 for the nine months
ended September 30, 1997 and 1996, respectively, related to leases with The
Irvine Company that expire at the end of 1997 and 1998. For the nine months
ended September 30, 1997 The Irvine Company contributed $568,000 in connection
with partnership unit and stock issuances under the dividend reinvestment and
additional cash investment plan.
On February 10, 1997, the Operating Partnership acquired a land site for
$8.4 million from The Irvine Company for the development of 316 rental units
pursuant to the Land Rights Agreement between the Operating Partnership and The
Irvine Company. The Company's board committee of independent directors approved
the purchase in accordance with the Land Rights Agreement. The purchase price
was paid through the issuance of 313,439 additional limited partnership units in
the Operating Partnership to The Irvine Company. Pursuant to the terms of the
acquisition, a portion of the limited partnership units in the Operating
Partnership are subject to refund if the apartment community developed on the
site does not achieve a 10% unleveraged return on costs for the first twelve
months following stabilized occupancy.
On October 21, 1997, the Operating Partnership acquired a land site for
$5.7 million from The Irvine Company for the development of 196 rental units
pursuant to the Land Rights Agreement. The Company's board committee of
independent directors approved the purchase in accordance with the Land Rights
Agreement. The purchase price was paid through the issuance of 179,433
additional limited partnership units in the Operating Partnership to The Irvine
Company. Pursuant to the terms of the acquisition, a portion of the limited
partnership units in the Operating Partnership are subject to refund if the
apartment community developed on the site does not achieve a 10% unleveraged
return on costs for the first twelve months following stabilized occupancy.
Concurrent with the Company's common stock offering on February 20, 1997
(see Note 4), The Irvine Company, pursuant to its rights under the partnership
agreement, purchased 1.39 million limited partnership units at a price equal to
the public offering price of $26.06 per unit (which is equal to the public
offering price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one for one basis,
subject to adjustment and certain limitations.
One of the Company's directors is chairman of a bank which participates in
the Company's line of credit. Based on the bank's percentage participation in
the credit facility, the Operating Partnership estimates that the amount of
interest and fees paid to the bank totaled $271,000 and $196,000 in the first
nine months of 1997 and the three months ended September 30, 1997, respectively.
Interest and fees for the corresponding periods in 1996 were $231,000 and
$61,000, respectively.
F-31
<PAGE> 144
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Rental income......................................... $ 133,114 $ 6,019(a) $ 139,133
Other income.......................................... 3,093 60(a) 3,153
Interest income....................................... 659 659
-------- ------- --------
136,866 6,079 142,945
-------- ------- --------
EXPENSES:
Property expenses..................................... 28,790 1,115(b) 29,905
Real estate taxes..................................... 10,959 711(c) 11,670
Property management fees.............................. 3,809 120(d) 3,929
Interest expense, net................................. 21,949 3,946(e) 25,895
Amortization of deferred financing costs.............. 1,882 1,882
Depreciation and amortization......................... 21,700 1,394(f) 23,094
General and administrative............................ 4,822 4,822
-------- ------- --------
93,911 7,286 101,197
-------- ------- --------
NET INCOME............................................ $ 42,955 $(1,207) $ 41,748
======== ======= ========
ALLOCATION OF NET INCOME (LOSS):
General partner..................................... $ 19,399 $ (545) $ 18,854
Limited partners.................................... $ 23,556 $ (662)(g) $ 22,894
PARTNERSHIP UNIT DATA:
Weighted average number of units outstanding.......... 43,350 43,350
Net income per unit................................... $ 0.99 $ 0.96
Cash distributions declared and paid per unit......... $ 1.105 $ 1.105
</TABLE>
See accompanying notes.
F-32
<PAGE> 145
IRVINE APARTMENT COMMUNITIES, L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Rental income......................................... $ 154,925 $11,591(a) $ 166,516
Other income.......................................... 3,162 173(a) 3,335
Interest income....................................... 611 611
-------- ------- --------
158,698 11,764 170,462
======== ======= ========
EXPENSES:
Property expenses..................................... 33,859 2,176(b) 36,035
Real estate taxes..................................... 13,496 1,422(c) 14,918
Property management fees.............................. 4,502 240(d) 4,742
Interest expense, net................................. 29,506 7,891(e) 37,397
Amortization of deferred financing costs.............. 2,627 2,627
Depreciation and amortization......................... 27,239 2,786(f) 30,025
General and administrative............................ 6,277 6,277
-------- ------- --------
117,506 14,515 132,021
-------- ------- --------
NET INCOME............................................ $ 41,192 $(2,751) $ 38,441
======== ======= ========
ALLOCATION OF NET INCOME (LOSS):
General partner..................................... $ 18,746 $(1,251) $ 17,495
Limited partner..................................... $ 22,446 $(1,500)(g) $ 20,946
PARTNERSHIP UNIT DATA:
Weighted average number of units outstanding.......... 38,953 38,953
Net income per unit................................... $ 1.06 $ 0.99
Cash distributions declared and paid per unit......... $ 1.440 $ 1.440
</TABLE>
See accompanying notes.
F-33
<PAGE> 146
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
Irvine Apartment Communities, L.P. (the "Operating Partnership") acquired a
923-unit apartment community known as The Villas of Renaissance (the "Property")
located in La Jolla, California on June 30, 1997.
The pro forma consolidated statements of operations of the Operating
Partnership are unaudited and have been prepared based on the historical
financial statements of the Operating Partnership for the nine months ended
September 30, 1997 and the year ended December 31, 1996.
The unaudited pro forma consolidated statement of operations for the nine
months ended September 30, 1997 has been prepared based on the historical
operations of the Operating Partnership for such period as if the acquisition of
the Property occurred at the beginning of the period presented. As the Property
was acquired on June 30, 1996, the results of operations of the Property after
June 30, 1996 are included in the historical operations of the Operating
Partnership and accordingly are not reflected in the pro forma adjustments. The
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1996 has been prepared based on the historical operations of the
Operating Partnership for 1996 as if the acquisition of the Property occurred as
of the beginning of the period. In management's opinion, all adjustments
necessary to reflect the effect of the acquisition of the Property have been
made in the pro forma financial statements.
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been if the acquisition
of the Property had occurred at the beginning of the periods presented, nor does
it purport to project the Operating Partnership's results of operations at any
future date or for any future period. In addition, the historical operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be obtained by the Operating Partnership for the
year ending December 31, 1997. The following information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in this Registration
Statement.
NOTE 2 -- PRO FORMA ADJUSTMENTS
(a) Increase in rental income and other income reflects the operations of the
Property for the period indicated prior to the acquisition by the Operating
Partnership.
(b) Increase in property expenses reflects the operations of the Property for
the period indicated prior to the acquisition by the Operating Partnership
reduced for the estimated savings in property and liability insurance
expense in the amount of $134 for the year ended December 31, 1996 and $28
for the nine months ended September 30, 1997. It is the opinion of
management that the Property is adequately covered by insurance.
(c) Increase in real estate taxes for the period indicated prior to the
acquisition by the Operating Partnership based on an estimated increase in
the assessed value of the Property resulting from the purchase. The
estimated assessed value is $127,000 with an effective annual tax rate of
1.12%.
(d) Increase in property management fees for the period indicated prior to the
acquisition by the Operating Partnership based on the negotiated
independent third party property management contract for the Property in
the amount of $20 per month.
(e) Reflects additional interest expense for the period indicated prior to the
acquisition by the Operating Partnership associated with borrowings used to
finance the acquisition of the Property in the amount of $118,000,
calculated based on the interest rate in effect at the time of the
borrowing of 6.69%. A .125% change in the interest rate of the variable
rate borrowings used to finance the acquisition of the Property
F-34
<PAGE> 147
would change pro forma interest expense by $147 for the year ended December
31, 1996 and $111 for the nine months ended September 30, 1997.
(f) Represents additional depreciation for the period indicated prior to the
acquisition by the Operating Partnership computed on a straight line basis
using (1) estimated remaining useful life of 40 years and the depreciable
cost basis of the Property ($102,863, excluding land and personal property)
and (2) estimated seven year useful life for the related personal property
($1,500).
(g) Represents the portion of all preceding pro forma adjustments attributable
to the limited partners in the Operating Partnership based on an average
ownership interest of 54.51% for the year ended December 31, 1996 and
54.83% for the six months ended June 30, 1997 (date of acquisition of the
Property).
F-35
<PAGE> 148
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
Irvine Apartment Communities, L.P.
We have audited the accompanying statement of revenues and certain
operating expenses of The Villas of Renaissance (the "Property") for the year
ended December 31, 1996. This financial statement is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-11 of IAC Capital Trust and Irvine Apartment Communities, L.P.
(described in Note 1) and is not intended to be a complete presentation of the
Property's revenues and operating expenses.
In our opinion, the financial statement presents fairly, in all material
respects, the revenues and certain operating expenses of the Property for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 18, 1997
F-36
<PAGE> 149
THE VILLAS OF RENAISSANCE
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996 AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
REVENUES:
Rental revenue............................................ $11,591 $ 6,019
Other revenue............................................. 173 60
------- -------
Total revenues.................................... 11,764 6,079
------- -------
CERTAIN OPERATING EXPENSES:
Property expenses......................................... 2,310 1,143
Real estate taxes......................................... 901 498
Management fees........................................... 402 278
------- -------
Total certain operating expenses.................. 3,613 1,919
------- -------
REVENUES IN EXCESS OF CERTAIN OPERATING EXPENSES............ $ 8,151 $ 4,160
======= =======
</TABLE>
See notes to financial statements.
F-37
<PAGE> 150
THE VILLAS OF RENAISSANCE
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The Property, a luxury apartment community consisting of 923 units, common
area improvements, recreational facilities, and amenities located in La Jolla,
California, is in the process of being sold by Aoki Construction (CA) Co., Ltd.,
a California corporation, ("ACCA") to Irvine Apartment Communities, L.P., a
Delaware limited partnership (the "Operating Partnership"). Prior to April 7,
1997, ACCA was a 99.5% general partner and Aoki Pacific Corporation ("APC") was
a .5% general partner in Renaissance Villas Associates, a California general
partnership (the "Partnership"). On April 7, 1997, APC assigned its interest in
the Partnership to ACCA thus making ACCA the sole remaining partner.
Interest, depreciation and amortization not directly related to the future
operations of the Property have been excluded from the statement of revenues and
certain operating expenses in accordance with Rule 3-14 of Regulation S-X of the
Securities and Exchange Commission. ACCA and APC are not aware of any material
factors relating to the Property that would cause the reported financial
information not to be indicative of future operating results.
The unaudited statement of revenues and certain operating expenses for the
six months ended June 30, 1997 has been prepared in accordance with the
Partnership's accounting policies applied to the year ended December 31, 1996.
In the opinion of management, all adjustments and eliminations, consisting only
of normal recurring adjustments, necessary to present fairly the statement of
revenues and certain operating expenses of the Property for the six months ended
June 30, 1997, have been included. The results of operations for this interim
period are not necessarily indicative of the results for the full year.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Apartment units are leased for terms of one year or
less. Rental revenue is recognized on an accrual basis.
Repair and Maintenance. Recurring repair and maintenance costs are expensed
as incurred.
F-39
<PAGE> 151
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING
PARTNERSHIP OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 5
Risk Factors............................ 17
IAC Capital Trust....................... 24
Recent Developments..................... 27
Use of Proceeds......................... 28
Operating Partnership Consolidated
Ratios of Earnings to Fixed Charges
and Preferred L.P. Unit
Distributions......................... 28
Capitalization of IAC Capital Trust..... 29
Capitalization of Irvine Apartment
Communities, L.P...................... 29
Selected Consolidated Financial Data.... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Operating
Partnership........................... 32
Business and Properties of the Operating
Partnership........................... 41
Policies with Respect to Certain
Activities............................ 55
Management.............................. 59
Principal Securityholders............... 67
Certain Relationships and Related
Transactions.......................... 70
Description of the Series A Preferred
Securities............................ 74
Description of the Series A Preferred
L.P. Units............................ 87
Relationship Between the Preferred
Securities and the Preferred L.P.
Units................................. 92
Operating Partnership Agreement......... 93
Certain Federal Income Tax
Consequences.......................... 96
Underwriting............................ 103
Experts................................. 105
Legal Matters........................... 105
Additional Information.................. 106
Glossary................................ 107
Index to Financial Statements........... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SERIES A PREFERRED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
6,000,000
SERIES A PREFERRED SECURITIES
IAC CAPITAL TRUST
% SERIES A REIT TRUST ORIGINATED
PREFERRED SECURITIES(SM) ("TOPRS(SM)")
[IAC LOGO]
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
, 1998
======================================================
<PAGE> 152
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $51,812
NASD filing fee.................................................... 17,750
Rating agency fees................................................. *
Trustees' fees..................................................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Blue sky filing and legal fees and expenses........................ *
Accounting fees and expenses....................................... *
Miscellaneous...................................................... *
-------
Total.................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
All amounts estimated except for Securities and Exchange Commission registration
fee.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
Irvine Apartment Communities, L.P.: Incorporated by reference to (i) Item
10 of the Registration Statement on Form 10 of the Operating Partnership, filed
on May 15, 1997; (ii) Item 2 of the Quarterly Report on Form 10-Q of the
Operating Partnership for the quarter ended March 31, 1997; (iii) Item 2 of the
Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended
June 30, 1997, as amended; and (iv) Item 2 of the Quarterly Report on Form 10-Q
of the Operating Partnership for the quarter ended September 30, 1997.
IAC Capital Trust: Not applicable.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Declaration of Trust (the "Declaration") of the
Trust will provide that no Trustee, affiliate of any Trustee or any officers,
directors, shareholders, members, partners, employees, representatives or agents
of any Trustee or any employee or agent of the Trust or its affiliates (each, an
"Indemnified Person") shall be liable, responsible or accountable in damages or
otherwise to any employee or agent of the Trust or its affiliates, or any
officers, directors, shareholders, employees, representatives or agents of the
Operating Partnership or the Company or their affiliates or to any holders of
Preferred Securities of the Trust for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by the Declaration or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason of
such Indemnified Person's gross negligence (or, in the case of the Property
Trustee of the Trust, negligence) or willful misconduct with respect to such
acts or omissions. The Declaration also provides that, to the fullest extent
permitted by applicable law, the Operating Partnership and the Company shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of authority conferred on such Indemnified Person by the
Declaration, except that no Indemnified Person shall
II-1
<PAGE> 153
be entitled to be indemnified in respect of any loss, damage or claim incurred
by such Indemnified Person by reason of gross negligence (or, in the case of the
Property Trustee of the Trust, negligence) or willful misconduct with respect to
such acts or omissions. The Declaration further provides that to the fullest
extent permitted by applicable law, expenses (including legal fees) incurred by
an Indemnified Person in defending any claim, demand, action, suit or the final
disposition of such claim, demand, action, suit or proceeding shall, from time
to time, be advanced by the Operating Partnership or the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company and the Operating Partnership of an undertaking by or on behalf
of the Indemnified Person to repay such amount if it shall be determined that
the Indemnified Person is not entitled to be indemnified pursuant to the
Declaration.
The Second Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") of the Operating Partnership will contain provisions
indemnifying the Company and the Company's officers and directors against
certain liabilities. The Partnership Agreement will provide for indemnification
of the Company and the Company's officers and directors to the fullest extent
permitted by law; provided that no indemnification shall be provided (i) for
willful misconduct or a knowing violation of the law or (ii) for any transaction
for which a party seeking indemnification received an improper personal benefit
in violation or breach of any provision of the Partnership Agreement. Such
indemnification will include the advance of expenses. Any indemnification
pursuant to the Partnership Agreement shall be made only out of the assets of
the Operating Partnership, and neither the Company nor any limited partner of
the Operating Partnership shall have any obligation to contribute to the capital
of the Operating Partnership or otherwise provide funds to enable the Operating
Partnership to fund its indemnification obligations. The indemnification
provided by the Partnership Agreement shall be in addition to any other rights
to which a person may be entitled. Any amendment, modification or repeal of the
indemnification provisions of the Partnership Agreement shall be prospective
only, and shall not apply to or have any effect on any right to indemnification
provided thereunder with respect to acts or omissions occurring prior to such
amendment, modification or repeal.
In addition, the Company's officers and directors are indemnified under
Maryland law and the Company's Articles of Incorporation. Section 2-418 of the
Maryland General Corporation Law permits the indemnification of directors,
officers, employees and agents of Maryland corporations. ARTICLE EIGHTH of the
Company's Articles of Amendment and Restatement (the "Articles") authorizes the
indemnification of directors and officers to the full extent required or
permitted by the General Laws of the State of Maryland, now or hereafter in
force, whether such persons are serving the Company or, at its request, any
other entity, which indemnification shall include the advance of expenses under
the procedures and to the full extent permitted by law. ARTICLE EIGHTH of the
Articles further provides that the foregoing rights of indemnification shall not
be exclusive of any other rights to which those seeking indemnification may be
entitled and that no amendment or repeal of ARTICLE EIGHTH shall apply to or
have any effect on any right to indemnification provided thereunder with respect
to acts or omissions occurring prior to such amendment or repeal. In addition,
the Company's officers and directors are covered by certain directors' and
officers' liability insurance policies maintained by the Company. Reference is
made to Section 2-418 of the Maryland General Corporation Law and ARTICLE EIGHTH
of the Articles which are incorporated herein by reference.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
The proceeds from the securities being registered herein will be credited
to Redeemable Preferred Securities in the amount of $25 per share which will be
presented outside of shareholders' equity in IAC Capital Trust's balance sheet.
II-2
<PAGE> 154
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements (all included in Prospectus)
IAC CAPITAL TRUST
Report of Independent Auditors
Balance Sheet as of October 31, 1997
Notes to Balance Sheet
IRVINE APARTMENT COMMUNITIES, L.P.
Report of Independent Auditors
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Schedule III -- Consolidated Real Estate and Accumulated Depreciation
Unaudited Condensed Consolidated Financial Information:
Unaudited Condensed Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996
Unaudited Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1997 and 1996
Unaudited Condensed Consolidated Statements of Changes in Partners'
Capital for the nine months ended September 30, 1997 and 1996
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996
Notes to Unaudited Condensed Consolidated Financial Statements
Unaudited Pro Forma Consolidated Financial Information:
Unaudited Consolidated Statement of Operations for the nine months
ended
September 30, 1997
Unaudited Consolidated Statement of Operations for the year ended
December 31, 1996
Notes to Unaudited Pro Forma Consolidated Statements of Operations
THE VILLAS OF RENAISSANCE
Independent Accountants' Report
Statements of Revenues and Certain Operating Expenses for the six
months ended
June 30, 1997 (unaudited) and the year ended December 31, 1996
Notes to Financial Statements
II-3
<PAGE> 155
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
1.1 Form of Purchase Agreement.
2.1 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997
by and between Aoki Construction (CA) Co., Ltd. and the Operating Partnership
(incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of
the Company and the Operating Partnership filed on August 6, 1997).
3.1 Form of Second Amended and Restated Agreement of Limited Partnership of Irvine
Apartment Communities, L.P. dated , 1998.
3.2 Form of Designation Instrument Relating to Series A Preferred L.P. Units.
4.1 Indenture dated as of October 1, 1997 between the Operating Partnership and
First Trust of California, National Association, as Trustee (the "Trustee")
(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of
the Company and the Operating Partnership filed on October 1, 1997 (the
"October 1997 Form 8-K")).
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997, relating to the
Operating Partnership's 7% Notes due 2007, between the Operating Partnership
and the Trustee (incorporated by reference to Exhibit 4.2 of the October 1997
Form 8-K).
4.3 Form of Trust Preferred Security (included in Exhibit 4.5).
4.4 Declaration of Trust of IAC Capital Trust (with attached Certificate of
Trust).+
4.5 Form of Amended and Restated Declaration of Trust of IAC Capital Trust.
4.6 Form of Certificate of Terms Relating to Series A Preferred Securities.
5.1 Opinion of Davis Polk & Wardwell.*
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of
the Series A Trust Preferred Securities of IAC Capital Trust.*
8.1 Opinion of Davis Polk & Wardwell re: tax matters.*
10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997
by and between Aoki Construction (CA) Co., Ltd. and the Operating Partnership
(see Exhibit 2.1).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2 of the Annual Report
on Form 10-K of the Company for the year ended December 31, 1993 (the
"Company's 1993 Form 10-K").
10.4 Miscellaneous Rights Agreement among the Company and the persons named therein
(incorporated by reference to Exhibit 10.4 of the Company's Registration
Statement on Form 8-B, filed on April 30, 1996 (the "Company's Form 8-B")).
10.4.1 Amendment No. 1 to the Miscellaneous Rights Agreement (incorporated by
reference to Exhibit 10.4.1 of the Quarterly Report on Form 10-Q of the Company
and the Operating Partnership for the quarter ended September 30, 1997 (the
"1997 Third Quarter Form 10-Q").
10.4.2 Form of Amendment No. 2 to the Miscellaneous Rights Agreement.
10.5 Administrative Services Agreement (incorporated by reference to Exhibit 10.5 of
the Company's 1993 Form 10-K).
10.5.1 Amendment and Extension to the Administrative Services Agreement (incorporated
by reference to 10.5.1 of the Annual Report on Form 10-K of the Company for the
year ended December 31, 1994).
10.6 Exclusive Land Rights and Non-Competition Agreement (incorporated by reference
to Exhibit 10.6 of the Company's 1993 Form 10-K).
10.6.1 Amendment No. 1 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.1 of the Quarterly Report on Form
10-Q of the Company for the quarter ended June 30, 1995 (the "Company's 1995
Second Quarter Form 10-Q").
</TABLE>
II-4
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
10.6.2 Amendment No. 2 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.2 of the Company's 1995 Second
Quarter Form 10-Q).
10.6.3 Amendment No. 3 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.3 of the Company's Form 8-B).
10.6.4 Amendment No. 4 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.4 of the 1997 Third Quarter Form
10-Q).
10.6.5 Form of Amendment No. 5 to the Exclusive Land Rights and Non-Competition
Agreement.
10.7 Contribution Agreement and Escrow Instructions Agreement (incorporated by
reference to Exhibit 10.7 of the Company's 1993 Form 10-K).
10.8 Irvine Apartment Communities, Inc. 1993 Stock Option Plan for Directors
(incorporated by reference to Exhibit 10.8 of the Company's 1993 Form 10-K).
10.9 Irvine Apartment Communities, Inc. 1993 Long-Term Stock Incentive Plan
(incorporated by reference to Exhibit 10.9 of the Company's 1993 Form 10-K).
10.10 Irrevocable Trust Agreement (incorporated by reference to Exhibit 10.10 of the
Company's 1993 Form 10-K).
10.11 Revolving Credit Agreement dated as of June 27, 1997 (incorporated by reference
to Exhibit 10.11 of the Quarterly Report on Form 10-Q of the Company and the
Operating Partnership for the quarter ended June 30, 1997 (the "1997 Second
Quarter Form 10-Q")).
10.12 Indenture of Trust for Tax-Exempt Mortgage Bond Financing (incorporated by
reference to Exhibit 10.13 of the Company's 1995 Second Quarter Form 10-Q).
10.13 Employment Arrangement Letter with Chief Executive Officer (incorporated by
reference to Exhibit 10.13 of the 1997 Second Quarter Form 10-Q).
10.14 Irvine Apartment Communities, Inc. 1996 Long-Term Stock Incentive Plan
(incorporated by reference to Exhibit 10.14 of the Company's Form 8-B).
10.15 Severance Agreement with the Company's former Chief Financial Officer
(incorporated by reference to Exhibit 10.15 of the Annual Report on Form 10-K
of the Company for the year ended December 31, 1996 (the "Company's 1996 Form
10-K").
10.16 Severance Agreement with the Company's former Chief Executive Officer
(incorporated by reference to Exhibit 10.16 of the Company's 1996 Form 10-K).
12 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of
the Operating Partnership.+
21.1 Subsidiaries of the Operating Partnership (incorporated by reference to Exhibit
21 of the Registration Statement on Form 10 of the Operating Partnership filed
on May 15, 1997).
21.2 Subsidiaries of IAC Capital Trust (not applicable -- no subsidiaries).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Davis Polk & Wardwell (included in Exhibits 5.1 and 8.1).
23.3 Consent of Skadden, Arps, Slate Meagher & Flom LLP (included in Exhibit 5.2).
23.4 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (included on the signature pages hereof).+
</TABLE>
- ---------------
* To be filed by Amendment.
+ Previously filed.
II-5
<PAGE> 157
ITEM 37. UNDERTAKINGS.
The undersigned registrants hereby undertake to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, trustees and controlling
persons of the registrants pursuant to the foregoing provisions or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer, trustee or
controlling person of the registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, trustee or
controlling person, in connection with the securities being registered
hereunder, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrants hereby further undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrants certify that they have reasonable grounds to believe that they meet
all of the requirements for filing on Form S-11 and have duly caused this
Amendment No. 1 to the Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in Newport Beach, California, on the
17th day of December, 1997.
IAC CAPITAL TRUST, a Delaware business
trust
By: /s/ JAMES E. MEAD
------------------------------------
James E. Mead
Regular Trustee
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities,
Inc.,
its sole general partner
By: /s/ JAMES E. MEAD
------------------------------------
James E. Mead
Senior Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities as Directors and Officers of Irvine Apartment Communities, Inc.,
the sponsor of IAC Capital Trust and sole general partner of Irvine Apartment
Communities, L.P., and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- ------------------
<S> <C> <C>
* Chairman of the Board of December 17, 1997
- ----------------------------------------------- Directors
Donald Bren
* President and Chief December 17, 1997
- ----------------------------------------------- Executive Officer and
William H. McFarland Director
(Principal Executive
Officer)
* Director December 17, 1997
- -----------------------------------------------
Anthony M. Frank
* Director December 17, 1997
- -----------------------------------------------
John F. Grundhofer
* Director December 17, 1997
- -----------------------------------------------
Bowen H. McCoy
* Director December 17, 1997
- -----------------------------------------------
Michael D. McKee
* Director December 17, 1997
- -----------------------------------------------
Jack W. Peltason
</TABLE>
II-7
<PAGE> 159
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- ------------------
<S> <C> <C>
* Director December 17, 1997
- -----------------------------------------------
John F. Seymour, Jr.
* Director December 17, 1997
- -----------------------------------------------
Raymond L. Watson
/s/ JAMES E. MEAD Senior Vice President, December 17, 1997
- ----------------------------------------------- Chief Financial Officer and
James E. Mead Secretary
(Principal Financial
Officer)
* Vice President, Corporate December 17, 1997
- ----------------------------------------------- Financial and Controller
Shawn Howie (Principal Accounting
Officer)
* Pursuant to the Power of Attorney previously filed with the Commission.
/s/ JAMES E. MEAD Attorney-in-Fact December 17, 1997
- -----------------------------------------------
James E. Mead
</TABLE>
II-8
<PAGE> 160
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
1.1 Form of Purchase Agreement.
2.1 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997
by and between Aoki Construction (CA) Co., Ltd. and the Operating Partnership
(incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of
the Company and the Operating Partnership filed on August 6, 1997).
3.1 Form of Second Amended and Restated Agreement of Limited Partnership of Irvine
Apartment Communities, L.P. dated , 1998.
3.2 Form of Designation Instrument Relating to Series A Preferred L.P. Units.
4.1 Indenture dated as of October 1, 1997 between the Operating Partnership and
First Trust of California, National Association, as Trustee (the "Trustee")
(incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of
the Company and the Operating Partnership filed on October 1, 1997 (the
"October 1997 Form 8-K")).
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997, relating to the
Operating Partnership's 7% Notes due 2007, between the Operating Partnership
and the Trustee (incorporated by reference to Exhibit 4.2 of the October 1997
Form 8-K).
4.3 Form of Trust Preferred Security (included in Exhibit 4.5).
4.4 Declaration of Trust of IAC Capital Trust (with attached Certificate of
Trust).+
4.5 Form of Amended and Restated Declaration of Trust of IAC Capital Trust.
4.6 Form of Certificate of Terms Relating to Series A Preferred Securities.
5.1 Opinion of Davis Polk & Wardwell.*
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of
the Series A Trust Preferred Securities of IAC Capital Trust.*
8.1 Opinion of Davis Polk & Wardwell re: tax matters.*
10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997
by and between Aoki Construction (CA) Co., Ltd. and the Operating Partnership
(see Exhibit 2.1).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2 of the Annual Report
on Form 10-K of the Company for the year ended December 31, 1993 (the
"Company's 1993 Form 10-K").
10.4 Miscellaneous Rights Agreement among the Company and the persons named therein
(incorporated by reference to Exhibit 10.4 of the Company's Registration
Statement on Form 8-B, filed on April 30, 1996 (the "Company's Form 8-B")).
10.4.1 Amendment No. 1 to the Miscellaneous Rights Agreement (incorporated by
reference to Exhibit 10.4.1 of the Quarterly Report on Form 10-Q of the Company
and the Operating Partnership for the quarter ended September 30, 1997 (the
"1997 Third Quarter Form 10-Q").
10.4.2 Form of Amendment No. 2 to the Miscellaneous Rights Agreement.
10.5 Administrative Services Agreement (incorporated by reference to Exhibit 10.5 of
the Company's 1993 Form 10-K).
10.5.1 Amendment and Extension to the Administrative Services Agreement (incorporated
by reference to Exhibit 10.5.1 of the Annual Report on Form 10-K of the Company
for the year ended December 31, 1994).
10.6 Exclusive Land Rights and Non-Competition Agreement (incorporated by reference
to Exhibit 10.6 of the Company's 1993 Form 10-K).
10.6.1 Amendment No. 1 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.1 of the Quarterly Report on Form
10-Q of the Company for the quarter ended June 30, 1995 (the "Company's 1995
Second Quarter Form 10-Q").
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
10.6.2 Amendment No. 2 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.2 of the Company's 1995 Second
Quarter Form 10-Q).
10.6.3 Amendment No. 3 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.3 of the Company's Form 8-B).
10.6.4 Amendment No. 4 to the Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6.4 of the 1997 Third Quarter Form
10-Q).
10.6.5 Form of Amendment No. 5 to the Exclusive Land Rights and Non-Competition
Agreement.
10.7 Contribution Agreement and Escrow Instructions Agreement (incorporated by
reference to Exhibit 10.7 of the Company's 1993 Form 10-K).
10.8 Irvine Apartment Communities, Inc. 1993 Stock Option Plan for Directors
(incorporated by reference to Exhibit 10.8 of the Company's 1993 Form 10-K).
10.9 Irvine Apartment Communities, Inc. 1993 Long-Term Stock Incentive Plan
(incorporated by reference to Exhibit 10.9 of the Company's 1993 Form 10-K).
10.10 Irrevocable Trust Agreement (incorporated by reference to Exhibit 10.10 of the
Company's 1993 Form 10-K).
10.11 Revolving Credit Agreement dated as of June 27, 1997 (incorporated by reference
to Exhibit 10.11 of the Quarterly Report on Form 10-Q of the Company and the
Operating Partnership for the quarter ended June 30, 1997 (the "1997 Second
Quarter Form 10-Q")).
10.12 Indenture of Trust for Tax-Exempt Mortgage Bond Financing (incorporated by
reference to Exhibit 10.13 of the Company's 1995 Second Quarter Form 10-Q).
10.13 Employment Arrangement Letter with Chief Executive Officer (incorporated by
reference to Exhibit 10.13 of the 1997 Second Quarter Form 10-Q).
10.14 Irvine Apartment Communities, Inc. 1996 Long-Term Stock Incentive Plan
(incorporated by reference to Exhibit 10.14 of the Company's Form 8-B).
10.15 Severance Agreement with the Company's former Chief Financial Officer
(incorporated by reference to Exhibit 10.15 of the Annual Report on Form 10-K
of the Company for the year ended December 31, 1996 (the "Company's 1996 Form
10-K").
10.16 Severance Agreement with the Company's former Chief Executive Officer
(incorporated by reference to Exhibit 10.16 of the Company's 1996 Form 10-K).
12 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of
the Operating Partnership.+
21.1 Subsidiaries of the Operating Partnership (incorporated by reference to Exhibit
21 of the Registration Statement on Form 10 of the Operating Partnership filed
on May 15, 1997).
21.2 Subsidiaries of IAC Capital Trust (not applicable -- no subsidiaries).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Davis Polk & Wardwell (included in Exhibits 5.1 and 8.1).
23.3 Consent of Skadden, Arps, Slate Meagher & Flom LLP (included in Exhibit 5.2).
23.4 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (included on the signature pages hereof).+
</TABLE>
- ---------------
* To be filed by Amendment.
+ Previously filed.
<PAGE> 1
================================================================================
EXHIBIT 1.1
IAC CAPITAL TRUST
(a Delaware statutory business trust)
6,000,000 __ % Series A REIT Trust Originated Preferred Securities
FORM OF PURCHASE AGREEMENT
Dated: _______________, 199_
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PURCHASE AGREEMENT............................................................1
SECTION 1. Representations and Warranties....................................4
(a) Representations and Warranties by the Trust,
the Operating Partnership and the Company.........................4
(b) Officer's Certificates...........................................12
SECTION 2. Sale and Delivery to Underwriters; Closing.......................12
(a) Initial Securities...............................................12
(b) Option Securities................................................12
(c) Commission.......................................................13
(d) Payment..........................................................13
(e) Denominations; Registration......................................13
SECTION 3. Covenants of the Trust and the Operating Partnership.............13
(a) Compliance with Securities Regulations and Commission Requests...13
(b) Filing of Amendments.............................................14
(c) Delivery of Registration Statements..............................14
(d) Delivery of Prospectuses.........................................14
(e) Continued Compliance with Securities Laws........................15
(f) Blue Sky Qualifications..........................................15
(g) Rule 158.........................................................15
(h) Use of Proceeds..................................................16
(i) Listing..........................................................16
(j) Restriction on Sale of Securities................................16
(k) REIT Requirements................................................16
(l) Reporting Requirements...........................................16
(m) Compliance with NASD Rules.......................................16
SECTION 4. Payment of Expenses..............................................17
(a) Expenses.........................................................17
(b) Termination of Agreement.........................................17
SECTION 5. Conditions of Underwriters' Obligations..........................17
(a) Effectiveness of Registration Statement..........................17
(b) Amendment of Agreements..........................................18
(c) Amendment of OP Partnership Agreement............................18
(d) Opinion of Special Counsel for Trust, the Operating Partnership
and the Company.................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(e) Opinion of Maryland Counsel for the Company......................18
(f) Opinion of Counsel for the Bank of New York......................18
(g) Opinion of Counsel for Underwriters.............................18
(h) Officers' Certificate............................................19
(i) Accountant's Comfort Letter......................................19
(j) Bring-down Comfort Letter........................................19
(k) Maintenance of Rating............................................20
(l) Approval of Listing..............................................20
(m) No Objection.....................................................20
(n) Conditions to Purchase of Option Securities......................20
(o) Additional Documents.............................................21
(p) Termination of Agreement.........................................21
SECTION 6. Indemnification...................................................22
(a) Indemnification of Underwriter...................................22
(b) Indemnification of Trust, the Operating Partnership,
the Company, Trustees, Directors and Officers....................22
(c) Actions against Parties; Notification............................23
(d) Indemnification for Reserved Securities..........................24
SECTION 7. Contribution......................................................24
SECTION 8. Representations, Warranties and Agreements to Survive Delivery....25
SECTION 9. Termination of Agreement..........................................25
(a) Termination; General.............................................25
(b) Liabilities......................................................26
SECTION 10. Default by One or More of the Underwriters.......................26
SECTION 11. Notice...........................................................26
SECTION 12. Parties..........................................................27
SECTION 13. GOVERNING LAW AND TIME...........................................27
SECTION 14. Effect of Headings...............................................27
SCHEDULE A...............................................................Sch A-1
</TABLE>
ii
<PAGE> 4
IAC CAPITAL TRUST
(a Delaware statutory business trust)
6,000,000 __ % Series A REIT Trust Originated Preferred Securities
FORM OF PURCHASE AGREEMENT
__________, 199_
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
IAC Capital Trust, a statutory business trust formed under the laws of
the State of Delaware (the "Trust"), Irvine Apartment Communities, L.P., a
Delaware limited partnership (the "Operating Partnership"), and Irvine Apartment
Communities, Inc., a Maryland corporation (the "Company"), confirm their
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Morgan Stanley & Co. Incorporated and Salomon Brothers are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Trust and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of the Trust's __ % Series
A REIT Trust Originated Preferred Securities (the "Series A Preferred
Securities") representing undivided beneficial interests, subject to the
priority and payment terms of the securities of the Trust, in the Trust whose
initial assets will consist principally of Series A Preferred L.P. Units (as
defined herein) set forth in said Schedule A, and with respect to the grant by
the Trust to the Underwriters, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of 900,000
additional Series A Preferred Securities
1
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to cover over-allotments, if any. The aforesaid 6,000,000 Series A Preferred
Securities (the "Initial Securities") to be purchased by the Underwriters and
all or any part of the 900,000 Series A Preferred Securities subject to the
option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities." The proceeds of the sale of
the Securities by the Trust are to be invested in Series A Preferred Limited
Partner Interests (the "Series A Preferred L.P. Units") of the Operating
Partnership which initially will constitute the principal assets of the Trust.
The Company and certain members of management of the Company will acquire all of
the common securities (the "Common Securities") representing undivided
beneficial interests, subject to the priority and payment terms of the
securities of the Trust, in the Trust for an aggregate consideration of $5,000.
The Trust, the Operating Partnership and the Company understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Trust, the Operating Partnership, the Company and the Underwriters
agree that up to _________ of the Securities to be purchased by the Underwriters
(the "Reserved Securities") shall be reserved for sale by the Underwriters to
certain eligible employees and persons having business relationships with the
Company, as part of the distribution of the Securities by the Underwriters,
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. (the
"NASD") and all other applicable laws, rules and regulations. To the extent that
such Reserved Securities are not orally confirmed for purchase by such eligible
employees and persons having business relationships with the Company by the end
of the first business day after the date of this Agreement, such Reserved
Securities may be offered to the public as part of the public offering
contemplated hereby.
The Trust and the Operating Partnership have filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-11
(No. 333-39405) covering the registration of the Securities under the Securities
Act of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses. Promptly after execution and delivery of this
Agreement, the Trust and the Operating Partnership will either (i) prepare and
file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A")
of the rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations or (ii) if the Trust and the Operating Partnership have elected to
rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a
term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and
Rule 424(b). The information included in such prospectus or in such Term Sheet,
as the case may be, that was omitted from such registration statement at the
time it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein
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called a "preliminary prospectus." Such registration statement, including the
exhibits thereto and schedules thereto at the time it became effective and
including the Rule 430A Information and the Rule 434 Information, as applicable,
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final prospectus in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated December ___, 1997 together with the Term Sheet and
all references in this Agreement to the date of the Prospectus shall mean the
date of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
The Company owns a general partnership interest in the Operating
Partnership and is its sole managing general partner. The Operating Partnership
owns and operates the Properties (as defined in the Prospectus). The Operating
Partnership holds general and limited partnership interests in a partnership
(the "Property Partnership") which owns one of the Properties. The Trust, the
Company, the Operating Partnership and the Property Partnership are herein
collectively referred to as the "REIT Entities" and all references to properties
and assets of the REIT Entities include, without limitation, the Properties,
unless otherwise noted. For purposes of this Agreement, (i) the Operating
Partnership and each other subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Commission) of the Company is deemed a "Subsidiary" of the
Company and (ii) the Property Partnership and each other subsidiary (as defined
in Rule 1-02 of Regulation S-X promulgated by the Commission) of the Operating
Partnership is deemed a "Subsidiary" of the Operating Partnership.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is included in
the Registration Statement whether by incorporation or otherwise, any
preliminary prospectus or the Prospectus, as the case may be; and all references
in this Agreement to amendments or supplements to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934 (the "1934
Act") which is included in the Registration Statement whether by incorporation
or otherwise, such preliminary prospectus or the Prospectus, as the case may be.
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SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Trust, the Operating
Partnership and the Company. Each of the Trust, the Operating Partnership and
the Company, jointly and severally, represents and warrants to each Underwriter
as of the date hereof, as of the Closing Time referred to in Section 2(c)
hereof, and as of each Date of Delivery (if any) referred to in Section 2(b)
hereof, and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Trust, the Operating Partnership or the Company,
are threatened by the Commission, and any request on the part of the
Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or any
such amendment or supplement was issued and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery), included
or will include an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Trust, the Operating
Partnership and the Company will comply with the requirements of Rule
434 and the Prospectus shall not be "materially different", as such term
is used in Rule 434, from the prospectus included in the Registration
Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Trust, the
Operating Partnership or the Company in writing by any Underwriter
through Merrill Lynch expressly for use in the Registration Statement or
Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus delivered
to the Underwriters for use in connection with this offering was
identical to the electronically
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transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The historical financial statements
of the Operating Partnership, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the
consolidated financial position of the Operating Partnership and its
Subsidiaries taken as a whole as of the dates indicated and the results
of operations and the changes in their consolidated cash flows for the
periods specified; the historical financial statements of the Trust, and
the related notes thereto, included in the Registration Statement and
the Prospectus present fairly the financial position of the Trust as of
the dates indicated; except as otherwise stated in the Registration
Statement and the Prospectus, said financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis and comply with the applicable accounting
requirements of the 1933 Act (including, without limitation, Rule 3-14
and Rule 3-15 of Regulation S-X promulgated by the Commission), and all
adjustments necessary for a fair presentation of the results for such
periods have been made; the supporting schedules included in the
Registration Statement and the Prospectus present fairly the information
required to be stated therein; the financial information and data
included in the Registration Statement and the Prospectus present fairly
the information included therein and have been prepared on a basis
consistent with that of the financial statements included in the
Registration Statement and the Prospectus. Except as reflected or
disclosed in the financial statements included in the Registration
Statement or otherwise set forth in the Prospectus, each of the Trust
and the Operating Partnership is not subject to any material
indebtedness, obligation or liability, contingent or otherwise.
(iv) Summaries of Revenue. The historical summaries of revenue
and certain operating expenses included in the Registration Statement
and the Prospectus present fairly the revenue and those operating
expenses included in such summaries of the properties related thereto
for the periods specified in conformity with generally accepted
accounting principles; the pro forma consolidated financial statements
included by incorporation or otherwise in the Registration Statement and
the Prospectus present fairly the pro forma financial position of the
Company and its Subsidiaries taken as a whole as of the dates indicated
and the results of operations for the periods specified; and such pro
forma financial statements have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
with the audited financial statements of the Operating Partnership and
its Subsidiaries included by incorporation or otherwise in the
Registration Statement and the Prospectus, the assumptions on which such
pro forma financial statements have been prepared were, when such pro
forma financial statements were prepared, reasonable and are summarized
in the notes thereto, and any such pro forma financial statements have
been
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<PAGE> 9
prepared, and the pro forma adjustments set forth therein have been
applied, in accordance with the applicable accounting requirements of
the 1933 Act (including, without limitation, Regulation S-X promulgated
by the Commission), and any such pro forma adjustments have been
properly applied to the historical amounts in the compilation of such
statements.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, there has not been any material adverse change in the
equity or long-term debt of the Trust or of the Operating Partnership
and its consolidated subsidiaries, or any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the REIT Entities, taken as a whole, otherwise than as set
forth or contemplated in the Prospectus; and except as set forth or
contemplated in the Prospectus none of the REIT Entities nor any of
their Subsidiaries has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to the REIT
Entities and their Subsidiaries taken as a whole.
(vi) Good Standing of the Trust. The Trust has been duly created,
is validly existing as a statutory business trust in good standing under
the Business Trust Act of the State of Delaware (the "Delaware Business
Trust Act") and has the power and authority to own its property and to
conduct its business as described in the Prospectus; the Trust has
conducted under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), no business to date, and it will conduct no
business in the future that would be inconsistent with the description
of the Trust set forth in the Prospectus; for United States Federal
income tax purposes, the Trust has been and is currently classified as a
real estate investment trust; the Trust is not a party to or bound by
any agreement or instrument other than this Agreement, the Amended and
Restated Declaration of Trust of IAC Capital Trust among the trustees
named therein (the "Declaration") and the agreements and instruments
contemplated by the Declaration; the Trust has no liabilities or
obligations other than those arising out of the transactions
contemplated by this Agreement and the Declaration and described in the
Prospectus; and the Trust is not a party to or subject to any action,
suit or proceeding of any nature.
(vii) Good Standing of the Operating Partnership and the Property
Partnership. Each of the Operating Partnership and the Property
Partnership has been duly formed, is validly existing as a limited
partnership in good standing under the laws of the jurisdiction of its
formation, has the power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact its business and is in good standing in
California, which is the only other jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
REIT Entities taken as a whole. For United States Federal income tax
purposes, each of the Operating Partnership and the Property Partnership
has been and is taxable as a partnership and not as a corporation.
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(viii) Good Standing of the Company. The Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, has the corporate
power and authority to own its property and to conduct its business as
described in the Prospectus, and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
or in good standing would not have a material adverse effect on the REIT
Entities, taken as a whole; other than the Operating Partnership, the
Company has no "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X promulgated by the Commission (the "Significant
Subsidiaries"); the Operating Partnership has no Significant
Subsidiaries.
(ix) Capitalization. The authorized, issued and outstanding
partnership interests of the Operating Partnership (the "OP Units") is
as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization of Irvine Apartment Communities, L.P."
(x) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by each of the Trust, the Operating
Partnership and the Company.
(xi) Authorization of Declaration. The Declaration has been duly
and validly authorized, by each of the Operating Partnership, the
Company and the trustees of the Trust (the "Trust Trustees"), and at the
Closing Time, will have been executed and delivered by each of the
Operating Partnership, the Company and the Trust Trustees and will be a
valid and binding agreement of each of the Operating Partnership, the
Company and the Trust Trustees, enforceable against each of the
Operating Partnership, the Company and the Trust Trustees in accordance
with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, or similar laws affecting creditor's rights
generally and by the availability of equitable principles of general
applicability.
(xii) Authorization and Description of Common Securities. The
Common Securities have been authorized for issuance and sale to the
Company and certain members of management of the Company and, when
issued and delivered to the Company and certain members of management of
the Company against payment therefor as described in the Declaration,
will be validly issued and fully paid and non-assessable; the Common
Securities conform in all material respects to the description thereof
contained in the Prospectus; and the issuance of the Common Securities
is not subject to preemptive or other similar rights of any
securityholder of the Trust.
(xiii) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Trust pursuant to this Agreement against payment of the
consideration therefor as set forth herein, will be validly issued and
fully paid and non-assessable; the Securities conform in all material
respects to the description thereof contained in the Prospectus; no
holder of the Securities will be subject to personal liability by
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reason of being such a holder; the issuance of the Securities is not
subject to the preemptive or other similar rights of any securityholder
of the Trust or the Operating Partnership; and the Securities will be
entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware.
(xiv) Authorization and Description of the Series A Preferred
L.P. Units. The Series A Preferred L.P. Units have been duly authorized
for issuance and sale to the Trust and, when issued and delivered by the
Operating Partnership against payment of the consideration therefor as
described in the Prospectus, will be validly issued in accordance with
the Second Amended and Restated Agreement of Limited Partnership of
Irvine Apartment Communities, L.P. to be dated as of the Closing Date
(the "OP Partnership Agreement"); the Series A Preferred L.P. Units
conform in all material respects to the description thereof contained in
the Prospectus; no holder of the Series A Preferred L.P. Units, as a
limited partner of the Operating Partnership, will be liable to third
parties for the obligations of the Operating Partnership; and the
issuance of the Series A Preferred L.P. Units is not subject to any
preemptive or other similar rights of any securityholder of the
Operating Partnership.
(xv) Authorization of Amended Agreements. Each of Amendment No. 5
to the Land Rights Agreement (the "LRA Amendment") and Amendment No. 2
to the Miscellaneous Rights Agreement (collectively, the "Amended
Agreements") has been duly and validly authorized by each of the Company
and the Operating Partnership, and at the Closing Time will have been
executed and delivered by the Company and the Operating Partnership and,
assuming due authorization, execution and delivery thereof by The Irvine
Company, and in the case of the LRA Amendment, Donald Bren, each of the
Amended Agreements will be a valid and legally binding agreement of the
Company and the Operating Partnership enforceable against the Company
and the Operating Partnership in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency, or
similar laws affecting creditor's rights generally and by the
availability of equitable principles of general applicability. The
execution, delivery and performance of each of the Amended Agreements
will not contravene any provision of applicable law or the Articles of
Incorporation or bylaws of the Company, the certificates of limited
partnership of the Operating Partnership and the Property Partnership,
the OP Partnership Agreement, the partnership agreement of the Property
Partnership (the "Property Partnership Agreement") or any agreement or
other instrument binding upon the REIT Entities that is material to the
REIT Entities, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over any of the
REIT Entities and no consent, approval, authorization or order of or
qualification with any governmental body or agency will be required for
the performance by the Company or the Operating Partnership of their
obligations under each of the Amended Agreements.
(xvi) Authorization of Amendment to OP Partnership Agreement. The
OP Partnership Agreement has been duly and validly authorized by the
Company, and at the
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Closing Time, will have been executed and delivered by the Company and,
assuming due authorization, execution and delivery thereof by the other
partners of the Operating Partnership, the OP Partnership Agreement, as
so amended, will be a valid and legally binding agreement of the
Operating Partnership enforceable against its partners in accordance
with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, or similar laws affecting creditor's rights
generally and by the availability of equitable principles of general
applicability. The execution, delivery and performance of the OP
Partnership Agreement will not contravene any provision of applicable
law or the Articles of Incorporation or bylaws of the Company, the
certificates of limited partnership of the Operating Partnership and the
Property Partnership, the Property Partnership Agreement or any
agreement or other instrument binding upon the REIT Entities that is
material to the REIT Entities, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over any of the REIT Entities and no consent, approval, authorization or
order of or qualification with any governmental body or agency will be
required for the performance by the Operating Partnership of its
obligations under the OP Partnership Agreement, as so amended.
