<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INSIGNIA PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
MARYLAND 6798 57-1045190
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
ONE INSIGNIA FINANCIAL PLAZA
P.O. BOX 19059
GREENVILLE, SOUTH CAROLINA 29602
(864) 239-1300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES A. ASTON
PRESIDENT
INSIGNIA PROPERTIES TRUST
ONE INSIGNIA FINANCIAL PLAZA
P.O. BOX 19059
GREENVILLE, SOUTH CAROLINA 29602
(864) 239-1300
(Name, address including zip code, and telephone number,
including area code, of agent for service) with copies to:
ROBERT G. KOEN PAULA J. PETERS
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. MICHAEL V. BALES
590 MADISON AVENUE GREENBERG GLUSKER FIELDS CLAMAN
20TH FLOOR & MACHTINGER LLP
NEW YORK, NEW YORK 10022 1900 AVENUE OF THE STARS, SUITE 2100
LOS ANGELES, CALIFORNIA 90067
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective and the merger of Angeles Mortgage Investment Trust with and into
Insignia Properties Trust (the "Merger") has become effective.
If any securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
====================================================================================================================
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest, par 4,072,001 $16.63 $67,717,376 $13,491
value $.01 per share
====================================================================================================================
</TABLE>
(1) Consists of up to 4,072,001 common shares of beneficial interest, par
value $.01 per share, of the Registrant issuable upon the conversion,
pursuant to the Merger, of (i) 2,617,000 Class A shares of beneficial
interest, par value $1.00 per share, of Angeles Mortgage Investment Trust
("AMIT Class A Shares") and (ii) 1,675,113 Class B shares of beneficial
interest, par value $.01 per share of Angeles Mortgage Investment Trust
("AMIT Class B Shares").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1), Rule 457(c) and Rule 457(f)(2), based on the
sum of (i) the product of $19.00 (the average of the high and low prices
of the AMIT Class A Shares on May 20, 1998 on the American Stock Exchange)
times 2,617,000 (the number of AMIT Class A Shares outstanding on May 20,
1998) and (ii) the product
<PAGE>
of $10.74 (the book value of the AMIT Class B Shares on March 31, 1998)
times 1,675,113 (the number of AMIT Class B Shares outstanding on March
31, 1998).
(3) Pursuant to Section 14(g)(1)(B) of the Securities Exchange Act of 1934, as
amended, the fee of $6,485 paid on November 14, 1997 upon the filing by
Angeles Mortgage Investment Trust of preliminary proxy material relating
to the Merger has been credited against the registration fee payable in
connection with this filing.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
340 NORTH WESTLAKE BOULEVARD
SUITE 230
WESTLAKE VILLAGE, CALIFORNIA 91362
May ____, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of Angeles Mortgage Investment Trust ("AMIT") on June
29, 1998. The Special Meeting will begin at 9:00 a.m., local time, at the
Beverly Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills, California.
At the Special Meeting, you will be asked to approve certain matters
related to the proposed acquisition of AMIT by Insignia Properties Trust
("IPT"), pursuant to an Agreement and Plan of Merger dated as of July 18, 1997
(the "Merger Agreement") among AMIT, IPT, Insignia Financial Group, Inc.
("Insignia") and MAE GP Corporation ("MAE GP"). The Merger Agreement provides
for the merger of AMIT with and into IPT, with IPT being the surviving entity
(the "Merger").
In connection with the Merger, you are being asked to consider and
vote on the following proposals:
(i) to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger (the
"Merger Proposal"), and
(ii) subject to the approval of the Merger Proposal, to approve
the amendment of AMIT's Declaration of Trust (the "Trust
Amendment") to permit AMIT to merge and consolidate with
other entities subject to the required vote of AMIT's Board
of Trustees and shareholders (the "Trust Amendment Proposal,"
and together with the Merger Proposal, the "Proposals").
Holders of record of AMIT's Class A common shares of beneficial
interest, par value $1.00 per share ("AMIT Class A Shares"), and Class B common
shares of beneficial interest, par value $.01 per share ("AMIT Class B Shares,"
and together with the AMIT Class A Shares, "AMIT Shares"), at the close of
business on May 13, 1998, the record date for the Special Meeting, are entitled
to notice of, and to vote at, the Special Meeting and any adjournment or
postponement thereof. The affirmative vote of a majority of the AMIT Class A
Shares and AMIT Class B Shares, voting together as a single class, is required
to approve and adopt each of the Proposals, although the Trust Amendment
Proposal is conditioned upon the approval of the Merger Proposal, and will not
be submitted to the AMIT shareholders if the Merger Proposal fails.
For your information, all of the outstanding AMIT Class B Shares are
beneficially owned by Metropolitan Asset Enhancement, L.P. ("MAE"), which is an
affiliate of Insignia, and pursuant to an irrevocable voting proxy held by
AMIT, all (100%) of the AMIT Class B Shares will be voted as a unit on each of
the Proposals in the same manner as the majority of the AMIT Class A Shares
represented at the Special Meeting are voted on each of the Proposals.
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share
will be converted into 1.536 common shares of beneficial interest of IPT, par
value $.01 per share ("IPT Common Shares"), and each outstanding AMIT Class B
Share will be converted into 0.0314 IPT Common Shares. No cash will be paid to
AMIT shareholders, other than cash paid in lieu of fractional IPT Common
Shares. The number of IPT Common Shares into which each AMIT Class A Share and
AMIT Class B Share will be converted will decrease if, and to the extent that
AMIT makes any distributions prior to the consummation of the Merger.
Conversely, the number of IPT Common Shares into which each AMIT Class A Share
and AMIT Class B Share will be converted will be increased, if and to the
extent that IPT makes any distributions prior to the consummation of the
Merger. Each of AMIT and IPT expects to continue to declare and pay regular
quarterly distributions in accordance with their past practices. Consequently,
AMIT shareholders may not know the exact number of IPT Common Shares into which
his, her or its AMIT Shares will be converted at the time of the Special
Meeting.
<PAGE>
Subsequent to the execution of the Merger Agreement, on March 17,
1998, Insignia, the majority shareholder of IPT, entered into a merger
agreement (as subsequently amended and restated as of May 26, 1998, the
"Insignia/AIMCO Merger Agreement") with Apartment Investment and Management
Company, a publicly held Maryland corporation ("AIMCO"), providing for, among
other things, the merger of Insignia with and into AIMCO (the "Insignia/AIMCO
Merger"), which if consummated will result in AIMCO becoming the majority
shareholder of IPT. Pursuant to the Insignia/AIMCO Merger Agreement, AIMCO has
agreed to propose to acquire IPT by merger and to use its reasonable best
efforts to consummate this merger with IPT within three months after the
consummation of the Insignia/AIMCO Merger (but not earlier than August 15,
1998) at a purchase price of not less than $13.25 per IPT Common Share. AIMCO
currently intends to effect such merger by causing IPT to merge into a
subsidiary of AIMCO (the "IPT/AIMCO Merger"). If the IPT/AIMCO Merger (or any
equivalent transaction involving the acquisition of IPT by AIMCO) is
consummated, the AMIT shareholders then holding IPT Common Shares will be
cashed out and have no further interest in the newly merged IPT. Based on the
current exchange ratio for the Merger, if the IPT/AIMCO Merger is consummated,
an AMIT Class A shareholder would receive a cash amount for its IPT Common
Shares received in the Merger equivalent to $20.35 per AMIT Class A Share.
There can be no assurance that the IPT/AIMCO Merger will be consummated.
Information regarding each of the matters to be voted upon at the
Special Meeting is contained in the attached Combined Proxy Statement and
Prospectus (the "Proxy Statement/Prospectus"). We urge you to read the Proxy
Statement/Prospectus carefully. A copy of the Merger Agreement is attached to
the Proxy Statement/Prospectus as Annex A, and a copy of the Trust Amendment is
attached as Annex B. The Proxy Statement/Prospectus is being mailed to all AMIT
shareholders on or about May ______, 1998.
THE AMIT BOARD OF TRUSTEES HAS DETERMINED THAT THE MERGER AGREEMENT
AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF AMIT AND ITS
SHAREHOLDERS REGARDLESS OF WHETHER OR NOT THE IPT/AIMCO MERGER IS CONSUMMATED.
THE AMIT BOARD OF TRUSTEES HAS APPROVED EACH OF THE PROPOSALS AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF EACH OF THE PROPOSALS.
The firm of Christopher Weil & Company, Inc. has issued its opinion to
AMIT, a copy of which is attached to the Proxy Statement/Prospectus as Annex C,
that the exchange ratios established in the Merger Agreement pursuant to which
the AMIT Shares will be converted into IPT Common Shares upon consummation of
the Merger are fair, from a financial point of view, to the shareholders of
AMIT. Such opinion was delivered prior to announcement of the proposed
Insignia/AIMCO Merger. Such firm has not rendered an opinion as to the fairness
of the consideration to be received in the IPT/AIMCO Merger or as to the
fairness of the consideration to be received in the Merger in light of the
contemplated IPT/AIMCO Merger.
Whether or not you plan to attend the Special Meeting in person, we
urge you to complete, date and sign the enclosed proxy card and return it as
promptly as possible in the accompanying envelope. This is especially important
because a majority of the AMIT Class A Shares voting on each of the Proposals
will determine whether each Proposal passes or fails. If you are a shareholder
of record and do attend the Special Meeting and wish to vote your shares in
person, even after returning your proxy, you still may do so.
We look forward to seeing you in Beverly Hills on June 29, 1998.
Sincerely yours,
Ronald J. Consiglio
President and Chief Executive Officer
PLEASE READ, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
340 NORTH WESTLAKE BOULEVARD
SUITE 230
WESTLAKE VILLAGE, CALIFORNIA 91362
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 29, 1998
To the Shareholders of Angeles Mortgage Investment Trust:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of Angeles Mortgage Investment Trust, a California
unincorporated business trust ("AMIT"), will be held on June 29, 1998. The
Special Meeting will begin at 9:00 a.m., local time, and will be held at the
Beverly Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills, California, to
consider and act upon the following matters in connection with the proposed
acquisition of AMIT by Insignia Properties Trust ("IPT") pursuant to an
Agreement and Plan of Merger dated as of July 18, 1997 (the "Merger Agreement")
among AMIT, IPT, Insignia Financial Group, Inc. ("Insignia") and MAE GP
Corporation ("MAE GP"), which provides for the merger of AMIT with and into
IPT, with IPT being the surviving entity (the "Merger"):
1. To approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger (the
"Merger Proposal");
2. Subject to the approval of the Merger Proposal, to approve
the amendment of AMIT's Declaration of Trust (the "Trust
Amendment") to permit AMIT to merge and consolidate with
other entities subject to the required vote of AMIT's Board
of Trustees and shareholders (the "Trust Amendment Proposal,"
and together with the Merger Proposal, the "Proposals"); and
3. To transact such other business as may properly come before
the Special Meeting.
The close of business on May 13, 1998, has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Special Meeting and any adjournment or postponement thereof. A list of
AMIT shareholders entitled to vote at the Special Meeting will be available for
examination upon request prior to the Special Meeting.
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY
BE. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE DATE
AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. PLEASE DO NOT SEND ANY OF
YOUR SHARE CERTIFICATES AT THIS TIME.
When proxies are returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However,
if no instructions have been specified on the returned proxy, the shares
represented thereby will be voted FOR approval of each of the Proposals. Any
shareholder giving a proxy has the right to revoke it at any time before it is
voted by filing, with the Secretary of AMIT, either an instrument revoking the
proxy or a duly executed proxy bearing a later date. Proxies also may be
revoked by attending the Special Meeting and voting in person.
By Order of the Board of Trustees,
ANGELES MORTGAGE INVESTMENT TRUST
Anna Merguerian
Secretary
May ______, 1998
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 27, 1998
ANGELES MORTGAGE INVESTMENT TRUST
PROXY STATEMENT
-------------------
INSIGNIA PROPERTIES TRUST
PROSPECTUS
This Combined Proxy Statement and Prospectus (this "Proxy
Statement/Prospectus") is being furnished to holders of Class A common shares
of beneficial interest, par value $1.00 per share ("AMIT Class A Shares"), and
Class B common shares of beneficial interest, par value $.01 per share ("AMIT
Class B Shares," and together with the AMIT Class A Shares, "AMIT Shares"), of
Angeles Mortgage Investment Trust, a California unincorporated business trust
("AMIT"), in connection with the solicitation of proxies by the Board of
Trustees of AMIT (the "AMIT Board") for use at a special meeting of
shareholders of AMIT (the "Special Meeting") to be held on June 29, 1998, at
the Beverly Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills, California,
commencing at 9:00 a.m., local time, and at any adjournment or postponement
thereof.
The Special Meeting has been called to consider and vote on proposals
to (1) approve and adopt the Agreement and Plan of Merger dated as of July 18,
1997 (the "Merger Agreement") among AMIT, Insignia Properties Trust, a Maryland
real estate investment trust ("IPT"), Insignia Financial Group, Inc.
("Insignia") and MAE GP Corporation ("MAE GP") and the transactions
contemplated thereby, including the merger (the "Merger") of AMIT with and into
IPT, with IPT being the surviving entity (the "Merger Proposal"), and (2)
subject to the approval of the Merger Proposal, to approve the amendment of
AMIT's Declaration of Trust (the "Trust Amendment") to permit AMIT to merge and
consolidate with other entities subject to the required vote of the AMIT Board
and AMIT's shareholders (the "Trust Amendment Proposal," and together with the
Merger Proposal, the "Proposals"). A copy of the Merger Agreement is attached
hereto as Annex A, and a copy of the Trust Amendment is attached hereto as
Annex B.
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share
will be converted into 1.536 common shares of beneficial interest of IPT, par
value $.01 per share ("IPT Common Shares"), and each outstanding AMIT Class B
Share will be converted into 0.0314 IPT Common Shares. No cash will be paid to
AMIT shareholders, other than cash paid in lieu of fractional IPT Common
Shares. As a result of the Merger, IPT will succeed to the operations and
assets of AMIT, the separate existence of AMIT will cease and the shareholders
of AMIT will become shareholders of IPT.
Each of AMIT and IPT expects to continue to declare and pay quarterly
distributions in accordance with their past practices and if either AMIT or IPT
declares or pays any distributions after the date of this Proxy
Statement/Prospectus and prior to the consummation of the Merger, the ratios at
which the AMIT Shares will be converted into IPT Common Shares in the Merger
will be adjusted and, therefore, AMIT shareholders may not know the exact
number of IPT Common Shares into which their AMIT Shares will be converted in
the Merger at the time of the Special Meeting.
Subsequent to the execution of the Merger Agreement, on March 17,
1998, Insignia, the majority shareholder of IPT, entered into a merger
agreement (as subsequently amended and restated as of May 26, 1998, the
"Insignia/AIMCO Merger Agreement") with Apartment Investment and Management
Company, a publicly held Maryland corporation ("AIMCO"), providing for, among
other things, the merger of Insignia with and into AIMCO (the "Insignia/AIMCO
Merger"), which if consummated will result in AIMCO becoming the majority
shareholder of IPT. Pursuant to the Insignia/AIMCO Merger Agreement, AIMCO has
agreed to propose to acquire IPT by merger and to use its reasonable best
efforts to consummate this merger with IPT within three months after the
consummation of the Insignia/AIMCO Merger (but not earlier than August 15,
1998) at a purchase price of not less than $13.25 per IPT Common Share. AIMCO
currently intends to effect such merger by causing IPT to merge into a
subsidiary of AIMCO (the "IPT/AIMCO Merger"). If the IPT/AIMCO Merger (or any
equivalent transaction involving the acquisition of IPT by AIMCO) is
consummated, the AMIT shareholders then holding IPT Common Shares will be
cashed out and have no further interest in the newly merged IPT. Based on the
current exchange
<PAGE>
ratio for the Merger, upon consummation of the IPT/AIMCO Merger, an AMIT Class
A shareholder would receive a cash amount for its IPT Common Shares received in
the Merger which would be equivalent to $20.35 per AMIT Class A Share. There
can be no assurance that the IPT/AIMCO Merger will be consummated.
The IPT Board of Trustees has adopted a policy to pay regular
quarterly distributions in an amount equal to $.15 per IPT Common Share which
will be increased to $.16 per IPT Common Share beginning with the first
quarterly distribution for which the record date is after the consummation of
the Merger. These amounts are expected in the aggregate to exceed 95% of IPT's
REIT taxable income. If distributions exceed available cash, IPT will be
required to sell assets or borrow funds to make distributions or revise its
dividend policy.
This Proxy Statement/Prospectus also constitutes a prospectus of IPT
with respect to the IPT Common Shares to be issued in the Merger in exchange
for the outstanding AMIT Shares. An aggregate of approximately 4,072,000 IPT
Common Shares are expected to be issued to the holders of AMIT Shares
(including affiliates of IPT) upon consummation of the Merger.
The IPT Common Shares to be issued in connection with the Merger have
been approved for listing on the American Stock Exchange (the "ASE"), subject
to official notice of issuance, under the symbol "FFO."
This Proxy Statement/Prospectus and accompanying form of proxy
relating to the AMIT Class A Shares are first being mailed to shareholders of
AMIT on or about _________, 1998.
FOR A DISCUSSION OF CERTAIN CONSIDERATIONS REGARDING THE BUSINESS AND
OPERATIONS OF IPT AND AMIT THAT SHOULD BE EVALUATED BEFORE VOTING ON THE
PROPOSALS DESCRIBED HEREIN AT THE SPECIAL MEETING, SEE "RISK FACTORS" BEGINNING
ON PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATOR HAS APPROVED THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE ISSUANCE OF IPT COMMON SHARES IN CONNECTION WITH
THE MERGER, NOR HAVE THEY DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is _________, 1998.
ii
<PAGE>
AVAILABLE INFORMATION
IPT has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the IPT Common Shares
to be issued pursuant to the Merger Agreement. This Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Statements contained in this Proxy Statement/Prospectus or
in any document incorporated by reference in this Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein or therein
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 or such other document, each such statement being qualified in all
respects by such reference.
AMIT is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Commission. The AMIT Class A Shares are traded on the
American Stock Exchange.
The Registration Statement, including exhibits filed as a part
thereof, and the reports, proxy statements and other information filed by AMIT
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, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, 13th Floor, New
York, New York 10048; Chicago Regional Office, Citicorp Atrium Center, 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661; and Los Angeles Regional
Office, Suite 1100, 5670 Wilshire Boulevard, Los Angeles, California 90036.
Copies of such material also may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
All information contained in this Proxy Statement/Prospectus with
respect to IPT has been supplied by IPT, and all information with respect to
AMIT has been supplied by AMIT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY IPT, AMIT OR ANY OTHER PERSON. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL OR
TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF IPT OR AMIT SINCE THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS.
iii
<PAGE>
TABLE OF CONTENTS
SUMMARY .................................................................. 1
THE PARTIES ......................................................... 1
IPT AND IPLP ........................................................ 1
AMIT ................................................................ 2
INSIGNIA ............................................................ 2
THE SPECIAL MEETING ................................................. 3
THE MERGER AND RELATED MATTERS ...................................... 3
THE MERGER AGREEMENT ................................................ 3
CONVERSION OF AMIT SHARES ........................................... 3
INSIGNIA/AIMCO TRANSACTION .......................................... 4
OWNERSHIP OF IPT FOLLOWING THE MERGER ............................... 5
LISTING OF IPT COMMON SHARES ........................................ 5
MANAGEMENT OF IPT FOLLOWING THE MERGER .............................. 5
IPT DISTRIBUTION POLICY FOLLOWING THE MERGER ........................ 5
RECOMMENDATION OF THE AMIT BOARD .................................... 6
OPINION OF AMIT'S FINANCIAL ADVISOR ................................. 6
INTERESTS OF CERTAIN PERSONS IN THE MERGER .......................... 6
CONDITIONS TO THE MERGER ............................................ 7
EFFECTIVE TIME OF THE MERGER ........................................ 7
TRUST AMENDMENT ..................................................... 7
ACCOUNTING TREATMENT ................................................ 7
FEDERAL INCOME TAX CONSEQUENCES ..................................... 7
MATERIAL CONFLICTS OF INTEREST ...................................... 8
SUMMARY RISK FACTORS ................................................ 8
NO APPRAISAL RIGHTS ................................................. 9
FORWARD-LOOKING STATEMENTS .......................................... 9
INSIGNIA PROPERTIES TRUST ORGANIZATIONAL CHART ...................... 11
IPT SUMMARY HISTORICAL COMBINED FINANCIAL DATA ......................
AMIT SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA ................. 14
IPT SUMMARY PRO FORMA FINANCIAL DATA ................................ 15
COMPARATIVE PER SHARE INFORMATION ................................... 17
RISK FACTORS ............................................................. 18
RISK FACTORSS RELATING TO THE INSIGNIA/AIMCO TRANSACTION ............ 18
NO ASSURANCE OF CONSUMMATION .................................... 18
LOSS OF OPPORTUNITY TO PARTICIPATE IN FUTURE OF IPT ............. 18
CHANGE OF CONTROL OF IPT ........................................ 18
AIMCO CONTROL OF SHAREHOLDER VOTE ON IPT/AIMCO MERGER ........... 18
NO DIRECT RIGHTS TO REQUIRE AIMCO TO EFFECT IPT/AIMCO MERGER .... 18
ABSENCE OF FAIRNESS OPINION ..................................... 19
RISK FACTORS RELATING TO THE MERGER AND POST-MERGER OPERATIONS ........... 19
UNCERTAIN TAX TREATMENT OF MERGER .................................... 19
INTEGRATION OF THE BUSINESS OF AMIT AND IPT .......................... 20
UNDERLYING IPT ASSETS CREATE INVESTMENT WITH GREATER RISK ............ 20
FIXED EXCHANGE RATIO DESPITE FLUCTUATIONS IN MARKET PRICES ........... 20
EXCHANGE RATIO SUBJECT TO ADJUSTMENT FOR DISTRIBUTIONS ............... 20
DISPROPORTIONALITY WITH RESPECT TO CONVERSION RATIO OF OP UNITS ...... 21
LACK OF INDEPENDENT VALUATIONS OF ASSETS ............................. 21
LEVERAGE; NO LIMITATION ON DEBT ...................................... 21
CONFLICTS OF INTEREST ................................................ 22
CONTROL BY INSIGNIA .................................................. 23
LACK OF SHAREHOLDER CONTROL OVER IPT'S POLICIES ...................... 24
LIMITATIONS ON OWNERSHIP INTERESTS AND CHANGE OF CONTROL
IN DECLARATION OF TRUST .............................................. 24
POSSIBLE ADVERSE CONSEQUENCES OF OWNERSHIP LIMIT ..................... 25
DEPENDENCE ON PROPERTY PERFORMANCE; RISKS RELATED TO INVESTMENTS
IN REAL ESTATE LIMITED PARTNERSHIPS .................................. 25
ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS; EFFECTS
OF DISTRIBUTION POLICY ............................................... 26
ADVERSE CONSEQUENCES OF THE FAILURE TO QUALIFY AS A REIT ............. 27
POTENTIAL ADVERSE EFFECTS OF FUTURE OFFERINGS ........................ 27
POSSIBLE ADVERSE EFFECT ON SHARE PRICE ARISING FROM SHARES
AVAILABLE FOR FUTURE SALE ............................................ 27
NEGATIVE IMPACT ON REIT STATUS IF IPLP OR A CONTROLLED
PARTNERSHIP FAILS TO BE CLASSIFIED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES .......................................... 28
NO ESTABLISHED PUBLIC TRADING MARKET FOR INTERESTS IN
THE IPT PARTNERSHIPS ................................................. 28
COMPETITION IN REAL ESTATE MARKET .................................... 28
DEPENDENCE ON ANDREW L. FARKAS AND OTHER SENIOR MANAGERS ............. 28
CONCENTRATION OF PROPERTIES IN MULTIFAMILY RESIDENTIAL HOUSING ....... 29
ENVIRONMENTAL LIABILITY .............................................. 29
LIMITED OPERATING HISTORY ............................................ 29
ABSENCE OF PRIOR MARKET FOR IPT COMMON SHARES ........................ 29
ADVERSE EFFECT OF INCREASE IN INTEREST RATES ON THE TRADING
PRICE OF IPT COMMON SHARES ........................................... 30
UNCERTAINTY SURROUNDING CONSOLIDATION OF FINANCIAL STATEMENTS ........ 30
DILUTION.............................................................. 30
APPLICABILITY OF THE INVESTMENT COMPANY ACT .......................... 30
LITIGATION ARISING FROM TENDER OFFERS ................................ 30
THE SPECIAL MEETING ...................................................... 32
TIME AND PLACE; PURPOSES ............................................ 32
VOTING; VOTES REQUIRED FOR APPROVAL ................................. 32
AMIT PROXIES ........................................................ 32
SOLICITATION ........................................................ 33
THE MERGER ............................................................... 33
GENERAL ............................................................. 33
BACKGROUND OF THE MERGER ............................................ 34
AMIT'S REASONS FOR THE MERGER ....................................... 37
IPT'S REASONS FOR THE MERGER ........................................ 39
RECOMMENDATION OF THE AMIT BOARD .................................... 40
OPINION OF AMIT'S FINANCIAL ADVISOR ................................. 40
INTERESTS OF CERTAIN PERSONS IN THE MERGER .......................... 44
ACCOUNTING TREATMENT ................................................ 45
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ....................... 45
EXCHANGE OF SHARE CERTIFICATES ...................................... 48
NO FRACTIONAL SHARES ................................................ 48
LISTING OF IPT COMMON SHARES ........................................ 48
NO APPRAISAL RIGHTS ................................................. 48
FEDERAL SECURITIES LAWS CONSEQUENCES ................................ 48
INSIGNIA/AIMCO TRANSACTION ............................................... 49
INSIGNIA/AIMCO MERGER ............................................... 49
IPT/AIMCO MERGER .................................................... 49
THE MERGER AGREEMENT ..................................................... 51
EFFECTIVE TIME AND CLOSING OF THE MERGER ............................ 51
MANNER AND BASIS OF CONVERTING SHARES ............................... 51
REPRESENTATIONS AND WARRANTIES ...................................... 53
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PRE-CLOSING COVENANTS ............................................... 53
CONDITIONS TO THE MERGER ............................................ 55
TERMINATION OR AMENDMENT OF MERGER AGREEMENT ........................ 56
TRUST AMENDMENT .......................................................... 57
CERTAIN OTHER AGREEMENTS ................................................. 58
ASSET AGREEMENT ..................................................... 58
TAX AGREEMENT ....................................................... 58
STOCK OPTION AGREEMENT AND CLASS B VOTING PROXY ..................... 59
EXPENSE REIMBURSEMENT AGREEMENT ..................................... 59
BUSINESS OF IPT .......................................................... 60
GENERAL ............................................................. 60
THE IPT PARTNERSHIPS ................................................ 61
BUSINESS OBJECTIVES ................................................. 63
ACQUISITION STRATEGIES .............................................. 63
OPERATING STRATEGIES ................................................ 64
INVESTMENT POLICIES ................................................. 65
FINANCING POLICIES .................................................. 65
CONFLICT OF INTEREST POLICIES ....................................... 66
POLICIES WITH RESPECT TO OTHER ACTIVITIES ........................... 66
PROPERTIES .......................................................... 68
TAXES/DEPRECIATION .................................................. 70
MORTGAGES ........................................................... 72
LEGAL PROCEEDINGS ................................................... 74
IPT FORMATION TRANSACTIONS AND CERTAIN RECENT DEVELOPMENTS ............... 76
PREDECESSORS OF IPT AND IPLP ........................................ 76
THE NPI TRANSACTION ................................................. 76
FORMATION OF IPT AND IPLP ........................................... 77
CERTAIN RECENT DEVELOPMENTS ......................................... 78
THE PARTNERSHIP AGREEMENT OF IPLP ........................................ 83
MANAGEMENT .......................................................... 83
TRANSFERABILITY OF INTERESTS ........................................ 83
CAPITAL CONTRIBUTIONS ............................................... 83
REDEMPTION RIGHTS ................................................... 84
OPERATIONS .......................................................... 84
DISTRIBUTIONS AND ALLOCATIONS ....................................... 85
PROPERTY MANAGEMENT AND CONTRACT LOSS FEE ........................... 85
PUT RIGHTS .......................................................... 86
PARTNERSHIP ADMINISTRATION SERVICES ................................. 86
TRANSFERS OF CONTROLLING INTERESTS IN IPT ENTITIES .................. 87
TERM ................................................................ 87
TAX MATTERS PARTNER ................................................. 87
ACQUISITION AND DISPOSITION SERVICES AGREEMENT ........................... 88
ACQUISITION AND DISPOSITION SERVICES ................................ 88
AGREEMENTS REGARDING CERTAIN REAL ESTATE OPPORTUNITIES .............. 88
IPT LINE OF CREDIT ....................................................... 89
BUSINESS OF AMIT ......................................................... 91
GENERAL ............................................................. 91
MANAGEMENT; EMPLOYEES ............................................... 92
PROPERTIES .......................................................... 92
INVESTMENT POLICY ................................................... 93
LEGAL PROCEEDINGS ................................................... 94
MARKET FOR AMIT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ..... 94
IPT SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA ................... 96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IPT AND THE IPT PARTNERSHIPS ............... 99
INSIGNIA PROPERTIES TRUST .......................................... 99
FINANCIAL CONDITION ................................................ 99
LIQUIDITY AND CAPITAL RESOURCES .................................... 100
RESULTS OF OPERATIONS .............................................. 100
YEAR 2000 COMPLIANCE ............................................... 101
FUNDS FROM OPERATIONS (FFO) ........................................ 101
INFLATION .......................................................... 101
SOP 98-5 ........................................................... 101
EITF 97-11 ......................................................... 102
IPT PARTNERSHIPS ................................................... 102
FINANCIAL CONDITION ................................................ 102
RESULTS OF OPERATIONS .............................................. 103
AMIT SELECTED CONSOLIDATED FINANCIAL DATA ............................... 107
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMIT ....................................... 108
RESULTS OF OPERATIONS .............................................. 108
LIQUIDITY AND CAPITAL RESOURCES .................................... 111
UNAUDITED PRO FORMA FINANCIAL INFORMATION ............................... 115
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET MARCH 31, 1998 .......................... 116
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET ......................................... 117
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 ................ 118
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 ..................... 119
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME ............................................... 120
MANAGEMENT OF IPT ....................................................... 121
BOARD OF TRUSTEES .................................................. 121
COMMITTEES OF THE IPT BOARD ........................................ 122
COMPENSATION OF TRUSTEES ........................................... 123
EXECUTIVE OFFICERS ................................................. 123
EXECUTIVE COMPENSATION ............................................. 124
EMPLOYMENT AGREEMENTS .............................................. 124
1997 SHARE INCENTIVE PLAN .......................................... 125
PRINCIPAL SECURITY HOLDERS OF IPT ....................................... 128
PRINCIPAL SECURITY HOLDERS OF AMIT ...................................... 129
CAPITALIZATION .......................................................... 130
DISTRIBUTIONS ........................................................... 131
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST OF IPT ..................... 132
GENERAL ............................................................ 132
COMMON SHARES ...................................................... 132
PREFERRED SHARES ................................................... 133
CLASSIFICATION OR RECLASSIFICATION OF IPT COMMON
SHARES OR PREFERRED SHARES ......................................... 133
DISTRIBUTIONS AND LIQUIDATION RIGHTS ............................... 133
REGISTRATION RIGHTS................................................. 133
SHARE OWNERSHIP LIMITATIONS; RESTRICTIONS ON TRANSFER OF IPT
COMMON SHARES ...................................................... 134
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EXCHANGE OF OP UNITS INTO IPT COMMON SHARES ........................ 136
COMPARISON OF SHAREHOLDER RIGHTS ........................................ 137
BUSINESS COMBINATIONS .............................................. 137
CONTROL SHARE ACQUISITIONS ......................................... 137
SHAREHOLDERS' MEETINGS ............................................. 138
LIMITED LIABILITY AND INDEMNIFICATION OF TRUSTEES,
OFFICERS, EMPLOYEES AND OTHER AGENTS ............................... 139
CLASSIFICATION OF THE BOARD OF TRUSTEES ............................ 139
VOTING RIGHTS ...................................................... 140
ANNUAL REPORT ...................................................... 141
AMENDMENT TO THE DECLARATION OF TRUST .............................. 141
RIGHTS PLAN ........................................................ 141
INSPECTION OF BOOKS AND RECORDS .................................... 142
ASSET REQUIREMENTS ................................................. 142
SHARES AVAILABLE FOR FUTURE SALE ........................................ 143
FEDERAL INCOME TAX CONSIDERATIONS ....................................... 145
TAXATION OF IPT .................................................... 145
TAXATION OF U.S. SHAREHOLDERS ...................................... 150
TAXATION OF NON-U.S. SHAREHOLDERS .................................. 152
OTHER TAX CONSIDERATIONS ........................................... 153
TAX ASPECTS OF IPT'S INVESTMENT IN IPLP AND THE
IPT PARTNERSHIPS ................................................... 153
EXPERTS ................................................................. 155
LEGAL MATTERS ........................................................... 155
GLOSSARY ................................................ G-1
INDEX TO FINANCIAL
STATEMENTS .............................................. F-1
MERGER AGREEMENT ........................................ ANNEX A
TRUST AMENDMENT ......................................... ANNEX B
FAIRNESS OPINION OF
CHRISTOPHER WEIL &
COMPANY, INC ............................................ ANNEX C
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SUMMARY
The following is only a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and does not purport to be
complete. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained elsewhere in this Proxy
Statement/Prospectus, including the financial statements included herein and
the attached Annexes. As used in this Proxy Statement/Prospectus, the terms
"IPT" and "AMIT" refer to Insignia Properties Trust and Angeles Mortgage
Investment Trust, respectively, and, except where the context otherwise
requires, their respective predecessors and subsidiaries including, in the case
of IPT, Insignia Properties, L.P., the operating partnership of IPT. Unless the
context indicates otherwise, all references herein to "Insignia" shall mean
Insignia Financial Group, Inc. and its consolidated subsidiaries (other than
IPT). Except where otherwise indicated, all ownership percentages regarding IPT
contained in this Proxy Statement/Prospectus attribute to Insignia the IPT
Common Shares owned by the executive officers, trustees and directors of IPT
and Insignia. Shareholders of AMIT are urged to read this Proxy
Statement/Prospectus and the Annexes attached hereto in their entirety.
Capitalized terms which are frequently used in this Proxy Statement/Prospectus
are defined in the Glossary commencing on page G-1 hereof.
THE PARTIES
IPT AND IPLP
IPT is a Maryland real estate investment trust formed by Insignia in
May 1996 primarily for the purpose of acquiring and owning interests in
multifamily residential properties, principally through ownership of limited
and general partner interests in real estate limited partnerships. IPT has been
organized and intends to operate in a manner that will qualify it to be taxed
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). Substantially all of IPT's assets are held
through its operating partnership, Insignia Properties, L.P., a Delaware
limited partnership ("IPLP").
As of the date of this Proxy Statement/Prospectus, IPT holds equity
interests in and effectively controls 127 real estate limited partnerships
(excluding ten partnerships which are in the process of dissolving) (the
"Controlled Partnerships") and owns one whole real estate asset (a 168-unit
residential apartment complex located in Pensacola, Florida). IPT is currently
structured such that IPT (or a subsidiary thereof) owns a controlling equity
interest in each entity that comprises or controls the managing general partner
of each Controlled Partnership and will own any additional such controlling
equity interests acquired by IPT in the future, and IPLP (and its subsidiaries)
own the limited partner interests in the Controlled Partnerships and IPT's only
existing whole real estate asset and will own any additional limited partner
interests in real estate limited partnerships and whole assets acquired by IPT
in the future. The Controlled Partnerships in which IPT directly and indirectly
owns a material interest are referred to herein as the "IPT Partnerships." The
IPT Partnerships are listed on page 56 hereof. As of the date of this Proxy
Statement/Prospectus, the Controlled Partnerships own, in the aggregate, 349
properties containing approximately 73,000 residential apartment units and
approximately 5.9 million square feet of commercial space, and the IPT
Partnerships own, in the aggregate, 200 properties containing approximately
49,000 residential apartment units and approximately 3.0 million square feet of
commercial space. See "IPT Formation Transactions" and "Business of IPT."
As of the date of this Proxy Statement/Prospectus, there are
19,427,760 common shares of beneficial interest, par value $.01 per share, of
IPT ("IPT Common Shares") issued and outstanding, 13,216,048 (or approximately
68%) of which are owned by Insignia and its affiliates, and IPLP has two
partners -- IPT, which is the sole general partner and owns 19,427,760 (or
approximately 66%) of IPLP's outstanding units of common partnership interest
("OP Units"); and Insignia, which is the sole limited partner and owns
9,934,475 (or approximately 34%) of the outstanding OP Units. The affairs of
IPLP and the relations among its partners are governed by the Fourth Amended
and Restated Agreement of Limited Partnership of IPLP (the "Partnership
Agreement"). Under the Partnership Agreement, Insignia is designated as the
special limited partner (the "Special Limited Partner") of IPLP and, as such,
possesses special rights with respect to certain matters concerning IPLP.
Limited partners of IPLP have the right, under certain circumstances, to
require IPLP to redeem their OP Units for cash, subject, however, to certain
first rights of IPT to acquire such OP Units in exchange for IPT Common Shares.
See "The Partnership Agreement of IPLP."
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Under the Partnership Agreement, IPT is required to retain Insignia to
provide (i) property management services with respect to virtually all
properties currently or hereafter controlled (directly or indirectly) by IPT,
and (ii) partnership administration services to certain of the partnerships
controlled by IPT. IPT, IPLP and Insignia have also entered into an Acquisition
and Disposition Services Agreement (the "Acquisition and Disposition Services
Agreement"), pursuant to which IPT has engaged Insignia to provide certain real
estate and real estate securities acquisition and disposition services to IPT
and IPLP. See "The Partnership Agreement of IPLP" and "Acquisition and
Disposition Services Agreement."
IPT's principal executive offices are located at One Insignia
Financial Plaza, Greenville, South Carolina 29602, and its telephone number at
that address is (864) 239-1300.
AMIT
AMIT is a California unincorporated business trust which was organized
as a REIT for federal income tax purposes. The AMIT Class A Shares are listed
on the American Stock Exchange under the symbol "ANM." AMIT makes various types
of intermediate-term real estate loans. AMIT's lending is concentrated
principally in secured, and to a lesser extent unsecured, real estate loans. As
of December 31, 1997, AMIT had 23 loans outstanding, with an aggregate
principal balance of approximately $37 million (net of loan loss reserves) and
owned real property with a book value of approximately $4.5 million. As of such
date, AMIT had 14 loans outstanding to partnerships currently controlled by
IPT, with an aggregate principal balance of approximately $14,299,000 (net of
loan loss reserves). See "Risk Factors -- Conflicts of Interests; Loans."
All of the outstanding AMIT Class B Shares are owned by Metropolitan
Asset Enhancement, L.P. ("MAE"), which is an affiliate of IPT and Insignia. The
AMIT Class B Shares are subject to an irrevocable voting proxy (the "Class B
Voting Proxy") which has been granted to AMIT pursuant to which AMIT, as proxy
for MAE, is required to vote all (100%) of the AMIT Class B Shares as a unit in
accordance with the majority of AMIT Class A Shares voting on any matter
involving AMIT and Insignia, including each of the Proposals. AMIT also holds
an option to purchase all of the AMIT Class B Shares owned by MAE in the year
2005 for approximately $94,000. See "Certain Other Agreements--Stock Option
Agreement and Class B Voting Proxy." Liquidity Assistance L.L.C. ("LAC"), which
is a wholly-owned subsidiary of Insignia, owns 96,800 (or approximately 3.7%)
of the outstanding AMIT Class A Shares.
AMIT's principal executive offices are located at 340 North Westlake
Boulevard, Suite 230, Westlake Village, California 91362, and its telephone
number at that address is (805) 449-1335.
INSIGNIA
Insignia is a leading fully-integrated real estate services company.
Based on information published by the National Multi-Family Housing Council,
Insignia is the largest manager of multifamily residential properties in the
United States, and according to information provided by Commercial Property
News, Insignia is among the largest managers of commercial properties.
Insignia's real estate services include property management, providing all of
the day-to-day services necessary to operate a property, whether residential or
commercial; asset management, including long-term financial planning,
monitoring and implementing capital improvement plans, and development and
execution of refinancings and dispositions; real estate leasing and brokerage;
maintenance and construction services; marketing and advertising; investor
reporting and accounting; and investment banking, including assistance in
workouts and restructurings, mergers and acquisitions, and debt and equity
securitizations. Insignia provides property and/or asset management services
for approximately 2,400 properties, which include approximately 280,000
residential units (including cooperative and condominium units) and
approximately 160 million square feet of commercial space located in over 500
cities in 48 states and overseas. Insignia currently provides partnership
administration services to approximately 900 limited partnerships having
approximately 330,000 limited partners. Insignia's common stock is listed on
the New York Stock Exchange under the symbol "IFS."
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As of the date of this Proxy Statement/Prospectus, Insignia and its
affiliates own approximately 68% of the outstanding IPT Common Shares, and
Insignia is the sole limited partner of IPLP and owns approximately 34% of the
outstanding OP Units.
THE SPECIAL MEETING
The Special Meeting will be held on June 29, 1998, at the Beverly
Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills, California, at 9:00 a.m.,
local time. At the Special Meeting, holders of AMIT Shares will be asked to
approve and adopt the Merger Proposal and the Trust Amendment Proposal. The
Trust Amendment Proposal is conditioned upon the approval of the Merger
Proposal, and will not be submitted to the shareholders of AMIT if the Merger
Proposal fails.
The AMIT Board has established May 13, 1998 as the record date (the
"AMIT Record Date") for the determination of AMIT shareholders entitled to
notice of, and to vote at, the Special Meeting and any adjournment or
postponement thereof. The approval of each of the Proposals requires the
affirmative vote of the holders of the majority of the outstanding AMIT Class A
Shares and AMIT Class B Shares, voting together as a single class. On the AMIT
Record Date, there were 2,617,000 AMIT Class A Shares outstanding and 1,675,113
AMIT Class B Shares outstanding.
All of the issued and outstanding AMIT Class B Shares are owned by
MAE. Pursuant to the terms of the Class B Voting Proxy, AMIT, as MAE's proxy,
is required to vote all (100%) of the AMIT Class B Shares as a unit in
accordance with the vote of a majority of the holders of the AMIT Class A
Shares represented at the Special Meeting on each of the Proposals. See
"Certain Other Agreements--Stock Option Agreement and Class B Voting Proxy."
LAC owns 96,800 (or approximately 3.7%) of the outstanding AMIT Class A Shares.
The AMIT Class A Shares owned by LAC are not subject to the Class B Voting
Proxy and may be voted by LAC without restriction. LAC has indicated that it
intends to vote its AMIT Class A Shares in favor of each of the Proposals. The
AMIT Class A Shares owned by LAC and the AMIT Class B Shares owned by MAE
collectively represent approximately 43% of the voting power of AMIT.
THE MERGER AND RELATED MATTERS
THE MERGER AGREEMENTTHE MERGER AGREEMENT
On July 18, 1997, AMIT, IPT, Insignia and MAE GP entered into the
Merger Agreement which, provides for, among other things, the Merger of AMIT
with and into IPT, with IPT surviving the Merger. Upon the consummation of the
Merger the separate existence of AMIT will cease. See "The Merger Agreement."
CONVERSION OF AMIT SHARESCONVERSION OF AMIT SHARES
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share
will be converted into 1.536 IPT Common Shares (the "Class A Exchange Ratio")
and each outstanding AMIT Class B Share will be converted into 0.0314 IPT
Common Shares (the "Class B Exchange Ratio," and collectively with the Class A
Exchange Ratio, the "Exchange Ratio"). The Exchange Ratio is determined by
adjusting the base exchange values set in the Merger Agreement of $16.25 per
AMIT Class A Share and $10.00 per IPT Common Share to account for distributions
paid by AMIT since December 31, 1996 and by IPT since January 31, 1997. IPT's
initial exchange value of $10.00 has been adjusted to $10.58 to account for the
distributions of $1.67 per AMIT Class A Share paid by AMIT since December 31,
1996 and of $.45 per IPT Common Share paid by IPT since January 31, 1997,
resulting in the Class A Exchange Ratio of 1.536 ($16.25 divided by $10.58).
The adjusted Class A Exchange Ratio, assuming a constant $10.00 IPT Common
Share exchange value, effectively values each AMIT Class A Share at $15.36 for
purposes of the Merger. Because AMIT Class B Shares are convertible into AMIT
Class A Shares at a rate of 49 to 1 under AMIT's Declaration of Trust, the
Class B Exchange Ratio simply equals the Class A Exchange Ratio divided by 49
(or 0.0314). The Exchange Ratio is subject to further adjustment should either
AMIT or IPT declare any distributions between the date of this Proxy
Statement/Prospectus and the Merger. No fractional IPT Common Shares will be
issued. In lieu of any fractional shares, an AMIT shareholder otherwise
entitled to a fractional IPT
3
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Common Share will receive cash from IPT in an amount determined by multiplying
such fractional share amount by the IPT Share Value (which will be $10.58,
assuming no distributions are declared or paid by AMIT or IPT between the date
hereof and the Merger). For additional information on the conversion of the
AMIT Shares, including adjustments to the Exchange Ratio, see "The Merger
Agreement--Manner and Basis of Converting Shares."
INSIGNIA/AIMCO TRANSACTION
On March 17, 1998, Insignia entered into a definitive merger agreement
(as subsequently amended and restated as of May 26, 1998, the "Insignia/AIMCO
Merger Agreement") with Apartment Investment and Management Company, a Maryland
corporation and publicly traded REIT ("AIMCO"), pursuant to which Insignia is
to be merged with and into AIMCO (the "Insignia/AIMCO Merger"), with AIMCO
being the surviving entity. If the Insignia/AIMCO Merger is consummated, AIMCO
will succeed to all of Insignia's business relating to the ownership and
management of multifamily residential properties, including Insignia's
ownership of IPT Common Shares and OP Units and thus AIMCO will become the
majority shareholder of, and control, IPT.
As part of the Insignia/AIMCO Merger Agreement, AIMCO has agreed to
propose to acquire IPT by merger within three months of the effective time of
the Insignia/AIMCO Merger and use its reasonable best efforts to effect such
merger (but not earlier than August 15, 1998) at a purchase price of not less
than $13.25 per IPT Common Share in cash. AIMCO currently intends to effect
such acquisition by causing IPT to be merged with and into a subsidiary of
AIMCO (the "IPT/AIMCO Merger").
Based on the current Class A Exchange Ratio of 1.536, upon
consummation of the Merger and the IPT/AIMCO Merger, an AMIT Class A
shareholder would receive a cash amount for its IPT Common Shares received in
the Merger which would be equivalent to $20.35 per AMIT Class A Share. However,
there can be no assurance that either the Insignia/AIMCO Merger or the
IPT/AIMCO Merger will be consummated.
The affirmative vote of the holders of a majority of the outstanding
IPT Common Shares will be required for approval of the IPT/AIMCO Merger.
Following the Merger and the Insignia/AIMCO Merger, AIMCO will own a majority
of the outstanding IPT Common Shares. Consequently, AIMCO will have sufficient
votes to approve the IPT/AIMCO Merger without the vote of any other IPT
shareholder.
It is presently contemplated that a Proxy Statement or an Information
Statement with respect to the IPT/AIMCO Merger will be distributed to the IPT
shareholders prior to consummation of the IPT/AIMCO Merger. IPT shareholders
(including the former AMIT shareholders) will be entitled to dissenters' rights
of appraisal in connection with the IPT/AIMCO Merger if it is consummated as
currently contemplated and described herein.
Insignia/ESG Holdings, Inc. ("Insignia/ESG"), a wholly-owned
subsidiary of Insignia which will be "spun-off" to the current stockholders of
Insignia, is a party to the Insignia/AIMCO Merger Agreement and the agreement
provides that Insignia/ESG may enforce AIMCO's obligation to propose to acquire
IPT by merger. Insignia/ESG has covenanted to AMIT and IPT that it will use its
reasonable best efforts to compel AIMCO to effect the IPT/AIMCO Merger in the
event that AIMCO breaches its obligation to effect such merger pursuant to the
terms of the Insignia/AIMCO Merger Agreement. However, there can be no
assurance that Insignia/ESG would be successful in an attempt to specifically
enforce AIMCO's obligation to effect the IPT/AIMCO Merger pursuant to the terms
of the Insignia/AIMCO Merger Agreement.
AIMCO is a Maryland corporation formed on January 10, 1994 and is a
self-administered and self-managed REIT engaged in the ownership, acquisition,
development, expansion and management of multifamily apartment properties.
According to AIMCO's annual report for the year ended December 31, 1997,
through its controlling interests in AIMCO Properties, L.P., a Delaware limited
partnership, other limited partnerships and subsidiary corporations, AIMCO
currently owns or controls 40,039 units in 147 apartment properties, holds an
equity interest in 83,431 units in 515 apartment properties and manages 69,587
units in 374 apartment properties for third party owners and affiliates.
For additional information concerning the Insignia/AIMCO Merger and
IPT/AIMCO Merger, see "Insignia/AIMCO Transaction."
4
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OWNERSHIP OF IPT FOLLOWING THE MERGER
After giving effect to the conversion of the AMIT Shares in the
Merger, the AMIT shareholders (other than MAE and LAC) will own approximately
16% of the outstanding IPT Common Shares; Insignia and its affiliates
(including LAC, but excluding MAE and the executive officers, trustees and
directors of IPT and Insignia) will own approximately 51% of the outstanding
IPT Common Shares; MAE will own approximately 3.5% of the outstanding IPT
Common Shares; the executive officers, trustees and directors of IPT and
Insignia will collectively own approximately 2.5% of the outstanding IPT Common
Shares; and the remaining 27% of the outstanding IPT Common Shares will be
owned by the current IPT shareholders who are unaffiliated with IPT. The chart
on Page 10 depicts the post-Merger organizational structure and beneficial
ownership of IPT and IPLP. If the Insignia/AIMCO Merger is consummated, AIMCO
will succeed to Insignia's ownership of approximately 51% of the outstanding
IPT Common Shares, and upon the consummation of the IPT/AIMCO Merger AIMCO will
own 100% of the outstanding IPT Common Shares, although there can be no
assurance that either transaction will be consummated. See "The
Merger--General."
LISTING OF IPT COMMON SHARES
The currently outstanding IPT Common Shares have been approved for
listing on the ASE, subject to consummation of the Merger under the symbol
"FFO." The IPT Common Shares to be received by the shareholders of AMIT in the
Merger have also been approved for listing on the ASE, subject to official
notice of issuance, and upon consummation of the Merger such shares (other than
IPT Common Shares received by certain affiliates of IPT and AMIT) will be
freely tradable. See "The Merger--Listing of IPT Common Shares."
MANAGEMENT OF IPT FOLLOWING THE MERGER
Upon consummation of the Merger, all of the current trustees and
executive officers of IPT will remain as such. In addition, the following
persons will be appointed at that time as additional trustees of IPT: Ronald
Uretta, who is Treasurer of IPT and Senior Vice President and Chief Operating
Officer of Insignia; Ronald J. Consiglio, who is a trustee and the President
and Chief Executive Officer of AMIT; Bryan L. Herrmann, who is a trustee of
AMIT; and Warren Eckstein, who is a Managing Director--Investment Banking of
Paine Webber Incorporated. In addition, upon the consummation of the Merger,
IPT will enter into employment agreements with each of Ronald J. Consiglio and
Anna Merguerian, who is the Chief Financial Officer of AMIT, pursuant to which
they will become Managing Director and Vice President of IPT, respectively.
See "The Merger--Interests of Certain Persons in the Merger" and "Management of
IPT--Employment Agreements."
IPT DISTRIBUTION POLICY FOLLOWING THE MERGER
The Board of Trustees of IPT (the "IPT Board") has adopted a policy to
pay regular quarterly distributions in the amount of $.15 per IPT Common Share
which will be increased to $.16 per IPT Common Share beginning with the first
quarterly distribution for which the record date is after the consummation of
the Merger, although IPT is not obligated to pay such distributions and cannot
assure that such distributions will be paid. IPT is currently paying regular
quarterly distributions of $.15 per IPT Common Share in accordance with this
policy. Such distributions are intended to match, on an adjusted share basis,
the aggregate of the $1.00 per AMIT Class A Share distributions that AMIT was
paying annually at the time the Merger Agreement was being negotiated.
Distributions by IPT to the extent of its current and accumulated earnings and
profits for federal income tax purposes generally will be taxable to
shareholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits will be treated as a non-taxable reduction
of a shareholder's basis in its IPT Common Shares to the extent thereof and
thereafter as taxable gain. Distributions that are treated as a reduction of a
shareholder's basis in its IPT Common Shares will have the effect of deferring
taxation until the sale of the shareholder's shares. If distributions exceed
available cash, IPT would be required to sell assets or borrow funds to make
distributions or revise its dividend policy. IPT paid distributions of $.15 per
IPT Common Share on November 17, 1997, to shareholders of record on October 31,
1997, on January 15, 1998 to shareholders of record on December 23, 1997, and
on April 15, 1998 to shareholders of record on March 23, 1998. See
"Distributions."
5
<PAGE>
RECOMMENDATION OF THE AMIT BOARD
The AMIT Board recommends approval of the Merger Proposal with IPT
whether or not the IPT/AIMCO Merger is consummated. The AMIT Board recommends
approval of the Merger Proposal even if the IPT/AIMCO Merger does not occur
because the AMIT Board believes, based in part upon the fairness opinion issued
by Christopher Weil & Co., that the Exchange Ratio is fair to AMIT shareholders
from a financial point of view. The AMIT Boards recommends approval of the
Merger Proposal even if the Merger is followed by the IPT/AIMCO Merger because
the minimum price at which AIMCO has covenanted to Insignia to pay to acquire
the remaining IPT Common Shares equates, based on the current Class A Exchange
Ratio, to approximately $20.35 per AMIT Class A share. This price is in excess
of the current book value of the AMIT Class A shares and is higher than the
price at which the Class A shares have ever traded in the public market. See
"The Merger--AMIT's Reasons for the Merger" and "The Merger--Recommendation of
the AMIT Board." There can be no assurance that the IPT/AIMCO Merger will be
consummated.
OPINION OF AMIT'S FINANCIAL ADVISOR
Christopher Weil & Company, Inc. ("Weil") delivered an oral opinion to
the AMIT Board on July 18, 1997 (the date the Merger Agreement was signed),
that, as of such date, the Exchange Ratio was fair to the shareholders of AMIT
from a financial point of view. Weil later confirmed its opinion in written
form (the "Weil Opinion"), which was delivered to the AMIT Board on November
13, 1997. Weil delivered its opinion prior to announcement of the proposed
Insignia/AIMCO Merger. Weil has not rendered an opinion as to the fairness of
the consideration to be received in the IPT/AIMCO Merger or as to the fairness
of the consideration to be received in the Merger in light of the contemplated
IPT/AIMCO Merger. A copy of the complete text of the Weil Opinion, setting
forth the procedures, the matters considered and the assumptions made in
connection with rendering this opinion, is attached to this Proxy
Statement/Prospectus as Annex C. AMIT shareholders are encouraged to read the
Weil Opinion carefully.
See "The Merger--Opinion of AMIT's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the AMIT Board with respect to
the Proposals, the shareholders of AMIT should be aware that certain members of
AMIT's management and certain members of the AMIT Board have interests in the
Merger separate from the interests of the AMIT shareholders generally. These
separate interests are summarized below:
IPT Board Representation. Upon consummation of the Merger, IPT will
take such action as is required under its Declaration of Trust and Bylaws to
cause Ronald J. Consiglio and Bryan L. Herrmann to be appointed as trustees of
IPT. Mr. Consiglio is currently a trustee, President and Chief Executive
Officer of AMIT, and Mr. Herrmann is currently an independent trustee of AMIT.
Each of Messrs. Consiglio and Herrmann will be entitled to compensation for
attendance at meetings of the IPT Board and committees thereof. See "The
Merger--Interests of Certain Persons in the Merger" and "Management of
IPT--Compensation of Trustees."
Employment Agreements. Upon consummation of the Merger, Ronald J.
Consiglio and Anna Merguerian will enter into employment agreements with IPT.
Mr. Consiglio, who is currently the President, Chief Executive Officer and a
trustee of AMIT, will enter into a three year employment agreement to serve as
a Managing Director of IPT, pursuant to which he will receive a base salary of
at least $276,000 per annum, with an annual bonus of not less than $90,000. Ms.
Merguerian, who is currently the Chief Financial Officer, Secretary and Vice
President of AMIT, will enter into a three year employment agreement to serve
as a Vice President of IPT, pursuant to which she will receive a base salary of
at least $100,000 per annum, with an annual bonus of not less than $45,000. See
"Management of IPT--Employment Agreements."
AMIT Trustee Compensation. On January 29, 1998, the executive
committee of the AMIT Board voted in favor of a proposal to compensate AMIT
trustees who are not continuing as trustees of IPT after the Merger, in an
amount equal to $2,500 per year for each year of service on the AMIT Board, but
not to exceed aggregate payments of $30,000 to all qualifying trustees.
Assuming the closing of the Merger prior to June 30, 1998, the aggregate of
such compensation to all departing trustees will be $27,500. No trustee who is
eligible to receive such compensation voted in connection with the proposal.
See "The Merger--Interests of Certain Persons in the Merger."
6
<PAGE>
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to a number of conditions,
including: the requisite approval of each of the Proposals by the shareholders
of AMIT; the effectiveness under the Securities Act of a registration statement
relating to the IPT Common Shares to be issued in the Merger; and no material
adverse event occurring with respect to IPT or AMIT. The receipt of an opinion
of counsel to the effect that the Merger should be treated as a reorganization
under Section 368(a) of the Code (which would in general be tax-free to AMIT
shareholders) was a condition to the Merger, however, due to the uncertainty of
the federal income tax treatment of the Merger as a result to the proposed
IPT/AIMCO Merger, no opinion of counsel will be given as to the federal income
tax consequences of the Merger. This condition has been waived by the parties
subject to the approval of the Proposals by the AMIT shareholders. See "The
Merger--Conditions to the Merger" and "The Merger--Federal Income Tax
Consequences of the Merger."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective immediately upon the acceptance for
record of the articles of merger by and between AMIT and IPT (the "Articles of
Merger") by the Maryland Department of Assessments and Taxation or at such time
thereafter as is provided in the Articles of Merger (the "Effective Time").
Assuming all conditions to the Merger contained in the Merger Agreement are
satisfied or waived, it is anticipated that the Effective Time of the Merger
will occur as promptly following the Special Meeting as practicable. See "The
Merger Agreement--Effective Time and Closing of the Merger."
TRUST AMENDMENT
AMIT shareholders will be asked to consider and vote on the Trust
Amendment Proposal, which, if approved, will allow AMIT to merge or consolidate
with other entities with the approval of a majority of the AMIT Board and the
affirmative vote of the holders of the majority of the AMIT Class A Shares and
AMIT Class B Shares, voting together as a single class. AMIT's Declaration of
Trust currently lacks such authority. The approval of the Trust Amendment
Proposal, therefore, is necessary for the Merger to be consummated. The Trust
Amendment Proposal is conditioned upon the approval of the Merger Proposal and
will not be submitted to the AMIT shareholders if the Merger Proposal fails.
See "Trust Amendment."
ACCOUNTING TREATMENT
IPT will account for the Merger as a purchase for accounting and
financial reporting purposes. See "The Merger--Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES
Due to the contemplated IPT/AIMCO Merger, counsel to IPT has informed
IPT that it is unable to render an opinion with respect to the federal income
tax treatment of the Merger. In addition, no ruling from the Internal Revenue
Service will be obtained. AMIT and IPT believe that (i) if both the Merger and
the IPT/AIMCO Merger are consummated, the IPT Common Shares received by the
AMIT shareholders in exchange for AMIT Shares in the Merger will be treated as
a taxable event and each AMIT shareholder will recognize gain (or loss) to the
extent that the fair market value of the IPT Common Shares received is greater
than (or less than) such shareholder's tax basis in its AMIT Shares; and (ii)
if the Merger is consummated but the IPT/AIMCO Merger is not consummated and
the AMIT shareholders receiving IPT Common Shares in the Merger continue to
hold, in the aggregate, a number of IPT Common Shares having a value, as of the
Effective Time, equal to at least 50% of the value of the AMIT Shares, as of
the same date (including, for this purpose, cash paid in lieu of fractional IPT
Common Shares), for a period of time sufficient to establish that the AMIT
shareholders have retained a substantial proprietary stake and a material
interest in the affairs of IPT, the Merger should be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. If treated as a reorganization, no gain or loss will be recognized by
holders of AMIT Shares upon the receipt of IPT Common Shares in the Merger,
except with respect to any cash received by an AMIT shareholder in lieu of a
fractional IPT Common Share. For a discussion of
7
<PAGE>
these and other federal income tax considerations in connection with the
Merger, see "The Merger--Federal Income Tax Consequences of the Merger."
MATERIAL CONFLICTS OF INTEREST
Shareholders of AMIT should refer to the "Risk Factors--Conflicts of
Interest" section for a discussion of the conflicts that should be considered
in connection with an evaluation of the Proposals to be considered at the
Special Meeting, including the following:
Management. In exercising its voting rights as the controlling
shareholder of IPT, Insignia and its affiliates may consider their interests,
which may be different from those of the other shareholders of IPT and
therefore present a conflict of interest for IPT. Additionally, upon
consummation of the Merger, a majority of the trustees of IPT will consist of
persons who are also the executive officers of Insignia.
Property Management and Partnership Administration. Pursuant to the
terms of the Partnership Agreement, IPT and IPLP are required to engage
Insignia and its affiliates to provide property management services to
virtually all of the properties directly or indirectly controlled by IPT and to
provide partnership administration services to certain of the partnerships
controlled by IPT.
Loans. Many of the loans in AMIT's mortgage portfolio consists of
loans made to entities now controlled by IPT. Should any issues regarding such
loans arise, such issues may not be resolved in an arm's length manner due to
the overlapping management after the Merger.
SUMMARY RISK FACTORS
Shareholders of AMIT should carefully consider and refer to the
information under "Risk Factors" for a discussion of certain factors that
should be considered in connection with an evaluation of the Proposals to be
voted on at the Special Meeting, including the following:
RISK FACTORS RELATING TO INSIGNIA/AIMCO MERGER AND IPT/AIMCO
MERGER
o There can be no assurance that either the Insignia/AIMCO
Merger or the IPT/AIMCO Merger will be consummated.
o If the Insignia/AIMCO Merger is consummated, AIMCO will
become the controlling shareholder of IPT. AIMCO has less
experience than Insignia with respect to the IPT property
portfolio.
o If the IPT/AIMCO Merger is consummated, AMIT shareholders
will receive cash for their IPT Common Shares and will no
longer have the opportunity to share in the future earnings
and growth of IPT.
o Because AIMCO will own a majority of the outstanding shares
of IPT following the Insignia/AIMCO Merger, it will have the
ability to approve the IPT/AIMCO Merger without the consent
of the minority shareholders of IPT (including the former
AMIT shareholders).
o AMIT shareholders do not have any direct rights to require
AIMCO to complete the IPT/AIMCO Merger. AMIT shareholders are
not third party beneficiaries of AIMCO's covenant to propose
to acquire the minority interest in IPT following
consummation of the Insignia/AIMCO Merger. Insignia/ESG has,
however, covenanted to AMIT and IPT that it will use its
reasonable best efforts to compel AIMCO to effect the
IPT/AIMCO Merger in the event that AIMCO breaches its
obligations to do so.
o AMIT's Board of Directors has not received an opinion from a
financial advisor as to the fairness to AMIT shareholders
from a financial point of view of the IPT/AIMCO Merger.