(xvii) Absence of Defaults and Conflicts. Neither the Trust,
Company, the Operating Partnership nor any of their Subsidiaries is, or
with the giving of notice or lapse of time or both would be, in
violation of or in default under, the Declaration, the Articles of
Incorporation or by-laws of the Company, the certificates of limited
partnership of the Operating Partnership and the Property Partnership,
or the OP Partnership Agreement, or the Property Partnership Agreement,
or any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which any of the REIT Entities is a party or
by which any of them or any of their respective properties is bound,
except for violations and defaults which individually and in the
aggregate are not material to the REIT Entities taken as a whole; the
issue and sale of the Securities, the Common Securities and the Series A
Preferred L.P. Units and the performance by each of the Trust and the
Operating Partnership of all its respective obligations under the
Securities, the Common Securities and the Series A Preferred L.P. Units
and the performance by each of the Trust, the Operating Partnership and
the Company of all their respective obligations under this Agreement and
the consummation of the transactions herein contemplated (A) do not and
will not contravene (1) any provision of applicable law or statute, the
Declaration, the Articles of Incorporation or by-laws of the Company,
the certificates of limited partnership of the Operating Partnership and
the Property Partnership, or the OP Partnership Agreement or the
Property Partnership Agreement, or (2) any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which any of
the Company or its Subsidiaries is a party or by which any of them or
their respective properties is bound that is material to the Company and
its Subsidiaries, taken as a whole, or (3) any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Trust is a party, or (4) any order, rule or regulation of any court or
governmental agency or body having jurisdiction over (a) the Company or
any of its Subsidiaries or (b) the Trust, except, for a contravention
which would not have a material adverse effect on the condition,
financial or otherwise, or the earnings or business affairs of, (x) with
respect to
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clause (A)(2) and (A)(4)(a), the Company and its Subsidiaries, taken as
a whole and (y) with respect to clause (A)(3) and (A)(4)(b), the Trust,
and (B) and no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Securities, the
Common Securities and the Series A Preferred L.P. Units by the Trust or
the Operating Partnership or the consummation of the transactions
contemplated by this Agreement by the Trust, the Operating Partnership
and the Company, except such consents, approvals, authorizations,
orders, licenses, registrations or qualifications as have been obtained
under the 1933 Act and as may be required under state securities or Blue
Sky Laws in connection with the purchase and distribution of the
Securities by the Underwriters.
(xviii) Absence of Proceedings. There are no legal or
governmental proceedings pending or threatened to which any of the REIT
Entities is a party or to which any of the Properties is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed or incorporated
by reference as exhibits to the Registration Statement that are not
described, filed or incorporated as required.
(xix) Title to Property. The Operating Partnership has (whether
directly or indirectly through the ownership of the Property
Partnership) good title in fee simple to the Properties and good title
to all personal property owned as is material to the business of the
REIT Entities, taken as a whole, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or in title policies held by the Operating Partnership or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the REIT Entities; any real property held under lease by any REIT Entity
is held by it under valid, subsisting, enforceable leases, and no
default by any REIT Entity has occurred and is continuing thereunder,
with such exceptions as are not material and do not interfere in any
material respect with the use made and proposed to be made of such
property by any REIT Entity; the operation of the buildings, fixtures
and other improvements located on the Properties as presently conducted
is not in violation of any applicable building code, zoning ordinance or
other law or regulation, except where such violation of any applicable
building code, zoning ordinance or other law or regulation would not,
singly or in the aggregate, have a material adverse effect on the REIT
Entities, taken as a whole; neither the Company nor the Operating
Partnership has received notice of any proposed special assessment or
any proposed material change in any property tax, zoning or land use
laws or availability of water for irrigation affecting all or any
portion of the Properties; there do not exist any material violations of
any declaration of covenants, conditions and restrictions with respect
to any of the Properties, nor is there any existing state of facts or
circumstances or condition or event which could, with the giving of
notice or passage of time, or both, constitute such a violation; and the
improvements comprising any portion of the Properties (the
"Improvements") are free of any and all material physical, mechanical,
structural, design and construction defects and the Improvements
(including, without limitation, all water, electric, sewer, plumbing,
heating, ventilation, gas and air conditioning
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servicing the Improvements) are in good condition and proper working
order and are free of material defects.
(xx) Insurance. The REIT Entities have and will maintain
liability, property, casualty and other insurance policies, with respect
to each of the Properties, insuring them against the risks of loss
(other than with respect to loss from earthquakes) arising out of or
related to their businesses, in an amount and on such terms as is
adequate and appropriate for such businesses.
(xxi) Investment Company Act. None of the Trust, the Operating
Partnership nor the Company is, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus will be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xxii) Environmental Laws. The Properties are, to the best
knowledge of the REIT Entities, in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), and the REIT Entities (i) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (ii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the REIT Entities, taken as a whole.
(xxiii) Environmental Liabilities. To the best knowledge of the
Company and the Operating Partnership, there are no costs and
liabilities associated with Environmental Laws except as disclosed in
the Registration Statement, which would, singly or in the aggregate,
have a material adverse effect on the REIT Entities, taken as a whole.
(xxiv) REIT Status. Each of the Trust and the Company are
organized in conformity with the requirements for qualification as a
real estate investment trust under the Code, and its method of operation
enables it to meet the requirements for taxation as a real estate
investment trust under the Code.
(xxv) Partnership Status. Each of the Operating Partnership and
the Property Partnership is organized in conformity with the
requirements for qualification as a partnership under the Code, and its
method of operation enables it to meet the requirements for taxation as
a partnership under the Code. Neither the Operating Partnership nor the
Property Partnership are subject to taxation as a corporation.
(xxvi) Operating Partnership. All of the OP Units outstanding
prior to issuance of the Series A Preferred L.P. Units have been validly
issued and are validly owned, directly or indirectly,
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in the percentage amounts set forth in the Prospectus by the Company and
The Irvine Company and affiliates of The Irvine Company; the OP Units
owned, directly or indirectly, by the Company are owned free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity (each of the foregoing a "Lien"). The Company is the sole general
partner of the Operating Partnership.
(xxvii) Property Partnership. All of the partnership interests of
the Property Partnership have been validly issued and are owned of
record by the Operating Partnership and a third party; the partnership
interests of the Property Partnership owned of record by the Operating
Partnership are owned free and clear of all Liens.
(b) Officer's Certificates. Any certificate signed by any Trustee of the
Trust, any partner of the Operating Partnership, any officer of the Company or
any of their subsidiaries delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Trust, the
Operating Partnership or the Company, respectively, to each Underwriter as to
the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Trust, the Operating Partnership and the Company agree that the Trust
shall sell to each Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Trust, at the price per
security set forth in Schedule B, the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter, plus any additional number of
Initial Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Trust hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional 780,000 Securities at the price per
security set forth in Schedule B. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial Securities upon notice by the
Representatives to the Trust setting forth the number of Option Securities as to
which the several Underwriters are then exercising the option and the time and
date of payment and delivery for such Option Securities. Any such time and date
of delivery (a "Date of Delivery") shall be determined by the Representatives,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional units.
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<PAGE> 16
(c) Commission. The Operating Partnership agrees to pay to the
Representatives, for the accounts of the several Underwriters, a commission set
forth in Schedule B as compensation to the Underwriters for their commitments
under this Agreement.
(d) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles,
California 90071, or at such other place as shall be agreed upon by the
Representatives and the Trust, at 9:30 A.M. (Eastern time) on the third (fourth,
if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Trust (such time and date
of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Trust, on each Date of Delivery as specified in the notice from the
Representatives to the Trust. Payment shall be made to the Trust by wire
transfer of immediately available funds to a bank account designated by the
Trust, against delivery to the Representatives for the respective accounts of
the Underwriters of certificates for the Securities to be purchased by them. It
is understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial Securities and the Option Securities, if any, which it
has agreed to purchase. Merrill Lynch, individually and not as representative of
the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.
(e) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Trust and the Operating Partnership. The
Trust and the Operating Partnership covenant with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Trust and the Operating Partnership, subject to Section
3(b), will comply with the requirements of Rule 430A or Rule 434, as
applicable, and will notify the Representatives immediately, and confirm
the
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notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information,
and (iv) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of
the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Trust and the Operating
Partnership will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as they deem necessary to ascertain
promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event
that it was not, they will promptly file such prospectus. The Trust and
the Operating Partnership will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Trust and the Operating Partnership
will give the Representatives notice of their intention to file or
prepare any amendment to the Registration Statement (including any
filing under Rule 462(b)), any Term Sheet or any amendment, supplement
or revision to either the prospectus included in the Registration
Statement at the time it became effective or to the Prospectus, will
furnish the Representatives with copies of any such documents a
reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file or use any such document to which the
Representatives or counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Trust and the
Operating Partnership have furnished or will deliver to the
Representatives and counsel for the Underwriters, without charge, signed
copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (without exhibits) for each of the Underwriters.
The copies of the Registration Statement and each amendment thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Trust and the Operating
Partnership have delivered to each Underwriter, without charge, as many
copies of each preliminary prospectus as such Underwriter reasonably
requested, and the Trust and the Operating Partnership hereby consent to
the use of such copies for purposes permitted by the 1933 Act. The Trust
and the Operating Partnership will furnish to each Underwriter, without
charge, during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, such number of copies of
the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request.
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<PAGE> 18
The Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Trust and the
Operating Partnership will comply with the 1933 Act and the 1933 Act
Regulations so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the Prospectus. If
at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in
the opinion of counsel for the Underwriters or for the Trust and the
Operating Partnership, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include
any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Trust and the Operating
Partnership will promptly prepare and file with the Commission, subject
to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements, and the Trust and the
Operating Partnership will furnish to the Underwriters such number of
copies of such amendment or supplement as the Underwriters may
reasonably request.
(f) Blue Sky Qualifications. The Trust and the Operating
Partnership will use their respective best efforts, in cooperation with
the Underwriters, to qualify the Securities for offering and sale under
the applicable securities laws of such states and other jurisdictions as
the Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Trust or the
Operating Partnership shall not be obligated to file any general consent
to service of process or to qualify as a foreign trust or partnership,
as the case may be, or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the Securities have been so
qualified, the Trust and the Operating Partnership will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Trust and the Operating Partnership will timely
file such reports pursuant to the 1934 Act as are necessary in order to
make generally available to their securityholders as soon as practicable
an earnings statement for the purposes of, and to provide the benefits
contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
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<PAGE> 19
(h) Use of Proceeds. The Trust will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(i) Listing. The Trust and the Operating Partnership will their
respective best efforts to effect the listing of the Securities on the
New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 90 days
from the date of this Agreement, the Trust, the Operating Partnership
and the Company will not, without the prior written consent of Merrill
Lynch, (i) directly or indirectly, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of (x) any securities of the Trust, (y)
any preferred limited partnership interests or any other security of the
Operating Partnership that is substantially similar to the Series A
Preferred L.P. Units, or any securities convertible into or exercisable
or exchangeable for any of the foregoing or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequences of ownership of securities of the Trust or preferred
limited partnership interests, whether any such swap or transaction
described in clause (i) and (ii) above is to be settled by delivery of
securities of the Trust, preferred limited partnership interests or such
other securities, in cash or otherwise. The foregoing sentence shall not
apply to the Securities to be sold hereunder, the issuance and sale of
the Common Securities described herein and the issuance and sale of the
Series A Preferred L.P. Units described herein.
(k) REIT Requirements. The Trust will continue to use its best
efforts to continue to meet the requirements to qualify as a REIT under
the Code, except as otherwise set forth in the Declaration.
(l) Reporting Requirements. The Trust and the Operating
Partnership, during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, will file all documents
required to be filed with the Commission pursuant to the 1934 Act within
the time periods required by the 1934 Act and the rules and regulations
of the Commission thereunder.
(m) Compliance with NASD Rules. The Company hereby agrees that it
will use its best efforts to ensure that the Reserved Securities will be
restricted as required by the NASD or the NASD rules from sale,
transfer, assignment, pledge or hypothecation for a period of three
months following the date of this Agreement. The Underwriters will
notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer
agent to place a stop transfer restriction upon such securities for such
period of time. Should the Company release, or seek to release, from
such restrictions any of the Reserved Securities, the Company agrees to
reimburse the Underwriters for any reasonable expenses (including,
without limitation, legal expenses) they incur in connection with such
release.
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SECTION 4. Payment of Expenses. (a) Expenses. The Operating Partnership
will pay all expenses incident to the performance of the obligations of the REIT
Entities under this Agreement, including (i) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits) as originally filed and of each amendment thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Agreement, any
Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the preparation, issuance and delivery of
the certificates for the Common Securities and the Series A Preferred L.P.
Units, including any stock or other transfer taxes and any stamp or other duties
payable upon the sale, issuance or delivery of the Common Securities and the
Series A Preferred L.P. Units, (v) the fees and disbursements of the REIT
Entities' counsel, accountants and other advisors, (vi) the qualification of the
Securities, the Common Securities and the Series A Preferred L.P. Units under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vii) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (viii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (ix) the fees and expenses of any
transfer agent or registrar for the Securities, the Common Securities and the
Series A Preferred L.P. Units, (x) any fees charged by securities rating
services for rating the Securities and (xi) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (xii)
the fees and expenses incurred in connection with the listing of the Securities
on the New York Stock Exchange and (xii) costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, in
connection with matters related to the Reserved Securities which are designated
by the Company for sale to employees and others having a business relationship
with the Company to the extent that such costs and expenses do not exceed
$5,000..
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Operating Partnership shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Trust, the Operating Partnership and the
Company contained in Section 1 hereof or in certificates of any officer of the
Trust, the Operating Partnership or the Company delivered pursuant to the
provisions hereof, to the performance by the Trust, the Operating Partnership
and the Company of their covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order
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suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective
in accordance with the requirements of Rule 430A) or, if the Trust has
elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 424(b).
(b) Amendment of Agreements. Each of the Amended Agreements shall
have been duly authorized, executed and delivered by the Company in its
individual capacity and its capacity as general partner of the Operating
Partnership.
(c) Amendment of OP Partnership Agreement. The OP Partnership
Agreement shall have been duly authorized, executed and delivered by the
Company.
(d) Opinion of Special Counsel for Trust, the Operating
Partnership and the Company. At Closing Time, the Representatives shall
have received the favorable opinion, dated as of Closing Time, of Davis,
Polk & Wardwell, special counsel for the Trust, the Operating
Partnership and the Company, in form and substance satisfactory to
counsel for the Underwriters, together with signed or reproduced copies
of such letter for each of the other Underwriters to the effect set
forth in Exhibit A hereto and to such further effect as counsel to the
Underwriters may reasonably request. In giving such opinion such counsel
may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United
States, upon the opinions of counsel satisfactory to the
Representatives.
(e) Opinion of Maryland Counsel for the Company. At Closing Time,
the Representatives shall have received the favorable opinion, dated as
of Closing Time, of Piper & Marbury L.L.P., Maryland counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the effect set forth in Exhibit B
hereto and to such further effect as counsel to the Underwriters may
reasonably request. In giving such opinion such counsel may state that
their opinion relates only to the laws of the State of Maryland.
(f) Opinion of Counsel for The Bank of New York. At the Closing
Time, the Representatives shall have received the favorable opinion,
dated as of the Closing Time, of Emmet, Marvin & Martin, special counsel
to The Bank of New York, as property trustee of the Trust (the "Property
Trustee"), under the Declaration, in form and substance reasonably
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters with
respect to the matters set forth in Exhibit C and to such further effect
as counsel to the Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law
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<PAGE> 22
of the State of New York and the federal law of the United States, upon
the opinions of counsel satisfactory to the Representatives.
(g) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel for the Underwriters, together with signed or reproduced copies
of such letter for each of the other Underwriters with respect to the
matters set forth in clauses (i), (ii), (vi), (vii), (viii), (xi)
(solely as to the Trust), (xiv), (xv), (xvii), (xix) (solely as to the
"Description of the Series A Preferred Securities", "Description of the
Series A Preferred L.P. Units", "Relationship between the Preferred
Securities and the Preferred L.P. Units"), (xxii), (xxiv), (xxv) and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States, the Revised Uniform Limited
Partnership Act of the State of Delaware, and the Business Trust Act of
the State of Delaware, upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Trust or the
Partnership and their subsidiaries and certificates of public officials.
(h) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the REIT Entities considered as one
enterprise, whether or not arising in the ordinary course of business,
and the Representatives shall have received a certificate of an
executive officer of the Company, in its individual capacity and in its
capacity as a general partner of the Operating Partnership, with
specific knowledge about the Operating Partnership's and the Company's
financial matters, and a certificate of a Regular Trustee of the Trust,
dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect
as though expressly made at and as of Closing Time, and (iii) the Trust,
the Operating Partnership and the Company have complied with all
agreements and satisfied all conditions on their parts to be performed
or satisfied at or prior to Closing Time.
(i) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representatives shall have received from Ernst &
Young LLP a letter dated such date, in form and substance satisfactory
to the Representatives, together with signed or reproduced copies of
such letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus.
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(j) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(k) Maintenance of Rating. At Closing Time, the Securities shall
be rated at least Ba1 by Moody's Investors Service and BBB- by Standard
& Poor's Ratings Group, a division of McGraw-Hill, Inc., and the Trust
shall have delivered to the Representatives a letter dated the Closing
Time, from each such rating agency, or other evidence satisfactory to
the Representatives, confirming that the Securities have such ratings;
and since the date of this Agreement, there shall not have occurred a
downgrading in the rating assigned to the Securities or any of the
Trust's, the Operating Partnership's or the Company's other securities
by any "nationally recognized statistical rating agency," as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
1933 Act, and no such organization shall have publicly announced that it
has under surveillance or review its rating of the Securities or any of
the Trust's, the Operating Partnership's or the Company's other
securities.
(l) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(m) No Objection. The NASD shall have confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(n) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Trust contained herein and the
statements in any certificates furnished by the Trust or any subsidiary
of the Trust hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Representatives
shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of an executive officer of the Company, in its
individual capacity and in its capacity as a general partner of
the Operating Partnership, with specific knowledge about the
Operating Partnership and the Company's financial matters, and a
certificate of a Regular Trustee of the Trust, confirming that
the certificate delivered at the Closing Time pursuant to Section
5(h) hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Trust, the Operating Partnership and
the Company. The favorable opinion of Davis Polk & Wardwell,
special counsel for the Trust, the Operating Partnership and the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be
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<PAGE> 24
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(d) hereof.
(iii) Opinion of Maryland Counsel for the Company. The favorable
opinion of Piper & Marbury L.L.P., Maryland counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Section 5(e)
hereof.
(iv) Opinion of Counsel for The Bank of New York. The favorable
opinion of Emmet Marvin & Martin, special counsel for the
Property Trustee, in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by
Section 5(f) hereof.
(v) Opinion of Counsel for Underwriters. The favorable opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Section 5(g)
hereof.
(vi) Bring-down Comfort Letter. A letter from Ernst & Young LLP
in form and substance satisfactory to the Representatives and
dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representatives pursuant
to Section 5(i) hereof, except that the "specified date" in the
letter furnished pursuant to this paragraph shall be a date not
more than five days prior to such Date of Delivery.
(vii) No Downgrading. Subsequent to the date of this Agreement,
no downgrading shall have occurred in the rating accorded the
Securities or of any of the Trust's, the Operating Partnership's
or Company's securities by any "nationally recognized statistical
rating organization", as that term is defined by the Commission
for purposes of Rule 436(g)(2) under the 1933 Act, and no such
organization shall have publicly announced that it has under
surveillance or review its ratings of any of the Trust's, the
Operating Partnership's or Company's securities.
(o) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Trust in
connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
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(p) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the Representatives
by notice to the Trust and the Operating Partnership at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and
such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Operating Partnership
and the Company, jointly and severally, hereby agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, from and against any and all losses, claims,
damages and liabilities (including without limitation the legal fees and
other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if
the Trust shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Trust, the Operating Partnership and/or the
Company in writing by such Underwriter through the Representatives
expressly for use therein, provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Securities, or
any person controlling such Underwriter, if a copy of the Prospectus (as
then amended or supplemented if the Trust shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf
of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Trust with Sections 3(c) and (d) hereof.
(b) Indemnification of Trust, the Operating Partnership, the
Company, Trustees, Directors and Officers. Each Underwriter agrees,
severally and not jointly, to indemnify and hold harmless the Trust, the
Operating Partnership, the Company and the Trustees, directors, each of
the officers of the Company who signs the Registration Statement and
each person who controls the Trust, the Operating Partnership or the
Company within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act, to the same extent as the foregoing indemnity from the
Trust, the Operating Partnership and the Company to each Underwriter,
but only with reference to
22
<PAGE> 26
information relating to such Underwriter furnished to the Trust, the
Operating Partnership or the Company in writing by such Underwriter
through the Representatives expressly for use in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
preliminary prospectus. For purposes of this Section 6 and Section 4(a),
the only written information furnished by the Underwriters to the Trust,
the Operating Partnership and the Company expressly for use in the
Registration Statement and the Prospectus is (a) the information in the
last paragraph on the cover page of the Prospectus, (b) the information
regarding stabilization on the inside front cover page of the Prospectus
and (c) the information in the [third and sixth paragraphs and the
second sentence of the fourth paragraph] under the caption
"Underwriting" in the Prospectus.
(c) Actions against Parties; Notification. If any suit, action,
proceeding (including any governmental or regulatory investigation),
claim or demand shall be brought or asserted against any person in
respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "Indemnified Person") shall
promptly notify the person against whom such indemnity may be sought
(the "Indemnifying Person") in writing, and the Indemnifying Person,
upon request of the Indemnified Person, shall retain counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified
Person and any others the Indemnifying Person may designate in such
proceeding and shall pay the fees and expenses of such counsel related
to such proceeding. In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless
(i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed
within a reasonable time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person
and the Indemnified Person and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Person
shall not, in connection with any proceeding or related proceeding in
the same jurisdiction, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they
are incurred. Any such separate firm for the Underwriters and such
control persons of Underwriters shall be designated in writing by
Merrill Lynch and any such separate firm for the Trust, the Operating
Partnership or the Company, the Trustees, directors, officers of the
Company who sign the Registration Statement and such control persons of
the Trust, the Operating Partnership or the Company shall be designated
in writing by the Company. The Indemnifying Person shall not be liable
for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees to indemnify
any Indemnified Person from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for fees and
expenses of counsel as contemplated by the second and third sentences of
this paragraph, the Indemnifying Person agrees that it shall be liable
for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after
receipt by
23
<PAGE> 27
such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have
been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are
the subject matter of such proceeding.
(d) Indemnification for Reserved Securities. In connection with
the offer and sale of the Reserved Securities, the Company agrees,
promptly upon a request in writing, to indemnify and hold harmless the
Underwriters from and against any and all losses, liabilities, claims,
damages and expenses incurred by them as a result of the failure of
eligible employees and persons having business relationships with the
Company to pay for and accept delivery of Reserved Securities which, by
the end of the first business day following the date of this Agreement,
were subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Trust, the Operating Partnership and the Company on the
one hand and the Underwriters on the other hand from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Trust, the Operating Partnership and the Company on the one hand
and the Underwriters on the other hand in connection with the statements or
omissions as well as any other relevant equitable considerations. The relative
benefits received by the Trust, the Operating Partnership and the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same respective proportions as the proceeds from the offering of the Securities
after deducting the underwriting discount (before deducting expenses) received
by the Trust and the total underwriting discounts received by the Underwriters
bear to the aggregate initial public offering price of the Securities. The
relative fault of the Trust, the Operating Partnership and the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Trust, the Operating Partnership or the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Trust, the Operating Partnership, the Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Person as a result of the losses, claims, damages and
24
<PAGE> 28
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, in no event shall an Underwriter be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective number of the Securities
set forth opposite their names in Schedule A hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements herein and the representations
and warranties of the Trust, the Operating Partnership and the Company set forth
in this Agreement shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Trust, the Operating Partnership, the Company, its officers or
directors or any other person controlling the Company and (iii) acceptance of
and payment for any of the Securities.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Trust, the Operating Partnership
or the Company submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Trust, the
Operating Partnership or the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Trust and the Operating Partnership, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
REIT Entities considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Operating Partnership or the Company
have been suspended or materially limited by the Commission or the New York
Stock Exchange, or if trading
25
<PAGE> 29
generally on the American Stock Exchange or the New York Stock Exchange or in
the Nasdaq National Market has been suspended or materially limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) if a banking
moratorium has been declared by either Federal, New York or California
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Trust to
sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Trust to sell the relevant Option Securities,
as the case may be, either the Representatives or the Trust shall have the right
to postpone Closing Time or the relevant Date of Delivery, as the case may be,
for a period not exceeding seven days in order to effect any required changes in
the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
26
<PAGE> 30
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1209, attention of _________; and
notices to the Trust, the Operating Partnership or the Company shall be directed
to them at c/o Irvine Apartment Communities, Inc., 550 Newport Center Drive,
Suite 300, Newport Beach, California 92660, attention of James E. Mead.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Trust, the Operating Partnership
and the Company and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Trust, the Operating Partnership
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Trust, the Operating Partnership and
the Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
27
<PAGE> 31
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Trust, the Operating Partnership and
the Company a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the Underwriters, the Trust,
the Operating Partnership and the Company in accordance with its terms.
Very truly yours,
IAC CAPITAL TRUST
By
------------------------------------------------
James E. Mead, not in his individual capacity
but solely as Regular Trustee
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: IRVINE APARTMENT
COMMUNITIES, INC.,
a Maryland corporation, its sole
general partner
By
------------------------------------------------
Title:
IRVINE APARTMENT COMMUNITIES, INC.
a Maryland corporation
By
------------------------------------------------
Title:
28
<PAGE> 32
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
29
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Number of Underwriter Securities
--------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................
Goldman, Sachs & Co............................
J.P. Morgan Securities Inc. ...................
Morgan Stanley & Co. Incorporated..............
Salomon Brothers...............................
---------
Total ......................................... 6,000,000
=========
</TABLE>
Sch A-1
<PAGE> 34
SCHEDULE B
IAC CAPITAL TRUST
(a Delaware statutory business trust)
6,000,000 __ % Series A REIT Trust Originated Preferred Securities
1. The initial public offering price per security for the Securities,
determined as provided in said Section 2, shall be $______.
2. The purchase price per security for the Firm Securities to be paid by
the several Underwriters shall be $______ , by an amount equal to the initial
public offering price set forth above. The purchase price per security for the
Option Securities to be paid by the several Underwriters shall be $______, by an
amount equal to the initial offering price set forth above plus any accrued
distributions declared through the Date of Delivery.
3. The commission to be paid by the Operating Partnership to the
Underwriters for their commitments hereunder shall be $_______ per security.
4. The dividend rate on the Securities will be ___% per annum.
Sch B-1
<PAGE> 35
Exhibit A
FORM OF OPINION OF TRUST'S, OPERATING PARTNERSHIP'S
AND THE COMPANY'S SPECIAL COUNSEL TO BE
DELIVERED PURSUANT TO SECTION 5(b)
(i) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of the
State of Delaware.
(ii) The Trust has the power and authority to own, lease and operate its
property and to conduct its business as described in the Prospectus.
(iii) The Operating Partnership has been duly formed and is validly
existing as a limited partnership in good standing under the laws of the State
of Delaware. Based solely on certificates of public officials, such counsel
confirms that the Operating Partnership is qualified to do business in the State
of California.
(iv) The Operating Partnership has the power and authority to own, lease
and operate its property and to conduct its business as described in the
Prospectus.
(v) To the best of such counsel's knowledge, based solely on
certificates of public officials, such counsel confirms that the Company is
qualified to do business in the State of California. Based on a certificate of
an officer of the Company and to the best of such counsel's knowledge, other
than the Operating Partnership, the Company has no Significant Subsidiaries.
(vi) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Trust pursuant to the Purchase Agreement against payment of the
consideration set forth in the Purchase Agreement, will be validly issued and
fully paid and non-assessable; no holder of the Securities is or will be subject
to personal liability by reason of being such a holder; the Securities conform
in all material respects to the description thereof contained in the Prospectus;
and the relative rights, preferences, interests and powers of the Securities are
as set forth in the Declaration relating thereto, and all such provisions are
valid under the Delaware Business Trust Act.
(vii) The Common Securities have been duly authorized for issuance and
sale to the Company and certain members of management of the Company and, when
issued and delivered by the Trust to the Company and certain members of
management of the Company against payment of the consideration thereof as set
forth in the Declaration, will be validly issued and fully paid and
non-assessable; the Common Securities conform to the provisions of the
Declaration; and the relative rights, preferences, interests and powers of the
Common Securities are as set forth in the Declaration relating thereto, and all
such provisions are valid under the Delaware Business Trust Act.
(viii) The Series A Preferred L.P. Units have been duly authorized for
issuance and sale to the Trust and, when issued and delivered by the Operating
Partnership pursuant to the OP Partnership
A-1
<PAGE> 36
Agreement against payment of the consideration as described in the Prospectus,
will be validly issued in accordance with the OP Partnership Agreement; no
holder of the Series A Preferred L.P. Units, as a limited partner of the
Operating Partnership, is or will be liable to third parties for the obligations
of the Operating Partnership; the Series A Preferred L.P. Units conform in all
material respects to the description thereof contained in the Prospectus; and
the relative rights, preferences, interests and powers of the Series A Preferred
L.P. Units are as set forth in the OP Partnership Agreement relating thereto,
and all such provisions are valid under the Revised Uniform Limited Partnership
Act of the State of Delaware.
(ix) The issuance of the Securities is not subject to any preemptive or
other similar rights of any securityholder of the Trust.
(x) Assuming due authorization, execution and delivery of this Agreement
by the Company in its capacity as general partner of the Partnership, the
Purchase Agreement has been duly authorized, executed and delivered by the
Operating Partnership.
(xi) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Company and the Trust.
(xii) Each of the Operating Partnership and the Property Partnership is
currently organized in conformity with the requirements for qualification as a
partnership under the Code and has been so organized since its formation, and
its method of operation has satisfied the requirements for taxation as a
partnership under the Code, and its proposed method of operation will enable it
to continue to do so and neither of the Operating Partnership nor the Property
Partnership has been or is taxable as a corporation.
(xiii) The Trust is currently organized in conformity with the
requirements for qualification as a real estate investment trust under the Code
and has been so organized since its formation, and its method of operation has
satisfied the requirements for taxation as a real estate investment trust under
the Code, and its proposed method of operation will enable it to continue to do
so.
(xiv) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(xv) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which such counsel need express no opinion) complied as
to form in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations.
A-2
<PAGE> 37
(xvi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xvii) The form of certificate used to evidence the Securities complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the Declaration of the Trust and the requirements of
the New York Stock Exchange.
(xviii)Such counsel does not know of any legal or governmental
proceedings pending or threatened to which any of the REIT Entities or any of
the Properties is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(xix) The information in the Prospectus under "Description of the Series
A Preferred Securities", "Description of the Series A Preferred L.P. Units",
"Relationship between the Preferred Securities and the Preferred L.P. Units,"
"Operating Partnership Agreement," "Business and Properties of the Operating
Partnership -- Legal Proceedings," "Certain Federal Income Tax Considerations"
and in the Registration Statement under Item 14, to the extent that it
constitutes matters of law, summaries of legal matters, the Declaration, the OP
Partnership Agreement or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xx) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Trust or
the Operating Partnership under the 1933 Act.
(xxi) Neither the Trust nor the Operating Partnership is an "investment
company" or an entity "controlled" by an "investment company," as such terms are
defined in the 1940 Act.
(xxii) The Declaration has been duly authorized, executed and delivered
by the Company, the Operating Partnership and the Regular Trustee. Assuming due
authorization, execution and delivery of the Declaration by the Delaware Trustee
and the Property Trustee, the Declaration is a valid and legally binding
agreement of the Company and the Operating Partnership and enforceable against
the Company and the Operating Partnership in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency, or similar
laws affecting creditors' rights generally and by the availability of equitable
principles of general applicability. The execution, delivery and performance of
the Declaration and the consummation of the transactions set forth therein and
compliance by the Company and the Operating Partnership, to the extent a party
thereto, do not and will not contravene any provision of applicable law or the
certificate of limited partnership of the Operating Partnership, the OP
Partnership Agreement or any agreement or other instrument binding upon any of
the REIT Entities that is material to the REIT Entities, taken as a whole, or,
to the best knowledge of such counsel, any judgment or decree of any
governmental body, agency or court having jurisdiction over any of the REIT
Entities (it being
A-3
<PAGE> 38
understood that such counsel expresses no opinion as to any judgment or decree
of the United States Department of Housing and Urban Development ("HUD")) and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency (it being understood that such counsel expresses no
opinion as to any consent, approval, authorization or order of, or qualification
with, HUD) is required for the execution and delivery by the Company and the
Operating Partnership of their respective obligations under the Declaration.
(xxiii) Assuming due authorization, execution and delivery of each of
the Amended Agreements by the Company in its capacity as general partner of the
Operating Partnership, each of the Amended Agreements has been duly authorized,
executed and delivered by the Operating Partnership. Assuming due authorization,
execution and delivery of each of the Amended Agreements by the Company in its
individual capacity and its capacity as general partner of the Operating
Partnership, the execution and delivery of each of the Amended Agreements by the
Company and the Operating Partnership, to the extent a party thereto, do not and
will not contravene any provision of applicable law or the certificate of
limited partnership of the Operating Partnership, the OP Partnership Agreement
or any agreement or other instrument binding upon any of the REIT Entities that
is material to the REIT Entities, taken as a whole, or, to the best knowledge of
such counsel, any judgment or decree of any governmental body, agency or court
having jurisdiction over any of the REIT Entities (it being understood that such
counsel expresses no opinion as to any judgment or decree of the United States
Department of Housing and Urban Development ("HUD")) and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency (it being understood that such counsel expresses no opinion as to any
consent, approval, authorization or order of, or qualification with, HUD) is
required for the execution and delivery by the Company and the Operating
Partnership of their respective obligations under each of the Amended
Agreements.
(xxiv) Assuming due authorization, execution and delivery of OP
Partnership Agreement by the Company in its capacity as general partner of the
Operating Partnership and the other partners of the Operating Partnership, the
Operating Partnership Agreement is a valid and legally binding agreement of the
Company and enforceable against the Company in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency, or similar
laws affecting creditors' rights generally and by the availability of equitable
principles of general applicability. Assuming due authorization, execution and
delivery of the OP Partnership Agreement by the Company in its capacity as
general partner of the Operating Partnership, the execution, delivery and
performance of the OP Partnership Agreement by the Company do not and will not
contravene any provision of applicable law or the certificate of limited
partnership of the Operating Partnership or any agreement or other instrument
binding upon any of the REIT Entities that is material to the REIT Entities,
taken as a whole, or, to the best knowledge of such counsel, any judgment or
decree of any governmental body, agency or court having jurisdiction over any of
the REIT Entities (it being understood that such counsel expresses no opinion as
to any judgment or decree of the United States Department of Housing and Urban
Development ("HUD")) and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency (it being understood that
such counsel expresses no opinion as to any consent, approval, authorization or
order of, or qualification with, HUD) is required for the performance by the
Company of its obligations under the
A-4
<PAGE> 39
OP Partnership Agreement, except such as may be required by the securities, Blue
Sky or real estate syndication laws of the various states and the federal
securities laws.
(xxv) Assuming due authorization, execution and delivery by the Company
in its individual capacity and its capacity as general partner of the Operating
Partnership, the execution and delivery by the Trust, the Operating Partnership
and the Company of, and the performance by the Trust, the Operating Partnership
and the Company of their respective obligations under, as the case may be, this
Agreement, the Securities, the Common Securities, the Series A Preferred L.P.
Units will not contravene (l) any provision of New York or federal law or the
Delaware Revised Uniform Limited Partnership Act or the Delaware Business Trust
Act or the Declaration, the Articles of Incorporation or by-laws of the Company,
the certificates of limited partnership of the Operating Partnership and the
Property Partnership, or the OP Partnership Agreement or the Property
Partnership Agreement, or (2) any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which any of the Company or its
Subsidiaries is a party or by which any of them or their respective properties
is bound that is material to the Company and its Subsidiaries, taken as a whole,
or (3) any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Trust is a party, or (4) any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
(a) the Company or any of its Subsidiaries or (b) the Trust (it being understood
that such counsel expresses no opinion as to any order, rule or regulation of
HUD), except, for a contravention which would not have a material adverse effect
on the condition, financial or otherwise, or the earnings or business affairs
of, (x) with respect to clause (A)(2) and (A)(4)(a), the Company and its
Subsidiaries, taken as a whole and (y) with respect to clause (A)(3) and
(A)(4)(b), the Trust, and (B) and no consent, approval, authorization or order
of, or qualification with, any New York or federal governmental body or agency
(it being understood that such counsel expresses no opinion as to any consent,
approval, authorization or order of or qualification with, HUD) is required for
the performance by the Trust, the Operating Partnership and the Company of its
obligations under this Agreement, the Securities, the Common Securities or the
Series A Preferred L.P. Units, except such as may be required by the securities,
Blue Sky or real estate syndication laws of the various states in connection
with the offer and sale of the Securities, the Common Securities or the Series A
Preferred L.P.
Units.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
A-5
<PAGE> 40
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Trust, the Operating Partnership or
the Company and public officials. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).
A-6
<PAGE> 41
Exhibit B
FORM OF OPINION OF THE COMPANY'S AND OPERATING PARTNERSHIP'S
MARYLAND COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland.
(ii) The Company has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus.
(iii) This Agreement has been duly authorized and delivered by the
Company in its individual capacity and in its capacity as general partner of the
Operating Partnership.
(iv) The Series A Preferred L.P. Units have been duly authorized by the
Company in its capacity as general partner of the Operating Partnership.
(v) The Declaration has been duly authorized, executed and delivered by
the Company in its individual capacity and its capacity as general partner of
the Operating Partnership. The Declaration is a valid and legally binding
agreement of the Company and enforceable against the Company in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency, or
similar laws affecting creditors' rights generally and by the availability of
equitable principles of general applicability. The execution, delivery and
performance of the Declaration by the Company do not and will not contravene any
provision of applicable Maryland law.
(vi) The execution and delivery by the Company, in its individual
capacity and in its capacity as general partner of the Operating Partnership, of
this Agreement and the Series A Preferred L.P. Units, and the performance by the
Company of its obligations under this Agreement, will not contravene any
provision of applicable Maryland law or the charter or by-laws of the Company,
and no consent, approval, authorization or order of, or qualification with, any
governmental body or agency of the State of Maryland is required for the
performance by the Company of its obligations under this Agreement (excluding
the securities or Blue Sky laws of the State of Maryland, as to which such
counsel need not express any opinion).
(vii) The OP Partnership Agreement has been duly authorized, executed
and delivered by the Company in its capacity as general partner of the Operating
Partnership. The Operating Partnership Agreement is a valid and legally binding
agreement of the Company and enforceable against the Company in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally and by the
availability of equitable principles of general applicability. The execution,
delivery and performance of the OP Partnership Agreement by the Company do not
and will not contravene any provision of applicable Maryland law.
B-1
<PAGE> 42
(viii) Each of the Amended Agreements has been duly authorized, executed
and delivered by the Company in its individual capacity and its capacity as
general partner of the Operating Partnership. The execution, delivery and
performance of each of the Amended Agreements and the consummation of the
transactions set forth therein and compliance by the Company with its
obligations thereunder, will not contravene any provision of applicable Maryland
law or the charter or by-laws of the Company, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency of the State of Maryland is required for the performance by the Company
of its obligations under any of the Amended Agreements (excluding the securities
or Blue Sky laws of the State of Maryland, as to which such counsel need not
express any opinion).
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
B-2
<PAGE> 43
Exhibit C
FORM OF OPINION OF THE PROPERTY TRUSTEE'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(f)
(i) The Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
State of its incorporation, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, the
Declaration.
(ii) The execution, delivery and performance by the Property Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally and by the
availability of equitable principles of general applicability.
(iii) The execution, delivery and performance of the Declaration by the
Property Trustee does not conflict with or constitute a breach of the Charter or
By-laws of the Property Trustee.
(iv) No consent, approval or authorization of, or registration with or
notice to, any banking authority which supervises or regulates the Property
Trustee is required for the execution, delivery or performance by the Property
Trustee, of the Declaration.
(v) The Property Trustee satisfies the qualifications set forth in
Section 4.1(c) of the Declaration.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
C-1
<PAGE> 1
EXHIBIT 3.1
-----------------------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
(a Delaware limited partnership)
-----------------------------------------------------
Dated as of _______, 199_
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINED TERMS............................................................ 2
ARTICLE 2 ORGANIZATIONAL MATTERS................................................... 23
Section 2.1 Formation; Continuation................................. 23
Section 2.2 Name.................................................... 23
Section 2.3 Registered Office and Agent;
Principal Office........................................ 23
Section 2.4 Power of Attorney....................................... 23
Section 2.5 Term.................................................... 25
ARTICLE 3 PURPOSE ........................................................ 25
Section 3.1 Purpose and Business.................................... 25
Section 3.2 Powers.................................................. 26
Section 3.3 Partnership Only for Purposes Specified................. 26
Section 3.4 Representations and Warranties by the Parties........... 26
ARTICLE 4 CAPITAL CONTRIBUTIONS.................................................... 27
Section 4.1 Capital Contributions of the Partners................... 27
Section 4.2 Additional Capital Contribution and Loans Generally..... 28
Section 4.3 Land Rights Agreement; Property Acquisitions............ 28
Section 4.4 Loans by Third Parties.................................. 29
Section 4.5 Additional Funding and Capital Contributions............ 29
Section 4.6 Stock Incentive Plans................................... 33
Section 4.7 No Third Party Beneficiary.............................. 33
Section 4.8 DRIP/ACP Plans ..........................................34
ARTICLE 5 DISTRIBUTIONS............................................................ 37
Section 5.1 Requirements and Characterization of Distributions...... 37
Section 5.2 Distributions in Kind................................... 38
Section 5.3 Distributions Upon Liquidation.......................... 38
Section 5.4 Restricted Distributions................................ 38
ARTICLE 6 ALLOCATIONS.............................................................. 38
Section 6.1 Allocations in General.................................. 38
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.2 Additional Allocation Provisions........................ 38
Section 6.3 Tax Allocations......................................... 42
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS.................................... 42
Section 7.1 Management.............................................. 42
Section 7.2 Certificate of Limited Partnership...................... 46
Section 7.3 Restrictions on General Partner's Authority............. 46
Section 7.4 Reimbursement of the General Partner;
Reimbursement of Limited Partner........................ 50
Section 7.5 Outside Activities of the General Partner............... 51
Section 7.6 Contracts with Affiliates............................... 52
Section 7.7 Indemnification......................................... 52
Section 7.8 Liability of the General Partner........................ 54
Section 7.9 Other Matters Concerning the General Partner............ 56
Section 7.10 Title to Partnership Assets............................. 56
Section 7.11 Reliance by Third Parties............................... 57
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................... 57
Section 8.1 Limitation of Liability................................. 57
Section 8.2 Management of Business.................................. 58
Section 8.3 Outside Activities of Limited Partners.................. 58
Section 8.4 Return of Capital....................................... 58
Section 8.5 Rights of Limited Partners Relating to the Partnership.. 59
Section 8.6 Exchange and Cash Tender Rights......................... 59
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS................................... 67
Section 9.1 Records and Accounting.................................. 67
Section 9.2 Reports................................................. 67
ARTICLE 10 TAX MATTERS............................................................. 68
Section 10.1 Preparation of Tax Returns; Tax Accounting.............. 68
Section 10.2 Tax Elections........................................... 68
Section 10.3 Tax Matters Partner..................................... 69
Section 10.4 Withholding............................................. 69
ARTICLE 11 TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL
PARTNER................................................................70
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 11.1 Transfer................................................ 70
Section 11.2 Transfer of General Partner's Interest.................. 70
Section 11.3 Limited Partners' Rights to Transfer.................... 71
Section 11.4 Substituted Limited Partners............................ 75
Section 11.5 Assignees............................................... 76
Section 11.6 General Provisions...................................... 76
Section 11.7 Removal of General Partner.............................. 78
ARTICLE 12 ADMISSION OF PARTNERS................................................... 79
Section 12.1 Admission of Successor General Partner.................. 79
Section 12.2 Admission of Additional Limited Partners................ 79
Section 12.3 Amendment of Agreement and Certificate
of Limited Partnership.................................. 80
Section 12.4 Limit on Number of Partners............................. 80
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION................................ 80
Section 13.1 Dissolution............................................. 80
Section 13.2 Winding Up.............................................. 81
Section 13.3 [Intentionally omitted]................................. 83
Section 13.4 Rights of Limited Partners.............................. 83
Section 13.5 Notice of Dissolution................................... 83
Section 13.6 Termination of Partnership and Cancellation of
Certificate of Limited Partnership...................... 83
Section 13.7 Reasonable Time for Winding-Up.......................... 83
Section 13.8 Waiver of Partition..................................... 84
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............................ 84
Section 14.1 Amendments.............................................. 84
Section 14.2 Meetings of the Common Limited Partners................. 84
Section 14.3 Meetings of the Preferred Limited Partners.............. 85
ARTICLE 15 GENERAL PROVISIONS...................................................... 85
Section 15.1 Addresses and Notice.................................... 85
Section 15.2 Titles and Captions..................................... 86
Section 15.3 Pronouns and Plurals.................................... 86
Section 15.4 Further Action.......................................... 86
Section 15.5 Binding Effect.......................................... 86
Section 15.6 Waiver.................................................. 86
Section 15.7 Counterparts............................................ 86
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 15.8 Applicable Law.......................................... 86
Section 15.9 Entire Agreement........................................ 87
Section 15.10 Invalidity of Provisions................................ 87
Section 15.11 Outstanding Limited Partner Interests................... 87
</TABLE>
EXHIBITS:
Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Notice of Exchange
Exhibit C - Notice of Cash Tender
Exhibit D - Form of Common Limited Partner Unit Certificate
iv
<PAGE> 6
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINE APARTMENT COMMUNITIES, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of ____________, 199_ is entered into by and among Irvine Apartment
Communities, Inc., a Maryland corporation, as the General Partner, and the
Persons whose names are set forth on Exhibit A as attached hereto, as the
Limited Partners, together with any other Persons who become Partners in the
Partnership as provided herein.
W I T N E S S E T H:
WHEREAS, on November 15, 1993, Irvine Apartment Communities, Inc. and
The Irvine Company formed a Delaware limited partnership under the name "Irvine
Apartment Communities, L.P." (the "Partnership");
WHEREAS, effective as of December 1, 1993, (i) Irvine Apartment
Communities, Inc. and The Irvine Company made additional contributions to the
Partnership and admitted additional Common Limited Partners to the Partnership;
and (ii) Irvine Apartment Communities, Inc., The Irvine Company and such Limited
Partners entered into the Amended and Restated Agreement of Limited Partnership
dated as of December 1, 1993 (the "First Amendment and Restatement");
WHEREAS, the First Amendment and Restatement was amended by agreements
dated as of April 20, 1995, July 18, 1995, August 9, 1995, March 20, 1996, May
1, 1996, June 30, 1996, February 4, 1997, July 25, 1997 and December 1, 1997 (as
so amended, the "Prior Agreement") and pursuant to certain of such amendments
and agreements dated as of March 7, 1995, June 21, 1996, July 3, 1996 and July
30, 1996 certain Additional Limited Partners and Substituted Limited Partners
were admitted to the Partnership as Common Limited Partners;
WHEREAS, as of the date hereof the interests of the current Partners in
the Partnership are as set forth in Amendment No. 25 to Exhibit A to the Prior
Agreement;
WHEREAS, the parties desire to further amend the Prior Agreement
pursuant to Sections 14.1 and 7.3D thereof to, among other things, (i) provide
for the issuance from time to time of preferred limited partner interests in
series and (ii) to delete certain provisions and related definitions and
exhibits relating to certain events and transactions which have occurred and
which do not affect the Partnership or the distributions and allocations
provided for herein on an ongoing basis; and in connection therewith to amend
and restate the Prior Agreement in its entirety; and
WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
in accordance with the provisions of this Agreement, which supersedes, amends
and restates the Prior Agreement.
<PAGE> 7
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of additional cash to be invested in newly issued REIT
Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan minus the
aggregate amount of additional cash to be so invested by all Irvine Persons and
the Original Limited Partners in newly issued REIT Shares on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Act of Bankruptcy" shall be deemed to occur (i) with respect to TRC if
TRC or any shareholder thereof, and (ii) with respect to a TRC Shareholder if
such TRC Shareholder shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect) or any new bankruptcy statute, (e) be adjudicated bankrupt
or insolvent, (f) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, (g) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect)
or any new bankruptcy statute, or (h) take any corporate or partnership action
for the purpose of effecting any of the foregoing; or if a proceeding or case
shall be commenced, without the application or consent of a party hereto or any
general partner thereof, in any court of competent jurisdiction seeking (1) the
liquidation, reorganization, dissolution or winding-up, or the composition or
readjustment of debts, of such party or general partner, (2) the appointment of
a receiver, custodian, trustee or liquidator of such party, shareholder or
general partner of all or any substantial part of its assets, or (3) other
similar relief under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, and such proceeding or case
shall continue undismissed; or an order (including an order for relief entered
in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in
effect, or any new bankruptcy statute) judgment or decree approving or
2
<PAGE> 8
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) consecutive days.
"Actions" has the meaning set forth in Section 7.7.A hereof.
"Actual Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date the dollar amount specified in the election notice
delivered pursuant to Section 4.8.A(2) not to exceed the Maximum Limited Partner
Investment Amount for such DRIP/ACP Investment Date, provided that if such
election notice is given but fails to specify the Actual Limited Partner
Investment Amount, then the Actual Limited Partner Investment Amount shall be
the Maximum Limited Partner Investment Amount.
"Additional Funds" has the meaning set forth in Section 4.5.A hereof.
"Additional Limited Partner" means a Person admitted to the Partnership
as either a Preferred Limited Partner or Common Limited Partner pursuant to
Sections 4.5.D and 12.2 hereof and who is shown as such on the books and records
of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
"Adjustment Date" means the date of a Capital Contribution pursuant to
Section 4.5 hereof.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time,
including pursuant to a Designation Instrument.
3
<PAGE> 9
"Apartment Community Project" means any multifamily rental apartment
community, including the structure, buildings and other facilities, and any
construction and improvement activities undertaken with respect thereto.
"Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith, such selection to be subject to the
reasonable approval of The Irvine Company, for so long as The Irvine Company is
a holder of a Common Limited Partner Interest representing at least a 10% Junior
Percentage Interest, and thereafter, to the extent there is an Original Limited
Partner, the Original Limited Partner holding the largest Junior Percentage
Interest in the Partnership, provided that for purposes of clause (c) of the
definition of Gross Asset Value, the independent third party shall be selected
by the distributee if the distributee is other than the General Partner.