8
<PAGE>
RISK FACTORS RELATING TO THE MERGER AND POST-MERGER OPERATIONS
o The federal income tax consequences of the Merger are not
certain. Due to the contemplated IPT/AIMCO Merger, counsel is
unable to render an opinion as to the federal income tax
consequences of the Merger. In addition, no ruling from the
Internal Revenue Service will be obtained. If both the Merger
and the IPT/AIMCO Merger are consummated, AMIT and IPT
believe that the receipt of IPT Common Shares in the Merger
will be treated as a taxable event for AMIT shareholders. If
only the Merger is consummated and the IPT/AIMCO Merger is
not consummated, AMIT and IPT believe that the Merger should
not be treated as a taxable event for AMIT shareholders so
long as AMIT shareholders continue to hold IPT Common Shares
having a value equal to at least 50% of the value of the AMIT
Shares for a period of time sufficient to establish that the
AMIT shareholders have retained a substantial proprietary
stake and a material interest in the affairs of IPT.
o Following the Merger, Insignia will control IPT, having
appointed the majority of the IPT Board and controlling
approximately 57% of the outstanding IPT Common Shares (and
approximately 66% on a fully-diluted basis, assuming all OP
Units are either redeemed for cash or acquired by IPT in
exchange for IPT Common Shares).
o IPT is dependent on the property management services provided
by Insignia and its affiliates and the loss of such property
management services could adversely affect IPT.
o Certain provisions in IPT's Declaration of Trust and Bylaws,
including restrictions on ownership of IPT Common Shares, may
have the effect of inhibiting a change in control of IPT even
where such a change of control could be beneficial to IPT's
shareholders.
o IPT's property portfolio is heavily concentrated in
multifamily residential housing, making IPT particularly
susceptible to downturns in this sector of the real estate
market.
o The multifamily residential real estate market in which IPT
competes is highly competitive and subject to a variety of
risks, including the implementation of local rent control or
stabilization ordinances, the oversupply of or reduction in
demand for apartments, interest rate levels and the
availability of financing, all of which could have an adverse
effect on the operations of IPT.
o If IPT were to fail to qualify as a REIT, or if IPLP or any
IPT Partnership were deemed to be a corporation instead of a
partnership for tax purposes, IPT would become liable for
federal and state taxes on its income and the amount of cash
available for distribution to shareholders of IPT could be
reduced substantially.
NO APPRAISAL RIGHTS
Neither the shareholders of AMIT nor the shareholders of IPT are
entitled to dissenters' rights of appraisal under their respective Declarations
of Trust, Bylaws or applicable state law as a result of the Merger. IPT
shareholders (including the former AMIT shareholders) will, however, be
entitled to dissenters' rights of appraisal in connection with the IPT/AIMCO
Merger, if consummated as currently contemplated and described herein. See "The
Merger--No Appraisal Rights."
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS ARE
NOT BASED ON HISTORICAL FACTS, BUT ARE FORWARD-LOOKING STATEMENTS THAT ARE
BASED UPON NUMEROUS ASSUMPTIONS ABOUT FUTURE CONDITIONS THAT MAY ULTIMATELY
PROVE TO BE INACCURATE. ACTUAL EVENTS AND RESULTS MAY MATERIALLY DIFFER FROM
ANTICIPATED RESULTS DESCRIBED IN SUCH STATEMENTS. IPT'S ABILITY TO ACHIEVE SUCH
RESULTS IS SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. SUCH RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, CONTINUED AVAILABILITY OF
CAPITAL
9
<PAGE>
AND FINANCING, CAPITAL EXPENDITURES, THE AMOUNT OF OTHER FINANCING AND
OTHER FACTORS AFFECTING IPT'S BUSINESS THAT MAY BE BEYOND IPT'S CONTROL,
INCLUDING, BUT NOT LIMITED TO, THE MATTERS DESCRIBED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF IPT AND THE IPT PARTNERSHIPS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMIT," "THE
MERGER," "BUSINESS OF IPT" AND " UNAUDITED PRO FORMA FINANCIAL INFORMATION," AS
WELL AS WITHIN THE PROXY STATEMENT/PROSPECTUS GENERALLY. WHEN USED IN THIS
PROXY STATEMENT/PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OF PERFORMANCE. THEY
INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND
SHAREHOLDER VALUES OF IPT, AMIT AND THE COMBINED ENTITY MAY DIFFER MATERIALLY
FROM THOSE EXPRESSED IN FORWARD LOOKING STATEMENTS. MANY OF THE FACTORS THAT
WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND IPT'S AND AMIT'S ABILITY TO
CONTROL AND PREDICT. SHAREHOLDERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON
ANY FORWARD LOOKING STATEMENTS.
10
<PAGE>
INSIGNIA PROPERTIES TRUST ORGANIZATIONAL CHART
11
<PAGE>
IPT SUMMARY HISTORICAL FINANCIAL DATA
The following is a summary of certain selected financial data of IPT and
its subsidiaries and predecessors. The summary financial data have been derived
from IPT's consolidated financial statements and the combined financial
statements of its predecessor and, in the opinion of the management of IPT,
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The information set forth below is not
necessarily indicative of the results of future operations and should be read
in conjunction with IPT's Financial Statements and the related Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of IPT and the IPT Partnerships" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------------------
1998 1997 1997 1996 1995 1994
---------- ---------- ------- ------- ------- -------
(In thousands,except share data) (In thousands,except share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 5,757 $ 4,128 $16,826 $9,705 $2,459 $ 113
Income before extraordinary item $ 2,054 $ 660 $ 6,074 $3,557 $2,215 $ 113
Net income $ 2,080 $ 660 $ 6,004 $2,425 $2,215 $ 113
Income before extraordinary item
per share (diluted) .11 .06 .41 n/a n/a n/a
Net income per share (diluted) .11 .06 .40 n/a n/a n/a
Cash distributions to IPT
Common shareholders per
share .15 -- .30 .20 n/a n/a
Weighted average IPT
Common Shares outstanding 18,835,911 11,179,036 14,694,327 n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
-------------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
(In thousands,except share data) (In thousands,except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash $ 23,338 $ 5,111 $ 37,432 $ 4,928 $ 528 $ --
Investments in real estate
limited partnerships 177,681 110,632 159,469 118,741 54,037 38,346
Total assets 234,091 139,905 226,068 147,757 54,565 38,346
Long-term debt 21,957 20,380 19,300 19,730 -- --
Minority interest in IPLP 56,984 46,998 54,447 50,429 -- --
Minority interest in other
consolidated subsidiaries -- -- -- -- 2,682 --
Shareholders' equity $ 149,314 $ 71,034 $ 146,212 $ 70,639 $ 51,874 $ 38,346
OTHER DATA
Cash provided by (used in)
operating activities $ 97 $ 815 $ 2,338 $ 1,420 $ (100) $ --
Cash provided by (used in)
investing activities (12,253) 9,886 (16,481) (70,834) (13,237) (38,233)
Cash provided by (used in)
financing activities (1,938) (10,518) 46,647 73,814 13,865 38,233
Funds from Operations(a) $ 7,439 $ 5,144 $ 20,939 $ 12,563 $ 4,611 $ 113
Number of IPT Partnerships(b) 43 26 29 26 13 4
Number of properties(b) 201 136 150 136 86 32
Apartment units(b) 49,373 36,077 38,369 36,077 19,337 7,433
Commercial square feet(b) 2,983,995 819,000 1,667,874 819,000 767,172 453,977
</TABLE>
12
<PAGE>
------------------------
(a) In accordance with the resolution adopted by the Board of Governors
of NAREIT, funds from operations represents net income (loss)
(computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring or
sales of property, plus depreciation of real property, and after
adjustments for unconsolidated partnerships and joint ventures. Funds
from operations should not be considered as an alternative to net
income or other measurements under generally accepted accounting
principles as an indicator of operation performance or to cash flows
from operating, investing or financing activities as a measure of
liquidity. Funds from operations does not reflect working capital
changes, cash expenditures for capital improvements or principal
payments on indebtedness. IPT believes that funds from Operations is
helpful to investors as a measure of the performance of an equity
REIT, because along with cash flows from operating activities,
financing activities and investing activities, it provides investors
with an understanding of the ability of IPT to incur and service debt
and make capital distributions. Funds from operations computed by IPT
may not be comparable to other similarly titled measures of other
REITs. Funds from Operations is calculated as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------------- -------------------------------------------
1998 1997 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before gain on sale of
property, minority interest and
extraordinary items $ 3,587 $ 2,487 $ 9,470 $ 3,913 $ 2,346 $ 113
Depreciation and amortization 4,002 2,871 12,288 9,388 2,265 --
Minority interest in NPI 4 funds
from operations (150) (214) (819) (738) -- --
-------- -------- -------- -------- -------- --------
Funds from Operations $ 7,439 $ 5,144 $ 20,939 $ 12,563 $ 4,611 $ 113
======== ======== ======== ======== ======== ========
</TABLE>
(b) Only includes the IPT Partnerships.
13
<PAGE>
AMIT SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following is a summary of certain selected consolidated financial
data of AMIT. The summary financial data have been derived from AMIT's
consolidated financial statements and, in the opinion of the management of
AMIT, include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of o
perations for the periods presented. The information set forth below is not
necessarily indicative of the results of future operations and should be read
in conjunction with AMIT's Consolidated Financial Statements and the related
Notes related thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of AMIT" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
[Unaudited]
Three Months
Ended March 31, Year Ended December 31,
------------------------- ----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except share data) (In thousands, except share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $ 1,060 $ 1,235 $ 7,199 $ 10,050 $ 19,502
Costs and expenses 76 353 1,650 964 2,213
Extraordinary item -- -- -- -- 1,844
Net income 984 882 5,549 9,086 19,133
Per AMIT Class A Share:
Income before
extraordinary item 0.37 0.33 2.10 3.33 5.77
Extraordinary item -- -- -- -- 0.61
Net income 0.37 0.33 2.10 3.33 6.38
Cash distributions to AMIT
Class A shareholders $ 0.32 $ 0.22 $ 2,695 $ 1,407 --
Cash distributions per AMIT
Class A Share $ 837 $ 576 $ 1.03 $ 0.52 --
AMIT Class A Shares
outstanding 2,617,000 2,617,000 2,617,000 2,617,000 2,826,700
Weighted average AMIT
Class A Shares
outstanding 2,617,000 2,617,000 2,617,000 2,704,375 2,968,532
BALANCE SHEET DATA
Total assets $ 51,151 $ 43,494 $ 46,530 $ 43,375 $ 37,332
Notes and advances payable 4,525 -- -- -- --
Shareholders' equity 46,089 43,394 45,942 43,088 37,139
</TABLE>
14
<PAGE>
IPT SUMMARY PRO FORMA FINANCIAL DATA
The following is a summary of certain pro forma financial data of IPT
giving effect to (i) the Merger, (ii) the exercise of the Shelter IV Option (as
defined herein) and (iii) certain other transactions described under "Unaudited
Pro Forma Financial Data" included elsewhere herein, as if effected at March
31, 1998, in the case of the pro forma balance sheet data, and at January 1,
1997, in the case of the pro forma statements of income data. The following
summary pro forma financial data have been derived from, and should be read in
conjunction with, the historical financial statements and notes thereto of IPT
and AMIT included elsewhere herein, and are not necessary indicative of the
financial position or operating results that would have occurred had the
foregoing transactions actually taken place on March 31, 1998 or January 1,
1997.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
(In thousands, (In thousands,
except share data) except share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 6,817 $ 28,784
Net income before extraordinary item $ 3,038 $ 13,481
Net income before extraordinary item
per IPT Common Share $ .13 $ .58
Weighted average IPT Common Shares
outstanding 23,126,761 23,099,361
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended
March 31, 1998
--------------
(In thousands)
<S> <C>
BALANCE SHEET DATA
Cash $ 34,198
Investments in real estate
limited partnerships $ 177,681
Total Assets $ 281,429
Long-term debt $ 26,482
Minority interest in IPLP $ 56,984
Shareholders' equity $ 190,390
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
(In thousands, except (In thousands,except
property information) property information)
<S> <C> <C>
OTHER DATA
Cash provided by ope$ating activities $ 578 $ 5,262
Cash used in investing activities $ (4,984) $ (22,552)
Cash provided by (used in) financing activities $ (2,775) $ 43,952
Funds from Operations (b) $ 8,423 $ 31,321
Number of IPT Partnerships(a) 43 29
Number of properties(a) 201 150
Apartment units(a) 49,373 38,369
Commerical square feet(a) 2,983,995 1,667,874
</TABLE>
15
<PAGE>
- ---------------------
(a) Only includes the IPT Partnerships.
(b) In accordance with the resolution adopted by the Board of Governors of
NAREIT, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring or sales of
property, plus depreciation of real property, and after adjustments
for unconsolidated partnerships and joint ventures. Funds from
operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as
an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds
from operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on
indebtedness. IPT believes that funds from operations is helpful to
investors as a measure of the performance of an equity REIT, because
along with cash flows from operating activities, financing activities
and investing activities, it provides investors with an understanding
of the ability of IPT to incur and service debt and make capital
distributions. Funds from operations computed by IPT may not be
comparable to other similarly titled measures of other REITs. Funds
from operations is calculated as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
(In thousands) (In thousands)
<S> <C> <C>
Income before minority interest and extraordinary
items ........................................... $ 4,571 $ 17,051
Depreciation and amortization ................... 4,002 15,089
Minority interest in NPI 4 funds from operations (150) (819)
-------- --------
Funds from Operations ........................... $ 8,423 $ 31,321
======== ========
</TABLE>
16
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table sets forth the combined historical per share data
and pro forma per share data giving effect to the Merger using the purchase
method of accounting and the equivalent pro forma combined per share amounts
for each of IPT and AMIT. The pro forma combined data are not necessarily
indicative of actual financial position or future operating results that would
have occurred or will occur upon consummation of the Merger. The information
shown below should be read in conjunction with (i) the Combined Financial
Statements and Notes thereto of IPT and (ii) the Pro Forma Combined Financial
Statements, including the Notes thereto, which are contained elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Per Share Per Share
Per Share Cash Dividends Book Value
Income (Loss) Declared (End of Period)
------------------------ --------------------- ------------------------
<S> <C> <C> <C>
IPT -- Historical
Year ended December 31, 1996 n/a $ .20 $ 6.33
Year ended December 31, 1997 $ .40 $ .30 $ 7.87
Three months ended March 31, 1998 $ .11 $ .15 $ 7.69
AMIT -- Historical(1)
Year ended December 31, 1996 $3.33 $ .52 $16.46
Year ended December 31, 1997 $2.10 $ 1.03 $17.38
Three months ended March 31, 1998 $ .37 $ .32 $17.44
IPT and AMIT -- Pro Forma Combined
Year ended December 31, 1997 $ .58 $ .35 $ 8.12
Three months ended March 31, 1998 $ .13 $ .16 $ 9.80
AMIT -- Pro Forma Equivalent(2)
Year ended December 31, 1997 $ .89 $ .54 $12.47
Three months ended March 31, 1998 $ .20 $ .25 $15.05
</TABLE>
- -------------------
(1) Amounts related to the AMIT Class A Shares. The AMIT Class B Shares are
entitled to a 1% interest in the profits, losses and credits of AMIT and
are theoretically convertible into AMIT Class A Shares at the rate of 49
to 1. Pursuant to the Stock Option Agreement (as defined herein) between
AMIT and MAE (as successor to MAE GP), no dividends were paid on the AMIT
Class B Shares for the years ended December 31, 1996 and 1997,
respectively.
(2) Determined by multiplying the Class A Exchange Ratio (1.536) by the IPT
and AMIT pro forma per share amounts.
17
<PAGE>
RISK FACTORS
In addition to the other information in this Proxy
Statement/Prospectus, the following factors should be considered carefully in
evaluating the Proposals to be voted upon at the Special Meeting and the
acquisition of the securities offered hereby.
RISK FACTORS RELATING TO THE INSIGNIA/AIMCO TRANSACTION
NO ASSURANCE OF CONSUMMATION
Subsequent to the AMIT Board's decision to approve the Merger, the
Insignia/AIMCO Merger Agreement was entered into pursuant to which (if approved
and consummated) Insignia will merge with and into AIMCO, AIMCO will succeed to
all of Insignia's business relating to the ownership and management of
multifamily residential properties, including Insignia's ownership of IPT
Common Shares and OP Units and AIMCO thereby will become the majority
shareholder of, and control, IPT. If the Insignia/AIMCO Merger is consummated,
then pursuant to the terms of the Insignia/AIMCO Merger Agreement, AIMCO has
agreed to propose to acquire the remainder of the outstanding IPT Common Shares
(including IPT Common Shares held by former AMIT shareholders) for cash at a
purchase price of not less than $13.25 per IPT Common Share. AIMCO currently
intends to effect such acquisition by causing IPT to merge into a subsidiary of
AIMCO. If the IPT/AIMCO Merger is consummated, the AMIT shareholders will
receive cash in exchange for their IPT Common Shares in a taxable transaction
and will no longer have any ownership interest in IPT. However, there can be no
assurance that the IPT/AIMCO Merger will be consummated.
LOSS OF OPPORTUNITY TO PARTICIPATE IN FUTURE OF IPT
If the IPT/AIMCO Merger is consummated, the former AMIT shareholders
will receive cash for their IPT Common Shares obtained in the Merger and will
no longer have the opportunity to share in the future earnings and growth of
IPT.
CHANGE OF CONTROL OF IPT
If AIMCO fails to perform its obligations to propose to acquire the
minority interest in IPT for cash after the consummation of the Insignia/AIMCO
Merger, the AMIT shareholders would then hold a minority interest in IPT, with
AIMCO, rather than Insignia, being the controlling shareholder of IPT and
providing property management services to the properties controlled by IPT.
AIMCO does not possess the same experience with the Controlled Partnerships and
the properties owned by the Controlled Partnerships as Insignia and its
affiliates, and there can be no assurance that IPT and the Controlled
Partnerships will continue to have the same level of performance following the
Insignia/AIMCO Merger. See "--Conflicts of Interest; Property Management."
Also, there is no assurance that AIMCO would continue the current distribution
policy of IPT. See "Distributions."
AIMCO CONTROL OF SHAREHOLDER VOTE ON IPT/AIMCO MERGER
Upon consummation of the Insignia/AIMCO Merger, AIMCO will own a
majority of the outstanding IPT Common Shares and will have the ability to
effect the IPT/AIMCO Merger without the consent of the minority shareholders of
IPT (including former AMIT shareholders).
NO DIRECT RIGHTS TO REQUIRE AIMCO TO EFFECT IPT/AIMCO MERGER
AMIT shareholders are not third party beneficiaries of AIMCO's
covenant in the Insignia/AIMCO Merger Agreement to propose to acquire the
minority interest in IPT following the consummation of the Insignia/AIMCO
Merger, and in the event that AIMCO breaches its obligation to propose to
acquire IPT by merger, the AMIT shareholders would have no direct cause of
action against AIMCO. However, Insignia/ESG has covenanted to AMIT and IPT that
it will use its reasonable best efforts to compel AIMCO to effect the IPT/AIMCO
Merger in the event that AIMCO breaches its obligation to do so pursuant to the
Insignia/AIMCO Merger Agreement, although,
18
<PAGE>
there can be no assurance that Insignia/ESG will be able to specifically
enforce AIMCO's obligation to effect the IPT/AIMCO Merger, and Insignia/ESG may
not be able to prosecute a damage claim against AIMCO for any damages incurred
by AMIT shareholders as a result of AIMCO's breach of such obligation.
ABSENCE OF FAIRNESS OPINION
The Board of Directors of AMIT has not obtained an opinion from a
financial advisor as to the fairness, from a financial point of view, of the
cash consideration to be received by IPT shareholders (including former AMIT
shareholders) in the IPT/AIMCO Merger or the fairness of the consideration to
be received by AMIT shareholders in the Merger in light of the contemplated
IPT/AIMCO Merger.
RISK FACTORS RELATING TO THE MERGER AND POST-MERGER OPERATIONS
UNCERTAIN TAX TREATMENT OF MERGER
Due to the contemplated IPT/AIMCO Merger, counsel to IPT has informed
IPT that it is unable to render an opinion regarding the tax consequences of
the Merger since the contemplated IPT/AIMCO Merger makes it sufficiently
unclear whether the AMIT shareholders have retained a substantial proprietary
stake and material interest in the affairs of IPT for a sufficient period of
time to enable the AMIT shareholders to meet the "continuity of proprietary
interest" requirement with respect to a reorganization under Section 368(a) of
the Code. Accordingly, because of the potentially short time period between the
Merger and the IPT/AIMCO Merger, it is unclear whether the Merger will qualify
as a reorganization under Section 368(a) of the Code. In addition, no ruling
from the Internal Revenue Service will be obtained.
If the Merger fails to qualify as a reorganization under Section
368(a) of the Code, (i) AMIT would be treated as if it had sold all of its
assets to IPT in a taxable transaction and would recognize taxable gain or loss
equal to the difference between AMIT's adjusted tax basis in its assets and the
fair market value of the IPT Common Shares delivered in the Merger plus the
total amount of cash received by the AMIT shareholders (including cash received
in lieu of fractional shares) and, if AMIT is not qualified as a REIT, IPT
would become liable for the tax resulting from any such gains; and (ii) the
AMIT shareholders would be treated as if all of their AMIT Class A Shares were
redeemed in a fully taxable liquidation of AMIT, and each AMIT shareholder
would recognize taxable gain or loss in an amount equal to the difference
between such holder's adjusted tax basis in such AMIT Class A Shares and the
fair market value of the IPT Common Shares plus the amount of cash received in
exchange therefor. However, as described more fully under "The Merger--Federal
Income Tax Consequences--Tax Treatment of Amounts Received Under the Tax
Agreement," under certain circumstances the AMIT shareholders would be entitled
to indemnification for the taxes arising from such failed reorganization.
However, AMIT shareholders will not be entitled to such indemnification if the
Merger fails to qualify as a reorganization under the Code as a consequence of
the IPT/AIMCO Merger or the Insignia/AIMCO Merger Agreement.
Although AMIT and IPT believe that if the Merger is consummated but
the IPT/AIMCO Merger is not consummated, under certain circumstances the Merger
may be treated as a tax free reorganization under the Code, no ruling from the
Internal Revenue Service will be obtained and no opinion of counsel will be
given regarding the federal income tax consequences of the Merger. For a
discussion of these and other federal income tax considerations in connection
with the Merger, see "The Merger--Federal Income Tax Consequences of the
Merger."
INTEGRATION OF THE BUSINESS OF AMIT AND IPT
Following the Merger, the primary focus and growth of IPT will
continue to center on its existing business as an equity REIT in the apartment
sector. It is not IPT's current intention to make additional investments in the
origination of new loans or the acquisition of outstanding loans to add to or
replace AMIT's existing portfolio. Instead, IPT will retain AMIT's existing
management in its current location to manage the existing loan portfolio,
together with any refinancings of such loans, until their maturity or earlier
disposition. There can be no assurance
19
<PAGE>
that the operations, management and personnel of the two companies will be
compatible or that IPT will not experience the loss of key personnel. See
"Business of IPT--Business Objectives."
UNDERLYING IPT ASSETS CREATE INVESTMENT WITH GREATER RISK
AMIT is a mortgage REIT that was formed primarily to make loans
secured by direct or indirect interests in real property. Accordingly, the
value of such assets, as well as the value of AMIT's securities, though not
immune from, are generally less sensitive than equity REITs such as IPT, to
factors affecting the value and economic performance of the underlying real
property. To the extent that AMIT's assets consist of loans secured by
mortgages, the income used by AMIT to pay distributions on its securities
derives largely from the interest payments and fees received by AMIT pursuant
to those mortgage loans. The income of IPT, on the other hand, is largely
dependent upon the distributions it receives from the partnerships in which it
invests. Such distributions, in turn, vary both positively and negatively with
the economic performance of the income producing properties held by those
partnerships. Further, the risk (as to principal) of an investment in a
mortgage is generally limited to the principal amount of the loan, and the
extent of this risk is typically mitigated by the value of the underlying
collateral, together with such other credit support devices (for example, third
party guaranties) as may be negotiated in connection with the loan. Mortgages,
however, unlike equity investments in real property, do not provide significant
potential for appreciation in asset value. In the case of equity investments in
real property, on the other hand, there is both less inherent security against
loss of asset value as well as greater potential for appreciation in asset
value because the value of such equity interests varies more directly with the
value and income producing potential of the underlying real property. As a
result of these and other factors, an investment in IPT intrinsically involves
significantly greater potential for both the loss of, and return on, investment
than does a comparable investment in AMIT.
FIXED EXCHANGE RATIO DESPITE FLUCTUATIONS IN MARKET PRICES
The Exchange Ratio was determined in July 1997 based on arm's-length
negotiations between IPT and Insignia, on the one hand, and AMIT on the other
hand. The value or price of the IPT Common Shares and/or the AMIT Shares at the
Effective Time, as well as the values or prices at the date of this Proxy
Statement/Prospectus and at the date of the Special Meeting, may vary as a
result of changes in the business, operations or prospects of IPT or AMIT,
market assessments of the likelihood that the Merger will be consummated and
the timing thereof, general market and economic conditions and other factors.
Because the Exchange Ratio is fixed in the Merger Agreement (subject only to
adjustment for any distributions paid by IPT or AMIT prior to the Effective
Time), it will not be adjusted to reflect any increase or decrease in the
market value or price of the IPT Common Shares or the AMIT Shares or any change
in the operations (other than distributions declared by either AMIT or IPT) or
prospects of IPT or AMIT and consequently, the value of the consideration to be
received by the AMIT shareholders in the Merger may be more or less depending
upon changes in the market price of the AMIT Class A Shares prior to the
consummation of the Merger. See "Merger--Manner and Basis of Converting
Shares."
EXCHANGE RATIO SUBJECT TO ADJUSTMENT FOR DISTRIBUTIONS
The Exchange Ratio is subject to further adjustment should either AMIT
or IPT declare any distributions between the date of the Proxy
Statement/Prospectus and the consummation of the Merger. Consequently, an AMIT
shareholder may not know the exact Exchange Ratio upon voting on the Proposals
at the Special Meeting.
DISPROPORTIONALITY WITH RESPECT TO CONVERSION RATIO OF OP UNITS
As an umbrella partnership real estate investment trust (UPREIT), IPT
holds substantially all of its assets through IPLP, its operating partnership.
Such an ownership structure is designed and intended to result in an
equivalence in value between OP Units and IPT Common Shares. Under certain
circumstances, holders of OP Units have the right to require IPLP to redeem
their OP Units for cash in an amount equal to the market value of an equivalent
number of IPT Common Shares (subject to the first right of IPT to acquire such
OP Units for an equivalent number of IPT Common Shares). In order to avoid
triggering certain adverse federal income tax consequences, following the
Merger IPT intends to continue to hold directly at least 50% of the pre-Merger
AMIT
20
<PAGE>
assets (including any assets transferred to Insignia pursuant to the Asset
Agreement (as defined herein, see "Certain Other Agreements--Asset Agreement"))
until such time, if any, as IPT receives a ruling from the IRS or an opinion of
counsel that such assets may be contributed to IPLP. The particular assets to
be retained by IPT will not be determined until after the consummation of the
transactions contemplated by the Asset Agreement and will not be known by the
AMIT shareholders at the time of the Special Meeting. IPT may retain whole
loans or various participation interests in certain of AMIT's loans. Because
IPT will hold assets other than through IPLP, the value of an IPT Common Share
vis-a-vis an OP Unit will vary depending on the value of the retained AMIT
assets. Thus, upon a redemption of OP Units for cash (or an acquisition of OP
Units by IPT in exchange for IPT Common Shares), a shareholder of IPT would be
diluted if and to the extent that the value of an IPT Common Share exceeds the
value of an OP Unit at the time of such redemption or acquisition. Management
intends to mitigate the effects of this potential valuation imbalance, however,
by having IPT directly pay certain expenses which otherwise would be paid by
IPLP.
LACK OF INDEPENDENT VALUATIONS OF ASSETS
In most instances the valuation of the assets contributed to IPT and
IPLP with respect to the formation of IPT and in certain transactions among
IPT, IPLP and Insignia and its affiliates since the formation transactions was
not determined on the basis of independent appraisals of such assets, and the
valuation of IPT and the allocation of its equity interests among the
participants in the formation transactions were not determined on an arm's
length basis. In addition, AMIT did not obtain independent appraisals of the
value of the underlying real property or the partnership interests owned by IPT
and IPLP in determining whether to approve the Merger. Accordingly, no
assurance can be given that the valuations of those assets, which were used in
establishing the Exchange Ratio, were accurate or as to whether the IPT Common
Shares will trade at or above the IPT Share Value.
LEVERAGE; NO LIMITATION ON DEBT
IPT intends to use the net proceeds from future offerings and
borrowings primarily to acquire interests in multifamily residential
properties, as well as real estate in other sectors incidental to the purchase
of multifamily property portfolios, including direct ownership interests in
such properties, loans secured by real estate, limited and general partner
interests in real estate limited partnerships, REITs and REIT-eligible income
producing assets, and for general operating purposes. IPLP has obtained a line
of credit in the amount of $50 million, which is guaranteed by IPT (the "IPT
Line of Credit"). In connection with the IPT Line of Credit, IPT and IPLP have
pledged all of the general partner interests, limited partner interests and
direct property interests they own or acquire as collateral. See "IPT Line of
Credit." As of the date hereof, IPT has no outstanding indebtedness under the
IPT Line of Credit and no other outstanding indebtedness. Additionally, the IPT
Line of Credit places certain restrictions on the operations of IPT. See "IPT
Line of Credit." IPT is subject to the risks associated with debt financing,
including the risk that IPT's cash flow will be insufficient to meet required
payments of principal and interest, which could result in the lenders
foreclosing on the assets pledged as security for the IPT Line of Credit and
result in a loss of income and equity value from such interests to IPT.
Additionally, certain of the properties owned by the Controlled Partnerships
are encumbered by debt. There exists a risk that the Controlled Partnerships
will not be able to refinance existing indebtedness on their properties or that
the terms of such refinancings will not be as favorable as the terms of
existing indebtedness and that necessary capital expenditures will not be
financed on favorable terms. If a property of a Controlled Partnership is
mortgaged to secure payment of indebtedness and the applicable Controlled
Partnership is unable to meet mortgage payments, the property could be
transferred (by foreclosure or otherwise) to the mortgagee with a consequent
loss of any prospective income and equity value from such property to IPT. For
federal income tax purposes, such a foreclosure would trigger any built-in gain
(or loss) with respect to the property foreclosed upon, measured by the
difference in the principal amount of the debt and the tax basis of the
foreclosed property. Thus, IPT could recognize gain upon a foreclosure without
receiving cash to pay the tax thereon.
In addition, the organizational documents of IPT do not contain any
limitation on the amount of indebtedness IPT may incur. If IPT becomes highly
leveraged, the resulting debt service could adversely affect IPT's financial
condition and results of operations and the amount of cash available for
distributions to shareholders
21
<PAGE>
(including distributions that are required in order to maintain IPT's
qualification as a REIT) and could increase the risk of default on IPT's
indebtedness.
CONFLICTS OF INTEREST
Several conflicts of interest exist on the part of IPT, IPLP, Insignia
and their respective trustees, directors and management. The following
describes the material conflicts of interest, including the relationships
through which they arise.
Management. In exercising its voting rights as the controlling
shareholder of IPT, Insignia and its affiliates may consider their liquidity,
strategic, tax and other interests, which may be different from those of IPT or
other shareholders of IPT. In addition, all of the current trustees and five of
the eight current executive officers of IPT (including Andrew L. Farkas, who
serves as trustee, Chairman and Chief Executive Officer of IPT, and is
Chairman, Chief Executive Officer and President of Insignia), are officers of
Insignia, and, as such, will not devote all of their time and effort to the
affairs of IPT. In addition, four of such persons (Andrew L. Farkas, James A.
Aston, Frank M. Garrison and Ronald Uretta) have a significantly greater direct
economic interest in Insignia than in IPT. As a result, the interest of such
individuals in IPT and Insignia may conflict. In their capacity as shareholders
of IPT, such individuals may vote their IPT Common Shares to cause IPT to take
certain actions that are in the best interests of Insignia but not necessarily
in the best interests of IPT or the other shareholders of IPT.
Use of Personnel. IPT believes that it cannot at present economically
justify maintaining an internal staff to provide real estate and real estate
securities acquisition and disposition services. As a result, pursuant to the
Acquisition and Disposition Services Agreement, IPT intends to utilize
Insignia's personnel to perform the vast majority of such services until the
expiration of the Acquisition and Disposition Services Agreement on December
31, 2000. To the extent that such personnel are also performing services for
Insignia, it may detract from their ability to devote the time and attention
necessary to perform similar services for IPT.
Property Management. Pursuant to the terms of the Partnership
Agreement, IPT is required to engage Insignia and its affiliates to provide
property management services to virtually all of the properties now or
hereafter controlled by IPT. As of the date of this Proxy Statement/Prospectus,
Insignia provides property management services to all but 19 of the properties
controlled by IPT. Pursuant to the terms of the Partnership Agreement, the
removal of Insignia as the property manager with respect to any properties
controlled by IPT, and the termination of any property management agreement
relating to such properties, requires the consent of Insignia, as the Special
Limited Partner of IPLP. In addition, Insignia and its property management
affiliates provide management services to a substantial number of other parties
affiliated with Insignia and to unaffiliated third parties. IPT and the
Controlled Partnerships are heavily dependent upon the property management and
partnership administration services provided by Insignia and its affiliates.
The loss of such services could materially and adversely affect the ability of
IPT and the Controlled Partnerships to conduct their business in an efficient
and profitable manner.
Conflicts may arise between IPT and Insignia when considering the sale
of a particular property controlled by IPT which may result in a loss of
property management revenue to Insignia. IPT is precluded from obtaining
property management services for the properties controlled by IPT from a
provider other than Insignia and from performing property management services
itself. In addition, the Partnership Agreement provides that if the total
amount of property management fees paid to Insignia in respect to all
properties controlled by IPT during any rolling twelve-month period ending at
the end of a calendar quarter is less than 90% of the total annualized amount
of property management fees paid to Insignia for the year preceding IPT's
acquisition of control of certain properties, then IPLP is required to pay
Insignia a fee equal to the greater of (i) the decrease in the market value of
Insignia and its affiliates arising or expected to arise by virtue of such
decrease in property management fees and (ii) the increase in the market value
of IPT arising or expecting to arise as a result thereof. Additionally, if IPT
or IPLP is in material breach of its obligations under the Partnership
Agreement (including without limitation the failure to pay the foregoing fee
when due), Insignia, MAE, and each of their affiliates will have certain put
rights with respect to the IPT Common Shares and OP Units then owned by each of
them. See "The Partnership Agreement of IPLP--Property Management and Contract
Loss Fee" and "The Partnership Agreement of IPLP--Put Rights."
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<PAGE>
Investments in Real Estate. Under the Acquisition and Disposition
Services Agreement, until December 31, 2000, Insignia is required to inform IPT
of certain multifamily residential real estate investments reserved for IPT
before Insignia may invest in any such opportunity; however, Insignia is
required to give such notice only if Insignia plans to invest in the
opportunity for its own account and the investment opportunity is of a type
that Insignia would have invested in prior to the formation of IPT. Thus,
Insignia may inform unaffiliated third parties, and not IPT, of real estate
investments that may be suitable to IPT provided that Insignia does not itself
invest in such opportunity. Subject to these restrictions, neither Insignia nor
any of its directors, officers, employees or affiliates are restricted from
investing in interests in real estate or from engaging in any other activities
which may involve competition with IPT or which may give rise to conflicts of
interest between Insignia and IPT (although employment agreements of certain
executive officers of Insignia and IPT do contain non-competition provisions).
Additionally, IPT is required to inform Insignia of certain real estate
investments and may not invest in such investments without the prior written
consent of Insignia. See "Acquisition and Disposition Services
Agreement--Agreement Regarding Certain Real Estate Opportunities."
Loans. Many of the loans in AMIT's mortgage portfolio consists of
loans made to entities now controlled by IPT. Should any issues regarding such
loans arise, such issues may not be resolved in an arm's length manner due to
the overlapping management after the Merger.
Distributions. Subject to the current policy adopted by the IPT Board
to pay regular quarterly distributions in the amount of $.15 per IPT Common
Share (which will be increased to $.16 per IPT Common Share beginning with the
first quarterly distribution for which the record date is after the Effective
Time), the IPT Board has the power and authority to declare and pay
distributions at any time, and in such amounts as they deem advisable. Subject
to their fiduciary duties to the shareholders of IPT, trustees of IPT who are
also directors and/or executive officers of Insignia may take into account the
capital needs of Insignia when determining the amount and timing of the
distributions made by IPT to its shareholders and IPLP to its partners, in each
case including Insignia.
Tax Benefits. Because certain IPT Partnerships own properties the fair
market value of which exceeds the adjusted tax basis, the gain recognized for
federal income tax purposes from the sale of such properties will largely be
allocated to Insignia. Consequently, the decision of IPT to cause the IPT
Partnerships to dispose of such properties may conflict with Insignia's
interests in not realizing such gain.
CONTROL BY INSIGNIA
Upon consummation of the Merger, Insignia and its affiliates will
continue to own approximately 57% of the IPT Common Shares (approximately 66%
on a fully-diluted basis assuming all OP Units are redeemed for cash or
acquired by IPT in exchange for IPT Common Shares). Insignia will have the
ability to control the direction and management of IPT and IPT may not be able
to engage in certain extraordinary transactions without the consent of
Insignia. Although all shareholders of IPT will be entitled to vote in future
elections of trustees, Insignia designated all three of the initial members of
IPT Board and after the Effective Time a majority of the IPT Board will consist
of individuals who also serve as officers of Insignia (including one member who
is also a director of Insignia), and Insignia may be able to control the future
election of trustees. The IPT Board appoints IPT's executive officers and has
the authority to decide most management and policy issues without the consent
of the shareholders of IPT.
Additionally, as the Special Limited Partner of IPLP, Insignia
possesses certain special consent rights which prohibit IPLP from taking
certain actions or engaging in certain transactions without the consent of
Insignia, as the Special Limited Partner. See "Partnership Agreement of
IPLP--Management."
LACK OF SHAREHOLDER CONTROL OVER IPT'S POLICIES
The investment and financing policies of IPT and its policies with
respect to certain other activities, including its growth, capitalization,
distributions, REIT status and investment and operations, will be determined by
the IPT Board. Although the IPT Board has no present intention to do so, these
policies may be amended or revised at any time and from time to time at the
discretion of the IPT Board without a vote of the shareholders of IPT. A
23
<PAGE>
change in these policies could adversely affect IPT's financial condition,
results of operations or the market price for IPT Common Shares.
LIMITATIONS ON OWNERSHIP INTERESTS AND CHANGE OF CONTROL IN DECLARATION OF
TRUST
Certain provisions in IPT's Declaration of Trust and Bylaws may have
the effect of discouraging a third party from making an acquisition proposal
for IPT and may thereby delay, defer or prevent a change in control of IPT and,
as a result, could prevent the shareholders of IPT from receiving a premium for
their IPT Common Shares over then-prevailing market prices.
IPT's Declaration of Trust permits the IPT Board to issue up to
100,000,000 preferred shares of beneficial interest ("Preferred Shares") and to
establish the preferences and rights (including the right to vote, participate
in earnings, and to convert into IPT Common Shares) of any such Preferred
Shares issued. Although the IPT Board has no intention to do so at the present
time, it could authorize the issuance of Preferred Shares with terms and
conditions which could have the effect of discouraging a takeover or other
transaction in which holders of IPT Common Shares might receive a premium for
their IPT Common Shares over the then-prevailing market price of such IPT
Common Shares. See "Description of Shares of Beneficial Interest of
IPT--Preferred Shares."
IPT's Declaration of Trust authorizes the IPT Board to (i) amend IPT's
Declaration of Trust without shareholder approval, to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of
beneficial interest of any class (including IPT Common Shares) that IPT has the
authority to issue; (ii) cause IPT to issue additional authorized but unissued
IPT Common Shares or Preferred Shares; and (iii) classify or reclassify any
unissued IPT Common Shares and Preferred Shares and to set the preferences,
rights and other terms of such classified or unclassified shares. See
"Description of Shares of Beneficial Interest of IPT--Classification or
Reclassification of IPT Common Shares or Preferred Shares." Although the IPT
Board has no intention to do so at the present time, it could establish a class
or series of shares of beneficial interest that could, depending on the terms
of such series, delay, defer or prevent a transaction or change in control of
IPT that might involve a premium for the IPT Common Shares or otherwise be in
the best interests of the shareholders of IPT. IPT's Declaration of Trust and
Bylaws also contain other provisions that may have the effect of delaying,
deferring or preventing a transaction or change in control of IPT that might
involve a premium for the IPT Common Shares or otherwise be in the best
interest of the shareholders of IPT. See "Description of Shares of Beneficial
Interest of IPT."
Additionally, the IPT Board is divided into three classes. The initial
terms of the first, second and third classes will expire in 1998, 1999 and
2000, respectively. Beginning in 1998, trustees of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of trustees will be elected by the shareholders of IPT. The staggered
terms of trustees may reduce the possibility of a tender offer or an attempt to
change control of IPT, even though a tender offer or change in control may be
in the best interest of the shareholders of IPT. See "Comparison of Shareholder
Rights--Classification of the Board of Trustees."
POSSIBLE ADVERSE CONSEQUENCES OF OWNERSHIP LIMIT
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding IPT Common Shares may be owned, directly or
indirectly, by five or fewer "individuals" (as defined in the Code to include
certain entities such as private pension funds). Accordingly, IPT's Declaration
of Trust prohibits the actual or constructive ownership by an individual of
more than 9.8% of the
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outstanding IPT Common Shares, subject to certain exceptions. See "Description
of Shares of Beneficial Interest of IPT--Share Ownership Limitations;
Restrictions on Transfer of IPT Common Shares." As a result, a holder of IPT
Common Shares may be prohibited from increasing its holdings of IPT Common
Shares or selling its IPT Common Shares to an existing shareholder of IPT. The
IPT Board may, in its sole discretion, waive these restrictions if evidence
satisfactory to the IPT Board and IPT's tax counsel is presented showing that
ownership in excess of this limit will not jeopardize IPT's tax status as a
REIT. As a condition of such waiver, the IPT Board may require a ruling from
the Internal Revenue Service or an opinion of counsel satisfactory to it and/or
undertakings or representations from the applicant with respect to the
preservation of IPT's status as a REIT under the Code. Limiting the ownership
of more than 9.8% of the outstanding IPT Common Shares may (i) discourage a
change in control of IPT; (ii) deter tender offers for IPT Common Shares, which
offers may be attractive to IPT's shareholders; or (iii) limit the opportunity
for shareholders to receive a premium for their IPT Common Shares that might
otherwise exist if an investor attempted to assemble a block of IPT Common
Shares in excess of 9.8% of the outstanding IPT Common Shares or to effect a
change of control of IPT.
DEPENDENCE ON PROPERTY PERFORMANCE; RISKS RELATED TO INVESTMENTS IN REAL
ESTATE LIMITED PARTNERSHIPS
IPT's financial success will depend, in large part, upon the
performance of the properties owned by the real estate limited partnerships
(including the IPT Partnerships) in which it invests and properties owned by
IPT directly. The performance of such properties in turn will depend, in part,
upon the ability of Insignia and its affiliates, as the manager of such
properties, to attract and retain tenants; competition from other available
properties; Insignia's ability as property manager to control capital
expenditures and operating expenses (many of which are subject to various
contingencies); energy shortages and the costs attributable thereto; the age of
the properties owned by the real estate limited partnerships in which it
invests; changes in tax law and other governmental regulations; local rent
control or stabilization ordinances which are or may be put into effect;
various uninsurable risks; financial conditions prevailing generally and in the
areas in which such properties are located, including oversupply of apartments
or commercial space or a reduction in demand for apartments or commercial space
in such areas; the nature, type, supply and extent of competitive properties in
the areas where such properties are located; and the real estate market
generally. Additionally, revenue from properties and real estate values are
also affected by such factors as interest rate levels and the availability of
financing. Any or all of these factors may affect IPT's income. For example,
older properties or properties in markets with an oversupply of multifamily
residential properties must be rented at lower rates in order to maintain
occupancy levels. In addition, capital expenditures and operating expenses on
properties may increase more than anticipated.
In the future, IPT may participate with other entities in the
ownership of properties and/or limited partner interests in real estate limited
partnerships through partnerships and joint ventures. Partnership and joint
venture investments may, under certain circumstances, involve risks not
otherwise present, including the possibility that such partners or co-venturers
might become bankrupt, that such partners or co-venturers might at any time
have economic or business interests or goals inconsistent with those of IPT and
that such partners or co-venturers may be in a position to take action contrary
to IPT's instructions, requests, policies or objectives, including IPT's policy
with respect to maintaining its qualification as a REIT. However, IPT will seek
to maintain sufficient control of such partnerships or joint ventures, as the
case may be, to permit IPT's business objectives to be achieved. Although IPT
invests primarily in limited partnerships, certain subsidiaries of IPT which
comprise the general partners of certain of such limited partnerships may be
liable for certain recourse obligations of such limited partnerships in its
capacity as general partner. There is no limitation under IPT's organization
documents as to the amount of available funds that may be invested in
partnerships or joint ventures.
ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS; EFFECTS OF
DISTRIBUTION POLICY
To maintain its status as a REIT, IPT generally will be required each
year to distribute to its shareholders at least 95% of its REIT taxable income
(excluding net capital gain and after taking into account certain adjustments).
In addition, IPT will be subject to a 4% nondeductible 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 net income and 95%
of its capital gain net income for such calendar year plus any amount of such
income not distributed in prior years. See "Certain Federal Income Tax
Considerations -- Annual Distribution Requirements." Under certain
circumstances, IPT may be required to accrue from time to time certain income
items for tax purposes prior to their receipt in cash (e.g., rent earned but
not yet received). Differences in timing between the accrual of certain income
items for tax purposes and the receipt thereof or the failure by any of the IPT
Partnerships to timely distribute to IPT the proceeds that such IPT
Partnerships receive from their properties could cause IPT to have taxable
income without sufficient cash to meet the annual 95% distribution requirements
and to avoid the nondeductible excise tax. In such cases, IPT may be compelled
to borrow funds on a short-term basis or liquidate investments on terms that
are disadvantageous to IPT in order to meet the 95% distribution requirement
and to avoid the nondeductible excise tax. The requirement to distribute a
substantial portion of IPT's REIT taxable income could cause IPT to distribute
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amounts that otherwise would be spent on future acquisitions or repayments of
debt, which could require IPT to borrow funds or to sell assets to fund the
cost of such items.
The IPT Board has adopted a policy to pay regular quarterly
distributions in an amount equal to $.15 per IPT Common Share which will be
increased to $.16 per IPT Common Share beginning with the first quarterly
distribution for which the record date is after the Effective Time. IPT is
currently paying regular quarterly distributions of $.15 per IPT Common Share
in accordance with this policy. IPT believes these distributions in the
aggregate will exceed the 95% distribution requirement exclusive of gains from
the sales of property to avoid the nondeductible excise tax described above. If
distributions exceed available cash, IPT would be required to sell assets or
borrow funds to make distributions or revise its dividend policy. Distributions
by IPT to the extent of its current and accumulated earnings and profits for
federal income tax purposes generally will be taxable to shareholders as
ordinary dividend income or capital gains distributions, as the case may be,
and distributions in excess of current and accumulated earnings and profits
will generally be treated as a non-taxable reduction of a shareholder's basis
in its IPT Common Shares to the extent thereof and thereafter as taxable gain.
Distributions that are treated as a reduction of a shareholder's basis in its
IPT Common Shares will have the effect of deferring taxation until the sale of
the shareholder's shares.
IPT anticipates that it will be able to make the distributions
described above, although no assurances can be given in this regard. IPT also
anticipates that it will retain any REIT taxable income in excess of the
aggregate amount of the dividends described above for future acquisitions and
general working capital purposes, subject to IPT meeting the 95% distribution
requirement described above. Pursuant to newly enacted tax legislation, a REIT
may elect to retain capital gains otherwise required to be distributed and
instead may pay a tax on such retained amounts. Each REIT shareholder would
report its pro rata share of such retained amounts as if such amounts had been
distributed directly to such shareholder and will receive, as a credit against
the tax thereon (or as a refund if such credit otherwise exceeds the
shareholder's overall tax liability for the tax year), its proportionate share
of the taxes paid by the REIT on the retained capital gains as if such
shareholder had paid the tax directly. Such a strategy is a strong possibility
for IPT and, if implemented, each shareholder's adjusted tax basis in its IPT
Common Shares will be increased by an amount equal to the difference between
the amount of such capital gain included in such shareholder's taxable income
and the tax credit deemed paid by such shareholder. In effect, this method of
taxation, with respect to capital gains, will produce the same result as if the
shareholder had received the full capital gain distribution included such
amount in its taxable income, paid the tax thereon and subsequently
recontributed the distribution (in excess of the tax paid) to the REIT for no
additional shares.
ADVERSE CONSEQUENCES OF THE FAILURE TO QUALIFY AS A REIT
IPT intends to operate in a manner that will enable it to continue to
qualify as a REIT under the Code. To qualify as a REIT, IPT must satisfy
certain tests related to the nature of its assets and income, and it must also
distribute substantially all of its income (as specifically defined for these
purposes) to its shareholders. If IPT fails to qualify as a REIT in any taxable
year and certain relief provisions of the Code do not apply, IPT would be
subject to federal income tax as a regular domestic corporation, and its
shareholders would be subject to tax in the same manner as shareholders of such
a corporation. As a result, IPT could be subject to income tax liability,
thereby significantly reducing or eliminating the amount of cash available for
distribution to its shareholders. Although management of IPT believes that IPT
has been organized and will continue to operate in a manner enabling it to
remain qualified as a REIT, no assurance to such effect can be given. See
"Certain Federal Income Tax Considerations--Taxation of IPT--Failure to
Qualify." Additionally, no assurance can be given that future legislation,
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to IPT's qualification as a REIT
or the federal income tax consequences of such qualification, which changes may
reduce or eliminate the advantages of qualifying as a REIT.
POTENTIAL ADVERSE EFFECTS OF FUTURE OFFERINGS
IPT may in the future increase its capital resources by making
additional offerings of equity or debt securities, including classes of common
shares, Preferred Shares, and senior or subordinated debt instruments. All debt
securities and classes of Preferred Shares will be senior to the IPT Common
Shares in a liquidation of IPT. The
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effect of additional equity offerings may be the dilution of the equity of the
shareholders of IPT or the reduction of the price of IPT Common Shares, or
both. IPT is unable to estimate the amount, timing or nature of additional
offerings as they will depend on market conditions and other factors. There can
be no assurance that IPT will be able to satisfy its capital requirements
through such offerings on favorable terms or at all.
POSSIBLE ADVERSE EFFECT ON SHARE PRICE ARISING FROM SHARES AVAILABLE FOR
FUTURE SALE
Upon consummation of the Merger 23,499,762 IPT Common Shares will be
outstanding, including the approximately 4,072,000 IPT Common Shares to be
issued in the Merger. The IPT Common Shares to be issued to the AMIT
shareholders in the Merger (other than IPT Common Shares received by affiliates
of AMIT and IPT) will be freely tradable without restriction under the
Securities Act. There are 13,216,048 IPT Common Shares currently held by
Insignia and its affiliates, which are restricted securities within the meaning
of Rule 144 promulgated under the Securities Act ("Rule 144") and may not be
sold in the absence of registration under the Securities Act or unless an
exemption from registration is available, including exemptions contained in
Rule 144. Additionally, 6,150,000 IPT Common Shares are held by persons who
purchased such shares in the Private Offerings (other than the executive
officers, trustees and directors of IPT and Insignia). Approximately 19,284,335
IPT Common Shares will be eligible for sale under Rule 144 within 90 days after
the consummation of the Merger. See "Shares Available for Future Sale."
Insignia and its affiliates and the purchasers of IPT Common Shares in the
Private Offerings possess certain demand and piggyback registration rights
regarding their IPT Common Shares. See "Description of Shares of Beneficial
Interest of IPT--Registration Rights."
No prediction can be made as to the effect, if any, that future sales
of IPT Common Shares, the availability of IPT Common Shares for future sale, or
future issuances of IPT Common Shares will have on the market price of the IPT
Common Shares from time to time. Sales of substantial numbers of IPT Common
Shares, or the perception that such sales could occur, could adversely affect
the prevailing market price for the IPT Common Shares. If such sales reduce the
market price of the IPT Common Shares, IPT's ability to raise additional
capital in the equity markets could be adversely affected. The existence of the
registration rights referred to above also may adversely affect the terms upon
which IPT can obtain additional equity in the future.
NEGATIVE IMPACT ON REIT STATUS IF IPLP OR A CONTROLLED PARTNERSHIP
FAILS TO BE CLASSIFIED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES
Although IPT has not requested, and does not expect to request, a
ruling from the Internal Revenue Service that IPLP and each of the Controlled
Partnerships will be classified as partnerships for federal income tax
purposes, IPT has received an opinion of its counsel stating that IPLP and each
Controlled Partnership will be classified as a partnership, and not a
corporation or an association taxable as a corporation, for federal income tax
purposes. If the Internal Revenue Service were to challenge successfully the
tax status of IPLP or any such Controlled Partnership as a partnership for
federal income tax purposes, IPLP or a Controlled Partnership would be taxable
as a corporation. In such event, IPT likely would cease to qualify as a REIT
for a variety of reasons. Furthermore, the imposition of a corporate income tax
on IPLP or a Controlled Partnership would reduce substantially the amount of
cash available for distribution to IPT and its shareholders.
NO ESTABLISHED PUBLIC TRADING MARKET FOR INTERESTS IN THE IPT PARTNERSHIPS
There is no established public trading market for units of limited
partner interest in the IPT Partnerships, and there may not be established
public trading markets for units in other real estate limited partnerships in
which IPT may invest, and there can be no assurance that such markets will
develop. Consequently, IPT may be able to realize gains on its investments in a
limited partnership or liquidate such investment only upon the liquidation of
such limited partnership or sales or refinancing of the properties held by such
limited partnership.
COMPETITION IN REAL ESTATE MARKET
Competition is intense in the markets for acquisition of control of
real estate assets and entities owning real estate assets. No single
organization controls more than a small percentage of the total residential or
commercial
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properties in the United States. Most competitors are regional or
local organizations that control a relatively small number of properties. IPT
believes that competition for acquisition or control of such entities is based
principally on the ability to offer reasonable value to the seller of control,
which often requires restructuring the debt and equity of the controlled entity
so that the properties can provide positive cash flow to investors. There can
be no assurance that IPT will be able to compete effectively in this market.
Additionally, subject to the terms of the Acquisition and Disposition Services
Agreement, Insignia may invest in certain real estate opportunities which may
be suitable for IPT. See "Acquisition and Disposition Services
Agreement--Agreement Regarding Certain Real Estate Opportunities."
Insignia's ability to provide effective property and asset management
services with respect to the properties that IPT controls will depend, in part,
on Insignia' ability to maintain its experienced management team and to attract
additional managers as Insignia's property management business expands.
Insignia believes that there is currently a shortage of qualified property
management personnel.
DEPENDENCE ON ANDREW L. FARKAS AND OTHER SENIOR MANAGERS
The successful implementation of IPT's strategy will depend upon the
continued services of Mr. Farkas, who is a trustee, Chairman and Chief
Executive Officer of IPT and Chairman, Chief Executive Officer and President of
Insignia, and who may be deemed to be in control of each of IPT and Insignia.
Mr. Farkas will not devote his full time to the affairs of either IPT or
Insignia. The other current members of the IPT Board (Messrs. Aston and
Garrison) also serve as executive officers of Insignia and will not devote
their full business time to the affairs of IPT. If Mr. Farkas becomes
incapacitated or resigns his positions with IPT and/or Insignia, the loss of
his services could have a material adverse effect on the operations of IPT. The
remainder of IPT's senior management consists principally of former and current
members of Insignia's senior management team. Consequently, the successful
implementation of IPT's business plan will also depend, in part, upon
Insignia's ability to attract and maintain other key management personnel. None
of the current executive officers or employees of IPT have employment
agreements with IPT.
CONCENTRATION OF PROPERTIES IN MULTIFAMILY RESIDENTIAL HOUSING
The properties owned and controlled by the IPT Partnerships are
concentrated predominantly in the multifamily residential housing sector
(although IPT does control approximately 5.9 million square feet of commercial
space). Approximately 88% of the properties owned by the IPT Partnerships are
multifamily residential properties. Such concentration may expose IPT to the
risk of downturns in this sector (which, among other things, may be caused by
greater unemployment causing an increase in the vacancy rate or by a decrease
in interest rates causing a surge in the purchase of housing) to a greater
extent than if its portfolio also included other property types.
ENVIRONMENTAL LIABILITY
Under various federal, state and local environmental laws, statutes,
ordinances, rules and regulations, an owner or operator of real property may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in such property, as well as certain other
potential costs relating to hazardous or toxic substances (including government
fines and penalties and damages for injuries to persons and adjacent property).
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence or disposal of such hazardous or toxic
substances. Such liability may be imposed on the owner in connection with the
activities of an operator of, or tenant at, the property. Persons who arrange
for the transportation, disposal or treatment of hazardous or toxic substances
may also be liable for the costs of removal or remediation of such substances
at the disposal or treatment facility, whether or not such facility is or ever
was owned or operated by such person.
Environmental laws such as the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA), the Toxic Substances Control Act
(TSCA), the Clean Air Act (CAA) and their state equivalents govern such areas
as indoor air pollution, radon gas, lead-based paint, polychlorinated biphenyls
(PCBs) and fluorescent lights, and may impose obligations on the owner or
operator of residential or commercial real property. Certain
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environmental laws and common law principles could be used to impose liability
for release of and exposure to hazardous substances, including
asbestos-containing materials (ACMs) into the air, and third parties may seek
recovery from owners or operators of real properties for personal injury or
property damage associated with exposure to released hazardous substances.
Certain environmental laws and regulations impose an obligation on the owner or
operator of real property to report the discovery of historical contamination
and may require the owner or operator to remediate that contamination and/or
restrict the use of such property through deed restrictions.
LIMITED OPERATING HISTORY
IPT has been recently organized and has a limited operating history
and, accordingly, has not yet developed an extensive financial history. There
can be no assurance that IPT's financial results to date will be indicative of
future results.
ABSENCE OF PRIOR MARKET FOR IPT COMMON SHARES
There is currently no market for the IPT Common Shares, and there can
be no assurance that an active trading market will develop or be sustained
following the Merger. The IPT Common Shares have been approved for listing on
the ASE, subject to consummation of the Merger, under the symbol "FFO." The IPT
Common Shares to be received by the shareholders of AMIT in the Merger have
also been approved for listing on the ASE, subject to official notice of
issuance. Factors such as government regulatory action, tax laws, interest
rates and market conditions in general could have a significant impact on the
future market price of the IPT Common Shares. In addition, the trading volume
of the IPT Common Shares may be limited, which could also have a significant
effect on their future market price.
ADVERSE EFFECT OF INCREASE IN INTEREST RATES ON THE TRADING PRICE OF IPT
COMMON SHARES
One of the factors that may influence the trading price of the IPT
Common Shares in public trading markets will be the annual yield resulting from
distributions on the IPT Common Shares as compared to yields on certain
financial instruments. Thus, an increase in market interest rates will result
in higher yields on certain financial instruments, which could adversely affect
the market price of the IPT Common Shares. Additionally, increases in market
interest rates will result in higher costs to IPT in financing future
acquisitions, which may adversely affect IPT's ability to achieve earnings
growth.
UNCERTAINTY SURROUNDING CONSOLIDATION OF FINANCIAL STATEMENTS
In the view of the Commission and the Financial Accounting Standards
Board ("FASB") there exists a great deal of uncertainty under generally
accepted accounting principles as to the reporting method to be employed in
consolidating the financial statements of a partnership with those of another
company in the case where the company owns a general partner interest in such
partnership. If the Commission and the FASB adopt a policy regarding the
reporting method to be employed in such instances that is contrary to the
method currently used by IPT, the required presentation of IPT's financial
statements could differ materially from the presentation of the financial
statements set forth herein.
DILUTION
In connection with the Merger, shareholders of AMIT (other than MAE
and LAC) will be issued approximately 3,871,000 IPT Common Shares and will
hold, in the aggregate, approximately 16% of the outstanding IPT Common Shares
as of the Effective Time. Additionally, holders of IPT Common Shares will
experience dilution of their voting power in IPT upon an exchange by holders of
OP Units for IPT Common Shares and upon the vesting and exercise of options and
restricted share awards under IPT's 1997 Share Incentive Plan (the "1997 Share
Incentive Plan"). See "Description of Shares of Beneficial Interest of
IPT--Exchange of OP Units into IPT Common Shares" and "Management--1997 IPT
Share Incentive Plan."
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APPLICABILITY OF THE INVESTMENT COMPANY ACT
IPT believes that it will not be, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
Accordingly, IPT does not expect to be subject to the restrictive provisions of
the Investment Company Act. In particular, IPT intends to rely upon provisions
of the Investment Company Act (and Commission interpretations thereof) which
generally exempt from the Investment Company Act's registration requirements
entities that are primarily engaged in the business of purchasing or otherwise
acquiring interests in real estate. If IPT does not conduct its operations so
as to maintain the availability of an exemption from registration as an
investment company, IPT could, among other things, be required to either (i)
change the manner in which it conducts its business to avoid being required to
register as an investment company or (ii) register as an investment company,
either of which could have a material adverse effect on IPT and the market
price of the IPT Common Shares. Registration as an investment company would
result in, among other things, a significantly reduced ability to utilize
leverage in IPT's business and significantly increased operating expenses.
LITIGATION ARISING FROM TENDER OFFERS
As part of its business plan, IPT may seek to acquire additional units
of limited partner interest in the Controlled Partnerships or other real estate
limited partnerships through tender offers. Such tender offers have resulted
and may in the future result in litigation concerning the terms of and
circumstances surrounding the offer. In certain circumstances such litigation
may be brought by plaintiffs on behalf of the tendering security holders for
the purpose of seeking a settlement with the entity making the offer, even
though IPT generally does not believe such suits to be meritorious. Although
IPT anticipates that such litigation will not have a material adverse effect on
IPT, no assurance can be given as to the outcome of any such litigation. See
"Business of IPT-- Legal Proceedings."
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies from the holders of AMIT Class A Shares by the AMIT
Board for use at the Special Meeting.
TIME AND PLACE; PURPOSES
The Special Meeting will be held on June 29, 1998, commencing at 9:00
a.m., local time, at the Beverly Hilton Hotel, 9876 Wilshire Boulevard, Beverly
Hills, California. At the Special Meeting, holders of AMIT Shares will consider
and vote to approve and adopt the Merger Proposal and the Trust Amendment
Proposal. No other business will be presented at the Special Meeting other than
those matters incidental to the conduct of the Special Meeting.
VOTING; VOTES REQUIRED FOR APPROVAL
The AMIT Board has fixed the close of business on May 13, 1998 as the
AMIT Record Date for the determination of AMIT shareholders entitled to notice
of, and to vote at, the Special Meeting and at any adjournment or postponement
thereof. Only holders of record of AMIT Shares on the AMIT Record Date are
entitled to vote at the Special Meeting. On the AMIT Record Date, there were
2,617,000 AMIT Class A Shares outstanding held by _______ shareholders of
record and 1,675,113 AMIT Class B Shares outstanding, all of which are held of
record by MAE.
The presence, either in person or by proxy, of the holders of a
majority of the outstanding AMIT Class A Shares and AMIT Class B Shares
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting. The affirmative vote of the holders of a majority of the
AMIT Class A Shares and AMIT Class B Shares, voting together as a single class,
is required to approve and adopt each of the Proposals. The Trust Amendment
Proposal is conditioned upon the approval of the Merger Proposal, and will not
be submitted to the AMIT shareholders if the Merger Proposal fails. Pursuant to
the terms of the Class B Voting Proxy, AMIT, as the proxy for MAE, is required
to vote all (100%) of the AMIT Class B Shares as a unit on each of the
Proposals in accordance with the vote of a majority of the AMIT Class A Shares
represented at the Special Meeting. The AMIT Class B Shares owned by MAE
represent approximately 39% of the total voting power of AMIT.