"Assignee" means a Person to whom one or more Limited Partner Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(a) the Partnership's Net Income or Net Loss (as the case
may be) for such period (without regard to adjustments resulting
from special allocations described in Section 6.2.B hereof),
(b) Depreciation and all other noncash charges or accruals
to the extent deducted in determining Net Income or Net Loss for
such period,
(c) the excess, if any, of the net cash proceeds from the
sale, exchange, disposition, or refinancing of Partnership
property for such period over the gain (or loss, as the case may
be) recognized from such sale, exchange, disposition, or
refinancing during such period (excluding Terminating Capital
Transactions), and
(d) all other cash received (including amounts previously
accrued as Net Income and amounts of deferred income) or any
amounts borrowed by the Partnership for such period that was not
included in determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(a) all principal debt payments made during such period
by the Partnership,
4
<PAGE> 10
(b) capital expenditures made by the Partnership during
such period,
(c) investments in any entity (including loans made
thereto) to the extent that such investments are not otherwise
described in clause (ii)(b),
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period (including
amounts paid in respect of expenses previously accrued),
(e) any amount included in determining Net Income or Net
Loss for such period that was not received by the Partnership
during such period, and
(f) the amount of any working capital accounts and other
cash or cash equivalents which the General Partner determines to
be necessary or appropriate in its sole discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after commencement of the dissolution, and liquidation
of the Partnership.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York or Los Angeles, California are
authorized or required by law to close.
"Capital Account" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be
added such Partner's Capital Contributions, such Partner's share
of Net Income and any items in the nature of income or gain which
are specially allocated pursuant to Section 6.2 hereof, and the
principal amount of any Partnership liabilities assumed by such
Partner or which are secured by any property distributed to such
Partner.
(b) From each Partner's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any
property distributed to such Partner pursuant to any provision of
this Agreement, such Partner's distributive share of Net Losses
and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 6.2 hereof, and the
principal amount of any liabilities of such Partner assumed by
the Partnership or which are secured by any property contributed
by such Partner to the Partnership.
5
<PAGE> 11
(c) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor
to the extent it is attributable to the transferred interest.
(d) In determining the amount of any liability for
purposes of subsections (a) and (b) hereof, there shall be taken
into account Code Section 752(c) and any other applicable
provisions of the Code and Regulations.
(e) The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b) and 1.704-2, and shall be
interpreted and applied in a manner consistent with such
Regulations. If the General Partner shall determine that it is
prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General
Partner may make such modification provided that such
modification will not have a material effect on the amounts
distributable to any Partner without such Partner's consent. The
General Partner also shall make any adjustments that are
necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for
book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q).
"Capital Contribution" means, with respect to any Partner, any cash or
the Gross Asset Value of any Contributed Property which such Partner contributes
to the Partnership pursuant to Sections 4.1, 4.2, 4.3 or 4.5 hereof or is deemed
to contribute pursuant to Sections 4.5.F, 4.5.H(1), 4.6 and 4.8 hereof, as such
Gross Asset Value may be determined from time to time.
"Cash Amount" means an amount of cash equal to the Value of the REIT
Shares Amount.
"Cash Tender" has the meaning set forth in Section 8.6.
"Cash Tender Amount" means the lesser of (i) the Cash Amount or (ii) the
Public Offering Funding Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Certificate of Incorporation" means the Articles of Amendment and
Restatement of the General Partner filed in the office of the State Department
of Assessments and Taxation of the State of Maryland on April 29, 1996, as
amended or restated from time to time, including any Articles Supplementary.
6
<PAGE> 12
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable Regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Limited Partner" means any Person named as a Common Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Common Limited Partner in the Partnership.
"Common Limited Partner Interest" means a Partnership Interest of a
Common Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Common Limited Partners. A Common Limited Partner
Interest may be expressed as a number of Partnership Units (each a "Common
Limited Partner Unit").
"Consent" means the consent to or approval of a proposed action by a
Partner given in accordance with Section 14.2 or Section 14.3 hereof.
"Consent of the Common Limited Partners" means the Consent of a
Majority-In-Interest of the Common Limited Partners, which Consent shall be
obtained prior to the taking of any action for which it is required by this
Agreement and may be given or withheld by a Majority-In-Interest of the Common
Limited Partners, in their sole discretion.
"Contributed Properties" means each Property or other asset, but
excluding cash, contributed or deemed contributed to the Partnership (or deemed
contributed to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code).
"Conversion Factor" means 1.0, provided that in the event that the
General Partner (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"Corresponding ACP/L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date a number of Common Limited Partner Units equal to "A" divided by
"B", where
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<PAGE> 13
"A" equals a dollar amount equal to the Actual Limited Partner Investment Amount
for such DRIP/ACP Investment Date minus the Maximum DRIP Limited Partner
Investment Amount for such DRIP/ACP Investment Date (provided that if the
Maximum DRIP Limited Partner Investment Amount is greater than the Actual
Limited Partner Investment Amount, then "A" shall be $0); and "B" equals the
purchase price per newly issued REIT Share issued on such DRIP/ACP Investment
Date with additional cash investments, determined as provided in the DRIP/ACP
Plan.
"Corresponding DRIP/L.P. Unit Amount" means with respect to each
DRIP/ACP Investment Date a number of Common Limited Partner Units equal to "C"
divided by "D", where "C" equals the lesser of (i) the Actual Limited Partner
Investment Amount for such DRIP/ACP Investment Date and (ii) the Maximum DRIP
Limited Partner Investment Amount for such DRIP/ACP Investment Date, and "D"
equals the purchase price per newly issued REIT Share issued on such DRIP/ACP
Investment Date as a result of the reinvestment of dividends, determined as
provided in the DRIP/ACP Plan.
"Corresponding L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date the aggregate of the Corresponding DRIP/L.P. Unit Amount and the
Corresponding ACP/L.P. Unit Amount, provided that if such calculation results in
a fractional Common Limited Partner Unit, the Corresponding L.P. Unit Amount
shall be rounded downward.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; and (iii) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof.
"Declaration of Trust" means the Declaration of Trust of IAC Capital
Trust dated as of October 31, 1997, as amended and restated by the Amended and
Restated Declaration of Trust of IAC Capital Trust dated as of ___________,
199_, as such agreement may be amended, modified or restated from time to time.
"Depreciation" means, for each Partnership Year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year, Depreciation shall be in an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be
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determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner.
"Designation Instrument" means with respect to a series of Preferred
Limited Partner Interests, an instrument executed by the General Partner at the
time of issuance of such series of Preferred Limited Partner Interests, setting
forth the designations, powers, preferences and relative, participating,
optional and other special rights, powers and privileges of such series as
established by the General Partner pursuant to Section 4.5.F of this Agreement.
The General Partner shall identify each such Designation Instrument as the next
consecutively lettered Exhibit to this Agreement (the first such Designation
Instrument to be Exhibit E hereto) and shall deliver a conformed copy thereof to
each Limited Partner, provided that the failure to deliver a conformed copy to a
Limited Partner shall not in any way invalidate the issuance of such series of
Preferred Limited Partner Interests or give any Limited Partner any rights under
this Agreement other than the right to obtain a conformed copy of such
Designation Instrument.
"DRIP/ACP Investment Amount" means with respect to a DRIP/ACP Investment
Date the aggregate of the DRIP Investment Amount and the ACP Investment Amount.
"DRIP Investment Amount" means with respect to a DRIP/ACP Investment
Date the aggregate amount of dividends paid on REIT Shares to be reinvested in
newly issued REIT Shares on such DRIP/ACP Investment Date pursuant to the
DRIP/ACP Plan minus the aggregate amount of dividends paid on REIT Shares
beneficially owned (whether under the DRIP/ACP Plan or otherwise) by all Irvine
Persons and the Original Limited Partners to be so reinvested in newly issued
REIT Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.
"DRIP/ACP Investment Date" means the date on which the DRIP Investment
Amount is reinvested in newly issued REIT Shares and/or the date on which the
ACP Investment Amount is used to purchase newly issued REIT Shares, in each case
as set forth in the DRIP/ACP Plan.
"DRIP/ACP Plan" means the Irvine Apartment Communities, Inc. Dividend
Reinvestment and Additional Cash Investment Plan described in the General
Partner's Registration Statement on Form S-3 and any other dividend reinvestment
and additional cash investment plan established by the General Partner.
"DRIP Percentage" has the meaning set forth in Section 4.8.A(1).
"Effective Date" means December 8, 1993, the date of closing of the
Initial Public Offering of the REIT Shares.
"Election Notice" has the meaning set forth in Section 4.5.G hereof.
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<PAGE> 15
"Excess Common Stock" and "Excess Preferred Stock" means the classes of
shares of the General Partner as defined in Subsection 4(A) of Section (c) of
ARTICLE SIXTH of the Certificate of Incorporation.
"Exchange" shall have the meaning set forth in Section 8.6 hereof.
"Existing Property Partnership" means the San Rafael Apartments Limited
Partnership.
"Existing Property Partnership Interest" shall mean the interest of the
Partnership as a 1% general partner and a 98% limited partner in the Existing
Property Partnership.
"Funding Debt" means any Debt incurred by or on behalf of the General
Partner for the purpose of providing funds to the Partnership.
"Funding Notice" has the meaning set forth in Section 4.5.B hereof.
"General Partner" means Irvine Apartment Communities, Inc. or its
successor as general partner of the Partnership in their capacities as general
partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner that is the general partner interest hereunder. A General
Partner Interest may be expressed as a number of Partnership Units (each a
"General Partner Unit").
"General Partner Loan" has the meaning set forth in Section 4.5.C
hereof.
"General Partner's Stock Incentive Plans" means the Irvine Apartment
Communities, Inc. 1993 Long-Term Stock Incentive Plan, the Irvine Apartment
Communities, Inc. 1993 Stock Plan for Directors, The Irvine Apartment
Communities, Inc. 1996 Long-Term Stock Incentive Plan, and any other officer,
director or employee stock plan established from time to time by the General
Partner.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be (i) in the case of
assets included in Exhibit A the gross fair market value of such
assets as agreed by the Partners and as set forth in Exhibit A
under the heading "Gross Asset Value of Contributed Property",
and (ii) in the case of any other assets that are contributed to
the Partnership, their gross fair market value as agreed by the
General Partner, the contributing Partner and the Irvine Person,
if any, holding the largest Junior Percentage Interest in the
Partnership. The sub-allocation of any Gross Asset Value
determined pursuant to clauses (i) or (ii) within any group of
assets shall be determined by agreement of
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<PAGE> 16
the General Partner, the contributing Partner and the Irvine
Person, if any, holding the largest Junior Percentage Interest in
the Partnership in accordance with the principles of Section 1060
of the Code. In any case in which the General Partner, the
contributing Partner and the Irvine Person, if any, holding the
largest Junior Percentage Interest in the Partnership are unable
to agree as to the gross fair market value of any asset or assets
such Gross Asset Value shall be determined by Appraisal in
accordance with such principles.
(b) The Gross Asset Values of all Partnership assets
immediately prior to the occurrence of any event described in
(i), (ii), (iii), (iv) or (v) hereof shall be adjusted to equal
their respective gross fair market values, as determined by the
General Partner using such reasonable method of valuation as it
may adopt, as of the following times:
(i) the acquisition of an additional interest in
the Partnership by a new or existing Partner in exchange
for more than a de minimis Capital Contribution including,
but not limited to, acquisitions pursuant to Section 4.3
or contributions and deemed contributions by the General
Partner pursuant to Section 4.6, if the General Partner
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of
the Partners in the Partnership;
(ii) the distribution by the Partnership to a Partner
of more than a de minimis amount of Partnership property
as consideration for an interest in the Partnership, if
the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the
relative economic interests of the Partners in the
Partnership;
(iii) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner
pursuant to Section 11.7.C hereof; and
(v) at such other times as the General Partner shall
reasonably determine necessary or advisable in order to
comply with Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset
distributed to a Partner shall be the gross fair market value of
such asset on the date of distribution as determined by the
distributee and the General Partner provided, however, if the
distributee is the General Partner, or if the distributee and the
General Partner cannot agree on such a determination, by
Appraisal.
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<PAGE> 17
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this
subparagraph (d) to the extent that the General Partner
reasonably determines that an adjustment pursuant to subparagraph
(b) is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this
subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has
been determined or adjusted pursuant to subparagraph (a), (b) or
(c), such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
"G.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).
"IAC Capital Trust" means IAC Capital Trust, a Delaware business trust
formed pursuant to the Declaration of Trust and the Business Trust Act of the
State of Delaware (12 Del. Code ss.3801 et seq.).
"IRS" means the Internal Revenue Service.
"Immediate Family" of any individual means, such individual's estate and
heirs, spouse and children (whether natural or adoptive or by marriage) and any
trust or estate, the beneficiaries of which include such Person or any of the
foregoing.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
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<PAGE> 18
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment, or (h) an appointment referred to in clause (g) is not vacated
within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by reason
of (A) its status as the General Partner, or (B) such Person's status as a
director of the General Partner or an officer or employee of the Partnership or
the General Partner, or (C) such Person's status as a director of The Irvine
Company, (ii) other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole
discretion, (iii) TRC and the TRC Shareholders and (iv) any Irvine Person.
"Initial Public Offering" means the offering of the General Partner's
Common Stock pursuant to the Form S-11 Registration Statement (No. 33-68830)
filed by the General Partner with the Securities and Exchange Commission.
"Investing Entities" has the meaning set forth in Section 4.8.A(2).
"Irvine Apartment Communities" means Irvine Apartment Communities, Inc,
a Maryland corporation.
"Irvine Persons" means (i) The Irvine Company and its Affiliates, (ii)
Donald L. Bren and his Affiliates and Immediate Family, and any successors
thereto by descent or devise and (iii) the current and future shareholders of
The Irvine Company, and any Affiliates of any current and future shareholders of
the Irvine Company and the Immediate Family of such shareholders.
"Junior Partnership Interests" means the General Partner Interest and
the Common Limited Partner Interests.
"Junior Percentage Interest" means, as to the General Partner and each
Common Limited Partner, its interest in the Partnership as determined by
dividing, as applicable, the number of General Partner Units or Common Limited
Partner Units owned by such Partner by the aggregate number of General Partner
Units and Common Limited Partner Units then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.
"Land Rights Agreement" means the agreement dated as of November 21,
1993, as amended, among Irvine Apartment Communities, the Partnership, The
Irvine Company and
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Donald L. Bren evidencing, inter alia, certain exclusive rights to acquire land
from The Irvine Company and certain non-competition arrangements, as such
agreement may be further amended, modified or restated from time to time.
"Limited Partner" means a Common Limited Partner or a Preferred Limited
Partner, and "Limited Partners" means the Common Limited Partners and the
Preferred Limited Partners.
"Limited Partner Interest" means a Common Limited Partner Interest or a
Preferred Limited Partner Interest, and "Limited Partner Interests" means the
Common Limited Partner Interests and the Preferred Limited Partner Interests.
"Liquidating Events" has the meaning set forth in Section 13.1 hereof.
"Liquidation Preference Amount" means with respect to any Preferred
Limited Partner Interest, the amount payable with respect to such Preferred
Limited Partner Interest (as established by the General Partner at the time of
issuance thereof and set forth in the Designation Instrument with respect to
such Preferred Limited Partner Interest made a part of this Agreement as set
forth in Section 4.5.F hereof) upon the voluntary or involuntary dissolution,
liquidation, winding-up or termination of the Partnership, or upon the stated
maturity of such Preferred Limited Partner Interest or upon the earlier
redemption of such Preferred Limited Partner Interests, as the case may be,
other than in any such case any accrued and unpaid distributions payable at such
time.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"L.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).
"Majority-In-Interest of the Common Limited Partners" means those Common
Limited Partners holding in the aggregate more than fifty percent (50%) of the
Percentage Interests of the Common Limited Partners, as a class.
"Maximum DRIP Limited Partner Investment Amount" means with respect to
each DRIP/ACP Investment Date a dollar amount equal to (A) the Maximum Limited
Partner Investment Amount times (B) the DRIP Percentage.
"Maximum Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date a dollar amount equal to (A) the DRIP/ACP Investment
Amount for such DRIP/ACP Investment Date divided by 1 minus the aggregate of the
Junior Percentage Interests of the Original Limited Partners in the Partnership
in effect as of the close of business on the third business day immediately
preceding such DRIP/ACP Investment Date, minus (B) such DRIP/ACP Investment
Amount.
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<PAGE> 20
"Miscellaneous Rights Agreement" means the Miscellaneous Rights
Agreement dated March 20, 1996, as amended, among Irvine Apartment Communities,
the Partnership and The Irvine Company, as such agreement may be further
amended, modified or restated from time to time.
"Net Income" and "Net Loss" means, for each Partnership Year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such year, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in
computing Net Income (or Net Loss) pursuant to this definition of
Net Income or Net Loss shall be added to (or subtracted from)
such taxable income (or loss);
(b) Any expenditure of the Partnership described in Code
Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B)
expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i)
not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of Net Income (or Net Loss),
shall be subtracted from (or added to) such taxable income (or
loss);
(c) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraph (b) or subparagraph
(c) of the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Income or
Net Loss;
(d) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization and other
cost recovery deductions that would otherwise be taken into
account in computing such taxable income or loss, there shall be
taken into account Depreciation for such Partnership Year;
(f) To the extent an adjustment to the adjusted tax basis
of any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Regulation Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
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<PAGE> 21
liquidation of a Partner's interest in the Partnership, the
amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of
computing Net Income or Net Loss; and
(g) Notwithstanding any other provision of this definition
of Net Income or Net Loss, any item which is specially allocated
pursuant to Section 6.2.B hereof shall not be taken into account
in computing Net Income or Net Loss. The amounts of the items of
Partnership income, gain, loss or deduction available to be
specially allocated pursuant to Section 6.2.B hereof shall be
determined by applying rules analogous to those set forth in this
definition of Net Income or Net Loss.
"New Securities" means (i) any rights, options, warrants or convertible
or exchangeable securities having the right to subscribe for or purchase REIT
Shares, excluding grants under the General Partner's Stock Incentive Plans, or
(ii) any Debt issued by the General Partner that provides any of the rights
described in clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Cash Tender" means the Notice of Cash Tender substantially in
the form of Exhibit C to this Agreement.
"Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit B to this Agreement.
"Original Limited Partner" means (i) a Common Limited Partner who was a
Partner on the Effective Date, (ii) an Affiliate of a Common Limited Partner
described in clause (i) of this definition or an Irvine Person that acquires one
or more Common Limited Partner Units pursuant to Section 11.3.A hereof or (iii)
a Person that acquired one or more Common Limited Partner Units from an Original
Limited Partner pursuant to a Pledge.
"Ownership Limit" means the applicable restriction on ownership of
shares of the General Partner imposed under the Certificate of Incorporation.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
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<PAGE> 22
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement together with
all obligations of such Person to comply with the terms and provisions of this
Agreement. A Partnership Interest may be expressed as a number of Partnership
Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules and Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash under Section 5.1 hereof
with respect to a class or series of Partnership Interests, which record date in
the case of distributions with respect to the General Partner Interest and
Common Limited Partner Interests shall generally be the same as the record date
established by the General Partner for a distribution to its stockholders of
some or all of its portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Article 4 hereof. The
ownership of Partnership Units shall be evidenced by such form of certificate
for units as the General Partner adopts from time to time on behalf of the
Partnership. Partnership Units shall be either General Partner Units, Preferred
Limited Partner Units or Common Limited Partner Units and, without limitation on
the authority of the General Partner set forth in Article 4 hereof, the General
Partner may designate, in accordance with the provisions of this Agreement,
Limited Partner Units, when issued, as Common Limited Partner Units or Preferred
Limited Partner Units and may designate one of more series of Preferred Limited
Partner Units.
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<PAGE> 23
"Partnership Year" means the taxable year of the Partnership, which
shall be the fiscal year ending December 31, until such time as the Code
requires a change of the taxable year.
"Percentage Interest" means, as to each Partner as the context may
require, (i) with respect to any class or series of Partnership Units held by
such Partner, its interest in such class or series of Partnership Units as
determined by dividing the Partnership Units of such class or series owned by
such Partner by the total number of Partnership Units of such class or series
then outstanding as specified in Exhibit A attached hereto, as such Exhibit may
be amended from time to time, or (ii) its interest in the Junior Partnership
Interests determined as set forth in the definition of Junior Percentage
Interest.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" means the pledge by a Limited Partner of all or any portion of
a Partnership Interest to a Person, which is not an Affiliate of such Limited
Partner, as collateral or security for a bona fide loan or other extension of
credit, and the transfer of such pledged Partnership Interest to such Person in
connection with the exercise of remedies under such loan or extension or credit.
"Preferred Limited Partner" means a Person named as a Preferred Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Preferred Limited Partner in the Partnership.
"Preferred Limited Partner Interest" means a Partnership Interest issued
from time to time pursuant to Section 4.5.F of this Agreement that is designated
by the General Partner at the time of its issuance as a Preferred Limited
Partner Interest. In accordance with Section 4.5.F hereof, Preferred Limited
Partner Interests may be issued in series with each such series having such
designations, powers, preferences and relative, participating, optional or other
special rights, powers and privileges, including voting and conversion rights
and rights, powers and privileges senior to the General Partner Interest and the
Common Limited Partner Interests as shall be determined by the General Partner
at the time of issuance subject to the requirements of Section 4.5 hereof and
set forth in a Designation Instrument. A Preferred Limited Partner Interest of a
series may be expressed as a number of Partnership Units (each a "Preferred
Limited Partner Unit").
"Pricing Agreements" has the meaning set forth in Section 8.6.E(2)
hereof.
"Pricing Information" has the meaning set forth in Section 8.6.E(3)
hereof.
"Primary Offering Notice" has the meaning set forth in Section 8.6.G(5)
hereof.
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<PAGE> 24
"Prior Agreement" has the meaning set forth in the third WHEREAS clause
of this Agreement, which Prior Agreement is amended and restated in its entirety
by this Agreement.
"Prior Agreement Effective Date" means December 1, 1993.
"Pro Rata Contribution" has the meaning set forth in Section 4.5.G
hereof.
"Pro Rata Participation" has the meaning set forth in Section 4.5.G
hereof.
"Property" shall mean any property or assets of the Partnership
including, without limitation, any Apartment Community Project in which the
Partnership or any Property Partnership, directly or indirectly, acquires
ownership of a fee or leasehold interest.
"Property Partnership" shall mean and include the Existing Property
Partnership and any partnership or other entity in which the Partnership is or
becomes a partner or other equity participant and which is formed for the
purpose of acquiring, developing or owning a Property or a proposed Property.
"Property Partnership Agreement" shall mean and include the partnership
agreement of the Existing Property Partnership and any partnership agreement or
any joint venture or other similar agreement (as any of the foregoing may be
amended, modified or supplemented from to time) under which a Property
Partnership is constituted or by which it is governed.
"Property Partnership Interests" shall mean and include the Existing
Property Partnership Interest and, with respect to any Property Partnership in
which the Partnership becomes a partner or other equity participant after the
date hereof, the interest or interests of the Partnership as a partner or other
equity participant in such Property Partnership.
"Public Offering Funding" shall have the meaning set forth in Section
8.6.C hereof.
"Public Offering Funding Amount" means the dollar amount equal to (i)
the product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.
"Qualified Transferee" means an "Accredited Investor" as defined in Rule
501 promulgated under the Securities Act.
"Registrable Shares" has the meaning set forth in Section 8.6.C(1)
hereof.
"Regulations" means the applicable income tax regulations under the Code
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
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"Regulatory Allocations" has the meaning set forth in Section 6.2.B(8)
hereof.
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Share" shall mean a share of common stock, par value $.01 per
share, of the General Partner.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Common Limited Partner Units tendered by a Tendering
Partner pursuant to Section 8.6 hereof, multiplied by the Conversion Factor;
provided that in the event the General Partner issues to all holders of REIT
Shares as of a certain record date rights, options, warrants or convertible or
exchangeable securities entitling the stockholders of the General Partner to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights") that have been declared (i) prior to, on or after
the date of a Notice of Exchange, with a record date within the period starting
on the date of the Notice of Exchange and ending on the day preceding the
Specified Exchange Date then the REIT Shares Amount shall also include such
rights that a holder of that number of REIT Shares would be entitled to receive
and (ii) prior to, on or after a Notice of Cash Tender, with a record date
within the period starting on the date of the Notice of Cash Tender and ending
on the day preceding the Specified Cash Tender Date then the General Partner
shall adjust the Cash Amount in good faith to reflect the increased value of the
REIT Shares.
"Related Party" means (i) The Irvine Company and (ii) any other Person
whose ownership of REIT Shares would be attributed to Donald L. Bren under
Section 544 of the Code.
"Second Offering" means the underwritten public offering of up to
5,750,000 REIT Shares referred to in the Funding Notice dated July 18, 1995.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Single Funding Notice" has the meaning set forth in Section 8.6.C(2)
hereof.
"Specified Cash Tender Date" means the Business Day next following the
date of the closing of the Public Offering Funding.
"Specified Exchange Date" means, subject to Section 8.6.G (7) and
compliance with the requirements of Section 8.6.I, the fifth (5th) Business Day
after receipt by the General Partner of a Notice of Exchange.
"Subsequent Cash Tender" has the meaning set forth in Section 8.6.G(5)
hereof.
"Subsequent Cash Tender Notice" has the meaning set forth in Section
8.6.G(5) hereof.
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"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person; provided, however, that, with respect to
the Partnership, "Subsidiary" shall mean only a partnership of which the
Partnership is a partner unless the General Partner has received an unqualified
opinion from independent counsel of recognized standing, or a ruling from the
Internal Revenue Service, that the ownership of shares of stock of a corporation
or other entity will not jeopardize the General Partner's status as a REIT in
which event the term "Subsidiary" shall include the corporation or other entity
which is the subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as either a
Preferred Limited Partner or Common Limited Partner to the Partnership pursuant
to Section 11.4 hereof.
"SVC" means Stonecrest Village Company, LLC, a California limited
liability company.
"Tandem Project" means the proposed development on the Tandem Property
contemplated by applications numbered 5-Z-96, 14-U-96 and 21-EA-96 on file with
the City of Cupertino, summarized in that certain letter dated December 11,
1996, prepared by the Community Development Department of the City of Cupertino
and approved by the Partnership.
"Tandem Property" means that certain real property located in the City
of Cupertino, State of California, which TRC has an option to purchase pursuant
to that certain Purchase Agreement dated May 1, 1996, by and between Tandem
Computers Incorporated, as seller, and TRC, as buyer, and more particularly
described therein.
"Tax Item" means, with respect to each Partnership Year, each item of
income, gain, loss, credit and deduction of the Partnership for purposes of the
Code and the Regulations.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Partner" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"TRC" means Thompson Residential Company, Inc., a California
corporation.
"TRC Contribution Agreement" means that certain Contribution Agreement
by and between the Partnership and TRC, dated as of December 20, 1996.
"TRC Shares" means issued and outstanding shares of all classes of stock
in TRC.
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"TRC Shareholder" has the meaning set forth in Section 11.3.F(1).
"TRC Shareholder Incapacity" has the meaning set forth in Section
11.3.F(3).
"Transfer" means any sale, assignment, bequest, conveyance, devise,
gift, encumbrance, hypothecation, mortgage, exchange, transfer or other
disposition or act of alienation, whether voluntary or involuntary, or by
operation of law.
"Twelve-Month Period" means the twelve-month period ending on the day
before the first anniversary of the Effective Date or on a subsequent
anniversary thereof.
"Unit Value" for purposes of Sections 8.6.J and Sections 11.3.F(2),
11.3.F(3) and 11.3.F(4) shall mean on any day the product of the market price of
a REIT Share (determined as provided in the definition of "Value") on such day
multiplied by the Conversion Factor on such day.
"Value" means on any date with respect to a REIT Share, the market price
on such date or, if such date is not a trading day, then the market price on the
immediately preceding day which is a trading day, provided that for purposes of
determining the Cash Amount with respect to Tendered Units of a Tendering
Partner, the term "Value" shall mean the average of the daily market prices for
ten (10) consecutive trading days immediately preceding the date of receipt by
the General Partner of a Notice of Cash Tender. The market price for any such
trading day shall be: (i) if the REIT Shares are listed or admitted to trading
on any securities exchange or the Nasdaq National Market System, the closing
price, regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system, (ii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 10 days
prior to the date in question) for which prices has been so reported; provided
if there are no bid and asked prices reported during the 10 days prior to the
date in question, the Value of the REIT Shares shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights (as defined in the definition of
REIT Shares Amount) that a holder of REIT Shares would be entitled to receive,
then the Value of such rights shall be determined by the General Partner acting
in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.
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"Withdrawing Partner" has the meaning set forth in Section 8.6.E(3)
hereof.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1. Formation; Continuation
The Partnership is a limited partnership formed and continued pursuant
to the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The Partners hereby continue the Partnership pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement which amends and restates the Prior Agreement in its entirety as of
the date hereof. Except as expressly provided herein to the contrary, the rights
and obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2. Name
The name of the Partnership is Irvine Apartment Communities, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner.
Section 2.3. Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and the
registered agent for service of process on the Partnership in the State of
Delaware at such registered office is the Corporation Trust Company. The
principal office of the Partnership is located at 550 Newport Center Drive,
Newport Beach, California 92660 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners. The Partnership
may maintain offices at such other place or places within or outside the State
of Delaware as the General Partner deems advisable.
Section 2.4. Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
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(1) execute, swear to, seal, acknowledge, deliver, file
and record in the appropriate public offices (a) all
certificates, documents and other instruments (including, without
limitation, this Agreement and the Certificate and all amendments
or restatements thereof) that the General Partner or the
Liquidator deems appropriate or necessary to form, qualify or
continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited
partners have limited liability to the extent provided by
applicable law) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or
own property; (b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with
its terms; (c) all conveyances and other instruments or documents
that the General Partner deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all conveyances
and other instruments or documents that the General Partner deems
appropriate or necessary to reflect the distribution or exchange
of assets of the Partnership pursuant to the terms of this
Agreement; (e) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article 11, 12 or 13 hereof or the
Capital Contribution of any Partner; and (f) all certificates,
documents and other instruments relating to the determination of
the rights, preferences and privileges of Partnership Interests;
and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole discretion of
the General Partner, to make, evidence, give, confirm or ratify
any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary, in the sole
discretion of the General Partner, to effectuate the terms or
intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article 14 hereof or
as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action by it on behalf of
the Partnership, and it shall survive and not be affected by the subsequent
Incapacity of any Limited Partner or Assignee and the Transfer of all or any
portion of a Limited Partner's or Assignee's Partnership Units and shall extend
to a Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each Limited Partner or Assignee hereby agrees to be bound by
any representation made by the General Partner, acting in
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good faith pursuant to such power of attorney, and each Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner, taken in good faith under
such power of attorney. Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within fifteen (15) days after
receipt of the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
Section 2.5. Term
The term of the Partnership commenced on November 15, 1993, the date the
original Certificate was filed in the office of the Secretary of State of
Delaware in accordance with the Act, and shall continue until December 31, 2092,
unless the Partnership is dissolved sooner pursuant to the provisions of Article
13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1. Purpose and Business
The purpose and nature of the Partnership is (i) to conduct the business
of the ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture or
other similar arrangement to engage in any business permitted by clause (i), or
to own interests in any entity engaged in any business permitted by clause (i)
and (iii) to do anything necessary or incidental to the foregoing, provided,
however, such business and arrangements and interests shall be limited to and
conducted in such a manner as to permit the General Partner at all times to be
classified as a REIT.
Section 3.2. Powers
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole discretion, (i) could adversely affect the ability
of the General Partner to continue to qualify as a REIT, (ii) could subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner or its securities or the
Partnership, unless such action (or inaction) described in
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subclauses (i)-(iii) above shall have been specifically consented to by the
General Partner in writing.
Section 3.3. Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes specified
in Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any Debt or other obligation of another Partner, nor
shall the Partnership be responsible or liable for any Debt or other obligation
of any Partner, incurred either before or after the execution and delivery of
this Agreement by such Partner, except as to those responsibilities,
liabilities, Debt or obligations incurred pursuant to and as limited by the
terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Parties
A. Each Person that is an individual, as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner, as the case may be,
shall represent and warrant to each other Partner that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (ii) such Partner is not a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), and (iii) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.
B. Each Person that is not an individual represents and warrants to each
other Partner as a condition to becoming a Limited Partner that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership agreement, trust agreement, charter or by-laws, as the case may
be, any material agreement by which such Partner or any of such Partner's
properties or any of its partners, beneficiaries, trustees or shareholders, as
the case may be, is or are bound, or any statute, regulation, order or other law
to which such Partner or any of its partners, trustees, beneficiaries or
shareholders, as the case may be, is or are subject, (iii) such Partner is
neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign partner" within the meaning of Code Section 1446(e), and (iv) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms.
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C. Each Partner represents, warrants and agrees that it has acquired and
continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances except as permitted under Article 11
hereof. Each Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds it has invested
in the Partnership in what it understands to be a highly speculative and
illiquid investment.
D. The representations and warranties contained in Sections 3.4.A, 3.4.B
and 3.4.C hereof shall survive the execution and delivery of this Agreement by
each Partner (and a Person's being admitted as a Substituted Limited Partner or
an Additional Limited Partner pursuant to Sections 11.4 or 12.2 hereof) and the
dissolution, liquidation and termination of the Partnership.
E. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners
At the time of the execution of this Agreement, the Capital
Contributions of the Partners are as set forth in Amendment No. 25 to Exhibit A
to this Agreement. To the extent the Partnership acquires in the future any
property by the merger of any other Person into the Partnership, Persons who
receive Partnership Interests in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to have
made Capital Contributions as provided in the applicable merger agreement and as
set forth in an amendment to Exhibit A. Each Partner shall own Partnership Units
in the amount set forth for such Partner in Exhibit A, as the same may be
amended from time to time, and shall have a Percentage Interest in the Junior
Partnership Interests or in a series of Preferred Limited Partnership Interests
as set forth for such Partner in Exhibit A, as the same may be amended from time
to time, which Percentage Interest shall be adjusted in Exhibit A from time to
time by the General Partner to the extent necessary to reflect accurately sales,
exchanges or other Transfers,
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redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's Percentage Interest.
In the event a Contingent Contribution Value (as defined in the TRC
Contribution Agreement) is payable to TRC in additional Common Limited Partner
Units as provided in such TRC Contribution Agreement, then Exhibit A shall be
further amended (i) so that the "Gross Asset Value of Contributed Property" set
forth opposite the name of TRC in Exhibit A shall be increased by the amount of
such Contingent Contribution Value and (ii) the number of Common Limited Partner
Units owned by TRC and the Percentage Interests of the General Partner and all
the Common Limited Partners in the Junior Partnership Interests set forth in
Exhibit A shall be revised accordingly. For purposes of the definition of Gross
Asset Value, the General Partner, The Irvine Company and TRC agree that the
amount set forth opposite the name of TRC under "Gross Asset Value of
Contributed Property" in Exhibit A, as the same may be increased as described
above, constitutes the fair market value of the assets contributed by TRC to the
Partnership. At the Contingent Contribution Value Payment Date (as defined in
such TRC Contribution Agreement), in the event that the Partnership is obligated
to issue TRC additional Common Limited Partner Units, then the General Partner
shall issue TRC a certificate representing such Common Limited Partner Units,
and Exhibit A shall be modified accordingly as provided above. The Partners
acknowledge and agree that this paragraph reflects the provisions of Sections 16
and 17 of Amendment No. 7 of the Prior Agreement.
Section 4.2. Additional Capital Contribution and Loans Generally
Except as otherwise required by law, the Partners shall have no
obligation to make any additional Capital Contributions or loans to the
Partnership.
Section 4.3. Land Rights Agreement; Property Acquisitions
A. Upon the acquisition of any Property by the General Partner pursuant
to the Land Rights Agreement for REIT Shares, the General Partner will promptly
contribute such Property to the Partnership. Upon such contribution the
Partnership will be deemed to have issued to the General Partner a number of
General Partner Units equal to the number of REIT Shares issued by the General
Partner in such acquisition divided by the Conversion Factor in effect on the
date of issuance of such REIT Shares, and the Junior Percentage Interest of the
General Partner and all other Common Limited Partners shall be adjusted based on
that number of Partnership Units.
B. Upon the acquisition of Property pursuant to the Land Rights
Agreement for an additional Common Limited Partner Interest, the Partnership
will issue a number of Common Limited Partner Units equal to the amount of
Common Limited Partner Units determined pursuant to the Land Rights Agreement,
and the Junior Percentage Interest of the Property transferor, the General
Partner and all other Common Limited Partners shall be adjusted based on that
number of Partnership Units.
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Section 4.4. Loans by Third Parties
Subject to Section 4.5 hereof, the Partnership may incur Debt, or enter
into other similar credit, guarantee, financing or refinancing arrangements for
any purpose (including, without limitation, in connection with any further
acquisition of Properties) from any Person upon such terms as the General
Partner determines appropriate; provided that, any Debt which refinances Debt
outstanding upon the closing of the Initial Public Offering, shall be
non-recourse to the General Partner, except to the extent otherwise agreed to by
the General Partner.
Section 4.5. Additional Funding and Capital Contributions
A. General. The General Partner may, at any time and from time to time
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition of additional Properties or for such other purposes as the
General Partner may determine. Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with, the terms of this Section 4.5. Except as set forth in
this Section 4.5, no Person shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest. Capital Contributions received pursuant to Section 11.7.C
will not be subject to Section 4.5.A.
B. Notice of Additional Capital Contributions. The General Partner shall
give written notice (the "Funding Notice") to the Original Limited Partners of
the need for Additional Funds and the anticipated source(s) thereof.
C. General Partner Loans. Upon delivery of a Funding Notice to the
Original Limited Partners, the General Partner, subject to Section 4.5.G below,
may enter into a Funding Debt including, but not limited to, a Funding Debt that
is convertible into REIT Shares and lend the Additional Funds to the Partnership
(a "General Partner Loan"). If the General Partner enters into such a Funding
Debt, the General Partner Loan will consist of the net proceeds from such
Funding Debt and, to the extent permitted by law, will be on the same terms and
conditions, including interest rate and repayment schedule, and providing for
the reimbursement of costs and expenses, as shall be applicable with respect to
or incurred in connection with such Funding Debt. Otherwise, all General Partner
Loans made pursuant to this Section 4.5 shall be on terms and conditions no less
favorable to the Partnership than would be available to the Partnership from any
third party.
D. Additional Limited Partners. Upon delivery of a Funding Notice to the
Original Limited Partners, the General Partner on behalf of the Partnership may
raise all or any portion of the Additional Funds by accepting additional Capital
Contributions (i) in the case of cash, subject to Section 4.5.G, from any
Partners or any third party or (ii) in the case of property other than cash,
from any Partner and/or third parties, and either (A) in the case of Partners,
increasing such Partner's Partnership Interest, or (b) in the case of a third
party, admitting such third party as an Additional Limited Partner. Subject to
the terms of this Section 4.5 and to the definition of
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Gross Asset Value, the General Partner shall determine in good faith the amount,
terms and conditions of such additional Capital Contributions.
E. Issuance of Shares or Securities by the General Partner. The General
Partner shall not issue any additional REIT Shares (other than REIT Shares
issued pursuant to Section 4.3.A, 4.6, 4.8 or 8.6 hereof or pursuant to a
dividend or distribution (including any stock split) of REIT Shares to all of
its stockholders), shares of preferred stock of the General Partner or New
Securities unless (i) the General Partner shall make a Capital Contribution of
the proceeds from the issuance of such additional REIT Shares, shares of
preferred stock or New Securities, as the case may be, and from the exercise of
the rights contained in such additional New Securities, as the case may be,
provided that with respect to any issuance of preferred stock of the General
Partner or New Securities, the General Partner at its option may, in lieu of
making a Capital Contribution and issuing Preferred Limited Partner Interests to
the General Partner as provided in Section 4.5.F hereof, loan the proceeds from
the issuance of such shares of preferred stock or New Securities to the
Partnership on a subordinated basis, such loan to be on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from a third party, and (ii) the General Partner shall have delivered to the
Original Limited Partners a Funding Notice regarding the securities to be
issued.
F. Issuances of Additional Limited Partner Interests. In accordance with
this Section 4.5, the General Partner is hereby authorized, without the consent
of the Limited Partners, other than as provided in Section 7.3.D hereof or in a
Designation Instrument, to cause the Partnership from time to time to issue to
the Partners (including the General Partner) or other Persons Common Limited
Partner Interests (in addition to Common Limited Partner Interests issued in
accordance with Sections 4.3.B and 4.8.A hereof) and Preferred Limited Partner
Interests. Preferred Limited Partner Interests may be issued in one or more
series, with such designations, powers, preferences and relative, participating,
optional or other special rights, powers and privileges, including voting and
conversion rights and rights, powers and privileges senior to the General
Partner Interest and the Common Limited Partner Interests as shall be determined
by the General Partner in its sole and absolute discretion subject to the Act
and Delaware law and as set forth in a Designation Instrument, including,
without limitation, (i) the allocations of Tax Items to Preferred Limited
Partner Interests as a class or to a specific series of Preferred Limited
Partner Interests, (ii) the rights of a series of Preferred Limited Partner
Interests to share in Partnership distributions of Available Cash, and (iii) the
rights of a series of Preferred Limited Partner Interests upon dissolution,
liquidation, winding-up or termination of the Partnership, including, without
limitation, the Liquidation Preference Amount with respect to such series.
Notwithstanding the foregoing, no Preferred Limited Partner Interests shall be
issued to the General Partner unless (i) the Preferred Limited Partner Interests
are issued in connection with an issuance of preferred stock of the General
Partner which shares of preferred stock have designations, preferences and other
rights such that the economic interests attributable to such shares of preferred
stock are substantially similar to the designations, preferences and other
rights of the Preferred Limited Partner Interests issued to the General Partner
and (ii) the General Partner shall make a Capital Contribution to the
Partnership in accordance with Section 4.5.E in
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an amount equal to the proceeds raised in connection with the issuance of such
shares of preferred stock of the General Partner. Unless otherwise specified in
the Designation Instrument, with respect to any series of Preferred Limited
Partner Interests issued to the General Partner or IAC Capital Trust in
consideration of the proceeds received by the General Partner or IAC Capital
Trust from a concurrent offering of preferred stock of the General Partner or
preferred securities of IAC Capital Trust, respectively, the General Partner or
IAC Capital Trust, as the case may be, shall be deemed to have made
(notwithstanding the actual amount of the contribution) a Capital Contribution
to the Partnership in the amount of the gross proceeds of such issuance of
preferred stock or preferred securities, as the case may be, and the Partnership
shall be deemed to have simultaneously reimbursed the General Partner or IAC
Capital Trust, as the case may be, pursuant to Section 7.4.D of this Agreement
for the amount of the underwriting discounts and commissions and other issuance
cost incurred by the General Partner or IAC Capital Trust, as the case may be,
in connection with such issuance of such preferred stock or preferred
securities. Upon issuance of a series of Preferred Limited Partner Interests,
the Designation Instrument applicable to such series shall constitute an
amendment to this Agreement and shall become a part hereof whether or not
actually attached to this Agreement.
G. Participation Rights of Partners. The Funding Notice delivered by the
General Partner prior to its making or accepting (on behalf of the Partnership)
any additional cash Capital Contributions pursuant to Section 4.5.A, 4.5.D,
4.5.E or, if any Preferred Limited Partner Interests are convertible into, or
exercisable or exchangeable for, Common Limited Partner Interests or REIT Shares
or securities whether issued by the Partnership or the General Partner which are
convertible into, or exercisable or exchangeable for, REIT Shares, 4.5.F hereof
shall contain the total amount of additional Capital Contributions sought to be
made to the Partnership, and the terms and conditions pertaining thereto. Each
Original Limited Partner then holding a Common Limited Partner Interest may
elect to make an additional Capital Contribution not to exceed the product of
(i) the total amount of additional Capital Contributions being sought, and (ii)
such Partner's Junior Percentage Interest (with such product deemed the "Pro
Rata Contribution"). The Funding Notice delivered by the General Partner prior
to its making any loans to the Partnership pursuant to Section 4.5.C herein
shall contain the total amount of the loan to be made to the Partnership. Each
Original Limited Partner then holding a Common Limited Partner Interest may
elect to participate in such loan in an amount not to exceed the product of (i)
the total amount of the loan, and (ii) such Limited Partner's Junior Percentage
Interest (with such product deemed the "Pro Rata Participation"). Such election
shall be made, if at all, by providing written notice thereof (the "Election
Notice") to the General Partner within fifteen (15) days after delivery of the
Funding Notice. Failure to respond to such notice shall be deemed to be an
election by such Original Limited Partner not to make such Capital Contribution
or participate in such loan. Such Election Notice shall contain the amount of
the additional Capital Contribution or the loan participation, if any, the
Original Limited Partner is to make (such additional Capital Contribution not to
exceed the respective Pro Rata Contribution of such Original Limited Partner and
such loan participation not to exceed the respective Pro Rata Participation of
such Original Limited Partner) equal to all or any portion of its Pro Rata
Contribution or Pro Rata Participation.
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H. Percentage Interest Adjustments.
(1) Upon the acceptance of additional cash Capital Contributions
pursuant to this Section 4.5, the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution, provided that in connection with a Capital
Contribution by any Original Limited Partner pursuant to an Election Notice
under Section 4.5.G in response to (i) a Funding Notice relating to the Second
Offering, such Original Limited Partner shall be deemed to have contributed to
the Partnership an amount equal to the cash actually contributed by such
Original Limited Partner on the Adjustment Date, minus an amount equal to the
aggregate underwriting discounts and commissions that would have been applicable
to REIT Shares if the cash contributed by such Original Limited Partner on the
Adjustment Date had been used to acquire REIT Shares in the Second Offering, and
(ii) a Funding Notice relating to any offering of REIT Shares subsequent to the
Second Offering in which the amount of cash actually contributed by such
Original Limited Partner per Common Limited Partner Unit (the "L.P. Per Unit
Contribution") is greater than the amount of cash per General Partner Unit
actually contributed by the General Partner in respect of the REIT Shares sold
in such offering (the "G.P. Per Unit Contribution"), such Original Limited
Partner shall be deemed to have contributed to the Partnership an amount equal
to the cash actually contributed by such Original Limited Partner on the
Adjustment Date minus an amount equal to the product of (A) the L.P. Per Unit
Contribution minus the G.P. Per Unit Contribution and (B) the number of Common
Limited Partner Units purchased by such Original Limited Partner pursuant to
such Election Notice.
(2) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of Property other than cash, the amount of the
Capital Contribution shall be equal to the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
such Property is subject, and the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution; provided that with respect to the Capital
Contribution made by TRC pursuant to the TRC Contribution Agreement, the Junior
Percentage Interest of TRC, the General Partner and all other Common Limited
Partners shall be adjusted based on the number of Common Limited Partnership
Units issued from time to time to TRC pursuant to such TRC Contribution
Agreement as provided in Section 4.1.
(3) Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of cash and other Property, the amount of the
Capital Contribution shall be equal to the sum of (A) the amount of cash
contributed on the Adjustment Date and (B) the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
the Property is subject, and the Percentage Interests of the Partners shall be
adjusted based on the number of Partnership Units issued in connection with such
Capital Contribution.
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Section 4.6. Stock Incentive Plans
If at any time or from time to time, in connection with the General
Partner's Stock Incentive Plans, any stock options granted are duly exercised or
stock is issued in satisfaction of phantom stock unit grants, or stock becomes
non-forfeitable pursuant to a vesting provision:
A. The General Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in
an amount equal to the exercise price paid to the General Partner
by such exercising party in connection with the exercise of the
stock option or the purchase price, if any, for such stock; and
B. Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.6.A above, the General
Partner shall be deemed to have contributed to the Partnership as
a Capital Contribution, in consideration of an additional General
Partner Interest, an amount equal to the Value as of the date of
exercise (provided, that, for these purposes, only the trading
date on which the purchase of the REIT Shares by such exercising
party is consummated shall be considered) or the date of delivery
or vesting of shares, as the case may be, multiplied by the
number of REIT Shares acquired under the General Partner's Stock
Incentive Plans.
C. A Junior Percentage Interest adjustment shall be made
pursuant to the terms of Section 4.5.H in which the General
Partner shall be treated as having made a cash contribution equal
to the amount described in Section 4.6.B. hereof.
Section 4.7. No Third Party Beneficiary
No creditor or other third party having dealings with the Partnership
shall have the right to enforce the right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns. None of the
rights or obligations of the Partners herein set forth to make Capital
Contributions or loans to the Partnership shall be deemed an asset of the
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners.
Section 4.8. DRIP/ACP Plans
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A. If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations thereunder:
(1) Promptly following the close of business on the third
business day preceding each DRIP/ACP Investment Date but subject
to having received the notice referred to in clause (5) below,
the General Partner shall give notice (which shall constitute a
Funding Notice for purposes of Section 4.5.G.) to each Original
Limited Partner then holding a Common Limited Partner Interest of
the DRIP/ACP Investment Amount to be invested in newly issued
REIT Shares on such DRIP/ACP Investment Date. Such notice shall
also set forth the Maximum Limited Partner Investment Amount of
the Original Limited Partners and the percentage of the DRIP/ACP
Investment Amount constituting the DRIP Investment Amount (the
"DRIP Percentage") and the percentage constituting the ACP
Investment Amount.
(2) Not later than the close of business on the business
day immediately preceding each DRIP/ACP Investment Date, the
Original Limited Partners then holding Common Limited Partner
Interests shall give irrevocable written notice to the General
Partner of whether the Original Limited Partners or any one or
more of them elect to make a cash investment on such DRIP/ACP
Investment Date (not to exceed the Maximum Limited Partner
Investment Amount) for the purchase of additional Common Limited
Partner Interests in order to maintain the aggregate Junior
Percentage Interest of the Original Limited Partners in the
Partnership. Such notice shall specify the Actual Limited Partner
Investment Amount if the amount to be invested is less than the
Maximum Limited Partner Investment Amount and the identities of
the Original Limited Partner or Partners which will make such
cash investment, provided that the Original Limited Partners
shall have the right to designate any wholly owned subsidiary of
The Irvine Company as the entity which shall make a Capital
Contribution in respect of all or a portion of the Actual Limited
Partner Investment Amount (the Original Limited Partner or
Partners or such subsidiary making the cash investment, the
"Investing Entities"). Failure by the Original Limited Partners
to respond to the Funding Notice shall be deemed an election by
such Limited Partners not to make any cash investment on such
DRIP/ACP Investment Date.
(3) The General Partner shall, as soon as practicable
following the DRIP/ACP Investment Date, make a Capital
Contribution to the Partnership in an amount equal to the
DRIP/ACP Investment Amount for such DRIP/ACP Investment Date,
provided that notwithstanding the amount of the Capital
Contribution actually made pursuant to the foregoing, the General
Partner shall be deemed to have contributed to the Partnership as
a Capital Contribution, in consideration of an additional General
Partner Interest, an amount equal to the
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Value as of the date of issuance of the REIT Shares issued by the
General Partner on such DRIP/ACP Investment Date pursuant to the
DRIP/ACP Plan (provided, that, for these purposes, only the
DRIP/ACP Investment Date shall be considered) multiplied by the
number of REIT Shares issued on such DRIP/ACP Investment Date
pursuant to the DRIP/ACP Plan. Upon such contribution the
Partnership will be deemed to have issued to the General Partner
a number of General Partner Units equal to the number of newly
issued REIT Shares issued by the General Partner on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan, and the Junior
Percentage Interest of the General Partner and all other Common
Limited Partners shall be adjusted based on that number of
Partnership Units.