Under the rules of the American Stock Exchange, brokers who hold AMIT
Class A Shares in "street name" for customers will not have authority to vote
such AMIT Class A Shares on whether or not to approve either of the Proposals
(so-called "broker non-votes"). Abstentions will be counted as votes cast on
any matter presented for a vote at the Special Meeting and will have the same
effect as negative votes. Because each of the Proposals requires the approval
of a specified affirmative vote of the holders of the AMIT Class A Shares and
AMIT Class B Shares outstanding on the AMIT Record Date, abstentions and
"broker non-votes" will have the same effect as votes against such proposals.
No vote of the IPT shareholders is required to approve the Merger
Agreement or the Merger.
AMIT PROXIES
If a shareholder attends the Special Meeting, such shareholder may
vote by ballot. However, many of AMIT's shareholders may be unable to attend
the Special Meeting. Therefore, the AMIT Board is soliciting proxies so that
each holder of AMIT Class A Shares on the AMIT Record Date has the opportunity
to vote on the proposals to be considered at the Special Meeting. When a proxy
is returned properly signed and dated, the AMIT Class A Shares represented
thereby will be voted according to the instructions on the proxy. If an AMIT
shareholder does not return a signed proxy, such shareholder's shares will not
be voted. Shareholders are urged to mark the boxes on the proxy to indicate how
their shares are to be voted. If an AMIT shareholder returns a signed proxy,
but does not indicate how such shareholder's shares are to be voted, the shares
represented by the proxy will be voted FOR approval of each of the Proposals.
The proxy also confers discretionary authority on the individuals appointed by
the AMIT Board and named on the proxy to vote the shares represented thereby on
any other matter that may
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properly arise at the Special Meeting. At the present time, it is not
anticipated that any other matters will be brought before the Special Meeting
for consideration and vote by the AMIT shareholders, including without
limitation any motion to adjourn the Special Meeting. In the event of any
motion to adjourn the Special Meeting in order to allow AMIT to solicit
additional votes in favor of the Merger Proposal, proxies voting AGAINST the
Merger Proposal will be voted against such motion to adjourn the Special
Meeting, and in the event of any motion to adjourn the Special Meeting in order
to allow AMIT to solicit additional votes in favor of the Trust Amendment
Proposal, proxies voting AGAINST the Trust Amendment Proposal will be voted
against such motion to adjourn the Special Meeting. If, however, any other
matters not now known are properly brought before the Special Meeting, the AMIT
proxy holders will vote upon the same according to their discretion and best
judgment.
Pursuant to the terms of the Class B Voting Proxy, AMIT, as proxy for
MAE, is required to vote all (100%) of the AMIT Class B Shares as a unit in
accordance with the vote of a majority of the AMIT Class A Shares represented
at the Special Meeting on each of the Proposals. See "Certain Other
Agreements--Stock Option Agreement and Class B Voting Proxy."
Any AMIT shareholder who executes and returns a proxy may revoke such
proxy at any time before it is voted by (i) notifying the Secretary of AMIT, in
writing, at 340 North Westlake Boulevard, Suite 230, Westlake Village,
California 91362; (ii) granting a subsequent proxy; or (iii) appearing in
person and voting at the Special Meeting. Attendance at the Special Meeting
will not by itself constitute revocation of a proxy.
SOLICITATION
AMIT has retained Chase Mellon Shareholder Services, L.L.C. to solicit
proxies on behalf of AMIT for an aggregate fee of $4,500, plus reimbursement of
out-of-pocket expenses. AMIT will bear its own expenses in connection with the
solicitation of proxies from its shareholders, including the cost of preparing
and mailing this Proxy Statement/Prospectus. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of AMIT Class A Shares held of record by such
custodians, nominees and fiduciaries, and AMIT will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
THE MERGER
GENERAL
Upon consummation of the Merger, AMIT will be merged with and into
IPT, with IPT being the surviving entity. The Merger will be consummated as
soon as practicable after the satisfaction or waiver of all conditions
contained in the Merger Agreement, including the approval of each of the
Proposals by the shareholders of AMIT. After the Effective Time, AMIT
shareholders (excluding MAE and LAC) will receive approximately 3,871,000 IPT
Common Shares (representing approximately 16% of the total IPT Common Shares
that will be outstanding upon consummation of the Merger) in exchange for their
AMIT Class A Shares.
Upon consummation of the Merger, Insignia and its affiliates will own
approximately 13,417,000 IPT Common Shares, representing approximately 57% of
the total outstanding IPT Common Shares (approximately 66% on fully diluted
basis assuming all OP Units are redeemed for cash or acquired by IPT in
exchange for IPT Common Shares). Thus, Insignia and its affiliates will
continue to have the ability to control the management and direction of IPT
after the Merger. However, upon the consummation of the Insignia/AIMCO Merger,
AIMCO will succeed to Insignia's interest in IPT, and will have the ability to
control IPT.
Under the terms of the Insignia/AIMCO Merger Agreement, AIMCO has
agreed to propose to acquire IPT by merger for cash after the consummation of
the Insignia/AIMCO Merger, which AIMCO currently intends to do by causing IPT
to merge into a subsidiary of AIMCO. Based on the current Class A Exchange
Ratio of 1.536, upon consummation of the Merger and the IPT/AIMCO Merger, an
AMIT Class A shareholder would receive a cash amount for its IPT Common Shares
received in the Merger which would be equivalent to $20.35 per AMIT Class A
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Share. There can be no assurance that either the Insignia/AIMCO Merger or the
IPT/AIMCO Merger will be consummated.
If the Insignia/AIMCO Merger is consummated, AIMCO will own a majority
of the outstanding IPT Common Shares and will have sufficient votes to approve
the IPT/AIMCO Merger without the vote of the other shareholders of IPT
(including the former AMIT shareholders). It is presently contemplated that a
Proxy Statement (if proxies are solicited) or an Information Statement (if
proxies are not solicited) with respect to the IPT/AIMCO Merger will be
distributed to IPT shareholders prior to consummation of the IPT/AIMCO Merger.
IPT shareholders will be entitled to dissenters' rights of appraisal in
connection with the IPT/AIMCO Merger if it is consummated as currently
contemplated and described herein. See "Insignia/AIMCO Transaction."
BACKGROUND OF THE MERGER
LAC (which is a wholly-owned subsidiary of Insignia) began purchasing
AMIT Class A Shares in the open market in June 1995. On October 16, 1996,
Andrew L. Farkas, Chairman, President and Chief Executive Officer of Insignia
met with Ronald J. Consiglio, a trustee, President and Chief Executive Officer
of AMIT, and Bryan Herrmann, a trustee of AMIT, to discuss a possible business
combination transaction between IPT and AMIT. At a special meeting of the AMIT
Board held on November 12, 1996, Mr. Consiglio advised the AMIT Board that
meetings had been held with representatives of Insignia regarding a merger of
AMIT and IPT. Mr. Consiglio advised the AMIT Board that discussions and due
diligence could take several months due to the numerous properties controlled
by IPT.
Insignia continued to accumulate AMIT Class A Shares until November
1996, when Insignia and its affiliates filed a Statement on Schedule 13D with
the Commission disclosing its ownership of approximately 6% of the outstanding
AMIT Class A Shares (assuming the conversion of the AMIT Class B Shares then
held by MAE GP into AMIT Class A Shares). The Schedule 13D disclosed that
Insignia had engaged in discussions with the management of AMIT concerning a
potential business combination transaction involving AMIT and certain IPT
Partnerships and that Insignia was considering other transactions involving
Insignia acquiring control of AMIT.
On December 2, 1996 the executive committee of the AMIT Board met and
Mr. Consiglio reported to the other members of the committee concerning the
ongoing discussions with Insignia and identified certain factors which would
affect any decision of the AMIT Board regarding any merger transaction,
including the valuation of the properties controlled by IPT and the change in
the character of AMIT from a mortgage REIT to an equity REIT. The full AMIT
Board held a meeting on December 10, 1996, at which Mr. Consiglio reviewed the
actions taken by the executive committee as it related to the proposal from
Insignia regarding a merger of AMIT and IPT. Mr. Consiglio advised the AMIT
Board that Insignia had filed a Schedule 13D with the Commission which raised
the possibility of a hostile takeover of AMIT. The AMIT Board discussed
potential defenses to a hostile takeover attempt by Insignia. They also
analyzed the conflict of interest issue resulting from a number of AMIT's loans
being to partnerships controlled by MAE and for which Insignia served as the
property manager.
The executive committee of the AMIT Board met again on January 20,
1997 and reviewed an internally prepared valuation of the AMIT Class A Shares
using net asset value, discounting of projected cash distributions to
shareholders and projected market pricing. These valuation methods produced per
share valuations of $18.04, $17.58, and $16.89 to $19.33, respectively. Mr.
Consiglio advised the executive committee that a valuation consultant had been
retained by management to review these valuations, and reported that the
valuation consultant had concluded that net asset value was a reasonable method
for valuing AMIT and that $18.00 per AMIT Class A Share fell within the range
of reasonable values for the proposed transaction. The executive committee
agreed to consider the proposed merger with IPT.
The full AMIT Board met again on March 13, 1997. At that meeting Mr.
Consiglio informed the AMIT Board that AMIT was continuing discussions with
Insignia regarding a possible merger of AMIT and IPT. The AMIT Board discussed
two concerns regarding the possible merger: (i) the possible tax gain that the
combined entity might incur due to the fact that the limited partner interests
in many of the Controlled Partnerships held by IPLP were acquired at a discount
from the values assigned to them for merger purposes, and (ii) the pro forma
value
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of AMIT Class A Shares after the merger. The AMIT Board reviewed a "tax
issues summary" prepared by Insignia, and Mr. Consiglio advised the AMIT Board
that the built-in gain issue was currently being analyzed by the AMIT's
accountants and counsel.
Insignia and AMIT began negotiating the terms of a letter of intent in
mid-March 1997. The negotiations of the letter of intent were primarily handled
by James A. Aston and Frank M. Garrison for Insignia and IPT, and by Ronald J.
Consiglio and Bryan Herrmann for AMIT. The letter of intent, executed by
Insignia and AMIT on April 3, 1997, described in non-binding terms the parties'
preliminary understanding regarding the financial terms and the structure of
the proposed transaction. The letter of intent contemplated that the
combination of IPT and AMIT would be structured as a tax-free subsidiary merger
in which a newly-formed subsidiary of AMIT would merge into IPT, with IPT
surviving the merger as a subsidiary of AMIT. The terms of the initial merger
structure would have resulted in the shareholders of IPT owning a substantial
majority of the AMIT Class A Shares immediately following the merger.
After the signing of the letter of intent, IPT and AMIT began
negotiating the terms of a definitive merger agreement. Concurrently with these
negotiations, the parties commenced their respective due diligence reviews. In
particular:
o AMIT conducted an extensive due diligence review of IPT, including
its holdings and business plan. To assist AMIT in assessing and
evaluating the proposed transaction, AMIT retained two independent
firms: Weil was retained to provide a fairness opinion in
connection with the Exchange Ratio, and a consultant was retained
to test through the use of an economic model the property
valuations forming the basis for the IPT Share Value. The parties
spent a significant amount of time in April, May and June 1997
responding to inquiries from the retained experts.
o The parties analyzed the investment portfolios of both IPT and AMIT
and the impact that combining these portfolios would have on the
post-merger entity's status as a REIT under the Code. During this
analysis, the parties discussed potential tax considerations which,
if adversely determined, may have caused the post-merger entity to
fail to qualify as a REIT.
In light of both parties' unwillingness to enter into any transaction
in which the post-merger entity's status as a REIT may have been questioned,
IPT and AMIT began discussing alternative structures for the proposed
transaction. As a result of these discussions, IPT and AMIT changed the
structure of the proposed transaction to one in which AMIT would merge directly
into IPT, with IPT being the surviving entity.
The AMIT Board met on June 10, 1997 and Mr. Consiglio reported to the
AMIT Board on the events occurring since the letter of intent was signed on
April 3, 1997, discussed the due diligence process being conducted by AMIT and
reported on the timetable proposed by Insignia for reaching a definitive
agreement. Mr. Consiglio advised the AMIT Board that he would be meeting with
Insignia to continue negotiation of a definitive agreement after meeting with
Weil and the consultant retained by AMIT who was performing valuations of the
properties controlled by IPT based on a discounted cash flow analysis. The AMIT
Board discussed the benefits of the merger with IPT to allow the shareholders
to get a better market value more quickly than might be accomplished without
the merger, and also discussed various negative considerations. Mr. Consiglio
advised the AMIT Board that Weil believed that the newly merged entity would
sell at the lower quartile factor of funds from operations due to the age of
the properties controlled by IPT, the fact that IPT was not (at that time) a
self advised REIT, (and that the termination of the advisory agreement with
Insignia would result in IPT owing a substantial termination fee to Insignia),
and the complexity of the transaction structure. The AMIT Board also discussed
the fact that IPT intended to pay the minimum distributions required to ensure
qualification of a REIT, which Mr. Consiglio estimated to be $.32 and $.68 per
IPT Common Share for 1997 and 1998, respectively, which would be less than the
annual dividends then being paid to the AMIT's shareholders, which were
approximately $1.00 per AMIT Class A Share. With respect to the built in gain
issue discussed at the previous meeting of the AMIT Board, Mr. Consiglio
informed the AMIT Board that Weil had advised him of its belief that the market
does not discount the market price of REIT equity securities for deferred
taxes.
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The parties continued to negotiate the terms of a definitive merger
agreement through July 1997. The individuals for Insignia, IPT and MAE GP
involved in the negotiations of the Merger Agreement were Messrs. Farkas,
Aston, Garrison, Carroll D. Vinson, William H. Jarrard, Jr. and Jeffrey P.
Cohen. AMIT was represented in the negotiations by Messrs. Consiglio and
Herrmann. The parties agreed to use the same base values of the AMIT Class A
Shares and the IPT Common Shares that were included in the letter of intent.
The AMIT Board held a special meeting on July 18, 1997 where the trustees
discussed the resolution of certain open issues related to the definitive
merger agreement. Mr. Consiglio advised the AMIT Board that certain tax issues
relating to the Merger had been resolved. Specifically, Insignia had agreed to
purchase up to $13 million of AMIT's assets if required to qualify AMIT as a
"diversified investment company" for tax purposes. Also, Insignia had agreed to
indemnify AMIT's shareholders for actual damages under certain circumstances if
the merger failed to qualify as a tax-free organization under certain
circumstances. Mr. Consiglio also advised the AMIT Board that Weil had not
formalized its fairness opinion, although it had orally advised Mr. Consiglio
of its conclusion that the Exchange Ratio was fair to AMIT's shareholders and
that the definitive agreement would require the issuance of a fairness opinion
as a condition precedent to the merger (Weil later formalized its opinion and
delivered the Weil Opinion to the AMIT Board in written form on November 13,
1997). The AMIT Board inquired as to the timeline and outside date to complete
the Merger, which they were advised was June 30, 1998. The AMIT Board discussed
the impact that the long time frame would have on the ability to run the
day-to-day business of AMIT and were advised by Mr. Consiglio that he did not
think that this was a problem. The AMIT Board was advised that although the
definitive agreement precluded AMIT from engaging in extraordinary
transactions, it did not affect the ability of AMIT to conduct its business in
the ordinary course. After a thorough discussion of the definitive agreement,
including all of the positive and negative considerations, the AMIT Board
approved the Merger Agreement and authorized Mr. Consiglio to execute the
Merger Agreement on behalf of AMIT. The IPT Board approved the Merger Agreement
and the Merger by unanimous written consent on July 17, 1997, and IPT,
Insignia, AMIT and MAE GP executed the Merger Agreement on July 18, 1997 (the
"Signing Date"). See "The Merger--IPT's Reasons for the Merger." See "The
Merger -- AMIT's Reasons for the Merger," "The Merger -- Recommendation of the
AMIT Board."
Because each member of the IPT Board was actively involved in the
negotiations regarding the Merger Agreement, the IPT Board did not formally
hold any special meetings concerning the Merger.
On March 17, 1998, Insignia and AIMCO announced the Insignia/AIMCO
Merger Agreement. The AMIT Board met on March 26, 1998 and reassessed its
position with respect to the Merger. The AMIT Board determined that it could
not recommend to AMIT shareholders approval of the Merger without AMIT
receiving a covenant from Insignia/ESG that Insignia/ESG would enforce AIMCO's
obligation to propose to acquire IPT by merger pursuant to the terms of the
Insignia/AIMCO Merger Agreement, but it could make such recommendation if
Mr. Consiglio could obtain such a covenant. Subsequent negotiations among IPT,
AMIT and Insignia/ESG resulted in Insignia/ESG covenanting to AMIT and IPT
that it will use its reasonable best efforts to compel AIMCO to effect the
IPT/AIMCO Merger in the event that AIMCO breaches its obligation to effect
such merger pursuant to the terms of the Insignia/AIMCO Merger Agreement.
Determination of the Exchange Ratio
Included in the letter of intent regarding the Merger was an agreement
as to the base values of the AMIT Class A Shares ($16.25) and the IPT Common
Shares ($10.00), which ultimately became the base exchange values used to
determine the Exchange Ratio in the Merger Agreement. Those per share values
were the result of arm's length negotiations between the parties. The base
exchange value of the AMIT Class A Shares fell within a range of values
estimated by AMIT's management utilizing a discounted cash flow analysis, and
the base exchange value of the IPT Common Shares approximated IPT management's
estimate of the per share net asset value of IPT's assets and equaled the price
at which IPT Common Shares were sold to non-affiliated investors and IPT and
Insignia insiders in the Private Offerings. Because the AMIT Class B Shares are
convertible into AMIT Class A Shares at a rate of 49 to 1, the parties agreed
to set the Class B Exchange Ratio as the Class A Exchange Ratio divided by 49.
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AMIT'S REASONS FOR THE MERGER
Prior to the announcement of the Insignia/AIMCO Merger Agreement, the
AMIT Board had identified several positive considerations in deciding to enter
into the Merger Agreement, including the following:
o Consideration: The AMIT Board believed that the Merger would be
fair to the AMIT shareholders. Further, the values used for the
AMIT Shares in determining the Exchange Ratio were higher than the
market price at which AMIT Class A Shares had been trading prior to
the public announcement of the signing of the Merger Agreement.
Finally, the value used for the AMIT Class A Shares in determining
the Exchange Ratio fell within a range of values estimated by
AMIT's management utilizing a discounted cash flow analysis.
o Upside Potential: The AMIT Board believed that the conversion of
AMIT's business from that of a mortgage REIT to principally that of
an equity REIT enhanced the upside potential that the AMIT
shareholders would have for achieving long-term appreciation in the
value of their shares.
o Distribution Payments: The AMIT Board received assurances from
IPT's management that IPT would adopt a policy to pay regular
quarterly distributions after the Effective Time in an amount per
IPT Common Share equivalent to at least $1.00 per AMIT Class A
Share, which, based on the Class A Exchange Ratio, equates to $.16
per IPT Common Share. See "Distributions."
o Fairness Opinion: The Weil Opinion that the Exchange Ratio was fair
to the AMIT Shareholders was an essential element in the decision
of the AMIT Board to proceed with the Merger. The calling of the
Special Meeting (and the consummation of the Merger) was
specifically conditioned upon AMIT's receipt of a satisfactory
fairness opinion. The Weil Opinion significantly influenced the
AMIT Board's conclusions as to the valuations of the assets
involved and the upside potential for the post-Merger entity.
In evaluating whether to enter into the Merger Agreement, the AMIT
Board also considered certain negative factors, including the following:
o Transition from a Mortgage REIT to an Equity REIT: The AMIT Board
considered the effect of the Merger on the investment objectives of
shareholders resulting from a change in the character of the
investment from a more conservative mortgage REIT investment to a
riskier equity REIT investment. This concern was mitigated to some
extent by the perceived ability of AMIT's shareholders to liquidate
their investment in the public market if the transition did not fit
within their investment objectives.
o Conflicts of Interest: The AMIT Board considered a number of
potential conflicts of interest related to Insignia's control of
IPT, including potential conflicts of interest arising as a result
of the property management company controlling the property owner,
the difficulty in terminating the Insignia management contracts
without potentially incurring substantial termination fees, various
financial transactions involving IPT and Insignia, the terms of
which have not and will not be established on an arms-length basis,
and the possibility that property disposition decisions could be
influenced by the loss of management fees by Insignia, as well as
tax effects on Insignia due to the recognition of accumulated gain
in the Insignia contributed properties.
o Distribution Policy: The AMIT Board considered the different
distribution policies of the two companies. AMIT's distribution
policy has been to make significant distributions to its
shareholders, while IPT's distribution policy had been one of
making the minimum required distribution to shareholders and
reinvesting excess positive cash flow. AMIT has increased its
quarterly distribution each quarter for the past two years, while
IPT has paid less in distributions than AMIT. This concern was
ameliorated to some extent by IPT's agreement to make distributions
after the Effective Time at an annual rate of $.64 per IPT Common
Share (which, on an equivalent basis, although less than the
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$1.28 per share currently being paid by AMIT, is approximately
equal to the $1.00 per AMIT Class A Share distributions that were
being paid by AMIT at the time the Merger Agreement was being
negotiated).
o Market Acceptance: The AMIT Board also considered certain factors
which might have a negative effect on the market's acceptance of
the merged entity and the future market price of IPT Common Shares,
including IPT's complex structure, with Insignia's 30%
(post-Merger) ownership of IPLP; IPT's indirect ownership of
property through various limited partnerships; external,
nonexclusive property management; the age of the properties owned
by the Controlled Partnerships; high capital expenditure budgets
due to deferred maintenance; and possible litigation resulting from
IPT tender offers for limited partner interests in limited
partnerships of which it controls the general partner.
o Valuation Issues: The AMIT Board considered the valuation of the
IPT assets, which for purposes of the Merger were valued between
30% and 50% higher than the acquisition cost of those assets.
Although the AMIT Board did not obtain current independent
appraisals of the real property owned by the Controlled
Partnerships, it relied heavily on a consultant's discounted cash
flow analysis and the fairness opinion issued by Weil to resolve
its concerns about valuation issues.
o Previous Litigation: AMIT had previously been involved in
litigation with certain affiliates of Insignia arising out of
activities involving AMIT's prior advisor.
The AMIT Board first determined that AMIT would no longer remain
independent at the July 18 meeting of the AMIT Board when it approved the
Merger Agreement based on the assurances of Weil that it would be able to issue
a fairness opinion. The AMIT Board considered alternative transactions that
would have allowed AMIT to remain independent. However, the AMIT Board decided
to proceed with the Merger based on three principal factors which led them to
determine that it was in the best interests of the shareholders to engage in
the Merger. First, the AMIT Board's decision was significantly influenced by
the voting power then held by MAE GP, through its ownership of the AMIT Class B
Shares, and by Insignia and certain shareholders of Insignia, through their
ownership of AMIT Class A Shares. The AMIT Board believed that the time,
expense and uncertainty of a nonconsensual takeover attempt by Insignia would
substantially erode shareholder value, and also believed that it would be
difficult, if not impossible, to attract an alternative merger partner or
investor because of MAE GP's ownership of the AMIT Class B Shares. Second,
based on an extensive quantitative analysis of financial information provided
by IPT concerning the Controlled Partnerships using the discounted cash flow
method as well various analyses prepared by Weil, the AMIT Board concluded that
the AMIT shareholders were receiving fair consideration for their AMIT Class A
Shares in the Merger. Finally, based on financial analyses prepared by Weil and
other publicly available market data, AMIT concluded that the upside potential
for an equity REIT was greater than that for a mortgage REIT and that there
should be an increase in the value of the shares held by the AMIT shareholders
more quickly than could be achieved by AMIT if it continued as a mortgage REIT.
The AMIT Board believes that the execution of the Insignia/AIMCO
Merger Agreement and the implementation of that agreement has caused several
aspects of the Merger to be materially altered:
o The consummation of the IPT/AIMCO Merger will render the Merger
taxable to the AMIT shareholders. Depending on when the IPT/AIMCO
Merger is consummated, it is possible that an AMIT shareholder
could have income in the year in which the Merger is consummated
but not receive the proceeds from the IPT/AIMCO Merger until the
following year.
o The public trading price of the IPT Common Shares after the Merger
may be negatively impacted by the agreed upon minimum IPT Common
Share price of $13.25 specified in the Insignia/AIMCO Merger
Agreement.
o The consummation of the IPT/AIMCO Merger will eliminate the upside
growth potential of AMIT's transition from a mortgage REIT to an
equity REIT.
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The AMIT Board has conducted no due diligence with regard to AIMCO
because AIMCO's obligation to propose to acquire the remaining IPT Common
Shares by merger requires AIMCO to pay cash for the remaining IPT Common
Shares. Although the AMIT Board is concerned that neither AMIT nor the IPT
shareholders will have enforcement rights against AIMCO in the event that AIMCO
breaches its obligation propose to acquire IPT by merger, this concern is
somewhat mitigated by the fact that Insignia/ESG has covenanted to AMIT and IPT
that it will use its reasonable best efforts to compel AIMCO to consummate the
IPT/AIMCO Merger pursuant to the Insignia/AIMCO Merger Agreement in the event
that AIMCO breaches its obligations to do so. However, there can be no
assurance that Insignia/ESG would be successful in such an action.
AMIT has no assurance that, if the Insignia/AIMCO Merger is
consummated but the IPT/AIMCO Merger does not occur, AIMCO, as the majority
shareholder of IPT, will continue IPT's current distribution policy or that
AIMCO will manage the IPT assets as effectively as current IPT management.
The AMIT Board, however, notes that the minimum price which AIMCO has
covenanted to Insignia to pay to acquire the remaining IPT Common Shares, which
based on the current Class A Exchange Ratio approximates $20.35 per AMIT Class
A Share, is in excess of the current book value of the AMIT Class A Shares and
is greater than the price at which the AMIT Class A Shares have ever traded in
the public market. Therefore, assuming that AIMCO completes the IPT/AIMCO
Merger as agreed, the AMIT Board believes that completing the Merger is a
better alternative for AMIT shareholders than remaining independent. However,
the AMIT Board does not believe that the current circumstances of the Merger
(i.e., a taxable merger followed by the IPT/AIMCO Merger) is more beneficial to
AMIT shareholders than the tax-free merger with growth potential envisioned by
the AMIT Board when they originally approved the Merger Agreement.
The AMIT Board did not find it practicable to, and did not, quantify
or otherwise attempt to assign relative weights to the various factors it
considered in reaching its conclusions to approve the Merger, but rather
balanced the totality of the factors. On balance, the AMIT Board believed that
the potential benefits to the AMIT shareholders of the Merger outweighed the
negative considerations.
IPT'S REASONS FOR THE MERGERIPT'S REASONS FOR THE MERGER
The members of the IPT Board were actively involved in the
negotiations concerning the Merger Agreement and the Merger, along with IPT's
management and legal advisors. On July 17, 1997, the IPT Board determined that
the Merger is fair to, and in the best interests of, IPT and its shareholders,
approved the Merger Agreement and the Merger, and authorized IPT to enter into
the Merger Agreement and consummate the transactions contemplated thereby,
including the Merger.
In making its determination with respect to the Merger, the IPT Board
considered a number of positive factors in its deliberations concerning the
Merger, including the following:
o Better Access to the Capital Markets; Liquidity: The IPT Board
believed that the Merger will provide IPT with better access to the
capital markets because, following the Merger, the IPT Common
Shares will be listed and publicly traded on the ASE and IPT will
become a reporting company under the Exchange Act. The IPT Board
believed that this would make it easier for IPT to raise capital to
acquire additional interests in properties which would benefit the
IPT shareholders and as a result of being a publicly traded company
would provide IPT shareholders with increased liquidity in their
investment in IPT.
o Exchange Ratio: The IPT Board believed that the Exchange Ratio was
fair to IPT because the Exchange Ratio was based on the per share
net asset value of IPT's assets at the time that IPT was formed and
an amount per AMIT Class A Share which did not exceed its book
value.
The IPT Board also considered the following negative consideration in
evaluating the Merger:
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o Integration of Portfolios: The IPT Board considered that the loan
portfolio of AMIT, when combined with IPT's holdings in the Merger,
may not be complementary.
In the view of the IPT Board, the potentially negative factors were
not sufficient to outweigh the positive factors considered by the IPT Board in
its deliberations relating to the Merger. The IPT Board did not quantify or
otherwise attempt to assign relative weights to the various factors considered
in making its decision nor did it rely on the Weil Opinion in evaluating the
Merger.
Following announcement of the Insignia/AIMCO Merger, the IPT Board
reassessed its position with respect to the Merger and determined to proceed
with the Merger as IPT is contractually bound to do so.
RECOMMENDATION OF THE AMIT BOARD
Based on the considerations outlined above, the AMIT Board has
determined that the Merger is fair to and in the best interests of AMIT and its
shareholders regardless of whether or not the IPT/AIMCO Merger occurs, and
recommends that AMIT shareholders vote to approve the Merger Proposal. In
deciding to recommend the Merger Proposal to the AMIT shareholders, the AMIT
Board did not quantify or otherwise attempt to assign relative weights to the
various factors considered in making its decision, and individual trustees may
have given different weights to different considerations.
OPINION OF AMIT'S FINANCIAL ADVISOR
General
Weil is an NASD/SEC registered securities broker-dealer and Registered
Investment Advisor founded in 1970. Its activities include both portfolio
management and investment banking. Weil manages over 400 individual securities
portfolios. Included among the assets in these accounts are over $20 million in
real estate securities.
Recent investment banking assignments have included: the sale of a
major real estate portfolio for the affiliate of a New York Stock
Exchange-listed REIT; underwriter of private placements and co-underwriter of
public offerings of REIT securities; sale of a major property portfolio for an
institutional investor; and advisor to a major REIT in the acquisition of a
smaller public REIT. Additionally, Weil has served as information and
solicitation agent for tender offers resulting in the purchase of more than $70
million of real estate limited partnership units and more than $100 million in
property acquisitions.
Weil was retained to act as AMIT's financial advisor in connection
with the Merger and related matters based on Weil's qualifications, expertise,
reputation and experience with respect to transactions similar to those
contemplated by the Merger Agreement. On November 13, 1997, Weil delivered its
written opinion to the AMIT Board that, as of the date of such opinion, and
based on the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, as set forth in the opinion, the Exchange
Ratios were fair to the shareholders of AMIT from a financial point of view.
THE WEIL OPINION WAS DELIVERED PRIOR TO THE ANNOUNCEMENT OF THE
INSIGNIA/AIMCO MERGER AGREEMENT. WEIL HAS NOT RENDERED, AND HAS NOT BEEN ASKED
TO RENDER, AN OPINION AS TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED IN
THE IPT/AIMCO MERGER OR AS TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED
IN THE MERGER IN LIGHT OF THE CONTEMPLATED IPT/AIMCO MERGER.
A COPY OF THE WEIL OPINION IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX C. AMIT SHAREHOLDERS ARE URGED TO READ THE WEIL
OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW
UNDERTAKEN BY WEIL IN RENDERING ITS OPINION. REFERENCES TO THE WEIL OPINION AND
THE SUMMARY OF THE WEIL OPINION HEREIN ARE QUALIFIED BY REFERENCE TO THE FULL
TEXT OF THE WEIL OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE. THE WEIL
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO
THE SHAREHOLDERS OF AMIT OF THE EXCHANGE
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RATIO AND DOES NOT ADDRESS AMIT'S UNDERLYING BUSINESS DECISION TO EFFECT THE
MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY AMIT SHAREHOLDER AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER PROPOSAL OR THE
TRUST AMENDMENT PROPOSAL.
In connection with rendering its opinion, Weil reviewed and analyzed,
among other things, the following:
o The Merger Agreement.
o AMIT's public filings for the year ending December 31, 1996
and the quarters ending March 31, 1997 and June 30, 1997.
o IPT's unaudited consolidated financial statements and related
information for the period ending December 31, 1996 and the
quarters ending March 31, 1997 and June 30, 1997.
o Public filings for the IPT Partnerships for the year ending
December 31, 1996 and for the quarters ending March 31, 1997
and June 30, 1997.
o Operating and financial data relating to the business
operations of AMIT and the IPT Partnerships.
o Historical trading data for the common shares of AMIT and
companies deemed by Weil to be reasonably comparable to AMIT
and the proposed merged entity in light of their current
operations and prospects.
o Publicly available financial and operating data for companies
deemed by Weil to be reasonably comparable to the proposed
merged entity.
o Property inspection reports prepared by independent parties
on behalf of AMIT for a sample of the properties held by the
IPT Partnerships.
o Real property valuations prepared by Insignia's internal
staff relative to the real properties owned by the IPT
Partnerships; where available, independent appraisal reports
commissioned by Insignia for the IPT Partnerships with regard
to the real properties owned by the IPT Partnerships; and
discounted cash flow valuation analyses of the real
properties owned by the IPT Partnerships prepared on AMIT's
behalf utilizing data provided by Insignia and/or IPT which
was inserted by an AMIT consultant into a computer model.
AMIT did not obtain independent appraisals of the value of
the real properties or the partnership interests owned by IPT
and IPLP and no such independent appraisals or valuations
were performed by Weil.
o Analysis reflecting that a portion of the IPT formation
values exceed IPT's allocable income tax basis in assets by
approximately $42 million, resulting from unrealized
appreciation and depreciation taken.
o Financial information and analyses prepared by the
managements of AMIT and IPT, respectively, reflecting their
separate current and estimated future cash flows for their
operations as presently constituted and the future prospects
for both AMIT's and IPT's businesses.
Weil also held discussions with members of senior management of AMIT
and IPT to review and discuss the information reviewed by Weil and, among other
matters, AMIT's and IPT's respective businesses, operations, assets, financial
condition and future prospects. Weil also considered other information such as
financial studies, analyses, investigations and financial, economic and market
criteria which it deemed relevant.
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In the course of its review, Weil assumed and relied upon the accuracy
and completeness of all the financial and other information provided to it or
discussed with it or publicly available and neither attempted independently to
verify nor assumed responsibility for verifying any such information. Weil also
assumed that the financial forecasts provided to it were reasonably prepared on
bases reflecting the best currently available estimates and judgments of AMIT's
and IPT's respective management's as to the financial performance of AMIT and
IPT for the period covered. Weil expresses no opinion with respect to such
forecasts or the assumptions upon which they are based.
In addition, Weil has not reviewed any of the books and records of
AMIT or IPT or assumed any responsibility for conducting a physical inspection
of the properties or facilities of AMIT or IPT or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of AMIT or IPT,
and Weil has not been furnished any such valuation or appraisal. The Weil
Opinion assumes that the Merger will be consummated in accordance with the
terms of the Merger Agreement and that the Merger will be accounted for as a
purchase under generally accepted accounting principles. The Weil Opinion is
necessarily based on economic and market conditions and other circumstances as
they existed and could be evaluated by Weil as of the date thereof.
Set forth below is a summary of certain of the financial analyses used
and assumptions made by Weil in connection with providing its opinion to the
AMIT Board.
IPT Valuation Analysis
Weil compared IPT with the average of a group of 28 REITs
predominantly in the apartment industry (the "Apartment Group"). This group of
28 REITs contains few examples of REITs with (i) external property managers,
(ii) assets consisting primarily of partnership interests (other than REITs
employing "umbrella" partnership structures like IPT), and (iii) assets having
significant book/tax differences (again other than REITs employing "umbrella"
partnership structures like IPT). Due in part to these structural differences,
Weil believed that IPT should be compared to REITs in the lowest quartile in
terms of market valuation. The four companies in the lowest quartile chosen as
the prime comparables were Apartment Investment and Management Company,
Berkshire Realty, Inc., Merry Land & Investment, Inc. and United Dominion
Realty Trust (the "Four Prime Comparables").
The Four Prime Comparables have structural characteristics often
considered superior to those previously mentioned for IPT. IPT's assets consist
primarily of partnership interests and its major investments are comprised of
both general partner interests as well as a substantial percentage of limited
partner interests in the IPT Partnerships. IPT's cash flows are currently
derived primarily from distributions from the IPT Partnerships. IPT has been
successful in tendering for units of limited partner interest at substantial
discounts to the fair market value of the underlying properties and IPT's
business plan includes additional purchases of both general partner interests
and limited partner interests in real estate limited partnerships. The cash or
cash return on such investments has been, in recent years, superior to those of
direct property purchases and may continue to be in the future. Upon attaining
in excess of 50% of the limited partner interests in a limited partnership IPT
will consolidate the financial results of that limited partnership which may
simplify analysis. Weil believed that the higher returns from future
investments in partnerships and potential for further consolidations of these
partnerships partially offset the external property management, lack of direct
property ownership and the book/tax differences discussed above.
In comparing IPT to the Apartment Group and the Four Prime
Comparables, Weil performed four principal analyses which it believes are
primary indicators of value for REITs : (i) a ratio of common stock market
price to funds from operations ("FFO Multiple") analysis; (ii) a ratio of
common stock market price to net asset value ("NAV Multiple") analysis; (iii) a
ratio of annual distributions to common stock market price ("Dividend Yield")
analysis; and (iv) a ratio of annual distributions to funds from operations
("FFO Payout Ratio") analysis. The results of these analyses are summarized
below.
Based on publicly available industry data, including 1998 consensus
analyst estimates as reported by First Call, Weil estimated that:
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(i) the average FFO Multiple for the Apartment Group as a whole was
approximately 11.8 times, and the FFO Multiples of the Four
Prime Comparables ranged from a low of 9.7 times to a high of
12.1 times;
(ii) the average NAV Multiple for the Apartment Group as a whole was
approximately 1.31 times, and the NAV Multiples of the Four
Prime Comparables ranged from a low of 1.02 times to 1.59 times
for the Four Prime Comparables;
(iii) the average Dividend Yield for the Apartment Group as a whole
was approximately 5.9%, and the Dividend Yields of the Four
Prime Comparables ranged from a low of 4.9% to 7.9% for the Four
Prime Comparables; and
(iv) the average FFO Payout Ratio for the Apartment Group as a whole
was approximately 77%, and the FFO Payout Ratios of the Four
Prime Comparables ranged from a low of 59% to 83% for the Four
Prime Comparables.
Based on information and estimates provided by IPT management and
property valuation estimates for the properties owned by the IPT Partnerships
supplied by a valuation consultant retained by AMIT, and assuming a per IPT
Common Share value of $10.45 (which was the exchange value of an IPT Common
Share at the time the Weil Opinion was initially orally rendered to the AMIT
Board), Weil estimated that:
(i) IPT had an implied FFO Multiple of 7.0 times to 8.4 times, based
on an assumed range of 1998 funds from operations estimates of
approximately $1.25 per IPT Common Share to $1.50 per IPT Common
Share;
(ii) IPT had an implied NAV Multiple of 0.95 times to 1.05 times,
based on an assumed range of estimates of $9.90 per IPT Common
Share to $11.00 per IPT Common Share of the aggregate net asset
value of the properties and assets owned by the IPT
Partnerships;
(iii) IPT had an implied Dividend Yield of 5.7% based on the initial
distribution policy of $.60 per IPT Common Share adopted by the
IPT Board; and
(iv) IPT had an implied FFO Payout Ratio of 40% to 48%, based on an
assumed range of 1998 funds from operations estimates and based
on the initial distribution policy of $.60 per IPT Common Share
adopted by the IPT Board.
Weil observed that the value ascribed to the IPT Common Shares for
purposes of the Merger was at or below the range of both the Apartment Group
and the Four Prime Comparables in each of these four primary valuation
indicator categories. Thus, Weil concluded that the value ascribed to the IPT
Common Shares for purposes of calculating the Exchange Ratio was reasonable.
AMIT Valuation Analysis
Weil also observed that the REIT universe contains relatively few
examples of micro-capitalization (below $50 million) commercial mortgage REITs.
Because Weil believed that AMIT may be hampered in the future by (i) its small
asset base and its relatively high general and administrative expenses in
relation to its assets, and (ii) limited opportunities to profitably expand its
equity capital base given the relatively high dividend yield required of it
(and most micro-cap commercial mortgage REITs) compared to mid-term real estate
lending rates in the current climate, Weil valued AMIT based on a liquidation
analysis as opposed to a going concern basis. On a liquidation value basis,
Weil estimated that the value of the AMIT Class A Shares ranged between $16.00
to $17.00 per share (after provision for transaction costs and assuming one
year to dispose of assets, but excluding severance expense, if any). Weil
observed that the $16.25 exchange value ascribed to the AMIT Class A Shares for
purposes of the Merger was within this range and, therefore, reasonable.
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Conclusion
Based on the above, Weil concluded that the Exchange Ratio was fair to
the shareholders of AMIT from a financial point of view.
Miscellaneous
The foregoing summary does not purport to be a complete description of
the analyses performed by Weil or of its presentation to the AMIT Board. The
preparation of financial analyses and fairness opinions are complex processes
and are not necessarily susceptible to partial analysis or summary description.
Weil believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Weil, without considering all of such analyses and
factors, could create an incomplete view of the Weil Opinion. Weil made no
attempt to assign specific weights to particular analyses. No company or
transaction used in the above analyses as a comparison is identical to AMIT and
IPT or the transactions contemplated by the Merger Agreement. Any estimates
contained in Weil's analyses are not necessarily indicative of actual value,
which may be significantly more or less favorable than as set forth therein.
Estimates of values of companies do not purport to be appraisals or necessarily
to reflect the prices at which companies may actually be worth.
Weil, as part of its general securities business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The Exchange Ratio was
determined by arm's-length negotiations between AMIT and IPT and their
respective representatives. Weil has not previously rendered investment banking
or other advisory services to AMIT, but may render such services in the future,
for which it may receive customary compensation from AMIT and its affiliates.
Weil agreed, during the pendency of its engagement by AMIT, not to engage in
trading activities for its own account nor to effect discretionary or solicited
brokerage transactions in the purchase or sale of AMIT securities. Weil has not
engaged in such trading activities or brokerage transactions during the course
of its engagement by AMIT with regard to the securities of AMIT, IPT or
Insignia.
Pursuant to an engagement letter with Weil, Weil has been paid a fee
of $50,000 for the rendering of its fairness opinion to the AMIT Board. AMIT
also paid Weil an hourly fee for services rendered by Weil to AMIT in an
advisory capacity extraneous to the customary services involved in rendering
the fairness opinion and reimbursed Weil for its out-of-pocket expenses
incurred in connection with its engagement. AMIT has agreed to indemnify Weil
and certain related persons against certain liabilities and expenses relating
to and arising out of the engagement, including certain liabilities under the
federal securities laws. Pursuant to a separate agreement between AMIT and IPT,
IPT paid directly to Weil all fees and costs incurred by AMIT with regard to
AMIT's engagement of Weil.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the AMIT Board with respect to
the Proposals, the shareholders of AMIT should be aware that certain members of
AMIT's management and certain members of the AMIT Board have certain interests
in the Merger separate from the interests of the AMIT shareholders generally.
These separate interests are summarized below.
IPT Board Representation. Pursuant to the terms of the Merger
Agreement, immediately subsequent to the Effective Time IPT is required to take
such action as is required under its Declaration of Trust and Bylaws to cause
Ronald J. Consiglio and Bryan L. Herrmann to be appointed as trustees of IPT.
Mr. Consiglio is currently a trustee, President and Chief Executive Officer of
AMIT and Mr. Herrmann is currently an independent trustee of AMIT. Each of
Messrs. Consiglio and Herrmann will be entitled to compensation for their
attendance at meetings of the IPT Board and committees thereof. See
"Management--Compensation of Trustees."
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Employment Agreements. Pursuant to the terms of the Merger Agreement,
upon consummation of the Merger Ronald J. Consiglio and Anna Merguerian will
enter into employment agreements with IPT. Mr. Consiglio, who is currently the
President, Chief Executive Officer and a trustee of AMIT, will enter into a
three year employment agreement to serve as a Managing Director of IPT,
pursuant to which he will receive a base salary of at least $276,000 per annum,
and an annual bonus of not less than $90,000. Ms. Merguerian, who is currently
the Chief Financial Officer, Secretary and Vice President of AMIT, will enter
into a three year employment agreement to serve as a Vice President of IPT,
pursuant to which she will receive a base salary of at least $100,000 per
annum, and an annual bonus of not less than $45,000. See "Management of
IPT--Employment Agreements."
AMIT Trustee Compensation. On January 29, 1998, the executive
committee of the AMIT Board voted in favor of a proposal to compensate AMIT
trustees who are not continuing as trustees of IPT after the Merger, in an
amount equal to $2,500 per year for each year of service on the AMIT Board, but
not to exceed aggregate payments of $30,000 to all qualifying trustees.
Assuming the closing of the Merger prior to June 30, 1998, the aggregate of
such compensation to all departing trustees will be $27,500. No trustee who is
eligible to receive such compensation voted in connection with the proposal.
The trustees who voted to approve the compensation proposal believe
that the compensation is fair and equitable based upon AMIT's performance, both
in terms of capital growth and shareholder distributions, during the past
several years, the substantial and extraordinary time and effort devoted by the
departing trustees relative to the Merger with regard to the review and
negotiation of definitive agreements and proxy materials and the continued
successful operations of AMIT through lengthy and complex negotiations.
ACCOUNTING TREATMENT
IPT will account for the Merger as a purchase for accounting and
financial reporting purposes in accordance with generally accepted accounting
principles. The Merger results for financial reporting purposes in the
effective purchase of all of the AMIT Shares. Accordingly, 100% of the assets
and liabilities of AMIT will be adjusted to fair value and the results of
operations of AMIT will be included in the results of operations of IPT for
periods subsequent to the Effective Time.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material United States
federal income tax consequences of the Merger to the AMIT shareholders and is
not intended to be a complete discussion of all potential tax effects that
might be relevant to the Merger. Such discussion deals only with a citizen or
resident of the United States or a domestic corporation. This summary assumes
that the AMIT Shares have been held as capital assets. It may not be applicable
to certain classes of taxpayers, including, without limitation, insurance
companies, tax-exempt organizations, financial institutions, securities
dealers, broker-dealers, foreign persons and persons who hold AMIT Shares as
part of a conversion transaction. Moreover, the state, local, foreign and
estate tax consequences to AMIT shareholders of the Merger are not discussed.
This summary is based on the current provisions of the Code, laws,
regulations, rulings, practice and judicial decisions in effect at the date of
this Proxy Statement/Prospectus. However, legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences described herein to shareholders.
EACH SHAREHOLDER IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO IT OF THE TRANSACTIONS DESCRIBED HEREIN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS
AND OF CHANGES IN APPLICABLE TAX LAWS.
Tax Treatment of the Merger
Due to the contemplated IPT/AIMCO Merger, Akin, Gump, Strauss, Hauer &
Feld, L.L.P., ("Akin
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Gump"), counsel to IPT, has informed IPT that it is unable to render an opinion
regarding the tax consequences of the Merger since the contemplated IPT/AIMCO
Merger makes it sufficiently unclear whether the AMIT shareholders have
retained a substantial proprietary stake and material interest in the affairs
of IPT for a sufficient period of time to enable the AMIT shareholders to meet
the "continuity of proprietary interest" requirement with respect to a
reorganization under Section 368(a) of the Code. Accordingly, because of the
potentially short time period between the Merger and the IPT/AIMCO Merger, it
is unclear whether the Merger will qualify as a reorganization under Section
368(a) of the Code. In addition, no ruling from the Internal Revenue Service
will be obtained.
AMIT and IPT believe that if the IPT/AIMCO Merger is consummated after
the Merger on the terms contemplated by the Insignia/AIMCO Merger Agreement
(i.e., in a cash-out merger), then the exchange of IPT Common Shares for AMIT
Shares pursuant to the Merger will be a taxable event to the AMIT shareholders.
If the Merger is treated as a taxable event, each AMIT shareholder receiving
IPT Common Shares, will recognize gain (or loss) to the extent that the fair
market value of the IPT Common Shares is greater than (or less than) such
shareholder's tax basis in its AMIT Shares.
If the Merger is consummated but the IPT/AIMCO Merger is not
consummated, AMIT and IPT believe that the Merger may be treated as a
"reorganization" within the meaning of Section 368(a) of the Code. AMIT and IPT
believe that if the IPT/AIMCO Merger is not consummated and the AMIT
shareholders receiving IPT Common Shares continue to hold, in the aggregate, a
number of IPT Common Shares having a value, as of the Effective Time, equal to
50% of the value of the AMIT Shares, as of the same date (including, for this
purpose, cash paid in lieu of fractional IPT Common Shares), for a period of
time sufficient to establish that the AMIT shareholders have retained a
substantial proprietary stake and a material interest in the affairs of IPT,
the Merger should be treated as a reorganization within the meaning of Section
368(a) of the Code. However, there is no clear authority as to the federal
income tax treatment of the Merger to the AMIT shareholders to the extent that
the IPT/AIMCO Merger is not consummated. Therefore, each shareholder is urged
to consult with his, her or its own tax advisor as to the tax consequences to
such shareholder in the event that the IPT/AIMCO Merger is not consummated.
AMIT's and IPT's belief as to the tax treatment of the Merger if the IPT/AIMCO
Merger is not consummated is also based in part on the assumption that neither
IPT nor the AMIT shareholders will take certain actions after the Merger to
cause the Merger to fail to qualify as a reorganization under the Code. Should
this assumption prove to be incorrect, AMIT's and IPT's beliefs could change.
Shareholders of AMIT should be aware that no ruling from the IRS has been or
will be requested and no opinion of counsel will be given regarding the federal
income tax consequences of the Merger. No assurance can be given that the IRS
will not adopt a contrary position or that any such contrary IRS position would
not be sustained by a court.
AMIT's and IPT's beliefs as to the tax treatment of the Merger in the
event that the IPT/AIMCO Merger is not consummated are based, in part, on the
opinion of Akin Gump that, as of the Effective Time, AMIT will hold a
"diversified" portfolio of assets within the meaning of Section
368(a)(2)(F)(ii) of the Code and on the assumption that the value of AMIT's
non-cash assets transferred to IPT pursuant to the Merger will equal or exceed
50% of the value of the AMIT assets (including cash) held as of the date of the
signing of the Merger Agreement, taking into account any AMIT assets disposed
of by IPT after the Effective Time either pursuant to sales of all or portions
of such assets or transfers of such assets (including any transfers to IPLP).
As previously noted, Akin Gump has not rendered and will not render an opinion
with respect to the federal income tax treatment of the Merger.
Assuming the Merger qualifies as a reorganization under Section 368(a)
of the Code, the following federal income tax consequences will result:
(i) no gain or loss will be recognized by IPT or AMIT in connection
with the Merger;
(ii) no gain or loss will be recognized by a holder of AMIT Shares
upon the exchange of such holder's AMIT Shares solely for IPT
Common Shares in the Merger except where such holder receives
cash proceeds in lieu of fractional IPT Common Shares greater
than the tax basis allocable to such holder's fractional
interests;
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(iii) the aggregate tax basis of the IPT Common Shares received by an
AMIT shareholder in the Merger (including any fractional share
deemed received) in exchange for AMIT Shares will be the same as
the aggregate tax basis of the shares of AMIT Shares surrendered
in exchange therefor, decreased by the amount of loss (if any)
recognized by such shareholder in the Merger and by the amount of
cash received by such shareholder, and increased by the amount of
gain (if any) recognized by such shareholder in the Merger;
(iv) the holding period of the IPT Common Shares received by an AMIT
shareholder in exchange for AMIT Shares in the Merger will
include the holding period of the AMIT Shares surrendered in
exchange therefor, provided that such AMIT Shares are held as
capital assets at the Effective Time; and
(v) a shareholder of AMIT who receives cash in lieu of a fractional
IPT Common Share will recognize gain or loss equal to the
difference, if any, between such shareholder's tax basis in the
fractional share (as described in paragraph (iii) above) and the
amount of cash received. Such gain or loss will be a capital gain
or loss if the AMIT Shares are held by such shareholder as
capital assets at the Effective Time, unless the receipt of such
cash by such shareholder has the effect of a distribution of a
dividend, in which case such gain will be taxed as ordinary
income to the extent of the earnings and profits of IPT.
Generally, if the Merger failed to qualify as a reorganization under
Section 368(a) of the Code, the following federal income tax consequences would
result:
(i) AMIT would be treated as if it sold all of its assets to IPT in a
taxable transaction. AMIT would recognize taxable gain or loss
equal to the difference between: (a) AMIT's adjusted tax basis in
its assets and (b) the fair market value of the IPT Common Shares
delivered in the Merger and the total amount of cash received by
the AMIT shareholders (including cash received in lieu of a
fractional IPT Common Share). If AMIT was not deemed to be a
qualified REIT as of the Effective Time for any reason, IPT would
become liable for any tax resulting from any such gain;
(ii) the AMIT shareholders would be treated as if all of their AMIT
Shares canceled in the Merger were redeemed in a fully taxable
liquidation of AMIT. Each AMIT shareholder would recognize
taxable gain or loss in an amount equal to the difference
between: (a) such holder's adjusted tax basis in such AMIT Shares
and (b) the fair market value of the IPT Common Shares and the
total amount of cash received in exchange therefor (including
cash received in lieu of a fractional IPT Common Share);
(iii) the gain or loss recognized by each AMIT shareholder would be
capital gain or loss if the AMIT Shares surrendered in the Merger
are held as capital assets as of the Effective Time;
(iv) the tax basis of the IPT Common Shares received by the AMIT
shareholders at the Effective Time would equal the fair market
value of such IPT Common Shares at the Effective Time; and
(v) the holding period of the IPT Common Shares received by the AMIT
shareholders would commence on the day after the Effective Time.
Tax Treatment of Amounts Received Under the Tax Agreement
Pursuant to a Tax Indemnification Agreement, dated as of July 18, 1997
(the "Tax Agreement"), made by IPT in favor of the record holders of AMIT Class
A Shares as of the Effective Time, IPT has agreed to indemnify such
shareholders for any damages incurred by such shareholder directly attributable
to such shareholder recognizing taxable gain arising from the Merger by reason
of either (a) the failure of the Merger to satisfy the "continuity of business"
requirement due to any action taken by IPT after the Effective Time, or (b) the
fact AMIT failed to qualify as "diversified" within the meaning of Section
368(a)(2)(F)(ii) of the Code. AMIT shareholders will not be entitled to any
indemnification under the Tax Agreement for a failure of the Merger to qualify
as a
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reorganization under the Code as a result of the IPT/AIMCO Merger or the
Insignia/AIMCO Merger Agreement. IPT believes that any amounts received by a
shareholder pursuant to the Tax Agreement would be treated as taxable income in
the year of receipt, the character of which may be capital. See "Certain Other
Agreements--Tax Agreement." EACH SHAREHOLDER OF AMIT IS URGED TO CONSULT WITH
ITS OWN TAX ADVISOR REGARDING THE CHARACTER AND INCLUSION OF ANY AMOUNTS
RECEIVED PURSUANT TO THE TAX AGREEMENT.
EXCHANGE OF SHARE CERTIFICATES
As soon as reasonably practicable after the Effective Time, IPT will
cause First Union National Bank (the "Exchange Agent") to mail to each record
holder of AMIT Shares a letter of transmittal to be used to effect the exchange
of share certificates, along with instructions for using such letter of
transmittal to effect such exchange.
NO FRACTIONAL SHARES
No fractional IPT Common Shares will be issued. In lieu of any such
fractional shares, a shareholder otherwise entitled to a fractional IPT Common
Share will receive cash in an amount determined by multiplying such fractional
IPT Common Share amount by the IPT Share Value (which will be $10.58 assuming
no distributions are declared and paid by AMIT or IPT subsequent to the date
hereof).
LISTING OF IPT COMMON SHARES
The currently outstanding IPT Common Shares have been approved for
listing on the ASE, subject to consummation of the Merger, under the symbol
"FFO." The IPT Common Shares to be received by the AMIT shareholders in the
Merger have also been approved for listing on the ASE, subject to official
notice of issuance, and upon consummation of the Merger such shares (other than
IPT Common Shares received by certain affiliates of IPT and AMIT) will be
freely tradable.
NO APPRAISAL RIGHTS
Neither holders of AMIT Shares nor holders of IPT Common Shares are
entitled to any dissenters' rights of appraisal with respect to the Merger
under AMIT's or IPT's respective Declaration of Trust or under applicable law
as a result of the Merger. IPT shareholders (including the former AMIT
shareholders) will, however, be entitled to dissenters' rights of appraisal in
connection with the IPT/AIMCO Merger, if consummated as currently contemplated
and described herein.
FEDERAL SECURITIES LAWS CONSEQUENCES
All IPT Common Shares received or held by AMIT shareholders in
connection with the Merger will be freely transferable under the federal
securities laws, except that IPT Common Shares received or held by persons who
are deemed to be "affiliates" (as such term is defined under the Securities
Act) of AMIT or IPT prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of IPT) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of IPT or AMIT generally include individuals
or entities that control, are controlled by, or are under common control with
such party and may include certain officers and trustees of such party as well
as principal shareholders of such party.
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INSIGNIA/AIMCO TRANSACTION
INSIGNIA/AIMCO MERGER
On March 17, 1998, Insignia and AIMCO entered into the Insignia/AIMCO
Merger Agreement which provides for, among other things, the Insignia/AIMCO
Merger. As a result of the Insignia/AIMCO Merger, AIMCO will succeed to all of
Insignia's business regarding the ownership and management of multifamily
residential properties, including Insignia's ownership of IPT Common Shares and
OP Units and thus AIMCO will become the majority shareholder of, and control,
IPT. The consummation of the Insignia/AIMCO Merger is subject to a number of
conditions, including the approval of the stockholders of Insignia, and no
assurance can be given that the Insignia/AIMCO Merger will be consummated.
IPT/AIMCO MERGER
AIMCO is a Maryland corporation formed on January 10, 1994 and is a
self-administered and self-managed REIT engaged in the ownership, acquisition,
development, expansion and management of multifamily apartment properties.
According to AIMCO's annual report for the year ended December 31, 1997,
through its controlling interests in AIMCO Properties, L.P., a Delaware limited
partnership, other limited partnerships and subsidiary corporations, AIMCO
currently owns or controls 40,039 units in 147 apartment properties, holds an
equity interest in 83,431 units in 515 apartment properties and manages 69,587
units in 374 apartment properties for third party owners and affiliates.
AIMCO's principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and its telephone number at that address is
(303) 757-8108.
General. Pursuant to the terms of the Insignia/AIMCO Merger Agreement,
AIMCO has agreed to propose to acquire IPT by merger within three months of the
effective time of the Insignia/AIMCO Merger (but not earlier than August 15,
1998) at a purchase price of not less than $13.25 per IPT Common Share payable
in cash. AIMCO currently intends to effect such acquisition by causing IPT to
merge into a subsidiary of AIMCO. Based on the current Class A Exchange Ratio
of 1.536, upon consummation of the Merger and the IPT/AIMCO Merger, an AMIT
Class A shareholder will receive a cash amount for his, her or its IPT Common
Shares which would be equivalent to $20.35 per AMIT Class A Share. However,
there can be no assurance that either the Insignia/AIMCO Merger or the
IPT/AIMCO Merger will be consummated.
Conditions. Consummation of the IPT/AIMCO Merger will be subject to a
number of conditions, including consummation of the Insignia/AIMCO Merger,
negotiation of a definitive merger agreement, approval of the merger by the
board of trustees or directors of IPT and of the AIMCO subsidiary into which
IPT will merge, and approval of the merger agreement by IPT shareholders. There
can be no assurance that the IPT/AIMCO Merger will be consummated.
Shareholder Vote. The affirmative vote of holders of a majority of the
outstanding IPT Common Shares will be required to approve the IPT/AIMCO Merger.
Following consummation of the Merger and the Insignia/AIMCO Merger, AIMCO will
own a majority of the outstanding IPT Common Shares and will have the ability
to approve the IPT/AIMCO Merger without the consent of any other shareholder of
IPT (including former AMIT shareholders).
Insignia/ESG Agreement. AMIT shareholders are not third party
beneficiaries to AIMCO's obligation to propose to acquire IPT by merger
pursuant to the Insignia/AIMCO Merger Agreement. However, Insignia/ESG which
will be "spun-off" to the current stockholders of Insignia, is a party to the
Insignia/AIMCO Merger Agreement and the agreement provides that Insignia/ESG
may enforce AIMCO's obligation to propose to acquire IPT by merger.
Insignia/ESG has covenanted to AMIT and IPT that it will use its reasonable
best efforts to compel AIMCO to effect the IPT/AIMCO merger in the event that
AIMCO breaches its obligation to effect such merger pursuant to the terms of
the Insignia/AIMCO Merger Agreement. However, there can be no assurance that
Insignia/ESG would be successful in an attempt to enforce AIMCO's obligation to
effect the IPT/AIMCO Merger pursuant to the terms of the Insignia/AIMCO Merger
Agreement.
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Appraisal Rights. Although AMIT shareholders are not entitled to
dissenters' appraisal rights in connection with the Merger, IPT shareholders
(including the former AMIT shareholders) will be entitled to dissenters'
appraisal rights in connection with the IPT/AIMCO Merger if it is consummated
as currently contemplated and described herein.
Proxy or Information Statement. It is currently contemplated that a
Proxy Statement (if proxies are solicited) or an Information Statement (if
proxies are not solicited) describing in detail the IPT/AIMCO Merger, including
the rights of IPT shareholders to exercise dissenters' appraisal rights in
connection therewith, will be distributed to IPT shareholders prior to
consummation of the IPT/AIMCO Merger.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
Merger Agreement, the full text of which is attached hereto as Annex A and
incorporated herein by reference. The following discussion is qualified in its
entirety by reference to the Merger Agreement.
EFFECTIVE TIME AND CLOSING OF THE MERGER
The Merger Agreement provides for, among other things, the merger of
AMIT with and into IPT, with IPT being the surviving entity. The Merger will
become effective upon the acceptance for record of the Articles of Merger by
the State Department of Assessments and Taxation of the State of Maryland or at
such later time as may be provided in the Articles of Merger. The closing of
the Merger will take place as soon as practicable following the satisfaction or
waiver in writing of all of the conditions precedent to the Merger, or such
later date as may be agreed upon by the parties (the "Closing Date"). As a
result of the transaction, IPT will succeed to the operations and assets of
AMIT, the separate existence of AMIT will cease and the former shareholders of
AMIT will become shareholders of IPT.
MANNER AND BASIS OF CONVERTING SHARES
Exchange Ratio; No Fractional Shares
The Class A Exchange Ratio is 1.536, and the Class B Exchange Ratio is
0.0314. Upon consummation of the Merger, each outstanding AMIT Class A Share
(other than AMIT Class A Shares held in treasury, which will be canceled) will
be converted into 1.536 IPT Common Shares, and each outstanding AMIT Class B
Share will be converted into 0.0314 IPT Common Shares.