(4) As soon as practicable following the DRIP/ACP
Investment Date, the Investing Entities shall make a Capital
Contribution to the Partnership in an amount equal to the Actual
Limited Partner Investment Amount for such DRIP/ACP Investment
Date. Upon such contribution the Partnership will issue a number
of Common Limited Partners Units equal to the Corresponding L.P.
Unit Amount, and the Junior Percentage Interest of the General
Partner and the Common Limited Partners shall be adjusted based
on that number of Partnership Units. Notwithstanding the amount
of the Capital Contribution actually made pursuant to the
foregoing, each Investing Entity shall be deemed to have
contributed to the Partnership as a Capital Contribution an
amount equal to the Value as of the date of issuance of the REIT
Shares issued by the General Partner on such DRIP/ACP Investment
Date pursuant to the DRIP/ACP Plan (provided, that for these
purposes, only the DRIP/ACP Investment Date shall be considered)
multiplied by the product of (i) the number of Common Limited
Partner Units issued to such Investing Entity and (ii) the then
current Conversion Factor.
(5) Promptly following the close of business on the third
business day preceding each DRIP/ACP Investment Date, the
Original Limited Partners shall give written notice to the
General Partner of (i) the number of REIT Shares beneficially
owned by the Original Limited Partners and Irvine Persons as of
such close of business (whether under the DRIP/ACP Plan or
otherwise), (ii) the aggregate amount of dividends to be paid
with respect to such number of REIT Shares, if any, which such
Persons have elected to be reinvested in newly issued REIT Shares
on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan
and (iii) the aggregate amount of additional cash, if any, to be
invested by all such Persons in newly issued REIT Shares on such
DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan. Such
notice shall be provided by The Irvine Company on behalf of all
such Persons so long as The Irvine Company or any of its
Affiliates is the holder of a Common Limited Partner Interest
(and thereafter by the Original Limited Partner holding the
largest Junior Percentage Interest in the Partnership) and such
information shall be used by the General Partner in determining
the DRIP/ACP Investment Amount for purposes of the notice given
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by it pursuant to Section 4.8.A(1). In the event the notice
required by this clause (5) is not given by the close of business
on the second business day preceding a DRIP/ACP Investment Date,
the General Partner shall determine the DRIP/ACP Investment
Amount based on the following assumptions: (i) that the Original
Limited Partners and Irvine Persons beneficially own the number
of REIT Shares set forth in the most recent Form 3 or Form 4 or
Schedule 13G filed by such Persons pursuant to the Securities
Exchange Act of 1934, as amended, (ii) that such Persons will
reinvest pursuant to the DRIP/ACP Plan all the dividends to be
paid on such number of REIT Shares on the applicable DRIP/ACP
Investment Date and (iii) that each such Person will make on the
applicable DRIP/ACP Investment Date the maximum additional cash
investment permitted by the DRIP/ACP Plan to be made by such
Person on such DRIP/ACP Investment Date.
B. If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations under Section 4.2 of the Miscellaneous Rights Agreement:
(1) The General Partner shall, as soon as practicable,
after the issuance of such REIT Shares, make a Capital
Contribution to the Partnership in an amount equal to the price
paid to the General Partner for such REIT Shares as set forth in
Section 4.2 of the Miscellaneous Rights Agreement.
(2) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.8.B(1) above, the General
Partner shall be deemed to have contributed to the Partnership as
a Capital Contribution, in consideration of an additional General
Partner Interest, an amount equal to the Value as of the date of
issuance of such REIT Shares (provided, that, for these purposes,
only the trade date on which the purchase of the REIT Shares is
consummated shall be considered) multiplied by the number of REIT
Shares issued pursuant to Section 4.2 of the Miscellaneous Rights
Agreement.
(3) The Partnership will be deemed to have issued to the
General Partner a number of General Partner Units equal to the
number of newly issued REIT Shares issued by the General Partner
pursuant to Section 4.2 of the Miscellaneous Rights Agreement and
the Junior Percentage Interest of the General Partner and all
Common Limited Partners shall be adjusted based on that number of
Partnership Units.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1. Requirements and Characterization of Distributions
The General Partner shall cause the Partnership to distribute quarterly
all, or such portion as the General Partner may in its discretion determine,
including, but not limited to, as a consequence of such reserves as the General
Partner may deem appropriate, of Available Cash generated by the Partnership
during such quarter to the Partners who are Partners on the applicable
Partnership Record Date with respect to such quarter in the following order of
priority:
(i) First, to the Preferred Limited Partners in such
amount as is required for the Partnership to pay all
distributions with respect to the Preferred Limited Partner Units
held by such Preferred Limited Partners due or payable in
accordance with the Designation Instrument or Instruments for
such Preferred Limited Partner Units through the last day of such
quarter (or the last day of the quarterly period set forth in
such Designation Instrument or Instruments); such distributions
to be made to the Preferred Limited Partners in such order of
priority and with such preferences as have been established with
respect to such Preferred Limited Partner Units as set forth in
the Designation Instrument or Instruments; and
(ii) Then, to the General Partner and the Common Limited
Partners in accordance with their respective Junior Percentage
Interests on such Partnership Record Date.
Subject to the prior rights of holders of Preferred Limited Partner Units with
respect to distributions of Available Cash, the General Partner in its sole
discretion may distribute to the General Partner and the Common Limited Partners
Available Cash (excluding amounts previously distributed to Preferred Limited
Partners as provided above) in accordance with their Junior Percentage Interests
on a more frequent basis and provide for an appropriate record date. The General
Partner shall take such reasonable efforts consistent with its qualification as
a REIT, to cause the Partnership to distribute sufficient amounts to enable the
General Partner to pay stockholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations, and (b)
avoid any federal income or excise tax liability of the General Partner.
Notwithstanding anything to the contrary contained herein, in no event
shall any Partner receive a distribution of Available Cash in respect of Junior
Partnership Interests with respect to any quarter or other period until such
time as the Partnership has distributed to the Preferred Limited Partners an
amount sufficient to pay all distributions payable with respect to the
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Preferred Limited Partner Interests held by such Preferred Limited Partners in
accordance with the Designation Instrument or Instruments through the last day
of the most recently ended quarterly period set forth in each such Designation
Instrument.
Section 5.2. Distributions in Kind
No right is given to any Partner to demand and receive property other
than cash. The General Partner may determine, in its sole discretion but subject
to the rights of Preferred Limited Partner Interests, to make a distribution in
kind to the General Partner and the Common Limited Partners of Partnership
assets, and such assets shall be distributed in such a fashion as to ensure that
the fair market value is distributed and allocated in accordance with Articles
5, 6 and 10 hereof.
Section 5.3. Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction, and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
13.2.
Section 5.4. Restricted Distributions
Notwithstanding any provision to the contrary contained herein, the
Partnership, and the General Partner on behalf of the Partnership, shall not
make a distribution to any Partner on account of its interest in the Partnership
if such distribution would violate Section 17-607 of the Act or other applicable
law.
ARTICLE 6
ALLOCATIONS
Section 6.1. Allocations in General
Except as otherwise provided in this Article 6, and subject to Section
11.6.C, Net Income and Net Loss will be allocated to each of the Partners at the
end of each calendar month using the interim closing of the books method and
taking into account varying interests in accordance with the greater part of the
month convention consistent with Section 11.6.C.
Section 6.2. Additional Allocation Provisions
A. Special Allocations
For each Partnership Year there shall be a special allocation to the
Original Limited Partners (other than SVC and any Person (including the Members
of SVC) to whom SVC
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Transfers its Common Limited Partner Interests) which when added to amounts
allocated under Section 6.1 and 6.3.B will result in a total allocation to such
Original Limited Partners of (i) all remaining low-income housing tax credits of
the Existing Property Partnership, determined solely by reference to the
adjusted tax basis of the assets of the Existing Property Partnership at June
30, 1995, allocated to the Partnership with respect to the Existing Property
Partnership Interest and (ii) all Depreciation allocated to the Partnership with
respect to the Existing Property Partnership Interest determined solely by
reference to the adjusted tax basis of the assets of the Existing Property
Partnership at June 30, 1995; it being understood that any additional low-income
housing tax credits becoming available to the Existing Property Partnership, and
any additional Depreciation resulting from increases to the adjusted tax basis
of the assets of the Existing Property Partnership, in each case from and after
July 1, 1995, shall not be subject to the special allocation provided for in
this clause (3). Except as provided in this Section 6.2.A, Depreciation shall be
allocated in accordance with Section 6.1 and 6.3.B.
B. Regulatory Allocations
Notwithstanding the foregoing provisions of this Article 6:
(1) Minimum Gain Chargeback. Except as otherwise provided
in Regulations Section 1.704-2(f), if there is a net decrease in
Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be
allocated shall be determined in accordance with Regulations
Sections 1.704- 2(f)(6) and 1.704-2(j)(2). This Section 6.2.B(1)
is intended to qualify as a "minimum gain chargeback" within the
meaning of Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith.
(2) Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4) or in Section
6.2.B(1) hereof, if there is a net decrease in Partner Minimum
Gain attributable to a Partner Nonrecourse Debt during any
Partnership Year, each Partner who has a share of the Partner
Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5),
shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Partner pursuant thereto. The items to be so allocated shall
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be determined in accordance with Regulations Section
1.704-2(i)(4) and 1.704- 2(j)(2). This Section 6.2.B(2) is
intended to qualify as a "chargeback of partner nonrecourse debt
minimum gain" within the meaning of Regulation Section 1.704-2(i)
and shall be interpreted consistently therewith.
(3) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any Partnership Year
shall be specially allocated to the Partners in accordance with
their Percentage Interests. Any Partner Nonrecourse Deductions
for any Partnership Year shall be allocated to each Partner who
bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable, in accordance with Regulations Section 1.704-2(i).
(4) Qualified Income Offset. If any Partner unexpectedly
receives an adjustment, allocation or distribution described in
Regulations Section 1.704- 1(b)(2)(ii)(d)(4), (5) or (6), items
of Partnership income and gain shall be allocated, in accordance
with Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in
an amount and manner sufficient to eliminate, to the extent
required by such Regulations, the Adjusted Capital Account
Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this Section 6.2.B(4) shall be made if and
only to the extent that such Partner would have an Adjusted
Capital Account Deficit after all other allocations provided in
this Article 6 have been tentatively made as if this Section
6.2.B(4) were not in the Agreement. It is intended that this
Section 6.2.B(4) qualify and be construed as a "qualified income
offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(5) Gross Income Allocation. If any Partner has a deficit
Capital Account at the end of any Partnership Year which is in
excess of the sum of (1) the amount (if any) such Partner is
obligated to restore to the Partnership, and (2) the amount such
Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess
as quickly as possible to eliminate such deficit, provided that
an allocation pursuant to this Section 6.2.B(5) shall be made if
and only to the extent that such Partner would have a deficit
Capital Account in excess of such sum after all other allocations
provided in this Article 6 have been tentatively made as if this
Section 6.2.B(5) and Section 6.2.B(4) were not in the Agreement.
(6) Limitation on Allocation of Net Loss. To the extent
any allocation of Net Loss would cause or increase an Adjusted
Capital Account Deficit as to any Partner, such allocation of Net
Loss shall be reallocated among the other Partners
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in accordance with their respective Partnership Interests,
subject to the limitations of this Section 6.2.B(6).
(7) Section 754 Adjustment. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704- 1(b)(2)(iv)(m)(2) or (4) to be taken
into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest
in the Partnership, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially
allocated to the Partners in accordance with their Percentage
Interests in the Partnership in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to
whom such distribution was made in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(8) Curative Allocation. The allocations set forth in
Sections 6.2.B(1), (2), (3), (4), (5), (6) and (7) hereof (the
"Regulatory Allocations") are intended to comply with certain
regulatory requirements, including the requirements of
Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the
provisions of Sections 6.1 and 6.2.A, the Regulatory Allocations
shall be taken into account in allocating other items of income,
gain, loss and deduction among the Partners so that, to the
extent possible without violating the requirements giving rise to
the Regulatory Allocations, the net amount of such allocations of
other items and the Regulatory Allocations to each Partner shall
be equal to the net amount that would have been allocated to each
such Partner if the Regulatory Allocations had not occurred.
C. Excess Nonrecourse Liability Allocation. For purposes of determining
a Partner's proportional share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Sections 1.752-3(a)(3), each
Partner's interest in Partnership profits shall be such Partner's Percentage
Interest.
D. Priority Allocation With Respect to Preferred Limited Partner
Interests. Notwithstanding any other provision of this Agreement, for each
Partnership Year, Partnership gross income shall be specially allocated to the
Preferred Limited Partners in an amount equal to the distributions received by
the Preferred Limited Partners pursuant to Section 5.1(i) hereof for such
Partnership Year (other than any distributions that are treated as being in
satisfaction of the Liquidation Preference Amount for any Preferred Limited
Partner Interest).
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Section 6.3. Tax Allocations
A. In General. Except as otherwise provided in this Section 6.3, for
income tax purposes each Tax Item shall be allocated among the Partners in the
same manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.1 and 6.2 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.3.A above, Tax Items with respect to Property of the Partnership that
is contributed to the Partnership with a Gross Asset Value that differs from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated for income tax purposes pursuant to Regulations
promulgated under Section 704(c) of the Code to the extent of such difference
and thereafter in accordance with Section 6.3.A. The General Partner shall make
allocations in accordance with the deferred sale method of accounting with
respect to gain on such property if the Regulations under Section 704(c) of the
Code are applicable to the Contributed Properties of the Partnership.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing
of money (including, without limitation, making
prepayments on loans and borrowing money to permit the
Partnership to make distributions to its Partners in such
amounts as will permit the General Partner (so long as the
General Partner qualifies as a REIT) to avoid the payment
of any federal income tax (including, for this purpose,
any excise tax pursuant to Section 4981 of the Code) and
to make distributions to its stockholders sufficient to
permit the General Partner to maintain REIT status),
provided that,
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except as provided in Section 10.4, the General Partner is
prohibited from lending money or permitting the
Partnership to lend money to any Irvine Person, the
assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same
by deed to secure debt, mortgage, deed of trust or other
lien or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for the
conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of
the Partnership (including the exercise or grant of any
conversion, option, privilege, or subscription right or
any other right available in connection with any assets at
any time held by the Partnership) or the merger or other
combination of the Partnership with or into another entity
(all of the foregoing subject to any prior approval only
to the extent required by Section 7.3 hereof), provided
that, in the event of any sale, exchange, disposition or
other transfer of any Property of the Partnership, or the
merger or other combination of the Partnership with or
into another entity, the Partnership shall no later than
the end of the calendar quarter in which such sale,
exchange, disposition, other transfer, merger or
combination becomes a taxable event to the General Partner
or any of the Common Limited Partners effect a
distribution of cash pro rata by Junior Percentage
Interests (or, at the option of the General Partner, a
promissory note of the Partnership, bearing interest (to
the extent permitted by law) at a rate per annum equal to
the dividend yield on the REIT Shares, based on the most
recent quarterly dividend and the Value as of the date of
issuance of such note, and due and payable as soon as
reasonably practicable but in no event later than 45 days
after the date of issuance), in addition to its then
regular quarterly distribution with respect to the Junior
Partnership Interests, in an amount such that the pro rata
share thereof received by each such Partner shall equal or
exceed the total liability of such Partner for federal,
state and local income and franchise taxes resulting from
such sale, exchange, disposition, other transfer, merger
or combination and from such distribution as determined in
accordance with the books and records of the Partnership
(which determination will be conclusive and binding absent
manifest error).
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(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on any
terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General
Partner, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Partnership's
Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in
which it has an equity investment and the making of
capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any
real property or improvements owned by the Partnership or
any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under this
Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other
professional advisors and other agents and the payment of
their expenses and compensation out of the Partnership's
assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees of
the Partnership, any division of the Partnership or the
General Partner (including, without limitation, employees
designated as officers having titles such as "president",
"vice president", "secretary" and "treasurer" of the
Partnership, any division of the Partnership or the
General Partner), and agents, outside attorneys,
accountants, consultants and contractors of the
Partnership, any division of the Partnership or the
General Partner and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
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(12) the formation of, or acquisition of an interest in, and
the contribution of property to, any further limited or
general partnerships, joint ventures or other
relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the
contributions of property to, its Subsidiaries and any
other Person in which it has an equity investment from
time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment of, any claim, cause of
action, liability, debt or damages, due or owing to or
from the Partnership, the commencement or defense of
suits, legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, and the
representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by
law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power
of attorney, of any right, including the right to vote,
appurtenant to any asset or investment held by the
Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect
interest, or jointly with any such Subsidiary or other
Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
which the Partnership does not have an interest, pursuant
to contractual or other arrangements with such Person;
(18) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
legal instruments or agreements in writing necessary or
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appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner
enumerated in this Agreement; and
(19) the issuance of additional Partnership Units as
appropriate in connection with Capital Contributions by
Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereof.
B. Except as provided in Section 7.3 hereof, each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the Properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder.
D. At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to establish and maintain any and all
reserves, working capital accounts and other cash or cash equivalents in such
amounts as the General Partner, in its sole discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. Except as otherwise provided in the
Declaration of Trust, the General Partner and the Partnership shall not have
liability to a Limited Partner under any circumstances as a result of an income
tax liability incurred by such Limited Partner as a result of an action (or
inaction) by the General Partner pursuant to its authority under this Agreement
so long as the action or inaction is taken in good faith.
Section 7.2. Certificate of Limited Partnership
To the extent that such action is determined by the General Partner to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state or the District of Columbia, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner
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shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of Delaware, the State of California,
and any other state, or the District of Columbia, in which the Partnership may
elect to do business or own property.
Section 7.3. Restrictions on General Partner's Authority
A. The General Partner may not take any action in contravention of
this Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise
provided in this Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except
as otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or
restricting (i) the General Partner or the Partnership from
satisfying its obligations under Section 8.6 in full or (ii) the
ability of a Common Limited Partner from exercising its rights
under Section 8.6 in full; except in each case with the written
consent of each Common Limited Partner affected by the
prohibition or restriction.
B. The General Partner shall not, without the prior Consent of the
Common Limited Partners, undertake any of the following actions or enter into
any transaction which would have the effect of such transactions:
(1) except as provided in Section 7.3.C hereof, amend, modify or
terminate this Agreement other than to reflect the admission,
substitution, or withdrawal of partners pursuant to Articles 11
and 12 hereof;
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(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or
trustee for all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership;
(4) subject to the rights of Transfer provided in Section 11.2
hereof, Transfer the Partnership Interest of the General Partner
including through any merger, consolidation or liquidation of the
General Partner, or admit into the Partnership any successor
General Partners;
(5) take title to assets (other than temporarily in connection with
an acquisition prior to contributing such assets to the
Partnership) other than its interest in the Partnership or
conduct business other than through the Partnership, or for the
General Partner or the Partnership to engage in any business
other than the ownership, construction, development and operation
of multifamily rental apartment communities.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall
have the power, without the Consent of any Limited Partners, to amend this
Agreement (including a Designation Instrument) as may be required to facilitate
or implement any of the foregoing purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, or withdrawal of Partners
in accordance with this Agreement, and to amend Exhibit A to the
Agreement in connection with such admission, substitution or
withdrawal;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law or with
other provisions, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent with
law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law;
(5) to reflect such changes as are reasonably necessary for the
General Partner to maintain status as a REIT;
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(6) to modify the manner in which Capital Accounts are computed but
only to the extent set forth in the definition of "Capital
Account"; and
(7) subject to the rights set forth in the Designation Instrument of
any outstanding series of Preferred Limited Partner Units, to set
forth in a Designation Instrument the designations, rights,
powers, duties, and preferences of holders of Preferred Limited
Partnership Interests issued pursuant to Section 4.5.F hereof.
The General Partner will provide notice to the Limited Partners when any
action under this Section 7.3.C is taken.
D. Notwithstanding Section 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Partner adversely affected if such amendment or action would
(i) convert a Limited Partner Interest in the Partnership into a General Partner
Interest (except as a result of the General Partner acquiring such interest),
(ii) modify the limited liability of a Limited Partner, (iii) alter rights of
the Partner to receive distributions pursuant to Article 5, Article 10 or
Section 7.1.A(3) hereof or the allocations specified in Article 6 (except in any
such case as permitted pursuant to Section 4.5 and Section 7.3.C(3) or (7)),
(iv) alter or modify the right of a Common Limited Partner to effect an Exchange
or Cash Tender pursuant to Section 8.6 hereof or amend or modify any related
definitions, (v) cause the termination of the Partnership prior to the time set
forth in Sections 2.5 or 13.1, (vi) alter or modify Section 11.3.F or (vii)
amend this Section 7.3.D., provided that (1) with respect to the foregoing
clause (iii), the Consent of each Preferred Limited Partner adversely affected
by such amendment or action shall only be required if the applicable Designation
Instrument or Instruments require such unanimous Consent and, if not so required
by such Designation Instrument or Instruments, then such amendment or action
shall only require the approval of such percentage of Preferred Limited Partner
Interests as shall be set forth in the applicable Designation Instrument or
Instruments, (2) only the Consent of Common Limited Partners shall be required
under clause (v) above, and (3) with respect to clause (vii) above, the Consent
of Preferred Limited Partners shall be required only if the amendment to this
Section 7.3.D materially and adversely affects the rights, preferences and
privileges of the Preferred Limited Partner Interests. Further, no amendment may
alter the restrictions on the General Partner's authority set forth in this
Section 7.3 without the appropriate consent.
E. For so long as the Common Limited Partner Interests of all of the
Common Limited Partners of the Partnership equal, in the aggregate, not less
than ten percent (10%) of the aggregate Junior Partnership Interests, the
General Partner shall not, without the prior Consent of the Common Limited
Partners, undertake, on behalf of the Partnership, any of the following actions:
(1) Agree to or consummate any merger, consolidation, reorganization
or other business combination to which the Partnership is a
party, in each case resulting in the disposition by the then
Common Limited Partners and Assignees of all
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outstanding Common Limited Partner Interests and interests of
Assignees therein in consideration for (a) cash, (b) debt
instruments or other evidences of indebtedness, (c) other
securities issued by a corporation, partnership or other entity,
other than (i) the General Partner, (ii) the Partnership or (iii)
any entity at least 80% of the total assets of which (on the
basis of market value) are comprised of assets which, immediately
prior to such transaction, were assets of the Partnership, or (d)
any combination of the consideration described in (a), (b) and/or
(c) above.
(2) Sell or otherwise transfer all or substantially all of the
assets of the Partnership.
F. The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Miscellaneous Rights Agreement, the Land Rights
Agreement and the underwriting agreement relating to the Initial Public
Offering) referred to in, contemplated by, or included as an exhibit (or as an
exhibit to an exhibit) to, the General Partner's Registration Statement on Form
S-11 (No. 33-68830) relating to the Initial Public Offering or necessary to
effect the transfer of assets to the Partnership or the assignments and
assumptions of debt or other obligations or liabilities by the Partnership, in
each case without any further act, vote or approval of any Partner
notwithstanding any other provision of this Agreement.
G. Except as provided in Section 7.3.D or in a Designation
Instrument with respect to a series of Preferred Limited Partner Interests and
except as otherwise required by the Act or Delaware law, the Preferred Limited
Partners shall have no right to act, approve, consent or vote on any matter or
any action (or inaction) by the General Partner pursuant to its authority under
this Agreement.
H. The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Declaration of Trust and the underwriting agreement)
referred to in or contemplated by the registration statement on Form S-11 (No.
333-39405) of IAC Capital Trust and any future Registration Statement filed by
IAC Capital Trust with the Securities and Exchange Commission with respect to
the issuance of preferred securities of IAC Capital Trust, without any further
act, vote, consent or approval of any Partner notwithstanding any other
provisions of this Agreement.
Section 7.4. Reimbursement of the General Partner; Reimbursement of
Limited Partners
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not receive payments from the Partnership or be compensated for its
services as general partner of the Partnership.
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B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its reasonable discretion,
for all of its expenses including, without limitation, (i) expenses relating to
the ownership of interests in and operation of, or for the benefit of, the
Partnership, (ii) compensation of its officers and employees including, without
limitation, payments under the General Partner's Stock Incentive Plans that
provides for stock units, or other phantom stock, pursuant to which employees of
the General Partner will receive payments based upon dividends on or the value
of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses
of being a public company, including costs of filings with the SEC, reports and
other distributions to its stockholders, provided that, the amount of any
reimbursement shall be reduced by any interest earned by the General Partner
with respect to bank accounts or other instruments or accounts held by it on
behalf of the Partnership as permitted pursuant to Section 7.5 hereof. Such
reimbursements shall be in addition to any reimbursement of the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
C. Any Limited Partner that incurs an expense attributable to a property
tax or assessment imposed upon a geographic land area, including, but not
limited to, any variable rate assessment, that includes a Contributed Property
may submit a request for reimbursement to the General Partner that states the
total amount of the property tax or assessment imposed upon the area and an
apportionment, in accordance with the requirements of local law, of such
property tax or assessment to the Contributed Property located within the area.
The Limited Partner shall include with such request a copy of a receipt
evidencing payment of the property tax or assessment. The General Partner shall
reimburse the Limited Partner for such amount within five (5) days of receipt of
the request for reimbursement.
D. To the extent not previously paid by the Partnership pursuant to the
Declaration of Trust, the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its
reasonable discretion, for all amounts incurred by it and payable by the
Partnership pursuant to the Declaration of Trust.
Section 7.5. Outside Activities of the General Partner
The General Partner shall not directly or indirectly enter
into or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as General Partner and the
management of the business of the Partnership, and such activities as are
incidental thereto. The General Partner shall not incur any debts other than
that for which it may be liable in its capacity as General Partner of the
Partnership. Nothing contained herein shall be deemed to prohibit the General
Partner from executing guarantees of Partnership debt for which it would
otherwise be liable in its capacity as General Partner. Subject to Section 7.3.B
hereof, the General Partner shall not own any assets or take title to assets
(other than temporarily in connection with an acquisition prior to contributing
such assets to the Partnership) other than its Partnership Interest as a General
Partner and other than such cash and cash equivalents, bank accounts or similar
instruments or accounts as it deems
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reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary to qualify as a REIT to carry out its responsibilities
contemplated under this Agreement and the Certificate of Incorporation.
Notwithstanding the foregoing, if the Consent of the Common Limited Partners is
obtained in accordance with 7.3.B and Article 14 hereof to permit the General
Partner to acquire assets in its own name and to own Property other than through
the Partnership, the General Partner and the Common Limited Partners agree to
negotiate in good faith to amend this Agreement, including, without limitation,
the definition of Conversion Factor, to reflect such activities and the direct
ownership of assets by the General Partner. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests. Notwithstanding the foregoing, the General Partner
may purchase and own common securities of IAC Capital Trust pursuant to the
terms of the Declaration of Trust, act as sponsor of IAC Capital Trust and take
all actions permitted to be taken by it under the Declaration of Trust and such
additional activities as are incidental thereto.
Section 7.6. Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary or
any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole
discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.
D. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole discretion, believes are advisable.
E. The General Partner on its own behalf and on behalf of the
Partnership may enter into and perform its and the Partnership's obligations
under the Declaration of Trust.
Section 7.7. Indemnification
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A. To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership ("Actions") as set forth in
this Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, provided that the Partnership shall not
indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the
law, or (ii) for any transaction for which such Indemnitee received an improper
personal benefit in violation or breach of any provision of this Agreement.
Without limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior to
judgment, does not create a presumption that such Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
upon receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee unless otherwise provided in a written
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agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7, unless such
liabilities arise as a result of (i) such Indemnitee's intentional misconduct or
knowing violation of the law, or (ii) any transaction in which such Indemnitee
received a personal benefit in violation or breach of any provision of this
Agreement or applicable law.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.8. Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor any of its officers or directors shall be liable
for monetary damages to the
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Partnership, any Partners or any Assignees for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
General Partner or such officer or director acted in such cases in good faith.
B. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its employees or agents (subject to the
supervision and control of the General Partner). The General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
C. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
D. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partner, for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partner shall be limited to the interest of that Partner in the
Partnership. Without limitation of the foregoing, and except for fraud, willful
misconduct or gross negligence, or pursuant to any such express indemnity, no
property or assets of any Partner, other than its interest in the Partnership,
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any judgment (or other judicial process) in favor of any other
Partner(s) and arising out of, or in connection with, this Agreement. This
Agreement is executed by the officers of the General Partner solely as officers
of the same and not in their own individual capacities.
E. To the extent that, at law or in equity, a Limited Partner has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or the Partners, the Limited Partner shall not be liable to the Partnership or
to any other Partner for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of a Limited Partner otherwise existing at law or in
equity, are agreed by the Partners to replace such other duties and liabilities
of such Limited Partner.
F. Whenever in this Agreement a Limited Partner is permitted or required
to make a decision (i) in its "sole discretion" or "discretion" or under a grant
of similar authority or latitude, the Limited Partner shall be entitled to
consider only such interests and factors as it desires, including its own
interests, and shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Partnership or the other Partners or (ii)
in its "good faith" or
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under another express standard, the Limited Partner shall act under such express
standard and shall not be subject to any other or different standards imposed by
this Agreement or any other agreement contemplated herein or by relevant
provisions of law or in equity or otherwise.
G. Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the General Partner shall be
required to make such decision in good faith after taking into consideration the
interests of the Partners or (ii) in its "good faith" or under another express
standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
any other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.
Section 7.9. Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to avoid the General Partner incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10. Title to Partnership Assets
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Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership or one or
more nominees, as the General Partner may determine. The General Partner hereby
declares and warrants that any Partnership assets for which legal title is held
in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without the consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
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ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.4 hereof, or under
the Act.
Section 8.2. Management of Business
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners or Assignees under this Agreement.
Section 8.3. Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, any Limited Partner
and any officer, director, employee, agent, trustee, Affiliate or shareholder of
any Limited Partner shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including business interests and activities that are in direct competition with
the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein) and such Person shall
have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, to offer any interest
in any such business ventures to the Partnership, any Limited Partner or any
such other Person, even if such opportunity is of a character which, if
presented to the Partnership, any Limited Partner or such other Person, could be
taken by such Person.
Section 8.4. Return of Capital
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Except as provided in a Designation Instrument, no Limited Partner shall
be entitled to the withdrawal or return of its Capital Contribution, except to
the extent of distributions made pursuant to this Agreement or upon termination
of the Partnership as provided herein. Except to the extent provided in Article
6 hereof or otherwise expressly provided in this Agreement (including pursuant
to a Designation Instrument), no Limited Partner or Assignee shall have priority
over any other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Preferred Limited
Partner Units of a series shall be redeemed only in accordance with a
Designation Instrument relating thereto.
Section 8.5. Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or by the Act,
each Limited Partner shall have the right, for a purpose reasonably related to
such Limited Partner's interest as a Limited Partner in the Partnership, upon
written demand:
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and Exchange
Commission by the General Partner pursuant to the Securities
Exchange Act of 1934, as amended;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership Year and the
tax work papers prepared in connection with such returns;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner; and
(4) to obtain a copy of this Agreement and the Certificate
and all amendments thereto, together with executed copies of all
powers of attorney pursuant to which this Agreement, the
Certificate and all amendments thereto have been executed.
B. The Partnership shall notify any Common Limited Partner, on request,
of the then current Conversion Factor or any change made to the Conversion
Factor.
Section 8.6. Exchange and Cash Tender Rights
A. Each Original Limited Partner shall have the right (subject to the
terms and conditions set forth herein) to require the General Partner to acquire
all or a portion of the Common Limited Partner Units held by such Original
Limited Partner, including Common Limited Partner Units acquired by any Original
Limited Partner subsequent to the initial contribution, (such Common Limited
Partner Units being hereafter "Tendered Units") in exchange for, at the election
of such Original Limited Partner, (i) REIT Shares, in which event such required
acquisition shall be considered an "Exchange," or (ii) cash, in which event such
required acquisition shall be
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considered a "Cash Tender." Any Exchange or Cash Tender shall be exercised
pursuant to a Notice of Exchange or Notice of Cash Tender, as the case may be,
delivered to the General Partner by the Original Limited Partner who is
exercising the relevant right (the "Tendering Partner").
B. A Tendering Partner who wishes to effect an Exchange shall receive,
on the Specified Exchange Date, the REIT Shares Amount with respect to the
Tendered Units, subject to the Ownership Limit set forth in ARTICLE SIXTH of the
Certificate of Incorporation and to Section 8.6.G(2) hereof, provided such
Tendering Partner submits such information, certification and affidavits as the
General Partner requires pursuant to Section 8.6.I hereof in connection with the
application of the Ownership Limit. The REIT Shares Amount receivable after
giving effect to the provisions of Section 8.6.F shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, rights (as defined in the definition of REIT Shares Amount), free of
any pledge, lien, encumbrance or restriction, other than those provided in the
Certificate of Incorporation, the Bylaws of the General Partner, the Securities
Act and relevant state securities or blue sky laws. Notwithstanding any delay in
such delivery, the Tendering Partner shall be deemed the owner of such REIT
Shares and rights for all purposes, including without limitation, rights to
vote, consent, receive dividends, and to exercise rights, as of the Specified
Exchange Date.
C. (1) A Tendering Partner effecting a Cash Tender shall have the right
to receive in cash on the Specified Cash Tender Date the Cash Tender Amount,
subject to Section 8.6.G(3) hereof. The General Partner shall purchase the
Tendered Units solely with the proceeds of a registered public offering (a
"Public Offering Funding") of a number of REIT Shares ("Registrable Shares")
equal to the REIT Shares Amount with respect to the Tendered Units.
(2) Promptly upon receipt of a Notice of Cash Tender, the General
Partner shall give notice (a "Single Funding Notice") to all Original Limited
Partners then holding a Common Limited Partner Interest and require that all
such Original Limited Partners elect whether or not to effect a Cash Tender of
their Common Limited Partner Units to be funded through such Public Offering
Funding. In the event any such Original Limited Partner elects to effect such a
Cash Tender, it shall give notice thereof and of the number of Common Limited
Partner Units to be made subject thereto in writing to the General Partner
within 10 Business Days after receipt of the Single Funding Notice, and such
Original Limited Partner shall be treated as a Tendering Partner for all
purposes of this Section 8.6. In the event that an Original Limited Partner does
not so elect, it shall be deemed to have waived its right to effect a Cash
Tender for the current Twelve-Month Period, except that any such Original
Limited Partner holding more than 1,000,000 Common Limited Partner Units shall
continue to be permitted to effect a Cash Tender pursuant to this Section 8.6.C
during such Twelve-Month Period; provided that the General Partner shall not be
required to acquire Common Limited Partner Units pursuant to this Section 8.6.C
more than twice within a Twelve-Month Period.
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D. The General Partner shall purchase the Tendered Units on the
Specified Cash Tender Date for the Cash Tender Amount in immediately available
funds. Any proceeds from a Public Offering Funding that are in excess of the
Cash Amount shall be for the sole benefit of the General Partner. The General
Partner shall make a Capital Contribution of such amounts to the Partnership for
an additional General Partner Interest. Any such contribution shall not be
subject to the participation rights provided under Section 4.5.G but shall
entitle the General Partner to a Junior Percentage Interest adjustment pursuant
to Section 4.5.H hereof.
E. The following additional terms and conditions shall apply to any
Public Offering Funding:
(1) The General Partner shall use its best efforts
to effect as promptly as possible a registration, qualification
or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other
governmental requirements or regulations) as would permit or
facilitate the sale and distribution of the REIT Shares;
provided, the General Partner shall not by reason hereof, be
required to submit to jurisdiction or taxation, or qualify to do
business in any jurisdiction in which such submission or
qualification would not be otherwise required; provided, further,
if the General Partner shall deliver a certificate to the
Tendering Partner stating that the General Partner has determined
in the good faith judgment of its Board of Directors that such
filing, registration or qualification would require disclosure of
material non-public information, the disclosure of which would
have a material adverse effect on the General Partner, then the
General Partner may delay making any filing or delay the
effectiveness of any registration or qualification for the
shorter of (a) the period ending on the date upon which such
information is disclosed to the public or ceases to be material
or (b) an aggregate period of 90 days in connection with any
Public Offering Funding.
(2) The General Partner shall advise the Tendering
Partner, regularly and promptly upon any request, of the status
of the registration, including the timing of all filings, the
selection of and understandings with underwriters, dealers and
brokers, the nature and contents of all communications with the
Securities and Exchange Commission and other governmental bodies,
the nature of marketing activities, and any other matters
reasonably related to the timing, price and underwriting
discounts and commissions relating to the Public Offering Funding
and the compliance by the General Partner with its obligations
with respect thereto. In addition, the General Partner and each
Tendering Partner may, but shall be under no obligation to, enter
into understandings in writing ("Pricing Agreements") whereby the
Tendering Partner will agree in advance as to the minimum Public
Offering Funding Amount per Registrable Share at or below
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the Cash Amount at which such Tendering Partner will agree in
advance not to become a Withdrawing Partner under Section
8.6.E(3) below. Furthermore, the General Partner shall establish
pricing notification procedures with each Tendering Partner, such
that the Tendering Partner will have the maximum opportunity
practicable to determine whether to become a Withdrawing Partner
pursuant to Section 8.6.E(3) below.
(3) Upon agreement between the General Partner and
the managing underwriter(s) engaged by the General Partner in
order to sell the Registrable Shares of the price per share at
which the Registrable Shares are to be offered to the public and
the underwriting discounts and commissions with respect thereto
(the "Pricing Information"), the General Partner shall
immediately use its best efforts to notify the Tendering Partner
of the Pricing Information. Each Tendering Partner shall have one
hour (or such additional time as may be extended by the General
Partner in its sole discretion) to elect to withdraw his Cash
Tender (a Tendering Partner making such an election being a
"Withdrawing Partner"), and Common Limited Partner Units with a
REIT Shares Amount equal to such excluded Registrable Shares
shall be considered to be withdrawn from the related Cash Tender.
If a Tendering Partner, within such period, does not notify the
General Partner of such Tendering Partner's election not to
become a Withdrawing Partner, then such Tendering Partner shall,
except as otherwise provided in a Pricing Agreement, be deemed to
have elected to become a Withdrawing Partner, without liability
to the General Partner. To the extent that the General Partner is
unable to notify any Tendering Partner, such unnotified Tendering
Partner shall, except as otherwise provided in any Pricing
Agreement, be deemed to have elected to become a Withdrawing
Partner. Each Tendering Partner who does not become a Withdrawing
Partner shall have the right, subject to the approval of the
managing underwriter(s) in its sole discretion, to Cash Tender
additional Common Limited Partner Units in a number no greater
than the number of Common Limited Partner Units withdrawn. If
more than one Tendering Partner so elects to tender additional
Common Limited Partner Units, then such additional Common Limited
Partner Units shall be tendered on a pro rata basis, based on the
number of additional Common Limited Partner Units sought to be so
Cash Tendered. In the event that Original Limited Partners
withdraw in accordance with this paragraph such that the Public
Offering Funding is canceled, then each Withdrawing Partner shall
bear its pro rata share of the expenses, if any, reasonably
incurred in connection with the unconsummated Public Offering
Funding including, legal and accounting fees and expenses,
Securities and Exchange Commission registration fees, state blue
sky and securities law fees and expenses, printing expenses, NASD
filing fees and listing fees (such share calculated as if such
Partner had not been a Withdrawing Partner). If the Public
Offering Funding is consummated, then the Withdrawing Partner
will not be subject to such expenses.
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(4) The General Partner shall take all reasonable
action in order to effectuate the sale of the Registrable Shares
including, but not limited to, the entering into of an
underwriting agreement in customary form with the book- running
managing underwriter selected for such underwriting by the
Tendering Partner or, if there is more than one Tendering
Partner, by the Tendering Partner who, together with the
Affiliates of such Tendering Partner, beneficially owns the
greatest number of Common Limited Partner Units then being made
subject to a Cash Tender; provided that such managing underwriter
shall be reasonably acceptable to the General Partner. The
General Partner may select any additional investment banks and
managers to be used in connection with the offering; provided
that such additional investment bankers and managers must be
reasonably satisfactory to the Tendering Partners who, together
with the Affiliates of such Tendering Partner, beneficially own
the majority of Common Limited Partner Units being Tendered.
Notwithstanding any other provision of this Agreement, if the
managing underwriter(s) advises the General Partner in writing
that marketing factors require a limitation of the number of
shares to be underwritten, then the General Partner shall so
advise all Tendering Partners and the number of Common Limited
Partner Units to be sold to the General Partner pursuant to the
Cash Tender shall be allocated among all Tendering Partners in
proportion, as nearly as practicable, to the respective number of
Common Limited Partner Units as to which each Tendering Partner
elected to effect a Cash Tender. No Registrable Shares excluded
from the underwriting by reason of the managing underwriter's
marketing limitation shall be included in such registration.
(5) If the managing underwriter has not limited the
number of Registrable Shares to be underwritten, then the General
Partner may include in any registration filed pursuant to Section
8.6.D hereof securities (i) for its own account, subject to
Section 4.5.H hereof, and (ii) for the account of others, in
either case, only if and to the extent that (x) the managing
underwriter, the General Partner and Tendering Partners owning
Common Limited Partner Units representing at least seventy-five
percent (75%) of the Common Limited Partner Units with respect to
which the Public Offering Funding is being effected so agree in
writing, and (y) the right of any party to Cash Tender Common
Limited Partner Units pursuant to this Section 8.6, and the Cash
Tender Amount to be received by such party (including by virtue
of the number of Registrable Shares which would otherwise have
been included in such registration and underwriting, the offering
price for such Registrable Shares and the underwriting
commissions or discounts for such Registrable Shares) will not
thereby be limited, reduced or adversely affected. In the event
that the managing underwriter determines that the size of the
registration should be reduced, securities included by the
General Partner shall be reduced or eliminated from the
registration prior to reducing securities included by any other
Person in the registration.
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F. Notwithstanding the provisions of Section 8.6.A hereof, a Common
Limited Partner shall not be entitled to effect an Exchange to the extent that
the ownership or right to acquire REIT Shares by such Partner on the date of the
Notice of Exchange, or any date thereafter, through and including the Specified
Exchange Date, would be prohibited under the Certificate of Incorporation.
G. Notwithstanding anything herein to the contrary, with respect to any
Exchange or Cash Tender pursuant to this Section 8.6:
(1) All Common Limited Partner Units acquired by
the General Partner pursuant thereto shall automatically, and
without further action required, be converted into and deemed to
be General Partner Interests comprised of the same number of
General Partner Units.
(2) Subject to the Ownership Limit, no Original
Limited Partner may effect an Exchange (a) for less than 10,000
Common Limited Partner Units or, if such Limited Partner holds
less than 10,000 Common Limited Partner Units, all of the Common
Limited Partner Units held by such Limited Partner; or (b) for
more than one-third of the number of Common Limited Partner Units
held by such Limited Partner; provided that, if the Original
Limited Partners own collectively 6,149,000 Common Limited
Partner Units or less, such Original Limited Partners may
Exchange all their Common Limited Partner Units subject to the
Ownership Limit;
(3) No Original Limited Partner may effect a Cash
Tender (a) for less than 100,000 Common Limited Partner Units or,
if such Limited Partner holds less than 100,000 Common Limited
Partner Units, all of the Common Limited Partner Units held by
such Partner, or (b) for more than one-third of the number of
Common Limited Partner Units; provided that, if the Original
Limited Partners own 6,149,000 Common Limited Partner Units or
less, such Original Limited Partners may effect a Cash Tender for
all their Common Limited Partner Units;
(4) Each Original Limited Partner (a) may effect an
Exchange only once in each Twelve-Month Period, and (b) may not
effect an Exchange or Cash Tender during the period after the
Partnership Record Date with respect to a distribution and before
the record date established by the General Partner for a
distribution to its stockholders of some or all of its portion of
such distribution.
(5) Notwithstanding anything herein to the
contrary, with respect to any Cash Tender, in the event the
General Partner gives notice to all Original Limited Partners
then owning Common Limited Partner Interests (a "Primary Offering
Notice") that it desires to effect a primary offering of its
equity
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securities then, unless the General Partner otherwise consents,
commencement of the actions denoted in Section 8.6.E hereof as to
a Public Offering Funding with respect to any Notice of Cash
Tender thereafter received (a "Subsequent Cash Tender Notice")
may be delayed until the earlier of (a) the completion of the
primary offering or (b) 90 days following the giving of the
Primary Offering Notice; provided to the extent that the managing
underwriter(s) of such primary offering advise that the inclusion
of such additional REIT Shares will not adversely affect the
offering, additional REIT Shares the proceeds of which are to be
used to satisfy a Cash Tender made subject to such a Subsequent
Cash Tender Notice (a "Subsequent Cash Tender") (without regard
to the limitations of subparagraph (3)(a) of this paragraph G)
shall be included in such offering, and the procedures of this
Section 8.6 shall otherwise be followed as closely as
practicable; provided, further, unless the entire REIT Shares
Amount relating to the Common Limited Partner Units made subject
to the Subsequent Cash Tender shall be sold in such offering,
such Subsequent Cash Tender shall not count as a Cash Tender for
purposes of this Section 8.6; provided, further, a Primary
Offering Notice may be given no more than once in any
Twelve-Month Period without the Consent of the Common Limited
Partners.
(6) No Common Limited Partner may effect a Cash
Tender within 90 days following the closing of any prior Public
Offering Funding;
(7) The consummation of such an Exchange or Cash
Tender shall be subject to the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
(8) Each Tendering Partner shall continue to own
all Common Limited Partner Units subject to any Exchange or Cash
Tender, and be treated as a Common Limited Partner with respect
to such Common Limited Partner Units for all purposes of this
Agreement, until such Common Limited Partner Units are
transferred to the General Partner and paid for on the Specified
Exchange Date, or Specified Cash Tender Date, as the case may be.
Until a Specified Exchange Date, the Tendering Partner shall have
no rights as a stockholder of the General Partner with respect to
the REIT Shares to be received in such Exchange.
(9) For purposes of determining compliance with the
restrictions set forth in this Section 8.6.G, all Common Limited
Partner Units beneficially owned by a Related Party of an
Original Limited Partner shall be considered to be owned or held
by such Limited Partner.
H. The General Partner agrees to cause the REIT Shares issuable upon an
Exchange pursuant to this Section 8.6 to be listed on the New York Stock
Exchange prior to or
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concurrently with the issuance of such REIT Shares by the General Partner. REIT
Shares issued upon an Exchange pursuant to this Section 8.6 may contain such
legends regarding compliance with the Securities Act and applicable state
securities laws as the General Partner in good faith determines to be necessary
in order to comply with applicable law.
I. In connection with an exercise of Exchange Rights pursuant to this
Section 8.6, each Tendering Partner shall submit the following, in addition to
the Notice of Exchange:
(1) An affidavit, dated the same date as the Notice of Exchange,
disclosing the ownership by (a) such Partner of REIT Shares and
(b) any Person whose ownership of REIT Shares would be attributed
to such Partner under Code Section 544 and a representation in
writing that neither such Partner nor any Person from whom
ownership of REIT Shares could be attributed to it under Code
Section 544 has any intention as of such date of acquiring
additional REIT Shares between the date of the Notice of Exchange
and the Specified Exchange Date.
(2) If the Tendering Partner is a Related Party, the affidavit
described in (1) above shall disclose the direct and constructive
ownership pursuant to Section 544 of the Code of REIT Shares of
all such Related Parties and shall provide the representation
described in (1) with respect to such Partner and Related
Partners.
(3) On the Specified Exchange Date, the Tendering Partner shall
certify the (i) the direct and constructive ownership of REIT
Shares by such Partner remains unchanged from the affidavit
described above in (1) or (2) or (ii) if such ownership has
changed, the Tendering Partner will not and will not be deemed to
own REIT Shares of the General Partner in violation of the
Ownership Limit.
J. The provisions of this Section 8.6 insofar as they relate to an
Exchange (but not a Cash Tender) shall be applicable to the Common Limited
Partner Units owned by TRC and any TRC Shareholder to whom Common Limited
Partner Units have been Transferred as provided in Section 11.3, or to whom
Common Limited Partner Units have been issued, and TRC and such TRC Shareholder
shall have the right to effect an Exchange subject to and in accordance with
this Section 8.6, provided that:
(1) until such time as TRC or such TRC Shareholder holds less than
10,000 Common Limited Partner Units, not more than one-third
(1/3) of the aggregate number of Common Limited Partner Units
that have been issued to TRC and the TRC Shareholders may be
Exchanged during any Twelve-Month Period;
(2) none of such Common Limited Partner Units may be Exchanged prior
to a date which is the earlier to occur of (i) February 4, 2000
or (ii) the date on which a notice of completion is filed by the
Partnership in the official records of Santa
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Clara County pursuant to California Civil Code Section 3093
covering all improvements included in the Tandem Project;
(3) TRC or such TRC Shareholder may not effect an Exchange of less
than 10,000 Common Limited Partner Units or, if TRC or such TRC
Shareholder holds less than 10,000 Common Limited Partner Units,
all of the Limited Partner Units held by TRC or such TRC
Shareholder; and
(4) in the event TRC or a TRC Shareholder wishes to Exchange Common
Limited Partner Units for REIT Shares, having complied with this
Section 8.6, the General Partner (for its own account or for the
account of its nominee) shall have the right, but not the
obligation, to purchase all or a portion of such Common Limited
Partner Units for cash at a price equal to the number of Common
Limited Partner Units to be purchased pursuant to this Section
8.6.J multiplied by the average of the Unit Values for the ten
(10) trading days immediately preceding the date of purchase by
the General Partner (or its nominee) of such Common Limited
Partner Units. The General Partner shall exercise such right, if
at all, within thirty (30) days of the date on which the General
Partner receives a Notice of Exchange from TRC or a TRC
Shareholder as to its desire to Exchange such Common Limited
Partner Units for REIT Shares. In the event the General Partner
purchases Common Limited Partner Units pursuant to this Section
8.6.J, the Partnership will be deemed to have issued to the
General Partner a number of General Partner Units equal to the
number of Limited Partner Units so purchased, the Limited Partner
Units so purchased shall be canceled and the Junior Percentage
Interests of the General Partner and all Common Limited Partners
shall be adjusted based on the foregoing.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Sections 8.5 or 9.2 hereof. The books of the Partnership shall be maintained,
for financial and tax reporting purposes, on an accrual basis in accordance with
generally accepted accounting
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principles, or on such other basis as the General Partner determines to be
necessary or appropriate.