The Exchange Ratio was determined as follows:
o Under the Merger Agreement, the AMIT Class A Shares were
assigned a base exchange value of $16.25 per share and the
IPT Common Shares were assigned a base exchange value of
$10.00 per share. Those base exchange values were the result
of arm's length negotiations between the parties. The parties
were able to agree on those values based, in part, on the
fact that the base exchange value of $16.25 per AMIT Class A
Share fell within a range of values estimated by AMIT's
management utilizing a discounted cash flow analysis, and the
base exchange value of $10.00 per IPT Common Share
approximated IPT management's estimate of the per share net
asset value of IPT's assets as of the same date and equaled
the price at which IPT Common Shares were sold to
non-affiliated investors and IPT and Insignia insiders in the
Private Offerings.
o Pursuant to the terms of the Merger Agreement, the base IPT
Common Share exchange value (and thus the Exchange Ratio)
automatically adjusts to account for all distributions
declared by AMIT subsequent to December 31, 1996 and by IPT
subsequent to January 31, 1997, as follows:
(i) each such distribution declared by AMIT
with respect to the AMIT Class A Shares results in
an increase in the base IPT Common Share exchange
value equal to the per share amount of such AMIT
distribution multiplied by 0.6154 (0.61544 is equal
to the base IPT Common Share exchange value of
$10.00 divided by the base AMIT Class A Share
exchange value of $16.25); and
(ii) each such distribution declared by IPT
with respect to the IPT Common Shares results in a
decrease in the base IPT Common Share exchange value
equal to the per share amount of such IPT
distribution.
o Since those dates, AMIT has declared aggregate per AMIT Class
A Share distributions of $1.67, resulting in a corresponding
increase in the base IPT Common Share exchange value of
$1.03, and
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IPT has declared aggregate per IPT Common Share distributions
of $.45, resulting in a corresponding decrease in the base
IPT Common Share exchange value of $.45, with the net result
being an adjusted IPT Common Share exchange value of $10.58.
o The Class A Exchange Ratio of 1.536 thus results from
dividing the AMIT Class A Share exchange value of $16.25 by
the adjusted IPT Common Share exchange value of $10.58. The
adjusted Class A Exchange Ratio, assuming a constant $10.00
IPT Common Share exchange value, effectively values each AMIT
Class A Share at $15.36 for purposes of the Merger. Because
the AMIT Class B Shares are convertible into AMIT Class A
Shares at a rate of 49 to 1, the Class B Exchange Ratio of
0.0314 simply results from dividing the Class A Exchange
Ratio of 1.536 by 49.
The adjusted IPT Common Share exchange value, and thus the Exchange
Ratio, is subject to further adjustment should either AMIT or IPT declare any
distributions between the date of this Proxy Statement/Prospectus and the
Merger (in the same manner described in the second bullet point above). Each of
AMIT and IPT intends to continue to declare and pay quarterly distributions in
accordance with their past practices. Consequently, AMIT shareholders may not
know the final adjusted Class A Exchange Ratio of the time of the Special
Meeting.
As of December 31, 1997, the book value per AMIT Class A Share was
$17.38. The closing price of the AMIT Class A Shares on the American Stock
Exchange on that date was $19.125. The closing price of the AMIT Class A Shares
on the day the letter of intent regarding the Merger was announced was $13.25,
and the closing price of the AMIT Class A Shares on the day the signing of the
Merger Agreement was announced was $15.125. The highest reported sales price of
the AMIT Class A Shares on the American Stock Exchange during the two years
preceding the public announcement of the Merger was $14.50, and the lowest
reported sales price during such period was $5.375.
No fractional IPT Common Shares will be issued in connection with the
Merger. In lieu of the issuance of such fractional IPT Common Shares, an AMIT
shareholder otherwise entitled to a fractional IPT Common Share will receive an
amount in cash equal to the product of such fractional IPT Common Share
multiplied by the IPT Common Share exchange value (which will be $10.58
assuming neither AMIT or IPT declares any distributions between the date of
this Proxy Statement/Prospectus and the Merger).
Exchange of AMIT Class A Shares
Promptly following the Effective Time, IPT will cause the Exchange
Agent to mail to each record holder of AMIT Shares immediately prior to the
Effective Time a letter of transmittal and other information advising such
holder of the consummation of the Merger. The transmittal forms and related
information are also intended for use by shareholders in exchanging
certificates evidencing AMIT Shares for certificates evidencing IPT Common
Shares. After receipt of such transmittal forms, each holder of certificates
formerly evidencing AMIT Shares should surrender such certificates to the
Exchange Agent, and each such holder will receive, in exchange therefor, a
certificate or certificates evidencing the number of whole IPT Common Shares to
which such holder is entitled, together with any cash which may be payable in
lieu of a fractional IPT Common Share. After the Effective Time, there will be
no further registration of transfers of AMIT Shares on the share transfer books
of AMIT. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY AMIT
SHAREHOLDERS PRIOR TO THE EFFECTIVE TIME AND THE RECEIPT OF A LETTER OF
TRANSMITTAL.
Rights After the Effective Time
Until such time as a holder of AMIT Shares surrenders an outstanding
share certificate to the Exchange Agent, together with the letter of
transmittal, the AMIT Shares evidenced thereby will be deemed from and after
the Effective Time to evidence solely the right to receive a certificate
representing the number of newly issued IPT Common Shares to be issued in
exchange therefor and any cash to be received in lieu of a fractional IPT
Common Share. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the IPT Common Shares held by it from time
to time under the Merger Agreement, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such
shares for the account of the persons entitled thereto. Upon surrender of the
certificates previously representing AMIT Shares, the holder thereof will
receive one
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or more certificates representing the number of IPT Common Shares
which such holder is entitled to receive, together with the appropriate amount
of cash paid in lieu of a fractional IPT Common Share. In addition to
certificates for IPT Common Shares and cash in lieu of a fractional IPT Common
Share, AMIT shareholders will also be entitled to receive the amount of any
dividends or other distributions payable to holders of record of IPT Common
Shares on or after the Effective Time with respect to their shares, without
interest thereon.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of AMIT
The Merger Agreement contains various representations and warranties
of AMIT including, among others, (i) the due organization, valid existence and
good standing of AMIT and its subsidiaries, (ii) the power and authority of
AMIT and its subsidiaries to operate their properties and conduct their
business, (iii) the capitalization of AMIT and its subsidiaries, (iv) AMIT's
authority to execute and deliver the Merger Agreement, (v) no conflicts under
AMIT's organizational documents, no required consents or approvals and no
violations of any instruments or laws, (vi) the filing with the Commission of
all required documents, (vii) the preparation of AMIT's financial statements in
accordance with generally accepted accounting principles, (viii) the absence of
certain changes or events with respect to AMIT, (ix) the absence of undisclosed
liabilities of AMIT, (x) no liability to any broker, and (xi) the
non-applicability of state takeover statutes.
Representations and Warranties of IPT and Insignia
The Merger Agreement contains various representations and warranties
of IPT and Insignia including, among others, (i) the due organization, valid
existence and good standing of IPT, IPLP, the subsidiaries of IPT and the
Controlled Partnerships (collectively, the "IPT Group"), (ii) the power and
authority of the members of the IPT Group to operate their properties and
conduct their business, (iii) the capitalization of each member of the IPT
Group, (iv) IPT's authority to execute and deliver the Merger Agreement, (v) no
conflicts under organizational documents of any member of the IPT Group, no
required consents or approvals and no violations of any instruments or laws,
(vi) the filing with the Commission of all required documents, (vii) the
preparation of IPT's financial statements in accordance with generally accepted
accounting principles, (viii) the absence of certain changes or events with
respect to the IPT Group, (ix) the absence of any material undisclosed
liabilities of the IPT Group, (x) the qualification of IPT as a REIT, (xi) no
liability to any broker, and (xii) the non-applicability of any state takeover
laws.
PRE-CLOSING COVENANTS
The Merger Agreement contains various pre-closing covenants including,
among others:
No Solicitation of Competing Transactions
During the period from the Signing Date until the consummation of the
Merger or the termination of the Merger Agreement, AMIT and its affiliates are
prohibited from, directly or indirectly, through any representative or
otherwise, soliciting or entertaining offers from, negotiating with or in any
manner encouraging, discussing, accepting, or considering any proposal of any
other person relating to the acquisition of any AMIT Shares, or the assets or
business of AMIT, in whole or in part, whether directly or indirectly, through
purchase, merger, consolidation, or otherwise (other than transactions in the
ordinary course of business). The Merger Agreement does provide, however, that
AMIT and its trustees and officers are permitted to entertain offers from,
negotiate with, or discuss, accept or consider any proposal of any person to
the extent their fiduciary duties may require. In any event, AMIT is required
to notify IPT immediately regarding any contact between AMIT or its
representatives and any other person regarding any of the foregoing.
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Standstill
During the period from the Signing Date until the earlier of the
termination of the Merger Agreement or the consummation of the Merger, Insignia
and its affiliates are prohibited from, directly or indirectly, through
representatives or otherwise, (i) acquiring any additional AMIT Class A Shares
or (ii) initiating any communication with any AMIT shareholder. However,
neither Insignia nor its affiliates are restricted in any manner whatsoever
from initiating communication with any of its or their shareholders on matters
unrelated to AMIT or the Merger, regardless of whether or not its or their
shareholders are also AMIT shareholders.
Conduct of Business of AMIT Prior to the Effective Time
AMIT and its subsidiaries are prohibited from engaging in any
practice, taking any action, or entering into any transaction outside of the
ordinary course of business. Specifically, AMIT may not (i) authorize or effect
any change in its Declaration of Trust or Bylaws other than the Trust
Amendment, (ii) grant any options, warrants or other rights to purchase or
obtain any AMIT Shares or issue, sell or otherwise dispose of any of its
shares, (iii) redeem, repurchase or otherwise acquire any of its shares, (iv)
issue any note, bond or other debt security or create, incur, assume, or
guarantee any indebtedness for borrowed money or capitalized lease obligation
other than in the ordinary course of business, (v) impose or permit to exist
certain liens upon any of its assets, (vi) make any capital investment in, make
any loan to, or acquire assets or securities of any other person other than in
the ordinary course of business; provided, however that AMIT may not acquire
any interest in an asset which would otherwise fail (a) to be a "real estate
asset" as defined in Section 856(c)(6)(b) of the Code or (b) to generate income
as described in Section 856(c)(3) of the Code, (vii) make any change in
employment terms of any of its trustees, officers and employees other than in
the ordinary course of business, or (viii) commit to any of the foregoing.
Conduct of Business by IPT Prior to the Effective Time
Each member of the IPT Group is prohibited from engaging in any
practice, taking any action, or entering into any transaction outside the
ordinary course of business. Specifically, IPT may not (i) authorize or effect
any change in its Declaration of Trust or Bylaws, other than an amendment in
connection with the Merger or the private offering of IPT Common Shares to
certain investors, (ii) grant any options, warrants or other rights to purchase
or obtain any of its shares of beneficial interests or issue, sell, or
otherwise dispose of any of its shares of beneficial interests, other than (a)
issuances or sales of IPT Common Shares pursuant to the Private Offerings, (b)
grants of options or other rights to purchase or obtain IPT Common Shares
pursuant to the 1997 Share Incentive Plan, (c) issuances or sales of IPT Common
Shares or OP Units pursuant to a transaction entered into in the ordinary
course of business, and (d) issuances or sales of IPT Common Shares pursuant to
the Partnership Agreement (in each case, subject to a minimum sales or strike
price of $10.00, subject to certain adjustments), (iii) redeem, repurchase or
otherwise acquire any of its shares of beneficial interest, (iv) issue any
note, bond, or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation other than
Permitted Debt (as defined in the Merger Agreement), (v) impose or permit to
exist certain liens upon any of its assets, (vi) make any capital investment
in, make any loan to, or acquire assets or the securities of any other person
other than in the ordinary course of business, (vii) make any change in
employment terms for any of its trustees, officers, and employees other than in
the ordinary course of business, or (viii) commit to any of the foregoing.
Payment of a Dividend Equal to Earnings and Profits
If necessary in order for IPT to continue to qualify as a REIT under
the Code after the consummation of the Merger, AMIT is required to declare and
pay a dividend prior to the Effective Time in an amount equal to AMIT's
accumulated earnings and profits at the Effective Time, if any. In connection
with this dividend, AMIT is required to provide to IPT, not later than 20 days
prior to the declaration of such dividend, all documents necessary to support
(to the satisfaction of IPT and IPT's counsel) the calculation of the amount to
be distributed in such dividend.
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AMIT's Reporting Obligations
AMIT is obligated to provide to IPT, within ten days after the last
day of each month prior to the Closing and within two days prior to the Closing
Date, a written statement setting forth all the material terms of each loan
transaction entered into or amended since the later of January 1, 1997 or the
date of any previous statement. However, AMIT is not required to provide a
statement with respect to (i) a restructuring or refinancing of a loan
outstanding before January 1, 1997 so long as such loan was and remains secured
by a direct interest in real property or (ii) any loan (including any
restructuring or refinancing of a loan) made to any member of the IPT Group,
Insignia or any controlled affiliate of Insignia.
IPT's Reporting Obligations
IPT is obligated to provide to AMIT, within ten days after the last
day of each month prior to the Closing and within two days prior to the Closing
Date, a written statement which sets forth all of the changes to the
capitalization and ownership of the IPT Group and IPLP's ownership interest in
the Controlled Partnerships since the later of the Signing Date or the date of
a previous written statement. In addition to the written statement required by
the immediately preceding sentence, IPT is obligated to provide promptly to
AMIT a description of the material terms of any transaction which would affect
such items and in which the aggregate purchase price exceeds $500,000.
Indemnification
Under the terms of the Merger Agreement, IPT has agreed to indemnify,
defend and hold harmless each person who was, as of the Signing Date, or who
becomes prior to the Effective Time, an officer, trustee or director of AMIT or
any subsidiary of AMIT against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees and expenses), liabilities, judgments or
amounts that are paid or agreed to be paid (with the approval of IPT which
shall not be unreasonably withheld) in settlement of, or otherwise in
connection with, any threatened or actual claim, action, suit, proceeding or
investigation, whether asserted or claimed at or after the Signing Date, based
on, arising out of or pertaining to the Merger Agreement or the Merger and
which would not otherwise be an indemnifiable claim under the AMIT Declaration
of Trust, in each case to the fullest extent a corporation is permitted under
Maryland law to indemnify its own directors or officers, as the case may be,
and IPT has agreed to pay expenses in advance of the final disposition of any
such proceeding to each indemnified party to the full extent permitted by law
subject to certain limitations.
CONDITIONS TO THE MERGER
Conditions to AMIT's Obligations
The obligation of AMIT to consummate the Merger is subject to the
satisfaction or waiver in writing by AMIT of certain conditions including,
among others, (i) the receipt by AMIT of the requisite approval from its
shareholders of the Merger Proposal and the Trust Amendment Proposal, (ii) the
truth and accuracy (in all material respects) of the representations and
warranties made by IPT and Insignia in the Merger Agreement as though made on
or as of the Closing Date and the receipt by AMIT of a certificate from an
executive officer of each of IPT and Insignia to such effect, (iii) the
performance (in all material respects) by IPT of all the covenants required by
the Merger Agreement to be performed prior to or at the Closing and the receipt
by AMIT of a certificate signed by an executive officer of IPT to such effect,
(iv) the effectiveness of a registration statement on Form S-4 under the
Securities Act, (v) the receipt by AMIT of a fairness opinion from Weil, (vi)
the filing with the State Department of Assessments and Taxation of the State
of Maryland of the Articles of Merger, (vii) the non-existence of any judgment,
order, decree, stipulation, injunction or charge which prevents the
consummation of any of the transactions contemplated by the Merger Agreement,
(viii) the receipt by AMIT of an opinion of Miles & Stockbridge ("M&S"),
special Maryland counsel, as to the enforceability and validity of the Merger
Agreement under Maryland law, (ix) the receipt by AMIT of an opinion of Akin
Gump as to various matters relating to IPT and the Merger Agreement, and (x)
the receipt by IPT of an opinion of Akin Gump regarding IPT's organization and
operation as a REIT commencing with the taxable year ending December 31, 1996,
and regarding IPLP's status as a
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partnership for federal income tax purposes. The Merger had also been
conditioned upon the receipt by AMIT of an opinion of Akin Gump that the Merger
would qualify as a tax free reorganization under the Code; however, due to the
uncertainty of the federal income tax treatment of the Merger as a result of
the proposed IPT/AIMCO Merger, no opinion of counsel will be given regarding
the federal income tax consequences of the Merger. The receipt of this opinion
has been waived by AMIT subject to the approval of the Proposals by the AMIT
shareholders.
Conditions to IPT's Obligations
The obligation of IPT to consummate the Merger is subject to the
satisfaction or waiver in writing by IPT of certain conditions including, among
others, (i) the truth and accuracy (in all material respects) of the
representations and warranties made by AMIT in the Merger Agreement as though
made on or as of the Closing Date and the receipt by IPT of a certificate from
an executive officer of AMIT to such effect, (ii) the performance (in all
material respects) by AMIT of all the covenants required by the Merger
Agreement to be performed prior to or at the Closing and the receipt by IPT of
a certificate signed by an executive officer of AMIT to such effect, (iii) the
effectiveness of a registration statement on Form S-4 under the Securities Act,
(iv) the filing with the State Department of Assessments and Taxation of the
State of Maryland of the Articles of Merger, (v) the non-existence of any
judgment, order, decree, stipulation, injunction or charge which prevents the
consummation of any of the transactions contemplated by the Merger Agreement,
(vi) the receipt by IPT of an opinion of M&S as to the enforceability and
validity of the Merger Agreement under Maryland law, (vii) the receipt by IPT
of an opinion of Greenberg Glusker Fields Claman and Machtinger LLP ("GGFC&M"),
counsel to AMIT, as to various matters relating to AMIT and the Merger
Agreement, and (viii) the receipt by IPT of an opinion of Akin Gump regarding
IPT's organization and operation as a REIT commencing with the taxable year
ending December 31, 1996, and regarding IPLP's status as a partnership for
federal income tax purposes. IPT's obligations to consummate the Merger had
also been conditioned upon the receipt by AMIT of an opinion of Akin Gump that
the Merger would qualify as a tax free reorganization under the Code; however,
due to the uncertainty of the federal income tax treatment of the Merger as a
result of the proposed IPT/AIMCO Merger, the receipt by AMIT of this opinion
has been waived by IPT as a condition to the Merger.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time: (i) by mutual written consent of the AMIT Board and IPT Board;
(ii) by either AMIT or IPT, if the matters to be voted upon by such party shall
not have received the requisite approval from such party's shareholders at a
meeting (or any adjournment thereof) called for such purpose; (iii) by either
AMIT or IPT, if the Merger shall not have been consummated on or before
December 31, 1997, provided, however, that, so long as an active registration
statement on Form S-4 is on file with the Commission, the foregoing date shall
be extended automatically to the earlier of June 30, 1998 or 90 days after such
registration statement is declared effective, provided further that the party
seeking to terminate the Merger Agreement is not otherwise in material breach
of its obligations under the Merger Agreement; (iv) by IPT, if AMIT shall have
failed to comply in any material respect with any of its respective covenants
or agreements contained in the Merger Agreement; provided that, if such failure
is curable, notice of such failure shall have been given by IPT to AMIT and
AMIT shall not have cured such failure within 30 days of notice thereof; (v) by
AMIT, if IPT shall have failed to comply in any material respect with any of
its covenants or agreements contained in the Merger Agreement; provided that,
if such failure is curable, notice of such failure shall have been given by
AMIT to IPT and IPT shall not have cured such failure within 30 days of notice
thereof; or (vi) by AMIT, if IPT's funds from operations per weighted average
IPT Common Share outstanding, for the period commencing on January 1, 1997 and
ending on the ex-dividend date of the last dividend paid by AMIT prior to the
Effective Time during the same period is less than the equivalent of the
aggregate per AMIT Class A Share dividend amount paid by AMIT.
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TRUST AMENDMENT
The following is a brief summary of the material provisions of the
Trust Amendment, the full text of which is attached hereto as Annex B and
incorporated herein by reference. The following discussion is qualified in its
entirety by reference to the Trust Amendment.
AMIT's Declaration of Trust does not expressly permit AMIT to merge or
consolidate with other entities. Under California law, an amendment to AMIT's
Declaration of Trust permitting a merger or consolidation is required to
consummate the Merger. The Trust Amendment accomplishes this by making the
following significant amendments to AMIT's Declaration of Trust.
The Trust Amendment provides that AMIT may (i) sell, lease, exchange
or otherwise dispose of all or substantially all of its assets, (ii)
incorporate or merge with another entity (including real estate investment
trusts and limited partnerships), regardless of whether AMIT is the surviving
entity, (iii) consolidate with one or more entities into a new entity, and (iv)
reorganize as a new entity, in each case subject to obtaining the affirmative
approval of a majority of the members of the AMIT Board and the affirmative
approval of the holders of a majority of the outstanding AMIT Class A Shares
and AMIT Class B Shares (voting together as a single class). Such transactions
will be permitted regardless of whether the other entity or entities are
organized under the laws of the State of California and whether AMIT is the
surviving entity.
At a meeting held on November 13, 1997, the AMIT Board voted to
approve the Trust Amendment, conditioned upon the approval of the Merger
Proposal by the AMIT shareholders, and to submit the Trust Amendment Proposal
to the AMIT shareholders, also conditioned upon the approval of the Merger
Proposal by the AMIT shareholders.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
AMIT CLASS A SHARES AND AMIT CLASS B SHARES, VOTING TOGETHER AS A SINGLE CLASS,
IS REQUIRED TO APPROVE THE TRUST AMENDMENT PROPOSAL, WHICH IS CONDITIONED UPON
THE APPROVAL OF THE MERGER PROPOSAL. THE TRUST AMENDMENT PROPOSAL WILL NOT BE
SUBMITTED TO THE AMIT SHAREHOLDERS IF THE MERGER PROPOSAL FAILS. THE AMIT BOARD
HAS APPROVED THE TRUST AMENDMENT AND RECOMMENDS THAT AMIT SHAREHOLDERS VOTE FOR
APPROVAL OF THE TRUST AMENDMENT PROPOSAL.
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CERTAIN OTHER AGREEMENTS
Simultaneously with the execution of the Merger Agreement, Insignia
and AMIT entered into an Agreement Regarding Certain Assets (the "Asset
Agreement") and IPT executed the Tax Agreement, each of which is described
below.
ASSET AGREEMENT
The Asset Agreement, among other things, (i) obligates AMIT to sell,
and Insignia to purchase, an amount of assets (not to exceed $13,000,000)
sufficient to qualify AMIT as a "diversified investment company" within the
meaning of Section 368(a)(2)(F)(ii) of the Code, and (ii) grants Insignia an
option to purchase from AMIT any additional assets (in excess of the
$13,000,000 obligation) which AMIT would need to dispose of in order to qualify
as a diversified investment company. Insignia must select the assets it will
purchase pursuant to the Asset Agreement no later than 15 days prior to the
Closing. The closing of the transactions contemplated in the Asset Agreement
will occur on the business day immediately prior to the Closing Date.
Insignia is not obligated to purchase any of AMIT's assets pursuant to
the Asset Agreement if (i) the aggregate purchase price of assets which must be
sold in order to qualify AMIT as a diversified investment company exceeds
$13,000,000 or (ii) the purchase of such assets would violate, in the opinion
of Insignia and its counsel, the "continuity of business enterprise"
requirement contained in Treasury Regulation Section 1.368-1(d)(3). If Insignia
fails to perform its obligations under the Asset Agreement, the Merger will not
be consummated, and Insignia and its affiliates will be precluded from (i)
owning or acquiring more than 9.8% (in the aggregate) of the issued and
outstanding AMIT Class A Shares, (ii) voting any AMIT Shares in any election of
AMIT trustees except in accordance with the vote of a majority of the AMIT
Class A Shares held by shareholders other than Insignia or its affiliates, and
(iii) soliciting proxies from, or presenting any proposals to, AMIT's
shareholders with respect to any matter which a majority of the AMIT Board has
not approved in advance. If the aggregate purchase price of the AMIT assets to
be sold in order to qualify AMIT as a diversified investment company exceeds
$13,000,000 and Insignia elects not to exercise its option to purchase such
assets, the Merger will not be consummated.
TAX AGREEMENT
The Tax Agreement obligates IPT to indemnify the AMIT shareholders of
record at the Effective Time from and against all actual, direct and provable
damages and losses arising from and directly relating to the recognition of
taxable gain with respect to the Merger for federal and state income tax
purposes, but only if recognition is due to a final and non-appealable
determination binding upon a shareholder of AMIT that the Merger is treated as
a taxable event with respect to the shareholders as a result of (i) the failure
of the Merger to satisfy the "continuity of business" requirement due to any
action taken by IPT after the Effective Time, or (ii) the fact that AMIT failed
to qualify as a "diversified investment company" within the meaning of Section
368(a)(2)(F)(ii) of the Code; provided, however, that IPT will not have any
indemnification obligation under clause (ii) above if any representation made
by AMIT related to AMIT's status under Section 368(a)(2)(F)(ii) of the Code is
inaccurate or determined to be inaccurate in a final and non-appealable
determination. AMIT shareholders will not be entitled to indemnification under
the terms of the Tax Agreement if the Merger fails to qualify as a
reorganization under the Code as a result of the IPT/AIMCO Merger or the
Insignia/AIMCO Merger Agreement.
Under the terms of the Tax Agreement, the indemnifiable damages (i)
shall not exceed the amount of gain to the shareholders of AMIT resulting from
the Merger multiplied by the maximum combined effective federal and state
income tax rate applicable to long or short-term capital gain, as the case may
be, plus any penalties assessed against any shareholder relating to the
reporting position that the Merger was not a taxable event; and (ii) shall take
into account any tax benefit (including the time value of money) to the
shareholder that has resulted or will result from the increased basis arising
from the recognition of gain on the Merger.
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STOCK OPTION AGREEMENT AND CLASS B VOTING PROXY
MAE is the owner of all of the issued and outstanding AMIT Class B
Shares, which represent a 1% interest in the profits, losses, credits and
distributions of AMIT and currently represents approximately 39% of AMIT's
total voting shares. The AMIT Class B Shares are subject to a stock option
agreement (the "Stock Option Agreement") granting AMIT the option to purchase
all of the AMIT Class B Shares owned by MAE in April 2005 for approximately
$94,000. The Stock Option Agreement grants to AMIT the Class B Voting Proxy,
pursuant to which AMIT, as the proxy for MAE, is required to vote all (100%) of
the AMIT Class B Shares as a unit in accordance with the vote of the majority
of the AMIT Class A Shares represented at the meeting on any matter involving
AMIT and Insignia, including each of the Proposals. All of the AMIT Class B
Shares will be canceled in the Merger and, as a result, the Stock Option
Agreement and Class B Voting Proxy will terminate upon the consummation of the
Merger.
EXPENSE REIMBURSEMENT AGREEMENT
In connection with the letter of intent regarding the Merger entered
into April 3, 1997 by AMIT and Insignia, AMIT and Insignia entered into an
Agreement Regarding Expenses dated April 3, 1997 (the "Expense Reimbursement
Agreement"), pursuant to which IPT has agreed to pay the following expenses
incurred by AMIT in connection with the Merger and the related transactions:
(i) the legal fees and actual expenses directly related to services of GGFC&M,
counsel to AMIT; (ii) the professional fees and actual expenses, subject to
certain limitations, directly related to services rendered by a valuation
consultant engaged by AMIT to assist in its due diligence review of the
properties owned by the Controlled Partnerships; and (iii) the professional
fees and actual expenses payable to BDO Seidman, LLP (AMIT's accounting firm)
and Weil (who rendered the fairness opinion to the AMIT Board).
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BUSINESS OF IPT
GENERAL
IPT is a Maryland real estate investment trust formed by Insignia in
May 1996 primarily for the purpose of acquiring and owning interests in
multifamily residential properties, principally through ownership of limited
and general partner interests in real estate limited partnerships. IPT has been
organized and intends to operate in a manner that will qualify it to be taxed
as a REIT under the Code. Substantially all of IPT's assets are held through
its operating partnership, IPLP.
As of the date of this Proxy Statement/Prospectus, IPT holds equity
interests in and effectively controls the 127 Controlled Partnerships and owns
one whole real estate asset (a 168-unit residential apartment complex located
in Pensacola, Florida). IPT is currently structured such that IPT (or a
subsidiary thereof) owns a controlling equity interest in each entity that
comprises or controls the managing general partner of each Controlled
Partnership and will own any additional such controlling equity interests
acquired by IPT in the future, and IPLP (and its subsidiaries) own the limited
partner interests in the Controlled Partnerships and IPT's only existing whole
real estate asset and will own any additional limited partner interests in real
estate limited partnerships and whole assets acquired by IPT in the future. The
Controlled Partnerships in which IPT directly and indirectly owns a material
interest are referred to herein as the "IPT Partnerships." The IPT Partnerships
are listed on page 56 hereof. As of the date of this Proxy
Statement/Prospectus, the Controlled Partnerships own, in the aggregate, 349
properties containing approximately 73,000 residential apartment units and
approximately 5.9 million square feet of commercial space, and the IPT
Partnerships own, in the aggregate, 200 properties containing approximately
49,000 residential apartment units and approximately 3.0 million square feet of
commercial space. See "IPT Formation Transactions."
As of the date of this Proxy Statement/Prospectus, there are
19,427,760 IPT Common Shares issued and outstanding, 13,216,048 (or
approximately 68%) of which are owned by Insignia and its affiliates, and IPLP
has two partners -- IPT, which is the sole general partner and owns 19,427,760
(or approximately 66%) of IPLP's outstanding OP Units; and Insignia, which is
the sole limited partner and owns 9,934,475 (or approximately 34%) of the
outstanding OP Units. The affairs of IPLP and the relations among its partners
are governed by the Partnership Agreement. Under the Partnership Agreement,
Insignia is designated as the Special Limited Partner of IPLP and, as such,
possesses special rights with respect to certain matters concerning IPLP.
Limited partners of IPLP have the right, under certain circumstances, to
require IPLP to redeem their OP Units for cash, subject, however, to certain
first rights of IPT to acquire such OP Units for IPT Common Shares. See "The
Partnership Agreement of IPLP."
Under the Partnership Agreement, IPT is required to cause Insignia to
be retained to provide (i) property management services with respect to
virtually all properties currently or hereafter controlled (directly or
indirectly) by IPT and (ii) partnership administration services to certain of
the partnerships controlled by IPT. IPT, IPLP and Insignia have also entered
into the Acquisition and Disposition Services Agreement, pursuant to which IPT
has engaged Insignia to provide certain real estate and real estate securities
acquisition and disposition services to IPT and IPLP. See "The Partnership
Agreement of IPLP" and "Acquisition and Disposition Services Agreement."
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THE IPT PARTNERSHIPS
The table below sets forth the following information with respect to
each of the IPT Partnerships: (i) its name; (ii) IPT's aggregate (direct and
indirect) stated ownership interest therein (taking into account both limited
and general partner interests); (iii) the number of properties owned; (iv) the
number of residential apartment units contained in the properties; and (v) the
number of square feet of commercial space contained in the properties.
<TABLE>
<CAPTION>
IPT'S STATED NUMBER
OWNERSHIP OF RESIDENTIAL COMMERCIAL
NAME OF PARTNERSHIP INTEREST PROPERTIES UNITS SQUARE FEET
- ------------------- -------- ---------- ----- -----------
<S> <C> <C> <C> <C>
Consolidated Capital Growth Fund(b)(c) 44.48% 4 1,647 --
Consolidated Capital Institutional Properties(c) 40.50% 15 3,572 302,981
Consolidated Capital Institutional Properties/2(c) 21.16% 11 856 875,541
Consolidated Capital Institutional Properties/3(c) 24.50% 10 1,661 273,357
Consolidated Capital Properties III(a)(b) 24.30% 4 468 72,559
Consolidated Capital Properties IV(a)(b) 27.03% 17 4,258 --
Consolidated Capital Properties V(a)(b) 23.73% 3 454 85,727
Consolidated Capital Properties VI(a)(b) 22.23% 1 261 --
Johnstown/Consolidated Income Partners(b) 20.79% 3 158 143,436
Multi-Benefit Realty Fund 87-1(b) 22.68% 3 778 --
Shelter Properties I Limited Partnership(a) 39.40% 4 806 --
Shelter Properties II Limited Partnership(a) 33.42% 3 853 --
Shelter Properties III Limited Partnership(a) 34.03% 4 831 --
Shelter Properties IV Limited Partnership(a) 32.30% 3 1,620 --
Shelter Properties V Limited Partnership(a) 38.52% 7 1,944 --
Shelter Properties VI Limited Partnership(a) 27.72% 6 1,456 --
Shelter Properties VII Limited Partnership(a) 14.80% 2 566 --
National Property Investors III(b)(c) 45.22% 3 1,092 --
National Property Investors 4(b)(c) 61.91% 1 722 --
National Property Investors 5(b)(c) 46.63% 4 1,033 --
National Property Investors 6(b)(c) 44.40% 6 2,131 --
National Property Investors 7(b)(c) 42.55% 5 1,122 --
National Property Investors 8(b)(c) 38.46% 2 672 --
Century Properties Fund XIV(a)(b) 45.85% 3 850 --
Century Properties Fund XV(a)(b) 44.41% 2 962 --
Century Properties Fund XVI(a)(b) 36.87% 2 472 --
Century Properties Fund XVII(a)(b) 38.34% 5 1,993 --
Century Properties Fund XVIII(a)(b) 35.69% 2 724 --
Century Properties Fund XIX(a)(b) 32.98% 8 2,278 --
Century Properties Growth Fund XXII(a)(b) 26.92% 9 2,895 --
Fox Strategic Housing Income Partners 15.43% 2 344 --
Davidson Growth Plus, L.P. 11.42% 3 688 --
Davidson Diversified Real Estate II, L.P. 4.66% 5 1,342 160,000
Davidson Income Real Estate, L.P. 4.51% 4 580 --
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<CAPTION>
IPT'S STATED NUMBER
OWNERSHIP OF RESIDENTIAL COMMERCIAL
NAME OF PARTNERSHIP INTEREST PROPERTIES UNITS SQUARE FEET
- ------------------- -------- ---------- ----- -----------
<S> <C> <C> <C> <C>
HCW Pension Real Estate Fund 2.45% 2 269 104,312
Angeles Income Properties, Ltd. II 4.32% 5 780 169,168
Angeles Income Properties, Ltd. IV 7.79% 2 -- 345,287
Angeles Income Properties, Ltd. 6 4.86% 7 1,211 278,154
Angeles Opportunity Properties, Ltd. 4.23% 2 352 --
Angeles Partners IX 5.64% 5 1,441 --
Angeles Partners XII 4.41% 10 2,855 173,473
Woodhaven Associates, L.P. 35.36% 1 208 --
</TABLE>
- -----------------
(a) Indicates that (i) the stated interest of the general partner with
respect to distributions of net sales and refinancings proceeds are
subordinated to priority returns of and on limited partner
investments, or (ii) the general partner is required to restore
distributions received on account of their stated interests in the
event the limited partners fail to receive distributions in an
aggregate amount equal to their aggregate original investment. IPT
believes, based on current real estate values, that these limited
partner priorities would not be achieved and thus IPT has valued the
stated general partner interest in such partnership at zero.
(b) Indicates that the general partner has an additional interest in the
partnership (e.g., "incentive fees") which effectively entitles it to
participate in the results of operations in fixed percentages beyond
the stated interest of the general partner. With respect to each
National Property Investors partnership, there is a maximum annual
amount the general partner may receive in respect of such additional
fixed-percentage interest.
(c) Indicates that the interest of the general partner in distributions of
net proceeds from property sales and refinancings is generally greater
than its stated interest in the partnership, assuming the limited
partners have recovered their investments and stated returns thereon.
In addition, certain partnerships allocate a portion of the sales
proceeds to the general partner as a non-subordinated disposition fee.
Based on the terms of the applicable partnership agreements and
estimated current property values, IPT believes that the general
partner would be allocated a greater portion of net sales or
refinancing proceeds than their stated interest would indicate.
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BUSINESS OBJECTIVES
IPT's primary business objective is to acquire interests in
multifamily residential properties located in the United States, including
through (i) direct ownership of such properties; (ii) indirect ownership of
properties through investments in limited partnerships, joint ventures or other
entities owning such properties; and (iii) indebtedness secured by such
properties. IPT seeks to engage in transactions that will enhance the value of
such interests and that IPT's management believes ultimately will provide
superior returns to the shareholders of IPT and the limited partners of IPLP.
Accordingly, IPT will seek to acquire multifamily residential property
interests at prices that it considers favorable in light of its assessment of
the value of the underlying properties in which it will invest. Once such
interests are acquired, IPT will take such action as it deems appropriate to
enhance the potential return on its investment in such interests. In connection
with these objectives, IPT intends to utilize the significant experience of
Insignia in managing and, during the term of the Acquisition and Disposition
Services Agreement, in acquiring the multifamily residential properties or
interests in multifamily residential properties described above.
IPT believes that there continues to be attractive opportunities to
acquire interests in multifamily residential properties. IPT anticipates that
it will seek to acquire additional interests in certain IPT Partnerships to the
extent such interests become available at prices that IPT considers favorable
in light of its assessment of the value of the underlying properties. IPT also
intends to pursue opportunities to acquire multifamily real estate assets or
interests in such real estate assets from other sources, either through the
acquisition of general and limited partner interests in partnerships that hold
such assets, direct or indirect investments in fee interests, or investments in
debt secured by such real estate assets.
IPT will seek to enhance the value of its real estate portfolio in a
variety of ways, which could include: (i) arranging for the underlying
properties in which it holds an interest to be managed by Insignia and/or its
property management affiliates with a view to achieving material increases in
funds from operations and distributable cash flow, and (ii) realizing economies
of scale through mergers or consolidations of partnerships (and other entities)
in which IPT has invested, or combinations of such partnerships (and other
entities) with other issuers.
In addition to its interests in multifamily residential property, IPT,
as a result of the Merger, will acquire AMIT's assets which primarily consist
of loans secured by mortgages and other real estate related interests. IPT
intends to manage the loan portfolio of AMIT substantially in accordance with
the past practices of AMIT and will retain Ronald J. Consiglio and Anna
Merguerian, the current executive officers of AMIT, to work for IPT primarily
on the loan portfolio. Although IPT has no present intentions to originate any
new loans, it may do so in the future depending upon the capital resources of
IPT and the relative anticipated returns on such investments.
Also, although it has no current plans to do so, IPT may seek to
develop real estate and engage in transactions with respect to such development
that are consistent with IPT's investment policies and that IPT believes will
enhance the value of such properties.
ACQUISITION STRATEGIESAcquisition Strategies
IPT's primary strategies with respect to its acquisition of interests
in multifamily residential properties will be to:
o acquire additional general partner interests in other limited
partnerships (and controlling interests in other types of entities)
that own as a material portion of their holdings multifamily
residential properties;
o purchase other direct and indirect interests in multifamily
residential properties, including direct and indirect fee interests;
o invest in debt secured by mortgages and other real estate-related
interests. In this regard IPT intends to manage the current portfolio
of AMIT mortgages after the consummation of the Merger in accordance
with the past practices of AMIT. Although IPT has no current plans to
invest in other debt secured by
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mortgages or real estate-related interests following the Merger, it
may do so depending on the capital resources of IPT and the relative
anticipated returns on such investments; and
o possibly acquire additional limited partner interests in the
Controlled Partnerships, including the IPT Partnerships.
In making decisions whether to acquire interests in particular real
properties, IPT will consider the real estate and capital market conditions
existing from time to time. In addition, IPT expects to consider such factors
as: (i) the recent sales prices (if any) of such interests in relation to IPT's
estimate of the value of the underlying real estate assets; (ii) the geographic
area, type of property and demographic profile of the underlying properties;
(iii) the location, construction quality, condition and design of such
properties; (iv) the current and anticipated cash flow of such properties and
its adequacy to meet operational needs; (v) the potential for capital
appreciation, if any; (vi) the growth, tax and regulatory environments of the
communities in which such properties are located; and (vii) the impact of such
investment on IPT's ability to maintain its REIT status. Finally, with respect
to potential investments in interests of any limited partnership, in deciding
whether to acquire such limited partner interests, IPT expects to consider
whether it has acquired, or can reasonably expect in the future to acquire,
ownership or control of the general partner of such limited partnership.
Additionally, under the terms of the Acquisition and Disposition
Services Agreement, IPT is required to inform Insignia of certain opportunities
to invest in commercial properties and may not invest in such properties
without the prior consent of Insignia. See "Acquisition and Disposition
Services Agreement--Agreement Regarding Certain Real Estate Opportunities."
OPERATING STRATEGIES
Once interests in multifamily residential properties have been
acquired (including those in the Controlled Partnerships previously acquired),
IPT has broad powers to take such actions as the IPT Board deems necessary to
enhance returns on its investments in such interests.
As required by the Partnership Agreement, IPT intends to retain
Insignia to manage all of the real properties controlled by IPT. Historically,
upon the acquisition of limited partner interests in a real estate limited
partnership in which Insignia or MAE controlled the general partner, Insignia
has continued its strategy of working to increase the value of, and cash flow
generated by, such partnership's assets. IPT believes that Insignia's property
management capabilities contribute significantly to the potential benefit of
owning interests in real estate limited partnerships. IPT believes that
Insignia has been able to manage such partnerships at a net cost to the
partnerships that is lower than that charged by predecessor managers, and has
traditionally achieved improvements in property operations compared to the
predecessor managers.
IPT expects that the general partners of each of the Controlled
Partnerships, and of any other real estate limited partnerships in which IPT
may acquire interests, will seek and review opportunities to engage in
transactions which may enhance returns to the partnership's limited partners.
In that regard, IPT expects that the general partners will carefully consider
any suggestions or proposals that IPT may make. IPT believes that possible
future transactions which may be proposed to the general partner of a limited
partnership include (i) payment of distributions, (ii) refinancing, reducing or
increasing existing indebtedness of the limited partnership, (iii) sales of
assets, individually or as part of a complete liquidation of the limited
partnership and (iv) mergers or other consolidation transactions involving the
limited partnership. Any such merger or consolidation transaction could involve
other limited partnerships in which IPT, Insignia or their respective
affiliates serve as general partner, or a combination of the partnership with
one or more existing, publicly traded entities (including, possibly, affiliates
of IPT or Insignia). In any such merger or consolidation, limited partners
might receive cash, IPT Common Shares, OP Units or other securities or
consideration. There can be no assurance, however, as to when or whether any of
the transactions referred to above might occur. A merger or other consolidation
transaction and certain kinds of other extraordinary transactions would require
a vote of the limited partners in the subject limited partnership, and by
holding a substantial number of units of limited partner interests in the
partnership, IPT, as general partner of IPLP, will be able to influence (and in
some instances may be able to control) the outcome of such a vote.
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INVESTMENT POLICIES
IPT expects to invest primarily in multifamily residential real estate
located in the United States. Such investments will be made not only through
the acquisition of general and limited partner interests in limited
partnerships, but also through acquisitions of direct and indirect fee
interests. Although it has no current plans to do so, IPT may also invest in
debt secured by mortgages and other real estate-related interests. IPT has no
present intention to invest in commercial real estate except to the extent the
Controlled Partnerships currently own commercial property and any commercial
properties that may be acquired incidentally to the acquisition of multifamily
residential portfolios. In addition, although it has no current intention to do
so, IPT has the authority to invest in real estate interests outside of the
United States.
Subject to the percentage ownership limitations and gross income and
asset tests which must be satisfied to qualify as a REIT (See "Certain Federal
Income Tax Considerations--Taxation of IPT"), IPT may in the future acquire all
or substantially all of the securities or assets of other REITs, management
companies or similar entities where such investments would be consistent with
IPT's investment policies.
Subject to the REIT qualification requirements, there is no limitation
on the percentage of IPT's total assets that may be invested in any one
investment. The IPT Board may establish such limitations as it deems
appropriate from time to time without a vote of the shareholders. No limits
have been set on the number of limited partnerships in which IPT will seek to
invest, or on the concentration of investment in any one limited partnership or
in any geographic area.
IPT may invest its cash in certain short-term investment grade
instruments. Such investments may be in interest-bearing bank accounts,
certificates of deposit, money-market securities, United States government
securities, mortgage-backed securities guaranteed by the Government National
Mortgage Association, mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration, mortgage loans, mortgage loan
participations and certain other similar investments. IPT's ability to make
certain of these investments may be limited by tax considerations.
IPT may, but does not presently intend to, make investments other than
as previously described. IPT has the authority to offer IPT Common Shares or
other senior securities in exchange for property and to repurchase or otherwise
reacquire IPT Common Shares or any other securities, and may engage in such
activities in the future. In addition, IPT may cause IPLP to offer OP Units in
exchange for property. IPT has not made any loans to other entities or persons,
including trustees and officers of IPT, although it may do so in the future,
including investments in debt instruments as described above. In addition, IPT
may make loans secured by real estate, including without limitation loans to
the Controlled Partnerships. At all times, IPT intends to make investments in
such a manner as to be consistent with the requirements of the Code to qualify
as a REIT unless, in light of changed circumstances, the IPT Board determines
that it is no longer in the best interests of IPT and its shareholders to
qualify as a REIT.
FINANCING POLICIES
In the second and third quarters of 1997, IPT raised approximately $62
million in the Private Offerings. Additionally, IPLP has obtained the IPT Line
of Credit, in the principal amount of $50 million. See "IPT Line of Credit."
In the future, IPT may raise capital through public offerings or
private placements of its equity and debt securities. IPT may determine to
finance acquisitions through the issuance of its own securities or through the
issuance of OP Units to the selling entities, if such transactions otherwise
satisfy IPT's investment criteria. IPT also has the authority to repurchase or
otherwise reacquire IPT Common Shares or any other securities and may determine
to do so in the future.
IPT may incur indebtedness when, in the opinion of the IPT Board, it
is advisable to do so. IPT may, from time to time, negotiate additional lines
of credit or arrange for other short-term borrowings from banks or elsewhere.
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IPT may also arrange for long-term borrowings from banks or other institutional
investors, or through a public offering of debt securities. Such borrowings may
be for general corporate purposes, to improve or expand existing investments,
to make additional investments or to fund any shortfall of cash necessary to
meet its REIT cash distribution requirements that could arise if its taxable
income exceeds its cash available for distribution. IPT's Declaration of Trust
and other corporate governance documents impose no limit on the amount of
indebtedness that IPT may incur.
Although IPT has no present intention to issue senior equity
securities, its Declaration of Trust authorizes the IPT Board to issue up to
100,000,000 Preferred Shares in series having such preferences, voting powers
and other rights as the IPT Board may determine, and IPT may in the future
issue senior securities to fund property acquisitions or in connection with a
merger or other business acquisition or for any other corporate purposes.
CONFLICT OF INTEREST POLICIES
IPT has adopted certain policies designed to minimize potential
conflicts of interest. The IPT Board is subject to certain provisions of
Maryland law described below, which are designed to eliminate or minimize
certain 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 IPT.
IPT's Declaration of Trust authorizes IPT to enter into transactions,
agreements or other arrangements with any person or business entity even though
one or more trustees or officers of IPT may be a party to such agreement or an
officer, director, shareholder, partner, member, trustee or affiliate of such
other party, and no such agreement or transaction is void or voidable solely by
reason of the existence of any such relationship, if either (i) the existence
of such relationship is disclosed or known by (A) the IPT Board and the
agreement or transaction is approved by a majority of the disinterested members
of the IPT Board, or (B) the shareholders of IPT, and the agreement or
transaction is approved by a majority of the shareholders entitled to vote
other than the interested trustee or other party, or (ii) the agreement or
transaction is fair to IPT.
Additionally, pursuant to Maryland law (the jurisdiction under which
IPT is organized), each trustee of IPT is required to discharge his duties in
good faith, with the care an ordinarily prudent person in a like position would
exercise under similar circumstances and in a manner he reasonably believes to
be in the best interest of IPT. Maryland law also provides that a transaction
between IPT and any of its trustees or between IPT and a corporation, firm or
other entity in which a trustee is a director or has a material financial
interest is not void or voidable solely because of the trustee's directorship
or the trustee's interest in the transaction if (i) the transaction is
authorized, approved or ratified, after disclosure of the interest, by the
affirmative vote of a majority of the disinterested members of the IPT Board,
or by the affirmative vote of a majority of the votes cast by shareholders
entitled to vote other than the votes of shares owned of record or beneficially
by the interested trustee or corporation, firm or other entity, or (ii) the
transaction is fair and reasonable to IPT.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
IPT has authority to offer its shares of beneficial interest or other
equity or debt securities in exchange for property and to repurchase or
otherwise reacquire its shares of beneficial interest or any other securities
and may engage in such activities in the future. Similarly, IPT may cause IPLP
to offer OP Units in exchange for cash or other property. IPT also may make
loans to IPLP. As described under "Shares Available for Future Sale" and "The
Partnership Agreement of IPLP--Redemption Rights," IPT may (but is not
obligated to) issue IPT Common Shares to holders of OP Units upon exercise of
their redemption rights, subject to certain restrictions and limitations. IPT
has not made loans to any entities or persons, including its officers and
trustees. IPT has not engaged in underwriting or agency distribution of the
securities of other issuers and does not intend to do so. IPT makes and intends
to continue to make investments in such a way that it will not be treated as an
investment company under the Investment Company Act.
65
<PAGE>
IPT intends to make investments in a manner consistent with the
requirements of the Code for IPT to qualify as a REIT unless, because of
changing circumstances or changes in the Code (or in treasury regulations
promulgated thereunder), the IPT Board determines that it is no longer in the
best interests of IPT to qualify as a REIT.
IPT's policies with respect to such activities may be reviewed and
modified from time to time by the IPT Board without the vote of the
shareholders of IPT.
66
<PAGE>
PROPERTIES
The following is a summary of certain information with respect to the
properties owned by the IPT Partnerships.
PROPERTIES
The following table sets forth the number of properties, the primary
use and units, the average annual rental rate and average occupancy for each
IPT Partnership as of December 31, 1997.
<TABLE>
<CAPTION>
Average
Number of Rental Annual Average
Name of Partnership Properties Primary Use/Units Rates/Per Unit 1997 Occupancy
------------------- ---------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C>
Consolidated Capital Growth Fund 4 Apartment/1,647 units $7,124/unit 92.3%
Consolidated Capital Institutional 15(b) 12.5 Apartment/3,556 units $7,466/unit 91.7%
Properties(a) 2.5 Commercial/320,764 sq. ft. $13.87/sq. ft. 80.3%
Consolidated Capital Institutional 11 4 Apartment/856 units $7,736/unit 93.2%
Properties/2(c) 7 Commercial/882,985 sq. ft. $14.58 sq. ft. 92.8%
Consolidated Capital Institutional 10 8 Apartment/1,661 units $7,851/unit 94.9%
Properties/3 2 Commercial/277,000 sq. ft. $6.26 sq. ft. 92.9%
Consolidated Capital Properties III 4 3 Apartment/468 units $10.81/sq. ft. 94.0%
1 Commercial/79,000 sq. ft. $6,160/unit 93.6%
Consolidated Capital Properties IV 17(d) Apartment/4,259 units $6,816/unit 94.0%
Consolidated Capital Properties V 3 2 Apartment/454 units $7,211/unit 94.6%
1 Commercial/85,727 sq. ft. $14.74/sq. ft. 95.0%
Consolidated Capital Properties VI 1 Apartment/261 units $6,517/unit 88.0%
Shelter Properties I Limited Partnership 4 Apartment/806 units $6,357/unit 94.3%
Shelter Properties II Limited Partnership 3 Apartment/853 units $6,650/unit 94.6%
Shelter Properties III Limited Partnership 4 Apartment/830 units $6,754/unit 92.6%
Shelter Properties IV Limited Partnership 3 Apartment/1,620 units $7,014/unit 94.6%
Shelter Properties V Limited Partnership 7 Apartment/1,944 units $7,083/unit 93.1%
Shelter Properties VI Limited Partnership 6 Apartment/1,457 units $7,093/unit 93.9%
Shelter Properties VII Limited Partnership 2 Apartment/566 units $6,922/unit 91.7%
National Property Investors III 3 Apartment/1,092 units(e) $7,852/unit 96.2%
National Property Investors 4 1 Apartment/722 units $9,136/unit 95.2%
National Property Investors 5 3.24(f) Apartment/1,033 units $5,485/unit 91.7%
National Property Investors 6 6.76(g) Apartment/2,129 units $6,316/unit 90.8%
National Property Investors 7 5 Apartment/1,122 units $6,746/unit 93.1%
National Property Investors 8 2 Apartment/672 units $7,123/unit 91.9%
Century Properties Fund XIV 3 3 Apartment/850 units $6,970/unit 93.3%
Century Properties Fund XV 2 2 Apartment/962 units $7,898/unit 94.5%
Century Properties Fund XVI 2 Apartment/472 units $6,232/unit 95.2%
Century Properties Fund XVII 5 Apartment/1,993 units $6,548/unit 95.2%
Century Properties Fund XVIII 2 Apartment/724 units $6,349/unit 94.7%
Century Properties Fund XIX 8 Apartment/2,278 units $7,297/unit 91.9%
Century Properties Growth Fund XXII 9 Apartment/2,895 units $7,438/unit 93.2%
Johnstown/Consolidated Income Partners 3(h) 1 Apartment/158 units $5,858/unit 97.0%
2 Commercial/144,094 sq. ft. $9.38/sq. ft. 81.0%
Davidson Growth Plus, L.P. 3 Apartment/688 units(i) $7,794/unit 93.1%
Multi-Benefit Realty Fund `87-1 3 Apartment/778 units $6,571/unit 92.7%
Fox Strategic Housing Income Partners 2 Apartment/344 units $9,154/unit 93.0%
Davidson Diversified Real Estate II, L.P. 5 4 Apartments/1,341 units $6,025/unit 90.2%
1 Commercial/129,000 sq. ft. $8.93/sq. ft. 71.0%
Angeles Income Properties, Ltd. II 4(j) 3 Apartments/780 units $8,162/unit 96.6%
1 Commercial/169,168 sq. ft. $4.46/sq. ft. 91.0%
Angeles Income Properties Ltd. IV 2 2 Commercial/347,000 sq. ft. $9.48/sq. ft. 90.5%
Angeles Income Properties Ltd. 6 7 5 Residential/1,209 units $4,872/unit 91.9%
2 Commercial/251,000 sq. ft. $6.19/sq. ft. 84.4%
Angeles Opportunity Properties, Ltd. 2 2 Apartments/352 units $6,563/unit 97.7%
Angeles Partners IX 5 5 Apartments/1,441 units $5,482/unit 91.7%
67
<PAGE>
<CAPTION>
Average
Number of Rental Annual Average
Name of Partnership Properties Primary Use/Units Rates/Per Unit 1997 Occupancy
------------------- ---------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C>
Angeles Partners XII 10(k) 9 Apartments/2,855 units $7,383 unit 89.2%
1 Commercial/103,473 sq. ft. $11.40/sq. ft. 53.0%
Davidson Income Real Estate, Ltd. 4 4 Apartments/900 units(i) $8,500/unit 92.4%
HCW Pension Real Estate Fund L.P. 2 1 Apartment/269 units $7,751/unit 84.0%
1 Commercial/102,000 sq. ft. $13.80/sq. ft. 74.0%
Woodhaven Associates, L.P. 1 Apartment/208 units $6,082/unit 94.4%
</TABLE>
-------------------------
(a) Includes properties owned by Consolidated Capital Equity Properties, L.P.
("CCEP") in which Consolidated capital Institutional Properties has a
beneficial ownership interest as a result of its ownership of a significant
amount of CCEP's debt securities.
(b) One property includes both commercial and residential space.
(c) Includes properties owned by Consolidated Capital Equity Properties/Two,
L.P. ("CCEP2") in which Consolidated Capital Institutional Properties/2 has
a beneficial ownership interest as a result of its ownership of a
significant amount of CCEP2's debt securities.
(d) The partnership originally acquired 48 properties. Of which 11 were sold,
ten were conveyed to lenders in lieu of foreclosure, and nine were
foreclosed upon by the lenders in the fiscal years prior to 1996. In
February of 1996, the partnership lost an additional property through
foreclosure. As of December 31, 1997, the partnership owned 17 apartment
complexes and held one note receivable on a sold property.
(e) In January 1997, the partnership acquired co-tenant's 10% interest in 304
of the 1,092 units for $50,000.
(f) The partnership is a tenant in common with National Property Investors 6 on
a property consisting of 576 units; 138 units represents the partnership's
pro rata share.
(g) The partnership is a tenant in common with National Property Investors 5 on
a property consisting of 576 units; 438 units represent the partnership's
pro-rata share; the partnership owns 75.972% subject to a first mortgage.
(h) The partnership originally acquired four properties and funded five loans.
At December 31, 1997, the partnership owned three properties.
(i) One apartment property (320 units) is held through a joint venture 82.5%
owned by Davidson Growth Plus, L.P. and 17.5% owned by Davidson Income Real
Estate, Ltd.
(j) Does not include a 14.4% interest in a golf course held by the partnership.
(k) Does not include a 44.5% interest in a golf course held by the partnership.
68
<PAGE>
TAXES/DEPRECIATION
The following table sets forth the aggregate gross carrying value, the
aggregate accumulated depreciation, the range and method of depreciation, and
the aggregate federal tax basis of the properties owned by the IPT Partnerships
as of December 31, 1997 (all in thousands) and the aggregate 1997 taxes and tax
rate paid by the IPT Partnerships.
<TABLE>
<CAPTION>
Aggregate Aggregate
Gross Aggregate Federal Aggregate 1997
Carrying Accumulated Range of Tax 1997 Tax
Partnership Value Depreciation Depreciation Method Basis Taxes Rate
-------------------------------- ------------- ------------- ------------ -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Capital Growth Fund $ 42,258 $ 22,630 5-19 yrs. S/L $ 23,838 $ 587 1.20%
5-22 yrs.
Consolidated Capital 143,150 80,760 3-18 yrs. S/L 67,337 1,663 2.67%
Institutional Properties 5-25 yrs.
Consolidated Capital 99,369 59,501 1-20 yrs. S/L 51,694 1,196 2.37%
Institutional Properties/2 3-20 yrs.
Consolidated Capital 63,326 15,474 3-20 yrs. S/L 56,544 860 1.37%
Institutional Properties/3 5-25 yrs.
Consolidated Capital Properties III 14,209 9,624 3-15 yrs. S/L 8,259 215 1.72%
5-19 yrs.
Consolidated Capital Properties IV 130,653 98,490 5-15 yrs. S/L 36,698 1,900 1.81%
5-40 yrs.
Consolidated Capital Properties V 20,993 14,057 5-19 yrs. S/L 9,074 460 5.08%
Consolidated Capital Properties IV 9,866 3,641 5-30 yrs. S/L 5,558 113 4.42%
Shelter Properties I Limited 19,927 13,590 5-30 yrs. S/L 7,574 238 2.27%
Partnership 5-37 yrs.
Shelter Properties II Limited 24,806 15,996 5-35 yrs. S/L 5,263 400 2.49%
Partnership 5-38 yrs.
Shelter Properties III Limited 25,880 14,229 5-36 yrs. S/L 3,842 346 8.56%
Partnership 5-32 yrs.
Shelter Properties IV Limited 59,996 32,269 5-30 yrs. S/L 7,981 777 1.86%
Partnership 5-36 yrs.
Shelter Properties V Limited 75,253 40,464 5-27 yrs. S/L 13,006 806 2.02%
Partnership 5-34 yrs.
Shelter Properties VI Limited 52,209 24,751 5-27 yrs. S/L 16,536 912 2.37%
Partnership 5-35 yrs.
Shelter Properties VII Limited 21,447 9,906 5-29 yrs. S/L 9,974 181 4.24%
Partnership 5-39 yrs.
National Property Investors III 35,484 23,509 5-27.5 yrs. S/L 11,916 684 4.02%
National Property Investors 4 26,047 17,946 5-27.5 yrs. S/L 3,809 467 4.32%
National Property Investors 5 29,093 20,711 5-27.5 yrs. S/L 4,161 233 2.13%
National Property Investors 6 64,370 41,579 5-27.5 yrs. S/L 15,384 454 3.35%
National Property Investors 7 45,426 24,079 5-27.5 yrs. S/L 12,938 380 1.64%
National Property Investors 8 30,036 15,084 5-27 yrs. S/L 12,921 451 4.07%
5-29 yrs.
Century Properties Fund XIV 26,659 14,074 5-30 yrs. S/L 7,524 306 2.06%
Century Properties Fund XV 39,884 18,559 5-30 yrs. S/L 19,480 735 2.70%
Century Properties XVI 14,947 7,303 5-30 yrs. S/L 2,452 246 2.76%
Century Properties XVII 66,141 30,323 5-30 yrs. S/L 14,022 761 3.45%
Century Properties XVIII 26,859 9,777 5-30 yrs. S/L 8,581 473 2.09%
Century Properties XIX 95,841 40,016 5-30 yrs. S/L 26,644 1,136 1.95%
Century Properties Growth Fund XXII 130,980 52,090 5-30 yrs. S/L 48,019 1,647 2.20%
Johnstown/Consolidated Income 13,092 6,193 5-19 yrs. S/L 7,629 162 2.17%
Partners 5-28 yrs.
Davidson Growth Plus, L.P. 23,756 9,160 5-25 yrs. S/L 21,165 448 2.69%
Multi-Benefit Realty Fund `87-1 23,943 10,913 5-30 yrs. S/L 16,121 343 3.51%
Fox Strategic Housing Income 21,364 6,416 5-30 yrs. S/L 14,633 271 4.29%
Davidson Diversified Real Estate 44,544 21,263 5-25 yrs. S/L 17,260 741 3.36%
II, L.P.
Angeles Income Partners, Ltd. II 35,800 24,462 5-20 yrs. S/L 8,026 560 2.40%
Angeles Income Properties, Ltd. IV 23,368 12,569 5-20 yrs. S/L 14,515 190 1.39%
Angeles Income Properties, Ltd. 6 36,223 8,650 5-40 yrs. S/L 35,166 821 3.69%
Angeles Opportunity Partners, Ltd. 8,294 1,914 5-40 yrs. S/L 7,134 224 2.84%
Angeles Partners IX 36,860 22,719 5-19 yrs. S/L 16,797 409 3.56%
5-25 yrs.
Angeles Partners XII 100,619 60,629 5-40 yrs. S/L 38,099 2,156 3.10%
69
<PAGE>
<CAPTION>
Aggregate Aggregate
Gross Aggregate Federal Aggregate 1997
Carrying Accumulated Range of Tax 1997 Tax
Partnership Value Depreciation Depreciation Method Basis Taxes Rate
-------------------------------- ------------- ------------- ------------ -------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Davidson Income Real Estate, L.P. 24,287 10,149 5-25 yrs. S/L 17,796 424 2.63%
HCW Pension Real Estate Fund 15,391 4,892 5-25 yrs. S/L 11,832 397 9.61%
5-40 yrs.
Woodhaven Associates, L.P. 5,288 3,162 5-30 yrs. S/L 552 81 1.36%
70
<PAGE>
MORTGAGES
The following table sets forth the aggregate principal balance
outstanding on the mortgages of each IPT Partnership, the range of interest on
and maturities of such mortgages and the aggregate balance due at maturity as
of December 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Principal Aggregate Balance
Partnership Outstanding Range of Interest Maturities Due at Maturity
----------- ----------- ----------------- ---------- ---------------
<S> <C> <C> <C> <C>
Consolidated Capital Growth Fund $ 30,690 6.95-7.33% 11/03; 12/05 $ 30,690
Consolidated Capital Institutional 27,581 6.95% 12/05 24,200
Properties
Consolidated Capital Institutional 32,905 7.33-9.88% 06/00; 11/03 31,528
Properties/2
Consolidated Capital Institutional 30,525 6.95-7.33% 11/93; 12/05 30,525
Properties/3
Consolidated Capital Properties III 4,200 7.33% 11/03 4,200
Consolidated Capital Properties IV 71,191 6.95-10.50% 12/98; 12/05 69,071
Consolidated Capital Properties V 11,145 7.33-9.125% 10/03; 06/04 10,018
Consolidated Capital Properties VI 4,407 9.50% 05/01 4,512
Shelter Properties I Limited Partnership 11,470 7.33-7.60% 11/02; 11/03 10,888
Shelter Properties II Limited Partnership 8,549 7.60% 11/02 7,370
Shelter Properties III Limited Partnership 8,276 7.60-7.83% 11/02; 10/03 7,228
Shelter Properties IV Limited Partnership 24,067 7.60% 11/02 20,669
Shelter Properties V Limited Partnership 31,513 7.33-10.375% 02/99; 12/16 23,787
Shelter Properties VI Limited Partnership 26,790 7.60% 11/02 23,008
Shelter Properties VII Limited Partnership 11,116 7.50-7.83% 03/01; 10/03 10,287
National Property Investors III 24,414 7.13-9.87% 07/01; 01/08(a) 23,602
National Property Investors 4 19,300 7.33% 11/01/03 19,300
National Property Investors 5 11,704 8.50%-9.00% 02/01; 07/03 10,658
National Property Investors 6 26,135 7.33% 11/03 26,135
National Property Investors 7 20,284 7.33%-8.56% 02/01; 11/03 20,157
National Property Investors 8 10,924 7.33%-9.85% 02/02; 11/03 10,611
Century Properties Fund XIV 16,067 9.88% 07/01 15,551
Century Properties Fund XV 19,023 7.33-9.6% 07/01; 11/03 18,529
Century Properties Fund XVI 7,422 7.88% 01/06 6,618
Century Properties Fund XVII 37,334 7.875-8.630%(b) 07/99; 07/05 39,574
Century Properties Fund XVIII 18,550 7.36%-8.25% 01/99; 10/04 17,605
Century Properties Fund XIX 60,900 7.33-8.33% 01/03; 01/06 56,462
Century Properties Growth Fund XXII 72,603 7.33-7.93%(c) 12/99; 02/06 66,036
Johnstown/Consolidated Income Partners 2,325 7.33% 11/03 2,325
Davidson Growth Plus, L.P. 12,270 7.60-7.83% 11/02; 10/03 10,750
Multi-Benefit Realty Fund 87-1 12,285 7.33-8.30% 10/00; 11/03 12,075
Fox Strategic Housing Income Partners 7,836 10.9% 08/98 8713
Davidson Diversified Real Estate II, L.P. 26,807 (d) 1/00-12/09 22,185
Angeles Income Properties, Ltd. II 18,197 733-7.83% 11/03 16,812
Angeles Income Properties, Ltd. IV 15.221 9.75% 10/06 12,955
Angeles Income Properties, Ltd. 6 23,374 7.33-10.07% 9/99; 7/19 17,826
Angeles Opportunity Properties, Ltd. 5,432 7.33-7.83% 10/03; 11/03 5,293
Angeles Partners IX 19,768 7.33-10.13% 8/02; 11/03 18,258
Angeles Partners XII 72,105 7.83-10.5% 01/02; 05/05 63,822
Davidson Diversified Real Estate, L.P. 12,011 7.33-7.83 11/02; 10/03 11,278
HCW Pension Real Estate Fund -- -- -- --
Woodhaven Associates, L.P. 3,787 10.5% 4/1/24 --
</TABLE>
71
<PAGE>
- ---------------------
(a) One property (304 units) has a mortgage that matured on September 1, 1996,
and an extension was obtained through December 31, 1997. The partnership
continues to pay debt service to the lender while alternate financing is
arranged.
(b) One property has zero coupon note; discounted at an effective interest rate
of 10.247%.
(c) One property with a principal balance of $2,840,000 bears interest at LIBOR
plus 3.75%; the other properties range in interest from 7.33% to 7.93%.
(d) Adjusted rate based on 75% of interest rate on new-issue long-term A-rate
utility bonds as determined on first day of each calendar year. The rate at
December 31, 1997 was 5.385%. Rates on the other properties ranged from
7.50% to 10.125%.
72
<PAGE>
LEGAL PROCEEDINGS
In connection with the tender offers commenced on August 28, 1997 (the
"Initial Tender Offers"), IPT, IPLP, Insignia and IPLP Acquisition were named
as defendants in several lawsuits regarding the terms of and circumstances
surrounding these tender offers. IPT and its affiliates believe that the
allegations contained in each of the complaints are without merit and intend to
vigorously contest each action.
1. On September 8, 1997, persons claiming to own units of limited
partner interest in the partnerships (the "Initial Tender Offer Partnerships")
with respect to which IPLP Acquisition commenced the Initial Tender Offers
filed a Complaint (the "San Mateo Complaint") with respect to a purported class
action and derivative suit in the Superior Court for the State of California
for the County of San Mateo seeking, among other things, an order requiring
corrections to the disclosures in the tender offer documents and enjoining the
Initial Tender Offers, an order requiring the defendants to disclose their
fiduciary duties to the limited partners of the Initial Tender Offer
Partnerships by seeking other transactions that would maximize value for the
limited partners of the Initial Tender Offer Partnerships and compensatory
damages.
The San Mateo Complaint applies to each of the Initial Tender Offers.
The San Mateo Complaint names as defendants IPLP Acquisition, Insignia, IPLP,
IPT, the corporate general partner of each Initial Tender Offer Partnership,
which in each case is wholly-owned by IPT, and one individual who is an officer
and director of Insignia. The San Mateo Complaint contains allegations that,
among other things, the defendants have intentionally mismanaged the Initial
Tender Offer Partnerships and acted contrary to the limited partners' best
interests, through use of non-public material information gained as a result of
the relationship between IPLP Acquisition and the Initial Tender Offer
Partnerships and thus continue the revenue derived by Insignia from the Initial
Tender Offer Partnerships, while at the same time reducing the demand for the
Initial Tender Offer Partnerships' units in the limited resale market for the
units by artificially depressing the trading prices for the units in order to
create a favorable environment for the Initial Tender Offers. In the San Mateo
Complaint, the plaintiffs also allege that, as a result of the Initial Tender
Offers, IPLP Acquisition will acquire effective voting control over the Initial
Tender Offer Partnerships at highly inadequate prices, and that the offers to
purchase and related tender offer documents contain numerous false and
misleading statements and omissions of material facts. The alleged
misstatements and omissions concern, among things, the advantages to limited
partners of tendering units pursuant to the Initial Tender Offers; the
description of the estimated liquidation value in the offers to purchase and
the estimated expenses that were taken into account in computing that value;
the true financial condition of the Initial Tender Offer Partnerships and the
ability to sell or refinance any of the Initial Tender Offer Partnerships'
properties; the factors affecting the likelihood that properties owned by the
Initial Tender Offer Partnerships will be sold or liquidated in the near
future; the liquidity and value of the units; the limited secondary market for
units; and the true nature of the market for the underlying assets.
On September 24, 1997, the plaintiffs in this action made an ex parte
application to the court seeking a temporary restraining order prohibiting IPLP
Acquisition from purchasing units tendered pursuant to the Initial Tender
Offers. The court denied the application on the same afternoon. In January
1998, the plaintiffs agreed to discontinue this action, and on March 3, 1998
formal discontinuance documents were filed with the court.
2. On September 8, 1997, persons claiming to own units in the Initial
Tender Offer Partnerships filed a Complaint (the "Delaware Complaint") with
respect to a purported class action and derivative suit in the Court of
Chancery in the State of Delaware in and for New Castle County seeking, among
other things, compensatory damages, a declaration that the defendants have
breached their fiduciary duties to the limited partners of the Initial Tender
Offer Partnerships, an order directing the defendants to carry out their
fiduciary duties and an order enjoining the Initial Tender Offers.
The Delaware Complaint applies to each of the Initial Tender Offers.
The Delaware Complaint names as defendants IPLP Acquisition, Insignia and IPLP.
The Delaware Complaint contains allegations that, among other things, the
defendants have intentionally mismanaged the Initial Tender Offer Partnerships
and acted contrary to the limited partners' best interests, by manipulating the
limited partners into selling their units pursuant to the Initial Tender Offers
for substantially lower prices than the units are worth. In the Delaware
Complaint, the plaintiffs also
73
<PAGE>
allege that, as a result of the Initial Tender Offers and in light of the
acknowledged conflict of interest between IPLP Acquisition and the corporate
general partners of the Initial Tender Offer Partnerships, Insignia breached
its duty to provide an independent analysis of the fair market value of the
units in the offers to purchase and the related tender offer materials
(including the Schedule 14D-9 filed with the Commission on August 28, 1997 by
the corporate general partner of each Initial Tender Offer Partnership). The
Delaware Complaint contains further allegations that, among other things, the
defendants failed to appoint a disinterested committee to review the Initial
Tender Offers, and therefore, did not adequately consider other alternatives
available to the limited partners (such as a liquidation or auction of the
Initial Tender Offer Partnerships or their assets), resulting in an offer that
may not be in the best interests of the Initial Tender Offer Partnerships and
the limited partners thereof.
In January 1998, the plaintiffs agreed to discontinue this action, and
on February 27, 1998 this action was dismissed.
3. On September 10, 1997, persons claiming to own units of limited
partner interest in the Initial Tender Offer Partnerships filed a complaint
with respect to a purported class action and derivative suit in the Superior
Court for the State of California for the County of Alameda (the "Heller
Complaint") seeking, among other things, an order enjoining the Initial Tender
Offers, an order requiring the defendants to discharge their fiduciary duties
to the limited partners of the Initial Tender Offer Partnerships by, among
other things, engaging independent persons to act in the best interest of the
limited partners and by seeking other transactions that would maximize value
for the limited partners, an order requiring the defendants to explore other
alternatives to the Initial Tender Offers and compensatory damages.
The Heller Complaint applies to each of the Initial Tender Offers. The
Heller Complaint names as defendants IPLP Acquisition, Insignia, IPLP, IPT and
the corporate general partner of each Initial Tender Offer Partnership. The
Heller Complaint contains allegations that, among other things, the defendants
have intentionally mismanaged the Initial Tender Offer Partnerships and acted
contrary to the limited partners' best interests, through use of non-public
material information gained as a result of the relationship between IPLP
Acquisition and the corporate general partners of the Initial Tender Offer
Partnerships, and failed to adequately consider other alternatives available to
the Initial Tender Offer Partnerships, such as a sale or liquidation of the
Initial Tender Offer Partnerships' properties, or to hire an independent person
to advise the corporate general partners as to such alternatives. In the Heller
Complaint, the plaintiffs also allege that, as a result of the Initial Tender
Offers, IPLP Acquisition will acquire effective voting control over the Initial
Tender Offer Partnerships at highly inadequate prices, and that the offers to
purchase and related tender offer documents contain numerous false and
misleading statements and omissions of material facts. The alleged
misstatements and omissions concern, among other things, the advantages to
limited partners of tendering units pursuant to the offers; the true financial
condition of the Initial Tender Offer Partnerships and their ability sell or
refinance any of the Initial Tender Offer Partnerships' properties; the factors
affecting the likelihood that properties owned by the Initial Tender Offer
Partnerships will be sold or liquidated in the near future; the liquidity and
value of the units of limited partner interest in the Initial Tender Offer
Partnerships; the limited secondary market for units of limited partner
interest in the Initial Tender Offer Partnerships; the true nature of the
market for the underlying assets; and the true intentions of IPT and its
affiliates with respect to the units of limited partner interest in the Initial
Tender Offer Partnerships.
In January, 1998 the plaintiffs agreed to discontinue this action, and
on February 11, 1998 this action was formally dismissed with prejudice.
4. On March 24, 1998, an action entitled Rosalie Nuanes, et al. v.
Insignia Financial Group, Inc., et al. was filed in the Superior Court of the
State of California for the County of San Mateo, in which the plaintiffs named
as defendants, among others, IPT, IPLP and Insignia. The complaint purports to
assert claims on behalf of the limited partners of 55 of the Controlled
Partnerships and derivatively on behalf of the Controlled Partnerships named in
the complaint, which are also named as nominal defendants. The complaint
challenges (i) the acquisition of interests in the general partners of the
named Controlled Partnerships by Insignia and its affiliates, (ii) various past
tender offers commenced by affiliates of Insignia and IPT to acquire units of
limited partner interest in the Controlled Partnerships named in the complaint,
(iii) the management of the named Controlled Partnerships by Insignia and its
affiliates and (iv) the proposed Insignia/AIMCO Merger.
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The complaint seeks monetary damages and equitable relief, including
the dissolution of the Controlled Partnerships named in the complaint. IPT and
Insignia believe that the allegations contained in the complaint are without
merit and intend to vigorously contest this action.
IPT FORMATION TRANSACTIONS
AND CERTAIN RECENT DEVELOPMENTS
PREDECESSORS OF IPT AND IPLP
In January 1996, Insignia organized Insignia Properties Corporation
("IPC"), a Delaware corporation, and Insignia NPI, L.L.C., a Delaware limited
liability company ("Insignia-NPI"), for the purpose of entering into the NPI
Transaction (as defined below). IPC was a wholly-owned subsidiary of Insignia,
and Insignia-NPI was owned 99% by IPC and 1% by another wholly-owned subsidiary
of Insignia. IPT is the successor by merger to IPC, and IPLP is the successor
by merger to Insignia-NPI.
THE NPI TRANSACTION
In January 1996, IPC and Insignia-NPI (and certain other affiliates of
Insignia) entered into a series of related transactions (collectively, the "NPI
Transaction") with National Properties Investors, Inc.
("NPI") and certain of its affiliates, pursuant to which:
(1) IFGP Corporation, a wholly-owned subsidiary of Insignia ("IFGP"),
acquired (i) all of the outstanding stock of NPI, which in turn owned
controlling equity interests in various entities that controlled the sole or
managing general partners of the following IPT Partnerships: National Property
Investors II, National Property Investors III, National Property Investors 4,
National Property Investors 5, National Property Investors 6, National Property
Investors 7, National Property Investors 8, Century Properties Fund XIV,
Century Properties Fund XV, Century Properties Fund XVI, Century Properties
Fund XVII, Century Properties Fund XVIII, Century Properties Fund XIX, Century
Properties Fund XX, Century Properties Growth Fund XXII, Century Pension Income
Fund XXIII, Century Pension Income Fund XXIV and Fox Strategic Housing Income
Partners (collectively, the "NPI Partnerships"); and (ii) general partner
interests in 83 private real estate limited partnerships and ten other public
real estate partnerships which are in the process of dissolving.
(2) Insignia-NPI acquired limited partner interests in certain of the
NPI Partnerships.
(3) Other affiliates of Insignia acquired all of the outstanding
equity interests in NPI-AP Management, L.P., a property management company
which provides property management services to most of the NPI Partnerships as
well as other public and private real estate partnerships.
(4) Insignia, IPC and Insignia-NPI entered into an agreement (the "NPI
Indemnification Agreement") with the sellers of certain of the entities
acquired by Insignia and its affiliates in the NPI Transaction, pursuant to
which (i) such sellers agreed to indemnify Insignia, IPC, Insignia-NPI and
their affiliates for certain losses they suffer which occurred during or are
attributable to the period prior to the NPI Transaction, and (ii) Insignia, IPC
and Insignia-NPI agreed to reimburse those sellers for certain losses they
suffer which occurred or are attributable to the period after the NPI
Transaction.
(5) Insignia and Insignia-NPI entered into an agreement (the "Fox
Indemnification Agreement") with the limited partners (the "Fox Principals") of
an entity which is the non-managing general partner of an entity that controls
the managing general partners of certain of the NPI Partnerships. Pursuant to
the Fox Indemnification Agreement, Insignia and Insignia-NPI agreed to
indemnify the Fox Principals for 25% of some (but not all) amounts that the Fox
Principals may be required to contribute (directly or indirectly) to the
capital of such NPI Partnerships in the future as a result of capital account
deficit restoration obligations of the general partners of such NPI
Partnerships which arose or relate to a time prior to the NPI Transaction.
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(6) Insignia-NPI entered into an agreement (the "Fox Reimbursement
Agreement") with the Fox Principals pursuant to which Insignia-NPI agreed to
reimburse the Fox Principals for any amounts received by Insignia-NPI in
respect of the limited partner interests in certain of the NPI Partnerships,
which amounts result from future capital contributions made by or on behalf of
the Fox Principals to those NPI Partnerships.
(7) Insignia assumed certain commitments (the "NPI Loan Commitments")
established prior to the NPI Transaction, pursuant to which Insignia agreed to
lend, under certain conditions, up to $500,000 to certain of the NPI
Partnerships (not to exceed $2,600,000 in the aggregate) and $150,000 to
certain other NPI Partnerships (not to exceed $6,000,000 in the aggregate) at
interest rates not to exceed the prime rate plus 2%.
(8) In June 1996, IPC acquired all of the outstanding capital stock of
Fox Capital Management Corporation, which is a co-general partner of the
entities that control the general partner of the NPI Partnerships.
To finance its portion of the NPI Transaction, Insignia-NPI borrowed
$72,837,798 from Insignia (the "NPI Loan"). Insignia subsequently assigned all
of its rights under the NPI Loan to its wholly-owned financing subsidiary,
Insignia Capital Corporation ("ICC").
FORMATION OF IPT AND IPLP
Insignia organized IPT and IPLP in May 1996, and in December 1996 the
following formation transactions were effected:
(1) IPC was merged with IPT, with IPT being the surviving entity. As a
result of that merger, IPT succeeded by operation of law to all of the assets
and liabilities of IPC (including IPC's rights and obligations under the NPI
Indemnification Agreement).
(2) Insignia-NPI was merged with IPLP, with IPLP being the surviving
entity. As a result of that merger, IPLP succeeded by operation of law to all
of the assets and liabilities of Insignia-NPI (including the limited partner
interests in the NPI Partnerships acquired in the NPI Transaction, the NPI Loan
and Insignia-NPI's rights and obligations under the NPI Indemnification
Agreement, the Fox Indemnification Agreement and the Fox Reimbursement
Agreement).
(3) IPT assumed IPLP's obligations under the NPI Loan, in exchange for
which IPLP issued 7,283,780 OP Units to IPT. IPT in turn issued 7,283,780 IPT
Common Shares to ICC in full satisfaction of the NPI Loan.
(4) IPT assumed Insignia's obligations under the NPI Indemnification
Agreement and under the NPI Loan Commitments. As of the date of this Proxy
Statement/Prospectus, (i) there are no amounts outstanding related to the NPI
Loan Commitments, and (ii) no indemnification claims have been made under the
Indemnification Agreement (and IPT does not believe that any circumstances are
likely to arise which would result in such a claim).
(5) IPT issued 3,271,547 IPT Common Shares to Insignia in respect of
Insignia's 100% ownership interest in IPT at the time.
(6) Insignia caused NPI to assign to IPT all of NPI's equity interests
in the entities that controlled the sole or managing general partners of the
NPI Partnerships, valued (in the aggregate) at $1,002,870, in exchange for
which IPT issued 100,287 IPT Common Shares to NPI.
(7) Insignia caused IFGP to assign to IPT all of IFGP's equity
interests in the entities that comprised the general partners of the Shelter
Properties Partnerships (see "Glossary"), valued (in the aggregate) at
$455,100, in exchange for which IPT issued 45,510 IPT Common Shares to IFGP.
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(8) MAE assigned to IPT all of the equity interests in the entities
that comprised the general partners of the Consolidated Capital Partnerships
(see "Glossary") and Davidson Growth Plus, L.P., valued (in the aggregate) at
$4,668,070, in exchange for which IPT issued 466,807 IPT Common Shares to MAE.
(9) Insignia and certain of its affiliates contributed to IPLP limited
partner interests in certain of the Controlled Partnerships and equity
interests in entities that owned limited partner interests in certain of the
Controlled Partnerships, valued (in the aggregate) at $83,994,990, in exchange
for which IPLP issued 8,399,499 OP Units to Insignia.
(10) Insignia purchased 6,405 IPT Common Shares for $64,050 in cash.
At the direction of Insignia, those IPT Common Shares were issued to and in the
name of certain employees and affiliates of Insignia as bonus compensation.
These shares were purchased and issued, in part, in order to satisfy the 100
shareholders requirement of the federal REIT tax rules.
(11) Six executive officers and directors purchased an aggregate of
4,700 IPT Common Shares for $47,000 in cash. At the direction of those
executive officers and directors, certain of those shares were issued to and in
the name of members of their respective immediate families. These shares were
purchased and issued, in part, in order to satisfy the 100 shareholders
requirement of the federal REIT tax rules.
(12) IPLP entered into an option agreement (the "Shelter IV Option
Agreement") with certain affiliates of Insignia pursuant to which those
affiliates of Insignia granted IPLP an option (the "Shelter IV Option") to
acquire on or before December 31, 1997, 11,259 units of limited partner
interest in Shelter Properties IV Limited Partnership in exchange for the
issuance of 714,815 OP Units to Insignia.
(13) IPT, IPLP and Insignia entered into an advisory agreement (the
"Advisory Agreement") pursuant to which Insignia agreed to provide a broad
range of services to IPT, including executive advisory, investment advisory,
acquisition, administrative, financial and accounting services, for, among
other things, the payment of an annual advisory fee.
CERTAIN RECENT DEVELOPMENTS
Insignia/AIMCO Transaction
On March 17, 1998, Insignia and AIMCO entered into the Insignia/AIMCO
Merger Agreement. Pursuant to the terms of the Insignia/AIMCO Merger Agreement
(i) Insignia will be merged with and into AIMCO, (ii) AIMCO will succeed to all
of Insignia's business regarding the ownership and management of multifamily
residential properties, including Insignia's ownership of IPT Common Shares and
OP Units and AIMCO will become the majority shareholder of, and control, IPT,
and (iii) AIMCO has agreed to propose to acquire IPT by merger within three
months of the effective time of the Insignia/AIMCO Merger (but not earlier than
August 15, 1998) at a purchase price of not less than $13.25 per IPT Common
Share payable in cash. AIMCO currently intends to effect such acquisition by
causing IPT to be merged into a subsidiary of AIMCO. However, no assurance can
be given that either the Insignia/AIMCO Merger or the IPT/AIMCO Merger will be
consummated. See "Insignia/AIMCO Transaction."
Termination of Advisory Structure
From its formation in December 1996 until February 17, 1998, IPT
operated as an externally advised REIT and Insignia served as the advisor to
IPT pursuant to the Advisory Agreement. The Advisory Agreement was terminated
in its entirety on February 17, 1998 (retroactive to January 1, 1998), without
penalty to IPT, IPLP or Insignia, and certain provisions until then contained
in the Advisory Agreement regarding the property management of the properties
now or hereafter controlled by IPT and the provision of partnership
administration services to the Controlled Partnerships and certain other
business entities controlled by IPT in the future were incorporated into the
Partnership Agreement effective as of the same date. See "The Partnership
Agreement of IPLP--Property Management and Contract Loss Fee" and "The
Partnership Agreement of IPLP--Partnership Administration." Also
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effective upon the termination of the Advisory Agreement, IPT, IPLP and
Insignia entered into the Acquisition and Disposition Services Agreement, which
also incorporates some of the provisions regarding real estate and real estate
securities acquisition and disposition services previously contained in the
Advisory Agreement. See "Acquisition and Disposition Services Agreement." Upon
the termination of the Advisory Agreement, the twelve employees of Insignia who
prior to that time had worked almost exclusively on matters concerning IPT
became employees of IPT. Also effective on that date, certain key employees of
Insignia received an aggregate of 510,000 restricted IPT Common Shares, which
will vest ratably over a five-year period. See "Management--Executive
Compensation."
MAE GP Merger
Effective as of February 25, 1998, MAE GP, which until then was a
wholly-owned subsidiary of MAE, was merged with and into IPT, with IPT
surviving the merger (the "MAE GP Merger"). As consideration for the MAE GP
Merger, IPT issued 344,609 IPT Common Shares to MAE valued for purposes of the
MAE GP Merger at $10.53 per share. MAE GP owned or controlled equity interests
in entities which comprised or controlled the general partners of 29 public and
61 private real estate limited partnerships (collectively, the "MAE
Partnerships"), nine of which are included in the IPT Partnerships. The MAE
Partnerships own, in the aggregate, 167 properties containing approximately
31,000 residential apartment units and approximately 2.2 million square feet of
commercial space. In connection with the MAE GP Merger, all of the AMIT Class B
Shares, which were until then owned by MAE GP, were transferred by dividend to
MAE prior to the MAE GP Merger.
Transfers of Assets to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP
purchased certain assets from MAE for approximately $596,000 in cash. The
assets purchased from MAE consisted of (i) a 99% limited partner interest in
Insignia Jacques Miller, L.P. ("IJM"), which in turn owns non-controlling
equity interests in entities that comprise or control the general partners of
30 of the MAE Partnerships and various notes receivable (the 1% general partner
interest in IJM was acquired by IPT from MAE GP in the MAE GP Merger), and (ii)
a 6.557% limited partner interest in Buccaneer Trace Limited Partnership, which
owns a 208-unit residential apartment complex located in Savannah, Georgia.
Also in connection with the MAE GP Merger, on February 17, 1998,
Insignia contributed all of the limited partner interests it owned in the MAE
Partnerships to IPLP in exchange for OP Units. The value of the interests
contributed was approximately $5,460,000, for which Insignia received 518,528
OP Units (based on a value of $10.53 per unit).
Winthrop Option
On October 27, 1997, Insignia consummated a transaction with Winthrop
Financial Associates ("WFA") and certain affiliates of WFA whereby Insignia
acquired, among other things, limited partner interests in, or the right to
acquire units of limited partner interests (the "Winthrop Units") in, two
public and 11 private real estate limited partnerships (the "Winthrop
Partnerships"), which own, in the aggregate, 29 properties containing
approximately 12,100 residential apartment units, and the right to receive
certain asset management, investor services and partnership management fees
from ten of the Partnerships which totaled $987,602 in 1996 (the base upon
which the purchase price paid by Insignia was calculated) (the "Winthrop Fees,"
and together with the Winthrop Units, the "Winthrop Interests").
The Winthrop Partnerships are controlled by WFA. In connection with
the foregoing transaction, IPT I LLC, a Delaware limited liability company
which is owned 90.1% by Insignia and 9.9% by IPT, acquired an associate general
partner interest in WFA, as a result of which IPT I LLC has the power to
effectively control all property management decisions relating to the
properties owned by six of the Winthrop Partnerships. Insignia also acquired
all of the newly-issued Class B stock of First Winthrop Corporation ("FWC"),
which immediately prior thereto was a wholly-owned subsidiary of WFA, as a
result of which Insignia has the right to appoint the two Class B directors of
FWC, who in turn have the power to effectively control all property management
decisions relating to the properties owned by the other seven Winthrop
Partnerships. In addition, IPT I LLC and Insignia
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caused the respective general partners of the Winthrop Partnerships to
subcontract with IPGP Corporation, a wholly-owned subsidiary of Insignia
("IFGP"), to perform the asset management and other services in respect of
which the Winthrop Fees are payable on behalf of such general partners, in
exchange for which IFGP was assigned the rights to receive the Winthrop Fees.
On February 17, 1998, Insignia granted IPLP an option (the "Winthrop
Option") to acquire all but not less than all of the Winthrop Interests at any
time on or before December 31, 1998. The Winthrop Option is exercisable by IPLP
for an aggregate cash amount of approximately $46 million, plus varying amounts
of interest on approximately $40 million of such amount at a rate equal to
Insignia's cost of funds (based on the interest rate in effect from time to
time under Insignia's revolving credit facility) and a ratable portion of the
transaction costs incurred by Insignia in connection with the acquisition. Upon
exercise of the Winthrop Option, the Operating Agreement of IPT LLC I will be
amended to make IPT the sole managing member of IPT I LLC, with the sole
authority to manage the business and affairs of IPT I LLC, and Insignia will
cause the persons designated by IPLP from time to time to be appointed as the
Class B directors of FWC.
Property Acquisition
On January 28, 1998, IPT acquired a 168-unit apartment complex located
in Pensacola, Florida known as the Raintree Apartments, which is the only whole
asset currently owned by IPT. The aggregate purchase price paid for the
Raintree Apartments was approximately $3.7 million, approximately $2,660,000 of
which was debt financed on a non-recourse basis.
Tender Offers
On August 28, 1997, IPLP Acquisition I LLC, a Delaware limited
liability company and a wholly-owned subsidiary of IPLP ("IPLP Acquisition"),
commenced tender offers to purchase units of limited partner interest in the
following IPT Partnerships: Consolidated Capital Properties IV, Century
Properties Fund XVII, Century Properties Fund XIX, Century Properties Growth
Fund XXII, Fox Strategic Housing Income Partners and National Property
Investors 4. These tender offers expired on October 6, 1997, and IPLP
Acquisition accepted for purchase all units validly tendered and not withdrawn
pursuant to the Tender Offers. Pursuant to these tender offers, IPLP
Acquisition acquired 29,617.5 (or approximately 8.64%) of the limited partner
units in Consolidated Capital Properties IV, 3,369.5 (or approximately 4.49%)
of the limited partner units in Century Properties Fund XVII, 4,892 (or
approximately 5.48%) of the limited partner units in Century Properties Fund
XIX, 5,459 (or approximately 6.59%) of the limited partner units in Century
Properties Fund XXII, 3,919 (or approximately 15.01%) of the limited partner
units in Fox Strategic Housing Income Partners and 4,452 (or approximately
7.42%) of the limited partner units in National Property Investors 4, for total
cost (excluding expenses) of approximately $9 million.
On October 30, 1997, Reedy River Properties, L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of IPLP ("Reedy
River"), commenced tender offers to purchase units of limited partner interest
in Consolidated Capital Institutional Properties and Consolidated Capital
Institutional Properties/2. These tender offers expired on December 15, 1997
and Reedy River accepted for purchase all units validly tendered and not
withdrawn. Pursuant to these tender offers, Reedy River acquired 28,900.5 (or
approximately 14.52%) of the limited partner units in Consolidated Capital
Institutional Properties and 169,105.3 (or approximately 18.60%) of the limited
partner units in Consolidated Capital Institutional Properties/2, for total
cost (excluding expenses) of approximately $18 million.
On various dates in December 1997, Madison River Properties, L.L.C., a
Delaware limited liability company and a wholly-owned subsidiary of IPLP
("Madison River"), commenced tender offers to purchase units of limited partner
interests in Multi-Benefit Realty Fund 87-1, Century Properties Fund XIV,
Century Properties Fund XV, Century Properties Fund XVIII, Consolidated Capital
Growth Fund, Consolidated Capital Institutional Properties/3, Consolidated
Capital Properties V, Johnstown/Consolidated Income Partners and Shelter
Properties VII Limited Partnership. These tender offers expired on various
dates in January and February of 1998 and Madison River accepted for purchase
all units validly tendered and not withdrawn. Pursuant to these tender offers,
Madison River acquired 21,457 units (or approximately 22.29%) of the Class A
limited partner units in Multi-
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Benefit Realty Fund 87-1, 13,822 units (or approximately 18.39%) of the Class B
limited partner units in Multi-Benefit Realty Fund 87-1, 2,925.57 units (or
approximately 4.52%) of the limited partner units in Century Properties Fund
XIV, 4,222 units (or approximately 4.69%) of the limited partner units in
Century Properties Fund XV, 5,259.5 units (or approximately 7.01%) of the
limited partner units in Century Properties Fund XVIII, 2,690 units (or
approximately 5.47%) of the limited partner units in Consolidated Capital
Growth Fund, 46,775.4 units (or approximately 12.21%) of the limited partner
units in Consolidated Capital Institutional Properties/3, 43,795.8 units (or
approximately 24.39%) of the limited partner units in Consolidated Capital
Properties V, 14,061.5 units (or approximately 10.92%) of the limited partner
units in Johnstown/Consolidated Income Partners, and 2,180 units (or
approximately 12.57%) of the limited partner units in Shelter Properties VII
Limited Partnership, for total costs (excluding expenses) of approximately $10
million.
On April 13, 1998, Broad River Properties, L.L.C., a Delaware limited
liability company and a wholly-owned subsidiary of IPLP ("Broad River"),
commenced a tender offer to purchase up to 18,300 units of limited partner
interest in Angeles Partners IX for a purchase price of $325 per unit in cash,
and on April 14, 1998, Broad River commenced a tender offer to purchase 18,500
units of limited partner interest in Angeles Partners XII for a purchase price
of $500 per unit. Each of these tenders offers is scheduled to expire on May
11, 1998.
Shelter IV Option
In June 1997 the Shelter IV Option Agreement was amended to make the
4,263 units of limited partner interest in Shelter Properties IV Limited
Partnership acquired by Insignia in the High River transaction described above
also subject to the Shelter IV Option. In December 1997, the Shelter IV Option
Agreement was amended again to make 488 units of limited partner interest
acquired by Insignia in various transactions between June and December 1997
subject to the Shelter IV Option. IPLP exercised the Shelter IV Option
effective as of midnight on December 31, 1997. As a result of that exercise,
IPLP acquired a total of 16,010 units of limited partner interest in Shelter
Properties IV Limited Partnership in exchange for a total of 1,016,448 OP Units
issued to Insignia.
Private Offerings
Commencing in May 1997 and ending in August 1997, IPT offered and sold
an aggregate of 5,231,000 IPT Common Shares, at a purchase price of $10.00 per
share, to 44 investors (12 of whom are executive officers of IPT and/or
Insignia) pursuant to a private offering, and in an unrelated transaction in
October 1997 IPT sold 1,000,000 IPT Common Shares, also at a purchase price of
$10.00 per share, to a single private investor (collectively, the "Private
Offerings"). The Private Offerings were each made in reliance upon exemptions
from the registration requirements of the Securities Act. IPT contributed the
gross proceeds of the Private Offerings to IPLP in exchange for 6,231,000 OP
Units (all of the expenses of the Private Offerings were borne by IPLP). The
net proceeds of the Private Offerings of approximately $62 million have been
and will be used by IPLP for general purposes, principally acquisitions of
direct and indirect interests in multifamily residential real estate.
High River Transactions
In June 1997, Insignia entered into an agreement with High River
Limited Partnership ("High River") pursuant to which Insignia acquired an
aggregate of 23,581 units of limited partner interest in the Shelter Properties
Partnerships for an aggregate purchase price $15,500,000. As a result of those
purchases, various buy/sell agreements between Insignia and High River relating
to the transferred interests and the general partner interests in those
partnerships were terminated. Insignia then assigned all of those units (other
than 4,263 units in Shelter Properties IV Limited Partnership) to IPT, in
exchange for which IPT issued 1,109,259 IPT Common Shares to Insignia. IPT in
turn assigned those units to IPLP, in exchange for which IPLP issued 1,109,259
OP Units to IPT.
Also in June 1997, Insignia entered into a separate agreement with
High River pursuant to which Insignia (i) directly acquired 25 units of limited
partner interest in Davidson Growth Plus, L.P. from an affiliate of High River
and (ii) indirectly acquired 1,244 units of limited partner interest in
Davidson Growth Plus, L.P. through the acquisition from High River of a 50%
equity interest in DGP Acquisition, L.L.C. (a limited liability company formed
by Insignia and High River in 1995 for the purpose of acquiring units of
limited partner interests in
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Davidson Growth Plus, L.P. pursuant to a tender offer), for an aggregate
purchase price of $525,287. As a result of those purchases, various buy/sell
agreements between Insignia and High River relating to the transferred
interests and the managing general partner interest in Davidson Growth Plus,
L.P. were terminated. Insignia then assigned all of those units and the 50%
interest in DGP Acquisition, L.L.C. to IPT, in exchange for which IPT issued
53,192 IPT Common Shares to Insignia. IPT in turn assigned those units and the
50% interest to IPLP, in exchange for which IPLP issued 53,192 OP Units to IPT.
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THE PARTNERSHIP AGREEMENT OF IPLP
The following summary of the Partnership Agreement, and the
descriptions of certain provisions thereof set forth elsewhere herein, are
qualified in their entirety by reference to the Partnership Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus forms a part.
MANAGEMENT
IPLP was formed as a Delaware limited partnership in May 1996. IPT is
the sole general partner of IPLP, and Insignia is currently the sole limited
partner of IPLP. In addition, Insignia is designated in the Partnership
Agreement as the Special Limited Partner and, as such, possesses certain rights
described below not shared by others who may become limited partners of IPLP.
IPT, as the sole general partner of IPLP (in such capacity, together
with any substitute general partner that may be appointed in accordance with
the terms of the Partnership Agreement, the "General Partner"), has full and
exclusive responsibility and discretion in the management and control of IPLP.
The limited partners in their capacity as such generally will have no authority
to transact business for, or participate in the management activities or
decisions of, IPLP. The General Partner may, with the consent of the Special
Limited Partner but without the consent of any other limited partner, amend or
modify the Partnership Agreement in any respect, provided, however, that any
amendment which would (i) impose on any limited partner any obligation to make
additional capital contributions or (ii) materially adversely affect the
economic rights of such limited partner requires the consent of such limited
partner.
The General Partner is not permitted to take certain actions without
the prior written consent of the Special Limited Partner. Specifically, without
the prior written consent of the Special Limited Partner, the General Partner
may not (i) enter into or amend, modify or terminate any conflict avoidance
arrangement contemplated by the Partnership Agreement, (ii) sell all or
substantially all of IPLP's assets or cause IPLP to merge or consolidate with
or into any other entity, or (iii) issue any additional OP Units or other
interests in IPLP if as a result of such issuance the relative economic
interest of the Special Limited Partner in IPLP would be materially diluted.
TRANSFERABILITY OF INTERESTS
The General Partner generally may not voluntarily withdraw from IPLP
or transfer or assign its interest in IPLP. Limited partners may transfer their
OP Units, in whole or in part, except in the following circumstances: (i) in
the opinion of legal counsel for IPLP, such proposed transfer would require
registration of OP Units under the Securities Act or would otherwise violate
any federal or state securities law; (ii) in the opinion of legal counsel, such
proposed transfer would (a) adversely affect IPLP's status as a qualified REIT
subsidiary within the meaning of the Code or (b) adversely affect IPT's ability
to qualify as a REIT or subject IPT to additional taxes; (iii) such proposed
transfer would be effected through an "established securities market" or
"secondary market" within the meaning of the Code; or (iv) such proposed
transfer would be made to a lender whose loan would constitute a nonrecourse
liability, in which instance the proposed transfer would require the consent of
the General Partner.
CAPITAL CONTRIBUTIONS
The Partnership Agreement provides that if IPLP requires additional
funds at any time, or from time to time, in excess of funds available to IPLP
from borrowing or capital contributions, IPT may borrow such funds from a
financial institution or other lender and lend such funds to IPLP on the same
terms and conditions as are applicable to IPT's borrowing of such funds. Under
the Partnership Agreement, IPT generally is obligated to contribute the net
proceeds received in connection with any offering of IPT Common Shares or
Preferred Shares as additional capital to IPLP. Moreover, IPT is authorized, as
the General Partner, to cause IPLP to issue OP Units for less than fair market
value if IPT has concluded in good faith that such issuance is in the best
interests of IPT and IPLP.
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If IPT contributes additional capital to IPLP (which can only happen
upon the issuance of shares of beneficial interest of IPT and the subsequent
contribution or deemed contribution by IPT to IPLP of the net proceeds of such
issuance), then IPT will receive additional OP Units, and its percentage
interests in IPLP will be increased on a proportionate basis based upon the
amount of such additional capital contributions and the value of IPLP at the
time of such contributions. Conversely, the percentage interests of the limited
partners will be decreased on a proportionate basis in the event of additional
capital contributions by IPT.
REDEMPTION RIGHTS
Under the Partnership Agreement, the limited partners of IPLP have
redemption rights ("Redemption Rights") which enable them to cause IPLP to
redeem each OP Unit for cash equal to the value of an IPT Common Share
(subject, however, to a first right of IPT to purchase each OP Unit offered for
redemption for one IPT Common Share, subject to adjustment upon the occurrence
of share splits, mergers, consolidations or similar pro rata share transactions
which would have the effect of diluting the ownership interests of the limited
partners or the shareholders of IPT). If the limited partner electing to redeem
its OP Units is Insignia or MAE, the election as to whether IPT will exercise
its first right to acquire such OP Units for IPT Common Shares will be made by
a committee of the IPT Board consisting solely of members who are not officers,
directors or employees of Insignia. The Redemption Rights may not be exercised,
however, if and to the extent that (i) the acquisition of OP Units by IPT in
exchange for IPT Common Shares (regardless of whether IPT would in fact
exercise its rights to acquire such OP Units for IPT Common Shares) would (a)
result in any person owning, directly or indirectly, IPT Common Shares in
excess of the limitations set forth in the "excess share" provisions contained
in IPT's Declaration of Trust, (b) result in IPT Common Shares being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (c) result in IPT being "closely held" within the meaning of
section 856(h) of the Code (for this purpose taking into account the applicable
attribution rules imposed by the Code), (d) cause IPT to own, directly or
constructively, 10% or more of the ownership interests in a tenant in a real
property directly or indirectly owned by IPT within the meaning of section
856(d)(2)(b) of the Code, or (e) cause the issuance of IPT Common Shares to
such redeeming limited partner to be "integrated" with any other distribution
of IPT Common Shares for purposes of complying with the Securities Act; or (ii)
on the date of redemption, IPT does not have a class of securities registered
under the Exchange Act and does not qualify for an exemption from registration
with respect to the IPT Common Shares to be issued.
Only OP Units outstanding for at least one-year may be redeemed. Not
more than two redemptions by any limited partner may occur during each calendar
quarter, and no limited partner may exercise Redemption Rights for less than
1,000 OP Units or, if such limited partner holds less than 1,000 OP Units, for
less than all of the OP Units held by such limited partner. Prior to the
expiration of the one year holding period, IPT, as General Partner, may permit
a lender to whom OP Units have been pledged with IPT's consent to exercise the
Redemption Right (but only for cash) in the event of a foreclosure. In the
future, it may become necessary to place additional restrictions on the
exercise of Redemption Rights in order to assure that IPLP does not become a
"publicly traded partnership" under the Code and thereby taxable as a
corporation for federal income tax purposes. See "Certain Federal Income Tax
Considerations--Tax Aspects of IPT's Investment in IPLP and the IPT
Partnerships." As of the date of this Proxy Statement/Prospectus, the aggregate
number of OP Units outstanding held by Insignia (the sole limited partner of
IPLP) is 9,934,475, of which 8,399,499 are currently eligible for redemption
upon exercise of the Redemption Rights.
OPERATIONS
The Partnership Agreement requires that IPLP be operated in a manner
that will enable IPT to qualify as a REIT (unless the IPT Board determines that
it is no longer in the best interests of IPT to conduct business as a REIT), to
avoid any federal income or excise tax liability imposed under the Code and to
ensure that IPLP will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code.
In addition to the administrative and operating costs and expenses
incurred by IPLP, IPLP will reimburse IPT (as General Partner) for all
administrative costs and expenses it incurs, and such expenses will be treated
as expenses of IPLP. Such expenses generally include (i) all expenses relating
to the formation and continuity of
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existence of IPT and subsidiaries thereof, (ii) all expenses relating to any
offering or registration of securities by IPT, (iii) all expenses incurred in
connection with the issuance, repurchase or redemption of securities by IPT or
IPLP, (iv) all expenses associated with the preparation and filing of any
periodic reports by IPT under federal, state or local laws or regulations, (v)
all expenses associated with compliance by IPT with laws, rules and regulations
promulgated by any regulatory body, (vi) all expenses associated with any
401(k) plan, incentive plan, bonus plan or other plan providing for
compensation for trustees, officers or directors, and (vii) all other operating
or administrative costs of IPT (as General Partner) incurred in the ordinary
course of its business on behalf of IPLP.
DISTRIBUTIONS AND ALLOCATIONS
The Partnership Agreement generally provides that IPLP will distribute
cash from operations (including net sale and refinancing proceeds, but
excluding net proceeds from the sale of IPLP's property in connection with the
liquidation of IPLP) at such time and in such amounts as determined by the
General Partner in its sole discretion (but in any event no less frequently
than annually) to the partners in accordance with their respective percentage
interests in IPLP. However, the General Partner is required to use its
reasonable efforts to cause IPLP to distribute amounts sufficient to enable IPT
to meet the REIT distribution requirements. See "Distributions." Upon
liquidation of IPLP, after payment of, or adequate provision for, its debts and
obligations, including any loans from partners, any remaining assets of IPLP
will be distributed to all partners with positive capital accounts in
accordance with their respective capital account balances. If the General
Partner has a negative balance in its capital account following a liquidation
of IPLP, it will be obligated to contribute cash to IPLP equal to the negative
balance in its capital account.
Profit and loss of IPLP for each fiscal year will generally be
allocated among the partners in accordance with their respective percentage
interests in IPLP. Taxable income and loss will be allocated in the same
manner, subject to compliance with the provisions of sections 704(b) and 704(c)
of the Code and Treasury Regulations promulgated thereunder. The General
Partner has the right to alter the method of allocation in any way that is not
adverse to the interests of the limited partners.
PROPERTY MANAGEMENT AND CONTRACT LOSS FEE
The Partnership Agreement requires IPT and IPLP to cause Insignia to
be retained as property manager for all properties now and hereafter controlled
by IPT pursuant to separate property management agreements. The property
management services to be provided by Insignia include (i) performing all
accounting functions incidental to the properties, such as rent processing and
collection, accounts payable (e.g., mortgages, taxes and insurance), payroll
and financial reporting, (ii) acting as a rental agent for the properties, and
(iii) overseeing the routine maintenance responsibilities relating to the
properties. The property management agreements generally provide for the
payment of fees to Insignia based on a percentage of the rent collections from
the managed properties. The percentage charged varies inversely with the rental
rates and the size of the property, although the actual percentage is based on
a variety of factors, including prevailing market rates and, in the case of the
Controlled Partnerships, the terms of the underlying partnership agreements,
and is not determined or fixed by any formula. In general, though, Insignia is
compensated: (i) on the same terms that existed prior to the formation of IPT,
with respect to properties controlled by IPT at the time of its formation; (ii)
on the same terms that existed immediately prior to acquisition of control,
with respect to properties of which IPT acquired control subsequent to its
formation and which were managed by Insignia immediately prior to such
acquisition; and (iii) on terms comparable to those employed by other major,
full service real estate management companies in light of the nature and
geographic location of the properties, with respect to properties of which IPT
acquired control subsequent to its formation but which were not managed by
Insignia immediately prior to such acquisition.
The Partnership Agreement also provides that if, after taking into
account certain equitable adjustments specified in the Partnership Agreement,
(x) the total amount of property management fees paid to Insignia in respect of
all properties controlled by IPT during any rolling twelve-month period ending
at the end of a calendar quarter is less than (y) 90% of the total annualized
amount of property management fees paid to Insignia for the year preceding
IPT's acquisition of control of the Designated Properties (as hereinafter
defined) (a "Triggering Event"), then IPLP is required to pay Insignia a fee
(the "Contract Loss Fee") equal to the greater of (i) the decrease in the
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market value of Insignia resulting or reasonably expected to result by virtue
of the Triggering Event and (ii) the increase in market value of IPT resulting
or reasonably expected to result from such Triggering Event; provided, however,
that a Contract Loss Fee shall not duplicate the payment of any previous
Contract Loss Fee resulting from a prior Triggering Event. The calculation of a
Contract Loss Fee shall be made, at the expense of IPLP, within 30 days
following the end of the calendar quarter in which a Triggering Event occurs by
one of the 15 largest investment banks in the United States (determined based
on the aggregate dollar amount of equity offerings by each investment bank
during the past year), and IPLP is required to pay Insignia the Contract Loss
Fee in cash no later than 45 days following the end of the calendar quarter in
which the Triggering Event occurs. For this purpose, a "Designated Property" is
any multifamily residential property (i) with respect to which Insignia was
providing property management services immediately prior to the acquisition of
control thereof by IPT, (ii) the controlling interest in which was acquired by
IPT from Insignia, MAE or an affiliate of either of them or (iii) with respect
to which Insignia paid some form of consideration to any entity or person
(other than another affiliate of Insignia) for the purpose of acquiring, or
otherwise in respect of, the property management rights relating thereto.
IPT's obligation to cause Insignia to be retained as property manager
for all the properties controlled by IPT terminates, on a property by property
basis, upon the earliest to occur of (i) the termination of the Partnership
Agreement, (ii) the termination by Insignia of the applicable property
management agreement, (iii) the termination of the applicable property
management agreement by the applicable property-owning entity for cause (but
not for any other reason, notwithstanding that such termination may have been
expressly permitted by the terms of such property management agreement), or
(iv) such time as IPT no longer controls such property.
PUT RIGHTS
Upon the occurrence of or during the continuation of any material
breach by IPT or IPLP of its obligations under the Partnership Agreement
(including without limitation the failure to pay any Contract Loss Fee due),
Insignia, MAE and their affiliates (other than IPT and IPLP) (the "Put
Holders") have the right to (i) demand an appraisal of (a) all OP Units (and
any other interests in IPLP) held by the Put Holders (collectively, the "Put
Right Units") and (b) the IPT Common Shares (and any other securities of IPT)
held by the Put Holders, and (ii) to require (a) IPT to purchase all or any
portion of such IPT Common Shares (and other IPT securities) and (b) IPLP to
purchase all or any portion of such Put Right Units. The appraisals of the IPT
Common Shares (and other IPT securities) and the Put Right Units will be
performed by one of the 15 largest national investment banks in the United
States (as measured by the aggregate dollar amount of equity offerings
underwritten during the preceding year and selected in accordance with the
procedures set forth in the Partnership Agreement) based on the greatest of (i)
their value based on an independent going concern/continuing operations
analyses, (ii) sale of the entire entity analyses and (iii) liquidation
analyses, in each case determined as of the date of the written demand for
appraisal and redemption. IPLP is required to bear the cost of the investment
bank's services.
PARTNERSHIP ADMINISTRATION SERVICES
Insignia currently provides partnership administration services to
each Controlled Partnership which was such at the time IPT was formed (the
"Formation Partnerships"). Such services, for which Insignia is typically paid
on a reimbursement basis only, generally include accounting functions, investor
relations and the preparation and filing of required reports under the Exchange
Act. Under the terms of the Partnership Agreement, IPT (i) is obligated to
cause each Formation Partnership to continue to engage Insignia to provide
partnership administration services on substantially the same terms, including
compensation and reimbursement, as were in effect on January 1, 1997, and (ii)
may, but is not obligated to, cause Insignia to be retained to provide such
services to any business entity which subsequently becomes controlled by IPT,
provided that once Insignia has been engaged to provide such services, IPT is
obligated to cause such entity to continue to engage Insignia (such additional
entities, together with the Formation Partnerships, the "Administration
Entities").
In the event that IPT breaches its obligation to cause an
Administration Entity to continue to engage Insignia to provide partnership
administration services (including as a result of the dissolution or ceasing to
exist of such Administration Entity in connection with or as a result of a
merger or other business combination transaction or the sale of all or
substantially all of its assets in a single transaction or series of related
transactions), then IPLP is
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required to pay Insignia the aggregate allocated costs of Insignia relating to
such Administration Entity, including the costs of fixed assets, long-term
obligations, insurance, utilities, employees (including severance and other
termination payments) and other items related to the provision of
administrative services to such Administration Entity.
IPT's obligation to cause each Administration Entity to engage
Insignia to provide partnership administration services shall terminate, on an
entity by entity basis, upon the earliest to occur of (i) the termination of
the Partnership Agreement, (ii) the termination by Insignia of the provision of
such services to such Administration Entity, (iii) the termination of the
engagement of Insignia by such Administration Entity for cause (but not for any
other reason), or (iv) such time as such Administration Entity is dissolved and
its affairs wound up in connection with an orderly liquidation thereof.
TRANSFERS OF CONTROLLING INTERESTS IN IPT ENTITIES
IPT has agreed not to assign, or to permit or cause any IPT Entity
(see "Glossary") to assign, any controlling interest in any IPT Entity except
in accordance with the terms of the Partnership Agreement, which provides that
IPT is required to deliver a written notice ("Sale Notice") to Insignia at
least 60 days prior to any transfer of any controlling interest in an IPT
Entity. The Sale Notice must set forth in reasonable detail the identity of the
prospective transferee(s) and the terms and conditions of any proposed
transfer. Within 30 days after receipt of the Sale Notice by Insignia, Insignia
may, upon written notice to IPT, elect to purchase not less than all of the
controlling interests in the IPT Entity described in the Sale Notice upon the
same terms and conditions set forth in such notice. If IPT elects not to
purchase the controlling interest in the IPT Entity described in the Sale
Notice, the interest may be transferred by IPT at a price and on terms no more
favorable to the transferee than those set forth in the Sale Notice. Upon the
sale of any controlling interest in an IPT Entity other than to Insignia (and
assuming that Insignia is not retained as the property manager for the
properties controlled by such IPT Entity), any amount of the sale price which
exceeds the fair market value of the assets attributable to such controlling
interest (i.e., any management control premium) is required to be paid to
Insignia. A decision by Insignia not to exercise its right to purchase the
interests in an IPT Entity described in a Sale Notice does not affect any
obligation of IPLP to pay to Insignia any applicable Contract Loss Fee.
TERM
IPLP will continue in existence until December 31, 2097, unless sooner
dissolved upon the first to occur of (i) an election to dissolve the
Partnership by the General Partner with the consent of the Special Limited
Partner, (ii) the passage of 90 days after the sale or other disposition of all
or substantially all of the assets of IPLP, (iii) the redemption of all OP
Units held by limited partners of IPLP or (iv) the entry of a decree of
judicial dissolution of IPLP pursuant to the provisions of the Delaware Revised
Limited Partnership Act.
TAX MATTERS PARTNER
Pursuant to the Partnership Agreement, the General Partner is the tax
matters partner of IPLP and, as such, has the authority to handle tax audits
and to make tax elections under the Code on behalf of IPLP.
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ACQUISITION AND DISPOSITION SERVICES AGREEMENT
The following summary of the Acquisition and Disposition Services
Agreement, and the descriptions of certain provisions thereof set forth
elsewhere herein, are qualified in their entirety by reference to the
Acquisition and Disposition Services Agreement, a copy of which has been filed
as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part.
ACQUISITION AND DISPOSITION SERVICES
In connection with the termination of the Advisory Agreement, IPT,
IPLP and Insignia entered into the Acquisition and Disposition Services
Agreement, which provides that IPT has the right, but not the obligation, to
engage Insignia to provide services, on a transaction by transaction basis, in
connection with acquisitions and disposition of whole real estate and real
estate-related assets ("Real Estate Transactions") and acquisitions of equity
or debt securities of, or other ownership interests in, entities which own real
estate or real estate-related assets ("Securities Transactions") through
December 31, 2000. Such services would include (i) consulting advice and
financial analysis; (ii) due diligence review and analysis of documentation and
operations; (iii) negotiation, drafting and review of transaction documents;
(iv) brokerage and other disposition services; and (v) other services
reasonably related or incidental to the foregoing.
As compensation for such services, IPLP will pay to Insignia the
following fees: (i) for each Securities Transaction, an amount equal to 1.5% of
the aggregate net asset value of the securities or other ownership interests
acquired; and (ii) for each Real Estate Transaction involving an acquisition
(but not a disposition), an amount equal to 0.75% of the aggregate purchase
price (or IPT's pro rata portion thereof in the case of an acquisition with one
or more partners) of the real estate or real estate-related assets acquired by
IPT (including any debt incurred or assumed in connection therewith). IPLP is
also obligated to reimburse Insignia for (i) all out-of-pocket third-party
costs and expenses incurred in connection with its provision of such services
and (ii) for all employee costs (including commissions) incurred by Insignia in
connection with Real Estate Transactions involving dispositions of real
properties, not to exceed 1.0% of the gross sales price.
AGREEMENTS REGARDING CERTAIN REAL ESTATE OPPORTUNITIES
The Acquisition and Disposition Services Agreement contains certain
provisions which provide that Insignia may not acquire or enter into a
definitive agreement to acquire an IPT Opportunity (as defined below) unless
Insignia has provided notice of such IPT Opportunity to IPT and IPT has elected
not to invest in such IPT Opportunity, although Insignia is permitted to enter
into a definitive agreement which provides Insignia the contractual right to
acquire an IPT Opportunity if such agreement expressly provides that the right
to acquire such IPT Opportunity may be assigned by Insignia to IPT. However,
Insignia is required to notify IPT of an IPT Opportunity only if Insignia plans
to invest in the IPT Opportunity for its own account. Thus, Insignia is not
obligated to notify IPT of all IPT Opportunities of which it becomes aware. An
"IPT Opportunity" means an opportunity to invest in or acquire (i) any
investment in multifamily residential property or properties located in the
United States, (ii) indebtedness secured by multifamily residential property or
properties located in the United States, and (iii) equity or debt securities
of, or other ownership interests in, a business entity which primarily owns or
invests in multifamily residential properties in the United States, but
specifically excluding opportunities to invest in or acquire multifamily
residential property in the United States, or an equity or other ownership
interest in a business entity which invests primarily in multifamily
residential housing in the United States but is not controlled by IPT, if
Insignia owned any equity, debt or other ownership interest in such multifamily
residential property or business entity on January 1, 1998 or acquired an
equity, debt or ownership interest in such multifamily residential property or
business entity in accordance with the Acquisition and Disposition Services
Agreement.
The Acquisition and Disposition Services Agreement reciprocally
prohibits IPT from acquiring an Insignia Opportunity (as defined below) without
the prior written consent of Insignia. An "Insignia Opportunity" means any
opportunity to invest in or acquire equity or debt securities of or other
ownership interests in a business entity that (i) invests primarily in real
property other than multifamily residential property in the United States, (ii)
invests primarily in multifamily residential property in the United States if
(x) such business entity is controlled by Insignia
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or MAE or (y) Insignia or its affiliates serve as property manager of the
properties owned by such business entity, or (iii) performs property management
services (regardless of the type of property with respect to which such
services are performed), but specifically excluding opportunities to invest in
or acquire equity or debt securities of, or other ownership interests in, a
business entity that invests primarily in multifamily residential property
located in the United States if IPT owned an equity, debt or other ownership
interest in such business entity as of January 1, 1998 or acquired an equity,
debt or other ownership interest in such business entity pursuant to the
Acquisition and Disposition Services Agreement.
Insignia's obligations under the Acquisition and Disposition Services
Agreement with respect to IPT Opportunities will terminate upon the earliest to
occur of (i) the termination of the Acquisition and Disposition Services
Agreement or a material breach thereof by IPT, (ii) the incurrence by IPLP of
an obligation to pay a Contract Loss Fee pursuant to the Partnership Agreement,
or (iii) the failure of IPT to cause Insignia to be retained to provide
property management services to the properties controlled by IPT as required by
the Partnership Agreement. The obligations of IPT with respect to Insignia
Opportunities will terminate only upon the termination of the Acquisition and
Disposition Services Agreement.
IPT LINE OF CREDIT
The following summary of the IPT Line of Credit and the descriptions
of certain provisions thereof set forth elsewhere herein are qualified in their
entirety by reference to the Line of Credit Agreement (as defined below), a
copy of which has been filed as an exhibit to the Registration Statement of
which this Proxy Statement/Prospectus form a part.
IPLP has entered into a Credit Agreement, (the "Credit Agreement"),
with Lehman Commercial Paper, Inc., as syndication agent, First Union National
Bank, as administrative agent (in such capacity, the "Administrative Agent")
and the lenders from time to time parties thereto (the "Lenders"). Pursuant to
the Credit Agreement, the Lenders have made available to IPLP a revolving
credit facility of up to $50.0 million at any one time outstanding. Loans under
the IPT Line of Credit (the "Loans") may be utilized to finance certain
permitted investments and refinance certain investments made prior to the date
of the Credit Agreement. The IPT Line of Credit matures in a single installment
on December 30, 2000.
Loans may be borrowed by IPLP under the IPT Line of Credit at a rate
based upon the adjusted LIBOR Rate (as defined in the Credit Agreement) (the
"LIBOR Loans") or the Base Rate (as defined in the Credit Agreement) (the "Base
Rate Loans"). As of the date hereof, IPT has no outstanding indebtedness under
the IPT Line of Credit.
IPT is obligated to pay a commitment fee at a rate of 0.25% per annum
on the undrawn portion of the IPT Line of Credit. Such commitment fee is
payable quarterly in arrears and calculated based on the actual number of days
elapsed over a 365-day year.
The Loans are subject to mandatory prepayment only to the extent that
the aggregate outstanding principal amount of the Loans on any day exceeds the
amount of the IPT Line of Credit then in effect. Voluntary prepayments of the
Loans and voluntary reductions of the IPT Line of Credit are permitted in whole
or in part at the option of IPLP, in minimum principal amounts, without premium
or penalty, subject to reimbursement of certain of the Lenders costs under
certain conditions.
IPLP's obligations under the IPT Line of Credit have been guaranteed
by IPT and such guaranty is secured by a first priority pledge of and security
interest in the capital stock or other equity interests held by IPT in each of
the subsidiaries of IPT which directly or indirectly, owns or controls the
general partner interest in any Real Estate Entity (as defined below) in which
IPLP, directly or indirectly owns a limited partner interest. In addition, the
IPT Line of Credit is secured by a first priority pledge of and security
interest in all limited partnership interests from time to time owned by IPLP
and the equity interests from time to time held by IPLP in any subsidiary of
IPLP which itself owns limited partnership interests. The Credit Agreement
defines a "Real Estate Entity" as any limited
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partnership, limited liability company, corporation or other entity which has
as its principal business the ownership of real property or debt secured by
real property. Thus, all of the Controlled Partnerships constitute Real Estate
Entities for purposes of the Credit Agreement.
The IPT Line of Credit contains customary covenants and restrictions
on IPLP's ability to, among other things, incur debt or contingent obligations,
grant liens, sell assets, make distributions or make investments. In addition,
the Credit Agreement contains certain financial covenants which require that
(a) the ratio of adjusted portfolio equity of IPLP to funded debt not be less
than 5.00 to 1.00 at the end of any fiscal quarter, (b) the ratio of Adjusted
DCFO (as defined below) for the period of four fiscal quarters then ended to
the sum of interest expense and certain dividend accruals not be less than 1.10
to 1.00 at the end of any fiscal quarter and (c) the ratio of Adjusted DCFO for
the period of four fiscal quarters then ended to interest expense for such
period not be less than 6.00 to 1.00. For purposes of the Credit Agreement, the
term "DCFO" means, for any period, the aggregate net operating income for such
period of each Real Estate Entity in which IPLP owns an equity interest less
with respect to each Real Estate Entity for such period the sum of (i) cash
interest expense, (ii) all principal payments (other than in connection with
refinancings) on the debt of such Real Estate Entity, (iii) an amount equal to
the greater of (x) the capital expenditures (exclusive of capital expenditures
to restore newly acquired properties to their original condition in accordance
with a budget provided by IPLP within 90 days after acquisition) less funded
capital expenditures or (y) an amount equal to $500 for each apartment unit and
$0.20 per square foot for each commercial property owned by such Real Estate
Entity; and the term "Adjusted DCFO" means, as of any date, an amount equal to
the aggregate of IPLP's pro rata portion of the DCFO of each Real Estate Entity
in which IPLP owns an equity interest (after giving effect to any acquisition
by IPLP of an equity interest in such Real Estate Entity during the quarterly
period ending on the determination date) plus all fee and other income received
by IPLP during such period (excluding extraordinary items) less all
unreimbursed fees and expenses paid by IPLP or IPT during such period.
Events of default under the IPT Line of Credit include (i) nonpayment
of principal with no period of grace and nonpayment of interest, fees or other
amounts due under the IPT Line of Credit within five days after the same become
due; (ii) material breach of any representation or warranty; (iii) failure to
observe any term, covenant or agreement contained in the IPT Line of Credit
beyond (in certain cases) an applicable period of grace; (iv) the failure by
IPLP to pay amounts due on account of the termination of any interest hedge
agreement within ten days of the date when due; (v) default by IPLP in the
payment when due, or in the performance or observance, of any material
obligation involving monetary liability in excess of $5,000,000 to the extent
that such liability is not being contested by IPLP in good faith with adequate
reserves having been established on its books in accordance with generally
accepted accounting principles; (vi) certain events of bankruptcy or insolvency
with respect to IPLP or material subsidiaries; (vii) the occurrence of certain
events under the Employee Retirement Income Security Act of 1974, as amended;
(viii) the failure of any material provision of the Credit Agreement or any
agreement delivered pursuant thereto to continue to be a valid and binding
obligation of IPLP or IPLP; (ix) the failure of the relevant security documents
to continue to be a valid first priority lien on any material portion of the
collateral security pledged pursuant thereto; and (x) judgments against IPLP of
$5,000,000 million or greater that remain unsatisfied, unvacated or unstayed
pending appeal for a period of 30 days after entry.