Section 9.2. Reports
A. As soon as practicable, but in no event later than ninety (90) days
after the close of the last fiscal quarter of each Partnership Year, the General
Partner shall cause to be mailed to each Limited Partner, an annual report
containing financial statements of the Partnership for the Partnership Year, or
of the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for the twelve month period ending December 31,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than forty five (45)
days after the close of each fiscal quarter (except the last fiscal quarter of
each year), the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
and such other information as may be required by applicable law or regulation or
as the General Partner determines to be appropriate. At the request of any
Limited Partner, the General Partner agrees to provide access to the books,
records and work papers upon which the reports in this Section 9.2. are based.
ARTICLE 10
TAX MATTERS
Section 10.1. Preparation of Tax Returns; Tax Accounting
The General Partner shall arrange for the preparation and timely filing
of all returns with respect to Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, on or before January
15 of each year (for so long as the Partnership Year is the fiscal year ending
December 31) the tax information, in draft or final form, reasonably required by
Limited Partners for federal and state income tax reporting purposes and
thereafter within fifteen (15) days of the end of the Partnership Year. In the
event that the General Partner delivers such information in draft form, the
General Partner shall use its best efforts to ascertain that any information
that would be used by any Partner for information reporting purposes is accurate
and complete. At the request of any Limited Partner, the General Partner agrees
to provide access to the books, records and work papers upon which the reports
in this Section 10.1. are based and to
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provide access to financial and income tax data necessary for the Limited
Partners to determine quarterly estimated income tax payments required to be
paid by the Limited Partners.
Section 10.2. Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole discretion, determine whether to make any available election pursuant to
the Code. The General Partner shall make the election under Section 754 of the
Code in accordance with applicable Regulations thereunder. The General Partner
shall elect, and shall file such returns and amended returns, as necessary, in a
manner consistent with the use of the recurring item method of accounting
provided under Section 461(h) of the Code with respect to property taxes imposed
on the Property of the Partnership, including causing the applicable property
taxes to be paid prior to the date provided under Section 461(h) for purposes of
economic performance. The General Partner shall have the right to seek to revoke
any such election (excluding the elections under Sections 461(h) and 754 of the
Code) upon the General Partner's determination in its sole discretion that such
revocation is in the best interests of the Partners.
Section 10.3. Tax Matters Partner
The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third party costs and expenses
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, so long
as the compensation paid by the Partnership for such services is reasonable. At
the request of any Limited Partner, the General Partner agrees to consult with
such Limited Partner with respect to the preparation and filing of any returns,
including, without limitation any subsequent audit or litigation with respect to
such return, provided the filing of such returns shall be in the sole discretion
of the General Partner, provided, however, that the Original Limited Partners
shall have the right, at their own expense, to contest any adjustment and
approve any settlement in connection with an item that was allocated to them
pursuant to Section 6.2.A.
Section 10.4. Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including without limitation any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445 or 1446 of the Code. Any amount
paid on behalf of or with respect to a Limited Partner shall constitute a loan
by the Partnership to such Limited
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Partner, which loan shall be repaid by such Limited Partner within fifteen (15)
days after notice from the General Partner that such payment must be made unless
(i) the Partnership withholds such payment from a distribution which would
otherwise be made to the Limited Partner or (ii) the General Partner determines
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner pursuant to Article 5 hereof.
ARTICLE 11
TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER
Section 11.1. Transfer
A. The term "Transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person. The term "Transfer" when used
in this Article 11 does not include any Exchange of Common Limited Partner Units
by an Original Limited Partner, TRC or a TRC Shareholder for REIT Shares of the
General Partner or acquisition of Common Limited Partner Units from a Common
Limited Partner by the General Partner pursuant to Section 8.6 or Section
11.3.F.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2. Transfer of General Partner's Interest
A. The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner except as provided in Sections 11.2.B
and 11.2.C hereof.
B. The General Partner shall not withdraw from the Partnership and shall
not Transfer, pledge, encumber or otherwise dispose of all or any portion of its
interest in the Partnership (whether by sale, disposition, statutory merger or
consolidation, liquidation or otherwise) without the Consent of the Common
Limited Partners. Upon any Transfer of such a Partnership Interest pursuant to
the Consent of the Common Limited Partners and otherwise in accordance with the
provisions of this Section 11.2.B, the transferee shall become a successor
General Partner for all purposes herein, and shall be vested with the powers and
rights of the transferor General Partner, and shall be liable for all
obligations and responsible for all duties of
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the General Partner, once such transferee has executed such instruments as may
be necessary to effectuate such admission and to confirm the agreement of such
transferee to be bound by all the terms and provisions of this Agreement with
respect to the Partnership Interest so acquired. It is a condition to any such
Transfer that the transferee assumes, by operation of law or express agreement,
all of the obligations of the transferor General Partner under this Agreement
with respect to such transferred Partnership Interest, and no such Transfer
(other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor General Partner are assumed by a
successor corporation by operation of law) shall relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Common Limited Partners.
C. Subject to the consent requirement in Section 7.3 hereof, the General
Partner may merge with another entity if immediately after such merger
substantially all of the assets of the surviving entity, other than the General
Partner Units held by the General Partner are contributed to the Partnership as
a Capital Contribution in exchange for the General Partner Units.
Section 11.3. Limited Partners' Rights to Transfer
A. A Limited Partner shall have the right to transfer all or any portion
of its Partnership Interest to any Person, subject to the provisions of Section
11.6 hereof and, in the case of Preferred Limited Partner Interests owned by IAC
Capital Trust, 11.3.E hereof; provided that, any Transfer of a Partnership
Interest shall be made only to a Qualified Transferee. Notwithstanding the
foregoing provisions of this Section 11.3, any Original Limited Partner may, at
any time, without the consent of the General Partner, (i) Transfer all or any
portion of its Partnership Interest to an Affiliate or to an Irvine Person,
subject to the provisions of Section 11.6 hereof, (ii) transfer all or a portion
of its Partnership Interest pursuant to its rights to effect an Exchange or a
Cash Tender as provided in Section 8.6 hereof and (iii) Pledge any portion of
its Partnership Interest. It is a condition to any Transfer otherwise permitted
hereunder that the transferee assumes by operation of law or express agreement
all of the obligations of the transferor Limited Partner under this Agreement
with respect to such transferred Partnership Interest and no such Transfer
(other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor Limited Partner are assumed by a
successor corporation by operation of law) shall relieve the transferor Limited
Partner of its obligations under this Agreement without the approval of the
General Partner, in its sole discretion. Notwithstanding the foregoing, any
transferee of any transferred Partnership Interest shall be subject to any and
all ownership limitations contained in the Certificate of Incorporation which
may limit or restrict such transferee's ability to exercise its Exchange Rights.
Any transferee shall take subject to the obligations of the transferor
hereunder, but such transferee shall not be liable for the obligations of the
transferor under Section 17-607 of the Act. Any transferee that is an Original
Limited Partner shall be permitted to exercise the rights to effect an Exchange
or a Cash Tender as provided in Section 8.6 hereof. Unless a transferee is an
Original Limited Partner, TRC or a TRC Shareholder, such transferee shall not be
entitled to exercise the rights provided under Section 8.6 hereof in the absence
of consent by the General Partner. Until
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admitted as a Substituted Limited Partner, no transferee, whether by a voluntary
transfer, by operation of law or otherwise, shall have any rights hereunder,
other than the rights of an Assignee as provided in Section 11.5 hereof.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservatory or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners of the same class or
series, for the purpose of settling or managing the estate, and such power as
the Incapacitated Limited Partner possessed to transfer all or any part of his
or its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. In connection with any Transfer, the General Partner shall have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed Transfer may be effected without registration under the
Securities Act and will not otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Interests
transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
D. No Transfer by a Limited Partner of its Partnership Interests
(including any Exchange or Cash Tender, any other acquisition of Partnership
Units by the General Partner or any acquisition of Partnership Units by the
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation, or (ii) such Transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
E. In addition to the restrictions on Transfer set forth in this Section
11.3 and in Section 11.6 and notwithstanding anything to the contrary contained
in this Agreement, no Preferred Limited Partner Interest of any series owned by
IAC Capital Trust may be Transferred except in accordance with the Designation
Instrument creating such series.
F. In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of TRC shall be subject to the
following additional provisions:
(1) None of such Partnership Interest may be Transferred
except (i) to any one, or any combination of, William W.
Thompson, Bruce Dorfman or Robert Hughes (individually, a "TRC
Shareholder", and collectively, the "TRC Shareholders"), provided
that it shall be a condition precedent to any such
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Transfer and the admission of the TRC Shareholder as a
Substituted Limited Partner that such TRC Shareholder agree in
writing to be bound by the restrictions on Transfer set forth in
this Agreement or (ii) to the General Partner (or its nominee) as
contemplated by this Section 11.3.F.
(2) In the event all or any portion of such Partnership
Interest is Transferred to a TRC Shareholder and a TRC
Shareholder Incapacity occurs with respect to such TRC
Shareholder, TRC shall within thirty (30) days notify the General
Partner of such TRC Shareholder Incapacity and the General
Partner shall have the right, but not the obligation, to purchase
(for its own account or for the account of its nominee) the
Partnership Interest of such TRC Shareholder for cash at a price
equal to the number of Common Limited Partner Units representing
the Partnership Interest of such TRC Shareholder multiplied by
the average of the Unit Values for the ten (10) trading days
immediately preceding the date of purchase by the General Partner
(or its nominee) of such Partnership Interest. The General
Partner shall exercise such right, if at all, within thirty (30)
days of the date on which the General Partner receives written
notice of such TRC Shareholder Incapacity. If the General Partner
fails to exercise such right, such Common Limited Partner Units
must, within 90 days of such TRC Shareholder Incapacity, and, in
all events, prior to any Transfer to the heirs or devisees of
such TRC Shareholder or to any other Person, be Exchanged for
REIT Shares in accordance with Section 8.6, in which event the
conditions to an Exchange set forth in the proviso in Section
8.6.J shall not apply to the right to Exchange such Common
Limited Partner Units for REIT Shares.
(3) In the event of the death of, or total physical
disability of, a TRC Shareholder, entry by a court of competent
jurisdiction adjudicating such TRC Shareholder incompetent to
manage his person or his estate, or an Act of Bankruptcy with
respect to such TRC Shareholder ("TRC Shareholder Incapacity"),
TRC shall within thirty (30) days notify the General Partner of
such TRC Shareholder Incapacity, and if such TRC Shareholder
Incapacity relates to a TRC Shareholder other than William W.
Thompson, and if at the time of such TRC Shareholder Incapacity
TRC is a Partner, then:
(i) TRC shall have the right, but not the
obligation to satisfy the General Partner, in its sole
discretion and within thirty (30) days of the occurrence
of such TRC Shareholder Incapacity, that such TRC
Shareholder Incapacity will not result, at any time, in
any portion of TRC's Partnership Interest being
Transferred, directly or indirectly, to the TRC
Shareholder with respect to whom such TRC Shareholder
Incapacity occurred.
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(ii) In the event TRC fails to so satisfy the
General Partner, the General Partner shall have the right,
but not the obligation, to purchase (for its own account
or for the account of its nominee) a portion of TRC's
Partnership Interest for cash at a price equal to the
number of the Common Limited Partner Units which the
General Partner is entitled to purchase pursuant to this
Section 11.3.F(3)(ii) multiplied by the average of the
Unit Values for the ten (10) trading days immediately
preceding the date of such purchase by the General Partner
(or its nominee). The number of Common Limited Partner
Units which the General Partner shall be entitled to
purchase pursuant to this Section 11.3.F(3)(ii) shall be
equal to the total number of Common Limited Partner Units
then owned by TRC, multiplied by a fraction, the
denominator of which shall be the total number of TRC
Shares outstanding as of the time of such TRC Shareholder
Incapacity and the numerator of which shall be the total
number of TRC Shares owned by the TRC Shareholder at the
time of such TRC Shareholder Incapacity. The General
Partner shall exercise such right, if at all, within
thirty (30) days of the date on which the General Partner
receives written notice of such TRC Shareholder
Incapacity.
(iii) If TRC fails to so satisfy the General
Partner and the General Partner fails to exercise its
right of purchase as set forth in clause (ii) above,
Common Limited Partner Units in the amount which the
General Partner was entitled to purchase pursuant to
clause (ii) must, within 90 days of time of such TRC
Shareholder Incapacity, be Exchanged for REIT Shares, in
which event the conditions to an Exchange set forth in the
proviso in Section 8.6.J shall not apply to the right to
Exchange such Common Limited Partner Units for REIT
Shares.
(iv) From and after the date on which the General
Partner purchases such Common Limited Partner Units
pursuant to clause (ii) or such Common Limited Partner
Units are Exchanged for REIT Shares pursuant to clause
(iii), TRC shall take such steps as may be necessary, as
determined by the General Partner in its sole discretion,
to ensure that any Common Limited Partner Units still
owned by TRC shall not, at any time, without the prior
written consent of the General Partner, be Transferred to
the estate, heirs or devisees of the TRC Shareholder who
is then subject to a TRC Shareholder Incapacity or to any
other Person.
(4) In the event of a TRC Shareholder Incapacity with
respect to William W. Thompson, if at the time of such TRC
Shareholder Incapacity, TRC is a Partner, TRC shall within thirty
(30) days notify the General Partner of such TRC Shareholder
Incapacity and the General Partner shall have the right, but not
the obligation, to purchase (for its own account or for the
account of its nominee)
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all or any portion of TRC's Partnership Interest for cash at a
price equal to the number of Common Limited Partner Units
representing such TRC Partnership Interest multiplied by the
average of the Unit Values for the ten (10) trading days
immediately preceding the date of purchase by the General Partner
(or its nominee) of such Partnership Interest. The General
Partner shall exercise such right, if at all, within thirty (30)
days of the date on which the General Partner receives written
notice of such TRC Shareholder Incapacity. If the General Partner
fails to exercise such right, such Common Limited Partner Units
must, within 90 days of such TRC Shareholder Incapacity, be
Exchanged for REIT Shares, in which event the conditions to an
Exchange set forth in the proviso in Section 8.6.J shall not
apply to the right to Exchange such Common Limited Partner Units
for REIT Shares.
(5) In the event of an Act of Bankruptcy with respect to
TRC, the General Partner shall have the right, but not the
obligation, to purchase (for its own account or for the account
of its nominee) all or any portion of TRC's Partnership Interest
for cash at a price equal to the number of Common Limited Partner
Units representing such TRC Partnership Interest multiplied by
the average of the Unit Values for the ten (10) trading days
immediately preceding the date of purchase by the General Partner
(or its nominee) of such Partnership Interest. The General
Partner shall exercise such right, if at all, within thirty (30)
days of the date on which the General Partner receives written
notice of such Act of Bankruptcy. If the General Partner fails to
exercise such right, such Common Limited Partner Units must,
within a reasonable period of time of such Act of Bankruptcy, be
Exchanged for REIT Shares, in which event the conditions to an
Exchange set forth in the proviso in Section 8.6.J shall not
apply to the right to Exchange such Common Limited Partner Units
for REIT Shares.
(6) In the event the General Partner purchases Common
Limited Partner Units pursuant to clauses (2), (3), (4) or (5) of
this Section 11.3.F, the Partnership will be deemed to have
issued to the General Partner a number of General Partner Units
equal to the number of Common Limited Partner Units so purchased,
the Common Limited Partner Units so purchased shall be canceled
and the Junior Percentage Interest of the General Partner and all
Common Limited Partners shall be adjusted based on the foregoing.
G. In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of a TRC Shareholder shall be subject
to the following additional provision:
(1) None of such Partnership Interest may be Transferred
by such TRC Shareholder, except (i) to another TRC Shareholder in
compliance with all applicable laws and regulations and the terms
and conditions of this Agreement,
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(ii) a Transfer by operation of law as a result of a TRC
Shareholder Incapacity, in which event the provisions of Section
11.3.F(2) shall apply and (iii) to the General Partner or its
nominee as contemplated by Section 11.3.F.
Section 11.4. Substituted Limited Partners
A. Each Limited Partner shall, pursuant to the provisions of 11.3, have
the right to Transfer all or a portion of its Partnership Interest to any
Person, subject in the case of Preferred Limited Partner Interests owned by IAC
Capital Trust to Section 11.3.E. Upon satisfaction of the conditions provided
under Section 3.4 and Section 11.3 and upon furnishing to the General Partner
(i) evidence of acceptance in form satisfactory to the General Partner of all of
the terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature
page to this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as a Substituted Limited Partner, the General
Partner shall promptly admit such transferee of the interest of a Limited
Partner as a Substituted Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of Limited
Partner Units, and Percentage Interest of such Substituted Limited Partner and
to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5. Assignees
Until such time as a transferee has been admitted as a Substituted
Limited Partner pursuant to Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive, distributions from the
Partnership and the share of Net Income, Net Losses, and any other items of
income, gain, loss, deduction and credit of the Partnership attributable to the
Limited Partner Units assigned to such transferee, but shall not be deemed to be
a holder of Limited Partner Units for any other purpose under this Agreement,
and shall not be entitled to vote such Limited Partner Units in any matter
presented to the Limited Partners of the same class or series for a vote (such
Limited Partner Units being deemed to have been voted on such matter in the same
proportion as all other Limited Partner Units held by Limited Partners of the
same class or series are voted). In the event any such transferee desires to
make a further assignment of any such Partnership Units, such transferee shall
be subject to all the provisions of this Article 11 to the same extent and in
the same manner as any Limited Partner desiring to make an assignment of Limited
Partner Units.
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Section 11.6. General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Limited Partner
Units in accordance with this Article 11 or pursuant to an Exchange or a Cash
Tender of all of its Common Limited Partner Units under Section 8.6 hereof.
B. Any Limited Partner who shall Transfer all of his Limited Partner
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Limited Partner
Units as Substituted Limited Partners. Similarly, (i) any Common Limited Partner
who shall transfer all of its Common Limited Partner Units pursuant to an
Exchange or Cash Tender of all of its Common Limited Partner Units under Section
8.6 hereof shall cease to be a Common Limited Partner and (ii) any Preferred
Limited Partner whose Preferred Limited Partner Units of a series are redeemed
in full or paid in full upon the stated maturity thereof, in each case, in
accordance with the Designation Instrument applicable to such series of
Partnership Units shall cease to be a Preferred Limited Partner insofar as such
series is concerned.
C. If any Partnership Unit is Transferred during any quarterly segment
of the Partnership Year in compliance with the provisions of this Article 11, or
Exchanged or Cash Tendered pursuant to Section 8.6 hereof, on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items attributable to such Partnership Unit for such
Partnership Year shall be allocated to the transferor Partner or the Tendering
Partner, as the case may be, and, in the case of a transfer or assignment other
than an Exchange or a Cash Tender, to the transferee Partner, by taking into
account their varying interests during the Partnership Year in accordance with
Section 706(d) of the Code, using the interim closing of the books method.
Solely for purposes of making such allocations, each of such items for the
calendar month in which a transfer occurs shall be allocated to the transferee
Partner and none of such items for the calendar month in which a transfer or an
Exchange occurs shall be allocated to the transferor Partner or the Tendering
Partner, as the case may be, if such transfer occurs before the fifteenth day of
the month, otherwise such items shall be allocated to the transferor. All
distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, Exchange or Cash Tender shall be made to the transferor
Partner or the Tendering Partner, as the case may be, and, in the case of a
transfer other than an Exchange or a Cash Tender, all distributions of Available
Cash thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
D. In addition to any other restriction on transfer herein contained, in
no event may any transfer or assignment of a Partnership Interest by any Partner
(including any Exchange or Cash Tender or any other acquisition of Partnership
Units by the General Partner) be made (i) to any person or entity who lacks the
legal right, power or capacity to own a Partnership Interest; (ii) in violation
of applicable law; (iii) of any component portion of a Partnership Interest,
such as the
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<PAGE> 83
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest, (iv) in the event such transfer would
cause the General Partner to cease to comply with the requirements for REIT
status under the Code, (v) if such transfer would, in the opinion of counsel to
the Partnership, cause the Partnership to cease to be classified as a
partnership for Federal income tax purposes (except as a result of the Exchange
or Cash Tender of all Common Limited Partner Units held by all Common Limited
Partners); (vi) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (vii) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such
transfer requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer requires the
Partnership to become a reporting company under the Securities Exchange Act of
1934; or (x) if such transfer subjects the Partnership to be regulated under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended.
Section 11.7. Removal of General Partner
A. The General Partner may not be removed as general partner except as
provided in this Section 11.7. The General Partner may be removed upon the
affirmative vote of Common Limited Partners holding 50% or more of the issued
and outstanding Common Limited Partner Interests if such removal is for cause.
As used in this Section 11.7, "cause" means an act or omission undertaken with
deliberate intent to cause injury to the Partnership, constituting actual fraud,
actual bad faith or willful misconduct on the part of the General Partner or an
act or omission of gross negligence. The right to remove the General Partner
shall not exist or be exercised unless such action for removal also provides for
the election of a new general partner. Such removal shall be effective
immediately subsequent to the admission of the successor General Partner
pursuant to Article 12 hereof.
B. Upon the removal of the General Partner, the departing General
Partner shall become a Common Limited Partner, and its General Partner Interest
shall be converted automatically into a Common Limited Partner Interest, without
any reduction in the departing General Partner's Junior Percentage Interest
(subject to proportionate dilution by reason of the admission of its successor).
This Agreement shall be amended to reflect any event described in this
Section 11.7, and any successor General Partner covenants so to amend this
Agreement and the Certificate, as required.
C. The successor to the departing General Partner shall at the effective
date of its admission to the Partnership contribute to the capital of the
Partnership cash in an amount such
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<PAGE> 84
that its Capital Account, after giving effect to such contribution, shall be at
least equal to the amount, if any, required by any applicable law.
D. The removal of the General Partner pursuant to this Section 11.7 will
not relieve the Partnership from any of its debts or other obligations to the
departing General Partner, including, without limitation, reimbursement
obligations under Section 7.4 or its obligations under Section 7.7, arising
prior to the removal of the departing General Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2.B hereof who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to such Transfer. A successor to a General Partner removed
pursuant to Section 11.7 shall be admitted to the Partnership as the successor
General Partner effective upon satisfaction of the condition specified in
Section 11.7.C. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2. Admission of Additional Limited Partners
A. A Person who makes a Capital Contribution to the Partnership on or
after the date hereof in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner by the General Partner, without the
consent of any other Partner, only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name
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<PAGE> 85
of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner, in accordance with the principles described in Section 11.6.C. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
Section 12.4. Limit on Number of Partners
No Person shall be admitted to the Partnership as an additional Partner
if the effect of such admission would be to cause the Partnership to have more
than 500 Partners, including as Partners for this purpose those Persons
indirectly owning an interest in the Partnership through another partnership,
subchapter S corporation or a grantor trust, or otherwise cause the Partnership
to become a reporting company under the Securities Exchange Act of 1934, as
amended.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution
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The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal or removal of the General Partner, any successor General Partner
shall continue the business of the Partnership without dissolution. The
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5
hereof;
B. an event of withdrawal of the General Partner, as
defined in the Act, unless, within ninety (90) days after the
event of withdrawal (i) all the Common Limited Partners agree in
writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event of
withdrawal, of a successor General Partner; and (ii) more than
fifty percent (50%) of the Percentage Interests of each series of
Preferred Limited Partner Units then outstanding agree to
continue the business of the Partnership either in writing or by
vote at a meeting of Preferred Limited Partners held in
accordance with Section 14.3 and to the appointment, effective as
of the date of such event of withdrawal, of a successor General
Partner;
C. an election to dissolve the Partnership made by the
General Partner, subject to the Consent of the Common Limited
Partners;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
or
E. the sale of all or substantially all of the assets and
properties of the Partnership.
Section 13.2. Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner or, in the event there is no remaining General Partner, any
Person elected by the Common Limited Partners holding in the aggregate more than
fifty percent (50%) of the Percentage Interests of the Common Limited Partners
or, in the event there is no remaining General Partner or Common Limited
Partner, any Person elected by the Preferred Limited Partners holding in the
aggregate more than fifty percent (50%) of the Percentage Interests of the
Preferred Limited Partners voting as one class (the General Partner or
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<PAGE> 87
such other Person being referred to herein as the "Liquidator") shall be
responsible for overseeing the winding up and dissolution of the Partnership and
shall take full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to the
extent determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by
payment or the making of reasonable provision for payment
thereof);
(2) Second, to the satisfaction of all of the Partnership's debts and
liabilities to the General Partner (whether by payment or the
making of reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the
making of reasonable provision for payment thereof);
(4) Fourth, to the Preferred Limited Partners, the applicable
Liquidation Preference Amount; and
(5) The balance, if any, to the General Partner and Common Limited
Partners in accordance with their Capital Accounts, after giving
effect to all contributions, distributions, and allocations for
all periods.
The General Partner shall not receive any additional compensation for
any services performed pursuant to this Article 13 other than reimbursement of
its expenses as provided in Section 7.4 hereof.
B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Partnership (including to those Partners as creditors) and/or distribute
to the Partners, in lieu of cash, as tenants in common and in accordance with
the provisions of Section 13.2.A hereof, undivided interests in such Partnership
assets as the Liquidator deems not suitable for liquidation. Any such
distributions in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the Partners,
and shall be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and equitable
and to any agreements governing the operation of such properties at such time.
The Liquidator shall
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<PAGE> 88
determine the fair market value of any property distributed in kind using such
reasonable method of valuation as it may adopt.
C. In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
to the extent of, and in proportion to, positive Capital Account balances. If
any Partner has a deficit balance in his Capital Account (after giving effect to
all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever. A pro
rata portion of the distributions that would otherwise be made to the General
Partner and Limited Partners pursuant to this Article 13 may be withheld or
escrowed to provide a reasonable reserve for Partnership liabilities (contingent
or otherwise) and to reflect the unrealized portion of any installment
obligations owed to the Partnership, provided that such withheld or escrowed
amounts shall be distributed to the General Partner and Limited Partners in the
manner and order of priority set forth in Section 13.2.A as soon as practicable.
Section 13.3. [Intentionally omitted]
Section 13.4. Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of his Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement (including pursuant to any Designation Instrument or Instruments), no
Limited Partner shall have priority over any other Partner as to the return of
his Capital Contributions, distributions, or allocations.
Section 13.5. Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would,
but for an election or objection by one or more Partners pursuant to Section
13.1, result in a dissolution of the Partnership, the General Partner shall
within thirty (30) days thereafter, provide written notice thereof to each of
the Partners.
Section 13.6. Termination of Partnership and Cancellation of Certificate
of Limited Partnership
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions
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<PAGE> 89
other than the State of Delaware shall be canceled and such other actions as may
be necessary to terminate the Partnership shall be taken.
Section 13.7. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.8. Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1. Amendments
Amendments to this Agreement may be proposed by the General Partner or
by a Majority-In-Interest of the Common Limited Partners. Following such
proposal, the General Partner shall submit any proposed amendment to the Common
Limited Partners. The General Partner shall seek the written vote of the Common
Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.B, 7.3.C or 7.3.D hereof, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Common Limited
Partners.
Section 14.2. Meetings of the Common Limited Partners
A. Meetings of the Common Limited Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by a Majority-In- Interest of the Common Limited Partners. The call
shall state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Common Limited Partners not less than seven (7)
days nor more than thirty (30) days prior to the date of such meeting. Partners
may vote in person or by proxy at such meeting. Whenever the vote or Consent of
Common Limited Partners is permitted or required under this Agreement, such vote
or Consent may be
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<PAGE> 90
given at a meeting of Common Limited Partners or may be given in accordance with
the procedure prescribed in Section 14.2.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Common Limited Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by a majority of the Percentage
Interests of the Common Limited Partners (or such other percentage as is
expressly required by this Agreement). Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Common Limited Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Common Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Common Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Common Limited
Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy
(or there is receipt of a proxy authorizing a later date). Every proxy shall be
revocable at the pleasure of the Common Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Common Limited Partner executing such proxy.
D. Each meeting of Common Limited Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate in his sole discretion. Without limitation,
meetings of Common Limited Partners may be conducted in the same manner as
meetings of the shareholders of the General Partner and may be held at the same
time, and as part of, meetings of the shareholders of the General Partner.
Section 14.3. Meetings of Preferred Limited Partners
In the event that the vote or consent of the holders of Preferred
Limited Partner Interests (or any series thereof) is required pursuant to this
Agreement (including pursuant to a Designation Instrument) such vote or consent
may be obtained at a meeting of Preferred Limited Partners or by written
consent. The provisions of Section 14.2 hereof shall apply to any such meeting
or written consent to the extent practicable in which case all references in
such Section to Common Limited Partners shall mean the Preferred Limited
Partners as a class or the
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<PAGE> 91
Preferred Limited Partners holding the applicable series of Preferred Limited
Partner Interests, as shall be applicable to such vote or consent.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A or such other address
of which the Partner shall notify the General Partner in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6. Waiver
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<PAGE> 92
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.7. Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.8. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.9. Entire Agreement
This Agreement contains all of the understandings and agreements between
the Partners with respect to the subject matter of this Agreement and the
rights, interests and obligations of the Partners with respect to the
Partnership.
Section 15.10. Invalidity of Provisions
If any provision of this Agreement is or becomes invalid or
unenforceable in any respect, the validity and enforceability of the remaining
provisions contained herein shall not be affected thereby.
Section 15.11. Outstanding Limited Partner Interests
The Partners agree that all certificates representing Limited Partner
Interests issued pursuant to the Prior Agreement and outstanding as of the date
of this Agreement constitute certificates representing Common Limited Partner
Interests under this Agreement.
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<PAGE> 93
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the date and year first above
written.
GENERAL PARTNER:
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
COMMON LIMITED PARTNERS:
THE IRVINE COMPANY
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
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R.S.J. ASSOCIATES,
a California limited partnership
By: The Irvine Company, its
general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
WOODBRIDGE WILLOWS ASSOCIATES,
a California limited partnership
By: The Irvine Company, its
general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
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<PAGE> 95
TIC INVESTMENT COMPANY A,
a California general partnership
By: The Irvine Company,
a general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
TIC INVESTMENT COMPANY B,
a California general partnership
By: The Irvine Company
a general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
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<PAGE> 96
TIC INVESTMENT COMPANY C,
a California general partnership
By: The Irvine Company,
a general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
TIC INVESTMENT COMPANY D,
a California general partnership
By: The Irvine Company,
a general partner,
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
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<PAGE> 97
THOMPSON RESIDENTIAL COMPANY, INC.,
a California corporation
By:_____________________________
Name:
Title:
STONECREST VILLAGE COMPANY, LLC,
a California limited liability
company
By: California Pacific Homes,
a California corporation,
its Managing Member
By:_____________________________
Name:
Title:
PREFERRED LIMITED PARTNERS:
IAC CAPITAL TRUST,
a Delaware business trust
By:____________________________
James E. Mead, not in his individual
capacity but solely in his capacity as a
trustee of IAC Capital Trust
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<PAGE> 98
AMENDMENT NO. 25
TO
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Gross Asset Number
Value of of
Cash Contributed Total Partnership Percentage
Name and Address of Partner Contribution(1) Property(1) Property Units(2) Interest(11)
- --------------------------- -------------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
IRVINE APARTMENT $345,600,033.58(3) 0 $345,600,033.58(3) 19,901,134 44.7340111%
COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, CA 92660
COMMON LIMITED PARTNERS
THE IRVINE COMPANY 0 883,022,698(4) 883,022,698(4) 17,303,000(4) 38.8938939%
550 Newport Center Drive
Newport Beach, CA 92660
R.S.J. ASSOCIATES 0 27,286,000 27,286,000 535,000 1.2025795%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
WOODBRIDGE WILLOWS ASSOCIATES 0 9,989,000 9,989,000 609,000 1.3689176%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY B 0 17,075,000 17,075,000 478,162(5) 1.0748184%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
Gross Asset Number
Value of of
Cash Contributed Total Partnership Percentage
Name and Address of Partner Contribution(1) Property(1) Property Units(2) Interest(11)
- --------------------------- ------------ ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
TIC INVESTMENT COMPANY A 24,500,126.25(6) 0 24,500,126.25(6) 1,502,105(6) 3.3764499%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY C 67,426,907.33(7) 0 67,426,907.33(7) 2,925,799 6.5766466%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
TIC INVESTMENT COMPANY D 0 23,649,000 23,649,000 853,273(8) 1.9179974%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
THOMPSON RESIDENTIAL COMPANY, INC.
591 Redwood Highway, Suite 5275
Mill Valley, CA 94941 0 2,000,000(9) 2,000,000.00(9) 74,523(9) 0.1675137%
STONECREST VILLAGE COMPANY, LLC
c/o California Pacific Homes
One Civic Plaza, Suite 275
Newport Beach, CA 92660 0 9,475,000 9,475,000 305,707(10) 0.6871719%
--------------------------------------------------------------------------------------------
Subtotal $437,527,067.16 $972,496,698 $1,410,023,765.16 44,487,703 100.0000000%
PREFERRED LIMITED PARTNERS
IAC CAPITAL TRUST(12)
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660 $ 0 $ __ Series A Preferred
Limited Partner Units 100%
============================================================================================
TOTAL $ $972,496,698 $ NA NA
</TABLE>
A-2
<PAGE> 100
(1) These amounts constitute the agreed value for purposes of the Act.
(2) Except with respect to the Common Limited Partner Units referred to in
Notes 5, 6 and 8, the 51,345;1,756 and 232,333 General Partner Units
referred to in Note 3, and the 40,905 Common Limited Partner Units
referred to in Note 7, Common Limited Partner Units were allocated in
accordance with the net asset value of the property contributed by each
Partner.
(3) Of which $193,602,600 was contributed in connection with the December
1993 initial public offering of 11,800,000 REIT Shares, $84,378,375 was
contributed in connection with the August 1995 offering of 5,175,000 REIT
Shares, $30,000,337.50 was contributed in connection with the July 1996
offering of 1,490,700 REIT Shares, $29,969,000 was contributed in
connection with the February 1997 offering of 1,150,000 REIT Shares,
$6,170,093.9375 was deemed contributed pursuant to Sections 4.6.B and
4.5.H for 232,333 REIT Shares, $1,428,415.2675 was deemed contributed
pursuant to Section 4.8.A(3) for 51,345 REIT Shares and $51,211.875 was
deemed contributed pursuant to Section 4.8.B(2) for 1,756 REIT Shares.
(4) Includes $65,898,000 gross asset value of property contributed by five
original limited partners which limited partners were liquidated on June
30, 1995. The 1,359,000 Common Limited Partner Units owned by such
limited partners were transferred to The Irvine Company in connection
with such liquidation. Also includes $37,605,000 gross asset value of
property contributed by another original limited partner. The 160,000
Common Limited Partner Units owned by such limited partner were
transferred to The Irvine Company in June 1996.
(5) These Common Limited Partner Units were issued in accordance with Section
4.3.B prior to June 1, 1996 and were transferred to TIC Investment
Company B in June 1996 when it was admitted as a Substituted Limited
Partner.
(6) Of which $24,457,500 was contributed pursuant to Section 4.5.G and 4.5.H
for 1,500,000 Common Limited Partner Units in connection with the August
1995 offering of REIT Shares and $42,626.25 was deemed contributed
pursuant to Section 4.8.A.(4) for 2,105 Common Limited Partner Units. All
such Units were issued prior to June 1, 1996 and were transferred to TIC
Investment Company A in June 1996 when it was admitted as a Substituted
Limited Partner.
(7) Of which $30,000,337.50 and $36,332,695.64 was contributed pursuant to
Sections 4.5.G and 4.5.H for 1,490,700 Common Limited Partner Units and
1,394,194 the Common Limited Partner Units, respectively, in connection
with the July 1996 and February 1997 offerings, respectively, of REIT
Shares and $1,093,874.1925 was deemed contributed pursuant to Section
4.8.A(4) for 40,905 Common Limited Partner Units.
(8) These Common Limited Partner Units were issued in accordance with Section
4.3.B. TIC Investment Company D was admitted as an Additional Limited
Partner in July 1996. With respect to two of the transactions
(representing 492,872 of the Common Limited Partner Units and $14,105,000
of the Gross Asset Value of Contributed Property) a portion of the Common
Limited Partner Units issued in each transaction are subject to return
and cancellation if the Apartment Community Project to be constructed on
the land site does not achieve a 10% unleveraged return on costs for the
first year following stabilized occupancy.
(9) TRC was admitted as an Additional Limited Partner in February 1997 in
connection with the closing under the TRC Contribution Agreement.
Additional Common Limited Partner Units may be issued to TRC in
connection with its contribution pursuant to the TRC Contribution
Agreement, in which event the amount under "Gross Asset Value of
Contributed Property" will be increased as provided in Section 4.1 by the
amount of the Contingent Contribution Value (as defined in such TRC
Contribution Agreement).
(10) SVC was admitted as an Additional Common Limited Partner in December,
1997 in connection with the closing under the Contribution Agreement
dated November 25, 1997 between SVC and the Partnership.
(11) Represents (i) in the case of the General Partner and a Common Limited
Partner, their Junior Percentage Interest and (ii) in the case of a
Preferred Limited Partner, its Percentage Interest in such series.
(12) IAC Capital Trust was admitted as a Preferred Limited Partner on ____,
199_.
A-3
<PAGE> 101
EXHIBIT B
NOTICE OF EXCHANGE
The undersigned Common Limited Partner hereby irrevocably (i) exchanges
____ Common Limited Partner Units in Irvine Apartment Communities, L.P. in
accordance with the terms of the Second Amended and Restated Agreement of
Limited Partnership of Irvine Apartment Communities, L.P., as amended (the
"Agreement"), and the Exchange referred to therein, (ii) surrenders such Common
Limited Partner Units and all right, title and interest therein, and (iii)
directs that the REIT Shares deliverable upon exercise of the Exchange be
registered or placed in the name(s) and at the address(es) specified below,
subject to Section 8.6 of the Agreement. The undersigned hereby represents,
warrants, certifies and agrees (a) that the undersigned has good, marketable and
unencumbered title to such Common Limited Partner Units, free and clear of the
rights or interests of any other person or entity, (b) that the undersigned has
the full right, power and authority to exchange and surrender such Common
Limited Partner Units as provided herein, (c) that the undersigned has obtained
the consent or approval of all persons or entities, if any, having the right to
consent to or approve such exchange and surrender, (d) that the undersigned is
acquiring such REIT Shares for his own account, for investment and without a
view to engaging in any resale or distribution thereof, except such as may occur
pursuant to the registration statement which may be filed by the General Partner
pursuant to a Miscellaneous Rights Agreement to which the undersigned and the
General Partner are parties, (e) that the REIT Shares may not be transferred by
the undersigned except in transactions pursuant to a registration statement
under the Securities Act or that are exempt from the registration requirements
of the Securities Act of 1933 and all applicable state and foreign securities
laws and (f) that the General Partner may refuse to transfer such REIT Shares as
to which evidence satisfactory to it of such registration or exemptions is not
provided to it.
All capitalized terms used herein and not otherwise defined shall have
the same meaning ascribed to them respectively in the Agreement.
Dated: ____________
Name of Common Limited Partner.
------------------------------
(Signature of Common Limited Partner)
------------------------------
(Street Address)
B-1
<PAGE> 102
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
issue REIT Shares to:
Please insert social security or identifying number:
Name:
B-2
<PAGE> 103
EXHIBIT C
NOTICE OF CASH TENDER
The undersigned Common Limited Partner hereby irrevocably (i) tenders to
the General Partner ______ Common Limited Partner Units in Irvine Apartment
Communities, L.P. in accordance with the terms of the Second Amended and
Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P.,
as amended, and the Cash Tender Right referred to therein, (ii) surrenders such
Common Limited Partner Units and all right, title and interest therein, and
(iii) directs that the Cash Tender Amount deliverable upon exercise of the Cash
Tender Right be delivered to the address specified below. The undersigned hereby
represents, warrants, certifies and agrees (a) that the undersigned has good,
marketable and unencumbered title to such Common Limited Partner Units, free and
clear of the rights or interests of any other person or entity, (b) that the
undersigned has the full right, power and authority to tender and surrender such
Common Limited Partner Units as provided herein, and (c) that the undersigned
has obtained the consent or approval of all persons or entitles, if any, having
the right to consent to or approve such tender and surrender.
All capitalized terms used herein and not otherwise defined shall have
the same meaning ascribed to them respectively in the Agreement.
Dated: ____________
Name of Common Limited Partner.
------------------------------
(Signature of Common Limited Partner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
Please insert social security or identifying number:
Name:
C-1
<PAGE> 104
EXHIBIT D
FORM OF COMMON LIMITED PARTNER UNIT CERTIFICATE
THE COMMON LIMITED PARTNER INTERESTS EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P.
DATED ___________, 199_, AS AMENDED (THE "PARTNERSHIP AGREEMENT") A COPY OF
WHICH MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER,
AT ITS PRINCIPAL EXECUTIVE OFFICE.
Number of Common
Certificate Number Limited Partner Units
- --------- --------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that _____________________________________
is the owner of _________________________________________
FULLY PAID COMMON LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. This Certificate and the Common Limited Partner Units
represented hereby are issued and shall be held subject to all of the provisions
of the Partnership Agreement as the same may be amended and/or supplemented from
time to time.
IN WITNESS WHEREOF, Irvine Apartment Communities, Inc., general partner,
has signed this Certificate this __ day of __, 199_.
D-1
<PAGE> 105
IRVINE APARTMENT COMMUNITIES, INC.
as general partner of
Irvine Apartment Communities, LP.
By: ___________________________________
Name:
Title:
D-2
<PAGE> 1
EXHIBIT 3.2
IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION INSTRUMENT
PURSUANT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF IRVINE APARTMENT COMMUNITIES, L.P.
DESIGNATION OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF THE
SERIES A PREFERRED LIMITED PARTNER UNITS
FIRST: Pursuant to authority expressly vested in the General Partner of
the Partnership pursuant to Section 4.5.F of the Agreement, the General Partner
hereby classifies 6,900,000 Preferred Limited Partner Units of the Partnership
into a series designated the Series A Preferred Limited Partner Units and
provides for the issuance of such Preferred Limited Partner Units. This
instrument constitutes a Designation Instrument under the Agreement. Capitalized
terms used but not defined herein have the meanings set forth in the Agreement.
SECOND: The terms of the Series A Preferred Limited Partner Units
established by this Designation Instrument are as follows:
SECTION 1. Designation and Amount. The series of Preferred Limited
Partner Units shall be designated the "Series A Preferred Limited Partner Units"
and the authorized number of Partnership Units constituting such series shall be
6,900,000.
SECTION 2. Stated Value. The stated value of the Series A Preferred
Limited Partner Units shall be $25.00 per Unit (the "STATED VALUE").
SECTION 3. Distributions. (a) Subject to the rights of holders of any
series of Preferred Limited Partner Units which the Partnership may issue in the
future which rank on a parity with the Series A Preferred Limited Partner Units
in respect of distributions, the holders of outstanding Series A Preferred
Limited Partner Units will be entitled to receive, when, as and if declared by
the
<PAGE> 2
Partnership acting through the General Partner out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate per annum of ____% of the Stated Value. Distributions will be
cumulative, will accrue from _________, 199_, the original issue date of the
Series A Preferred Limited Partner Units, and will be payable quarterly in
arrears on ________, _______, ________ and _______ (each a "SERIES A
DISTRIBUTION PAYMENT DATE") of each year, commencing on ________, 1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any Series A Distribution Payment Date is not
a Business Day, the payment of the distribution to be made on such Series A
Distribution Payment Date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such Series A Distribution
Payment Date. Each such distribution will be payable to the holders of record of
the Series A Preferred Limited Partner Units as they appear on the books of the
Partnership or any transfer agent for the Series A Preferred Limited Partner
Units on such record dates selected by the General Partner, not less than 10 nor
more than 50 days preceding the applicable Series A Distribution Payment Date;
provided that so long as the Series A Preferred Limited Partner Units are owned
by IAC Capital Trust, the General Partner shall establish record dates with
respect to the Series A Preferred Limited Partner Units that shall coincide with
the record dates established with respect to the __% Series A REIT Trust
Originated Preferred Securities of IAC Capital Trust (the "SERIES A PREFERRED
SECURITIES").
(b) Distributions on the Series A Preferred Limited Partner Units
shall accrue on a daily basis commencing on the date of original issuance of the
Series A Preferred Limited Partner Units, will accrue whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent not paid, as of
the Series A Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(c) So long as any Series A Preferred Limited Partner Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common Limited Partner Units or the General Partner Units or any other series of
outstanding Preferred Limited Partner Units ranking junior as to the payment of
distributions to the Series A Preferred Limited Partner Units, nor shall any sum
or
2
<PAGE> 3
sums be set aside for or applied to the purchase or redemption of the Series A
Preferred Limited Partner Units or any other series of outstanding Preferred
Limited Partner Units or the purchase, redemption or other acquisition for value
of any Common Limited Partner Units, General Partner Units or Preferred Limited
Partner Units of any series ranking junior to the Series A Preferred Limited
Partner Units as to the payment of distributions unless, in each case, full
cumulative distributions accumulated on all Series A Preferred Limited Partner
Units and all other series of outstanding Preferred Limited Partner Units
ranking on a parity with the Series A Preferred Limited Partner Units as to the
payment of distributions have been paid in full, provided that the foregoing
will not prohibit distributions payable solely in Common Limited Partner Units
or Preferred Limited Partner Units of a series ranking junior to the Series A
Preferred Limited Partner Units as to the payment of distributions, the exchange
of Common Limited Partner Units for REIT Shares in accordance with Section 8.6
of the Agreement, the repurchase of Common Limited Partner Units in connection
with the exercise by the holders thereof of the Cash Tender rights set forth in
Section 8.6 of the Agreement, the exchange of Common Limited Partner Units for
General Partner Units as provided in the Agreement or the repayment, return,
forfeiture and cancellation of Common Limited Partner Units issued in connection
with land acquisitions by the Partnership as and to the extent provided pursuant
to the purchase or other acquisition agreement relating to any such acquisition.
When distributions have not been paid in full upon the Series A Preferred
Limited Partner Units on the applicable Series A Distribution Payment Date (or a
sum sufficient for such full payment is not set apart therefor), all
distributions declared and paid on the Series A Preferred Limited Partner Units
and any other series of outstanding Preferred Limited Partner Units ranking on a
parity with the Series A Preferred Limited Partner Units as to the payment of
distributions shall be declared and paid so that the amount of distributions per
unit declared and paid on the Series A Preferred Limited Partner Units and such
other series of Preferred Limited Partner Units shall in all cases bear to each
other the same ratio that the respective distribution rights per unit of Series
A Preferred Limited Partner Units and such other series of Preferred Limited
Partner Units (which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such other series of Preferred
Limited Partner Units do not have cumulative distribution rights) bear to each
other.
(d) The holders of outstanding Series A Preferred Limited Partner
Units will be entitled to receive, when, as and if declared by the Operating
Partnership acting through the General Partner out of funds legally available
therefor, such cash distributions, in addition to those described in Sections
3(a) through (c), that may be necessary to preserve the status of IAC Capital
Trust as a real estate investment trust for federal income tax purposes.
3
<PAGE> 4
(e) Holders of Series A Preferred Limited Partner Units shall not be
entitled to any distributions whether payable in cash, property or otherwise, in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Partnership shall be governed by Section 4 hereof.
SECTION 4. Liquidation. Subject to the rights of the holders of any
other series of Preferred Limited Partner Units which the Partnership may issue
in the future which rank on a parity with the Series A Preferred Limited Partner
Units upon any voluntary or involuntary dissolution, liquidation, winding-up or
termination of the Partnership, the holders of the Series A Preferred Limited
Partner Units will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Partnership out of the assets of
the Partnership legally available for distribution, after payment or provision
for debts and other liabilities of the Partnership, an amount per Series A
Preferred Limited Partner Unit equal to the Stated Value, plus accrued and
unpaid distributions thereon to the date of payment (the "SERIES A LIQUIDATION
PREFERENCE AMOUNT") and no more. If, upon any such liquidation, dissolution,
winding-up or termination, there are insufficient assets to permit full payment
to the holders of Series A Preferred Limited Partner Units and any other series
of outstanding Preferred Limited Partner Units ranking on a parity upon
liquidation, dissolution, winding-up or termination of the Partnership with the
Series A Preferred Limited Partner Units, the holders of Series A Preferred
Limited Partner Units and such other series of Preferred Limited Partner Units
shall be paid ratably in proportion to the full distributable amount to which
holders of Series A Preferred Limited Partner Units and such other series of
Preferred Limited Partner Units are respectively entitled upon liquidation,
dissolution, winding-up or termination. The full preferential amount payable to
holders of the Series A Preferred Limited Partner Units and such other series of
outstanding Preferred Limited Partner Units upon any such liquidation,
dissolution, winding-up or termination will be paid in full before any
distribution or payment is made to the holders of General Partner Units, Common
Limited Partner Units and Preferred Limited Partner Units of any series ranking
junior to the Series A Preferred Limited Partner Units upon liquidation,
dissolution, winding-up or termination of the Partnership. The consolidation or
merger of the Partnership with or into any corporation, trust, partnership or
other entity (or of any corporation, trust, partnership or entity with or into
the Partnership) shall not be deemed to constitute a liquidation, dissolution,
winding-up or termination of the Partnership.
SECTION 5. Stated Maturity and Redemption. (a) The Series A Preferred
Limited Partner Units shall mature and the Stated Value thereof shall be due and
payable on December 31, 2092 (the "STATED MATURITY DATE") whether or not the
term of the Partnership is extended. On the Stated Maturity Date the holders of
4
<PAGE> 5
Series A Preferred Limited Partner Units shall be entitled to receive, upon
surrender of their certificates for the Series A Preferred Limited Partner
Units, out of funds legally available for distribution an amount in cash equal
to the Stated Value per Series A Preferred Limited Partner Unit, plus accrued
and unpaid distributions thereon to the date of payment (the "STATED MATURITY
PRICE") and no more.
(b) Except in the case of a Tax Event or Investment Company Act
Event (each as defined in Section 4(c) below), the Series A Preferred Limited
Partner Units may not be redeemed prior to ______________. On or after such date
the Partnership shall have the right to redeem the Series A Preferred Limited
Partner Units, in whole or in part, from time to time, upon notice as provided
in Section 4(d) below, at a redemption price equal to the Stated Value per
Series A Preferred Limited Partner Unit plus, subject to Section 5(g) hereof,
accumulated and unpaid distributions to the date of payment (the "SERIES A
REDEMPTION PRICE"), provided that the Partnership may not redeem fewer than all
the outstanding Series A Preferred Limited Partner Units unless all accumulated
and unpaid distributions have been paid on all Series A Preferred Limited
Partner Units for all quarterly distributions periods ending on or prior to the
date of redemption.