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BUSINESS OF AMIT
GENERAL
AMIT is an unincorporated California business trust which was
organized to qualify as a REIT for federal income tax purposes. AMIT was
originally organized as a publicly held limited partnership that began offering
limited partnership units on August 18, 1986 and commenced operations on July
9, 1987. In January 1989, the holders of a majority of the limited partnership
units elected to transfer all of the partnership's assets to AMIT. Presently
AMIT's capital structure consists of 2,617,000 outstanding AMIT Class A Shares
and 1,675,113 outstanding AMIT Class B Shares. The AMIT Class A Shares are
registered under the Exchange Act and listed on the American Stock Exchange
under the symbol "ANM". Each AMIT Class A Share and each AMIT Class B Share is
entitled to one vote with respect to all matters put before AMIT's
shareholders.
AMIT has one wholly-owned subsidiary. In order for IPT to maintain its
qualification as a REIT under the Code after the Effective Time, AMIT's
subsidiary will be dissolved prior to the consummation of the Merger.
Angeles Funding Corporation ("AFC"), a wholly owned subsidiary of
Angeles Corporation ("Angeles") served as advisor to AMIT until February 1993.
Through AFC, AMIT had invested in various types of intermediate-term real
estate loans (the "AMIT Loans"). Prior to December 1996, the majority of the
AMIT Loans were made to partnerships that were once controlled by Angeles and
are now controlled by IPT. These partnerships include private and public real
estate limited partnerships which were formed to acquire, own and operate
income-producing real properties. As of December 31, 1997, there were 23 AMIT
Loans outstanding, with an aggregate portfolio balance of approximately $37
million, net of loan loss reserves, and AMIT owned as a result of foreclosures
or receipt of deeds in lieu of foreclosure on certain assets securing certain
AMIT Loans approximately $4.5 million of real property. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
AMIT."
Beginning in February 1993, AMIT faced significant liquidity problems
caused by (i) the failure of a significant number of the obligors of the AMIT
Loans (including certain partnerships now controlled by IPT) to fully service
outstanding debt obligations under their respective AMIT Loans, and (ii)
Angeles' inability to fully service its debt obligations under its promissory
note payable to AMIT or perform its other obligations to AMIT under its third
party loan guarantees and shareholder distribution guarantees. As of February
1993, approximately 75% of the AMIT Loans were in payment default. In February
1993, Angeles informed AMIT that it was unable to perform its obligations under
its guarantees because of liquidity problems caused by its inability to
complete sales or refinancings of real estate assets, its inability to fully
realize asset values in a continuing sluggish and depressed real estate market
and the failure of the obligors of the AMIT Loans to service fully, if at all,
their debt obligations to Angeles. On May 3, 1993, Angeles filed for protection
under Chapter 11 of the federal bankruptcy code. Angeles' failure to perform
under its guarantees, together with the defaults on AMIT Loans, resulted in
AMIT's suspension of cash distributions to the holders of AMIT Class A Shares
starting in February 1993 and resuming in February 1996. AMIT filed various
claims against Angeles and eventually reached agreement with Angeles and the
Committee of Creditors Holding Unsecured Claims of Angeles to settle all claims
between AMIT and Angeles. The settlement agreement was approved by the
Bankruptcy Court in March 1995. Under the agreement, AMIT received over $15
million in cash, notes, and AMIT Class A Shares.
Since February 1993 (when AMIT terminated its advisory agreement with
AFC), AMIT has restructured the majority of its loan portfolio and has paid in
full its then outstanding bank loan of $20 million. However, certain AMIT
Loans, which in the aggregate have a carrying value (net of loan loss reserves)
of approximately $1.3 million (constituting approximately 3% of AMIT's net
investments), are currently in default with respect to debt service
obligations. AMIT's lending is primarily concentrated in secured and, to a
lesser extent, unsecured real estate loans. The realizable value of real estate
collateralizing notes receivable or acquired in loan foreclosure proceedings
can only be determined based upon a sales negotiation with independent third
parties in an arm's length transaction. In addition, considering that, in most
cases, it is the proceeds of sale and/or refinancing which will enable AMIT to
receive funds, the actual proceeds may be significantly impacted by the
condition of the real estate industry at the
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<PAGE>
time the principal amounts become due or properties are sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
AMIT."
AMIT will terminate December 31, 2003, unless extended to no later
than December 31, 2015 by vote of the shareholders of AMIT, or by the AMIT
Board to no later than December 31, 2020 without a vote of the shareholders of
AMIT if the AMIT Board believes that termination at such time would result in
material under-realization of the value of AMIT's assets. Upon liquidation of
AMIT, disposition proceeds will be distributed to the shareholders.
An entity will qualify for taxation as a REIT if it satisfies certain
income and assets tests. Among these tests is a requirement that a certain
percentage of assets constitute "real estate assets" and a certain percentage
of income be derived from such assets. AMIT's loan assets are collateralized in
a variety of ways, and some loans have not been collateralized. AMIT has not
requested or obtained an IRS determination that any of its assets qualify as a
"real estate asset", and has not obtained an opinion of counsel that it
currently qualifies as a REIT. If AMIT were to fail to qualify as a REIT in any
taxable year, AMIT would not be allowed a deduction for dividend distributions
in computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. AMIT believes that it has operated
in a manner designed to qualify as a REIT. However, if the Internal Revenue
Service were successfully to challenge the qualification of AMIT's REIT assets,
AMIT would be subject to federal income tax only after the utilization of
AMIT's net operating losses.
MANAGEMENT; EMPLOYEES
The general policies and supervision of AMIT are overseen by the AMIT
Board, which consists of four trustees.
AMIT has three employees. Upon the 1993 termination of AFC's advisory
and administrative services, AMIT engaged personnel to advise and administer
its operations. The shareholders of AMIT have no right to participate in the
management or conduct of AMIT's business and affairs.
PROPERTIESProperties
The following is a list of properties owned by AMIT and held for sale
as of December 31, 1997.
<TABLE>
<CAPTION>
Date of Type of
Property Ownership Ownership Use Carrying Value
-------- --------- --------- --- --------------
<S> <C> <C> <C> <C>
University Center Phase I & II 11/16/95 Fee ownership Warehouse Office $ 1,100,000
51,200 Sq. Ft.
University Center Phase IV 12/02/95 Fee ownership Retail Shopping 1,671,000
56,000 Sq. Ft.
Colony Cove 4/15/96 & Fee ownership Raw land, 240 acres 1,750,000
-------------
10/3/97
$ 4,521,000
=============
</TABLE>
In August 1993, AMIT acquired, through a mortgage loan foreclosure, a
vacant parcel of land located in Houston, Texas and in January 1994, AMIT
acquired, through a mortgage loan foreclosure, a 220 unit apartment complex
located in Decatur, Georgia. The apartment complex was sold in 1994 for $3.4
million. The vacant parcel of land was sold, free and clear of any liens, in
1995 for $1.5 million.
In 1995 AMIT obtained title to three properties through deeds-in-lieu
of foreclosure. Two of these properties are industrial warehouses and are
located in Cleveland, Ohio. One is known as 4851 Van Epps, on
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which AMIT held a first trust deed mortgage in the amount of $1,500,000 and the
second is known as 4705 Van Epps, on which AMIT obtained a judgment lien
through recourse provisions in a defaulted loan. In October 1995, AMIT sold the
4851 Van Epps property for $1,370,000 and in March 1996 AMIT sold 4705 Van Epps
for $752,000. The third property, University Center Phase I & II, was obtained
through a deed-in-lieu of foreclosure, through recourse provisions in a
defaulted loan. The property consists of warehouse office space located in
Fridley, Minnesota. In December 1995, AMIT foreclosed on its first trust deed
mortgage in the original amount of $1,800,000, held on a retail shopping center
known as University Center Phase IV, located in Fridley, Minnesota.
In April 1996, AMIT foreclosed on a first trust deed mortgage in the
original amount of $1,572,000, held on 200 acres of raw land, know as Colony
Cove, located in Ellenton, Florida, and in October 1997 foreclosed on an
additional 40 acres adjacent to the 200 acres based on recourse provisions
provided in the mortgage. Currently, approximately 224 acres of Colony Cove
land is under contract for sale, which is anticipated to close in the latter
part of 1998, although there can be no assurance that such sale will be
consummated. In January 1998, through the recourse provisions in the mortgage,
AMIT was successful in garnishing all cash held by the Colony Cove borrower and
received cash of approximately $160,000, which reduced the carrying basis of
the property. In June 1996, AMIT along with a joint venture partner, foreclosed
on a first trust deed mortgage in the original amount of $1,050,000
(representing AMIT's 57% joint venture interest in the loan), held on 155 acres
of raw land and an 8,500 square foot strip shopping center known as a Rolling
Greens, located in Ocala, Florida. In June 1997, Rolling Greens was sold for
$1,175,000, of which $665,000 represents AMIT's portion of the joint venture
proceeds. In August 1996, AMIT foreclosed on a second trust deed mortgage in
the original amount of $1,720,000 held on a 443 pad mobile home park community,
known as Springdale Lake Estates Mobile Home Park ("Springdale"), located in
Belton, Missouri. Upon foreclosure, AMIT assumed the first note and trust deed
mortgage held by a third party bank in the amount of $2.8 million. In October
1996, AMIT sold Springdale for $4 million.
During 1997, AMIT obtained judgment liens against a 186-unit apartment
complex, Silver Ridge Apartments, located in Maplewood, Minnesota, based upon
recourse provisions on two other AMIT loans. As a result of the judgment liens,
AMIT was successful in foreclosing on the Silver Ridge Apartments in October
1997, and after a twelve-month redemption period, AMIT will hold title to the
property. At the time of foreclosure, Silver Ridge Apartments was encumbered by
a first mortgage loan by an independent third party in the amount of
approximately $4.5 million and a second mortgage in the amount of $375,000,
which AMIT purchased in December 1997.
INVESTMENT POLICY
AMIT's Declaration of Trust authorizes the AMIT Board to invest in a
wide variety of investments. Investments may be made in various combinations
and may involve participations with other persons, including affiliates. Such
investments may incorporate a variety of real property equity and financing
techniques, including partnerships, joint ventures, purchase and leasebacks,
and mortgages. AMIT may also invest in real property and interests therein.
Notwithstanding this broad authorization, it has always been the principal
investment objective and policy of AMIT to invest primarily in loans secured by
real property. There are no limitations on the geographical area or areas or
the types of loans or of real property securing such loans in which AMIT may
invest. Originally, AMIT invested primarily in second mortgages however, in
recent years, there have been more first mortgage investments. The real
properties securing the AMIT Loans have included raw land, office buildings,
apartment buildings, shopping centers, hotels, industrial and commercial
properties and mobile home parks.
To the extent that AMIT has assets not invested in real property and
interests therein, it may, subject to the prohibitions discussed below, invest
them in obligations of the United States government, any state, territory or
possession, or any agency or political subdivision of any of the above;
evidences of deposits in, or obligations of, banking institutions, state and
federal savings and loan associations, and savings institutions; and other
securities, liquid short term investments and property.
In making investments, AMIT is subject to certain restrictions
contained in its Declaration of Trust. It may not invest more than 10% of the
Trust Proceeds (as defined below) directly in the equity ownership of real
estate. "Trust Proceeds" is the sum of $56,600,000 (the total contributions
made to AMIT's predecessor), AMIT borrowings and the proceeds from AMIT equity
and debt offerings. Since AMIT has never made any equity or debt
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<PAGE>
offerings and it had no borrowings as of December 31, 1997, the Trust Proceeds
amounted to $56,600,000 as of December 31, 1997. AMIT may not acquire or fund
any AMIT Loan which provides for an initial term of more than 15 years unless
such longer term is approved by a majority of the AMIT Board. AMIT loans have
typically had a scheduled maturity of three to seven years. AMIT may not invest
in or make a loan to any one borrower if the principal amount of such loans
would exceed, in the aggregate, 40% of the Trust Proceeds at the time the loan
is made. For purposes of this limitation, each affiliate of Insignia is treated
individually and loans to such affiliates are not aggregated. AMIT may not
invest in or make a loan secured by any one property or asset if the principal
amount of such loan would exceed, in the aggregate, an amount equal to 20% of
the Trust Proceeds. AMIT may not invest in or make loans secured by one
property or asset if the aggregate amount of all loans secured by such property
or asset which are equal or senior to the loans, plus the principal amount of
the loans, would exceed an amount equal to 85% of the estimated value of such
property or asset, unless a majority of the AMIT Board determines that the
terms of such loans are reasonable to AMIT.
Notwithstanding the foregoing limitations or any other provision of
AMIT's Declaration of Trust, when an obligor to AMIT is in default under the
terms of any obligation (including an AMIT Loan), the AMIT Board has the power
to pursue any remedies permitted by law which, in its sole judgment, are in the
interest of AMIT, and the AMIT Board has the power to receive and hold any
investment and to enter into any commitment or obligation on behalf of AMIT in
connection with or in pursuit of such remedies which, in the sole judgment of
the AMIT Board, is necessary or desirable for the purpose of acquiring property
and disposing of property acquired in the pursuit of such remedies. From time
to time, AMIT acquires properties through the exercise of such remedies. All
foreclosed properties are held for sale.
AMIT's Declaration of Trust provides that the AMIT Board shall not
invest in commodities, foreign currencies or bullion except in connection with
investments in other property, engage in any material trading activities with
respect to any of the assets of AMIT, issue redeemable securities or engage in
the underwriting or public distribution of securities issued by others.
Subject to the specific limitations set forth above and subject to
such restrictions as may be necessary to qualify AMIT as a REIT under the Code,
the AMIT Board, without the vote or consent of shareholders, may alter the
investment policy of AMIT in light of changes in economic circumstances and
other relevant factors, and the method of implementing AMIT's investment
policies may change, in the discretion of the AMIT Board, as economic and other
conditions change.
LEGAL PROCEEDINGS
An action was filed against AMIT, Katten Muchin Zavis and David M.
Bass in Superior Court of the State of California by Jules P. Kirsch on
December 26, 1996 alleging that the named defendants had maliciously prosecuted
Mr. Kirsch in certain earlier litigation commenced by AMIT in 1995, which
alleged the purchase by Jules P. Kirsch and several other individuals and
corporations of AMIT Class A Shares through the use of "inside information" and
for violations of Sections 13(d) and 14(a) of the Exchange Act and the rules
and regulations promulgated thereunder.
In June 1996, AMIT settled the prior claims with all defendants,
except for Jules P. Kirsch and voluntarily dismissed the claims against Jules
P. Kirsch. The now pending action commenced by Jules P. Kirsch seeks
unspecified amounts for compensatory and punitive damages. AMIT believes this
lawsuit will be resolved with no material effect on AMIT.
On January 5, 1998, summary judgment was entered in favor of AMIT and
against Mr. Kirsch on all claims in the malicious prosecution action. On
January 30, 1998 Mr. Kirsch filed an appeal of the summary judgment ruling.
MARKET FOR AMIT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
AMIT has 1,416 record holders of AMIT Class A Shares as of February 9,
1998. The AMIT Class A Shares are currently traded on the American Stock
Exchange under the symbol "ANM." All of the AMIT Class B Shares are held by
MAE.
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<PAGE>
Pursuant to the Stock Option Agreement, AMIT holds an option to
purchase all of the AMIT Class B Shares held by MAE. There is no established
public trading market for the AMIT Class B Shares.
The following table sets forth, for the periods indicated, the high
and low sales prices of the AMIT Class A Shares, as reported on the American
Stock Exchange:
1997, Quarter ended: High Low
---- ---
December 31 $ 19 3/4 $ 16 1/8
September 30 $ 17 3/4 $ 14 7/8
June 30 $ 15 3/4 $ 13 1/4
March 31 $ 14 1/2 $ 12 5/8
1996, Quarter ended:
December 31 $ 13 3/4 $ 8 7/16
September 30 $ 8 5/8 $ 7 7/8
June 30 $ 8 5/8 $ 7 5/8
March 31 $ 9 5/8 $ 5 5/8
On __________, 1998, the last sale price of the AMIT Class A Shares as
reported by the ASE was $______. In 1997, AMIT paid quarterly distributions
equaling in the aggregate $1.03 per AMIT Class A Common Share. Additionally, in
1998 AMIT has paid distributions of $.32 per AMIT Class A Share on February 11,
1998 to shareholders of record on January 13, 1998 and on May 12, 1998 to
shareholders of record on April 14, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of AMIT."
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<PAGE>
IPT SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
The following is a summary of certain selected financial data of IPT
and its subsidiaries and predecessors. The selected financial data have been
derived from IPT's consolidated financial statements and the combined
financial statements of its predecessor and, in the opinion of management of
IPT, include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The information set forth below is not
necessarily indicative of the results of future operations and should be read
in conjunction with IPT's Financial Statements and the related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of IPT and the Investment Partnerships" included
elsewhere in this Proxy Statement/Prospectus.
95
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994
----------- ----------- ----------- --------- --------- ---------
(In thousands, except share data) (In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 5,757 $ 4,128 $ 16,826 $ 9,705 $ 2,459 $ 113
Income before
extraordinary item $ 2,054 $ 660 $ 6,074 $ 3,557 $ 2,215 $ 113
Net income $ 2,080 $ 660 $ 6,004 $ 2,425 $ 2,215 $ 113
Income before
extraordinary item
per share (diluted) .11 .06 .41 n/a n/a n/a
Net income per share
(diluted) .11 .06 .40 n/a n/a n/a
Cash distributions to
IPT Common shareholders
per share .15 -- .30 .20 n/a n/a
Weighted average IPT
Common Shares
outstanding 18,835,911 11,179,036 14,694,327 n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994
------------ ------------ ----------- ----------- ----------- ----------
(In thousands, except share data) (In thousands, except share data)
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C> <C>
Cash $ 23,338 $ 5,111 $ 37,432 $ 4,928 $ 528 $ --
Investments in real
estate limited
partnerships 177,681 110,632 159,469 118,741 54,037 38,346
Total assets 234,091 139,905 226,068 147,757 54,565 38,346
Long-term debt 21,957 20,380 19,300 19,730 -- --
Minority interest in
IPLP 56,984 46,998 54,447 50,429 -- --
Minority interest in
other consolidated -- -- -- -- 2,682 --
subsidiaries
Shareholders' equity $ 149,314 $ 71,034 $ 146,212 $ 70,639 $ 51,874 $ 38,346
OTHER DATA
Cash provided by
(used in)
operating
activities $ 97 $ 815 $ 2,338 $ 1,420 $ (100) $ --
Cash provided by
(used in) provided
by investing
activities (12,253) 9,886 (16,481) (70,834) (13,237) (38,233)
Cash provided by
(used in)
financing
activities (1,938) (10,518) 46,647 73,814 13,865 38,233
Funds from
Operations(a) $ 7,439 $ 5,144 $ 20,939 $ 12,563 $ 4,611 $ 113
Number of IPT
Partnerships(b) 43 26 29 26 13 4
Number of
properties(b) 201 136 150 136 86 32
Apartment units(b) 49,373 36,077 38,369 36,077 19,337 7,433
Commercial square
feet(b) 2,983,995 819,000 1,667,874 819,000 767,172 453,977
</TABLE>
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<PAGE>
- -------------------
(a) In accordance with the resolution adopted by the Board of Governors of
NAREIT, funds from operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation of real property, and after adjustments for unconsolidated
partnerships and joint ventures. Funds from operations should not be
considered as an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operation
performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. Funds from operations does not
reflect working capital changes, cash expenditures for capital
improvements or principal payments on indebtedness. IPT believes that
funds from Operations is helpful to investors as a measure of the
performance of an equity REIT, because along with cash flows from
operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of IPT to incur
and service debt and make capital distributions. Funds from operations
computed by IPT may not be comparable to other similarly titled measures
of other REITs. Funds from Operations is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------------------------
1998 1997 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before gain on
sale of property,
minority interest and
extraordinary items $ 3,587 $ 2,487 $ 9,470 $ 3,913 $ 2,346 $ 113
Depreciation and
amortization 4,002 2,871 12,288 9,388 2,265 --
Minority interest in NPI
4 funds from operations (150) (214) (819) (738) -- --
-------- -------- -------- -------- -------- --------
Funds from Operations $ 7,439 $ 5,144 $ 20,939 $ 12,563 $ 4,611 $ 113
======== ======== ======== ======== ======== ========
</TABLE>
(b) Only includes the IPT Partnerships.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF IPT
AND THE IPT PARTNERSHIPS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. IPT'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
INSIGNIA PROPERTIES TRUST
The following is based on (i) the historical results of IPT for the
three months ended March 31, 1998 and the year ended December 31, 1997, and
(ii) the historical results of IPT's predecessor entities for the years ended
December 31, 1996, 1995 and 1994. IPT's predecessor entities began operations
in 1994 with the acquisition of partnership interests in December 1994. IPT's
most significant assets are its investments in real estate limited
partnerships, which are principally comprised of general and limited partner
interests in the IPT Partnerships. See Note 3 to the Combined Financial
Statements of IPT for a summary of investments made for each year. This
information should be read in conjunction with the accompanying combined
financial statements and the related notes thereto.
FINANCIAL CONDITION
At March 31, 1998, IPT held assets of $234.1 million, an increase of
4% from December 31, 1997. IPT's assets increased from the prior year end 53%
to $226.1 million at December 31, 1997 and 171% to $147.8 million at December
31, 1996 for the years then ended, respectively. The asset growth was
principally in cash and cash equivalents, investments in real estate limited
partnerships, apartment properties and other assets, principally due to the NPI
Transaction, the Private Offerings and the acquisition of units of limited
partner interests in certain of the IPT Partnerships in both the transactions
with High River and various tender offers.
Cash and cash equivalents decreased 37.7% to $23.3 million at March 31,
1998 compared to December 31, 1997 primarily as a result of the acquisition of
units of limited partner interests in certain of the IPT Partnerships during
the period. Cash and cash equivalents increased from the prior year end 660% to
$37.4 million at December 31, 1997 and 833% to $4.9 million at December 31,
1996 for the years then ended, respectively. The primary sources of the cash
increases were the Private Offerings, for the year ended December 31, 1997, and
the consolidation of NPI 4 (as a result of the NPI Transaction) for the year
ended December 31, 1996.
Investments in real estate limited partnerships (consisting primarily
of investments in the IPT Partnerships) increased 11.4% to $177.7 million at
March 31, 1998 compared to December 31, 1997. Investments in real estate
limited partnerships increased from the prior year end 34% to $159.5 million at
December 31, 1997 and 120% to $118.7 million at December 31, 1996 for the years
then ended, respectively. The increases for the three months ended March 31,
1998 and year ended December 31, 1997 resulted primarily from the acquisitions
of units of limited partner interests in the Shelter Properties Partnerships
(see "Glossary") and acquisitions of units of limited partner interests in
other IPT Partnerships in various tender offers. The increase for the year
ended December 31, 1996, was primarily due to the acquistion of units of
limited partner interests in the NPI Partnerships.
The apartment properties balances of $26 million, $22.4 million and
$22.1 million at March 31, 1998, December 31, 1997 and December 31, 1996,
respectively, are due to the consolidation of NPI 4 for the years ended
December 31, 1997 and 1996, and the consolidation of NPI 4 and Raintree
Pensacola, L.P. for the three months ended March 31, 1998. The other assets
balances of $6.8 million and $1.9 million at December 31, 1997 and 1996,
respectively, are due to the consolidation of NPI 4 and the capitalization of
organizational costs incurred in connection with the formation of IPT.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The initial capitalization of IPT and IPLP was primarily funded by
Insignia. Insignia also initially provided IPLP a line of credit of $2.5
million for additional investments. The outstanding balance on that line of
credit was paid and the line of credit canceled during July 1997.
During the year ended December 31, 1997, IPT raised additional capital
of $52.3 million in one of the Private Offerings and an additional $10.0
million through a private sale of IPT Common Shares to a single investor. At
March 31, 1998, IPT had cash of approximately $23.3 million. Subsequent to
March 31, 1998, IPLP obtained the IPT Line of Credit, in the aggregate amount
of $50.0 million. The IPT Line of Credit is secured by a pledge and security
interest in all of the limited partner interests owned by IPLP in the
Controlled Partnerships and any other partnerships in which IPT owns or
controls the general partner and IPLP owns a limited partner interest.
Additionally, IPT has guaranteed IPLP's obligations under the IPT Line of
Credit commitment. As of the date hereof, IPT has no outstanding indebtedness
under the IPT Line of Credit.
Two apartment properties and two non-recourse mortgage notes, which
are consolidated in IPT's financial statements, constitute the principal assets
and liabilities of NPI 4 (in which a wholly-owned subsidiary of IPT is the sole
general partner and IPLP owns a majority of the limited partner interests) and
Raintree Pensacola, L.P. (in which a wholly-owned subsidiary of IPT is the sole
general partner and IPLP is the sole limited partner). In addition, $2.1
million of consolidated cash was held by NPI 4 and Raintree Pensacola, L.P.
combined at March 31, 1998.
Cash distributions of approximately $2.8 million ($.15 per share) were
paid during the first quarter of 1998. Additionally, cash distributions paid to
common shareholders of approximately $8.7 million and approximately $2.2
million were paid in 1997 and 1996 respectively. IPT declared a distribution of
approximately $2.9 million to common shareholders of record on March 23, 1998,
and paid such distribution in April 1998. Cash distributions paid to Insignia
by IPLP of approximately $5.4 million, approximately $6.8 million and
approximately $10.2 million were paid in 1997, 1996 and 1995 respectively. A
cash distribution of approximately $1.4 million was paid to Insignia by IPLP
during the first quarter of 1998. The 1996 distribution was paid from the
proceeds of a distribution from IPLP, which simultaneously paid a distribution
of approximately $4.1 million to Insignia (as the sole limited partner of
IPLP). Future distributions will depend on the levels of net cash generated
from operations, capital expenditure requirements, property sales, refinancings
by the Controlled Partnerships and distributions thereof to IPT. However, the
IPT Board has adopted a policy to pay regular quarterly distributions in an
amount equal to $.15 per IPT Common Share which will be increased to $.16 per
IPT Common Share beginning with the first quarterly distribution for which the
record date is after the Effective Time. IPT is currently paying regular
quarterly distributions of $.15 per IPT Common Share in accordance with this
policy. See "Distributions."
RESULTS OF OPERATIONS
Because IPT's primary assets consist of general and limited partner
interests in the IPT Partnerships, a substantial majority of IPT's funds from
operations results from the pass through of IPT's share of funds from
operations generated by the IPT Partnerships (including IPT's share of the
funds from operations generated by NPI 4 and Raintree Pensacola, L.P., which
are consolidated in IPT's combined financial statements). See Note 6 to IPT's
Combined Financial Statements.
Acquisitions of partnership interests began in December 1994 and have
since then continued. Substantial operating results began in 1995, which
produced net income of $2.2 million and $4.6 million of funds from operations.
Net income of $2.4 million in 1996 was up slightly from the $2.2 million in
1995, primarily due to increased equity earnings resulting from acquisitions of
interests in partnerships during 1996. Net income for the year ended December
31, 1997 was approximately $6.0 million, which was an increase of 148% from net
income for the year ended December 31, 1996. Net income for the three months
ended March 31, 1998 was approximately $2.1 million compared to approximately
$0.7 million for the same period in 1997, an increase of 110%. These increases
were primarily due to increased equity earnings resulting from improved
operations of the IPT Partnerships and from the acquisition of units of limited
partner interest in various IPT Partnerships. Insignia's minority interest
resulted from
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Insignia and its affiliates transferring to IPLP their limited partner
interests in the IPT Partnerships in exchange for OP Units in 1996 and 1997.
Income before minority interest and extraordinary items increased from
approximately $3.9 million for the year ended December 31, 1996 to
approximately $10.5 million for the year ended December 31, 1997, and increased
44.2% to $3.6 million for the three months ended March 31, 1998, compared to
the same period in 1997. This increase was primarily attributable to an
increase in equity earnings due to improved operations of the IPT Partnerships,
to the acquisition of units of limited partner interests in various IPT
Partnerships, and to an increase in other income resulting from increased
distributions received from the Controlled Partnerships in which IPT has a
nominal investment.
For the three months ended March 31, 1998, funds from operations
increased 44.6% to $7.4 million compared to $5.1 million for the three months
ended March 31, 1997. Funds from operations increased 67% to $20.9 million for
the year ended December 31, 1997 compared to $12.6 million for the year ended
December 31, 1996. Funds from operations increased 172% to $12.6 million for
the year ended December 31, 1996 from $4.6 million for the year ended
December 31, 1995. These increases were primarily the result of additional
partnership interest acquisitions, and to a lesser extent from an increase
in funds from operations from the IPT Partnerships. Funds from operations is
defined as income or loss from real estate operations, which is net income in
accordance with generally accepted accounting principles excluding gains or
losses for debt restructurings, sales of property and minority interests, plus
depreciation and provision for impairment. See "IPT Selected Combined
Financial Data" for a reconciliation of net income to funds from operations.
YEAR 2000 COMPLIANCE
IPT is dependent upon Insignia for management and administrative
services. Insignia has completed an assessment and has determined that it will
have to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The project is estimated to be completed not later than December 31, 1998,
which is prior to any anticipated impact on its operating systems. Insignia
believes that with modifications to existing software and conversions to new
software, the year 2000 issue will not pose significant operational problems
for its computer systems. IPT does not expect the conversion to have a material
impact on its financial position or results of operations. However, if such
modifications and conversions are not made, or are not completed in a timely
fashion, the year 2000 issue could have a material impact on the operations of
IPT.
FUNDS FROM OPERATIONS (FFO)
The Company believes that FFO is a significant indicator of the
strength of its results. FFO represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships and joint
ventures. FFO should not be considered as an alternative to net income or other
measurements under generally accepted accounting principles as an indicator of
operation performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. FFO does not reflect working capital
changes, cash expenditures for capital improvements or principal payments on
indebtedness.
INFLATION
Substantially all of the leases at the properties of the IPT
Partnerships are for a term of one year or less, which may enable IPT to seek
increased rent upon renewal of existing leases and upon the commencement of new
leases. The short-term nature of the leases generally serves to reduce the risk
to IPT of the adverse effects of inflation.
SOP 98-5
In 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"),
which is effective for financial statements for fiscal years beginning after
December 15, 1998. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application should be
reported as the cumulative effect of a change in accounting principle and
expensed in the first quarter in the year of adoption. At March 31, 1998, the
Company had approximately $1.8 million capitalized as organizational costs that
would be affected by the requirements of SOP 98-5.
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EITF 97-11
The Company has not capitalized any internal costs in connection with
identifying and acquiring operating properties. Therefore, EITF 97-11 will have
no effect on the Company's financial statements.
IPT PARTNERSHIPS
The following discussion pertains to the combined financial condition
and results of operations of those partnerships that constituted IPT
Partnerships during the applicable periods (i.e., those Controlled Partnerships
in which IPT had a material interest). While this discussion is directed to the
IPT Partnerships in the aggregate, it is important to note that each IPT
Partnership is limited to its own resources and must accordingly manage its
capital resources.
FINANCIAL CONDITION
Each of the IPT Partnerships is governed by its specific partnership
agreement, and pursuant to each of those partnership agreements the general
partner of the applicable partnership has substantial authority over the
operations and financial position of the particular partnership. Further, the
partnership agreements generally render the issuance of additional equity
interests impractical and in many instances limit the amount and nature of
permitted mortgages or other indebtedness. Finally, certain changes of control
of the general partners of the IPT Partnerships that occurred during the last
three years have resulted in different philosophies with respect to operations,
rent changes and debt structure.
IPT believes that each IPT Partnership has sufficient capital to meet
its operating and capital needs. At December 31, 1997, the IPT Partnerships
held approximately $106.0 million in cash and other liquid investments, which
included approximately $10.0 million held for distribution to partners,
including IPT and affiliates, in the first quarter 1998. At March 31, 1998, the
IPT Partnerships held approximately $127.7 million in cash and other liquid
investments.
A majority of the mortgage loan financings of the IPT Partnerships was
obtained with the assistance of Insignia over the last five years. Each
mortgage loan is single asset, non-recourse, non-cross-collaterlized, fixed
rate debt. The aggregate outstanding balance of all such financings at March
31, 1998 and December 31, 1997 was approximately $913.1 million and $680.2
million, respectively.
The mortgage loan financings completed by the IPT Partnerships can be
substantially grouped into three principal categories:
o A series of whole loan financings specific to properties
controlled by Insignia completed in November 1992 with Lehman
Capital. Each of the property loans bears interest at an annual
rate of 7.6%, provides for monthly debt service based on a
twenty-three year amortization and matures with a balloon payment
due in November 2002. These loans comprised approximately 10% and
12% of the combined IPT Partnerships' outstanding debt at March
31, 1998 and December 31, 1997, respectively.
o A series of whole loan financings with Lehman Capital and Freddie
Mac in December 1995 pursuant to which each loan bears interest
at an annual rate of 6.95%. Payments are substantially interest
only and the loans mature in December 2005. These loans comprised
approximately 12% and 16% of the combined IPT Partnerships'
outstanding debt at March 31, 1998 and December 31, 1997,
respectively.
o A series of whole loan financings with Lehman Capital and Freddie
Mac in September 1996 pursuant to which each loan bears interest
at an annual rate of 7.33%. Payments are interest only and the
loans mature in September 2003. These loans comprised
approximately 23% and 24% of the combined
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IPT Partnerships' outstanding debt at March 31, 1998 and December
31, 1997, respectively.
The IPT Partnerships require sufficient operating cash flows and
capital resources to maintain their properties and service their debt. Excess
cash flows are generally available for distribution to partners. Capital
expenditures have been substantial with respect to the assets owned by the IPT
Partnerships. Upon gaining control of the general partners, Insignia has
undertaken to implement property improvement programs intended to result in
improving both the physical condition and the appearance of the properties.
This has been the case particularly with respect to the properties owned by the
Consolidated Capital Partnerships, which Insignia commenced managing in 1995,
and with respect to the properties owned by the National Properties
Partnerships and Century Properties Partnerships, which Insignia commenced
managing in 1996. Aggregate capital expenditures of the IPT Partnerships were
approximately $44.0 million in 1996, and approximately $32.6 million in 1997.
IPT believes that the IPT Partnerships will expend approximately $34.2 million
on capital expenditures in 1998. As of March 31, 1998, the IPT Partnerships has
expended approximately $11.1 million on capital expenditures.
Certain properties owned by IPT Partnerships are encumbered by
mortgages in amounts that constitute substantially all of the value of the
properties. Furthermore, one IPT Partnership, Century Properties Fund XVI, does
not currently generate cash flow after payment of debt services and required
capital expenditures. However, IPT does not believe that any of these
investments will be lost. Additionally, if these properties were lost, the
combined loss of these investments would not have a material adverse effect on
the combined IPT Partnerships or IPT.
RESULTS OF OPERATIONS
Each IPT Partnership is essentially a closed end investment vehicle.
Accordingly, the primary factors affecting operating results are changes in
rental income, changes in property operating expenses, changes in debt
financing and dispositions of asset investments during the period.
Three Months Ended March 31, 1998 Compared to Three Months ended March 31, 1997
The following table summarizes certain operating statement data
included in the Combined Financial Statements of IPT. The same data is also
presented for only those properties that were included in operating results for
the full year in each period. Amounts are shown before gains (losses) on
disposition of real property and/or extraordinary items.
<TABLE>
<CAPTION>
As Reported by Excluding Assets
the IPT Partnerships Sold During 1998 and 1997
---------------------------------------- ------------------------------------
Three Months Ended March 31, Three Months Ended March 31,
---------------------------------------- ------------------------------------
1998 1997 Change 1998 1997 Change
----------- ----------- ------------- ----------- ----------- ----------
( in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Property Revenues $ 91,257 $ 60,241 51.5% $ 62,668 $ 59,463 5.4%
Property Operating Expenses (44,450) (30,365) 46.4% (30,079) (29,891) 0.6%
Interest Income 2,108 1,837 14.8% 1,483 1,836 (19.2)%
Interest Expense (19,324) (13,189) 46.5% (12,836) (12,998) (1.2)%
Administrative Expense (3,890) (1,954) 99.1% (2,562) (1,954) 31.1%
---------- --------- ---------- ----------
Funds From Operations 25,701 16,570 55.1% 18,674 16,456 13.5%
Depreciation (18,249) (12,221) 49.3% (11,992) (12,060) (0.6)%
---------- --------- ---------- ----------
Income (Loss) from operations $ 7,452 $ 4,349 71.3% $ 6,682 $ 4,396 52.0%
========== ========= ========== ==========
</TABLE>
Property revenues for the three months ended March 31, 1998 increased
51.5% from the three months ended March 31, 1997. The property revenue growth
was primarily due to increased ownership in a greater number of properties
during the period as a result of tender offers extended during 1997 and 1998,
and the transfer of limited partnership interests in various limited
partnerships from Insignia in connection with the MAE GP Merger. This growth
was partially offset by the effects of three properties sold during the second
half of 1997. Property revenues from properties owned throughout the two
periods increased 5.4%. The property revenue growth is a function of the
favorable market for rental rate increases and the improved conditions and
appearance of the subject properties. Property operating expenses increased
46.4% for the three months ended March 31, 1998 primarily as a result of the
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1997 and 1998 tender offers and limited partnership units acquired in
connection with the MAE GP Merger, offset by 1997 property sales. For
properties owned throughout both periods, property operating expenses increased
.6% for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997.
Interest expense of the IPT Partnerships increased 46.5% for the three
months ended March 31, 1998 primarily as a result of owning an interest in a
greater number of properties for the period as discussed above. Conversely,
with respect to properties owned throughout both periods, interest expense
decreased slightly by 1.2%. Administrative expenses increased 31.1% for the
three months ended March 31, 1998 as compared to the same period in 1997 after
adjusting for properties owned throughout both periods. The increase in
administrative expenses primarily resulted from increases in audit, legal and
other professional fees combined with fees and cost reimbursments to the
general partners. Depreciation expense increased 49.3% for the three months
ended March 31, 1998 compared to the three months ended March 31, 1997 due to
owning an interest in a greater number of properties during the period as a
result of the 1997 and 1998 tender offers and the acquisition of limited
partnership interests in connection with the MAE GP Merger. This increase was
slighly offset by 1997 property sales. For properties owned throughout both
periods, depreciation expense decreased .6%.
As a result of the foregoing factors, funds from operations improved
by 55.1% and the income from operations increased 71.3%. With respect to
properties owned throughout both periods, funds from operations increased 13.5%
and income from operations increased 52%.
Fiscal Year 1997 Compared to Fiscal Year 1996
The following table summarizes certain operating statement data
included in the Combined Financial Statements of IPT. The same data is also
presented for only those properties that were included in operating results for
the full year in each period. Amounts are shown before gains (losses) on
disposition of real property and/or extraordinary items.
<TABLE>
<CAPTION>
As Reported by Excluding Assets
the IPT Partnerships Sold During 1997 and 1996
---------------------------------------- ------------------------------------
Year Ended December 31, Year Ended December 31,
---------------------------------------- ------------------------------------
1997 1996 Change 1997 1996 Change
----------- ----------- ------------- ----------- ----------- ----------
( in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Property Revenues $ 283,668 $ 247,999 14.4% $ 248,105 $ 244,109 1.6%
Property Operating Expenses (152,502) (139,538) 9.3% (133,017) (137,009) (2.9)%
Interest Income 5,353 5,347 0.1% 5,044 5,344 (5.6)%
Interest Expense (57,794) (53,340) 8.4% (51,470) (52,328) (1.6)%
Administrative Expense (11,541) (10,405) 10.9% (9,230) (10,405) (11.3)%
---------- --------- ---------- ----------
Funds From Operations 67,184 50,063 34.2% 59,432 49,711 19.6%
Depreciation (57,416) (50,719) 13.2% (49,529) (49,814) (0.6)%
---------- --------- ---------- ----------
Income (Loss) from operations $ 9,768 $ (656) $ 9,903 $ (103)
========== ========== ========== ===========
</TABLE>
Property revenues for the year ended December 31, 1997 increased 14.4%
from the year ended December 31, 1996. The property revenue growth was
primarily due to increased ownership in a greater number of properties during
the period as a result of tender offers extended during 1997. This growth was
partially offset by the effects of one property foreclosed upon during 1996 and
three properties sold during the last half of 1997. Property revenues from
properties owned throughout the two periods increased slightly by 1.6%. The
property revenue growth is a function of the favorable market for rental rate
increases and the improved conditions and appearance of the subject properties.
Property operating expenses increased 9.3% for the year ended December 31, 1997
as a result of the 1997 tender offers, offset by 1997 property sales and the
1996 property foreclosure. For properties owned throughout both periods,
property operating expenses decreased 2.9% for the year ended December 31, 1997
compared to the year ended December 31, 1996.
Interest expense of the IPT Partnerships increased 8.4% for the year
ended December 31, 1997 primarily as a result of owning an interest in a
greater number of properties for the period as discussed above. Conversely,
with respect to properties owned throughout both periods, interest expense
decreased 1.6%. The decrease resulted primarily due to the aggregate mortgage
balances decreasing as a result of the refinancings that occurred in the second
half of
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1996 and a reduction in the interest rates for the related mortgages.
Administrative expenses decreased 11.3% for the year ended December 31, 1997 as
compared to the same period in 1996 after adjusting for properties owned
throughout both periods. The decrease in administrative expenses primarily
resulted from Insignia's economies of scale being applied to all of the IPT
Partnerships by the second half of 1996. Depreciation expense increased 13.2%
for the year ended December 31, 1997 compared to the year ended December 31,
1996 due to owning an interest in more properties during the period as a result
of the 1997 tender offers, slightly offset by property sales.
As a result of the foregoing factors, funds from operations improved
by 34.2% and the income from operations increased by $10.0 million for the year
ended December 31, 1997 as compared to the same period in 1996. With respect to
properties owned throughout both periods, funds from operations increased 19.6%
and income from operations increased $10 million.
Fiscal Year 1996 Compared to Fiscal Year 1995
The following table summarizes certain operating statement data
included in the Combined Financial Statements of IPT. The same data is also
present for only those properties that were included in operating results for
the full year in each period. Amounts are shown before gains (losses) on
disposition of real property and/or extraordinary items.
<TABLE>
<CAPTION>
As Reported by Excluding Assets
the IPT Partnerships Sold During 1996 and 1995
------------------------------------ ------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------ ------------------------------------
1996 1995 Change 1996 1995 Change
-------- --------- -------- ---------- ---------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Property Revenues $247,999 $ 239,335 3.6 % $ 247,701 $ 234,499 5.6 %
Property Operating Expenses (139,538) (132,986) 4.9 % (139,306) (129,752) 7.4 %
Interest Income 5,347 4,776 12.0 % 5,347 4,744 12.7 %
Interest Expense (53,340) (56,477) (5.6)% (53,243) (55,090) (3.4)%
Administrative Expense (10,405) (12,662) (17.8)% (10,405) (12,662) (17.8)%
-------- ---------- ---------- ----------
Funds From Operations 50,063 41,986 19.2 % 50,094 41,739 20.0 %
Depreciation (50,719) (50,844) (0.3)% (50,576) (49,723) 1.7 %
Provisions for Loss -- (8,255) n/a -- (8,055) n/a
-------- ---------- ---------- ----------
Loss from operations $ (656) $ (17,113) (96.2)% $ (482) $ (16,039) (97.0)%
======== ========== ========== ==========
</TABLE>
Property revenues for the year ended December 31, 1996 increased by
3.6% from the year ended December 31, 1995. This increase was a result of a
5.6% growth in property revenues from the properties owned throughout the two
periods, offset by the effects of three properties sold during 1996 and four
properties sold during 1995. Average occupancy was approximately 94% in each
period. The property revenue growth was a function of the favorable market for
rental rate increases and the improved condition and appearance of the subject
properties.
Property operating expenses increased by 4.9% due to a 7.4% increase
for the properties owned throughout the two periods reduced by the effect of
the property dispositions during 1995 and 1996. Approximately $4.0 million (or
3.0%) of the increased expenses was directly attributable to the general
improvement program for the properties and related to periodic major
maintenance expenses, such as exterior painting and general landscaping
changes. The remaining 4.4% increase in same property operating expenses is
primarily attributable to increased costs of operations.
Interest expense of the IPT Partnerships declined by 5.6%, with a
decline of 3.4% attributable solely to properties owned at the end of 1996.
This decline resulted primarily from the December 1995 refinancing which
reduced the related interest rates to 6.95%, and to a lesser extent from the
September 1996 refinancing which reduced related interest rates to 7.33%. These
rates permitted a reduction in total interest expense notwithstanding that the
aggregate mortgage balances increased by approximately $50.0 million in those
refinancing transactions. The increase in administrative expenses from 1995 to
1994 was reversed and administrative expenses decreased further as a result of
Insignia's economies of scale being applied to all of the IPT Partnerships by
the second half of 1996.
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<PAGE>
Depreciation of the IPT Partnerships declined modestly because the
effect of property sales was greater than the increase caused by capital
expenditures, and the writedown of assets in 1995 resulting from Insignia's
analysis of property carrying values was not present in 1996.
As a result of the foregoing factors, funds from operations improved
by 19.0% and the net loss declined from $17.1 million to approximately $0.7
million. With respect to properties owned throughout both periods, funds from
operations improved 20.0% and loss from operations improved $15.6 million.
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<PAGE>
AMIT SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain selected consolidated financial
data of AMIT. The selected consolidated financial data have been derived from
AMIT's consolidated financial statements and, in the opinion of management of
AMIT, include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The information set forth below is not
necessarily indicative of the results of future operations and should be read
in conjunction with AMIT's Consolidated Financial Statements and the related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of AMIT" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
[Unaudited]
Three Months ended March 31, Year Ended December 31,
---------------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ---------- --------- --------- -------- ------- ------
(In thousands, except share data) (In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue $ 1,060 $ 1,235 $ 7,199 $ 10,050 $ 19,502 $ 2,769 $4,307
Costs and expenses 76 353 1,650 964 2,213 2,396 3,017
Extraordinary item - - - - 1,844 - -
Net income 984 882 5,549 9,086 19,133 373 1,290
Per AMIT Class A Share:(a)
Income before
extraordinary item 0.37 0.33 2.10 3.33 5.77 0.11 0.38
Extraordinary item - - - - - 0.61 -
Net income 0.37 0.33 2.10 3.33 6.38 0.11 0.38
Cash distributions to AMIT
Class A shareholders 837 576 2,695 1,407 - - 573
Cash distributions per AMIT
Class A Share 0.32 0.22 1.03 0.52 - - 0.17
AMIT Class A Shares
outstanding at end of period 2,617,000 2,617,000 2,617,000 2,617,000 2,826,700 3,394,026 3,394,026
Weighted average AMIT
Class A Shares outstanding 2,617,000 2,617,000 2,617,000 2,704,375 2,968,532 3,394,026 3,394,026
BALANCE SHEET DATA
0 Total assets $51,151 $ 43,494 $ 46,530 $ 43,375 $ 37,332 $ 35,535 $29,327
Notes and advances
payable 4,525 - - - - 11,085 17,965
Shareholders' equity 46,089 43,394 45,942 43,088 37,139 22,510 22,137
</TABLE>
- --------------
(a) The net income per AMIT Class A Share was based on the weighted average
AMIT Class A Shares outstanding during each of the five years in the
period ended December 31, 1997, after deduction of the AMIT Class B
Shares' 1% interest.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMIT
The following discussion should be read in conjunction with "AMIT
Selected Consolidated Financial Data" and the AMIT Financial Statements and
Notes thereto appearing elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
During the three months ended March 31, 1998 total revenue and
interest income decreased by approximately 14% and 17%, respectively, when
compared to the three months ended March 31, 1997. Such decrease is primarily
due to the restructuring of the LaSalle loan during the first quarter ending
March 31, 1997 which resulted in the AMIT capitalizing into principal accrued
interest and late fees of $423,000. Recurring revenue and interest income has
increased by approximately 31% for the three months ended March 31, 1998 when
compared to the same period ended March 31, 1997, due primarily to newly funded
loans during 1997 in the amount of $13,867,000. Funds for such new loans in
1997 came from the repayment of non-performing loans and loans paying at a
lower rate of interest and from the sale of property obtained through
foreclosure.
The significant decrease in general and administrative expenses for
the quarter ended March 31, 1998 when compared to the previous quarter for the
same period, is due primarily to reversing expense accruals in the first
quarter of 1998 that were provided in 1997 for state income taxes and legal
fees in the amounts of $180,000 and $50,000, respectively. Such reversals
resulted in a reduction of actual general and administrative expense for the
quarter ended March 31, 1998 by $230,000. The general and administrative
expense, prior to such adjustments, for the three months ended March 31, 1998
was $286,000, resulting in a decrease of such expense when compared to the same
period ended March 31, 1997 by 15%. Such decrease is primarily due to reduced
legal expenses incurred by AMIT.
Fiscal Year 1997 Compared to Fiscal Year 1996
Total interest income for the year ended December 31, 1997 decreased
by 20% when compared to the same period ending in 1996. Such decrease is
primarily due to the restructuring and/or repayment of interest income not
previously recorded in the amount of $3.7 million during 1996 verses a total of
such similar interest income of $1.5 million during 1997. During 1997 AMIT
restructured three Hospitality Inn second mortgage loans, which occurred in
April 1997 and the LaSalle loan which was effective in February 1997. In
addition in 1997, AMIT received full repayment of the Carriage Hills note
payable in November 1997 and in December 1997 the reinstatement of the Brittany
Point loan as a current loan. Upon modifying the Hospitality Inns and LaSalle
loans, AMIT capitalized into principal accrued interest and late fees of
approximately $440,000 relating to the three Hospitality Inn second mortgage
loans, during the quarter ended June 30, 1997, and $409,000 for the LaSalle
loan during the first quarter ended March 31, 1997. During the quarter ended
December 31, 1997, in conjunction with the repayment of the Carriage Hills
note, AMIT received and realized interest income in the amount of $238,000,
which represented past due interest. Beginning in July 1997 AMIT began
receiving monthly interest payments at the stated interest rate on the Brittany
Point loan and as a result recognized $337,000 of past due interest as income.
Recurring interest income has increased 32% in 1997 when compared to 1996, in
the approximate amounts of $3,603,000 and $2,719,000, respectively, due to
previously modified loans which are now paying debt service either at the
stated interest rate or on a cash flow basis and newly funded loans during the
six months ended June 30, 1997 in the amount of $9,850,000. Funds for such new
loans came from the repayment of non-performing loans and loans paying at a
lower rate of interest and from the sale of a property obtained through
foreclosure.
AMIT recognized additional income for the year ended December 31, 1997
relating to recovery of bad debt. During the three months ended June 30, 1997,
AMIT received a partial principal repayment of $340,500 on a loan for which an
allowance for estimated loss has been previously provided and during the
quarter ended December 31, 1997 as discussed above, AMIT received full
repayment of principal on the Carriage Hills loan in the
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<PAGE>
amount of $1,404,000 for which an allowance for estimated loss had been
previously provided. In addition, AMIT recognized a gain from the sale of its
joint venture interest in the Rolling Greens property in the amount of $80,000,
which occurred in June 1997.
The 253% increase in legal fee expenses for the year ended December
31, 1997 when compared to the previous same period, is due to the settlement in
June 1996 of the state and federal claims AMIT brought against others relating
to the use of non-public information by a group of investors. In conjunction
with this settlement, AMIT offset $764,000 in settlement proceeds against legal
expenses in June 1996. In addition during the year ended December 31, 1997 AMIT
incurred legal expenses defending itself against a malicious prosecution case
brought against AMIT by one of the defendants in the state and federal insider
trading claims described above. In October 1997 the malicious prosecution case
was dismissed in favor of AMIT on summary judgment.
General and administrative expenses increased by 12% in 1997 when
compared to 1996. This increase is primarily due to AMIT no longer sharing its
office administrative expenses, effective November 1, 1996, with another trust,
Angeles Participating Mortgage Trust.
Fiscal Year 1996 Compared to Fiscal Year 1995
For the year ended December 31, 1996, total revenue decreased
significantly as compared to total revenue for the same period in 1995. The
decrease is due to the Angeles bankruptcy settlement of $12,844,000 which was
effective March 31, 1995. Simultaneous with the Angeles settlement, AMIT
settled its claims with the various partnerships associated with Insignia,
which resulted in extraordinary income of $1,844,000 resulting from AMIT being
able to negotiate the settlement of these claims at a discount. Total revenue
for the year ended December 31, 1996 represents a significant decrease from the
same period ended 1995 due to the two 1995 settlement transactions referred to
above.
Interest income for the year ended December 31, 1996 increased by
approximately 73% when compared to the year ended December 31, 1995. This
increase in 1996 is primarily due to the restructuring of AMIT's Arrowhead
loan, for which AMIT recognized approximately $2.8 million of interest income
and the pay off of the Fox Run and Harbour Landing loans for which AMIT
recognized approximately $900,000 of interest income not previous recorded due
to the doubtful nature of their collectability. Rental income grew during 1996
as the two University Center properties achieved greater occupancy in 1996 over
that of 1995.
In conjunction with the modification of the Arrowhead loan, AMIT held
a $1.2 million preferred partnership distribution interest which it received in
the Angeles bankruptcy settlement. At that time AMIT valued this interest at
zero as it had an indeterminable value when it was acquired. Upon modifying the
Arrowhead loan this preferred interest was rolled into the principal of the
restructured loan, and as a result AMIT recognized additional interest income
of $1.2 million. In addition, $2 million was recorded as recovery of bad debt
upon the full repayment of the $6.7 million Fox Run loan in December 1996.
Interest expense to the bank from which AMIT has obtained a line of
credit decreased as AMIT had no borrowings on the bank line of credit for the
year ending December 31, 1996, and only borrowed $430,000 for a three-day
period in June 1996. AMIT had an average month-end borrowing on the bank line
of credit of $2,075,000 in 1995.
During 1996 AMIT paid $9,000 for 1995 Minnesota state taxes due to the
fact that AMIT owns properties in that state and $10,000 and $120,000 in
alternative minimum tax for the 1995 and 1996 tax year, respectively, as AMIT
utilized its net operating losses to offset its 1995 and 1996 taxable income.
Prior to October 1996, AMIT shared its office administrative expenses along
with a portion of the salaries of its employees with another trust, Angeles
Participating Mortgage Trust ("APART"). Effective October 1996, AMIT employees
no longer provide any services to APART nor does APART operate in the same
offices as AMIT. As a result, beginning in October 1996, AMIT no longer
receives reimbursement of employee salary or general office expenses.
108
<PAGE>
Legal expenses for the year ended December 31, 1996 decreased
significantly when compared to the same period in 1995 as AMIT reached an
agreement to settle pending litigation in state and federal courts with all but
one defendant, relating to AMIT's complaint for damages arising from the use of
non-public information to acquire AMIT Class A Shares and alleged violations of
federal securities laws. AMIT, in settlement, received cash of $689,000 and a
$75,000 four year, 8% collateralized promissory note, with semi-annual interest
payments. This $764,000 portion of the settlement was recognized by AMIT as
income by offsetting legal expenses incurred by AMIT relating to the lawsuit.
In addition, AMIT acquired 209,700 AMIT Class A Shares for $1,730,000, or $8.25
per AMIT Class A Share and obtained a standstill agreement and a voting proxy,
controlled by the AMIT Board, on approximately 200,000 additional AMIT Class A
Shares until such shares are sold in the open market.
Fiscal Year 1995 Compared to Fiscal Year 1994
For the year ended December 31, 1995 total revenue increased
significantly as compared to total revenue for the same period in 1994. This
increase is primarily due to the Angeles bankruptcy settlement which was
effective March 31, 1995. AMIT recognized a recovery of bad debt of $12,844,000
as a result of the settlement, for which AMIT received proceeds of cash in
excess of $8 million on April 14, 1995. Simultaneous with the Angeles
settlement, AMIT settled its claims with the various partnerships then
associated with Insignia, which resulted in an extraordinary gain of $1,844,000
resulting from AMIT being able to negotiate the settlement of these claims at a
discount. During the year ended December 31, 1995, AMIT recorded an additional
$3,110,000 in recovery of other bad debts, which were associated with partial
principal repayments on loans which had allowances for estimated losses
recorded in addition to recording two properties AMIT received through
deeds-in-lieu of foreclosure at market value. Included in the $3,110,000 of
debt recovery, AMIT reversed $1,800,000 of allowance for estimated loss
relating to the Fox Run loans, based upon improved property performance, the
commencement of modified debt service in the fourth quarter of 1995 and an
anticipated refinancing of the mortgages on the property.
In addition, revenues increased in 1995 from 1994 as a result of a
$435,000 gain recognized from the $1,370,000 sale of the 4851 Van Epps
property. AMIT obtained title to this property through a deed-in-lieu of
foreclosure in September 1995, from its first trust deed mortgage on this
property.
Interest income for the twelve months ended December 31, 1995
increased approximately 12% or $318,000 when compared to the same period ended
in 1994. The increase is primarily related to two AMIT Loans: (1) recognition
of interest due to restructuring of past due interest into principal, the note
is currently performing; and (2) recognition of interest as a result of debt
satisfaction through a deed-in-lieu of foreclosure.
Property rental income and ownership expenses increased for the year
ended 1995 when compared to 1994 as AMIT owned up to five properties during
1995 compared to two properties owned in 1994.
In December 1995, AMIT sold the parcel of land it owned in Houston,
Texas for $1,500,000 and recognized a $3,000 loss from such sale.
Interest expense on AMIT's line of credit decreased as AMIT's average
month-end borrowings were $2,075,000 and $6,093,000 in 1995 and 1994,
respectively. Such decrease is offset by an increase in the weighted average
interest rate of 10.1% and 9.0% for the years ended December 31, 1995 and 1994,
respectively.
Other interest expense decreased for the twelve months ended December
31, 1995 when compared to the same period in 1994. Such interest expense is
associated with cash advances which had a balance of $7,585,000 as of December
31, 1994 and were paid effective March 31, 1995.
The increase in general and administrative expenses for the twelve
months ended December 31, 1995 when compared to the same period in 1994, is
primarily due to increased proxy solicitation costs of approximately $150,000
incurred as a result of a proxy contest in 1995. The increased legal fees were
associated with state claims brought by AMIT against a group of investors. AMIT
claimed the investors acquired AMIT Class A Shares based on insider information
and brought a federal claim against Morton Kirsch and Wherco, Inc. and others,
for deficiencies in information required to be filed and false and misleading
information filed by the defendants in
109
<PAGE>
public documents regarding AMIT. AMIT sought recovery of legal expenses in
connection with certain of these claims.
LIQUIDITY AND CAPITAL RESOURCES
In January 1998, AMIT funded a new loan in the amount of $1,000,000
secured by a first deed of trust on a 125,000 square foot warehouse facility
located in Memphis, Tennessee. This new loan requires monthly interest only
payments at an annual rate of 8% and matures in January 2008. In March 1998
AMIT purchased at par two first mortgage loans from an unaffiliated third party
for $3,865,000. These two mortgages are on three industrial warehouse
properties located in Cleveland, Ohio. AMIT began the foreclosure process on
these three properties in 1996 and expects to take title during the third
quarter of 1998. The foreclosure process on these three properties results from
AMIT obtaining judgement liens relating to recourse provisions on a defaulted
second mortgage loan held by AMIT. The debt service on the first mortgage loans
have been and continue to be current through the foreclosure process. These two
mortgage loans pay monthly interst only at an annual rate of 7.15% and mature
September 1, 1998.
As of April 30, 1998 AMIT has an outstanding commitment to fund a
first mortgage loan in the amount of $5,500,000 and to purchase a first
mortgage loan for approximately $4,250,000.
During the quarter ended March 31, 1998, AMIT had its largest mortgage
note receiveable prepay in full the outstanding principal balance of
$9,004,000. This loan, referred to as Lake Arrowhead, paid monthly interest
payments at the stated note rate of 10.20%. While AMIT had been able to commit
to fund new loans with such proceeds, it is unlikely it will be able to obtain
the same yield as the Lake Arrowhead loan due to the recent downward trend of
interest rates.
Until December 1996, AMIT invested in loans which were made
principally to partnerships that were affiliated with Angeles, the parent
company to AMIT's prior advisor, AFC, but the majority of which are now
controlled by IPT.
In May 1997, AMIT's line of credit, in the amount of $5 million, which
is secured by all of AMIT's assets, was renewed through October 1997, with the
ability to renew for an additional six months to April 1998 at AMIT's option.
The line of credit allows AMIT to draw on such line to facilitate the
foreclosure process on AMIT Loans. The line of credit requires monthly interest
only payments based upon prime plus 1/2% and a $12,500 commitment fee paid
quarterly. In October 1997 AMIT exercised its option to renew the line of
credit through April 1998 upon payment of an additional $12,500 commitment fee
to be paid in two quarterly installments. During the year ended December 31,
1997, AMIT did not draw on the line of credit.
AMIT's liquidity is dependent upon its borrowers having sufficient
cash to pay interest and principal payments as they become due. In February
1993, a significant number of the obligors of the AMIT Loans, including certain
partnerships now controlled by IPT, failed to service their debt obligations
under AMIT Loans. AMIT has since completed the process of restructuring the
AMIT Loans. Certain of the restructured loan terms include a reduction in the
interest rate, an extension of the loan term, payment of at least net cash flow
from the operation of the relevant property on a current basis and a modest
increase in the principal balance of the loan as consideration for the
modification.
Loans having a carrying value (net of loan loss reserves) of
approximately $1.3 million (or 3% of AMIT's net investments) are currently in
default with respect to debt service obligations. AMIT's lending is primarily
concentrated in secured and, to a lesser extent, unsecured real estate loans.
The realizable value of real estate collateralizing notes receivable or owned
from Loan foreclosures, can only be determined based upon a sales negotiation
between independent third parties in an arm's length transaction. In addition,
considering that, in most cases, it is the proceeds of sale and/or refinancing
which will enable AMIT to receive such funds, the actual proceeds may be
significantly impacted by the condition of the real estate industry at the time
the principal amounts become due or properties sold.
110
<PAGE>
During 1996 AMIT modified five loans referred to as Brittany Point,
Fox Crest, Carriage Hills, Vista Hills and Angeles Partners XIV-Waterford. In
connection with the modifications, AMIT extended the maturity dates on all of
the loans except for Angeles Partners XIV-Waterford, to December 31, 2000,
March 1, 2003, September 1, 2000 and September 1, 2002, respectively, and
capitalized approximately $320,000, $1,765,000, $204,000, $230,000 and
$134,000, respectively, of past due interest into principal. The modified notes
require payments only out of cash flows provided by the properties. AMIT did
not recognize any interest income in connection with these loan modifications.
AMIT received full and partial paydowns as follows:
Number of Paydown in
Year Loans millions
- ---- ----- --------
1995 6 $9.0
1996 10 $10.3
1997 11 $7.6
During the last quarter of 1996, AMIT modified and received a
significant repayment on two of AMIT's largest loans. In October 1996, the
Arrowhead Joint Venture $6 million loan (which was previously secured only by a
partnership interest), along with a related $1.2 million unsecured preferred
partnership distribution interest ("Preferred Interest"), was restructured to a
$9 million first trust deed mortgage, with a current effective interest rate of
10.02% reducing to a 9.8% rate upon repayment of $1.5 million which is expected
to occur in late 1998. The restructuring has resulted in AMIT significantly
strengthening the collateral on this loan along with increasing the annual debt
service on this loan by approximately $400,000. The $1.2 million Preferred
Interest was acquired in the settlement with Angeles and was initially valued
at zero as it had an indeterminable value when it was acquired. In addition,
AMIT capitalized approximately $1.7 million in deferred interest that was not
previously recognized in income, as full recovery of such interest was, until
the modification, considered doubtful.
In December 1996, AMIT received approximately $7 million from its
three Fox Run mortgages as a result of the borrower refinancing the property.
The $7 million of cash proceeds represented the full repayment of approximately
$6.7 million of principal on these three loans with the remainder representing
a portion of the accrued interest associated with the loans. In addition to
this repayment, AMIT took back a new third mortgage on the Fox Run property in
the amount of $875,000. The $875,000 is comprised of approximately $425,000 of
the remaining accrued interest from the three Fox Run loans and approximately
$450,000 of accrued interest and principal on the Angeles Partners XI-Harbour
Landing promissory note. AMIT recognized $2 million of bad debt recovery on
this transaction, and approximately $900,000 of interest income from accrued
interest not previously recognized, as full recovery of such interest was
indeterminable until the repayment.
In December 1996, AMIT, acquired, at par, three first mortgage loans
from an unaffiliated third party for approximately $2.9 million. These
mortgages are on three properties known as Hospitality Inns (three separate
properties and locations) on which AMIT also holds three second mortgages. All
of these six mortgages matured in October 1996, and AMIT entered into
negotiations with the borrowers which culminated in the restructure of the
indebtedness in mid-1997. The six loans were restructured into three loans
secured by first priority mortgages on the hotel properties owned by the
various borrowers as well as cross-collateralization of one of the loans by a
second priority mortgage on the hotel property owned by one of the other two
borrowers. The borrowers continued making debt service payments to AMIT
throughout the negotiation process.
In February 1997, AMIT made its first new loan since January 1993, in
the amount of $5,000,000, secured by first deeds of trust on three manufactured
home parks located in Texas. This new loan requires interest only payments at
8.9% and matures in December 2003. In April 1997, AMIT made a second new loan
in the amount of $2,950,000 secured by a first deed of trust on a 628,000
square foot industrial warehouse located in Martinsville, Virginia. This loan
requires interest only payments at 11% and matures in April 1998. In June, 1997
AMIT made a new first mortgage loan in the amount of $1,900,000 secured by four
manufactured home parks located in Wyoming. The new loan requires interest only
payments of 9.07% and matures in December 2003. In December 1997 AMIT made
three first mortgage loans in the amounts and terms as follows: $1,300,500 on a
111
<PAGE>
144,000 square foot office/warehouse facility located in Houston, Texas with an
8% interest rate, interest only payable monthly; $531,250 on a 56,080 square
foot industrial/warehouse located in Aiken, South Carolina with an 8% interest
rate, principal and interest payable monthly, with principal amortized over 20
years; and $2,185,000 on a 335,000 square foot industrial facility located in
Jackson, Tennessee, initially monthly interest only payable at a rate of 10
1/2%, with the interest rate reduced to 230 basis points over ten-year
Treasuries upon the debt coverage ratios increasing to a stipulated level. All
three of these December 1997 first mortgage loans mature in December 2007.
In December 1997 AMIT purchased a second mortgage loan with a face
amount of $375,000 for $384,000. This second mortgage loan is on a 186-unit
apartment complex, Silver Ridge Apartments, located in Maplewood, Minnesota.
The Silver Ridge second mortgage has an interest rate of 10% and default rate
of 12% and matured December 31, 1997. In addition, during 1997 AMIT obtained
judgment liens against the Silver Ridge Apartments property based upon recourse
provisions on other AMIT loans. Through one of these judgment liens AMIT
successfully foreclosed on the property in October 1997 and will be the owner
of the property after a twelve-month redemption period that ends in October
1998. On January 30, 1998, AMIT received title to Silver Ridge Apartments
through deed-in-lieu of foreclosure as a result of provisions in the second
mortgage held by AMIT. In connection with taking title to Silver Ridge
Apartments, AMIT assumed a first trust deed mortgage from a third party in the
amount of $4,525,000. This first mortgage provides for a variable interest rate
not to exceed 12%, interest only paid monthly, with a current interest rate of
3 1/2%. The loan matures in July 2023.
During 1995 AMIT foreclosed on University Center Phase IV and took
title to three properties through deeds-in-lieu of foreclosure. These
properties include 4851 Van Epps for which AMIT had commenced foreclosure
action in 1994. In October 1995, AMIT sold this property for $1,370,000,
receiving net cash proceeds of $580,000 and a first trust deed on the property
for $700,000. In addition, AMIT obtained title, through deeds-in-lieu of
foreclosure as a result of recourse provisions in a defaulted loan, on 4705 Van
Epps, an industrial warehouse located in Cleveland, Ohio and on University
Center I and II, office industrial property located in Fridley, Minnesota. In
addition, AMIT sold a parcel of land located in Houston, Texas for $1,500,000,
resulting in net cash proceeds of approximately $1,400,000. During 1996, AMIT
sold the 4705 Van Epps property in March 1996 for a sale price of $752,000 and
received net cash proceeds of approximately $677,000. In addition, AMIT
foreclosed on three properties during 1996, which included; Colony Cove a
200-acre parcel of raw land; Rolling Greens, in which AMIT has a 57% joint
venture interest in a 155-acre parcel of raw land and an 8,500 square foot
strip shopping center and Springdale a 443 pad mobile home park. In October
1996, AMIT sold Springdale for a $4 million sale price and received net cash
proceeds of approximately $1.1 million. In addition, during 1996, AMIT began
the foreclosure process on five properties, which include a first mortgage
referred to as LaSalle Warehouse (which was subsequently restructured and paid
in full during the quarter ended December 31, 1997), a second mortgage referred
to as Southgate Apartments and three industrial properties located in
Cleveland, Ohio. AMIT's interest in the Cleveland, Ohio properties, were
obtained from judgment liens relating to recourse provisions on a defaulted
second mortgage loan held by AMIT. AMIT anticipates that the foreclosure
process will be completed during 1998.
The settlement between AMIT and Angeles represented over $15 million
in various assets including $6 million in cash and a collateralized note. The
collateralized note due December 31, 1998, carries interest at prime plus one
percent with a maximum interest rate of 8.5%. The note was paid in full in
December 1997.
AMIT's management on a quarterly basis reviews the carrying value of
the AMIT Loans and properties held for sale. Generally accepted accounting
principles require that the carrying values of a note receivable or property
held for sale cannot exceed the lower of its cost or its estimated net
realizable value. The estimate of net realizable value is based on management's
review and evaluation of the collateral properties as well as recourse
provisions included in certain notes receivable. The allowance for loan loss as
of March 31, 1998 was approximately $8.8 million. However, the provision for
loss is an estimate which is inherently uncertain and depends on the outcome of
future events. AMIT's estimates are based on an analysis of the loan portfolio,
composition of the loan portfolio, the value of collateral and current economic
conditions.
AMIT believes that its current cash flow from operations is sufficient
to provide for payment of its operating costs and provide for distributions to
shareholders.
112
<PAGE>
During the year ended December 31, 1997, four AMIT loans prepaid the
total outstanding principal balance of $6,800,000 and another loan, referred to
by AMIT as Northprior, made a substantial repayment in the amount of $340,000.
The four loans which made full repayments are referred to by AMIT as Angeles
Partners X ($614,000), Angeles Corporation ($3,450,000), Carriage Hills
($1,404,000) and LaSalle ($1,334,000).
In October 1997 AMIT foreclosed on an additional 40 acres of raw land
adjacent to the 200-acre parcel of land foreclosed on in April 1996, referred
to as Colony Cove, in Ellenton, Florida. AMIT held a first trust deed in the
amount of $1,572,000 on the 200 acres and had recourse, through provisions on
the mortgage note, allowing for the foreclosure on the adjacent 40 acres. In
conjunction with the foreclosures, AMIT incurred approximately $178,000 in
expenses, which was capitalized into the cost of the property. AMIT did not
recognize any income or loss from such foreclosures. During 1997 AMIT entered
into a contract to sell approximately 224 acres of this property zoned
residential, for $8,500 per acre. The contract requires the sale to close in
the latter part of 1998, although there can be no assurances that this
transaction will occur. Subsequent to 1997, in January 1998 AMIT received cash
of approximately $160,000 through garnishment of all of the borrowers bank
accounts, this amount reduced the carrying value of the Colony Cove property.
In June 1997 the Rolling Greens property was sold for $1,175,000 of
which $665,000 represented AMIT's portion of the 57% joint venture proceeds of
the sale and cash held by the joint venture partnership.
In December 1997 AMIT wrote off a promissory note, with a principal
outstanding balance of $1,530,000 referred to by AMIT as Vista Hills. Based
upon AMIT's evaluation of the property operations and discussions with the
borrower regarding the likelihood of foreclosure by the first lien holder in
1998, AMIT believed there would be no recovery in the future. The borrower had
indicated to AMIT that the property would most likely be foreclosed upon by the
first lien holder during 1998. AMIT had previously fully provided for loan loss
reserves for this loan and did not realize any loss or gain from the sale.
113
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements have been prepared from, and should be read in conjunction with, the
historical financial statements and related notes thereto of IPT and AMIT
included elsewhere herein, and are not necessarily indicative of the financial
position or operating results that would have occurred had the transactions
described below been in effect on the dates indicated.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1998 gives effect to the Merger as if effected at March 31, 1998.
The Unaudited Pro Forma Condensed Consolidated Statement of Income
for the three months ended March 31, 1998 and the year ended December 31, 1997
gives effect to the Merger as if effected at January 1, 1997. The Unaudited Pro
Forma Condensed Consolidated Statements of Income for the year ended December
31, 1997 also gives effect to (i) the completion of the tender offers commenced
on August 28, 1997 by a wholly-owned subsidiary of IPLP for limited partner
interests, (ii) the completion of the tender offers commenced on October 30,
1997 by a wholly-owned subsidiary of IPLP for limited partner interests, (iii)
the elimination of the Advisory Agreement and related issuance of 510,000
restricted IPT Common Shares to certain executive officers of IPT and the
additional issuance of 38,000 IPT Common Shares to other officers and employees
of IPT pursuant to the 1997 Share Incentive Plan, (iv) the exercise of the
Shelter IV Option and (v) the acquisitions of additional limited partner
interests in certain IPT Partnership from High River, as if effected at January
1, 1997.
114
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(In thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
IPT AMIT ADJUSTMENTS BALANCE SHEET
---------------- ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 23,338 $ 10,860 $ 34,198
Accounts receivable 1 615 616
Mortgage notes receivable 31,921 a) $ (8,826) 23,095
Promissory notes receivable
(primarily due from
affiliates) 6,789 6,789
Allowance for estimated
losses on mortgage notes
and promissory notes
receivable (8,826) a) 8,826
Investments in real estate
limited partnerships 177,681 177,681
Apartment property and
other real estate 26,003 8,730 a) (2,613) 32,120
Other assets 7,068 1,062 a) (1,200) 6,930
------------ ------------ ----------- ---------------
Total assets $ 234,091 $ 51,151 $ (3,813) $ 281,429
============ ============ =========== ===============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Accounts payable - due to
Insignia $ 160 $ 160
Distributions payable to 1,490 1,490
Insignia
Distributions payable 2,914 2,914
Accrued expenses 1,272 $ 537 a) $ 1,200 3,009
Non-recourse mortgage notes 21,957 4,525 26,482
------------ ------------ ----------- ---------------
Total liabilities 27,793 5,062 1,200 34,055
Minority interests in IPLP 56,984 56,984
Shareholders' equity:
Preferred shares, issued
and outstanding, none
Common shares, issued and
outstanding IPT
19,427,360, AMIT
2,617,000 (Class A) and
1,675,113 (Class B) and
IPT pro forma 23,499,761 194 2,631 a) (2,590) 235
Additional paid-in capital 154,984 50,199 a) (9,164) 196,019
Unearned compensation (5,462) (5,462)
Distributions in excess of
accumulated earnings (402) (6,741) a) 6,741 (402)
------------ ----------- ----------- --------------
Total shareholders' equity 149,314 46,089 (5,013) 190,390
------------ ------------ ---------- --------------
Total liabilities and
shareholders' equity $ 234,091 $ 51,151 $ (3,813) $ 281,429
============ ============ =========== ==============
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
115
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Pro Forma Adjustments
a) Represents adjustment to record initial estimated fair value
allocation of purchase price, the elimination of AMIT's shareholders'
equity under the purchase method of accounting and the issuance of
approximately 4,072,001 IPT Common Shares in connection with the
Merger, and estimated costs of $2,400,000 related to the Merger.
Purchase price and related costs (in thousands, except share data):
Issuance of 4,072,001 IPT Common Shares
at $10.00 per share $40,720
Estimated Registration Costs (200)
-------
Net Proceeds of Issuance 40,520
Professional Fees and other liabilities 2,400
-------
Purchase Price of Class A Common Shares 42,920
Less: Costs paid through March 31, 1998 (1,200)
-------
$41,720
=======
Under purchase accounting, AMIT's assets and liabilities are required
to be adjusted to their estimated fair values:
Net Assets
Increase/Decrease
Amounts reported by AMIT $46,089
Class B Shares Held by an Affiliate (556)
Fair value adjustments:
Apartment property and other real estate (2,613)
-------
$42,920
=======
116
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA
INCOME
IPT AMIT STATEMENT
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Rental income $ 1,771 $ 87 $ 1,858
Equity earnings - limited partnership
interests 3,361 3,361
Interest income 973 973
Other 625 625
----------- ----------- -----------
5,757 1,060 6,817
EXPENSES
Property operating expenses 890 890
Administrative 352 56 408
Apartment property interest 406 406
Apartment property depreciation 271 271
Amortization 251 20 271
----------- ----------- -----------
2,170 76 2,246
----------- ----------- -----------
Income before minority interest and sale
of properties 3,587 984 4,571
Minority interest in IPLP and
consolidated subsidiaries 1,533 1,533
----------- ----------- -----------
Income before extraordinary item $ 2,054 $ 984 $ 3,038
=========== =========== ===========
Income before extraordinary item per
common share $ 0.11 $ 0.13
=========== ===========
Weighted average number of shares
outstanding and common share
equivalents 18,835,911 23,126,761
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Statements of Income
117
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA INCOME
IPT AMIT ADJUSTMENTS STATEMENT
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 6,646 $ 266 $ 6,912
Equity earnings - limited
partnership interests 8,062 a) $ 2,370 10,701
b) 269
Interest income 5,109 5,109
Recovery of bad debts 1,744 1,744
Other 2,118 c) 2,200 4,318
----------- ------------ -------------- ------------
16,826 7,119 4,839 28,784
EXPENSES
Property operating expenses 3,258 56 3,314
Administrative 1,314 1,351 c) 2,427 5,092
Apartment property interest 1,486 1,486
Apartment property
depreciation 966 966
Amortization 285 63 d) 240 588
Income taxes 180 180
Other interest 47 47
----------- ------------ -------------- ------------
7,356 1,650 2,667 11,673
----------- ------------ -------------- ------------
Income before minority
interest and sale
of properties 9,470 5,469 2,172 17,111
Minority interests in IPLP and
consolidated subsidiaries 4,440 e) 314 4,754
----------- ------------ -------------- ------------
Income before gain on sale
of properties 5,030 5,469 1,858 12,357
Gain on sale of properties
(net of minority interest) 1,044 80 1,124
----------- ------------ -------------- ------------
Income before extraordinary
item $ 6,074 $ 5,549 $ 1,858 $ 13,481
=========== ============ ============== ============
Income before extraordinary
item per common share $ 0.40 $ 0.58
=========== ============
Weighted average number of
shares outstanding and
common share equivalents 14,694,327 23,099,361
=========== ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Statements of Income
118
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The Unaudited Pro Forma Condensed Consolidated Statement of Income
for the three months ended March 31, 1998 gives effect to the Merger.
The Unaudited Pro Forma Condensed Consolidated Statement of Income for the
year ended December 31, 1997 gives effect to (i) the Merger, (ii) the
completion of the tender offers commenced on August 28, 1997 by a wholly-owned
subsidiary of IPLP for limited partner interests, (iii) the completion of the
tender offers commenced on October 30, 1997 by a wholly-owned subsidiary of
IPLP for limited partner interests, (iv) the elimination of the Advisory
Agreement and related issuance of 510,000 restricted IPT Common Shares to
certain executive officers of IPT and the additional issuance of 38,000 IPT
Common Shares to other officers and employees of IPT pursuant to the 1997 Share
Incentive Plan, (v) the exercise of the Shelter IV Option, (vi) the
acquisitions of additional limited partner interests in certain IPT
Partnerships from High River, as if effected at January 1, 1997.
Pro Forma Adjustments
a) Represents additional equity earnings from acquisition of investments in
partnerships in 1997 as if such investments were acquired at the beginning
of the period.
b) Represents additional equity earnings from Shelter Properties IV Limited
Partnership as a result of the exercise of the Shelter IV Option.
c) The Company had an advisory agreement with Insignia Financial Group, Inc.
which was terminated effective December 31, 1997. The following
adjustments reflect elimination of the Advisory Agreement.
Represents cost reimbursements and partnership fees earned in accordance
with the terms of certain agreements transferred to IPT as a result of
the elimination of the Advisory Agreement resulting in additional
revenues of $2,200,000 for the year ended December 31, 1997.
Represents expense adjustment for the elimination of the Advisory
Agreement at December 31, 1997 (in thousands).
Compensation expense related to the 510,000
restricted IPT Common Shares issued to
certain Insignia employees and the additional issuance
of 38,000 IPT Common Shares to certain other officers
and employees of IPT under the 1997 Share Incentive
Plan, which vest ratably over 5 years $1,154
Administrative expenses including salaries,
professional services and rents 2,273
Elimination of Advisory Agreement Fee expenses in the
1997 historical financial statements (1,000)
-------
$2,427
=======
d) Represents adjustment for amortization of estimated formation costs of
$2,200,000 which are being amortized over a five year period.
e) Represents adjusted minority interest to reflect the aforementioned
events. Minority interest in IPLP is reflected at 29.7% and minority
interest in NPI 4 is reflected at 37.4%.
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<PAGE>
MANAGEMENT OF IPT
BOARD OF TRUSTEES
After the consummation of the Merger, the IPT Board will consist of
seven members, four of whom also serve as officers of Insignia (including one
who is also a director of Insignia). The IPT Board has the power to expand the
size of the IPT Board and to appoint additional trustees to fill newly created
seats and vacancies. The trustees are classified, with respect to the terms for
which they severally hold offices, into three classes of staggered three-year
terms. Any trustee may resign by written notice to the remaining trustees, and
may be removed only for fraud or willful malfeasance by the affirmative votes
of not less than two-thirds of the IPT Common Shares then outstanding and
entitled to vote in the election of trustees. Any vacancies on the IPT Board,
whether resulting from resignation, removal or death, or an increase in the
number of trustees, may be filled by a majority of the trustees of the same
class as the vacant trustee then in office, or by the sole remaining trustee of
that class or if there are no remaining trustees of that class, by the vote of
a majority of the remaining trustees, in each case even if less than a quorum.
The trustees are and will be indemnified against certain liabilities under
Maryland law, the Declaration of Trust and Bylaws of IPT and the Partnership
Agreement of IPLP. See "Comparison of Shareholder Rights--Limited Liability and
Indemnification of Trustees, Officers, Employees and other Agents."
The following table identifies the existing trustees of IPT and the
additional trustees who will be appointed upon consummation of the Merger,
together with their respective ages and positions with IPT.
Existing Trustees
Name Age Positions
---- --- ---------
Andrew L. Farkas 37 Trustee, Chairman of the Board of
Trustees, Chief Executive Officer
James A. Aston 45 Trustee, President
Frank M. Garrison 42 Trustee, Executive Managing
Director
Trustees to be Appointed Upon Consummation of the Merger
Name Age Positions
---- --- ---------
Ronald J. Consiglio 54 Trustee, Managing Director
Warren M. Eckstein 37 Trustee
Bryan L. Herrmann 62 Trustee
Ronald Uretta 42 Trustee, Treasurer
Andrew L. Farkas has served as a trustee of IPT since December 1996,
and has served as its Chairman and the Chief Executive Officer of IPT since
January 1997. Mr. Farkas has been a Director and Chairman, President and Chief
Executive Officer of Insignia since its inception in January 1991. Mr. Farkas
has also been President of Metropolitan Asset Group, Ltd., a real estate
investment banking firm, since 1983. Mr. Farkas' term as a trustee of IPT will
expire at the annual meeting of the shareholders of IPT held in the year 2000.
Mr. Farkas is primarily engaged in the management and affairs of Insignia and
is involved in IPT affairs only to the extent of strategic planning and capital
formation.
James A. Aston has served as a trustee and President of IPT since its
inception in May 1996. Mr. Aston's principal employment has been with Insignia
for more than the past five years, and he currently serves as Chief Financial
Officer of Insignia (since August 1996) and with the office of the Chairman
(since July 1994). Mr. Aston's term as a trustee of IPT will expire at the
annual meeting of the shareholders of IPT held in the year 1999. Mr. Aston will
divide his time between the affairs of Insignia and the affairs of IPT as
necessary.
Frank M. Garrison has served as a trustee of IPT since December 1996
and is an Executive Managing Director of IPT. He has also served in various
other officer capacities with IPT since December 1996.
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<PAGE>
Mr. Garrison's principal employment has been with Insignia for more than the
past five years, and he currently serves as Executive Managing Director of
Insignia and President of Insignia Financial Services, a division of Insignia
(in each case since July 1994). Mr. Garrison's term as a trustee of IPT will
expire at the annual meeting of the shareholders of IPT held in the year 1998.
Ronald J. Consiglio will be appointed as a trustee of IPT upon
consummation of the Merger. Mr. Consiglio has been a trustee of AMIT since
April 1988 and has served as the Chairman, Chief Executive Officer and
President of AMIT since May 1993. In addition, he was the Chairman of AMIT's
Audit Committee in 1993 and became the Chairman of the Independent Committee
upon its formation in February 1993. Upon formation of AMIT's Executive
Committee in May 1995, Mr. Consiglio served as its Chairman. From January 1993
through June 1993, he served as Executive Vice President and Chief
Administrative Officer of Reynolds Kendrick Sexton, Inc., a Los Angeles based
securities brokerage firm. Mr. Consiglio also serves as a trustee of APART, an
American Stock Exchange company. Upon consummation of the Merger, Mr. Consiglio
will also serve as a Managing Director of IPT. Mr. Consiglio's term as a
trustee of IPT will expire at the annual meeting of the shareholders of IPT
held in the year 2000.
Warren M. Eckstein will be appointed as a trustee of IPT upon
consummation of the Merger. Mr. Eckstein has been Managing Director--Investment
Banking of Paine Webber Incorporated since October 1996. Prior to October 1996,
Mr. Eckstein served as Senior Vice President, Investment Banking, of Dillon,
Reed & Co., Inc. Mr. Eckstein's term as a trustee of IPT will expire at the
annual meeting of the shareholders of IPT held in the year 1999.
Bryan L. Herrmann will be appointed as a trustee of IPT upon
consummation of the Merger. Mr. Herrmann has been a trustee of AMIT since
December 1994 and is a member of the Compensation and Executive Committees and
serves as the Chairman of the Compensation Committee. Mr. Herrmann is an
investment banker by background and currently is Chairman and Chief Executive
Officer of Base Camp 9 Corp., a position he has held since 1990. Mr. Herrmann
is also a member of the board of directors of Wynn's International, Inc., a ASE
company. Mr. Herrmann's term as a trustee of IPT will expire at the annual
meeting of the shareholders of IPT held in the year 2001.
Ronald Uretta will be appointed as a trustee of IPT upon consummation
of the Merger. Mr. Uretta has served in various officer capacities with IPT
since December 1996 and currently serves as its Treasurer. Mr. Uretta's
principal employment has been with Insignia for more than the past five years,
and he currently serves as Chief Operating Officer (since August 1996) and
Treasurer (since January 1992) of Insignia. Mr. Uretta's term as a trustee of
IPT will expire at the annual meeting of the shareholders of IPT held in the
year 2000. Mr. Uretta is primarily engaged in the affairs of Insignia.
COMMITTEES OF THE IPT BOARD
The IPT Board has two committees -- an Audit Committee and a
Compensation Committee.
Audit Committee. Mr. Aston is currently the sole member of the Audit
Committee. Upon consummation of the Merger, the Audit Committee will be
comprised of two independent trustees (Messrs. Eckstein and Herrmann) and one
inside trustee (Mr. Aston). The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of IPT's internal
accounting controls.
Compensation Committee. Mr. Farkas is currently the sole member of the
Compensation Committee. Upon consummation of the Merger, the Compensation
Committee will be comprised of two independent trustees (Messrs. Eckstein and
Herrmann) and one inside trustee (Mr. Farkas). The Compensation Committee
determines the compensation for IPT's executive officers and administers IPT's
1997 Share Incentive Plan.
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<PAGE>
COMPENSATION OF TRUSTEES
Each trustee of IPT who is not also an officer of Insignia will
receive a board retainer of $12,000 per year, and each trustee of IPT who is
not also an officer of IPT or Insignia will receive additional compensation in
the amount of $2,000 for each regular meeting of the IPT Board he attends in
person and $500 for each regular meeting attended via telephone. In addition,
each trustee who is a member of the Audit Committee or the Compensation
Committee (and who is not an officer of IPT or Insignia) will receive $1,000
for each committee meeting attended, whether in person or by telephone. Each
trustee may, in lieu of receiving the above described compensation, direct that
such compensation be paid to a charitable organization of his choice. Mr.
Eckstein has indicated that it is his intent to do so. All trustees of IPT are
eligible to receive grants of options to purchase IPT Common Shares and
restricted IPT Common Shares under the terms of IPT's 1997 Share Incentive
Plan. See "--1997 Share Incentive Plan" below.
EXECUTIVE OFFICERS
The following table identifies the individuals who will serve as the
executive officers of IPT upon consummation of the Merger and their respective
ages and offices they will hold with IPT. Each person will serve until his
successor is appointed by the IPT Board.
Officers Who Will Not Serve as Full-Time Employees of IPT
Name Age Office
---- --- ------
Andrew L. Farkas 37 Chief Executive Officer
James A. Aston 45 President
Jeffrey P. Cohen 30 Senior Vice President; Secretary
Frank M. Garrison 42 Executive Managing Director
Ronald Uretta 42 Treasurer
Officers Who Will Serve as Full-Time Employees of IPT
Name Age Office
---- --- ------
Carroll D. Vinson 56 Chief Operating Officer
Ronald J. Consiglio 54 Managing Director
William H. Jarrard, Jr. 51 Senior Vice President--Operations
William D. Falls 33 Controller
Jeffrey P. Cohen has served in various capacities with IPT since June
1997 and currently serves as a Senior Vice President and the Secretary of IPT.
Since April 1997, Mr. Cohen's principal occupation has been to serve as a
Senior Vice President--Investment Banking of Insignia. Prior to April 1997, Mr.
Cohen's principal occupation was as an attorney with the law firm of Rogers &
Wells, New York, New York. Mr. Cohen is primarily engaged in the affairs of
Insignia.
Carroll D. Vinson has served as Chief Operating Officer of IPT since
May 1997. Since August 1994, Mr. Vinson's principal occupation has been to
serve as president of the various corporate general partners of partnerships
now controlled by IPT. During 1993 until August 1994, Mr. Vinson was affiliated
with Crisp, Hughes & Co. (a regional CPA firm) and engaged in various other
investment and consulting activities. Briefly, in early 1993, Mr. Vinson served
as President and Chief Executive Officer of Angeles Corporation, a real estate
investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia in
various capacities. Mr. Vinson will devote substantially all of his time to the
affairs of IPT and the IPT Partnerships.
William H. Jarrard, Jr. has served in various capacities with IPT
since December 1996 and currently serves as Senior Vice President--Operations.
Mr. Jarrard's principal employment has been with Insignia for more than the
past five years in various executive officer positions. Mr. Jarrard will devote
substantially all of his time to the affairs of IPT and the IPT Partnerships.
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<PAGE>
William D. Falls has served as the Controller of IPT since August
1997. Since April 1995, Mr. Falls' principal occupation has been to serve as an
accountant with Insignia. Prior to April 1995, Mr. Falls' principal occupation
was as a senior auditor with the accounting firm of Ernst & Young LLP. Mr.
Falls will devote substantially all of his time to the affairs of IPT.
EXECUTIVE COMPENSATION
Full Time Executive Officers
Because IPT was an externally advised and managed REIT and had no
employees until the termination of the Advisory Agreement in February 1998
(with retroactive effect to January 1, 1998), IPT paid no cash compensation to
its executive officers prior to that time. Upon the termination of the Advisory
Agreement, the twelve employees of Insignia who worked almost exclusively on
IPT matters, three of whom are executive officers of IPT, became employees of
IPT and will receive cash salaries from IPT for fiscal year 1998. In addition,
in February 1998 these three executive officers were granted an aggregate of
22,000 restricted IPT Common Shares, which shares will vest ratably over five
years commencing on September 31, 1998 and will be issued only upon vesting.
The 22,000 restricted IPT Common Shares were allocated 10,000 to Mr. Vinson,
10,000 to Mr. Jarrard and 2,000 to Mr. Falls. See "--1997 Share Incentive Plan"
below.
Non-Full Time Executive Officers
The non-full time executive officers of IPT do not receive any direct
cash compensation for their services from IPT. Rather, in connection with the
termination of the Advisory Agreement those individuals were awarded an
aggregate of 457,500 restricted IPT Common Shares in February 1998, which
shares will vest ratably over five years commencing in February 1999 (or, in
certain cases, upon a change of control of IPT) and were issued at the
beginning of the restriction period. The 457,500 restricted IPT Common Shares
were allocated 150,000 to Mr. Farkas, 100,000 each to Messrs. Aston, Garrison
and Uretta, and 7,500 to Mr. Cohen. See "--1997 Share Incentive Plan" below.
EMPLOYMENT AGREEMENTS
Upon consummation of the Merger, IPT will enter into a three-year
employment agreement with Ronald J. Consiglio, which will provide (i) for base
annual compensation in the amount of $276,000 and an annual bonus of not less
than $90,000, (ii) for severance payments in the event of death, disability,
termination by IPT without cause, or voluntary resignation by Mr. Consiglio
occurring within twelve months of his initial employment, (iii) that Mr.
Consiglio must devote his full business time to the affairs of IPT, provided
however, that Mr. Consiglio's work days and work hours will be substantially
similar to the work days and work hours that Mr. Consiglio devoted to AMIT, and
(iv) that, subject to certain exceptions, during the term of his employment Mr.
Consiglio is prohibited from engaging, directly or indirectly, in any activity
that competes with IPT. The agreement will also provide that for a period of
one year following the cessation of Mr. Consiglio's employment with IPT (two
years in the event that Mr. Consiglio voluntarily terminates such employment),
Mr. Consiglio may not purchase, acquire or participate in the acquisition of
(i) any assets, securities or debt of IPT or any of its affiliates or
subsidiaries, (ii) limited partner or general partner interests in any
partnership affiliated with IPT or any of its affiliates or subsidiaries or
owning multifamily housing or commercial properties managed by IPT or any of
its affiliates or subsidiaries, (iii) interests in entities owning or
controlling, directly or indirectly, limited or general partner interests in
such partnerships or otherwise acting, directly or indirectly, as general
partner of such partnerships. The agreement will be automatically renewed for
successive one-year periods unless otherwise terminated.
Mr. Consiglio has the option at any time during the first twelve
months of his employment to terminate his employment by delivering written
notice to IPT. Provided that Mr. Consiglio is not at any time following such
termination in breach of the terms of his employment agreement, Mr. Consiglio
shall be entitled to (i) immediately be paid an amount equal to the aggregate
of twice (a) his base salary then in effect, and (b) a bonus payment described
above, and (ii) the continuance of health coverage or payment of an equivalent
premium amount for
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<PAGE>
substantially similar health coverage, at IPT's expense, for Mr. Consiglio and
his spouse and dependents for two years following the cessation of Mr.
Consiglio's employment with IPT. If IPT terminates the employment agreement
without cause, Mr. Consiglio shall be entitled to (i) an amount equal to the
aggregate of (a) his base salary plus (b) the bonus paid to him in the prior
calendar year, multiplied by the number of years remaining in the employment
term, and (ii) the continuance of health coverage for himself, his spouse and
dependents for the remainder of the employment term.
1997 SHARE INCENTIVE PLAN
General
IPT adopted the 1997 Share Incentive Plan in August 1997 for the
purpose of attracting and retaining executive officers, trustees and employees.
In general, all employees (including officers) and trustees of, and consultants
to, IPT are eligible to participate in the 1997 Share Incentive Plan, including
employees of Insignia. Upon consummation of the Merger, the 1997 Share
Incentive Plan will be administered by the Compensation Committee of the IPT
Board (the 1997 Share Incentive Plan is currently administered by the full IPT
Board).
The 1997 Share Incentive Plan authorizes the granting of awards with
respect to up to 1,200,000 IPT Common Shares. The 1997 Share Incentive Plan
provides for the grant of awards of (i) options to purchase IPT Common Shares
intended to qualify as incentive stock options under section 422 of the Code
("Incentive Share Options"), (ii) options to purchase IPT Common Shares not
intended to qualify as incentive stock options under Section 422 of the code
("Nonqualified Share Options"), and (iii) "restricted" IPT Common Shares which
vest over time or on the attainment of specified performance goals or other
criteria as prescribed by the Compensation Committee. Awards are documented by
written agreements between the holder of the award and IPT.
Options
The Compensation Committee will determine the option exercise schedule
(which may not commence prior to six months from the option grant date) and any
vesting requirements in connection with any grant of options under the 1997
Share Incentive Plan. Options may be exercised by paying the purchase price in
cash or surrendering IPT Common Shares already owned by the option holder. An
option may not be exercised for a fractional IPT Common Share and an option
holder will have not rights as a shareholder with respect to the IPT Common
Shares subject to his option unless and until the option is exercised.
The Compensation Committee has the discretion to determine the
exercise price of options granted under the 1997 Share Incentive Plan; however,
the exercise price per share of an Incentive Share Option may not be less than
100% of the fair market value of an IPT Common Share on the date of grant. In
addition, an Incentive Share Option granted to a holder of more than 10% of the
total combined voting power of all of the shares of beneficial interest of IPT
or any subsidiary must have an exercise price of at least 110% of the fair
market value of an IPT Common Share on the date of grant and by its terms must
not be exercisable after the expiration of five years from the date it is
granted.
At or prior to the exercise of vested Nonqualified Share Options, the
Compensation Committee will have the discretion to permit the option holder, in
lieu of purchasing the entire number of IPT Common Shares subject to purchase
under such options, to relinquish all or part of the unexercised portion of the
option for cash in the amount of the difference between the aggregate value of
the IPT Common Shares subject to the option and the aggregate exercise price of
the option. The option holder may elect to have this amount paid in IPT Common
Shares instead of cash.
If a holder of an option award dies or becomes totally disabled, all
outstanding options covered thereby will become immediately exercisable in full
and will thereafter be exercisable for one year after the date of death or
total disability (but not later than the scheduled expiration of such options).
If a holder of an option award ceases to be an employee or consultant (other
than because of death or total disability) prior to complete exercise thereof,
then the options covered thereby will be exercisable only to the extent
provided in the applicable option
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<PAGE>
agreement. However, if a holder of an option award ceases to be an employee or
consultant as a result of a termination for "cause," then all options covered
thereby will immediately terminate.
Restricted Shares
Restricted shares granted by the Compensation Committee are awards of
IPT Common Shares which vest in the holder only after termination of a
restriction period. The Compensation Committee may determine the price, if any,
to be paid by the holder for the restricted shares and has discretion to
determine whether IPT Common Shares covered by such awards will be issued at
the beginning or end of a restriction period and whether dividend equivalents
will be paid during the restriction period. The vesting of restricted shares
may be dependent upon the passage of time and/or the fulfillment of employment
or other conditions, including performance goals. Restricted Shares issued at
the end of a restriction period will not constitute issued or outstanding
shares for any purpose unless and until vested. Restricted shares which are
issued at the beginning of a restriction period, however, will constitute
issued and outstanding IPT Common Shares for all purposes. Accordingly, the
holder of restricted shares issued at the beginning of a restriction period
will have the right to vote such IPT Common Shares and to receive and retain
all regular cash distributions or any other similar distributions from IPT.
However, such a holder will not be entitled to delivery of any share
certificate or certificates evidencing the shares until the restriction period
expires and the shares vest. Other than regular cash dividends and any other
distributions that the Compensation Committee may in its discretion designate,
IPT will retain custody of all distributions made or declared with respect to
any restricted shares until vesting thereof, and any such retained
distributions will not bear interest or be segregated in a separate account.
In connection with any award of restricted IPT Common Shares, a
provision may be made for the payment of a cash amount to the holder at any
time after the restricted shares become vested. Any such cash award will be
payable in accordance with any additional restrictions, terms and conditions as
prescribed by the Compensation Committee in the applicable restricted share
agreement.
In the event of the death of a holder of restricted shares, the
restriction period applicable to the award will be deemed to have expired and
all such restricted shares will become vested. If a holder of restricted shares
ceases to be an employee or consultant (other than because of death or total
disability) prior to the vesting thereof, then such restricted shares will vest
only to the extent provided in the applicable restricted share agreement.
However, if a holder of unvested restricted shares ceases to be an employee or
consultant as a result of a termination for "cause," then the holder's rights
to all such restricted shares (and any cash awards) will be forfeited
immediately.
The 510,000 restricted IPT Common Shares granted in connection with
the termination of the Advisory Agreement were issued at the beginning of the
restriction period and, therefore, the holders are entitled to receive and
retain all regular cash distributions paid by IPT in respect thereof. In
addition, the vesting of such restricted IPT Common Shares is, in certain
cases, automatically accelerated upon a change in control of IPT. The 22,000
restricted IPT Common Shares issued to Messrs. Vinson, Jarrard and Falls were
not issued at the beginning of the restriction period, and the vesting of those
shares does not accelerate automatically upon a change of control of IPT.
Miscellaneous
In general, neither options nor restricted shares may be sold,
assigned, pledged or transferred prior to exercise, in the case of options, or
vesting, in the case of restricted shares. However, subject to the prior
consent of the Compensation Committee, Nonqualified Share Options may be
transferred by the holder to one or more "permitted transferees" if there is no
consideration for the transfer and certain other requirements are met. For this
purpose, a "permitted transferee" means any member of the holder's "immediate
family," a trust established for the exclusive benefit of such immediate family
members or a partnership in which immediate family members are the only
partners; and "immediate family" means spouses, children, step-children and
grandchildren including relationships arising from adoption.
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<PAGE>
The Compensation Committee may, at any time before termination of an
option or lapsing of restrictions on restricted shares, accelerate the time or
times at which options may be exercised or restricted shares may vest. However,
unless otherwise provided in an applicable option or restricted share
agreement, a change of control of IPT will not cause options to become fully
exercisable or cause restricted shares to become fully vested.
The Compensation Committee may make or provide for such adjustments in
the number of IPT Common Shares available for awards under the 1997 Share
Incentive Plan or in the number of shares for which outstanding awards have
been granted as it determines is appropriate in order to prevent dilution or
enlargement of the rights of holders or to otherwise recognize the effects of
any share split, share dividend, combination or reclassification of shares,
recapitalization or reorganization, spin-off, liquidation or similar
transaction. In addition, the exercise price or purchase price applicable to
awards may be similarly adjusted in such events.
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<PAGE>
PRINCIPAL SECURITY HOLDERS OF IPT
The following table sets forth certain information regarding the
beneficial ownership of IPT Common Shares by (i) each person who is known to be
a beneficial owner of more than 5% of the outstanding IPT Common Shares, (ii)
each trustee of IPT, and (iii) the trustees and executive officers of IPT as a
group, in each case as of ___________, 1998 and immediately after consummation
of the Merger. Unless otherwise indicated in the footnotes, all of such IPT
Common Shares are owned directly, and the indicated person has sole voting and
investment power with respect thereto.
As of ___________, 1998, there were 19,427,760 IPT Common Shares
outstanding and 9,934,475 OP Units outstanding not held by IPT.
<TABLE>
Prior to the Merger After the Effective Time
------------------- ------------------------
Number of Number of
Name of Owner or Shares Bene- % of Class Shares Bene- % of Class
Identity of Group ficially Owned Outstanding ficially Owned Outstanding
- ----------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Insignia(1) (2) 22,395,087 76.2% 22,587,010 67.6%
MAE 755,436 3.9% 807,943 3.4%
Andrew L. Farkas(3) 175,400 0.9% 175,400 0.7%
High River Limited Partnership 1,000,000 5.1% 1,000,000 4.3%
767 Fifth Avenue
New York, New York 10153
Blackacre - IPT LLC 1,000,000 5.1% 1,000,000 4.3%
450 Park Avenue, 28th Floor
New York, New York 10022
Spruce Investors, LLC 1,000,000 5.1% 1,000,000 4.3%
c/o Arlen Capital Advisors
1650 Hotel Circle North, Suite 200
San Diego, California 92108
James A. Aston(4) (5) 108,000 0.6% 108,000 0.5%
Frank M. Garrison(4) (5) 105,400 0.6% 105,400 0.5%
Ronald Uretta(4) (5) 105,300 0.6% 105,300 0.5%
Warren Eckstein -- -- -- --
Ronald J. Consiglio(6) -- -- 22,540 0.1%
Bryan L. Herrmann(6) -- -- 6,953 *
All trustees and executive officers
as a group (11 individuals) 506,702 2.6% 549,948 2.3%
</TABLE>
- ------------------
* Less than 0.1%
(1) Assumes that all OP Units held by Insignia are either redeemed for cash or
acquired by IPT in exchange for IPT Common Shares. Also assumes that all
restricted IPT Common Shares held by such persons are vested.
(2) Includes (i) IPT Common Shares held through subsidiaries of Insignia, and
(ii) IPT Common Shares owned by the current executive officers, trustees
and directors of IPT and Insignia.
(3) Includes 150,000 restricted IPT Common Shares owned by such person, none
of which are vested yet.
(4) Includes certain IPT Common Shares owned by such individual's immediate
family.
(5) Includes 100,000 restricted IPT Common Shares owned by such person, none
of which are vested yet.
(6) Represents IPT Common Shares to be issued in the Merger in exchange for
the AMIT Class A Shares owned by such individuals.
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<PAGE>
PRINCIPAL SECURITY HOLDERS OF AMIT
The following table sets forth certain information regarding the
beneficial ownership of AMIT Class A Shares and AMIT Class B Shares for (i)
each person known to be a beneficial owner of more than 5% of AMIT Class A
Shares; (ii) each trustee of AMIT; and (iii) the trustees and executive
officers of AMIT as a group. There are no other trustees or officers of AMIT
who beneficially own either AMIT Class A Shares or AMIT Class B Shares. Unless
otherwise indicated in the footnotes, all of such interests are owned directly,
and the indicated person has sole voting and investment power.
<TABLE>
<CAPTION>
Name of Owner or Number of Shares % of
Identity of Group Title of Class Beneficially Owned Class Outstanding
- ----------------- -------------- ------------------ -----------------
<S> <C> <C> <C>
Gotham Partners, L.P. and Class A 249,700 9.5%
Gotham Partners II, L.P.
East 42nd Street, 18th Floor
New York, New York 10017
Wayne M. Cooperman and Class A 225,300 8.6%
Ricky C. Sandler(1)
Ronald J. Consiglio Class A 14,750 0.6%
Bryan L. Herrmann Class A 4,550 0.2%
J. D'Arcy Chisholm Class A 1,728 *
MAE (2) Class B 1,675,113 100%
All trustees and executive
officers as a group (3 individuals) Class A 21,028 0.8%
Class B -- 0.0%
</TABLE>
- -------------------
* Less than 0.1%
(1) The AMIT Class A Shares are held through Fusion Partners, L.P. and Fusion
Offshore Fund Limited, a British Virgin Islands corporation. The
individuals are the general partners of Fusion Partners, L.P. and the
principals of the investment manager of Fusion Offshore Fund Limited.
(2) The AMIT Class B Shares held by MAE are subject to the Class B Voting
Proxy and the Stock Option Agreement.
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CAPITALIZATION
The following table sets forth the capitalization of IPT as of March
31, 1998 and as adjusted to give effect to the consummation of the Merger, the
Private Offerings, the exercise of the Shelter IV Option and the MAE GP Merger
and the related contributions of interests by MAE and Insignia to IPLP.
<TABLE>
<CAPTION>
At March 31, 1998
---------------------------
Historical Pro Forma
---------- ---------
(in thousands)
<S> <C> <C>
Debt:
Non-recourse mortgage notes(1) $ 21,957 $ 26,482
Minority interest in IPLP 56,984 56,984
Preferred Shares, par value $.01 per share -
authorized 100,000,000 shares, none issued
and outstanding -- --
Common Shares, par value $.01 per share -
authorized 400,000,000 shares, issued and
outstanding 19,427,760 (historical)
23,499,761 (pro forma) 194 235
Unearned compensation (5,462) (5,462)
Additional paid-in capital 154,984 196,019
Distributions in excess of accumulated earnings (402) (402)
-------- --------
Total shareholders' equity 149,314 190,390
-------- --------
Total capitalization $228,255 $273,856
======== ========
</TABLE>
(1) See Notes to Consolidated and Combined Financial Statements of IPT
contained elsewhere in this Proxy Statement/Prospectus for information
relating to the indebtedness.
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DISTRIBUTIONS
IPT intends to make periodic distributions to its shareholders to the
extent necessary to satisfy the annual distribution requirements of a REIT
under the Code. In general, such requirements provide that at least 95% of
IPT's REIT taxable income must be distributed annually. Under certain
circumstances, it may be necessary for IPT to borrow or liquidate investments
to satisfy its distribution requirements as a REIT.
In August 1997, the IPT Board adopted a policy to pay regular
quarterly distributions in an amount equal to $.15 per IPT Common Share which
will be increased to $.16 per IPT Common Share beginning with the first
quarterly distribution for which the record date is after the Effective Time,
although IPT is not obligated to do so and there can be no assurance that IPT
will pay such distributions. IPT is currently paying regular quarterly
distributions of $.15 per IPT Common Share in accordance with this policy. This
distribution policy was intended to approximately equal, on an adjusted share
basis, the $1.00 per AMIT Class A Share distributions being paid by AMIT during
the negotiations of the Merger Agreement. IPT believes that these distributions
will exceed the 95% distribution requirement exclusive of gains from the sales
of property. Pursuant to its current distribution policy, IPT paid
distributions of $.15 per IPT Common Share on November 17, 1997 to shareholders
of record on October 31, 1997, on January 15, 1998 to shareholders of record on
December 23, 1997 and on April 15, 1998 to shareholders of record on March 23,
1998. In December 1996 and January 1997, IPT and IPLP made distributions to its
shareholders and partners, respectively, of which approximately $10 million was
to Insignia and its affiliates.
Distributions by IPT to the extent of its current and accumulated
earnings and profits (excluding distributions that are designated by IPT as
capital gain dividends) generally will be taxable to shareholders as ordinary
dividend income for federal income tax purposes. In general, distributions in
excess of current and accumulated earnings and profits will be treated as a
nontaxable reduction of a shareholder's basis in its IPT Common Shares to the
extent thereof, and thereafter as taxable gain. Distributions that are treated
as a reduction of a shareholder's basis in its IPT Common Shares will have the
effect of deferring taxation until the sale of a shareholder's IPT Common
Shares.
IPT may designate distributions as capital gain dividends to the
extent that such dividends do not exceed IPT's net capital gain for the
applicable fiscal years, and such capital gain distributions will be taxable to
shareholders as capital gain income. Alternatively, pursuant to newly enacted
tax legislation, IPT can elect to retain capital gains otherwise required to be
distributed and instead may pay a tax on such retained amounts. Each
shareholder will report such retained amounts as if such amounts had been
distributed directly to such shareholder and will receive, as an offset of the
tax thereon, a credit for its proportionate share of the taxes paid by IPT on
the retained capital gains as if such shareholder had paid the tax directly.
Under newly enacted tax legislation, the capital gains rates with
respect to individual shareholders has changed. Generally, for capital gains
recognized after July 28, 1997, the maximum tax rate on those gains will be 20%
(10% for individuals in the 15% tax bracket) if the taxpayer holds the asset
for more than 18 months and 28% for those assets held for more than 12 months
and not more than 18 months. However, the new tax legislation provides that
Treasury regulations may be issued to apply the new capital gain tax rates to
pass-through entities (including a REIT). Thus, how these regulations may
effect holders of IPT shares is uncertain. See "Certain Federal Income Tax
Considerations--Taxation of U.S. Shareholders--Taxation of Taxable Domestic
Shareholders."
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST OF IPT
The following summary of the terms of the shares of beneficial
interest of IPT does not purport to be complete and is subject to and qualified
in its entirety by reference to IPT's Declaration of Trust and Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which
this Proxy Statement/Prospectus forms a part.
GENERAL
The IPT's Declaration of Trust provides that IPT may issue up to
400,000,000 IPT Common Shares and 100,000,000 preferred shares of beneficial
interest, $.01 par value per share ("Preferred Shares"). Upon completion of the
Merger, approximately 23,499,762 IPT Common Shares will be issued and
outstanding and no Preferred Shares will be issued and outstanding. As
permitted by Maryland law, IPT's Declaration of Trust contains a provision
permitting the IPT Board, without any action by the shareholders of IPT, to
amend IPT's Declaration of Trust to increase or decrease the aggregate number
of shares of beneficial interest or the number of shares of any class of shares
of beneficial interest that IPT has authority to issue. IPT believes that the
power of the IPT Board to issue additional shares of beneficial interest will
provide IPT with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The
additional shares of beneficial interest, including possibly IPT Common Shares,
will be available for issuance without further action by IPT's shareholders,
unless action by the shareholders is required by applicable law or the rules of
any stock exchange or automated quotation system on which IPT's securities may
be listed or traded. Although the IPT Board currently has no intention of doing
so, it could authorize IPT to issue a class or series that could, depending on
the terms of such class or series, delay, defer or prevent a transaction or a
change in control of IPT that might involve a premium for the IPT Common Shares
and might otherwise be in the best interests of the shareholders of IPT.
COMMON SHARES
Subject to the preferential rights of any other shares or series of
beneficial interest and to the provisions of IPT Declaration of Trust regarding
the restriction of the transfer of shares of beneficial interest, holders of
IPT Common Shares are entitled to receive dividends on shares if, as and when
authorized and declared by the IPT Board out of assets legally available
therefor and to share ratably in the assets of IPT legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of IPT.
Each outstanding IPT Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as provided with respect to any other class or series of
shares of beneficial interest, the holders of such IPT Common Shares possess
the exclusive voting power. There is no cumulative voting in the election of
trustees, which means that the holders of a majority of the outstanding IPT
Common Shares can elect all of the trustees then standing for election and the
holders of the remaining shares will not be able to elect any trustees.
Holders of IPT Common Shares have no preference, conversion, sinking
fund, redemption or appraisal rights and have no preemptive rights to subscribe
for any securities of IPT. Subject to the provisions of IPT's Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
IPT Common Shares have equal dividend, distribution, liquidation and other
rights.
Under Maryland law, a Maryland real estate investment trust generally
cannot dissolve, amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in
the real estate investment trust's declaration of trust. IPT's Declaration of
Trust, other than provisions therein relating to (i) trustees, (ii) changes in
capital structure, (iii) related party transactions, (iv) duration of IPT, (v)
restrictions on transfers, (vi) limitations on trustee liability, (vii)
exemptions to the excess share provisions, and (viii) certain exemptions from
the provisions of Maryland law, may be amended only by the affirmative vote of
the holders of not less than a majority of the IPT Common Shares
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then outstanding and entitled to vote thereon. The provisions described in
clauses (i)-(viii) in the preceding sentence may be amended only by the
affirmative vote of the holders not less than two-thirds of the IPT Common
Shares then outstanding. Under Maryland law, a declaration of trust may permit
the trustees by a two-thirds vote to amend the declaration of trust from time
to time to qualify as a real estate investment trust under the Code or Maryland
law without the approval of the shareholders. IPT's Declaration of Trust
permits such action by the IPT Board. In addition, as permitted by Maryland
law, IPT's Declaration of Trust contains a provision permitting the IPT Board,
without any action by the shareholders of IPT, to amend IPT's Declaration of
Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that IPT has authority to issue.
PREFERRED SHARES
IPT's Declaration of Trust authorizes the IPT Board to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more
series, as authorized by the IPT Board. Prior to issuance of shares of each
series, the IPT Board is required by Maryland law and IPT's Declaration of
Trust to set for each such series, subject to the provisions of IPT's
Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Thus, the IPT Board could authorize the issuance of Preferred Shares with terms
and conditions which could have the effect of delaying, deferring or preventing
a transaction or a change in control of IPT that might involve a premium for
holders of IPT Common Shares or otherwise might be in their best interests. As
of the date hereof, no Preferred Shares are outstanding and IPT has no present
plans to issue any Preferred Shares.
CLASSIFICATION OR RECLASSIFICATION OF IPT COMMON SHARES OR PREFERRED SHARES
IPT's Declaration of Trust authorizes the IPT Board to classify or
reclassify any unissued IPT Common Shares or Preferred Shares into one or more
classes or series of shares of beneficial interest by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of such new class or series of shares of beneficial
interest.
DISTRIBUTIONS AND LIQUIDATION RIGHTS
Subject to any preferential rights of any outstanding series of
Preferred Shares, the holders of IPT Common Shares are entitled to such
distributions as may be declared from time to time by the IPT Board from funds
available therefor, and upon liquidation are entitled to receive pro rata all
of the assets of IPT available for distribution to such holders. See
"Distributions."
REGISTRATION RIGHTS
Pursuant to certain agreements entered into in connection with the
formation of IPT and the Private Offering, if IPT has not registered the IPT
Common Shares under the Exchange Act and listed such IPT Common Shares on a
national securities exchange or the NASDAQ within five years of the date the
IPT Common Shares were purchased in the Private Offering, then Insignia and its
affiliates and each purchaser of IPT Common Shares in the Private Offering
holding not less than 50,000 IPT Common Shares have the right to demand
registration of all, but not less than all, of the IPT Common Shares held by
each such holder (collectively, the "Registration Rights Holders" and each a
"Registration Rights Holder"). Upon such demand, IPT is required to use
reasonable efforts to effect the registration under the Securities Act of such
IPT Common Shares. IPT may in its good faith judgment defer any such
registration if it is not in the best interests of IPT and its shareholders for
a period of not more than 120 days; provided, however, that during such time
IPT may not file a registration statement for securities to be issued and sold
for its own account or that of any other shareholder.
Under the same agreements, if IPT at any time proposes to register any
IPT Common Shares in an offering of IPT Common Shares for cash, whether or not
for sale for its own account, it will give written notice of its
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intention to do so to the Registration Rights Holders. Upon the written request
of any Registration Rights Holder (which request shall specify the IPT Common
Shares intended to be disposed of by such holder and the intended method of
disposition thereof), IPT will use reasonable efforts to effect the
registration under the Securities Act of all IPT Common Shares which IPT has
been so requested to register by the requesting Registration Rights Holder, to
the extent required to permit the disposition of the IPT Common Shares so to be
registered, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, IPT shall
determine for any reason not to register or to delay registration of such
securities, IPT may, at its election, not register or delay the registration
after giving written notice of such determination to each of the requesting
Registration Rights Holders.
If a registration described in the preceding paragraph involves an
underwritten offering of securities and the managing underwriter of such
underwritten offering informs IPT and any Registration Rights Holders
requesting such registration by letter of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering, then IPT shall be
entitled to reduce the aggregate number of securities to be included in such
registration, with participation in the offering being allocated first, for the
account of IPT, and second, pro rata among all Registration Rights Holders of
IPT Common Shares requesting registration pursuant to the preceding paragraph.
Notwithstanding any of the foregoing, IPT shall not be required to
register any IPT Common Shares if, in the opinion of its counsel, the
Registration Rights Holders requesting registration are permitted to sell such
IPT Common Shares to the public without registration under the Securities Act.
Additionally, IPT has granted certain registration rights to Insignia
in the event that Insignia requests a redemption of all or a portion of its OP
Units and IPT elects to redeem such OP Units in exchange for IPT Common Shares.
IPT has agreed that, upon written request by Insignia, IPT will file with the
Commission a shelf registration statement pursuant to Rule 415 under the
Securities Act covering all of the IPT Common Shares that may be issued upon a
redemption of all of the OP Units held by Insignia and arrange for the listing
of such IPT Common Shares on the ASE.
SHARE OWNERSHIP LIMITATIONS; RESTRICTIONS ON TRANSFER OF IPT COMMON SHARES
For IPT to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of IPT's outstanding shares
of beneficial interest may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year, and IPT must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. See "Certain Federal Income Tax
Considerations--Taxation Requirements--Organizational Requirements."
Because the IPT Board believes it is essential for IPT to continue to
qualify as a REIT, IPT's Declaration of Trust, subject to certain exceptions
described below, provides that no person may own, or be deemed to own by virtue
of the attribution provisions of the Code, more than the lesser of (i) 9.8% of
the number of outstanding shares of beneficial interest of IPT (except for
Insignia and its affiliates, including Andrew L. Farkas) and (ii) 9.8% of the
value of the outstanding IPT Common Shares and Preferred Shares (the "Ownership
Limitation"). Any transfer of IPT Common Shares or Preferred Shares that would
(i) result in any person (other than Insignia and its affiliates) owning,
directly or indirectly, IPT Common Shares or Preferred Shares in excess of the
Ownership Limitation, (ii) result in the IPT Common Shares and Preferred Shares
being owned by fewer than 100 persons (determined without reference to any
rules of attribution) or (iii) result in IPT being "closely held" within the
meaning of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights in such IPT Common Shares or Preferred
Shares.
Subject to certain exceptions described below, if any purported
transfer of IPT Common Shares or Preferred Shares would (i) result in any
person owning, directly or indirectly, IPT Common Shares or Preferred Shares in
excess of the Ownership Limitation, (ii) result in the IPT Common Shares and
Preferred Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), or (iii) result in the
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Company being "closely held" within the meaning of Section 856(h) of the Code,
the IPT Common Shares or Preferred Shares, as the case may be, will be
designated as "Excess Shares" and transferred automatically to a trust (the
"Special Trust"). The trustee of the Special Trust (the "Special Trustee") will
be designated by IPT but will not be affiliated with IPT or any prohibited
transferee or purported owner (the "Purported Owner") of the Excess Shares. The
beneficiary of the Special Trust (the "Beneficiary") will be one or more
charitable organizations that are named by the Special Trustee.
Excess Shares will remain issued and outstanding shares and will be
entitled to the same rights and privileges as all other shares of the same
class or series. The Special Trust will receive all dividends and distributions
on the Excess Shares and will hold such dividends and distributions in trust
for the benefit of the Beneficiary. The Special Trustee will vote all Excess
Shares.
The Purported Owner with respect to Excess Shares will be required to
repay to the Special Trust the amount of any dividends or distributions
received by the Purported Owner that are attributable to any Excess Shares. The
Purported Owner generally will receive from the Special Trustee the lesser of
(i) the price per share such Purported Owner paid for the IPT Common Shares or
Preferred Shares that were designated as Excess Shares (or, in the case of a
gift or devise, the Market Price (as defined below) per share on the date of
such transfer) and (ii) the price per share received by the Special Trustee
from the sale of such Excess Shares. Any amounts received by the Special
Trustee in excess of the amounts to be paid to the Purported Owner will be
distributed to the Beneficiary.
The Excess Shares will be deemed to have been offered for sale to IPT,
or its designee, at a price per share equal to (i) in the case of Excess Shares
resulting from a purported transfer, the lesser of (a) the price per share in
the transaction that created such Excess Shares (or, in the case of a gift or
devise, the Market Price per share on the date of such transfer) or (b) the
Market Price per share on the date that IPT, or its designee, accepts such
offer; and (ii) in the case of Excess Shares created by an event other than a
purported transfer (including, without limitation, a change in IPT's capital
structure), the lesser of (a) the Market Price of such Shares that were
converted into such Excess Shares on the date of such conversion and (b) the
Market Price of such shares on the date IPT or its designee accepts such offer.
IPT will have the right to accept such offer for a period of 90 days after the
later of (i) the date of the purported transfer or other event which resulted
in such Excess Shares and (ii) the date the IPT Board determines in good faith
that a transfer or other event resulting in such Excess Shares occurred.
"Market Price" means, with respect to IPT Common Shares or Preferred
Shares, the last reported sales price reported on the ASE of such class of
shares on the trading day immediately preceding the relevant date, or if not
then traded on the ASE, the last reported sales price on the trading day
immediately preceding the relevant date as reported on any exchange or
quotation system on which the IPT Common Shares or Preferred Shares may be
traded, or if not then traded over any exchange or quotation system, then the
market price of the IPT Common Shares or Preferred Shares on the relevant date
as determined in good faith by the IPT Board.
Any person who acquired or attempts to acquire IPT Common Shares or
Preferred Shares in violation of the foregoing restrictions, or any person who
is a transferee such that Excess Shares result, will be required to give
immediate written notice or, in the event of a proposed or attempted
acquisition, give at least 15 days prior written notice, to IPT of such event
and shall provide to IPT such other information as IPT may request in order to
determine the effect, if any, of such acquisition or attempted acquisition on
IPT's status as a REIT.
IPT's Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as provided in the tax
regulations promulgated under the Code) of the number or value of the
outstanding IPT Common Shares and Preferred Shares, within 30 days after
January 1 of each year (or within such shorter period as may reasonably be
required by IPT) to provide written notice to IPT stating the name and address
of such direct or indirect owner, the number of IPT Common Shares and Preferred
Shares owned directly or indirectly, and a description of how such shares are
held. In addition, each direct or indirect shareholder will provide to IPT such
additional information as IPT may request in order to determine the effect, if
any, of such ownership on IPT's status as a REIT.
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In addition, the IPT Board, upon receipt of a ruling from the Service
or an opinion of counsel and upon such evidence satisfactory to the IPT Board,
may exempt a person from the Ownership Limitation under certain circumstances.
The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of IPT that might involve a
premium for the IPT Common Shares or otherwise be in the best interest of the
shareholders of IPT.
All certificates representing IPT Common Shares or Preferred Shares
will bear a legend referring to the restrictions described above.
EXCHANGE OF OP UNITS INTO IPT COMMON SHARES
Any holder of OP Units may, at any time after one year from the
issuance of such OP Units, request redemption of his OP Units as described
under "The Partnership Agreement of IPLP--Redemption Rights" herein. IPT may
elect to satisfy such rights by issuing IPT Common Shares in exchange for OP
Units at the rate of one IPT Common Share for each OP Unit. With each exchange
of OP Units for IPT Common Shares, IPT's ownership interest in IPLP will
increase and the voting percentage in IPT of each shareholder of IPT will be
diluted. Additionally, IPT has granted certain registration rights to Insignia
in the event that Insignia requests the redemption of any OP Units held by it
and IPT elects to exchange IPT Common Shares for such OP Units. See
"--Registration Rights" above.
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COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, all shareholders of AMIT immediately
prior to the effective time will become shareholders of IPT. The following is a
comparison of the principal rights of shareholders of AMIT under its charter
documents and California law and the rights of shareholders of IPT under its
charter documents and Maryland law. Although there are substantive differences
between California and Maryland law and between the AMIT and IPT charter
documents, AMIT does not believe that such changes will result in any material
detriment to its shareholders. These comparisons are summaries and do not
purport to be complete and are qualified in their entirety by reference to the
applicable laws and the charter documents.
It should be noted that the provisions of California statutory law
governing REITs do not provide a comprehensive set of rules for governance in
the same way that the statutes governing corporations and partnerships do.
Maryland, on the other hand, has a comprehensive statute that covers a number
of areas that are not addressed by California statutory law.
BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland real estate investment trust and any person who beneficially owns 10%
or more of the voting power of the trust's shares or an affiliate of the trust
which, at any time within the two-year period prior to the date in question,
was the beneficial owner of 10% or more of the voting power of the trust's
shares (an "Interested Shareholder") are prohibited for five years after the
most recent date on which the Interested Shareholder became an Interested
Shareholder and thereafter must be (i) recommended by the board of trustees of
such trust and (ii) approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the trust
and (b) two-thirds of the votes entitled to be cast by holders of outstanding
voting shares other than shares held by the Interested Shareholder with whom
the business combination is to be effected, unless, among other things, the
trust's common shareholders receive a minimum price (as defined in the statute)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Shareholder for his shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of trustees of the trust prior to the
time that the Interested Shareholder becomes an Interested Shareholder. IPT's
Declaration of Trust contains provisions exempting Insignia, any successor to
Insignia, any affiliate of Insignia or successor thereto, Andrew L. Farkas and
any affiliate of Andrew L. Farkas from the provisions of the business
combination statute. In addition, in connection with the proposed
Insignia/AIMCO Merger and the IPT/AIMCO Merger contemplated thereby, the IPT
Board adopted a revocable resolution exempting AIMCO from the provisions of the
business combination statute.