(c) If, at any time prior to _______________, a Tax Event or
Investment Company Event (each, a "SPECIAL EVENT") shall occur and be
continuing, the Partnership shall have the right to redeem the Series A
Preferred Limited Partner Units in whole but not in part at the Series A
Redemption Price, provided, however, that, if at the time there is available to
the Partnership or IAC Capital Trust the opportunity to eliminate, within a
90-day period, the Special Event by taking some ministerial action
(collectively, "MINISTERIAL ACTIONS"), such as filing a form or making an
election, or pursuing some other similar reasonable measure, which in the sole
judgment of the General Partner has or will cause no adverse effect on IAC
Capital Trust, the Partnership, Irvine Apartment Communities or the holders of
the Series A Preferred Securities and will involve no material cost, the
Partnership and IAC Capital Trust will pursue such measure in lieu of such
redemption, provided, further, that the Partnership shall have no right to
redeem the Series A Preferred Limited Partner Units while the Partnership or the
Regular Trustees (as defined in the Declaration of Trust) on behalf of IAC
Capital Trust are pursuing any such Ministerial Action. The Partnership shall
have the right, upon not less than 30 nor more than 60 days' notice, to redeem
the Series A Preferred Limited Partner Units in whole for cash at the Series A
Redemption Price as provided in Section 5(b) within 90 days following the
occurrence of such Special Event (subject to extension for the number of days
Ministerial Actions are pursued).
5
<PAGE> 6
"INVESTMENT COMPANY EVENT" means that the Partnership and the Regular
Trustees of IAC Capital Trust shall have received an opinion of nationally
recognized independent counsel experienced in practice under the Investment
Company Act of 1940, as amended (the "1940 ACT"), that as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency, or regulatory authority (a "CHANGE IN 1940 ACT LAW"), there is more than
an insubstantial risk that IAC Capital Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after ____________.
"TAX EVENT" means that the Partnership and the Regular Trustees of IAC
Capital Trust shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters that there is more than an
insubstantial risk that IAC Capital Trust does not qualify, or within 90 days of
the date of such opinion will no longer qualify, as a REIT under the Code and
Regulations for any reason whatsoever, provided that a Tax Event shall not
include the voluntary election by the Regular Trustees and/or the holders of the
Common Securities (as defined in the Declaration of Trust) of IAC Capital Trust
to terminate IAC Capital Trust's status as a real estate investment trust for
Federal income tax purposes.
(d) The Partnership will provide notice of any redemption of the
Series A Preferred Limited Partner Units to the holders of record thereof not
less than 30 nor more than 60 days prior to the date of redemption and in the
case of a mandatory repayment of the Series A Preferred Limited Partner Units on
the Stated Maturity Date will provide notice of such repayment not less than 30
nor more than 60 days prior to the Stated Maturity Date. Such notice shall be
provided by mailing notice of such redemption or mandatory repayment, first
class postage prepaid, to each holder of Series A Preferred Limited Partner
Units to be redeemed or to all holders in the event of mandatory repayment on
the Stated Maturity Date, at such holder's address as it appears on the transfer
records of the Partnership. Each such notice shall state, as appropriate, the
following:
(i) the redemption date or the Stated Maturity Date;
(ii) the Series A Redemption Price or the Stated Maturity
Price;
(iii) the place or places where certificates for the Series A
Preferred Limited Partner Units may be surrendered for payment;
(iv) the number of the Series A Preferred Limited Partner
Units to be redeemed from each holder;
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<PAGE> 7
(v) that payment of the Series A Redemption Price or the
Stated Maturity Price will be made upon presentation and surrender of
such Series A Preferred Limited Partner Units; and
(vi) that on or after the Stated Maturity Date or the
redemption date distributions on the Series A Preferred Limited Partner
Units to be redeemed or repaid will cease to accrue.
No failure to give or defect in a notice of redemption shall affect the validity
of the proceedings for redemption of any Series A Preferred Limited Partner
Units except as to the holder to which notice was defective or not given.
(e) If notice (which notice will be irrevocable) has been given as
provided above then, by 12:00 noon, New York City time, on the redemption date
or the Stated Maturity Date, as the case may be, the Partnership will deposit
irrevocably in trust for the benefit of the Series A Preferred Limited Partner
Units being redeemed or repaid funds sufficient to pay the applicable Series A
Redemption Price or Stated Maturity Price, as the case may be, and will give
irrevocable instructions and authority to pay such Series A Redemption Price or
Stated Maturity Price, as the case may be, to the holders of the Series A
Preferred Limited Partner Units entitled thereto. If notice shall have been
given as provided above and funds deposited as required, then upon the date of
such deposit, distributions will cease to accrue on the Series A Preferred
Limited Partner Units called for redemption or to be repaid, as the case may be,
such Series A Preferred Limited Partner Units will not longer be deemed to be
outstanding and all rights of holders of such Series A Preferred Limited Partner
Units so called for redemption or to be repaid, as the case may be, will cease,
except the right of the holders of such Series A Preferred Limited Partner Units
to receive the applicable Series A Redemption Price or Stated Maturity Price, as
the case may be, but without interest thereon. If the Stated Maturity Date or
any date fixed for redemption of Series A Preferred Limited Partner Units is not
a Business Day, then payment of the Series A Redemption Price or the Stated
Maturity Price, as the case may be, payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day falls in
the next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the
Stated Maturity Date or such date fixed for redemption. If payment of the Series
A Redemption Price or the Stated Maturity Price, as the case may be, in respect
of the Series A Preferred Limited Partner Units is improperly withheld or
refused and not paid by the Partnership, distributions on such Series A
Preferred Limited Partner Units will continue to accumulate from the original
redemption date or the Stated Maturity Date, as the case may be, to the date of
payment, in which case the actual payment date will
7
<PAGE> 8
be used for purposes of calculating the applicable Series A Redemption Price or
the Stated Maturity Price, as the case may be. If fewer than all of the Series A
Preferred Limited Partner Units are to be redeemed, the General Partner shall
select Series A Preferred Limited Partner Units to be redeemed by lot or pro
rata (as nearly as practicable without creating fractional units) or in some
other equitable manner determined by the General Partner in its sole discretion.
Upon presentation of any certificate for Series A Preferred Limited Partner Unit
redeemed in part only, the Partnership shall execute and deliver, at the expense
of the Partnership, a new certificate equal to the unredeemed portion of the
Certificate so presented.
(f) In the event of any redemption of Series A Preferred Limited
Partner Units in part, the Partnership shall not be required to (i) issue,
register the transfer of or exchange any Series A Preferred Limited Partner
Units during a period beginning at the opening of business 15 days before any
selection for redemption of Series A Preferred Limited Partner Units and ending
at the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Series A Preferred
Limited Partner Units to be redeemed and (ii) register the transfer of or
exchange any Series A Preferred Limited Partner Units so selected for
redemption, in whole or in part, except the unredeemed portion of any Series A
Preferred Limited Partner Units being redeemed in part.
(g) The holders of Series A Preferred Limited Partner Units at the
close of business on a distribution record date will be entitled to receive the
distribution payable with respect to such Series A Preferred Limited Partners
Units on the corresponding Series A Distribution Payment Date notwithstanding
the redemption thereof between such distribution record date and the
corresponding Series A Distribution Payment Date or the Partnership's default in
the payment of the distribution due. Except as provided above, the Partnership
will make no payment or allowance for unpaid distributions, regardless of
whether in arrears, on Series A Preferred Limited Partner Units called for
redemption.
(h) The Series A Preferred Limited Partner Units do not have the
benefit of any sinking fund.
(i) Notwithstanding any other provision of this Section 5, the
Series A Redemption Price (other than the portion thereof consisting of
accumulated and unpaid distributions) shall be payable solely out of the sales
proceeds of capital stock of the General Partner, which will be contributed by
the General Partner to the Partnership as an additional capital contribution in
accordance with Section 4.5.E of the Agreement, or the sales proceeds of Limited
Partner Interests and from no other source, it being understood that this
Section 5(i) shall not be
8
<PAGE> 9
applicable to payment of the Series A Liquidation Preference Amount or the
Stated Maturity Price.
SECTION 6. Voting Rights. (a) Except as provided in Section 6(b) hereof
or as otherwise required by law and the Agreement, holders of Series A Preferred
Limited Partner Units shall not be entitled to vote on any matter. In any matter
in which the Series A Preferred Limited Partner Units are entitled to vote, each
Series A Preferred Limited Partner Unit shall be entitled to one vote.
(b) If any proposed amendment or modification of the Agreement would
materially and adversely affect the powers, special rights, preferences or
privileges of the Series A Preferred Limited Partner Units, then the holders of
outstanding Series A Preferred Limited Partner Units shall be entitled to vote
on such amendment or modification as a class, and such amendment or modification
shall not be effective except with the approval of holders of at least 66 2/3%
of the outstanding Series A Preferred Limited Partner Units, voting as a single
class; provided, however, that any such amendment or modification that would
authorize, create or issue any additional series of Preferred Limited Partner
Units ranking on a parity with or junior to the Series A Preferred Limited
Partner Units as to distributions or upon liquidation, dissolution, winding-up
or termination of the Partnership shall not be deemed to materially and
adversely effect such powers, special rights, preferences or privileges; and,
provided, further, that prior to ________, any amendment or modification to the
definition of Tax Event shall be deemed to materially and adversely effect such
powers, special rights, preferences and privileges.
SECTION 7. Restrictions on Ownership and Transfer. The Series A
Preferred Limited Partner Units shall be owned and held solely by IAC Capital
Trust and, in addition to the restrictions on Transfer set forth in the
Agreement, the Series A Preferred Limited Partner Units may not be Transferred
in whole or in part, and no interest therein may be transferred, pledged,
assigned or otherwise disposed of, except to a successor of IAC Capital Trust
pursuant to and in accordance with the Declaration of Trust.
SECTION 8. Ranking. The Series A Preferred Limited Partner Units rank
with respect to distributions and rights upon liquidation, dissolution,
winding-up or termination of the Partnership (i) senior to the General Partner
Units and the Common Limited Partner Units and (ii) on a parity with all other
series of Preferred Limited Partner Units issued by the Partnership unless the
terms of such other series specifically provide that such other series ranks
junior to the Series A Preferred Limited Partner Units.
9
<PAGE> 10
SECTION 9. Miscellaneous. (a) The Series A Preferred Limited Partner
Units are not convertible into or exchangeable for any other property or
securities of the Partnership or the General Partner.
(b) The form of certificate for the Series A Preferred Limited
Partner Units is attached hereto as Annex 1.
(c) In the event the Partnership purchases outstanding Series A
Preferred Securities by tender, in the open market or by private agreement in
accordance with the terms thereof, the Partnership shall promptly deliver or
cause to be delivered to the Property Trustee (as defined in the Declaration of
Trust) the Series A Preferred Securities so purchased and the Property Trustee
as the registered owner of the Series A Preferred Limited Partner Units shall
promptly deliver to the Partnership for cancellation an equal number of Series A
Preferred Limited Partner Units and the Series A Preferred Limited Partner Units
so cancelled shall no longer be deemed outstanding. In such event, the
Partnership shall deliver to the Property Trustee a new certificate for the
Series A Preferred Limited Partner Units which remain outstanding.
IN WITNESS WHEREOF, the General Partner has executed this Designation
Instrument as of this ___ day of _______, 199_ and the Agreement is hereby
amended pursuant to Section 4.5.F thereof.
IRVINE APARTMENT COMMUNITIES, INC.,
in its capacity as general partner of Irvine
Apartment Communities, L.P.
By:_________________________________________
Name:
Title:
10
<PAGE> 11
ANNEX I
TO
EXHIBIT E
FORM OF SERIES A
PREFERRED LIMITED PARTNER UNIT CERTIFICATE
THIS CERTIFICATE AND THE SERIES A PREFERRED LIMITED PARTNER INTERESTS EVIDENCED
HEREBY ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT
COMMUNITIES, L.P. DATED _______, 199_, AS AMENDED (THE "PARTNERSHIP AGREEMENT")
AND THE DESIGNATION INSTRUMENT REFERRED TO BELOW, COPIES OF WHICH MAY BE
OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.
Number of
Series A Preferred
Certificate Number Limited Partner Units
------ ------
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that THE BANK OF NEW YORK, as Property Trustee under that certain
Amended and Restated Declaration of Trust dated as of ____, 199_ of IAC Capital
Trust is the registered owner of ________________________________.
FULLY PAID SERIES A PREFERRED LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Series A Preferred Limited
Partner Units are set forth in, and this certificate and the Series A Preferred
Limited Partner Units represented hereby are issued and shall be subject to the
terms and provisions of, the Partnership Agreement as the same may be amended,
modified, supplemented or restated from time to time, including the designation
of the terms of the Series A Preferred Limited Partner Units as set forth in
Exhibit H thereto.
11
<PAGE> 12
IN WITNESS WHEREOF, Irvine Apartment Communities, Inc., general partner, has
signed this Certificate this ___ day of __________, 199_.
IRVINE APARTMENT COMMUNITIES, INC.,
as general partner of
Irvine Apartment Communities, L.P.
By: ____________________________________
Name:
Title:
12
<PAGE> 1
EXHIBIT 4.5
------------------
FORM OF
AMENDED AND RESTATED DECLARATION OF TRUST
OF
IAC CAPITAL TRUST
Dated as of _________, 199_
------------------
<PAGE> 2
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions..............................................................2
Affiliate.........................................................................2
Appointment Event.................................................................2
Banking Institution...............................................................2
Beneficial Ownership..............................................................3
Book Entry Interest...............................................................3
Business Day......................................................................3
Business Trust Act................................................................3
Capital Securities................................................................3
Certificate.......................................................................3
Certificate of Terms..............................................................3
Certificate of Trust..............................................................3
Charitable Beneficiary............................................................3
Charitable Trust..................................................................4
Charitable Trustee................................................................4
Clearing Agency...................................................................4
Clearing Agency Participant.......................................................4
Closing Price.....................................................................4
Code..............................................................................4
Commission........................................................................4
Common Security...................................................................4
Common Security Certificate.......................................................5
Covered Person....................................................................5
Creditor..........................................................................5
Definitive Preferred Security Certificates........................................5
Delaware Trustee..................................................................5
Depositary Agreement..............................................................5
Distribution......................................................................5
DTC...............................................................................5
</TABLE>
- -------------------------
* This Table of Contents does not constitute part of the Amended and Restated
Declaration of Trust and should not have any bearing upon the
interpretation of any of its terms or provisions.
i
<PAGE> 3
<TABLE>
<S> <C>
Excess Preferred Securities.......................................................5
Exchange Act......................................................................5
Execution Date....................................................................5
Fiscal Year.......................................................................5
Global Certificate................................................................5
Holder............................................................................5
IAC, Inc..........................................................................6
Indemnified Person................................................................6
Investment Company................................................................6
Investment Company Act............................................................6
Legal Action......................................................................6
Liquidation Distribution..........................................................6
Majority in aggregate liquidation amount of the Securities........................6
Market Price......................................................................6
NASD..............................................................................6
NYSE..............................................................................6
Original Declaration..............................................................6
Outstanding...................................................................... 6
Ownership Limit...................................................................7
Partnership Agreement.............................................................7
Paying Agent......................................................................7
Person............................................................................7
Preferred L.P. Units..............................................................7
Preferred Security................................................................7
Preferred Security Certificate....................................................7
Preferred Security Distribution Payment Date......................................7
Preferred Security Indirect Owner.................................................7
Property Account..................................................................8
Property Trustee..................................................................8
Purported Beneficial Transferee...................................................8
Purported Record Transferee.......................................................8
Quorum............................................................................8
REIT..............................................................................8
Registration Statement............................................................8
Regular Trustee...................................................................8
Resignation Request...............................................................9
Responsible Officer...............................................................9
Rule 3a-7.........................................................................9
SEC...............................................................................9
Securities........................................................................9
Securities Act....................................................................9
66-2/3% in liquidation amount of the Securities...................................9
Special Event.....................................................................9
Special Regular Trustee...........................................................9
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Successor Delaware Trustee........................................................9
Successor Property Trustee.......................................................10
Successor Securities.............................................................10
Trading Day......................................................................10
Transfer.........................................................................10
Treasury Regulations.............................................................10
Trustee or Trustees .............................................................10
ARTICLE II
ORGANIZATION
SECTION 2.1 Name..................................................................11
SECTION 2.2 Office................................................................11
SECTION 2.3 Purpose...............................................................11
SECTION 2.4 Authority.............................................................11
SECTION 2.5 Title to Property of the Trust........................................12
SECTION 2.6 Powers and Duties of the Regular Trustees.............................12
SECTION 2.7 Prohibition of Actions by Trust and Trustees..........................15
SECTION 2.8 Powers and Duties of the Property Trustee.............................15
SECTION 2.9 Delaware Trustee......................................................18
SECTION 2.10 Certain Rights and Duties of the Property Trustee.....................18
SECTION 2.11 Registration Statement and Related Matters............................21
SECTION 2.12 Filing of Amendments to Certificate of Trust..........................22
SECTION 2.13 Execution of Documents by Regular Trustees............................22
SECTION 2.14 Trustees Not Responsible for Recitals
or Issuance of Securities........................................22
SECTION 2.15 Duration of Trust.....................................................22
ARTICLE III
SPONSOR
SECTION 3.1 Purchase of Common Securities by
IAC, Inc. and Management.........................................23
SECTION 3.2 Expenses..............................................................23
ARTICLE IV
TRUSTEES
SECTION 4.1 Number of Trustees; Qualifications....................................24
SECTION 4.2 Appointment, Removal and Resignation of Trustees......................27
SECTION 4.3 Vacancies Among Trustees..............................................30
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 4.4 Effect of Vacancies...................................................30
SECTION 4.5 Meetings..............................................................30
SECTION 4.6 Delegation of Power...................................................31
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 Distributions.........................................................31
ARTICLE VI
ISSUANCE OF SECURITIES
SECTION 6.1 General Provisions Regarding Securities...............................31
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 Termination of Trust..................................................35
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 General...............................................................36
SECTION 8.2 Restriction on Ownership and Transfers
of Preferred Securities; Exchange for
Excess Preferred Securities......................................36
SECTION 8.3 Excess Preferred Securities...........................................40
SECTION 8.4 Settlement............................................................43
SECTION 8.5 Remedies Not Limited..................................................43
SECTION 8.6 Ambiguity.............................................................43
SECTION 8.7 Severability..........................................................43
SECTION 8.8 Regular Trustees Discretion...........................................44
SECTION 8.9 Transfer of Certificates..............................................44
SECTION 8.10 Deemed Security Holders...............................................44
SECTION 8.11 Book Entry Interests..................................................45
SECTION 8.12 Notices to Holders of Certificates....................................46
SECTION 8.13 Appointment of Successor Clearing Agency..............................46
SECTION 8.14 Definitive Preferred Securities Certificates..........................46
SECTION 8.15 Mutilated, Destroyed, Lost or Stolen Certificates.....................46
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE IX
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 9.1 Exculpation...........................................................47
SECTION 9.2 Indemnification.......................................................48
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year...........................................................48
SECTION 10.2 Certain Accounting Matters............................................48
SECTION 10.3 Banking...............................................................49
SECTION 10.4 Withholding...........................................................49
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments............................................................50
SECTION 11.2 Meetings of the Holders of Securities;
Action by Written Consent........................................51
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of
Property Trustee and Delaware Trustee............................53
ARTICLE XIII
MERGER
SECTION 13.1 No Merger, Consolidation or Amalgamation of Trust.....................54
SECTION 13.2 Merger, Consolidation or Amalgamation of Trust........................54
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices...............................................................55
SECTION 14.2 [Reserved] ...........................................................57
SECTION 14.3 Governing Law.........................................................57
SECTION 14.4 Headings..............................................................57
SECTION 14.5 Partial Enforceability................................................57
SECTION 14.6 Counterparts..........................................................58
SECTION 14.7 Intention of the Parties..............................................58
SECTION 14.8 Successors and Assigns................................................58
SECTION 14.9 Personal Liability....................................................58
EXHIBIT A - Certificate of Trust of IAC Capital Trust...............................A-1
EXHIBIT B - Initial Purchasers of Common Securities.................................B-1
ANNEX I - Form of Common Securities Certificate.....................................1-1
ANNEX II - Form of Preferred Securities Certificate................................II-1
</TABLE>
vi
<PAGE> 8
FORM OF
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
IAC CAPITAL TRUST
________________, 199_
AMENDED AND RESTATED DECLARATION OF TRUST dated and effective as
of _____________, 199_ by the undersigned trustees (together with all other
Persons from time to time duly appointed and serving as trustees in accordance
with the provisions of this Declaration, the "Trustees"), Irvine Apartment
Communities, Inc., a Maryland corporation, as one of the trust sponsors ("IAC,
Inc."), Irvine Apartment Communities, L.P., a Delaware limited partnership
("IAC, L.P."), as the other trust sponsor, the sole general partner of which is
IAC, Inc., and by the holders, from time to time, of undivided beneficial
interests in the assets of the Trust, subject to the priority and payment terms
of each class or series of Securities (as defined herein) to be issued pursuant
to this Amended and Restated Declaration of Trust.
WHEREAS, IAC, Inc., IAC, L.P. and the Trustees entered into a
Declaration of Trust dated as of October 31, 1997 (the "Original Declaration")
in order to establish a statutory business trust (the "Trust") under the
Business Trust Act (as hereinafter defined);
WHEREAS, the Certificate of Trust of the Trust (the "Certificate
of Trust") was filed with the office of the Secretary of State of the State of
Delaware on October 31, 1997;
WHEREAS, the Trustees, IAC, L.P. and IAC, Inc. desire to continue
the Trust pursuant to the Business Trust Act for the purpose of (i) issuing and
selling Preferred Securities (as defined herein) representing, subject to the
priority and payment terms of each class or series of Securities, undivided
beneficial interests in the assets of the Trust for cash and investing the
proceeds thereof in Preferred L.P. Units (as hereinafter defined) of IAC, L.P.
to be held as assets of the Trust and (ii) issuing and selling Common Securities
(as defined herein) representing, subject to the priority and payment terms of
each class or series of Securities, undivided beneficial interests in the assets
of the Trust, to IAC, Inc. and to certain members of management of IAC, Inc. in
exchange for cash and investing the proceeds thereof in an interest bearing
account in, or certificate of deposit of, a Banking Institution (as defined
herein); and
NOW, THEREFORE, it being the intention of the parties hereto that
the Trust constitute a business trust under the Business Trust Act, that the
Original
1
<PAGE> 9
Declaration be amended and restated in its entirety as provided herein and that
this Amended and Restated Declaration of Trust, as amended, modified or
supplemented as provided herein, constitute the governing instrument of such
business trust, the Trustees declare that all assets referred to in clauses (i)
and (ii) of the previous Whereas clause purchased by the Trust will be held in
trust for the benefit of the Holders (as defined herein) of the Securities
representing undivided beneficial interests in the assets of the Trust, subject
to the priority and payment terms of each class or series of Securities, issued
hereunder, subject to the provisions of this Amended and Restated Declaration of
Trust, as amended, modified or supplemented as provided herein.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration" are
to this Amended and Restated Declaration of Trust (including Exhibits (the
"Exhibits") and Annexes hereto (the "Annexes") and the Certificate of Terms of
each series of Preferred Securities (the "Certificates of Terms")), as modified,
supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections
and Exhibits and Annexes are to Articles and Sections of and Exhibits and
Annexes to this Declaration unless otherwise specified; and
(e) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor rule thereunder.
"Appointment Event" means, with respect to a series of Preferred
Securities, any events defined as an Appointment Event in the Certificate of
Terms for such series of Preferred Securities.
"Banking Institution" means a banking institution whose long-term
unsecured indebtedness is rated by a "nationally recognized statistical rating
2
<PAGE> 10
organization," as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act, at least equal to (but in no event less than "A" or the
equivalent) the highest rating assigned to any outstanding series of Preferred
Securities by a nationally recognized statistical rating organization.
"Beneficial Ownership" means, with respect to any Person,
ownership of securities of a series of Preferred Securities equal to the sum of
(i) the securities of such series of Preferred Securities directly owned by such
Person, (ii) the number of securities of such series of Preferred Securities
indirectly owned by such Person, (if such Person is an "individual" as defined
in section 542(a)(2) of the Code) taking into account the constructive ownership
rules of section 544 of the Code, as modified by section 856(h)(1)(B) of the
Code, and (iii) the number of shares of Preferred Securities of such series
which such Person is deemed to beneficially own pursuant to Rule 13d-3 under the
Exchange Act or which is attributed to such Person pursuant to section 318 of
the Code, as modified by section 856(d)(5) of the Code; provided that no
security shall be included more than once in calculating Beneficial Ownership.
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
"Book Entry Interest" means a beneficial interest in a Global
Certificate registered in the name of a Clearing Agency or a nominee thereof,
ownership and transfers of which shall be maintained and made through book
entries by such Clearing Agency as described in Section 8.11.
"Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in New York, New York and Los Angeles,
California are authorized or required by applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time.
"Capital Securities" means the Common Securities and the
Preferred Securities of the Trust.
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Certificate of Terms" has the meaning set forth in Section
1.1(c).
"Certificate of Trust" has the meaning set forth in the second
Whereas clause above.
"Charitable Beneficiary" means the beneficiary of the Charitable
Trust as determined pursuant to Section 8.3(e).
3
<PAGE> 11
"Charitable Trust" means the applicable trust created pursuant to
Section 8.3(a).
"Charitable Trustee" means the trustee for the Charitable Trust,
and any successor trustee appointed by a majority of the Regular Trustees,
meeting the requirements of Sections 8.3(a)
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for a series of Preferred Securities and in whose name or in the name of a
nominee of that organization, shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Preferred
Securities of such series.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Price" means, on any date, the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and ask prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if the Preferred Securities of a
series are not listed or admitted to trading on the NYSE, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Preferred
Securities on such series are listed or admitted to trading or, if the Preferred
Securities of a series are not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotations
system that may then be in use, or if the Preferred Securities of a series are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Preferred Securities of such series selected by a majority of the Regular
Trustees.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor legislation as interpreted by any applicable
regulations or other administrative pronouncements as in effect from time to
time.
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 6.1(b).
4
<PAGE> 12
"Common Security Certificate" means a definitive certificate in
fully registered form representing a Common Security substantially in the form
of Annex I.
"Covered Person" means (i) any officer, director, shareholder,
partner, member, representative, employee or agent of the Trust or its
Affiliates, (ii) any officer, director, shareholder, partner, member,
representative, employee or agent of IAC, Inc. or its Affiliates and (iii) the
Holders from time to time of the Securities.
"Creditor" has the meaning specified in Section 3.2(d).
"Definitive Preferred Security Certificates" has the meaning set
forth in Section 8.11.
"Delaware Trustee" has the meaning set forth in Section
4.1(a)(3).
"Depositary Agreement" means, with respect to a series of
Preferred Securities, the agreement among the Trust, the Property Trustee and
DTC with respect to such series as the same may be amended or supplemented from
time to time.
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 5.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Excess Preferred Securities" means Excess Preferred Securities
that would, under Section 8.3(e), automatically be exchanged for Preferred
Securities [upon a transfer of an interest in the Charitable Trust in which such
Excess Preferred Securities are held.]
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time or any successor legislation.
"Execution Date" means the date of execution and delivery of this
Declaration.
"Fiscal Year" has the meaning specified in Section 10.1.
"Global Certificate" has the meaning set forth in Section 8.11.
"Holder" means a Person in whose name a Certificate representing
a Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act.
5
<PAGE> 13
"IAC, Inc." means Irvine Apartment Communities, Inc.
"Indemnified Person" means any Trustee, any Affiliate of any
Trustee, any officers, directors, shareholders, members, partners, employees,
representatives or agents of any Trustee, or any employee or agent of the Trust
or its Affiliates.
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time or any successor legislation.
"Legal Action" has the meaning specified in Section 2.6(h).
"Liquidation Distribution" has the meaning set forth in the
Certificate of Terms of each series of the Preferred Securities.
"Majority in aggregate liquidation amount of the Securities"
means, except as provided in the Certificate of Terms of each series of the
Preferred Securities, Holder(s) of outstanding Securities voting together as a
single class or, as the context may require, Holder(s) of outstanding Preferred
Securities or Common Securities voting separately as a class, or as the context
may require, Holder(s) of one or more outstanding series of Preferred Securities
voting together as a class, who are the record owners of the relevant class or
series of Securities whose aggregate liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) represents more than 50% of the liquidation amount of all
outstanding Securities of such class or series.
"Market Price" on any date means the Closing Price on the Trading
Day immediately preceding such date.
"NASD" means the National Association of Securities Dealers, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"Original Declaration" has the meaning set forth in the first
WHEREAS clause above.
"Outstanding" means the issued and outstanding shares of a series
of Preferred Securities of the Trust, provided that for purposes of the
application of the applicable Ownership Limit to any Person, the term
"Outstanding" shall be deemed to include the number of securities of the
applicable series of Preferred Securities that such Person alone could acquire
pursuant to any options or convertible securities.
6
<PAGE> 14
"Ownership Limit" means with respect to any series of Preferred
Securities, such percentage or percentages of the Outstanding securities of such
series of Preferred Securities as shall be established by a majority of the
Regular Trustees at the time they authorize such series of Preferred Securities
pursuant to Section 6.1(d) and set forth in the related Certificate of Terms for
such series.
"Partnership Agreement" means the Second Amended and Restated
Agreement of Limited Partnership of IAC, L.P. dated as of _________, 199_, as
such agreement may be amended, modified, supplemented or restated from time to
time. A copy of the Partnership Agreement shall be available for inspection at
the office of the secretary at the corporate headquarters of IAC, Inc.
"Paying Agent" has the meaning specified in Section 2.8(i).
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature; provided that for purposes of Article VIII, "Person" means
(a) an individual, corporation, partnership, estate, trust (including a trust
qualified under section 401(a) or 501(c)(17), of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes described
in section 642(c) of the Code, association, private foundation within the
meaning of 509(a) of the Code, joint stock company or other entity and (b) also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Exchange Act.
"Preferred L.P. Units" means the Preferred Limited Partner
Interests (as defined in the Partnership Agreement) in IAC, L.P.
"Preferred Security" has the meaning specified in Section 6.1(b).
"Preferred Security Certificate" means a definitive certificate
in fully registered form representing a Preferred Security substantially in the
form of Annex II or in the form attached as an exhibit to a Certificate of Terms
for a series of Preferred Securities.
"Preferred Security Distribution Payment Date" means, with
respect to a series of Preferred Securities, the date on which a Distribution on
such series is to be paid as provided in the Certificate of Terms for such
series.
"Preferred Security Indirect Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing
7
<PAGE> 15
Agency).
"Property Account" has the meaning specified in Section
2.8(c)(i).
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 4.1(c) and having the duties set forth for the
Property Trustee herein.
"Purported Beneficial Transferee" means, with respect to any
purported Transfer of Preferred Securities which results in Excess Preferred
Securities, the purported beneficial transferee for whom the Purported Record
Transferee would have acquired shares of Preferred Securities, if such Transfer
had not resulted in an exchange for such Excess Preferred Securities pursuant to
Section 8.2(c) (or in the event the provisions of Sections 8.2(a)(ii) and (iii)
are in effect, had been valid under Section 8.2(a)).
"Purported Record Transferee" means, with respect to any
purported Transfer of Preferred Securities which results in Excess Preferred
Securities, the record Holder of the Preferred Securities if such Transfer had
not resulted in an exchange for such Excess Preferred Securities pursuant to
Section 8.2(c) (or in the event the provisions of Sections 8.2(a)(ii) and (iii)
are in effect, had been valid under Section 8.2(a)).
"Quorum" means a majority of the Regular Trustees or, if there
are only two Regular Trustees, both such Regular Trustees and if there is only
one Regular Trustee, such Regular Trustee.
"REIT" means a Real Estate Investment Trust defined in section
856 of the Code.
"Registration Statement" means a Registration Statement relating
to the registration of the Trust's Preferred Securities under the Securities
Act.
"Regular Trustee" means any Trustee other than the Property
Trustee, the Delaware Trustee and a Special Regular Trustee who is an individual
who is an officer or director of IAC, Inc. A "majority of the Regular Trustees"
means, if there are three or more Regular Trustees, a majority, if there are
only two Regular Trustees, both such Regular Trustees, and if there is only one
Regular Trustee, such Regular Trustee. In addition, all references in this
Declaration to "Regular Trustees" shall mean "a majority of the Regular
Trustees."
"Resignation Request" has the meaning specified in Section
4.2(d).
8
<PAGE> 16
"Responsible Officer" means, with respect to the Property
Trustee, the chairman of the board of directors, the president, any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer of the Property Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Rule 3a-7" means Rule 3a-7 under the Investment Company Act or
any successor rule thereunder.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Common Securities, the Preferred
Securities and the Excess Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time or any successor legislation.
"66-2/3% in liquidation amount of the Securities" means, except
as provided in the penultimate paragraph of paragraph 6 of the Certificate of
Terms of each series of the Preferred Securities, Holder(s) of outstanding
Securities voting together as a single class or, as the context may require,
Holder(s) of outstanding Preferred Securities or Common Securities, voting
separately as a class, or as the context may require, Holder(s) of one or more
outstanding series of Preferred Securities voting together as a class, who are
the record owners of the relevant class or series of Securities whose
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) represents 66-2/3% or
more of the liquidation amount of all outstanding Securities of such class or
series.
"Special Event" means any event(s) defined as a Special Event in
a Certificate of Terms for a series of Preferred Securities.
"Special Regular Trustee" means a Regular Trustee appointed in
accordance with Section 4.2(a)(ii)(B) if the Certificate of Terms of a series of
Preferred Securities provides for the appointment of a Special Regular Trustee
upon the occurrence of certain events.
"Successor Delaware Trustee" has the meaning specified in Section
4.2(b)(ii).
"Successor Property Trustee" means a successor Trustee possessing
the
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qualifications to act as Property Trustee under Section 4.1(c).
"Successor Securities" has the meaning specified in Section 13.2.
"Trading Day" means a day on which the principal national
securities exchange or interdealer quotation system on which the Preferred
Securities of a series are listed or admitted to trading is open for the
transaction of business or, if the Preferred Securities of such series are not
listed or admitted to trading on any national securities exchange or interdealer
quotation system, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Transfer" means with respect to the Preferred Securities, any
sale, transfer, gift, assignment, devise or other disposition of Preferred
Securities (including (i) the granting of any option (including, but not limited
to, an option to acquire an option or any series of such options) or entering
into any agreement for the sale, transfer or other disposition of Preferred
Securities or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Preferred Securities),
whether voluntary or involuntary, whether of record or Beneficial Ownership, and
whether by operation of law or otherwise (including, but not limited to, any
transfer of an interest in other entities which results in a change in the
Beneficial Ownership of Preferred Securities). The terms "Transfers" and
"Transferred" shall have correlative meaning.
"Treasury Regulations" means the income tax regulations including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust continued by this Declaration is named "IAC Capital
Trust" as
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such name may be modified from time to time by the Regular Trustees following
written notice to the Holders of Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by the
Regular Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o Irvine
Apartment Communities, Inc., 550 Newport Center Drive, Suite 300, Newport Beach,
California 92660. Upon ten days' written notice to the Holders, the Regular
Trustees may change the location of the Trust's principal office. The name of
the registered agent and office of the Trust in the State of Delaware is The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711, Attention: Corporate Trust Administration. At any time, the Regular
Trustees may designate another registered agent and/or registered office. The
books and records of the Trust will be maintained at the principal office of the
Trust and will be open for inspection by a Holder of Preferred Securities or its
representatives for any purpose reasonably related to its interest in the Trust
during normal business hours.
SECTION 2.3 Purpose.
The exclusive purposes and functions of the Trust are: (a) to
issue and sell the Preferred Securities in one or more series for cash (and in
accordance with this Declaration to issue Excess Preferred Securities); (b) to
issue and sell the Common Securities for cash and invest the proceeds of such
sale in an interest bearing account in, or certificate of deposit of, a bank;
(c) to invest the proceeds of the sale of each series of Preferred Securities in
a series of Preferred L.P. Units of IAC, L.P. with economic terms substantially
identical to the series of Preferred Securities; (d) to enter into such
agreements and arrangements as may be necessary in connection with the sale of
Preferred Securities and to take all action, and exercise such discretion, as
may be necessary or desirable in connection therewith and to file such
registration statements or make such other filings under the Securities Act, the
Exchange Act or state securities or "Blue Sky" laws and to file with any stock
exchange or interdealer quotation system any listing applications, as may be
necessary or desirable in connection therewith and the issuance of the Preferred
Securities; and (e) except as otherwise limited herein, to engage in only those
other activities necessary, convenient or incidental thereto.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. Any
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Property Trustee in accordance with its powers
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shall constitute the act of and serve to bind the Trust. In dealing with the
Trustees acting on behalf of the Trust, no Person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
SECTION 2.5 Title to Property of the Trust.
Except as provided in Section 2.8 with respect to the Preferred
L.P. Units and the Property Account or unless otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust subject to the priority and payment terms of each class or series of
Securities.
SECTION 2.6 Powers and Duties of the Regular Trustees.
A majority of the Regular Trustees shall have the exclusive
power, authority and duty to cause the Trust, and shall cause the Trust, to
engage in the following activities:
(a) to issue and sell Preferred Securities and Common Securities
from time to time and to issue Excess Preferred Securities, in each case in
accordance with this Declaration including establishing the terms of each series
of Preferred Securities by amending the Declaration as set forth in Section
6.1(d); provided however, that there shall be no interests in the Trust other
than the Securities;
(b) in connection with the issuance of the Preferred Securities,
at the direction of IAC, Inc., to effect or cause to be effected the filings,
and to execute or cause to be executed, the documents, set forth in Section 2.11
and to execute, deliver and perform on behalf of the Trust each Depositary
Agreement;
(c) to invest the proceeds of the sale of each series of
Preferred Securities in a series of Preferred L.P. Units of IAC, L.P. with
economic terms substantially identical to the series of Preferred Securities so
issued and sold; provided, however, that the Regular Trustees shall cause legal
title to all of the Preferred L.P. Units to be vested in, and the Preferred L.P.
Units to be held of record in the name of, the Property Trustee for the benefit
of the Holders of the Preferred Securities;
(d) to invest the proceeds from the sale of the Common Securities
in an interest bearing account in, or certificate of deposit of, a Banking
Institution;
(e) to cause the Trust to enter into underwriting or purchase
agreements and such other agreements and arrangements as may be necessary or
desirable in connection with the sale of any series of Preferred Securities, and
to take all action,
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and exercise all discretion, as may be necessary or desirable in connection with
the consummation thereof;
(f) to give prompt written notice to the Property Trustee, the
Holders of the Common Securities and the Holders of any applicable series of
Preferred Securities of the occurrence of a Special Event;
(g) to declare Distributions on the Securities out of funds
legally available therefore at such times and in such amounts in accordance with
the terms of the Securities; and to establish a record date with respect to all
actions to be taken hereunder that require a record date be established,
including Distributions, voting rights and redemptions, and to issue relevant
notices to Holders of the Preferred Securities and Common Securities as to such
actions and applicable record dates;
(h) to redeem Preferred Securities in accordance with the
provisions of this Declaration and to take all actions, perform such duties and
make such determinations as may be necessary or incidental to the foregoing;
(i) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 2.8(e), the Property Trustee
has the exclusive power to bring such Legal Action;
(j) to employ or otherwise engage employees and agents (who may
be designated as officers with titles) and managers, contractors, advisors and
consultants and pay reasonable compensation for such services;
(k) to incur expenses which are necessary, convenient or
incidental to carrying out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities; the Regular Trustees hereby initially
appointing the Property Trustee for such purposes;
(m) to take all actions, perform such duties and make such
determinations as may be required or permitted of the Regular Trustees pursuant
to this Declaration (including, without limitation, those specified in Articles
VI and VIII hereof and any ministerial actions taken in connection with a
Special Event) and the terms of the Securities;
(n) to take all action which may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited
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liability of the Holders of the Securities or to enable the Trust to effect the
purposes for which the Trust has been created;
(o) to take all action, not inconsistent with this Declaration or
with applicable law, which the Regular Trustees determine in their sole
discretion to be reasonable and necessary or desirable in carrying out the
activities of the Trust as set out in this Section 2.6, in order that:
(i) the Trust will not be deemed to be an Investment
Company required to be registered under the Investment Company
Act; and
(ii) the Trust will be treated as a REIT for United States
federal income tax purposes;
provided that such action does not materially and adversely affect the interests
of Holders; provided further that Section 2.6(n)(ii) shall be effective so long
as the Trust has elected (or reelected) REIT status for United States federal
income tax purposes and not terminated such election (or reelection) under
Section 11.1(c) hereof;
(p) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of
the Trust.
(q) subject to the requirements of Rule 3a-7 to appoint one or
more Paying Agents in addition to the Property Trustee;
(r) to determine on which stock exchange or interdealer quotation
system the Preferred Securities should be listed;
(s) to prepare or cause to be prepared, execute and file or cause
to be filed such reports and other information on behalf of the Trust with the
Commission and any stock exchange or interdealer quotation system on which the
Preferred Securities may be listed as may be required under the Exchange Act and
the rules and regulations of the Commission thereunder or under the rules of any
such stock exchange or interdealer quotation system; and
(t) to execute all documents or instruments, perform all duties
and powers and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
The Regular Trustees must exercise the powers set forth in this
Section 2.6 in a manner which is consistent with the purposes and functions of
the Trust set out in Section 2.3 and the Regular Trustees shall not take any
action which is inconsistent
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with the purposes and functions of the Trust set forth in Section 2.3.
Subject to this Section 2.6, the Regular Trustees shall have none
of the powers nor any of the authority of the Property Trustee set forth in
Section 2.8.
SECTION 2.7 Prohibition of Actions by Trust and Trustees.
The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Property Trustee) shall not:
(a) invest any amounts received by the Trust from holding the
Preferred L.P. Units purchased by the Trust but shall promptly deposit such
funds in the Property Account;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or investments, other than investments
represented by the Preferred L.P. Units and in connection with the investment of
the proceeds of the sale of the Common Securities;
(e) issue any securities or other evidences of beneficial
ownership of, or beneficial interests in, the Trust other than the Securities;
or
(f) incur any indebtedness for borrowed money.
SECTION 2.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Preferred L.P. Units shall be owned by
and held of record in the name of the Property Trustee in trust for the benefit
of the Holders of the Securities. The right, title and interest of the Property
Trustee to the Preferred L.P. Units shall vest automatically in each Person who
may hereafter be appointed as Property Trustee in accordance with Article IV.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Preferred L.P. Units to the Regular Trustees or, if the Property
Trustee does not also act as the Delaware Trustee, the Delaware Trustee.
(c) The Property Trustee shall:
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(i) establish and maintain one or more segregated
non-interest bearing bank accounts (collectively, the "Property
Account") in the name of and under the exclusive control of the
Property Trustee on behalf of the Holders of the Preferred
Securities and, on the receipt of payments of funds made in
respect of the Preferred L.P. Units purchased by the Trust,
deposit all such payments into the Property Account. Funds in the
Property Account shall be held uninvested, and without liability
for interest thereon, until disbursed in accordance with this
Declaration. The Property Account shall be an account which is
maintained with a Banking Institution;
(ii) if, as and when the Regular Trustees declare a
Distribution with respect to a series of Preferred Securities,
the Property Trustee shall, subject to the priority and payment
terms of each class or series of Securities but without any
further act of the Property Trustee or the Regular Trustees, on
the applicable Preferred Security Distribution Date pay, in
accordance with Section 5.1, such Distribution to the Holders of
such series of Preferred Securities out of funds deposited in the
Property Account and the terms of such series of Preferred
Securities;
(iii) if the Preferred Securities of a series are called
for redemption or are to be repaid upon their stated maturity or
upon liquidation, dissolution or winding up of the Trust, the
Property Trustee shall, subject to the priority and payment terms
of each class or series of Securities but without any further act
of the Property Trustee or the Regular Trustees, on the
applicable redemption or repayment date pay to the Holders of
such series of Preferred Securities out of funds deposited in the
Property Account the amount specified in the terms of such series
of Preferred Securities to be paid on such date in accordance
with Section 5.1 and the terms of such series of Preferred
Securities, any such redemption payment to be made solely out of
funds deposited in the Property Account from the redemption of
Preferred L.P. Units.
(iv) engage in such ministerial activities as shall be
necessary or appropriate to effect promptly the redemption of any
series of the Preferred Securities;
(v) upon notice of a Distribution issued by the Regular
Trustees in accordance with the terms of the Preferred Securities
of a series, engage in such ministerial activities as shall be
necessary or appropriate to effect promptly the Distribution
pursuant to the terms of such series of Preferred Securities to
Holders thereof; and
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(vi) have the legal power to exercise all of the rights,
powers and privileges of a Holder of the Preferred L.P. Units.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Preferred Securities set forth in any Certificate of Terms.
(e) The Property Trustee shall take any Legal Action which arises
out of or in connection with the holding of Preferred L.P. Units or the Property
Trustee's duties and obligations under this Declaration or the Business Trust
Act.
(f) All moneys deposited in the Property Account, and all
Preferred L.P. Units held by the Property Trustee for the benefit of the Holders
of the Securities, will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of, or for the benefit of, the Property
Trustee or its agents or their creditors.
(g) The Property Trustee shall, within 90 days after the
occurrence of any event which could lead to Legal Action as set forth in (e)
above, transmit by mail, first class postage prepaid, to the Holders of the
Securities, as their names and addresses appear upon the register, notice of any
such event known to the Property Trustee, unless such event which could lead to
Legal Action has been remedied before the giving of such notice; provided, that,
the Property Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers, of the Property Trustee in good faith
determine that the withholding of such notice is in the interests of the Holders
of the Securities. The Property Trustee shall not be deemed to have knowledge of
any such event, except (i) a default in the payment of a Distribution declared
by the Regular Trustees on a series of Preferred Securities, (ii) a default in
the payment of a Distribution declared by IAC, L.P. on the Preferred L.P. Units,
or (iii) any event as to which the Property Trustee shall have received written
notice or a Responsible Officer charged with the administration of this
Declaration shall have obtained written notice.
(h) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the
proceeds thereof distributed to the Holders of Securities
pursuant to the priority and payment terms of each class or
series of Securities and this Declaration; or
(ii) a Successor Property Trustee has been appointed and
accepted that appointment in accordance with Article IV.
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(i) The Property Trustee shall act as paying agent in respect of
the Common Securities and, if the Preferred Securities are not in book entry
only form, the Preferred Securities (and, if applicable, Excess Preferred
Securities) and, subject to Section 2.6(p), may authorize one or more Persons
(each, a "Paying Agent") to pay Distributions, redemption payments or
liquidation payments on behalf of the Trust with respect to the Preferred
Securities and any Excess Preferred Securities. Any Paying Agent may be removed
by the Property Trustee, after consultation with the Regular Trustees, at any
time and a successor Paying Agent or additional Paying Agents may be appointed
at any time by the Property Trustee, subject to Section 2.6(p).
(j) Subject to this Section 2.8, the Property Trustee shall have
none of the powers or the authority of the Regular Trustees set forth in Section
2.6.
(k) The Property Trustee shall exercise the powers, duties and
rights set forth in this Section 2.8 and Section 2.10 in a manner which is
consistent with the purposes and functions of the Trust set out in Section 2.3,
and the Property Trustee shall not take any action which is inconsistent with
the purposes and functions of the Trust set forth in Section 2.3.
SECTION 2.9 Delaware Trustee.
Notwithstanding any other provision of this Declaration other
than Section 4.1(a)(3), the Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Regular Trustees and the Property Trustee described in
this Declaration. Except as set forth in Section 4.1(a)(3), the Delaware Trustee
shall be a Trustee for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Business Trust Act. No implied covenants or
obligations shall be read into this Declaration against the Delaware Trustee.
SECTION 2.10 Certain Rights and Duties of the Property Trustee.
(a) The Property Trustee undertakes to perform only such duties
as are specifically set forth in this Declaration and shall exercise the same
degree of care as a prudent individual would exercise under the circumstances in
the conduct of his or her own affairs, and no implied covenants shall be read
into this Declaration against the Property Trustee.
(b) If the Property Trustee fails to take Legal Action as
provided in Section 2.8(e) hereof, a Majority in aggregate liquidation amount of
the Preferred Securities may direct the Property Trustee to take such Legal
Action.
(c) No provision of this Declaration shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to
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act or its own willful misconduct, except that:
(i) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this
Declaration, and the Property Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Declaration, and no implied
covenants or obligations shall be read into this Declaration
against the Property Trustee;
(ii) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Property Trustee,
the Property Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Declaration;
(iii) the Property Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of
the Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts;
(iv) the Property Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders as provided in
Section 2.10(b) hereof, or exercising any trust or power
conferred upon the Property Trustee under this Declaration; and
(v) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers, if
it shall have reasonable ground for believing that the repayment
of such funds or liability is not reasonably assured to it under
the terms of this Declaration or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Subject to the provisions of Section 2.10(a) and (c):
(i) whenever in the administration of this Declaration,
the Property Trustee shall deem it desirable that a matter be
proved or established prior to taking, suffering or omitting any
action hereunder, the Property Trustee (unless other evidence is
herein specifically
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prescribed) may, in the absence of bad faith on its part and, if
the Trust is excluded from the definition of Investment Company
solely by means of Rule 3a-7, subject to the requirements of Rule
3a-7, request and rely upon a certificate, signed by a majority
of the Regular Trustees or by an authorized officer of IAC, Inc.,
as the case may be;
(ii) The Property Trustee (A) may consult with counsel
(which may be counsel to IAC, Inc. or any of its Affiliates and
may include any of its employees) selected by it in good faith
and with due care and the written advice or opinion of such
counsel with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon and in accordance with such advice and opinion and (B)
shall have the right at any time to seek instructions concerning
the administration of this Declaration from any court of
competent jurisdiction;
(iii) The Property Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the Property
Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed by it in good
faith and with due care;
(iv) The Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Declaration at the request or direction of any Holders, unless
such Holders shall have offered to the Property Trustee
reasonable security and indemnity against the costs, expenses
(including attorneys' fees and expenses) and liabilities that
might be incurred by it in complying with such request or
direction; and
(v) Any action taken by the Property Trustee or its agents
hereunder shall bind the Holders of the Securities and the
signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action; and no third
party shall be required to inquire as to the authority of the
Property Trustee to so act, or as to its compliance with any of
the terms and provisions of this Declaration, both of which shall
be conclusively evidenced by the Property Trustee's or its
agent's taking such action.
SECTION 2.11 Registration Statement and Related Matters.
In accordance with the Original Declaration, IAC, L.P., IAC, Inc.
and the Trustees have authorized and directed, and hereby confirm the
authorization of,
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IAC, Inc., as one of the sponsors of the Trust, (i) to file with the Commission
and execute, in each case on behalf of the Trust, (a) registration statements on
Form S-11 or other appropriate form, including any amendments to such
registration statements, relating to the registration under the Securities Act
of any Preferred Securities of the Trust and (b) registration statements on Form
8-A or other appropriate form (including all amendments thereto) relating to the
registration of any Preferred Securities of the Trust under Section 12(b) of the
Exchange Act; (ii) to file with any stock exchange or interdealer quotation
system and execute on behalf of the Trust listing applications and all other
applications, statements, certificates, agreements and other instruments as
shall be necessary or desirable to cause any Preferred Securities to be listed
on a stock exchange or interdealer quotation system; (iii) to file and execute
on behalf of the Trust such applications, reports, surety bonds, irrevocable
consents, appointments of attorney for service of process and other papers and
documents as shall be necessary or desirable to register any Securities under
the securities or "Blue Sky" laws of such jurisdictions as IAC, Inc. on behalf
of the Trust, may deem necessary or desirable, (iv) to prepare and execute
letters or documents to or instruments with, the Depository Trust Company
relating to any series of Preferred Securities or Excess Preferred Securities,
(v) to execute on behalf of the Trust such underwriting or purchase agreements
as may be necessary or desirable in connection with sale of any Securities to
any initial purchasers thereof and (vi) to incur (or cause IAC, L.P. to incur)
expenses, execute documents and to take any and other actions as shall be
necessary or desirable in offering any series of Preferred Securities. In the
event that any filing referred to in clauses (i)-(iii) above is required by the
rules and regulations of the Commission, any stock exchange or interdealer
quotation system or state securities or blue sky laws, to be executed on behalf
of the Trust by the Trustees, the Regular Trustees, in their capacities as
Trustees of the Trust, are hereby authorized and directed to join in any such
filing and to execute on behalf of the Trust any and all of the foregoing, it
being understood that the Property Trustee and the Delaware Trustee, in their
capacities as Trustees of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, any stock exchange or interdealer
quotation system or state securities or blue sky laws. In connection with all of
the foregoing, IAC, Inc. and each Trustee, solely in its capacity as Trustee of
the Trust, have constituted and appointed, and hereby confirm the appointment
of, James E. Mead, Shawn Howie, Jeffrey Small and James M. Lurie and each of
them, as his, her or its, as the case may be, true and lawful attorneys-in-fact,
and agents, with full power of substitution and resubstitution, for IAC, Inc. or
such Trustee or in IAC, Inc.'s or such Trustee's name, place and stead, in any
and all capacities, to sign any and all documents referred to in clauses (i) -
(vi) above and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as IAC, Inc. or such Trustee might or could
do in person, hereby ratifying and confirming all that said
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attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, shall do or cause to be done by virtue hereof.
SECTION 2.12 Filing of Amendments to Certificate of Trust.
The Certificate of Trust as filed with the Secretary of State of
the State of Delaware on October 31, 1997 is attached hereto as Exhibit A. On or
after the date of execution of this Declaration, the Trustees shall cause the
filing with the Secretary of State of the State of Delaware of such amendments
to the Certificate of Trust as the Regular Trustees shall deem necessary or
desirable.
SECTION 2.13 Execution of Documents by Regular Trustees.
Unless otherwise determined by the Regular Trustees and except as
otherwise required by the Business Trust Act with respect to the Certificate of
Trust or otherwise, a majority of the Regular Trustees are authorized to execute
and deliver on behalf of the Trust any documents which the Regular Trustees have
the power and authority to execute or deliver pursuant to this Declaration.
SECTION 2.14 Trustees Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities
shall be taken as the statements of IAC, Inc. and IAC, L.P., as sponsors of the
Trust, and the Trustees do not assume any responsibility for their correctness.
The Trustees make no representations as to the value or condition of the
property of the Trust or any part thereof. The Trustees make no representations
as to the validity or sufficiency of this Declaration or the Securities.
SECTION 2.15 Duration of Trust.
The Trust, absent termination pursuant to the provisions of
Article VII hereof, shall have existence until December 31, 2092.
ARTICLE III
SPONSOR
SECTION 3.1 Purchase of Common Securities by IAC, Inc. and Management.
On the Execution Date, IAC, Inc. and certain members of
management of IAC, Inc. set forth in Exhibit B hereto will purchase the number
of Common Securities issued by the Trust as are set forth opposite the name of
such Person in Exhibit B hereto, at $25.00 per Common Security, for an aggregate
purchase price of
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$5,000.00. The Regular Trustees are hereby authorized to issue and sell
additional Common Securities to IAC, Inc. or members of management of IAC, Inc.
at such times and for such consideration as the Regular Trustees in their sole
discretion may deem advisable.
SECTION 3.2 Expenses.
(a) IAC, L.P. shall be responsible for and shall pay for all
debts and obligations (other than with respect to the Securities) and all costs
and expenses of the Trust (including, but not limited to, costs and expenses
relating to the organization, formation and initial capitalization of the Trust,
all costs and expenses of the Trust being a public company, including costs of
filings with the Commission, reports and other Distributions to the Holders of
Preferred Securities issued by the Trust, Commission and NASD fees payable with
respect to any Registration Statement of the Trust, all costs and expenses,
including any stock exchange or interdealer quotation system listing fees,
relating to the issuance of Preferred Securities pursuant to such Registration
Statement and this Declaration, the issuance of the Preferred Securities to
initial purchasers thereof, the fees and expenses (including reasonable counsel
fees and expenses) of the Trustees (including any amounts payable under Article
IX), the costs and expenses relating to the operation of the Trust, including
without limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses and
costs and expenses incurred in connection with the disposition of Trust assets).
(b) IAC, L.P. will pay any and all United States federal, state,
local, and foreign taxes, and other assessments of a similar nature (other than
withholding taxes imposed on Trust Distributions to Holders of Trust
Securities), and all liabilities, costs and expenses with respect to such taxes
or assessments of the Trust.
(c) IAC, L.P. will be primarily liable for any indemnification
obligations arising with respect to the Declaration.
(d) IAC, L.P.'s obligations under this Section 3.2 shall be for
the benefit of, and shall be enforceable by, any Person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice hereof. Any such Creditor may enforce IAC,
L.P.'s obligations under this Section 3.2 directly against IAC, L.P., and IAC,
Inc. and IAC, L.P. irrevocably waive any right or remedy to require that any
such Creditor take any action against the Trust or any other Person before
proceeding against IAC, L.P. IAC, Inc. and IAC, L.P. agree to execute such
additional agreements as may be necessary or desirable in order to give full
effect to the provisions of this Section 3.2.
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ARTICLE IV
TRUSTEES
SECTION 4.1 Number of Trustees; Qualifications.
(a) The number of Trustees initially shall be three (3). At any
time (i) before the issuance of Securities, IAC, Inc. may, by written
instrument, increase or decrease the number of, and appoint, remove and replace
the, Trustees, and (ii) after the issuance of Securities and except as provided
in clause (5) below and Section 4.2(a)(ii)(B) with respect to the Special
Regular Trustee, the number of Trustees may be increased or decreased solely by,
and Trustees may be appointed, removed or replaced solely by, vote of Holders of
Common Securities representing a Majority in liquidation amount of the Common
Securities voting as a class; provided that in any case:
(1) the number of Trustees shall be at least three (3)
unless the Trustee that acts as the Property Trustee also acts as
the Delaware Trustee, in which cases the number of Trustees shall
be at least two (2);
(2) unless a Special Regular Trustee has been appointed
(which appointment shall not impair the right of the Holders of
Common Securities to increase or decrease the number of, or to
appoint, remove or replace, Trustees (other than the Special
Regular Trustee) as provided above), one or more of the Trustees
shall at all times be an officer of IAC, Inc.;
(3) if required by the Business Trust Act, one Trustee
(the "Delaware Trustee") shall be either a natural person who is
a resident of the State of Delaware or, if not a natural person,
an entity which has its principal place of business in the State
of Delaware and otherwise is permitted to act as a Trustee
hereunder under the laws of the State of Delaware, except that if
the Property Trustee has its principal place of business in the
State of Delaware and otherwise is permitted to act as a Trustee
hereunder under the laws of the State of Delaware, then the
Property Trustee shall also be the Delaware Trustee and Section
2.9 shall have no application;
(4) there shall at all times be a Property Trustee
hereunder which shall satisfy the requirements of Section 4.1(c);
and
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(5) the number of Trustees shall be increased
automatically by one (1) if an Appointment Event has occurred and
is continuing and the Holders of a Majority in aggregate
liquidation amount of the applicable series of Preferred
Securities entitled to vote appoint a Special Regular Trustee in
accordance with and subject to Section 4.2(a)(ii)(B) and the
terms of such series of Preferred Securities.
Each Trustee shall be either a natural person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.
(b) The initial Regular Trustee shall be:
James E. Mead
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
(c) There shall at all times be one Trustee which shall act as
Property Trustee. In order to act as Property Trustee hereunder, such Trustee
shall:
(i) not be an Affiliate of IAC, Inc., IAC, L.P., The
Irvine Company or Donald Bren;
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, and subject
to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred
to above, then for the purposes of this Section 4.1(c)(ii), the
combined capital and surplus of such corporation shall be deemed
to be its combined capital and surplus as set forth in its most
recent report of condition so published; and
(iii) if the Trust is excluded from the definition of an
Investment Company solely by reason of Rule 3a-7 and to the
extent Rule 3a-7 requires a trustee having certain qualifications
to hold title to the "eligible assets" (as defined in Rule 3a-7)
of the Trust, the Property
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Trustee shall possess those qualifications.
If at any time the Property Trustee shall cease to satisfy the
requirements of clauses (i)-(iii) above, the Property Trustee shall immediately
resign in the manner and with the effect set out in Section 4.2(d).
The initial Trustee which shall serve as the Property Trustee is
The Bank of New York, whose address is as set forth in Section 14.1(b).
(d) The initial Trustee which shall serve as the Delaware Trustee
is The Bank of New York (Delaware), whose address is as set forth in Section
14.1(c).
(e) Any action taken by (i) Holders of Common Securities pursuant
to this Article IV or (ii) Holders of Preferred Securities pursuant to this
Article IV to appoint or remove a Special Regular Trustee upon the occurrence of
an Appointment Event, shall be taken at a meeting of Holders of Common
Securities or Preferred Securities, as the case may be, convened for such
purpose or by written consent as provided in Section 11.2.
(f) No amendment may be made to this Section 4.1 which would
change any rights with respect to the number, existence or appointment and
removal of Trustees (other than any Special Regular Trustee), except with the
consent of each Holder of Common Securities. In addition, no amendment or
modification may be made to Section 4.1(c)(iii).
(g) No amendment may be made to this Section 4.1 or Section
4.2(a)(ii)(B), which would change the rights of Holders of a series of Preferred
Securities to appoint, remove or replace a Special Regular Trustee upon the
occurrence of an Appointment Event applicable to such series except with the
consent of each Holder of Preferred Securities of such series.
(h) Any corporation into which the Delaware Trustee or the
Property Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Delaware Trustee or the Property Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Delaware Trustee or the Property Trustee, shall be the successor of the Delaware
Trustee or the Property Trustee hereunder, as applicable, provided that such
corporation shall be qualified under the provisions of this Section 4.1, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding.
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SECTION 4.2 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 4.2(b), Trustees may be appointed, removed
or replaced without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by IAC, Inc.; and
(ii) after the issuance of any Securities,
(A) other than with respect to a Special Regular
Trustee, by vote of the Holders of a Majority in liquidation
amount of the Common Securities voting as a class; and
(B) subject to the next two sentences of this
clause (B), if an Appointment Event has occurred and is
continuing with respect to one or more series of Preferred
Securities, one (1) additional Regular Trustee for all such
series, who shall have the same rights, powers and privileges
under this Declaration as the Regular Trustees, (the "Special
Regular Trustee"), may be appointed, who need not be an employee
or officer of, or otherwise an Affiliate of IAC, Inc., by vote of
the Holders of a Majority in aggregate liquidation amount of the
series of Preferred Securities so affected (voting separately as
a class with all other series of Preferred Securities upon which
like voting have been conferred and are exercisable) and such
Special Regular Trustee may only be removed (otherwise than by
the operation of Section 4.2(c)), by vote of the Holders of a
Majority in liquidation amount of each series of Preferred
Securities upon which like voting rights have been conferred and
are exercisable voting as a single class. Only one Special
Regular Trustee shall be appointed with respect to all series of
Preferred Securities upon whom the right to appoint a Special
Regular Trustee upon the occurrence of an Appointment Event shall
have been conferred pursuant to the Certificate of Terms for such
series notwithstanding that such right with respect to a series
of Preferred Securities becomes exercisable subsequent to a
Special Regular Trustee having been appointed by any other series
of Preferred Securities. In such event, the Special
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Regular Trustee so appointed shall, without any further act or
vote by the Holders of any series of Preferred Securities, be
deemed to have been appointed to act in such capacity for all
series of Preferred Securities upon which like voting rights have
been conferred and are exercisable.
(b) (i) The Trustee that acts as Property Trustee shall
not be removed in accordance with Section
4.2(a) until a Successor Property Trustee
possessing the qualifications to act as
Property Trustee under Section 4.1(c) has been
appointed and has accepted such appointment by
written instrument executed by such Successor
Property Trustee and delivered to the Regular
Trustees, IAC, Inc. and the Property Trustee
being removed; and
(ii) the Trustee that acts as Delaware Trustee shall
not be removed in accordance with Section
4.2(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under
Section 4.1(a)(3) (a "Successor Delaware
Trustee") has been appointed and has accepted
such appointment by written instrument executed
by such Successor Delaware Trustee and
delivered to the Regular Trustees, IAC, Inc.
and the Delaware Trustee being removed.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation;
provided that a Special Regular Trustee shall only hold office while an
Appointment Event is continuing and shall cease to hold office immediately after
the Appointment Event with respect to each series of Preferred Securities
pursuant to which the Special Regular Trustee was appointed and all other
Appointment Events cease to be continuing.
(d) Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Trustee and delivered to IAC, Inc. and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the
Property Trustee shall be effective until:
(A) a Successor Property Trustee possessing the
qualifications to act as Property Trustee
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under Section 4.1(c) has been appointed and has accepted
such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust,
IAC, Inc. and the resigning Property Trustee; or
(B) if the Trust is excluded from the definition
of an Investment Company solely by reason of Rule 3a-7, until the
assets of the Trust have been completely liquidated and the
proceeds thereof distributed to the Holders of the Securities in
accordance with the priority and payment terms of each class or
series of Securities;
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware
Trustee has been appointed and has accepted such appointment by
instrument executed by such Successor Delaware Trustee and
delivered to the Trust, IAC, Inc. and the resigning Delaware
Trustee; and
(iii) no such resignation of a Special Regular Trustee
shall be effective until the 60th day following delivery of the
Resignation Request to IAC, Inc. and the Trust or such later date
specified in the Resignation Request during which period the
Holders of the Preferred Securities of all series upon which the
right to appoint a Special Regular Trustee upon the occurrence of
an Appointment Event shall have been conferred and are then
exercisable shall have the right to appoint a successor Special
Regular Trustee as provided in this Article IV.
(e) If no Successor Property Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 4.2 within 60 days after delivery to IAC, Inc. and the Trust of a
Resignation Request, the resigning Property Trustee or Delaware Trustee may
petition any court of competent jurisdiction for appointment of a Successor
Property Trustee or Successor Delaware Trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a Successor
Property Trustee or Successor Delaware Trustee, as the case may be.
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SECTION 4.3 Vacancies Among Trustees.
If a Trustee ceases to hold office for any reason and the number
of Trustees is not reduced pursuant to Section 4.1 or if the number of Trustees
is increased pursuant to Section 4.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by a majority of the Regular Trustees
shall be conclusive evidence of the existence of such vacancy. The vacancy shall
be filled with a Trustee appointed in accordance with the requirements of this
Article IV.
SECTION 4.4 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee, or any one of them, shall not operate to annul the Trust. Whenever a
vacancy in the number of Regular Trustees shall occur until such vacancy is
filled as provided in this Article IV, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
SECTION 4.5 Meetings.
Meetings of the Regular Trustees shall be held from time to time
upon the call of any Trustee. Regular meetings of the Regular Trustees may be
held at a time and place fixed by resolution of the Regular Trustees. Notice of
any in-person meeting of the Regular Trustees shall be hand delivered or
otherwise delivered in writing (including by facsimile, with a hard copy by
overnight courier) not less than 48 hours before such meeting. Notice of any
telephonic meeting of the Regular Trustees or any committee thereof shall be
hand delivered or otherwise delivered in writing (including by facsimile, with a
hard copy by overnight courier) not less than 24 hours before such meeting.
Notices shall contain a brief statement of the time, place and anticipated
purposes of the meeting. The presence (whether in person or by telephone) of a
Regular Trustee at a meeting shall constitute a waiver of notice of such meeting
except where a Regular Trustee attends a meeting for the express purpose of
objecting to the transaction of any activity on the ground that the meeting has
not been lawfully called or convened. Unless provided otherwise in this
Declaration, any action of the Regular Trustees may be taken at a meeting by
vote of a majority of the Regular Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter; provided that a
Quorum is present, or without a meeting by the unanimous written consent of the
Regular Trustees.
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SECTION 4.6 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any registration statement or amendment
thereto or other document or schedule filed with the Commission or any stock
exchange or interdealer quotation system or making any other governmental filing
(including, without limitation to filings referred to in Section 2.11).
(b) The Regular Trustees shall have power to delegate from time
to time to such of their number or to officers of the Trust or IAC, Inc. the
doing of such things and the execution of such instruments either in the name of
the Trust or the names of the Regular Trustees or otherwise as the Regular
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 Distributions.
Holders shall receive (i) periodic distributions when, as and if
declared by the Regular Trustees out of funds legally available for the payment
therefor ("Distributions") and (ii) redemption payments and liquidation
distributions, in each case, in accordance with the applicable terms of the
relevant Holder's Securities and subject to each class or series priority and
payment terms.
ARTICLE VI
ISSUANCE OF SECURITIES
SECTION 6.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall issue on behalf of the Holders,
Securities in fully registered form representing undivided beneficial interests
in the assets of the Trust subject to the priority and payment terms of each
class or series of Securities in accordance with this Article VI.
(b) The Regular Trustees may issue from time to time on behalf of
the Trust up to (i) 10,000 common securities (liquidation amount $25.00 per
common
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security) representing common undivided beneficial interests in the assets of
the Trust, subject to the priority and payment terms of each class or series of
Securities, (the "Common Securities"), (ii) 25 million preferred securities
issuable in one or more series, as provided in Section 6.1(d) below representing
preferred undivided beneficial interests in the assets of the Trust, subject to
the priority and payment terms of each class or series of Securities (the
"Preferred Securities"), and (iii) 25 million securities of a class designated
Excess Preferred Securities issuable in one or more series as provided in
Section 6.1(e) below. The Trust shall have no securities or other interests in
the assets of the Trust other than the Preferred Securities, the Common
Securities and the Excess Preferred Securities.
(c) (i) The Common Security Certificates evidencing the Common
Securities shall be substantially in the form attached hereto as Annex I, with
such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice;
(ii) The proceeds from the sale of any Common Securities
shall be invested in an interest bearing account in, or
certificate of deposit of, a Banking Institution;
(iii) The Holders of Common Securities are entitled to one
vote per Common Security on all matters submitted for a vote of
the Holders of Common Securities and, except as otherwise
provided in Section 11.1(a) or in respect of any series of
Preferred Securities hereafter established, the exclusive voting
power for all purposes (including with respect to amendments to
this Declaration) shall be vested in the Holders of the Common
Securities;
(iv) Subject to the provisions of law and any preferential
rights of any series of Preferred Securities hereafter
established, Holders of Common Securities are entitled to receive
ratably such Distributions as may be declared from time to time
on the Common Securities by a majority of the Regular Trustees in
their sole and absolute discretion from funds legally available
therefor;
(v) Unless otherwise provided in this Declaration, matters
submitted for approval to Holders of Common Securities require a
majority vote of the Common Securities present and voting
thereon. The Holders of Common Securities have the exclusive
right (subject to the terms of the Declaration) to appoint,
remove or replace Trustees and to increase or decrease the number
of Trustees, subject to the right of Holders of the Preferred
Securities of a series to appoint (subject to Section 4.2(a)(B))
a Special Regular Trustee upon the occurrence of an Appointment
Event with respect to such series;
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(vi) Subject to (1) the preferential rights of outstanding
series of Preferred Securities, if any and (2) the preferential
rights of outstanding series of Excess Preferred Securities, if
any, in the event of any liquidation, dissolution or winding up
of, the Trust, whether voluntary or involuntary, each Holder of
Common Securities shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Trust and
the amount to which the Holders of any series of Preferred
Securities and Excess Preferred Securities hereafter classified
or reclassified as having a preference on Distributions in the
liquidation, dissolution or winding up of the Trust shall be
entitled, to receive ratably with each other Holder of Common
Securities all remaining assets of the Trust available for
Distribution to the Holders of Common Securities; and
(vii) Holders of Common Securities have no subscription,
redemption, conversion or preemptive rights;
(d) A majority of Regular Trustees are authorized, subject to any
limitations prescribed by law and the provisions of this Article VI, to provide
for the issuance of the shares of Preferred Securities in series, by executing a
Certificate of Terms to establish from time to time the number of securities to
be included in each such series, and to fix the designations, powers,
preferences and rights of the securities of each such series and the
qualifications, limitations or restrictions thereof including, but not limited
to, the Ownership Limit applicable to such series of Preferred Securities;
provided, however, that the Regular Trustees shall not approve the issuance of a
series of Preferred Securities that would cause the Trust to be deemed an
Investment Company required to be registered under the Investment Company Act.
Except as required by law, as provided in Section 11.1(a) or as otherwise
provided in a Certificate of Terms with respect to a series of Preferred
Securities, Holders of Preferred Securities shall have no voting rights. Subject
to the provisions contained in Section 11.1(a), the Regular Trustees are
authorized to establish the terms of a series of Preferred Securities and to
cause the issuance thereof without the consent or vote of Holders of any class
or series of Securities. Upon issuance of a series of Preferred Securities, the
Certificate of Terms shall constitute an amendment to this Declaration and shall
become a part hereof whether or not attached hereto and an original executed
copy of such Certificate of Terms shall be delivered to the Property Trustee.
(e) At such time as the Regular Trustees authorize a series of
Preferred Securities pursuant to Section 6.1(d), without any further or separate
action of the Regular Trustees, there shall be deemed to be authorized a series
of Excess Preferred Securities consisting of the number of securities included
in the series of Preferred Securities and having terms, rights, restrictions and
qualifications identical thereto, except to the extent that Article VIII
requires different terms. In such event, any
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appropriate correlative modification in all defined terms shall be deemed to
have been made.
(f) The Certificates shall be signed on behalf of the Trust by a
majority of the Regular Trustees. Such signatures may be the manual or facsimile
signatures of the present or any future Regular Trustee. Typographical and other
minor errors or defects in any such reproduction of any such signature shall not
affect the validity of any Certificate. In case any Regular Trustee of the Trust
who shall have signed any of the Certificates shall cease to be such Regular
Trustee before the Certificate so signed shall be delivered by the Trust, such
Certificate nevertheless may be delivered as though the person who signed such
Certificate had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons as, at the actual date of the
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
interdealer quotation system on which such Securities may be listed, or to
conform to usage. Pending the preparation of definitive Certificates, the
Regular Trustees on behalf of the Trust may execute temporary Certificates
(printed, lithographed or typewritten), in substantially the form of the
definitive Certificates in lieu of which they are issued, but with such
omissions, insertions and variations as may be appropriate for temporary
Certificates, all as may be determined by the Regular Trustees. Each temporary
Certificate shall be executed by the Regular Trustees on behalf of the Trust
upon the same conditions and in substantially the same manner, and with like
effect, as definitive Certificates. Without unnecessary delay, the Regular
Trustees on behalf of the Trust will execute and furnish definitive Certificates
and thereupon any or all temporary Certificates may be surrendered to the
transfer agent and registrar in exchange therefor (without charge to the
Holders). Each Certificate whether in temporary or definitive form shall be
countersigned by the manual or facsimile signature of an authorized signatory of
the Person acting as registrar and transfer agent with respect to such
Securities, which shall initially be the Property Trustee.
(g) The consideration received by the Trust for the issuance of
the Capital Securities shall constitute a contribution to the capital of the
Trust and shall not constitute a loan to the Trust.
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(h) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
(i) Every Person, by virtue of having become a Holder or a
Preferred Security Indirect Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by this Declaration.
(j) Upon issuance of the Common Securities as provided in this
Declaration, the Regular Trustees on behalf of the Trust shall return to IAC,
Inc. the $10 constituting initial trust assets as set forth in the Original
Declaration.
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 Termination of Trust.
This Declaration and the Trust shall terminate and be of no
further force or effect when:
(i) (A) all of the Preferred Securities of all series
shall have been repaid in accordance with the terms thereof or
called for redemption and the amounts necessary for redemption
thereof shall have been paid to the Holders thereof in accordance
with the priority and payment terms of the Preferred Securities
and (B) all of the Common Securities are no longer outstanding;
or
(ii) upon the expiration of the term of the Trust as set
forth in Section 2.15; or
(iii) upon the expiration of the term of IAC, L.P. on
December 31, 2092, unless sooner dissolved.
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Section
7.1.
The provisions of Sections 2.10 and 3.2 and Article IX shall
survive the termination of the Trust.
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ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 General.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration.
(b) Subject to this Article VIII, Preferred Securities shall be
freely transferable.
SECTION 8.2 Restriction on Ownership and Transfers of Preferred Securities;
Exchange for Excess Preferred Securities.
(a) General.
(i) Except as provided in Section 8.2(f), no Person shall
Beneficially Own shares of a series of Preferred Securities in
excess of the Ownership Limit applicable to such series.
(ii) Except as provided in Section 8.2(f) (and subject to
Section 8.4), any Transfer (whether or not such Transfer is the
result of transactions entered into through the facilities of any
stock exchange of interdealer quotation system) that, if
effective, would result in any Person Beneficially Owning
securities of a series of Preferred Securities in excess of the
Ownership Limit applicable to such series shall be void ab initio
as to the Transfer of such securities which would be otherwise
Beneficially Owned by such Person in excess of the Ownership
Limit applicable to such series, and the intended transferee
shall acquire no rights in such securities.
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(iii) Except as provided in Section 8.2(f) (and subject to
Section 8.4), any Transfer (whether or not such Transfer is the
result of a transaction entered into through the facilities of
any stock exchange or interdealer quotation system) that, if
effective, would result in the Preferred Securities being
Beneficially Owned by less than 100 Persons (determined without
reference to any rules of attribution) shall be void ab initio as
to the Transfer of such securities which would be otherwise
Beneficially Owned by the transferee and the intended transferee
shall acquire no rights in such securities.
(iv) A Transfer of Preferred Securities which is null and
void under (A) Section 8.2(a)(ii) because it could, if effective,
result in the ownership of a series of Preferred Securities in
excess of the Ownership Limit applicable to such Series or (B)
Section 8.2(a)(iii) because it could, if effective, result in the
Preferred Securities being beneficially owned by fewer than 100
Persons, shall not adversely affect the validity of the Transfer
of any other Preferred Securities in the same or any other
related transaction.
(b) Remedies for Breach.
If a majority of the Regular Trustees shall at any time
determine in good faith that a Transfer or other event has taken place in
violation of Section 8.2(a) (whether or not such violation is intended), or that
a Person intends to acquire or has attempted to acquire Beneficial Ownership of
any Preferred Securities in violation of Section 8.2(a), the majority of the
Regular Trustees shall be empowered to take any action as they deem advisable to
refuse to give effect to or to prevent such Transfer or other event, including,
but not limited to, refusing to give effect to such Transfer or other event on
the books of the Trust, demanding the repayment of any Distributions received in
respect of such Preferred Securities acquired in violation of Section 8.2(a) or
instituting proceedings to enjoin such Transfer or rescind such Transfer or
attempted Transfer; provided, however, that any Transfers or attempted Transfers
(or in the case of events other than a Transfer, Beneficial Ownership) in
violation of Section 8.2(a), regardless of any action (or non-action) by the
Regular Trustees, (i) shall be void ab initio and (ii) shall automatically
result in the exchange described in Section 8.2(c).
(c) Exchange for Excess Stock. If, notwithstanding the other
provisions contained in this Article VIII, at any time there is a purported
Transfer (whether or not such Transfer is the result of a transaction entered
into through the facilities of any stock exchange or interdealer quotation
system) or other change in the capital structure of the Trust or other event
such that any Person would Beneficially Own securities of a series of Preferred
Securities in excess of the Ownership Limit applicable to such series, then,
except as otherwise provided in Section 8.2(f), such Preferred Securities in
excess of the Ownership Limit applicable to such series (rounded up to the
nearest whole security) shall be automatically exchanged for an equal number of
securities of Excess Preferred Securities having the terms set forth in Section
8.3. Such exchange shall be effective as of the close of business on the
business day prior to the date of the Transfer or change in capital structure or
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other event.
(d) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Preferred Securities in violation of Section 8.2(a), or any
Person who is a transferee who would cause the issuance of Excess Shares under
Section 8.2(c), shall immediately give written notice to the Trust of such event
and shall provide to the Regular Trustees such other information as the Regular
Trustees may request in order to determine the effect, if any, of such Transfer
or attempted Transfer or other event on the Trust's status as a REIT. Failure to
give such notice shall not limit the rights and remedies of the Regular Trustees
provided herein in any way.
(e) Owners Required to Provide Information. From and after the
date of this Declaration:
(i) Every record and Beneficial Owner of more than 5% (or
such other percentage between 1/2 of 1% and 5%, as determined by
a majority of the Regular Trustees) of any series of Preferred
Securities outstanding shall, within 30 days after January 1 of
each year, give written notice to the Trust stating the name and
address of such record or Beneficial Owner, the number of
securities of any series of Preferred Securities Beneficially
Owned, and a full description of how such securities are held.
Each such record or Beneficial Owner of Preferred Securities
shall, upon demand by the Trust, disclose to the Trust in writing
such additional information with respect to the Beneficial
Ownership of the Preferred Securities as a majority of the
Regular Trustees, in their sole discretion, deem appropriate or
necessary to (i) comply with the provisions of the Code regarding
the qualification of the Trust as a REIT under the Code, and (ii)
ensure compliance with the applicable Ownership Limit. Each
Holder of record, including without limitation any Person
(including a Clearing Agency) who holds Preferred Securities on
behalf of a Beneficial Owner, shall take all reasonable steps to
obtain the written notice described in this Section 8.2(e)(i)
from the Beneficial Owner.
(ii) Any Person who is a Beneficial Owner of securities of
any series of Preferred Securities and any Person (including the
Holder of record) who is holding Preferred Securities for a
Beneficial Owner, and any proposed transferee of Preferred
Securities, shall provide such information as a majority of the
Regular Trustees, in their sole discretion, may request in order
to determine the Trust's status or to comply with the
requirements of any taxing authority or other governmental
agency, to determine any such compliance or to ensure compliance
with the applicable Ownership Limit, and shall provide a
statement or affidavit to the Trust setting forth the number of
securities of any series of Preferred Securities already
Beneficially Owned by such Holder or proposed transferee and any
related persons specified, which statement or affidavit shall be
in the form prescribed by a majority of the Regular Trustees for
that purpose.
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(f) Exceptions.
(i) A majority of the Regular Trustees, upon receipt of a
ruling from the Internal Revenue Service or an opinion of
nationally recognized tax counsel experienced in such matters,
may waive the application, in whole or in part, of the applicable
Ownership Limit to a Person, if such Person is not an individual
for purposes of section 542(a) of the Code and is a corporation,
partnership, estate or trust, provided, however, in no event may
any such exception cause such Person's ownership, direct or
indirect, to exceed 9.8% of the value of the Outstanding
Preferred Securities and Excess Preferred Securities, as such
value is determined by a majority of the Regular Trustees in
their sole discretion. In connection with any such exemption, a
majority of the Regular Trustees may require such representations
and undertakings from such Person and may impose such other
conditions as they deem necessary, in their sole discretion, to
determine the effect, if any, of the proposed Transfer on the
Trust's status as a REIT.
(ii) For a period of 270 days following the purchase of
any series of Preferred Securities by an underwriter that (i) is
a corporation, limited liability company, partnership or other
entity and (ii) participates in an offering of such series of
Preferred Securities, such underwriter shall not be subject to
the Ownership Limit applicable to such series with respect to the
Preferred Securities purchased by it as a part of or in
connection with such offering and with respect to any Preferred
Securities purchased in connection with market making activities.
(g) Legend.
Each Preferred Securities Certificate shall bear the
following legend or such other legend as the majority of the Regular
Trustees may establish in accordance with Section 6.1(d) at the time
such series of Preferred Securities is established:
"The Preferred Securities represented by this certificate
are subject to restrictions on transfer. No person may
Beneficially Own securities of this series of Preferred
Securities in excess of the Ownership Limit applicable to this
series of Preferred Securities, with certain further restrictions
and exceptions set forth in the Amended and Restated Declaration
of Trust of IAC Capital Trust dated as of _____, 199_, as amended
from time to time ("Declaration"). Any person who attempts to
Beneficially Own securities of this series of Preferred
Securities in excess of the applicable limitation must
immediately notify the Trust. All capitalized terms in this
legend have the meanings ascribed to such terms in the
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Declaration, as the same may be amended from time to time, a copy
of which, including the restrictions on transfer, will be sent
without charge to each Holder of Preferred Securities of this
series who requests such a copy. If the restrictions on transfer
are violated, the transfer will be void in accordance with the
Declaration and the Preferred Securities represented hereby will
be automatically exchanged for Excess Preferred Securities which
will be held in trust in accordance with the Declaration."
SECTION 8.3 Excess Preferred Securities.
The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to Distributions,
qualifications and terms and conditions of redemption of the Excess Preferred
Stock of the Trust:
(a) Ownership in Trust.
Upon any purported Transfer, change in the capital
structure of the Trust or purported change in Beneficial Ownership that results
in Excess Preferred Securities pursuant to Section 8.2(c), such Excess Preferred
Securities shall be deemed to have been transferred to a Person as trustee of a
Charitable Trust for the exclusive benefit of one or more organizations
described in sections 170(b), 170(c), or 501(c)(3) of the Code (the "Charitable
Beneficiary" or "Charitable Beneficiaries"), as shall be designated by a
majority of the Regular Trustees in writing, such trustee to be a person who is
unaffiliated with (i) the Trust, (ii) the Purported Beneficial Transferee; and
(iii) the Purported Record Transferee. At all times at least one Charitable
Beneficiary shall be designated by the Regular Trustees. Where a Transfer or
other event results in an automatic exchange of securities of more than one
series for Excess Preferred Securities, then separate Charitable Trusts shall be
deemed to have been established for the Excess Preferred Securities attributable
to the securities of each such series. Securities of Excess Preferred Securities
held in Charitable Trust for the exclusive benefit of the Charitable Beneficiary
shall be issued and outstanding securities of the Trust. The trustee of the
Charitable Trust will be deemed to own the Excess Preferred Securities held in
Charitable Trust for the exclusive benefit of the Charitable Beneficiary on the
day prior to the date of the violative transfer. The Purported Beneficial
Transferee shall have no rights in the shares of Excess Preferred Securities
except the right to receive a price for its interest in the Preferred Securities
which were exchanged for Excess Preferred Securities upon the terms specified in
Section 8.3(e).
(b) Distribution Rights.
Excess Preferred Securities shall be entitled to
Distributions as if such Excess Preferred Securities were Preferred Securities
of the series or class in existence immediately prior to the exchange of such
Excess Preferred Securities, provided that the Distributions shall be paid to
the Charitable Trustee to be held in Charitable Trust for the exclusive benefit
of the Charitable Beneficiary. Any Distribution paid prior to the discovery
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by the Trust that the Preferred Securities have been exchanged for Excess
Preferred Securities shall be repaid to the Trust upon demand or, at the Trust's
sole election, shall be offset against any future Distributions payable to the
Purported Record Transferee. Any Distributions so disgorged shall be paid over
to the Charitable Trustee for the exclusive benefit of the Charitable
Beneficiary.
(c) Rights Upon Liquidation.
Subject to the preferential rights of Preferred
Securities, if any, each Purported Beneficial Transferee of Excess Preferred
Securities shall be entitled to receive that portion of the assets of the Trust
which a Holder of Preferred Securities that was exchanged for such Excess
Preferred Securities would have been entitled to receive on liquidation had such
Preferred Securities remained outstanding provided that no Purported Beneficial
Transferee shall be entitled to receive any amounts in excess of the price per
security such Purported Beneficial Transferee paid for the Preferred Securities
in any purported Transfer that resulted in the Excess Preferred Securities or,
if the Purported Beneficial Transferee did not give value for such Excess
Preferred Securities (through a gift, devise or other transaction) in any
purported Transfer, a price per security equal to the Market Price on the date
of any purported Transfer that resulted in the Excess Preferred Securities, less
the amount of any Distributions received by the Purported Record Transferee and
not repaid or offset against future Distributions pursuant to Section 8.3(b),
with any remainder of such Transferee's ratable portion of the Trust's assets
subject to ratable allocation among the Holders of Securities ranking junior to
such Excess Preferred Securities as to the payment of Distributions and upon
liquidation dissolution, winding-up or termination of the Trust as an asset of
the Trust.
(d) Voting Rights.
Subject to Delaware law, effective as of the date that
Preferred Securities are exchanged for Excess Preferred Securities pursuant to
Section 8.2(c), the Holders of Preferred Securities that have been exchanged for
Excess Preferred Securities shall not be entitled to vote such Preferred
Securities on any matter, and, if such Preferred Securities have voting rights,
all votes cast with respect to securities of Excess Preferred Securities into
which such Preferred Securities have been exchanged shall be voted in accordance
with the direction of the Charitable Trustee of the Charitable Trust acting for
the benefit of the Charitable Beneficiary. The Charitable Trustee shall vote the
securities of Excess Preferred Securities for the exclusive benefit of the
Charitable Beneficiary.
(e) Restrictions on Transfer.
(i) Excess Preferred Securities shall not be transferable.
The Purported Record Transferee may freely designate a Person as
beneficiary of an interest in the Charitable Trust (representing
the number of shares of Excess Preferred Securities held by the
Charitable Trust attributable to a purported Transfer that
resulted in the Excess Preferred Securities), if (A) the shares
of
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Excess Preferred Securities held in the Charitable Trust would
not be Excess Preferred Securities in the hands of such Person
and (B) the Purported Beneficial Transferee does not receive a
price from such Person that reflects a price per security for
such Excess Preferred Securities that exceeds the lesser of (1)
the price per security such Purported Beneficial Transferee paid
for the Preferred Securities in the purported Transfer that
resulted in the Excess Preferred Securities, or if the Purported
Beneficial Transferee did not give value for such Excess
Preferred Securities (through a gift, devise or other
transaction), a price per security equal to the Market Price on
the date of the purported Transfer that resulted in the Excess
Preferred Securities and (2) the price per security of the
Preferred Securities in the transfer described in the following
sentence. Upon the transfer of an interest in the Charitable
Trust, the corresponding Excess Preferred Securities in the
Charitable Trust shall be automatically exchanged for an equal
number of securities of Preferred Securities of the applicable
series of Preferred Securities and such Preferred Securities
shall be transferred of record to the transferee of the interest
in the Charitable Trust if such Preferred Securities would not be
Excess Preferred Securities in the hands of such transferee. In
the event of such transfer, the beneficial interest of the
Charitable Beneficiary in the Excess Preferred Securities will
terminate. Prior to any transfer of any interest in the
Charitable Trust, the Purported Record Transferee must give not
less than five business days prior written notice to the Trust of
the intended transfer and the Trust must have waived in writing
its purchase rights under Section 8.3(f).
(ii) Notwithstanding the foregoing, if a Purported
Beneficial Transferee receives a price for its interest in the
shares of Preferred Securities that were exchanged for Excess
Preferred Securities that exceeds the amounts allowable under
Section 8.3(e)(i), such Purported Beneficial Transferee shall,
prior to the exchange of the Excess Preferred Securities for
Preferred Securities, pay, or cause the Person designated
pursuant to Section 8.3(e)(i) to pay, such excess to the
Charitable Trustee to be held for the exclusive benefit of the
Charitable Beneficiary.
(iii) If any of the transfer restrictions set forth in
this Section 8.3(e) or any application thereof is determined in a
final and nonappealable judgment to be void, invalid or
unenforceable by any court having jurisdiction over the issue,
the Purported Record Transferee may be deemed, at the option of a
majority of the Regular Trustees, to have acted as the agent of
the Trust in acquiring the excess Preferred Securities as to
which such restrictions would, by their terms, apply, and to hold
such Excess Preferred Securities on behalf of the Trust.
(f) Purchase Right in Excess Preferred Securities.
Excess Preferred Securities shall be deemed to have been
offered for sale
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to the Trust, or its designee (as specified by a majority of the Regular
Trustees), at a price per security equal to the lesser of (i) the price per
security in the transaction that created such Excess Preferred Securities (or,
in the case of a devise or gift, the Market Price at the time of such devise or
gift) and (ii) the Market Price on the date the Trust, or its designee, accepts
such offer. The Trust (or its designee) shall have the right to accept such
offer for a period of ninety days after the later of (i) the date of the
Transfer which resulted in such Excess Preferred Securities and (ii) the date a
majority of the Regular Trustees determines in good faith that a Transfer
resulting in Excess Preferred Securities has occurred. A majority of the Regular
Trustees may appoint a special trustee of the Charitable Trust established under
Section 8.3(a) for the purpose of consummating the purchase of Excess Preferred
Securities by the Trust (or its designee).
SECTION 8.4 Settlement.
Nothing in this Article VIII shall be interpreted to preclude the
settlement of any transaction entered into through facilities of any stock
exchange or interdealer quotation system.
SECTION 8.5 Remedies Not Limited.
Nothing contained in this Article VIII shall limit the authority
of the Regular Trustees to take such other action as they deem necessary or
advisable (subject to the provisions of Section 8.4), (i) to protect the Trust
and the interests of the Holders of its Capital Securities in the preservation
of the Trust's status as a REIT, and (ii) to ensure compliance with the
applicable Ownership Limit
SECTION 8.6 Ambiguity.
In the case of an ambiguity in the application of any of the
provisions of this Article VIII, including with respect to any of the related
definitions set forth in Article I, a majority of the Regular Trustees shall
have the power to determine the application of the provisions of this Article
VIII with respect to any situation based on their reasonable belief
understanding or knowledge of the circumstances.
SECTION 8.7 Severability.
If any provision of this Article VIII or any application of any
such provision is determined in a final and unappealable judgment to be void,
invalid or unenforceable by any Federal or state court having jurisdiction over
the issues, the validity and enforceability of the remaining provisions shall
not be affected and other applications of such provision shall be affected only
to the extent necessary to comply with the determination of such court.
SECTION 8.8 Regular Trustees Discretion.
Anything in this Article VIII to the contrary notwithstanding,
a majority of the
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Regular Trustees shall be entitled to take or omit to take such actions as they
in their discretion shall determine to be advisable in order that the Trust
maintain its status as and continue to qualify as a REIT, including, but not
limited to, reducing the applicable Ownership Limit, in the event of a change in
law.
SECTION 8.9 Transfer of Certificates.
The Regular Trustees shall provide for the registration of
Certificates and of transfers of Certificates, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other government charges which may be imposed
in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to be
issued in the name of the designated transferee or transferees. Every
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular Trustees duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
SECTION 8.10 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate
shall be registered on the books and records of the Trust as the sole Holder of
such Certificate and of the Securities represented by such Certificate for
purposes of receiving Distributions and payments on redemption and liquidation
of the Trust and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Securities represented by such Certificate on the part of
any Person, whether or not the Trustees shall have actual or other notice
thereof.
SECTION 8.11 Book Entry Interests.
Unless otherwise specified in the terms of any series of the
Preferred Securities, Preferred Securities Certificates will be issued in the
form of one or more, fully registered, global Preferred Security Certificates
(each a "Global Certificate"), to be delivered to DTC, the initial Clearing
Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially
be registered on the books and records of the Trust in the name of Cede & Co.,
the nominee of DTC, and no Preferred Security Indirect Owner will receive a
definitive Preferred Security Certificate representing such Preferred Security
Indirect Owner's interests in such Global Certificates, except as provided in
Section 8.14. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") with respect to
a series of Preferred Securities have been
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issued to the Preferred Security Indirect Owners pursuant to Section 8.14:
(i) the provisions of this Section 8.7 shall be in
full force and effect;
(ii) the Trust and the Trustees shall be entitled to deal
with the Clearing Agency for all purposes of this Declaration
(including the payment of Distributions on the Global
Certificates and payments or redemption or liquidation of the
Trust and receiving approvals, votes or consents hereunder) as
the Holder of such series of such Preferred Securities and the
sole Holder of the Global Certificates and, except as set forth
herein or in Rule 3a-7 with respect to the Property Trustee,
shall have no obligation to the Preferred Security Indirect
Owners;
(iii) to the extent that the provisions of this Section
8.11 conflict with any other provisions of this Declaration, the
provisions of this Section 8.11 shall control; provided that this
clause (iii) shall in no event limit or restrict the provisions
of Sections 8.2 though 8.8 hereof which shall in all events be
controlling;
(iv) the rights of the Preferred Security Indirect Owners
shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such
Preferred Security Indirect Owners and the Clearing Agency and/or
the Clearing Agency Participants. DTC will make book entry
transfers among the Clearing Agency Participants and receive and
transmit payments of Distributions on, and payments or redemption
of, the Global Certificates and in connection with the
liquidation of the Trust, to such Clearing Agency Participants.
SECTION 8.12 Notices to Holders of Certificates.
Whenever a notice or other communication to the Holders of
Preferred Securities is required to be given under this Declaration, unless and
until Definitive Preferred Security Certificates with respect to series of
Preferred Securities shall have been issued pursuant to Section 8.14, the
relevant Trustees shall give all such notices and communications, specified
herein to be given to Preferred Securities Holders of such series of Preferred
Securities, to the Clearing Agency and, with respect to any Preferred Security
Certificate registered in the name of a Clearing Agency or the nominee of a
Clearing Agency, the Trustees shall, except as set forth herein or in Rule 3a-7
with respect to the Property Trustee, have no notice obligations to the
Preferred Security Indirect Owners of such series of Preferred Securities.
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SECTION 8.13 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to any series of the Preferred Securities,
the Regular Trustees may, in their sole discretion, appoint a successor Clearing
Agency with respect to such series of Preferred Securities.
SECTION 8.14 Definitive Preferred Securities Certificates.
If (i) a Clearing Agency elects to discontinue its services as
securities depositary with respect to a particular series of Preferred
Securities and a successor Clearing Agency is not appointed within 90 days after
such discontinuance pursuant to Section 8.13 or (ii) the Regular Trustees elect
after consultation with IAC, Inc. to terminate the book entry system through the
Clearing Agency with respect to the Preferred Securities of a series, then (x)
Definitive Preferred Security Certificates shall be prepared by the Regular
Trustees on behalf of the Trust with respect to such series of Preferred
Securities and (y) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Regular Trustees shall
cause definitive Preferred Security Certificates to be delivered to Preferred
Security Indirect Owners of such series in accordance with the instructions of
the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely on
and shall be protected in relying on, such instructions.
SECTION 8.15 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificates should be surrendered to the
Regular Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and (b) there
shall be delivered to the Regular Trustees such security or indemnity as may be
required by them to keep each of them and the Trust harmless, then in the
absence of notice that such Certificate shall have been acquired by a bona fide
purchaser, a majority of Regular Trustees on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 8.15, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in the relevant Securities, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
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ARTICLE IX
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 9.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence (or, in
the case of the Property Trustee, negligence) or willful misconduct with respect
to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses or any other facts pertinent to the existence and amount of assets from
which Distributions, redemption payments and payments on liquidation,
dissolution or winding up of the Trust, to Holders of Securities might properly
be paid.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of Securities, in their capacities as Holders, shall be entitled to the
same limitation of liability that is extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
SECTION 9.2 Indemnification.
(a) To the fullest extent permitted by applicable law, IAC, L.P.
shall indemnify and hold harmless each Indemnified Person from and against any
loss, damage or claim incurred by such Indemnified Person by reason of any act
or omission performed or omitted by such Indemnified Person in good faith on
behalf of the Trust and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified Person by this
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts or omissions.
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(b) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by IAC,
L.P. prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by IAC, L.P. of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in Section
9.2(a).
ARTICLE X
ACCOUNTING
SECTION 10.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the
calendar year, or such other year as is required by the Code.
SECTION 10.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual basis
method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual basis method
of accounting for United States federal income tax purposes. The books and
records of the Trust, together with a copy of this Declaration and a certified
copy of the Certificate of Trust, or any amendment thereto, shall at all times
be maintained at the principal office of the Trust and shall be open for
inspection for any examination by any Holder or its duly authorized
representative for any purpose reasonably related to its interest in the Trust
during normal business hours.
(b) The Regular Trustees shall, as soon as available after the
end of each Fiscal Year of the Trust, cause to be prepared and mailed to each
Holder of Securities unaudited financial statements of the Trust for such Fiscal
Year, prepared in accordance with generally accepted accounting principles;
provided that if the Trust is required to comply with the periodic reporting
requirements of Sections 13(a) or 15(d) of the Exchange Act, such financial
statements for such Fiscal Year shall be examined and reported on by a firm of
independent certified public accountants selected by the Regular Trustees (which
firm may be the firm used by IAC, Inc.).
(c) The Regular Trustees shall cause to be prepared and mailed to
each Holder of Securities, an annual United States federal income tax
information statement, on
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such form as is required by the Code, containing such information with regard to
the Securities held by each Holder as is required by the Code and the Treasury
Regulations. Notwithstanding any right under the Code to deliver any such
statement at a later date, the Regular Trustees shall endeavor to deliver all
such statements within 30 days after the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on such form as is required by the Code, and any other annual income
tax returns required to be filed by the Regular Trustees on behalf of the Trust
with any state or local taxing authority, such returns to be filed as soon as
practicable after the end of each Fiscal Year of the Trust.
SECTION 10.3 Banking.
The Trust shall maintain one or more bank accounts in the name
and for the sole benefit of the Trust; provided, however, that all payments of
funds in respect of the Preferred L.P. Units held by the Property Trustee shall
be made directly to the Property Account and no other funds from the Trust shall
be deposited in the Property Account. The sole signatories for such accounts
shall be designated by the Regular Trustees; provided, however, that the
Property Trustee shall designate the sole signatories for the Property Account.
SECTION 10.4 Withholding.
The Trust and the Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Trust shall file required forms with applicable
jurisdictions and, unless an exemption from withholding is properly established
by a Holder, shall remit amounts withheld with respect to the Holder to
applicable jurisdictions. To the extent that the Trust is required to withhold
and pay over any amounts to any authority with respect to Distributions or
allocations to any Holder, such amount withheld shall be deemed to be a
Distribution to the Holder. In the event of any
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<PAGE> 57
claimed overwithholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount to be withheld was not withheld from a
Distribution, the Trust may reduce subsequent Distributions by the amount of
such withholding.
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities or as required by law or the rules of any
stock exchange or interdealer quotation system on which the Preferred Securities
of a series are listed, this Declaration may be amended by, and only by, a
written instrument executed by a majority of the Regular Trustees; provided,
however, that (i) no amendment or modification to this Declaration shall be made
unless the Regular Trustees shall have obtained (A) either a ruling from the
Internal Revenue Service or a written unqualified opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that the Trust will continue to be treated as a REIT for purposes of United
States federal income taxation and (B) a written unqualified opinion of
nationally recognized independent counsel experienced in such matters to the
effect that such amendment or modification will not cause the Trust to be an
Investment Company which is required to be registered under the Investment
Company Act; provided no such ruling or opinions shall be required in connection
with the issuance of a series of Preferred Securities or the establishment of
the terms thereof, (ii) so long as any Preferred Securities remain outstanding
if any proposed modification or amendment provides for, or the Regular Trustees
otherwise propose to effect, (A) any action that would materially and adversely
affect the powers, preferences, privileges or special rights of a series of the
Preferred Securities, whether by way of amendment to the Declaration or
otherwise, or (B) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then, subject to the terms of any
such series of Preferred Securities, the Holders of each affected series of
outstanding Preferred Securities will be entitled to vote on such amendment,
modification or proposal and such amendment, modification or proposal shall not
be effective except with the approval of at least 66-2/3% in liquidation amount
of each affected series of the Preferred Securities, (iii) Section 3.2 and this
Section 11.1 shall not be amended without the consent of all of the Holders of
the Securities, (iv) no amendment which adversely affects the rights, powers and
privileges of the Property Trustee shall be made without the consent of the
Property Trustee, (v) Section 3.1 shall not be amended without the consent of
IAC, Inc., (vi) Section 3.2 shall not be amended without the consent of IAC,
L.P., (vii) Section 8.1(c) shall not be amended without the consent of the
Holders of all Common Securities and the rights of Holders of Common Securities
under Article IV to increase or decrease the number of, and to appoint, replace
or remove, Trustees (other than a Special Regular Trustee) shall not be amended
without the consent of each Holder of
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<PAGE> 58
Common Securities, (viii) the rights of Holders of Preferred Securities of a
series to appoint or remove a Special Regular Trustee shall not be amended
without the consent of each Holder of Preferred Securities of a series upon
which such right has been conferred and (ix) Section 2.3 shall not be amended
without the consent of a Majority in aggregate liquidation amount of each
series of outstanding Preferred Securities.
(b) Notwithstanding Section 11.1(a), the provisions set forth in
8.2(a)-(g), 8.3, 8.5 and 8.6 and this Section 11.1(b) may not be amended in any
respect and no other provision may be adopted, amended or repealed which would
have the effect of modifying or permitting the circumvention of the provisions
set forth in 8.2(a) through (g), 8.3, 8.5 and 8.6 and this Section 11.1(b)
unless such action is approved by the affirmative vote of the Holders of not
less than 66-2/3% of the outstanding Common Securities.
(c) Notwithstanding anything contained in this Declaration to the
contrary, by the affirmative vote of the Holders of not less than 66-2/3% of the
Common Securities and a majority of the Regular Trustees, the Trust's status as
a REIT for Federal income tax purposes may be terminated.
(d) Notwithstanding Section 11.1(a)(ii) and (iii), this
Declaration may be amended without the consent of the Holders of the Securities
to (i) cure any ambiguity, (ii) correct or supplement any provision in this
Declaration that may be defective or inconsistent with any other provision of
this Declaration, (iii) to add to the covenants, restrictions or obligations of
IAC, Inc. or IAC, L.P., and (iv) to conform to any changes in Rule 3a-7 or any
change in interpretation or application of Rule 3a-7 by the Commission, which
amendment does not materially and adversely affect the rights, preferences or
privileges of the Holders.
SECTION 11.2 Meetings of the Holders of Securities;
Action by Written Consent.
(a) Meetings of the Holders of Preferred Securities and/or Common
Securities may be called at any time by the Regular Trustees (or as provided in
the terms of the Securities) to consider and act on any matter on which Holders
of such class of Securities (or any series of Preferred Securities) are entitled
to act under the terms of this Declaration, the terms of the Securities or the
rules of any stock exchange or interdealer quotation system on which the
Preferred Securities of a series are listed or admitted for trading. The Regular
Trustees shall call a meeting of Holders of Preferred Securities (or of a series
of Preferred Securities) or Common Securities, if directed to do so by Holders
of at least 10% in liquidation amount of such class or series of Securities.
Such direction shall be given by delivering to the Regular Trustees one or more
calls in a writing stating that the signing Holders of Securities wish to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Holders of Securities calling a meeting shall specify in
writing the Certificates held by the Holders of Securities exercising the right
to call a meeting and only those specified Certificates shall be counted for
purposes of determining whether the required percentage set forth in the second
sentence of this paragraph has been met.
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<PAGE> 59
(b) The following provision shall apply to meetings of Holders of
Securities:
(i) Notice of any such meeting shall be given by mail to
all the Holders of the applicable class or series of Securities
having a right to vote thereat not less than 7 days nor more than
60 days prior to the date of such meeting. Whenever a vote,
consent or approval of the Holders of a class or series of
Securities is permitted or required under this Declaration,
pursuant to a Certificate of Terms of a series of Preferred
Securities, or the rules of any stock exchange or interdealer
quotation system on which the Preferred Securities of a series
are listed or admitted for trading, such vote, consent or
approval may be given at a meeting of the Holders of such
Securities. Any action that may be taken at a meeting of the
Holders of such Securities may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by
Holders of such class or series of Securities owning not less
than the minimum aggregate liquidation amount of such class or
series of Securities that would be necessary to authorize or take
such action at a meeting at which all Holders of such class or
series of Securities having a right to vote thereon were present
and voting. Prompt notice of the taking of action without a
meeting shall be given to the Holders of such class or series of
Securities entitled to vote who have not consented in writing.
The Regular Trustees may specify that any written ballot
submitted to the Holders of Securities for the purpose of taking
any action without a meeting shall be returned to the Trust
within the time specified by the Regular Trustees.
(ii) Each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder of a
Security is entitled to participate, including waiving notice of
any meeting, or voting or participating at a meeting. No proxy
shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Holder of the Security
executing it. Except as otherwise provided in this Declaration,
all matters relating to the giving, voting or validity of proxies
shall be governed by the General Corporation Law of the State of
Delaware relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and the
Holders of the Securities were stockholders of a Delaware
corporation.
(iii) Each meeting of the Holders of a class or series of
Securities shall be conducted by the Regular Trustees or by such
other Person that the Regular Trustees may designate.
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<PAGE> 60
(iv) Unless otherwise provided in the Business Trust Act,
this Declaration or the rules of any stock exchange or
interdealer quotation system on which the Preferred Securities of
a series are then listed or admitted for trading, the Regular
Trustees, in their sole discretion, shall establish all other
provisions relating to meetings of Holders of Securities,
including notice of the time, place or purpose of any meeting at
which any matter is to be voted on by any Holders of Securities,
waiver of any such notice, action by consent without a meeting,
the establishment of a record date, quorum requirements, voting
in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of Property Trustee and Delaware
Trustee.
(a) The Trustee which acts as initial Property Trustee
represents and warrants to the Trust, IAC, Inc. and IAC, L.P. at the date of
this Declaration, and each Successor Property Trustee represents and warrants to
the Trust, IAC, Inc. and IAC, L.P. at the time of the Successor Property
Trustee's acceptance of its appointment as Property Trustee that:
(i) The Property Trustee is a banking corporation with
trust powers, duly organized, validly existing and in good
standing under the laws of the State of its incorporation, with
trust power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of, this
Declaration.
(ii) The execution, delivery and performance by the
Property Trustee of this Declaration has been duly authorized by
all necessary corporate action on the part of the Property
Trustee. The Declaration has been duly executed and delivered by
the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws
affecting creditors' rights generally and to general principles
of equity and the discretion of the court (regardless of whether
the enforcement of such remedies is considered in a proceeding in
equity or at law).
(iii) The execution, delivery and performance of this
Declaration
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by the Property Trustee does not conflict with or constitute a
breach of the Charter or By-laws of the Property Trustee.
(iv) No consent, approval or authorization of, or
registration with or notice to, any banking authority which
supervises or regulates the Property Trustee is required for the
execution, delivery or performance by the Property Trustee, of
this Declaration.
(v) The Property Trustee satisfies the qualifications set
forth in Section 4.1(c).
(b) The Trustee which acts as initial Delaware Trustee represents
and warrants to the Trust and IAC, Inc. at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and IAC,
Inc. at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee, that it satisfies the qualifications set forth
in Section 4.1(a)(3).
ARTICLE XIII
MERGER
SECTION 13.1 No Merger, Consolidation or Amalgamation of Trust.
The Trust shall not consolidate, amalgamate, merge with or into,
or convey, transfer or lease its assets substantially as an entirety to, any
Person except as provided in Section 13.2.
SECTION 13.2 Merger, Consolidation or Amalgamation of Trust.
The Trust may, at the request of the Holders of the Common
Securities and with the consent of the Regular Trustees, but without the consent
of the Holders of the Preferred Securities, the Property Trustee or the Delaware
Trustee, consolidate, amalgamate, merge with or into, any trust, partnership,
corporation or other entity organized under the laws of any State of the United
States or the District of Columbia; provided, that (i) if the Trust is not the
survivor, such successor entity (x) either expressly assumes all of the
obligations of the Trust under the Securities or (y) substitutes for the
Preferred Securities of each series outstanding other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities"), so long as each series of Successor Securities rank the same as
the Preferred Securities rank with respect to Distributions and payments upon
liquidation, dissolution or winding-up, (ii) IAC, Inc. and IAC, L.P. expressly
acknowledge a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the Holder of the Preferred L.P. Units but
only if in the opinion of nationally recognized independent counsel to the Trust
experienced
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in matters under the Investment Company Act of 1940, such action is necessary so
that the successor entity will not be required to register as an "investment
company" under the Investment Company Act, (iii) the Preferred Securities or any
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any stock exchange or interdealer quotation system
or with another organization on which the Preferred Securities are then listed
or quoted, (iv) such merger, consolidation or amalgamation does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any "nationally recognized statistical rating organization" as defined in Rule
436(g)(2) under the Securities Act or (v) such merger, consolidation,
amalgamation does not adversely affect the powers, special rights, preferences
and privileges of the Holders of the Preferred Securities (including any
Successor Securities) in any material respect.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
All notices provided for in this Declaration shall be in writing,
duly signed by the party giving such notice, and shall be delivered, telecopied
or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Regular
Trustees on behalf of the Trust may give notice of to the Holders of the
Securities):
IAC Capital Trust
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
Attention: James E. Mead
Trustee
Facsimile No: (714) 720-5532
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<PAGE> 63
(b) if given to the Property Trustee, at the mailing address of
the Property Trustee set forth below (or such other address as the Property
Trustee may give notice of to the Holders of the Securities):
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee
Administration
Facsimile No: (212) 815-5915
(c) if given to the Delaware Trustee, at the mailing address of
the Delaware Trustee set forth below (or such other address as the Delaware
Trustee may give notice of to the Holders of the Securities):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Administration
(d) if given to the Holders of the Common Securities, IAC, Inc.
or IAC, L.P., at the mailing address of IAC, Inc. set forth below (or such other
address as the Holders of the Common Securities, IAC, Inc. or IAC, L.P. may give
notice to the Trust):
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Suite 300
Newport Beach, California 92660
Attention: Corporate Secretary
Facsimile No: (714) 750-5532
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
A copy of any notice to the Property Trustee or the Delaware
Trustee shall also be sent to the Trust. All notices shall be deemed to have
been given, when received in person, telecopied with receipt confirmed, or
mailed by first class mail, postage prepaid except that if a notice or other
document is refused delivery or cannot be delivered because of a changed address
of which no notice was given, such notice or other document shall be deemed to
have been delivered on the date of such refusal or inability to deliver.
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SECTION 14.2 [Reserved].
SECTION 14.3 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 14.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 14.5 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, is determined in a final and
inapplicable judgment to be void, invalid or unenforceable by any Federal or
state court having jurisdiction over the issues, the validity and enforceability
of the remainder of this Declaration, or the application of such provision to
Persons or circumstances other than those to which it is held void, invalid or
unenforceable, shall not be affected thereby.
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SECTION 14.6 Counterparts.
This Declaration may contain more than one counterpart of the
signature pages and this Declaration may be executed by the affixing of the
signature of IAC, Inc., IAC, L.P. and each of the Trustees to one of such
counterpart signature pages. All of such counterpart signature pages shall be
read as though one, and they shall have the same force and effect as though all
of the signers had signed a single signature page.
SECTION 14.7 Intention of the Parties.
It is the intention of the parties hereto that the Trust be
treated as a real estate investment trust for United States federal income tax
purposes. The provisions of this Declaration shall be interpreted to further
this intention of the parties.
SECTION 14.8 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named
or referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by IAC, Inc.,
IAC, L.P. and the Trustees shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed.
SECTION 14.9 Personal Liability.
The Holders of the Securities, in their capacities as such, shall
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
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<PAGE> 66
IN WITNESS WHEREOF, the undersigned has caused these presents to
be executed as of the day and year first above written.
IRVINE APARTMENT COMMUNITIES, INC.,
as one of the sponsors of the Trust
By:_______________________________________
Name: James E. Mead
Title: Senior Vice President, Chief
Financial Officer and Secretary
IRVINE APARTMENT COMMUNITIES, L.P.
as one of the sponsors of the Trust
By: Irvine Apartment Communities, Inc.,
its general partner
By:_______________________________________
Name: James E. Mead
Title: Senior Vice President, Chief
Financial Officer and Secretary
JAMES E. MEAD
__________________________________________
James E. Mead,
not in his individual capacity,
but solely as Trustee
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<PAGE> 67
THE BANK OF NEW YORK,
not in its individual capacity,
but solely as Trustee
By:_______________________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
not in its individual capacity,
but solely as Trustee
By:_______________________________________
Name:
Title:
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<PAGE> 68
EXHIBIT A
CERTIFICATE OF TRUST OF IAC CAPITAL TRUST
This CERTIFICATE OF TRUST of IAC Capital Trust (the "Trust"),
dated as of October 31, 1997, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. Code Section 3801 et seq.).
1. Name. The name of the business trust being formed hereby is
IAC Capital Trust.
2. Delaware Trustee. The name and business address of the trustee
of the Trust with a principal place of business in the State of Delaware is The
Bank of New York (Delaware), a Delaware banking corporation, White Clay Center,
Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective
as of its filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of
the Trust, have executed this Certificate of Trust as of the date first above
written.
The Bank of New York (Delaware),
as Trustee
By: /s/Walter N. Gitlin
-----------------------------------
Name: Walter N. Gitlin
Title: Authorized Signatory
The Bank of New York,
as Trustee
By: /s/Van K. Brown
-----------------------------------
Name: Van K. Brown
Title: Assistant Vice President
/s/James E. Mead
-----------------------------------
James E. Mead,
as Trustee
A-1
<PAGE> 69
EXHIBIT B
INITIAL PURCHASERS OF COMMON SECURITIES
<TABLE>
<CAPTION>
Name Number of Common Securities
---- ---------------------------
<S> <C>
Irvine Apartment Communities, Inc. 90
William H. McFarland 29
Richard E. Lamprecht 27
James E. Mead 27
William W. Thompson 27
---------
Total: 200
</TABLE>
B-1
<PAGE> 70
ANNEX I
Certificate Number Number of Common Securities
C-__ [____________]
Certificate Evidencing Common Securities
of
IAC Capital Trust
IAC Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
______________ (the "Holder") is the registered owner of ______________
(__________) common securities of the Trust representing common undivided
beneficial interests in the assets of the Trust (the "Common Securities"). The
Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer and satisfaction of the other
conditions set forth in the Declaration (as defined below) including, without
limitation, Section 8.1(c) thereof. The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities are set forth in, and this certificate and the Common Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Declaration of Trust of the Trust
dated as of ______________, 1997, as the same may be amended, modified or
restated from time to time (the "Declaration"). The Common Securities and the
Preferred Securities (as defined in the Declaration) issued by the Trust
pursuant to the Declaration represent, subject to the priority and payment terms
of such class or series, undivided beneficial interests in the assets of the
Trust, including the Preferred L.P. Units (as defined in the Declaration) issued
by Irvine Apartment Communities, L.P., a Delaware limited partnership. The Trust
will furnish a copy of the Declaration to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
I-1
<PAGE> 71
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this ____th day of ______________, 1997.
IAC CAPITAL TRUST
By
------------------------------------
James E. Mead, not in his
individual capacity, but solely as
trustee
Dated:
Countersigned and Registered:
The Bank of New York,
Transfer Agent and Registrar
By:
------------------------------------
Authorized Signature
I-2
<PAGE> 72
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert assignee's social security or tax identification number)
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
____________________________________________________________
____________________________________________________________
_________________________________________________________agent to transfer this
Common Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: ________________________
Signature: ___________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
I-3
<PAGE> 73
ANNEX II
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT -
THIS PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS
EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
DECLARATION AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF
THIS PREFERRED SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF
DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO
THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER. NO PERSON MAY BENEFICIALLY OWN SECURITIES OF THIS
SERIES OF PREFERRED SECURITIES IN EXCESS OF THE OWNERSHIP LIMIT APPLICABLE TO
THIS SERIES OF PREFERRED SECURITIES, WITH CERTAIN FURTHER RESTRICTIONS AND
EXCEPTIONS SET FORTH IN THE AMENDED AND RESTATED DECLARATION OF TRUST OF IAC
CAPITAL TRUST DATED AS OF __________, 199__, AS AMENDED FROM TIME TO TIME TO
("DECLARATION"). ANY PERSON WHO ATTEMPTS TO BENEFICIALLY OWN SECURITIES OF THIS
SERIES OF PREFERRED SECURITIES IN EXCESS OF THE APPLICABLE LIMITATION MUST
IMMEDIATELY NOTIFY THE TRUST. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE
MEANINGS ASCRIBED TO SUCH TERMS IN THE DECLARATION, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER, WILL
BE SENT WITHOUT CHARGE TO EACH HOLDER OF PREFERRED SECURITIES OF THIS SERIES WHO
REQUESTS SUCH A COPY. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE TRANSFER
WILL BE VOID IN ACCORDANCE WITH THE DECLARATION AND THE SHARES OF PREFERRED
SECURITIES REPRESENTED HEREBY WILL BE AUTOMATICALLY EXCHANGED FOR EXCESS
PREFERRED SECURITIES WHICH WILL BE HELD IN TRUST IN ACCORDANCE WITH THE
DECLARATION.
Certificate Number Number of Preferred Securities
A- [ ]
CUSIP NO.____________
II-1
<PAGE> 74
Certificate Evidencing Series [ ] Preferred Securities
of
IAC Capital Trust
____% Series [ ] REIT Trust Originated Preferred Securities
(liquidation amount $[ ] per Preferred Security)
IAC Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that _________
(the "Holder") is the registered owner of _____ (______) preferred securities of
the Trust representing preferred undivided beneficial interests in the assets of
the Trust designated the __% Series __ REIT Trust Originated Preferred
Securities (liquidation amount $[ ] per Preferred Security) (the " Series [ ]
Preferred Securities"). The Series [ ] Preferred Securities are transferable,
subject to the transfer restrictions set forth in the Declaration referred to
below, on the books and records of the Trust, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer. The designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Series [ ] Preferred Securities are set
forth in, and this certificate and the Series [ ] Preferred Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Declaration of Trust of the Trust
dated as of __________, as the same may be amended, modified or restated from
time to time (the "Declaration") including the designation of the terms of
Series [ ] Preferred Securities as set forth in the Certificate of Terms (as
defined in the Declaration) of the Series [ ] Preferred Securities. The Series [
] Preferred Securities, the Common Securities and any other series of Preferred
Securities (as defined in the Declaration) issued by the Trust pursuant to the
Declaration represent, subject to the priority and payment terms of each such
class or series, undivided beneficial interests in the assets of the Trust,
including the Preferred L.P. Units (as defined in the Declaration) issued by
Irvine Apartment Communities, L.P., a Delaware limited partnership. The Trust
will furnish a copy of the Declaration to the Holder without charge upon written
request to the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the
Declaration and the Certificate of Terms for the Series [ ] Preferred Securities
and is entitled to the benefits thereunder.
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<PAGE> 75
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this day of ___________, 199_.
IAC CAPITAL TRUST
By:________________________________,
James E. Mead, not in his
individual capacity but solely
as trustee
Dated:
Countersigned and Registered:
The Bank of New York,
Transfer Agent and Registrar
By:___________________________________
Authorized Signature
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<PAGE> 76
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert assignee's social security or tax identification number)
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
____________________________________________________________
____________________________________________________________
____________________________________________________________
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _________________________
Signature: ____________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
II-4
<PAGE> 1
EXHIBIT 4.6
FORM OF
CERTIFICATE OF TERMS OF
SERIES A PREFERRED SECURITIES
Pursuant to Section 6.1(d) of the Form of Amended and Restated
Declaration of Trust of IAC Capital Trust dated as of _________ ___, 199_ (as
amended from time to time, the "Declaration"), the designations, rights,
privileges, restrictions, preferences and other terms and provisions of a series
of Preferred Securities of IAC Capital Trust (the "Trust") are set forth below
(each capitalized term used but not defined herein having the meaning set forth
in the Declaration):
1. DESIGNATION AND NUMBER. Preferred Securities of the Trust with
an aggregate liquidation amount in the assets of the Trust of One Hundred
Seventy-two Million Five Hundred Thousand Dollars ($172,500,000) (including up
to Twenty-two Million Five Hundred Thousand Dollars ($22,500,000) issuable upon
exercise of the overallotment option set forth in the Purchase Agreement dated
as of __________, 1997 among the Trust, Irvine Apartment Communities, Inc.
("IAC, Inc."), Irvine Apartment Communities, L.P. ("IAC, L.P.") and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs
& Co., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and
Salomon Brothers, as representatives of the several underwriters named therein
(the "Purchase Agreement")) and a liquidation amount in the assets of the Trust
of $25 per Preferred Security, are hereby designated as "____% Series A REIT
Trust Originated Preferred Securities" (the "Series A Preferred Securities").
The Series A Preferred Security Certificates evidencing the Series A Preferred
Securities shall be substantially in the form attached as Annex II to the
Declaration, with such changes and additions thereto or deletions therefrom as
may be required by ordinary usage, custom or practice or to conform to the rules
of any stock exchange or interdealer quotation system on which the Series A
Preferred Securities are listed. In connection with the issuance and sale of the
Series A Preferred Securities, the Trust will purchase as trust assets Series A
Preferred Limited Partner Interests (the "Series A Preferred L.P. Units") of
IAC, L.P. having an aggregate stated amount payable on liquidation of IAC, L.P.
equal to the aggregate liquidation amount of the Series A Preferred Securities
so issued and having a distribution rate equal to the annual distribution rate
on the Series A Preferred Securities and having economic terms substantially
identical to the Series A Preferred Securities.
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<PAGE> 2
2. DISTRIBUTIONS. (a) Subject to the rights of Holders of any
series of Preferred Securities which the Trust may issue in the future which
rank on a parity with the Series A Preferred Securities in respect of
distributions, the Holders of outstanding Series A Preferred Securities will be
entitled to receive, when, as and if declared by the Regular Trustees out of
funds legally available for the payment of distributions, cumulative
preferential cash distributions at the rate per annum of ____% (the
"Distribution Rate") of the stated liquidation amount of $25 per Series A
Preferred Security (the "Stated Value"). Distributions on the Series A Preferred
Securities will be cumulative, will accrue from ___________, 199___, the
original issue date of the Series A Preferred Securities, and will be payable
quarterly in arrears on ___________, _______________, and ________________ (each
a "Series A Distribution Payment Date") of each year,
commencing on __________________________________, 1998. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and for any period shorter than a full quarterly
period for which distributions are computed, the amount of the distribution
payable will be computed on the basis of the actual number of days elapsed in
such a 30-day month. If any Series A Distribution Payment Date is not a Business
Day, the payment of the distribution to be made on such Series A Distribution
Payment Date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that
if such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such Series A Distribution Payment Date. While
the Series A Preferred Securities remain in book-entry only form, the relevant
record dates shall be one Business Day prior to the relevant Series A
Distribution Payment Date, and if the Series A Preferred Securities are no
longer in book-entry only form, the Regular Trustees shall have the right to
select relevant record dates, which shall be not less than 10 nor more than 50
days preceding the applicable Series A Distribution Payment Date.
(b) Distributions on the Series A Preferred Securities shall
accrue on a daily basis commencing on the date of original issuance of the
Series A Preferred Securities, will accrue whether or not the Trust has
earnings, whether or not there are funds legally available for the payment of
such distributions and whether or not such distributions are declared. Accrued
distributions will accumulate, to the extent not paid, as of the Series A
Distribution Payment Date on which they first become payable. Accumulated and
unpaid distributions will not bear interest.
(c) So long as any Series A Preferred Securities are outstanding,
no distribution shall be paid or declared on or with respect to the Common
Securities or any other series of outstanding Preferred Securities ranking
junior to the Series A
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<PAGE> 3
Preferred Securities as to the payment of distributions to the Series A
Preferred Securities, nor shall any sum or sums be set aside for or applied to
the purchase or redemption of the Series A Preferred Securities or any other
series of outstanding Preferred Securities or the purchase, redemption or other
acquisition for value of any Common Securities or any Preferred Securities of a
series ranking junior as to the payment of distributions unless, in each case,
full cumulative distributions accumulated on all Series A Preferred Securities
and all other series of outstanding Preferred Securities ranking on a parity
with the Series A Preferred Securities as to the payment of distributions have
been paid in full, provided that the foregoing will not prohibit distributions
payable solely in Common Securities or Preferred Securities of a series ranking
junior to the Series A Preferred Securities as to the payment of distributions.
When distributions have not been paid in full upon the Series A Preferred
Securities on the applicable Series A Distribution Payment Date (or a sum
sufficient for such full payment is not yet set apart therefor), all
distributions declared and paid on the Series A Preferred Securities and any
other series of outstanding Preferred Securities ranking on a parity with the
Series A Preferred Securities as to the payment of distributions shall be
declared and paid so that the amount of distributions declared and paid on the
Series A Preferred Securities and such other series of Preferred Securities
shall in all cases bear to each other the same ratio that the respective
distribution rights of Series A Preferred Securities and such other series of
Preferred Securities (which shall not include any accumulation in respect of
unpaid distributions for prior distribution periods if such other series of
Preferred Securities do not have cumulative distribution rights) bear to each
other.
(d) Holders of Series A Preferred Securities shall not be
entitled to any distributions whether payable in cash, property, or otherwise in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Trust shall be governed by Paragraph 4 hereof.
3. RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SERIES A PREFERRED
SECURITIES. The Ownership Limit applicable to the Series A Preferred Securities
shall be 9.8%.
4. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. Subject to the
rights of the Holders of any other series of Preferred Securities which the
Trust may issue in the future which rank on a parity with the Series A Preferred
Securities upon any voluntary or involuntary dissolution, liquidation,
winding-up or termination of the Trust, the Holders of the Series A Preferred
Securities will be entitled to receive upon any such dissolution, liquidation,
winding-up or termination of the Trust out of the
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<PAGE> 4
assets of the Trust legally available for distribution, after payment or
provision for debts and other liabilities of the Trust (to the extent not
satisfied by IAC, L.P. as provided in the Declaration), an amount per Series A
Preferred Security equal to the Stated Value, plus accrued and unpaid
distributions thereon to the date of payment (such amount being the "Liquidation
Distribution") and no more. If, upon any such liquidation, dissolution,
winding-up or termination, there are insufficient assets to permit full payment
to the holders of Series A Preferred Securities and any other series of
outstanding Preferred Securities ranking on a parity upon liquidation,
dissolution, winding-up or termination of the Trust with the Series A Preferred
Securities, the holders of Series A Preferred Securities and such other series
of Preferred Securities shall be paid ratably in proportion to the full
distributable amounts to which Holders of Series A Preferred Securities and such
other series of Preferred Securities are respectively entitled upon liquidation,
dissolution, winding-up or termination. The full preferential amount payable to
Holders of the Series A Preferred Securities and such other series of Preferred
Securities upon any such liquidation, dissolution, winding-up or termination
will be paid in full before any distribution or payment is made to the Holders
of Common Securities or Preferred Securities of any series ranking junior to the
Series A Preferred Securities as to the payment of distributions upon
liquidation, dissolution, winding-up or termination of the Trust.
5. STATED MATURITY AND REDEMPTION. (a) The Series A Preferred
Securities shall mature and the Stated Value thereof shall be due and payable on
December 31, 2092 (the "Stated Maturity Date") whether or not the term of the
Partnership is extended. On the Stated Maturity Date the holders of Series A
Preferred Securities shall be entitled to receive, upon surrender of their
certificates for the Series A Preferred Securities, out of funds legally
available for distribution an amount in cash equal to the Stated Value per
Series A Preferred Security, plus accrued and unpaid distributions thereon to
the date of payment (the "Stated Maturity Price") and no more.
(b) Upon the repayment of a series of Preferred L.P. Units, in
whole or in part, whether at maturity, upon termination of IAC, L.P., upon
redemption or otherwise, or under certain circumstances upon the occurrence of
a Special Event (as defined in the Partnership Agreement), the proceeds of such
repayment will be promptly applied to redeem a series of Preferred Securities
with economic terms substantially similar to the economic terms of the series of
Preferred L.P. Units being redeemed or repaid, having an aggregate stated value
equal to the aggregate stated value of the Preferred L.P. Units so repaid or
redeemed, upon not less than 30 nor more than 60 days' notice, subject to the
priority and payment terms of each series of
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<PAGE> 5
outstanding Preferred Securities, at the applicable redemption price. "Series A
Redemption Price" means, as it relates to the Series A Preferred Securities, $25
per Series A Preferred Security plus an amount equal to accrued and unpaid
distributions thereon to the date of redemption, payable in cash; provided that
the Trust may not redeem fewer than all the outstanding Series A Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Series A Preferred Securities for all quarterly distribution periods terminating
on or prior to the date of redemption.
(c) If fewer than all the outstanding Series A Preferred
Securities are to be so redeemed, the Series A Preferred Securities to be
redeemed will be redeemed as described in Paragraph 5(e)(ii) below. If a partial
redemption would result in the delisting of the Series A Preferred Securities by
any national securities exchange or other organization on which the Series A
Preferred Securities are then listed, the Trust may only redeem Series A
Preferred Securities in whole.
(d) Except in the case of a Special Event, the Series A Preferred
Securities may not be redeemed prior to ____________________.
(e) (i) The Regular Trustees, on behalf of the Trust, will
provide notice of any redemption of the Series A Preferred Securities to the
Holders of record thereof not less than 30 nor more than 60 days prior to the
date of redemption and in the case of a mandatory repayment of the Series A
Preferred Securities on the Stated Maturity Date will provide notice of such
repayment not less than 30 nor more than 60 days prior to the Stated Maturity
Date. Such notice shall be provided by mailing notice of such redemption or
mandatory repayment, first class postage prepaid, to each Holder of Series A
Preferred Securities to be redeemed or to all Holders in the event of a
mandatory repayment on the Stated Maturity Date, at such Holder's address as it
appears on the transfer records of the Trust. Each notice shall state, as
appropriate, the following:
(A) the redemption date or the Stated Maturity Date;
(B) the Series A Redemption Price or the Stated Maturity Price;
(C) the place or places where certificates for the Series A Preferred
Securities may be surrendered for payment;
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<PAGE> 6
(D) the number of the Series A Preferred Securities to be redeemed from
each Holder;
(E) that payment of the Series A Redemption Price or the Stated Maturity
Price will be made upon presentation and surrender of such Series A Preferred
Securities; and
(F) that on or after the Stated Maturity Date or the redemption date
distributions on the Series A Preferred Securities to be redeemed or repaid
will cease to accrue.
No failure to give or defect in a notice of redemption shall affect the validity
of the proceedings for redemption except as to the Holder to which notice was
defective or not given.
(ii) In the event of any redemption of Series A Preferred
Securities in part, Series A Preferred Securities registered in the name of and
held of record by DTC (or the successor Clearing Agency) or any other nominee
will be redeemed from, and the distribution of the proceeds of such redemption
will be made to, each Clearing Agency Participant (or person on whose behalf
such nominee holds such securities) in accordance with the procedures applied by
such Clearing Agency or nominee. If the Series A Preferred Securities are no
longer in book-entry form, the provisions of Paragraph 10 hereof shall apply to
any redemption of the Series A Preferred Securities in part.
(iii) If notice (which notice will be irrevocable) has been given
to the Holders of Series A Preferred Securities as provided above, then, by
12:00 noon, New York City time, on the redemption date or the Stated Maturity
Date, as the case may be, provided that IAC, L.P. has paid the Property Trustee
a sufficient amount of cash in connection with the redemption or maturity of the
series of Preferred L.P. Units having economic terms substantially similar to
the Series A Preferred Securities, the Property Trustee will deposit irrevocably
in trust for the benefit of the Series A Preferred Securities being redeemed or
repaid funds sufficient to pay the applicable Series A Redemption Price or
Stated Maturity Price, as the case may be, and will give irrevocable
instructions and authority to pay such Series A Redemption Price or Stated
Maturity Price, as the case may be, to the Holders of the Series A Preferred
Securities entitled thereto. If notice shall have been given as provided above
and funds deposited as required, then upon the date of such deposit,
distributions will cease to accrue on the Series A Preferred Securities called
for redemption or to be repaid, as the case may be, such Series A Preferred
Securities will no longer be
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<PAGE> 7
deemed to be outstanding and all rights of Holders of such Series A Preferred
Securities so called for redemption or to be repaid, as the case may be, will
cease, except the right of the Holders of such Series A Preferred Securities to
receive the applicable Series A Redemption Price or Stated Maturity Price, as
the case may be, but without interest thereon. Neither the Trustees nor the
Trust shall be required to register or cause to be registered the transfer of
any Series A Preferred Securities which have been so called for redemption. If
the Stated Maturity Date or any date fixed for redemption of Series A Preferred
Securities is not a Business Day, then payment of the Series A Redemption Price
or the Stated Maturity Price, as the case may be, payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the Stated Maturity Date or such date fixed for redemption. If payment of the
Series A Redemption Price or the Stated Maturity Price, as the case may be, in
respect of the Series A Preferred Securities is improperly withheld or refused
and not paid, distributions on such Series A Preferred Securities will continue
to accrue from the original redemption date or the Stated Maturity Date, as the
case may be, to the date of payment, in which case the actual payment date will
be used for purposes of calculating the Series A Redemption Price or the Stated
Maturity Price, as the case may be.
(iv) The Holders of Series A Preferred Securities at the close of
business on a distribution record date will be entitled to receive the
distribution payable with respect to such Series A Preferred Securities on the
corresponding Series A Distribution Payment Date notwithstanding the redemption
thereof between such distribution record date and the corresponding Series A
Distribution Payment Date or the Trust's default in the payment of the
distribution due. Except as provided above, the Trust will make no payment or
allowance for unpaid distributions, regardless of whether in arrears, on Series
A Preferred Securities called for redemption.
(v) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws), IAC, L.P. or any of
its subsidiaries may at any time and from time to time purchase outstanding
Series A Preferred Securities by tender, in the open market or by private
agreement unless at such time, IAC, L.P. would be prohibited from purchasing or
redeeming Series A Preferred L.P. Units pursuant to the terms thereof.
(f) The Series A Preferred Securities do not have the benefit of
any sinking fund.
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<PAGE> 8
6. VOTING RIGHTS. (a) Except as provided under Paragraph 6(b)
below and as otherwise required by law and the Declaration, the Holders of the
Series A Preferred Securities will have no voting rights.
(b) If the Trust fails to make distributions in full on the
Series A Preferred Securities for 6 consecutive quarterly distribution periods
(an "Appointment Event"), then the Holders of the Series A Preferred Securities
(voting separately as a class with all other series of Preferred Securities upon
which like voting rights have been conferred and are then exercisable) will be
entitled, by the vote of Holders of such Preferred Securities representing a
Majority in aggregate liquidation amount of such outstanding Preferred
Securities, to appoint, subject to Section 4.2(a)(ii)(B) of the Declaration, a
Special Regular Trustee. Any Holder of Series A Preferred Securities (other than
IAC, Inc. or IAC, L.P. or any of their affiliates) shall have the right to
nominate any Person to be appointed as Special Regular Trustee. For purposes of
determining whether the Trust has failed to pay distributions in full for 6
consecutive quarterly distribution periods, distributions shall be deemed to
remain in arrears, notwithstanding any payments in respect thereof, until full
cumulative distributions have been or contemporaneously are paid with respect to
all quarterly distribution periods terminating on or prior to the date of
payment of such cumulative distributions. Not later than 30 days after such
right to appoint a Special Regular Trustee arises, the Regular Trustees ,
subject to Section 4.2(a)(ii)(B) of the Declaration, will convene a meeting for
the purpose of appointing a Special Regular Trustee. If the Regular Trustees
fail to convene such meeting within such 30-day period, the Holders of Series A
Preferred Securities and any other series of Preferred Securities upon which
like voting rights have been conferred and are exercisable representing an
aggregate of 10% in liquidation amount of such outstanding Preferred Securities
will be entitled to convene such meeting. If, at any such meeting, Holders of
less than a Majority in aggregate liquidation amount of Preferred Securities of
all series entitled to vote for the appointment of a Special Regular Trustee
vote for such appointment, no Special Regular Trustee shall be appointed.
If any proposed amendment or modification to the Declaration
would materially and adversely affect the powers, privileges, preferences or
special rights of the Series A Preferred Securities, then the Holders of
outstanding Series A Preferred Securities will be entitled to vote on such
amendment or proposal as a class and such amendment or proposal shall not be
effective except with the approval of the Holders of Series A Preferred
Securities representing 66-2/3% in liquidation amount of outstanding Series A
Preferred Securities; provided, however, that any such amendment or
modification which would (i) increase the number of authorized Securities
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<PAGE> 9
that the Trust is authorized to issue or (ii) authorize, create or issue any
additional series of Preferred Securities on a parity with or junior to the
Series A Preferred Securities as to distributions or upon liquidation,
dissolution, winding-up or termina tion of the Trust shall be deemed not to
materially and adversely affect such power, special rights, preferences or
privileges; and provided, further, if Holders of Series A Preferred Securities
have a right to vote as provided in this Paragraph but such amendment or
modification arises out of, or is substantially similar to, an amendment or a
modification of the Partnership Agreement as described in the following
paragraph and with respect to which the Property Trustee is required to obtain
the direction of Holders of Series A Preferred Securities as described below,
then to the extent permitted by applicable law, no separate vote pursuant to the
Declaration shall be required and the vote obtained in connection with the
Property Trustee seeking the direction of Holders of Series A Preferred
Securities shall constitute complete and sufficient action with respect to such
amendment or modification of the Declaration.
In the event the consent or vote of the Property Trustee, as the
Holder of the Series A Preferred L.P. Units of IAC, L.P., is required with
respect to any amendment or modification of the Partnership Agreement, the
Property Trustee shall request the written direction of the Holders of the
Series A Preferred Securities with respect to such amendment or modification and
the Property Trustee shall vote with respect to the Series A Preferred L.P.
Units and such amendment or modification as directed by a Majority in aggregate
liquidation amount of the Series A Preferred Securities voting together as a
single class; provided that where such amendment or modification under the
Partnership Agreement requires the consent of Holders of Series A Preferred L.P.
Units representing a specified percentage greater than a Majority in aggregate
liquidation amount of the Series A Preferred L.P. Units, the Property Trustee
may only give such consent at the direction of the Holders of Series A Preferred
Securities representing such specified percentage of the aggregate liquidation
amount of the Series A Preferred Securities.
Any required approval or direction of Holders of Series A
Preferred Securities may be given at a separate meeting of Holders of Series A
Preferred Securities convened for such purpose, at a meeting of all of the
Holders of Preferred Securities of the Trust or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which Holders of Series A
Preferred Securities are entitled to vote, or of any matter upon which action by
written consent of such Holders is to be taken, to be mailed to each Holder of
record of Series A Preferred Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled
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<PAGE> 10
to vote or of such matter upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
No vote or consent of the Holders of Series A Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities of any series.
Notwithstanding that Holders of Series A Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Series A Preferred Securities at such time that are owned by IAC, Inc.,
IAC, L.P. or by any entity directly or indirectly controlling or controlled by
or under direct or indirect common control with IAC, Inc. or IAC, L.P. shall not
be entitled to vote or consent and shall, for purposes of such vote or consent,
be treated as if they were not outstanding.
7. RANKING. The Series A Preferred Securities rank, with respect
to distributions and rights upon liquidation, dissolution, winding-up or
termination of the Trust, (i) senior to the Common Securities and (ii) on a
parity with all other series of Preferred Securities issued by the Trust unless
the terms of such other series specifically provide that such other series
ranks junior to the Series A Preferred Securities.
9. CONVERSION RIGHTS. Except as otherwise provided in Article
VIII of the Declaration regarding exchanges for Excess Preferred Securities, the
Series A Preferred Securities are not convertible into or exchangeable or
exercisable for any other property or securities of the Trust, IAC, Inc. or IAC,
L.P..
10. TRANSFER, EXCHANGE, METHOD OF PAYMENTS.
In the event the Series A Preferred Securities do not remain in book-entry only
form, the following provisions shall apply:
Payment of distributions and payments on redemption or at the Stated
Maturity of the Series A Preferred Securities will be payable, the transfer of
the Series A Preferred Securities will be registerable, and Series A Preferred
Securities will be exchangeable for Series A Preferred Securities of other
denominations of a like aggregate liquidation amount, at the principal corporate
trust office of the Property Trustee in The City of New York; provided that
payment of distributions may be made at the option of the Regular Trustees on
behalf of the Trust by check mailed to the address of the persons entitled
thereto and that the payment on redemption or at the Stated Maturity of any
Series A Preferred Security will be made only upon surrender of such Preferred
Security to the Property Trustee.
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<PAGE> 11
If fewer than all of the Series A Preferred Securities are to be
redeemed, the Property Trustee shall select Series A Preferred Securities to be
redeemed by lot or pro rata (as nearly as practicable without creating
fractional Series A Preferred Securities) or in some other equitable manner
determined by the Property Trustee upon consultation with the Regular Trustees.
In the event of any redemption of Series A Preferred Securities in part,
the Trust shall not be required to (i) issue, register the transfer of or
exchange any Series A Preferred Securities during a period beginning at the
opening of business 15 days before any selection for redemption of Series A
Preferred Securities and ending at the close of business on the earliest date on
which the relevant notice of redemption is deemed to have been given to all
Holders of Series A Preferred Securities to be redeemed and (ii) register the
transfer of or exchange any Series A Preferred Securities so selected for
redemption, in whole or in part, except the unredeemed portion of any Series A
Preferred Securities being redeemed in part. Holders of Series A Preferred
Securities shall surrender such Series A Preferred Securities at the place
designated in the notice of redemption and shall be entitled to the Series A
Redemption Price upon such redemption following such surrender.
Upon presentation of any Certificate for Series A Preferred
Securities redeemed in part only, the Trust shall execute and deliver, at the
expense of the Trust, a new Certificate equal to the unredeemed portion of the
Certificate so presented.
11. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities
shall have no preemptive rights to subscribe to any additional Preferred
Securities or Common Securities.
12. MISCELLANEOUS. Upon issuance, the Series A Preferred
Securities will be fully paid and non-assessable. This Certificate of Terms
shall constitute a part of the Declaration.
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IN WITNESS WHEREOF, this Certificate of Terms of Series A Preferred Securities
is duly executed as of ___________, 199_.
- ------------------------------
James E. Mead,
not in his individual capacity
but solely as a Trustee
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<PAGE> 1
EXHIBIT 10.4.2
AMENDMENT TO THE MISCELLANEOUS RIGHTS AGREEMENT EXECUTED IN CONNECTION WITH
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
AMENDMENT No. 2 dated as of _______, 199_ to the Miscellaneous
Rights Agreement dated as of March 20, 1996, as amended by Amendment No. 1
thereto dated as of July 25, 1997 (the "Existing Agreement") by and among Irvine
Apartment Communities, Inc. (the "Company"), Irvine Apartment Communities, L.P.
(the "Operating Partnership") and The Irvine Company ("The Irvine Company").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery hereof, the
Partnership Agreement is being amended and restated in its entirety to, among
other things, provide for the issuance by the Partnership of Preferred Limited
Partner Interests (as defined therein) in series; and
WHEREAS, the execution and delivery of this Amendment No. 2 by
the Company and the Operating Partnership has been approved by resolutions duly
adopted by the Board of Directors of the Company and by the Independent
Directors Committee of such Board.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. The parties acknowledge and agree that all references in the
Existing Agreement (i) to the Partnership Agreement shall mean the Second
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership dated as of ______, 199_, as the same may be amended, modified or
restated from time to time and (ii) to "limited partnership interests" or "L.P.
Units" shall mean the Common Limited Partner Interests as defined in such Second
Amended and Restated Agreement of Limited Partnership.
Section 2. Except as amended by this Amendment No. 2, the provisions of
the Existing Agreement are ratified, approved and confirmed and shall remain in
full force and effect in accordance with its terms.
Section 3. This Amendment No. 2 shall become effective when signed by
the parties to the Existing Agreement.
Section 4. This Amendment No. 2 shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland, without
regard to the choice of law provisions thereof.
<PAGE> 2
Section 5. This Amendment No. 2 may be executed in counterparts, all of
which shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 2 as of the date and year first written above.
IRVINE APARTMENT COMMUNITIES, INC.
By:_____________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities, Inc.,
General Partner
By:____________________________________
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
THE IRVINE COMPANY
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
2
<PAGE> 1
EXHIBIT 10.6.5
AMENDMENT TO LAND RIGHTS AGREEMENT EXECUTED IN CONNECTION WITH EXECUTION OF
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE
APARTMENT COMMUNITIES, L.P.
AMENDMENT No. 5 dated as of ___________, 1997 to the Exclusive Land
Rights and Non-Competition Agreement dated as of November 21, 1993 as amended by
Amendment No. 1 thereto dated April 20, 1995, Amendment No. 2 thereto dated July
18, 1995, Amendment No. 3 thereto dated as of May 2, 1996 and Amendment No. 4
thereto dated as of July 25, 1997 (as so amended, the "Existing Agreement").
W I T N E S S E T H:
WHEREAS, The Irvine Company, a Michigan corporation, Irvine Apartment
Communities, L.P., a Delaware limited partnership ("Partnership"), Irvine
Apartment Communities, Inc., a Maryland corporation (the "Corporation"), and Mr.
Donald Bren, an individual, have entered into the Existing Agreement;
WHEREAS, the Corporation, The Irvine Company, in its capacity as a
limited partner of the Partnership, and the other limited partners of the
Partnership have executed and delivered as of the date hereof the Second Amended
and Restated Agreement of Limited Partnership of Irvine Apartment Communities,
L.P. (the "New Partnership Agreement").
WHEREAS, as a result of the execution of the New Partnership Agreement
the parties hereto agree that it is necessary and desirable to amend the
Existing Agreement as set forth below; and
WHEREAS, the execution and delivery of this Amendment by the Partnership
and the Corporation have been approved by resolutions duly adopted by the
Independent Directors Committee of the Board of Directors of the Corporation.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. From and after the date hereof all references in the Existing
Agreement (including the exhibits thereto) to (i) "limited partnership
interests" or "L.P. Units" shall mean the Common Limited Partner Interests as
defined in the New Partnership Agreement, (ii) "Registration Rights Agreement"
shall mean the New Partnership Agreement and (iii) the "Amended and Restated
Agreement of Limited Partnership of Irvine Apartment Communities, L.P. dated as
of December 1, 1993, as amended "shall mean the New Partnership Agreement as the
same may be amended, modified or restated from time to time.
<PAGE> 2
Section 2. Except as amended hereby, the provisions of the Existing
Agreement are ratified, approved and confirmed and shall remain in full force
and effect in accordance with its terms.
Section 3. The validly, construction and enforceability of this
Amendment shall be governed in all respects by the internal laws of the State of
California without regard to its conflict of laws rules.
Section 4. This Amendment may be executed in two or more counterparts,
all of which taken together with signature pages from each party hereto shall be
considered the same agreement, binding against all parties hereto.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"IRVINE" "PARTNERSHIP"
THE IRVINE COMPANY, IRVINE APARTMENT COMMUNITIES, L.P.,
a Michigan corporation a Delaware limited partnership
By:____________________ By: IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation, its sole
General Partner
By:____________________ By:_______________________________________
James E. Mead
Senior Vice President and
Chief Financial Officer
By:_______________________________________
Shawn Howie
Vice President, Corporate Finance
and Controller
"BREN" "REIT"
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
________________________ By:_______________________________________
DONALD BREN James E. Mead
Senior Vice President and Chief
Financial Officer
By:_______________________________________
Shawn Howie
Vice President, Corporate Finance
and Controller
3
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated (a) January 31, 1997, on the consolidated financial
statements and schedule of Irvine Apartment Communities, L.P., and (b) November
1, 1997, on the balance sheet of IAC Capital Trust, in Amendment No. 1 to the
Registration Statement (Form S-11) and related Prospectus of IAC Capital Trust
and Irvine Apartment Communities, L.P. filed on December 18, 1997.
ERNST & YOUNG LLP
Newport Beach, California
December 17, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-39405 of IAC Capital Trust and Irvine Apartment Communities, L.P. of our
report dated June 18, 1997 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 17, 1997