California statutory law has no statute similar to the Maryland law
governing business combinations. The California REIT statute permits mergers
and consolidations of REITs that are governed by California law only if (i) the
other party or parties to the transaction are REITs that have qualified their
shares for sale in California or are limited partnerships and (ii) authority
for the merger or consolidation and the procedures for accomplishing the
transaction are set forth in the declaration of trust. Accordingly, AMIT has
proposed the Trust Amendment and the approval of the Merger Proposal, which
includes the Trust Amendment, by the shareholders of AMIT is a condition to the
Merger.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland real estate
investment trust acquired in a "Control Share Acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of beneficial interest
owned by the acquirer or by officers or trustees who are employees of the
trust. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously
acquired by the acquirer or in respect of which the acquirer is able to
exercise or direct the exercise of voting power in electing trustees, fall
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a
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majority, or (iii) a majority of all voting power. Control Shares do not
include capital stock that the acquiring person is then entitled to vote as a
result of having previously obtained shareholder approval. A "Control Share
Acquisition" means the acquisition of Control Shares, subject to certain
exceptions.
A person who has made or proposes to make a Control Share Acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider voting
rights for the shares. If no request for a meeting is made, the trust may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the Control Shares, as of the date of the last
Control Share acquisition by the acquirer or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders' meeting and
the acquirer becomes entitled to vote a majority of the shares of beneficial
interest entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares of beneficial interest as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquirer in the Control Share acquisition.
The Control Share Acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the trust is a party
to the transaction, or to acquisitions approved or exempted by the Declaration
of Trust or Bylaws of the trust. The Declaration of Trust and Bylaws contain
provisions exempting Insignia, any successor to Insignia, any affiliate of
Insignia or successor thereto, Andrew L. Farkas and any affiliate of Andrew L.
Farkas from the provisions of the Control Share Acquisition statute. In
addition, in connection with the proposed Insignia/AIMCO Merger and the
IPT/AIMCO Merger contemplated thereby, the IPT Board intends, but is not
obligated, to amend the bylaws of IPT to exempt AIMCO from the provisions of
the Control Share Acquisition statute.
California statutory REIT law contains no provisions similar to the
Maryland "Control Share acquisition" provisions.
SHAREHOLDERS' MEETINGS
The IPT Declaration of Trust provides for an annual meeting of
shareholders to be held upon reasonable notice and within a reasonable period
(not less than 30 days) following delivery of IPT's annual report, but in any
event such meeting must be held within six months after the end of each full
fiscal year of IPT. Special meetings of shareholders may be called by a
majority of the IPT Board or by the Chairman of the Board or President of IPT
and may be called upon the written request of shareholders holding in the
aggregate not less that 25% of the outstanding IPT Common Shares entitled to
vote. Written notice stating the place, date and hour of the shareholders'
meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 10 nor more than
60 days before the day of the meeting to each holder of record.
The AMIT Declaration of Trust likewise requires that an annual meeting
of shareholders be held in the first six months of the year. The Trustees'
Regulations of AMIT specify that the annual meeting will be held on the last
Friday of April. No annual meeting will be held in 1997 because of the pendency
of the transaction with IPT. Special meetings of the shareholders may be called
by the chairman of the board of trustees, or at least two of the other
trustees, and shall be called upon the written request of shareholders holding
not less than 20% of the outstanding AMIT Class A Shares or 20% of the
outstanding AMIT Class B Shares. The management of AMIT believes that no single
shareholder of AMIT other than MAE has a right to compel a special meeting of
the shareholders.
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LIMITED LIABILITY AND INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
OTHER AGENTS
IPT's Declaration of Trust and Bylaws limit the liability of IPT's
trustees and officers to IPT and its shareholders for monetary damages to the
fullest extent permitted under Maryland law and provide that a trustee or
officer may be indemnified against judgments, penalties, fines, settlements,
and reasonable expenses actually incurred in a proceeding unless the following
can be established: (i) the act, or omission of the trustee or officer was
material to the cause of action adjudicated in the proceeding, and was
committed in bad faith or was the result of active and deliberate dishonesty;
(ii) the trustee or officer actually received an improper personal benefit in
money, property or services; or (iii) with respect to any criminal proceeding,
the trustee or officer had reasonable cause to believe his act or omission was
unlawful. Such indemnification or any agreement to hold harmless is recoverable
only out of the assets of IPT and not from the shareholders.
This provision does not reduce the exposure of trustees and officers
to liability under federal or state securities laws, nor does it limit the
shareholders' ability to obtain injunctive relief or other equitable remedies
for a violation of a trustee's or an officer's duties to IPT or its
shareholders, although such equitable remedies may not be an effective remedy
in certain circumstances.
In addition, IPT may, at the discretion of the IPT Board, indemnify
employees or agents of IPT. Pursuant to IPT's Declaration of Trust, IPT is
required to advance to any person who is eligible for indemnification
reasonable expenses incurred by such person who is a party to a proceeding
prior to the final disposition of the proceeding upon receipt by IPT of a
notice in writing from such person stating (i) that in such person's good faith
belief the standard of conduct necessary for indemnification has been met and
(ii) that such person will repay the amount advanced if it is ultimately
determined that such standard of conduct has not been met.
Indemnification of the trustees and officers of IPT will not be
allowed for certain liabilities arising from or out of a violation of state or
federal securities laws. Indemnification will be allowed for settlements and
related expenses of lawsuits alleging securities laws violations and for
expenses incurred in successfully defending such lawsuits, provided that a
court either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (ii) there has been a dismissal
with prejudice or a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and
a court approves such indemnification.
AMIT's Declaration of Trust provides for indemnification of trustees,
officers, employees and agents of AMIT against any claim or liability by or to
any third person, in respect of any act or any failure to act so long as such
act or failure to act was performed in a manner determined in good faith to be
within the scope of the trustees' authority and to be in the best interests of
AMIT, and so long as he or she was not guilty of negligence, misconduct or a
breach of fiduciary obligations in such act or failure to act. Indemnification
includes payment of reasonable attorneys' fees or other expenses, but there is
no express provision for advancement of expenses. The AMIT Declaration of Trust
also provides that no trustee or officer of AMIT shall be liable to AMIT except
in cases of his or her own willful violation of the provisions of the AMIT
Declaration of Trust or of the Trustees' Regulations which violation is
materially against the interests of the shareholders of AMIT and results in
material harm to such interests, or gross negligence in the performance of his
or her duties. The AMIT Declaration of Trust is similar to the IPT Declaration
of Trust in its provisions with respect to indemnification for liabilities
arising from violation of federal and state securities laws.
CLASSIFICATION OF THE BOARD OF TRUSTEES
IPT's Bylaws provide that the number of trustees of IPT may be
established by the IPT Board but may not be fewer than three nor more than
eight. Upon consummation of the Merger, there will be seven trustees. The
trustees may increase or decrease the number of trustees by a vote of at least
two-thirds of the members of the IPT Board, provided that the number of
trustees shall never be less than the number required by Maryland law and that
the tenure of office of a trustee shall not be affected by any decrease in the
number of trustees. Any vacancy will be filled, including a vacancy created by
an increase in the number of trustees, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining trustees.
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Pursuant to IPT's Declaration of Trust, the IPT Board is divided into
three classes of trustees. The initial terms of the first, second and third
class will expire in 1998, 1999 and 2000, respectively. Beginning in 1997,
trustees of each class are chosen for three-year terms upon the expiration of
their current terms and each year one class of trustees will be elected by the
shareholders. IPT believes that classification of the IPT Board will help to
assure the continuity and stability of IPT's business strategies and policies
as determined by the IPT Board. Holders of IPT Common Shares have no right to
cumulative voting in the election of trustees. Consequently, at each annual
meeting of shareholders, the holders of a majority of the IPT Common shares are
able to elect all of the successors of the class of trustees whose terms expire
at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. At least
two annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the IPT Board. The staggered terms of
trustees may reduce the possibility of a tender offer or an attempt to change
control of IPT or other transaction that might involve a premium for holders of
IPT Common Shares, even though a tender offer, change of control or other
transaction might be in the best interests of the shareholders.
AMIT's Trustees Regulations provide that the number of trustees of
AMIT may be established by the AMIT Board but may not be fewer than three or
more than fifteen. As of the date hereof, the AMIT Board consists of four
trustees. The trustees may increase or decrease the number of trustees by
unanimous written consent, provided that the number of trustees shall not be
less than three or more than fifteen. Any vacancy will be filled, including a
vacancy created by an increase in the number of trustees, by a majority of the
remaining trustees.
Each trustee of AMIT is elected annually, and serves until the
election of his or her successor. Holders of AMIT Shares are entitled to
cumulate their votes on the election of trustees. See Voting Rights, below.
VOTING RIGHTS
Holders of IPT Common Shares are entitled to one vote per share on all
matters on which shareholders are entitled to vote. The shareholders of IPT are
only entitled to vote on (i) the election of trustees, (ii) certain amendments
of IPT's Declaration of Trust, (iii) the voluntary dissolution or termination
of IPT, and (iv) in certain circumstances, the merger or consolidation of IPT
or the sale of all or substantially all of IPT's property. Shareholders of IPT
have no cumulative voting rights. The IPT Board is classified into three
classes of staggered three-year terms. IPT trustees may be removed only for
fraud or willful malfeasance by the affirmative vote of not less than
two-thirds of the IPT Common Shares.
Holders of AMIT Shares are also entitled to one vote on all matters on
which shareholders are entitled to vote. The holders of AMIT Class A Shares and
AMIT Class B Shares vote together as a single class, except as required by law
and except with respect to any amendment to AMIT's Declaration of Trust that
would diminish or eliminate the voting rights of either class, in which case
the vote of two-thirds of the class of shares affected is required.
AMIT shareholders are entitled to cumulate their votes in the election
of trustees. Accordingly, each shareholder may cast a number of votes equal to
the number of AMIT Shares held of record multiplied by the number of trustees
to be elected or removed by the shareholders, and may cast all of such votes
for a single trustee, or may distribute such votes among the number of trustees
to be voted on, or for any two or more of them as such shareholder may see fit.
AMIT trustees may be removed by majority vote or written consent of
the shareholders for willful violations of the AMIT Declaration of Trust or the
Trustees' Regulations, which violations are materially against the interests of
the shareholders, or for gross negligence in the performance of their duties.
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ANNUAL REPORT
The Declaration of Trust requires IPT to deliver to shareholders an
annual report concerning its operations for the preceding fiscal year
containing financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by independent
accountants. Annual reports must be mailed or delivered to each shareholder at
or before the annual meeting.
The AMIT Declaration of Trust requires that an annual report be sent
to shareholders not later than 120 days after the close of each year.
AMENDMENT TO THE DECLARATION OF TRUST
The IPT Board, by a two-thirds vote, may amend the provisions of IPT's
Declaration of Trust, without the consent of shareholders, from time to time to
preserve IPT's ability to qualify as a REIT if they determine in good faith it
is advisable and to increase or decrease the aggregate number of authorized IPT
Common Shares or the number of authorized shares of any class, provided that
any such amendment may not decrease the aggregate number of authorized IPT
Common Shares or the number of authorized shares of any class of common shares
below the number of then outstanding IPT Common Shares or shares of such class,
respectively. Except as described in the preceding sentence, IPT's Declaration
of Trust, other than provisions therein relating to (i) trustees, (ii) changes
in capital structure (other than amendments by the IPT Board), (iii) related
party transactions, (iv) duration of IPT, (v) certain restrictions on ownership
of shares of IPT, (vi) limitations on trustee liability, (vii) exemptions to
the excess share provisions and (viii) certain exemptions from the provisions
of Maryland law, may be amended only by the affirmative vote of the holders of
not less than a majority of the voting shares then outstanding and entitled to
vote thereon. The provisions described in clauses (i)-(viii) in the preceding
sentence may be amended only by the affirmative vote of the holders of not less
than two-thirds of the voting shares then outstanding.
The AMIT Board, by a majority vote, may amend AMIT's Declaration of
Trust without the vote or consent of the shareholders of AMIT if they deem it
necessary to conform AMIT's Declaration of Trust to the REIT requirements of
the Code or to other federal or state laws and regulations, or to delete any
inconsistency, clarify or supplement any unclear or ambiguous provision, and/or
correct any mistake or ambiguity. No amendment may be made which would change
the rights with respect to any outstanding shares of AMIT by diminishing or
eliminating any voting rights, except with the vote or consent of the holders
of two-thirds of the outstanding class of the shares affected and entitled to
vote thereon. All other amendments to be voted on, consented to or ratified by
the shareholders may be passed, consented to or ratified by a majority vote of
the holders of the AMIT Class A Shares and AMIT Class B Shares, voting together
as a single class, with each share held of record entitled to cast one vote in
person or by proxy.
RIGHTS PLAN
In November 1996, the AMIT Board adopted a Shareholders Rights Plan
(the "AMIT Rights Plan") and declared a dividend of one "Right" on each
outstanding AMIT Class A Share to shareholders of record on November 18, 1996.
The Rights are exercisable if a person or group acquires 20% or more of the
AMIT Class A Shares or announces or commences a tender offer for 20% or more of
the such shares. When a person or group acquires such 20% interest, each
exercisable Right will entitle its holder (other than such person or group) to
purchase, at the Right's then-current exercise price, a number of AMIT Class A
Shares having a market value of twice such price. In addition, if AMIT is
acquired in a merger or other business combination transaction after a person
has acquired 20% or more of AMIT's outstanding AMIT Class A Shares, each right
will entitle its holder to purchase, at the Right's then-current exercise
price, a number of the acquiring company's common shares having a market value
of twice such price. Prior to the acquisition by a person or group with
beneficial ownership of 20% or more of the AMIT Class A Shares, the Rights are
redeemable for one cent per Right at the option of the AMIT Board. The AMIT
Board is also authorized, under certain circumstances, to reduce the 20%
threshold referred to above to not less than 10%. The Rights will expire on
December 31, 2003 unless otherwise extended by the AMIT
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Board. The Rights will not be exercisable in connection with the Merger due to
the fact that IPT will not acquire 20% of the AMIT Class A Shares prior to the
consummation of the Merger.
IPT does not have a rights agreement or other agreement or provisions
similar to the AMIT Rights Plan.
INSPECTION OF BOOKS AND RECORDS
Any shareholder of IPT may inspect and copy the bylaws, minutes of
proceedings of shareholders and annual statements of affairs of IPT. In
addition, one or more shareholders of record who own at least 5% of the
outstanding shares of any class of beneficial interest of IPT for at least six
months is entitled to inspect and copy the books of account and share ledger of
IPT and to require IPT to prepare and deliver a verified list of the name and
address of, and the number of shares owned by, each shareholder.
Shareholders of AMIT are entitled to inspect and copy the record of
shareholders' names, addresses and shareholdings, the accounting books and
records and minutes of proceedings of the shareholders and the AMIT Board and
committees of the AMIT Board upon written demand at any reasonable time during
usual business hours, for a purpose reasonably related to the shareholder's
interest as a shareholder. In addition, a shareholder or shareholders holding
at least 5% in the aggregate of the outstanding voting shares of AMIT have an
absolute right to either inspect and copy the record of shareholders' names,
addresses and shareholdings or to obtain from the transfer agent, upon written
demand and upon the tender of its usual charges for such a list, a list of the
shareholders' names, addresses and shareholdings as of the most recent record
date for which it has been compiled or as of a date specified by the
shareholder subsequent to the date of the demand.
ASSET REQUIREMENTS
To maintain qualification as a Maryland real estate investment trust,
Maryland law requires at least 75% of the value of IPT's assets to be held,
directly or indirectly, in real estate assets, mortgages or mortgage-related
securities, government securities, cash and cash equivalent items, including
high-grade short term securities and receivables. Maryland law also prohibits
IPT from using or applying land for farming, agricultural, horticultural or
similar purposes.
California law imposes no similar asset requirements.
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SHARES AVAILABLE FOR FUTURE SALE
General
Upon consummation of the Merger, IPT will have 23,499,762 IPT Common
Shares issued and outstanding, of which 510,000 shares were issued under the
1997 Share Incentive Plan and an additional 690,000 shares are eligible for
issuance thereunder.
The IPT Common Shares issued to the shareholders of AMIT in the Merger
will be freely tradable by persons other than "affiliates" of AMIT and IPT,
without restriction under the Securities Act, subject to the limitations on
ownership set forth in IPT's Declaration of Trust. Pursuant to the Partnership
Agreement, the limited partners of IPLP have the right under certain
circumstances to require IPLP to redeem their OP Units for cash, subject,
however, to certain first rights of IPT to acquire such OP Units in exchange
for IPT Common Shares.
All 19,427,760 IPT Common Shares issued prior to the Merger are, and
any IPT Common Shares issued to holders of OP Units upon the exercise of
redemption rights will be, "restricted" securities under the meaning of Rule
144 and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. As described below, IPT has granted certain holders
registration rights with respect to such IPT Common Shares.
Of the 13,417,232 IPT Common Shares that will be held by Insignia and
its affiliates upon consummation of the Merger, 13,084,932 shares will be
eligible for sale in the public market 90 days after the consummation of the
Merger, subject to compliance with the volume limitations of Rule 144. Of the
6,211,712 IPT Common Shares that are currently held by IPT shareholders
unaffiliated with IPT, 6,199,403 shares may become eligible for resale in the
public market 90 days after the consummation of the Merger, subject to
compliance with the volume limitations under Rule 144.
In general, under Rule 144, if one year has elapsed since the later of
the date of acquisition of restricted shares of IPT from IPT or any "affiliate"
of IPT, as that term is defined under the Securities Act, the acquirer or
subsequent holder thereof is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding IPT Common Shares, or (ii) the average weekly trading volume of the
IPT Common Shares during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about IPT. In addition, if two years
have elapsed since the later of the date of acquisition of the restricted
shares of IPT from IPT or from any affiliate of IPT, and the acquirer or any
subsequent holder thereof is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, such person would
be entitled to sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
IPT has an aggregate of 1,200,000 IPT Common Shares eligible for
issuance under the 1997 Share Incentive Plan. IPT intends to file a
registration statement on Form S-8 with respect to the IPT Common Shares
issuable under the Plan. IPT Common Shares issued after the effective date of
any such registration statement on Form S-8 upon the exercise of options
granted under the 1997 Share Incentive Plan will be available for sale in the
public market without restriction to the extent that they are held by persons
who are not affiliates of IPT and, to the extent that they are held by
affiliates, pursuant to Rule 144, without observance of the holding period
requirement.
Prior to the Merger, there has been no public market for the IPT
Common Shares. The IPT Common Shares to be issued in the Merger have been
approved for listing on the ASE, subject to official notice of issuance, under
the symbol "FFO." No prediction can be made as to the effect, if any, that
future sales of IPT Common Shares, or the availability of IPT Common Shares for
future sale, will have on the market price of IPT Common Shares prevailing from
time to time. Sales of substantial amounts of IPT Common Shares, or the
perception that such sales or exercise could occur, could adversely affect
prevailing market prices of IPT Common Shares.
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If the IPT/AIMCO Merger is consummated, IPT Common Shares will cease
to be traded or have a public market and the AMIT shareholders will cease to
have an interest in IPT.
Registration Rights
In connection with the formation of IPT and the Private Offerings, IPT
has granted Insignia and its affiliates and each purchaser of IPT Common Shares
in the Private Offerings certain "demand" and "piggyback" registration rights
with respect to their respective IPT Common Shares. The registration rights
grant each rights holder the right to demand registration of all of its IPT
Common Shares if IPT has not registered any IPT Common Shares under the
Exchange Act and listed the IPT Common Shares on a national securities exchange
or quoted on the NASDAQ prior to five years after the date of acquisition of
such IPT Common Shares as long as the purchaser holds not less than 50,000 IPT
Common Shares at the time of the demand. The purchasers will also have the
right to include their IPT Common Shares in any registration of IPT Common
Shares conducted by IPT, subject to certain limitations.
Additionally, IPT has granted Insignia certain registration rights in
the event that Insignia requests a redemption of any of their OP Units and IPT
elects to exercise its right of first refusal and acquire such OP Units by
issuing IPT Common Shares in exchange for such OP Units. See "Description of
Shares of Beneficial Interest of IPT--Registration Rights."
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal income
tax considerations that may be relevant to a prospective holder of IPT Common
Shares. Akin Gump believes that the overview presented herein summarizes fairly
the U.S. federal income tax consequences that are likely to be material to a
holder of IPT Common Shares. The following discussion is not exhaustive,
however, and does not discuss in detail all of the state, local and foreign tax
considerations that may be applicable to an investment in the IPT Common
Shares, nor does it discuss all of the aspects of U.S. federal income taxation
that may be relevant to a prospective shareholder in light of his or her
particular circumstances or to certain types of shareholders that are subject
to special treatment under the U.S. federal income tax laws (including
insurance companies, tax-exempt entities, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States).
The statements in this discussion and the opinions of Akin Gump are
based on current provisions of the Code, existing, temporary and currently
proposed Treasury regulations promulgated under the Code ("Treasury
Regulations"), the legislative history of the Code, existing administrative
rulings and practices of the Internal Revenue Service (the "IRS"), and judicial
decisions. No assurance can be given that future legislative, judicial or
administrative actions or decisions, which may be retroactive in effect, will
not affect the accuracy of any statements in this Proxy Statement/Prospectus
with respect to the transactions entered into or contemplated prior to the
effective date of such changes.
EACH SHAREHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON
SHARES OF BENEFICIAL INTEREST IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF IPT
IPT's Election To Be Taxed As a REIT
IPT, which is considered to be a corporation for U.S. federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its first taxable year ending December 31, 1996.
IPT has been organized, and has represented that it has and will continue to
operate in such a manner so as to qualify for taxation as a REIT under the
Code. No assurance, however, can be given that IPT will operate in a manner, so
as to qualify or remain qualified as a REIT in the future.
In addition, IPT's qualification as a REIT depends upon the treatment
of the corporate subsidiaries of IPT that are or control the general partners
of the IPT Partnerships (the "Corporate GPs") as "qualified REIT subsidiaries."
A qualified REIT subsidiary is a corporation all of the stock of which has been
owned by the REIT at all times during such corporation's existence. IPT has
received a private letter ruling from the IRS to the effect that each Corporate
GP will be treated as a qualified REIT subsidiary from the date its stock was
transferred to IPT.
The sections of the Code relating to the qualification and operation
as a REIT, and the U.S. federal income tax treatment of a REIT and its
shareholders, are highly technical and complex. The following discussion
provides an overview of the material aspects of those sections. This summary is
qualified in its entirety by the applicable Code provisions, the rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
In the opinion of Akin Gump, and, assuming that the election and
actions described in this discussion of "--Taxation of IPT" and represented to
Akin Gump, are or will be observed and completed in a timely fashion, IPT is
organized in conformity with the requirements for qualification as a REIT, and
its method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code; and immediately after the
Merger IPT will continue to qualify as a REIT. Investors should be aware that
opinions of counsel are not binding on the IRS or the courts and that this
opinion is based on various assumptions and is conditioned upon
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certain representations made by IPT and IPLP as to factual matters relating to
the organization and the expected and actual manner of operation of, and
conduct of business by, IPT, IPLP, the IPT Partnerships and the Corporate GPs,
and the nature of the properties owned and to be acquired by these entities.
Moreover, such qualification and taxation as a REIT will depend upon IPT's
ability to meet (on a continuing basis), through actual annual operating
results, distribution levels and stock ownership, the various qualification
tests imposed under the Code, as discussed below. Akin Gump will not review
compliance with these tests on a continuing basis. Accordingly, no assurance
can be given that the actual results of IPT's operation and ownership for any
particular taxable year will satisfy such requirements. For a discussion of the
tax consequences of failure to qualify as a REIT, see "--Taxation of
IPT--Failure to Qualify" below.
General
In any year in which IPT qualifies as a REIT, it generally will not be
subject to U.S. federal income tax on that portion of its net income that it
distributes currently to shareholders. This treatment substantially eliminates
the "double taxation" of income at the corporate and shareholder levels that
generally results from investment in a corporation.
Notwithstanding its qualification as a REIT, IPT will be subject to
U.S. federal income tax as follows. First, IPT will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, IPT may
be subject to the "alternative minimum tax" on items of tax preference. Third,
if IPT has (i) net income from the sale or other disposition of "foreclosure
property" (generally, property acquired by reason of a default on indebtedness
or a lease) that is held primarily for sale to customers in the ordinary course
of business or (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
IPT 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. Fifth, if IPT should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below),
and has nonetheless maintained its qualification as a REIT because certain
other requirements have been met, it will be subject to a 100% tax on the net
income attributable to the greater of the amount by which IPT fails the 75%
gross income test or the 95% gross income test. Sixth, if IPT fails to
distribute during each calendar year an amount equal to 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, IPT will be subject to a 4% excise tax on the excess of the
amount of such required distribution over the amount actually distributed.
Finally, pursuant to Notice 88-19, 1988-1 C.B. 486, a C corporation
(i.e., a corporation generally subject to full corporate-level tax) that elects
to be taxed as a REIT must immediately recognize any gain that would have been
realized had the C corporation sold all of its assets for their respective fair
market values and immediately liquidated at the end of its last taxable year
before the taxable year in which it qualifies to be taxed as a REIT, unless
such C corporation elects to be taxed under rules similar to the rules of
Section 1374 of the Code. As a result, IPT will recognize, and be subject to
tax at the highest corporate tax rate applicable to, any "built-in" gain on the
disposition of any asset that is (i) held by IPT at the time its REIT election
is first effective and (ii) disposed of within the ten-year period beginning on
the effective date of the REIT election. This same treatment applies to any
"built-in" gain asset (i) acquired by IPT from a C corporation in a transaction
in which the basis of the asset to IPT is determined by reference to the basis
of the asset (or any other property) to the C corporation and (ii) disposed of
within such ten-year period. IPT will make the election pursuant to Notice
88-19 which will apply to the assets owned by the Corporate GPs on the earlier
of (i) December 30, 1996 or (ii) the date they were acquired by IPT and, if
AMIT does not qualify as a REIT, any assets acquired from AMIT pursuant to the
Merger as of the date of the Merger.
Requirements for Qualification
To qualify as a REIT, IPT must elect to be so treated and must meet
the requirements, discussed below, relating to organization, sources of income,
nature of assets and distributions of income to shareholders.
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Organizational Requirements
The Code defines a REIT as a corporation, trust or association: (i)
that is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) that would be taxable as a domestic
corporation but for Sections 856 through 860 of the Code; (iv) that is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly through the application of certain attribution
rules, by five or fewer individuals (defined in the Code to include certain
entities as individuals without regard to such attribution rules) at any time
during the last half of each taxable year; and (vii) that meets certain other
tests regarding the nature of income and assets, described below. In addition,
IPT must (a) affirmatively elect to be taxed as a REIT, (b) satisfy certain
filing and administrative requirements and (c) use the calendar year as its
taxable year. The Code provides that each of conditions (i) to (iv) must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year that is less than 12 months.
IPT's Declaration of Trust provides for restrictions regarding the
transfer of IPT Common Shares in order to ensure that IPT will satisfy the
share ownership requirements described in conditions (v) and (vi).
In applying the gross income and asset tests described below, the
Treasury Regulations provide that a REIT that is a partner in a partnership
will be deemed to own a share (based on its relative capital interest) of the
assets of the partnership and will be deemed to be entitled to the gross income
of the partnership attributable to such share. In addition, the character of
the assets and gross income of the partnership shall retain the same character
in the hands of the REIT for purposes of Section 856 of the Code, including
these tests. Thus, IPT's share of the assets, liabilities and items of income
of IPLP and the IPT Partnerships will be treated as assets, liabilities and
items of income of IPT for the purposes of applying the requirements described
herein.
Additionally, a qualified REIT subsidiary is not treated as a separate
entity for U.S. federal income tax purposes, and all of such subsidiary's
assets, liabilities and items of income, deduction, loss and credit are treated
as if they are those of the REIT. Assuming that the Corporate GPs will be
treated as qualified REIT subsidiaries, the assets, liabilities and items of
income of the Corporate GPs will be treated as assets, liabilities and items of
income of IPT for the purposes of applying the requirements described below.
Gross Income Tests
In order for IPT to maintain its qualification as a REIT, there are
three requirements relating to IPT's gross income that must be satisfied
annually. First, at least 75% of IPT's gross income (excluding gross income
from prohibited transactions) for each taxable year must consist of defined
types of income derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of IPT's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments and from dividends, interest and gains from the sale or
disposition of stock or securities or from any combination of the foregoing.
Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of "foreclosure property") must not represent
more than 30% of IPT's gross income (including gross income from prohibited
transactions) for each taxable year. However, recently enacted tax legislation
repeals the 30% restriction for all tax years after 1997.
Rents received by IPT will qualify as "rents from real property" in
satisfying the gross income tests for a REIT described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or an owner of 10% or more of the REIT, directly or through the
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application of certain attribution rules, owns 10% or more of such tenant.
Third, 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 entire portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, 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 tenants of such property,
other than through an "independent contractor" who is adequately compensated
and from whom the REIT derives no revenue. The independent contractor
requirement, however, does not apply to the extent that the services provided
by the REIT are "usually or customarily rendered" in connection with the rental
of space for occupancy only (e.g., furnishing water, heat, light and air
conditioning and cleaning windows, public entrances and lobbies) and are not
otherwise considered to be "rendered to the occupant" (e.g., renting parking
spaces on a reserved basis to tenants). However, pursuant to recently enacted
tax legislation, for tax years beginning after 1997, income derived from the
impermissible services previously mentioned will constitute "rents from real
property" to the extent such income does not exceed 1% of all amounts received
or accrued during the tax year by the REIT from such property. The law
concerning types of services that may be rendered by a REIT is constantly
evolving and the consequences of rendering impermissible services are somewhat
uncertain.
IPT believes that the real properties owned by the IPT Partnerships
give rise to "rents from real property" for purposes of the 75% and 95% gross
income tests, and it anticipates that the aggregate amount of its nonqualifying
income in any taxable year derived directly or through IPLP or the IPT
Partnerships will not cause IPT to fail to meet the 75% and 95% gross income
tests and IPT does not anticipate any difficulty in complying with the 30%
gross income test for 1997. In addition, IPT believes that the 75% and 95%
gross income tests will be met immediately after the Effective Time, with the
inclusion of the AMIT assets.
Insignia (which will not satisfy the independent contractor standard)
will provide certain services with respect to the real properties owned, or
acquired in the future, by IPLP and the IPT Partnerships. IPT believes that all
services provided by Insignia to IPLP and the IPT Partnerships are and will be
of the type usually or customarily rendered in connection with the rental of
space for occupancy only and are not and will not be considered rendered to the
occupant under the Treasury Regulations, and therefore that the provision of
such services will not cause the rents received with respect to such real
properties to fail to qualify as "rents from real property" for purposes of the
75% and 95% gross income tests.
Any gross income derived from a prohibited transaction (as defined
above) is taken into account in applying the 30% income test necessary to
qualify as a REIT (and the net income from that transaction is subject to a
100% tax). IPT believes that no asset owned by IPLP, the IPT Partnerships or
IPT is or will be considered to be "held for sale to customers in the ordinary
course of a trade or business" of IPLP, the relevant IPT Partnership or IPT.
Whether property is treated as "held primarily for sale to customers in the
ordinary course of a trade or business" depends, however, upon the facts and
circumstances existing at a given time, including those relating to a
particular property. Nevertheless, IPT and IPLP will attempt to comply with the
terms of safe-harbor provisions in the Code prescribing when asset sales will
not be characterized as prohibited transactions. Complete assurance cannot be
given, however, that IPT will be able to comply with these safe-harbor
provisions or will never own property that may be characterized as "held
primarily for sale to customers in the ordinary course of business."
Even if IPT fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if IPT (i) can establish
that its failure to meet such tests is due to reasonable cause and not due to
willful neglect, (ii) attaches a schedule of the sources of its income to its
return and (iii) can establish that any incorrect information on the schedule
is not due to fraud with an intent to evade tax. It is not possible, however,
to guarantee that IPT will always be entitled to the benefit of these relief
provisions. As discussed above in "--Taxation of IPT," even if these relief
provisions did apply, a 100% tax would be imposed with respect to IPT's net
income attributable to the excess of 75% or 95% of IPT's gross income over
IPT's qualifying income in the relevant category, whichever is greater. For the
1996 and 1997 tax years, there is no comparable relief provision which could
mitigate the consequences of a failure to satisfy the 30% gross income
limitation. As previously stated above, the recently enacted tax legislation
repealed this 30% gross income limitation.
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Asset Tests
IPT, 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 IPT's total assets must be represented by cash or cash items
(including certain receivables), government securities, "real estate assets"
or, in cases where IPT raises new capital through the offering of stock or
long-term (at least five-year) debt, temporary investments in stock or debt
instruments during the one-year period following IPT's receipt of the proceeds
of such offerings. The term "real estate assets" includes interests in real
property, interests in mortgages on real property (to the extent the mortgage
balance does not exceed the value of the associated real property as of the
date of the loan commitment by the REIT or if the loan is purchased, the date
purchase commitment becomes binding on the REIT), and shares of other REITs.
For purposes of the 75% asset requirement, the term "interest in real property"
includes an interest in land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are structural
components of such buildings or structures), a leasehold in real property, and
an option to acquire real property (or a leasehold in real property). Second,
of the investments not included in the 75% asset class, the value of any one
issuer's securities owned by IPT may not exceed 5% of the value of IPT's total
assets and IPT may not own more than 10% of any one issuer's outstanding voting
securities (excluding its ownership interest in IPLP, the IPT Partnerships, the
Corporate GPs only (assuming they are qualified REIT subsidiaries), or any
other corporate subsidiary with respect to which it is treated as holding 100%
of the stock at all times during such subsidiary's existence and, after 1997,
those subsidiaries as to which IPT holds 100% of the stock regardless of
whether IPT has held the stock for the entire existence of the Corporate
Subsidiary).
For purposes of the asset requirements, as noted above, IPT will be
deemed to own its proportionate share of the assets of IPLP and each IPT
Partnership, rather than its limited partner interests in IPLP and each IPT
Partnership. IPT has represented that, as of the date of its formation, (i) at
least 75% of the value of its total assets was represented by real estate
assets, cash and cash items (including receivables), and government securities
and (ii) other than the Corporate GPs, it does not own any securities of any
issuer that is treated as a corporation for federal income tax purposes that
either (a) represent in excess of 10 percent of the outstanding voting
securities of such issuer or (b) have an aggregate fair market value in excess
of 5 percent of the fair market value of the total assets of IPT. In addition,
IPT believes that it will satisfy these tests in the future, and has
represented that it will take all measures within its control to ensure that
these asset requirements are met.
If IPT fails to satisfy the asset requirements at the end of a
calendar quarter, such failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of IPT's assets and the
asset requirements either did not exist immediately after the acquisition of
any particular asset or is not wholly or partly caused by such an acquisition
(i.e., the discrepancy arises from changes in the market values of IPT assets).
If the condition described in clause (ii) of the preceding sentence is not
satisfied, IPT may still avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arises.
Annual Distribution Requirement
IPT, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (a) 95% of IPT's REIT taxable income (computed
without regard to the dividends paid deduction and IPT's net capital gain), and
(b) 95% of the net income (after tax), if any, from foreclosure property, minus
(ii) 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 IPT timely files its tax return for such year and if paid on
or before the first regular dividend payment after such declaration (
"post-closing dividends"). To the extent that IPT 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 on the
undistributed amount at regular corporate tax rates. Furthermore, if IPT 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, IPT will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. IPT expects to, and will
take all measures
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within its control to, make timely distributions to the shareholders of IPT
sufficient to satisfy all annual distribution requirements.
However, it is possible that, from time to time, IPT may experience
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. For example, it is
possible that, from time to time, IPT may be allocated a share of net capital
gain attributable to the sale of depreciable property that exceeds its
distributive share of cash with respect to such sale. In addition, IPT, IPLP or
an IPT Partnership may incur expenditures (such as repayment of loan principal)
that do not give rise to a deduction and, with respect to the AMIT assets, may
accrue taxable income without a cash receipt to match the income. Therefore,
IPT may have less cash available for distribution than is necessary to meet its
annual 95% distribution requirement or to avoid corporate income tax or the
excise tax imposed on certain undistributed income. In such a situation, IPT
may find it necessary to arrange for short-term (or possibly long-term)
borrowings, to raise funds through the issuance of additional shares of common
or preferred stock or to pay distributions in the form of taxable stock
dividends.
Under certain circumstances, IPT may be able to rectify a failure to
meet the distribution requirements for a year by paying post-closing dividends
to its shareholders in a later year, which may be included in IPT's deduction
for dividends paid for the earlier year.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to be able to
elect to be taxed as a REIT, IPT must maintain certain records and request on
an annual basis certain information from its shareholders designed to disclose
the actual ownership of its outstanding capital stock. IPT intends to comply
with such requirements. For the years after 1997, failure to comply with these
record-keeping requirements generally will not result in loss of REIT status,
but could result in the imposition of monetary penalties.
Failure to Qualify
If IPT fails to qualify for taxation as a REIT in any taxable year,
and no relief provisions apply, IPT will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In any year in which IPT fails to qualify, distributions to shareholders
will neither be required under U.S. federal income tax law nor deductible by
IPT. All distributions to shareholders will be taxable as ordinary income to
the extent of IPT's current and accumulated earnings and profits ("E&P") and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, IPT also will be disqualified from taxation as a
REIT for the four taxable years following the year during which IPT ceases to
qualify as a REIT. It is not possible to predict whether IPT would be entitled
to any statutory relief in the event it failed to qualify as a REIT in any
taxable year.
TAXATION OF U.S. SHAREHOLDERS
Taxation of Taxable Domestic Shareholders
As long as IPT qualifies as a REIT, distributions made to IPT's
taxable U.S. shareholders out of current and accumulated E&P (and not
designated as capital gain dividends) will be taken into account by such U.S.
shareholders as ordinary income and will not be eligible for the dividends
received deduction generally available to corporations. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed IPT's actual net capital gain for the taxable
year) without regard to the shareholder's holding period for the IPT Common
Shares. Corporate shareholders, however, may be required under Section 291 of
the Code to treat up to 20% of certain capital gain dividends (that relate to
Section 1250 property) as ordinary income. Distributions in excess of IPT's
current and accumulated E&P will not be taxable to a shareholder to the extent
that the amount of such distribution does not exceed a shareholder's adjusted
basis in the IPT Common Shares, but rather will reduce such adjusted basis. If
the amount of such distributions does exceed a shareholder's adjusted basis of
the IPT Common Shares, such distributions will be included in income as
long-term capital gain
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(or short-term capital gain if the IPT Common Shares have been held for one
year or less), assuming that the IPT Common Shares are a capital asset in the
hands of the shareholder. In addition, any distribution declared by IPT in
October, November or December of any year and payable to a shareholder of
record on a specific date in any such month shall be treated as both paid by
IPT and received by the shareholder on December 31 of such year, provided that
the distribution is actually paid by IPT during January of the following
calendar year.
Shareholders may not include in their individual income tax returns
any net operating losses or capital losses of IPT. Instead, such losses would
be carried forward by IPT for offset against its future income. Taxable
distributions from IPT and gain from the disposition of IPT Common Shares will
not be treated as passive activity income and, therefore, shareholders
generally will not be able to apply passive activity losses against such
income. In addition, taxable distributions from IPT generally will be treated
as investment income for purposes of the investment interest limitation.
Capital gains from the disposition of the IPT Common Shares (or distributions
treated as such) will be treated as investment income only if the shareholder
so elects.
In general, any gain or loss realized upon a taxable disposition of
IPT Common Shares by a shareholder that is not a dealer in stocks and
securities will be treated as long-term capital gain or loss if the IPT Common
Shares have been held for more than one year, and otherwise as short-term
capital gain or loss. However, any loss upon a sale or exchange of IPT Common
Shares by a shareholder who has held the IPT Common Shares for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent that distributions from IPT were required
to be treated by such shareholder as long-term capital gain. All or part of any
loss realized upon the disposition of IPT Common Shares may be disallowed if
other IPT Common Shares are purchased within 30 days before or after such
disposition.
Pursuant to recently enacted tax legislation, the taxation of capital
gains to individuals has changed. In general, the new tax legislation provides
that for capital gains recognized after July 28, 1997, the maximum tax rate on
those gains will be 20% (10% for individuals in the 15% tax brackets) if the
taxpayer holds the asset for more than 18 months and 28% for those assets held
for more than 12 months and not more than 18 months. After December 31, 2000 if
the asset is held for more than five years (beginning after December 31, 2000)
the maximum tax rate will be 18% (8% for individuals in the 15% tax bracket).
The new legislation also provides that Treasury Regulations may be issued to
apply the new tax rates on capital gains in the case of pass-through entities
(including a REIT) and sales and exchanges of interests in such entities. How
the Treasury Regulations will effect holders of shares of beneficial interest
of a REIT is uncertain. EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN TAX
ADVISOR REGARDING THE EFFECT OF THE NEW TAX LEGISLATION.
Information Reporting and Backup Withholding
IPT will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a shareholder
may be subject to backup withholding at the rate of 31% of the dividends paid
amount unless such shareholder (a) is a corporation or comes within certain
other exemption categories and, when required, demonstrates this fact, or (b)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A shareholder that does not provide IPT with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against
the shareholder's income tax liability.
In addition, IPT may be required to withhold a portion of capital gain
distributions to any shareholder that fails to certify as to its non-foreign
status. See "--Taxation of Non-U.S. Shareholders" below.
Treatment of Certain Tax-Exempt Shareholders
Distributions from IPT to a tax-exempt employee pension or
profit-sharing trust and individual retirement accounts generally will not
constitute unrelated business taxable income ("UBTI") provided that (i) such
tax-exempt shareholder has not financed the acquisition of its IPT Common
Shares with "acquisition indebtedness" within the meaning of the Code and (ii)
the IPT Common Shares are not otherwise used in an unrelated trade or business
of
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such tax-exempt shareholder. In addition, qualified pension trusts that hold
more than 10% (by value) of certain REITs may be required to treat a certain
percentage of such REIT's distributions as UBTI. This requirement will apply
only if (i) the REIT would not qualify for U.S. federal income tax purposes but
for the application of a "look-through" exception to the "five or fewer"
requirement applicable to IPT Common Shares held by qualified pension trusts
and (ii) the REIT is "predominantly held" by qualified pension trusts. A REIT
is predominantly held by a qualified pension trust if either (i) a single
qualified pension trust holds more than 25% by value of the IPT Common Shares
or (ii) one or more qualified pension trusts, each owning more than 10% by
value of the REIT interests, hold in the aggregate more than 50% of the REIT
interests.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a limited summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF U.S. FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN IPT COMMON SHARES, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by IPT of U.S. real property interests and are not
designated by IPT as capital gain distributions will be treated as
distributions of ordinary income to the extent that they are made out of
current or accumulated E&P of IPT. Such distributions generally will be subject
to a withholding tax equal to 30% of the gross amount of the distribution
unless an applicable tax treaty reduces that tax. However, if income from
investment in the IPT Common Shares is treated as effectively connected with
the Non-U.S. Shareholder's conduct of a U.S. trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such distributions (and
may also be subject to the 30% branch profits tax if the shareholder is a
foreign corporation). IPT expects to withhold income tax at the rate of 30% on
the gross amount of any distributions paid to a Non-U.S. Shareholder that are
not designated as capital gain distributions unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with IPT or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with IPT
claiming that the distribution is "effectively connected" income.
Distributions to Non-U.S. Shareholders in excess of current and
accumulated E&P of IPT will not be taxable to a shareholder to the extent that
they do not exceed the shareholder's adjusted basis in the IPT Common Shares,
but rather will reduce such adjusted basis. To the extent that such
distributions exceed a Non-U.S. Shareholder's adjusted basis in the IPT Common
Shares, tax will be imposed if the Non-U.S. Shareholder would otherwise be
subject to tax on gain from the sale or disposition of its IPT Common Shares,
as described below. Because it generally cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated E&P, the entire amount of a distribution generally will
be subject to withholding in full at the rate applicable to dividends. However,
the Non-U.S. Shareholder may seek a refund of any overwithheld amounts from the
IRS if it is subsequently determined that such distribution was, in fact, in
excess of current and accumulated E&P of IPT.
For any year in which IPT qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by IPT of U.S. real property
interests (whether or not so designated by IPT) will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed
to a Non-U.S. Shareholder as if such gain were effectively connected with a
U.S. business. Thus, Non-U.S. Shareholders will be taxed on such distributions
at the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Shareholder not entitled to treaty relief or exemption. IPT is
required by currently applicable Treasury Regulations to withhold 35% of any
distribution that is or could be designated by IPT as a capital gain dividend.
The amount withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax
liability.
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Gain recognized by a Non-U.S. Shareholder upon a sale of IPT Common
Shares generally will not be taxed under FIRPTA if IPT is a
"domestically-controlled REIT," defined generally as a REIT in which less than
50% in value of its shares of beneficial interest was held directly or
indirectly by foreign persons at all times during a specified testing period.
It is currently anticipated that IPT will be a domestically-controlled REIT
and, therefore, that the sale of IPT Common Shares will not be subject to
taxation under FIRPTA. However, capital gains which are not subject to FIRPTA
will nonetheless be taxable to a Non-U.S. Shareholder if (i) an investment in
the IPT Common Shares is effectively connected with the Non-U.S. Shareholder's
U.S. trade or business, in which case the Non-U.S. Shareholder will be subject
to the same treatment as U.S. shareholders with respect to such gain or (ii)
the Non-U.S. shareholder is a nonresident alien individual who is present in
the United States for 183 days or more during the taxable year and certain
other conditions apply, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
If IPT were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of IPT Common Shares would be subject to tax provided that
IPT meets the definition of a "U.S. Real Property Holding Corporation" as
defined under Section 897(c)(2) under FIRPTA unless (i) the IPT Common Shares
were listed and "regularly traded" on an established securities market (such as
the ASE) and (ii) the selling Non-U.S. Shareholder held, directly or indirectly
and through attribution, no more than 5% of the IPT Common Shares during the
five-year period ending on the date of disposition. If the gain on the sale of
IPT Common Shares were subject to taxation under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as a U.S. shareholder with
respect to the gain (subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of non-resident alien individuals and the
possible application of a 30% branch profits tax to corporate Non-U.S.
Shareholders).
A person who purchases IPT Common Shares from a Non-U.S. Shareholder
subject to FIRPTA will be required to withhold 10% of the purchase price and
remit this amount to the IRS, unless the purchased IPT Common Shares are
"regularly traded" on an established securities market or the purchaser
otherwise receives a determination from the IRS that such withholding is not
required.
OTHER TAX CONSIDERATIONS
IPT, IPLP, the IPT Partnerships and IPT's shareholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which they own property, transact business, or reside. The state and
local tax treatment of IPT and its shareholders may not conform to the federal
income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL
TAX LAWS ON AN INVESTMENT IN IPT COMMON SHARES.
TAX ASPECTS OF IPT'S INVESTMENT IN IPLP AND THE IPT PARTNERSHIPS
The following discussion summarizes certain U.S. federal income tax
considerations applicable solely to IPT's investment in IPLP and the IPT
Partnerships. The discussion does not cover state or local tax laws or any U.S.
federal tax laws other than income tax laws.
General
IPT will hold direct or indirect interests in IPLP and the IPT
Partnerships. In general, partnerships are "pass-through" entities that are not
subject to U.S. federal income tax. Instead, the income of a partnership for
each taxable year is allocated to the partners based on the relevant provisions
in their agreement of partnership, and the partners report and are taxed on
their distributive shares of the items of income, gain, loss, deduction and
credit of the partnership without regard to whether they receive any
distributions. IPT will include its distributive share of these items of IPLP
and the IPT Partnerships for purposes of the various REIT income tests and in
the computation of its REIT taxable income. See "--Taxation of IPT-Requirements
for Qualification." Any resulting increase in IPT's REIT taxable income will
increase its distribution requirements (see "--Requirements for
Qualification-Annual Distribution Requirements"), but will not be subject to
U.S. federal income tax in the hands of IPT provided
152
<PAGE>
that such income is distributed by IPT to its shareholders as discussed above.
Moreover, for purposes of the REIT asset tests (see "--Requirements for
Qualification--Asset Tests"), IPT will include its proportionate share of
assets held by IPLP and the IPT Partnerships.
Entity Classification
IPT's interests in IPLP and the IPT Partnerships involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of IPLP or any of the IPT Partnerships as a partnership (as opposed to
an association taxable as a corporation) for U.S. federal income tax purposes.
If any of IPLP or the IPT Partnerships were to be treated as an association
taxable as a corporation, the character of IPT's assets and items of gross
income would change, which would preclude IPT from satisfying the asset tests
and possibly the income tests (see "--Requirements for Qualification--Asset
Tests" and "--Gross Income Tests") and would prevent IPT from qualifying as a
REIT. See "--Requirements for Qualification--Failure to Qualify" above for a
discussion of the effect of IPT's failure to meet such tests for a taxable
year. In the opinion of Akin Gump, IPLP and the IPT Partnerships should be
treated for U.S. federal income tax purposes as a partnership (and not as an
association taxable as a corporation). Such opinion, however, is not binding on
the IRS and no assurance can be given that the IRS will not challenge the tax
status of IPLP.
Tax Allocations with Respect to Contributed Property
Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in a partnership (such
as IPLP) must be allocated in a manner such that the contributing partner is
charged with, or benefits from, the unrealized gain or unrealized loss inherent
in such property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value and the adjusted tax basis of contributed property at the time of
contribution (the "Book-Tax Difference"). Such allocations are solely for U.S.
federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. Because Insignia and
certain of its subsidiaries have contributed appreciated property (i.e., the
interests in certain IPT Partnerships) to IPLP, the Partnership Agreement of
IPLP requires allocations with respect to such contributed property to be made
in a manner consistent with Section 704(c) of the Code.
In general, a partner that contributes appreciated property to IPLP
will be allocated a lesser amount of depreciation for tax purposes and, to the
extent that the Book-Tax Difference is not recouped through such
disproportionately lower depreciation allocations, increased amounts of taxable
income and gain on any sale by IPLP of such contributed assets (including for
this purpose, sale by the IPT Partnerships of the underlying properties). These
allocations attempt to eliminate the Book-Tax Difference over the life of the
assets giving rise to the Book-Tax Difference. However, the special allocation
rules under Section 704(c) do not always entirely rectify the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the
hands of IPLP may cause IPT to be allocated a lesser amount of depreciation and
other deductions, and a potentially greater amount of gain upon the sale of a
contributed asset, than it would have received if such properties had been
purchased. This may cause IPT to recognize taxable income in excess of cash
proceeds, which might adversely affect IPT's ability to comply with the REIT
distribution requirements. See "--Requirements for Qualification--Distribution
Requirements."
153
<PAGE>
EXPERTS
The consolidated and combined financial statements of IPT and the IPT
Predecessor Entities at December 31, 1997, 1996, and 1995 and for each of the
three years in the period ended December 31, 1997 and the related financial
statement schedule appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The combined financial statements of Shelter Properties Partnerships
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996 and the related financial statement schedule appearing
in this Proxy Statement/Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of National Property Investors and
Century Properties Partnerships at December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 and the related financial
statement schedule appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by Imowitz Koenig & Co., LLP,
("Imowitz Koenig") independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
During December 1997 NPI 4 changed its accountants from Imowitz
Koenig to Ernst Young, LLP. There were no disagreements between NPI 4 and
Imowitz Koenig on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Imowitz Koenig, would have caused it to
make reference thereto in connection with its reports on the financial
statements of NPI 4. NPI 4's decision to change to Ernst Young LLP was approved
by the board of directors of NPI 4's managing general partner.
The financial statements of Angeles Mortgage Investment Trust at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by BDO Seidman, LLP, independent
Certified Public Accountants, as set forth in their reports thereon appearing
elsewhere herein, are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the securities to be issued in the Merger will be
passed upon by Miles & Stockbridge, P.C.
154
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Proxy
Statement/Prospectus.
"1997 Share Incentive Plan" means IPT's 1997 Share Incentive Plan.
"Acquisition and Disposition Services Agreement" means that certain
Acquisition and Disposition Services Agreement, dated as of February 17, 1998,
by and among IPT, IPLP and Insignia.
"AIMCO" means Apartment Investment and Management Company, a Maryland
corporation.
"Akin Gump" means Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel
to IPT.
"AMIT" means Angeles Mortgage Investment Trust, a California
unincorporated business trust.
"AMIT Board" means the board of trustees of AMIT.
"AMIT Class A Shares means Class A common shares of beneficial
interest, par value $1.00 per Share, of AMIT.
"AMIT Class B Shares" means Class B common shares of beneficial
interest, par value $.01 per share, of AMIT.
"AMIT Loans" means the loan portfolio of AMIT.
"AMIT Record Date" means the close of business on May 13, 1998.
"AMIT Rights Plan" means the shareholder rights plan adopted by AMIT
dated as of November 13, 1996.
"AMIT Shares" means the AMIT Class A Shares and the AMIT Class B
Shares.
"ASE" means the American Stock Exchange.
"Asset Agreement" means the Agreement Regarding Certain Assets, dated
July 18, 1997, by and between AMIT and Insignia.
"Century Properties Partnerships" means Century Properties Fund XIV,
Century Properties XV, Century Properties XVI, Century Properties Fund XVII,
Century Properties Fund XVIII, Century Properties Fund XIX, Century Properties
Fund XX, Century Properties Fund XXIII, Century Pension Income Fund XXIII,
Century Pension Income Fund XXIV and Fox Strategic Housing Income Partners.
"Class A Exchange Ratio" means the ratio at which AMIT Class A Shares
will be converted into IPT Common Shares pursuant to the Merger Agreement.
"Class B Exchange Ratio" means the ratio at which AMIT Class B Shares
will be converted into IPT Common Shares pursuant to the Merger Agreement.
"Class B Voting Proxy" means the Irrevocable Proxy Agreement, dated
April 14, 1995, by and between AMIT and MAE (as successor to MAE GP), pursuant
to which AMIT, as proxy for MAE, is required to vote all (100%) of the AMIT
Class B Shares held by MAE in accordance with the majority of the AMIT Class A
Shares represented at a meeting of AMIT shareholders on specified matters,
including but not limited to transactions between AMIT and affiliates of MAE GP
(including IPT and Insignia).
G-1
<PAGE>
"Closing Date" means the date on which the closing of the Merger takes
place.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Capital Partnerships" means Consolidated Capital Growth
Fund, Consolidated Capital Institutional Properties, Consolidated Capital
Institutional Properties/2, Consolidated Capital Institutional Properties/3,
Consolidated Capital Properties III, Consolidated Capital Properties IV,
Consolidated Capital
Properties V and Consolidated Capital Properties VI.
"Controlled Partnerships" means the limited partnerships in which IPT
owns or controls the managing general partner.
"Effective Time" means the time at which the Articles of Merger are
accepted for record by the Maryland Department of Assessments and Taxation or
at such time thereafter as is provided in the Articles of Merger.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means First Union National Bank.
"Exchange Ratio" means collectively, the Class A Exchange Ratio and
the Class B Exchange Ratio.
"Expense Reimbursement Agreement" means the Agreement Regarding
Expenses, dated April 3, 1997, by and between Insignia and AMIT.
"FASB" means the Financial Accounting Standards Board.
"Funds From Operations" means IPT's net income (computed in accordance
with generally accepted accounting principles) excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization of
real estate assets, and after adjustments for unconsolidated partnerships and
joint ventures.
"High River" means High River Limited Partnership, a Delaware limited
partnership.
"ICC" means Insignia Capital Corporation, a Delaware corporation.
"IFGP" means IFGP Corporation, a Delaware corporation.
"Insignia" means Insignia Financial Group, Inc., a Delaware
corporation.
"Insignia/AIMCO Merger" means the proposed merger of Insignia with and
into AIMCO pursuant to the Insignia/AIMCO Merger Agreement.
"Insignia/AIMCO Merger Agreement" means that certain merger agreement
dated March 17, 1998 among AIMCO, AIMCO Properties, L.P., Insignia and
Insignia/ESG, Inc.
"Insignia/ESG" means Insignia/ESG Holdings, Inc., a wholly-owned
subsidiary of Insignia.
"Insignia-NPI" means Insignia NPI, L.L.C., a Delaware limited
liability company.
"IPC" means Insignia Properties Corporation, a Delaware corporation.
"IPLP" means Insignia Properties, L.P., a Delaware limited
partnership.
G-2
<PAGE>
"IPT" means Insignia Properties Trust, a Maryland real estate
investment trust.
"IPT/AIMCO Merger" means the proposed merger of IPT with and into
AIMCO after the consummation of the Insignia/AIMCO Merger.
"IPT Board" means the board of trustees of IPT.
"IPT Common Shares" means common shares of beneficial interest, par
value $.01 per share, of IPT.
"IPT Entity" means each of IPT, IPLP and each business entity which
owns a controlling interest in (i) any real property owned or otherwise
controlled by a Controlled Partnership (as of January 1, 1997) as of January 1,
1997, or (ii) any real property or which IPT or IPLP, or either of them,
acquires direct or indirect acquisition of (a) such real property or (b) a
controlling interest in a business entity that owns such real property.
"IPT Partnerships" means the real estate limited partnerships of which
IPT owns, directly or indirectly, a material interest.
"IPT Share Value" means $10.58.
"IRS" means the Internal Revenue Service.
"LAC" means Liquidity Assistance L.L.C., a Delaware limited liability
company.
"MAE" means Metropolitan Asset Enhancement, L.P., a Delaware limited
partnership.
"MAE GP" means MAE GP Corporation, a Delaware corporation and
wholly-owned subsidiary of MAE.
"MAE GP Merger" means the merger of MAE GP with and into IPT.
"Merger" means the merger of AMIT with and into IPT pursuant to the
Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
July 18, 1997, among AMIT, IPT, Insignia and MAE GP.
"NPI" means National Property Investors, Inc., a Delaware corporation.
"NPI 4" means National Property Investors 4, a California limited
partnership.
"National Properties Partnerships" means National Property Investors
II, National Property Investors III, National Property Investors 4, National
Property Investors 5, National Property Investors 6, National Property
Investors 7, National Property Investors 8.
"NPI Transaction" means the series of related transactions between
IPC, Insignia-NPI, certain other affiliates of Insignia, NPI and certain
affiliates of NPI pursuant to which, among other things, IFGP acquired all of
the outstanding stock of NPI and Insignia-NPI acquired limited partner interest
in certain of the National Properties Partnerships and Century Properties
Partnerships.
"OP Units" means units of limited partner interest in IPLP.
"Partnership Agreement" means the Fourth Amended and Restated
Agreement of Limited Partnership of IPLP.
"Preferred Shares" means the preferred shares of beneficial interest,
par value $.01 per share, of IPT.
G-3
<PAGE>
"Private Offerings" means collectively, the offering commencing in May
1997 and ending in August 1997 of IPT Common Shares to certain investors at a
purchase price of $10.00 per share, and an unrelated transaction in October
1997 whereby IPT sold 1,000,000 IPT Common Shares at a purchase price of $10.00
per share, to a single private investor, each made pursuant to a private
offering in reliance upon exemptions from the registration requirements of the
Securities Act.
"Property Management Agreements" means the property management
agreements pursuant to which affiliates of Insignia provide property management
services with respect to the properties owned by the IPT Partnerships.
"REIT" means a real estate investment trust.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelter IV Option" means the option granted to IPLP under the Shelter
IV Option Agreement.
"Shelter Properties Partnerships" means Shelter Properties I Limited
Partnership, Shelter Properties II Limited Partnership, Shelter Properties III
Limited Partnership, Shelter Properties IV Limited Partnership, Shelter
Properties V Limited Partnership, Shelter Properties VI Limited Partnership,
and Shelter Properties VII Limited Partnership.
"Signing Date" means July 18, 1997.
"Special Meeting" means the special meeting of AMIT shareholders to be
held on June 29, 1998, at the Beverly Hilton Hotel, 9876 Wilshire Boulevard,
Beverly Hills, California, commencing at 9:00 a.m., local time.
"Tax Agreement" means the Tax Indemnification Agreement, dated as of
July 18, 1997, made by IPT in favor of the record holders of AMIT Shares as of
the Effective Time.
"Tender Offers" means the tender offers of IPLP Acquisition to
purchase units of limited partner interest in the Tender Offer Partnerships.
"Tender Offer Partnerships" means Consolidated Capital Properties IV,
Century Properties Fund XVII, Century Properties Fund XIX, Century Properties
Growth Fund XXII, Fox Strategic Housing Income Partners and National Property
Investors 4.
"Treasury Regulations" means treasury regulations promulgated under
the Code.
"Trust Amendment" means the proposed second amendment to AMIT's
Declaration of Trust to permit AMIT to merge and consolidate with other
entities, a copy of which is attached to this Proxy Statement/ Prospectus as
Annex B.
"Weil" means Christopher Weil & Company, Inc.
G-4
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Insignia Properties Trust and Predecessor Entities
Report of Ernst & Young LLP, Independent Auditors .................... F-2
Consolidated Balance Sheets for the three month period ended
March 31, 1998 and for the years ended December 31, 1997
and 1996 ........................................................... F-3
Consolidated Statements of Income for the three months ended
March 31, 1998 and 1997 and for the year ended December
31, 1997 and Combined Statements of Income for the years ended
December 31, 1996 and 1995 ......................................... F-4
Consolidated Statements of Shareholders' Equity and Insignia
Equity in Predecessors for the three month period ended
March 31, 1998 and for the year ended December 31, 1997
and the Combined Statements of Shareholders' equity and
Insignia Equity in predecessors for the years ended December
31, 1996 and 1995 .................................................. F-5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 and for the year ended
December 31, 1997 and Combined Statements of Cash Flows for
the years ended December 31, 1996 and 1995 ......................... F-6
Notes to Consolidated and Combined Financial Statements .............. F-7
Schedule III: Real Estate and Accumulated Depreciation as of
December 31, 1997 ................................................. F-22
Shelter Properties Partnerships
Report of Ernst & Young LLP, Independent Auditors ................... F-24
Combined Balance Sheets for the years ended December 31, 1996
and 1995 .......................................................... F-25
Combined Statements of Operations for the years ended December
31, 1996, 1995 and 1994 ........................................... F-26
Combined Statements Changes in Partners' Capital (Deficit) for
the years ended December 31, 1996, 1995 and 1994 .................. F-27
Combined Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994 ........................................... F-28
Notes to Combined Financial Statements .............................. F-29
Schedule III: Real Estate and Accumulated Depreciation as of
December 31, 1996 ................................................. F-35
National Property Investors and Century Properties Partnerships
Report of Independent Auditors ...................................... F-38
Combined Balance Sheets for the years ended December 31, 1996
and 1995 .......................................................... F-39
Combined Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 .................................. F-40
Combined Statements Changes in Partners' Capital (Deficit) for
the years ended December 31, 1996, 1995 and 1994 .................. F-41
Combined Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994 ........................................... F-42
Notes to Combined Financial Statements .............................. F-44
Schedule III: Real Estate and Accumulated Depreciation as of
December 31, 1996 ................................................. F-52
Angeles Mortgage Investment Trust
Balance Sheets for the three months ended March 31, 1998
and December 31, 1997 ............................................. F-57
Statement of Operations for the three months ended
March 31, 1998 and 1997............................................ F-58
Statement of Changes in Shareholders' Equity for
the three months ended March 31, 1998 ............................. F-59
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 ........................................... F-60
Notes to Financial Statements ....................................... F-61
Report of Independent Auditors ...................................... F-62
Balance Sheets for years ended December 31, 1997 and 1996 ........... F-63
Statement of Operations for years ended December 31, 1997, 1984
and 1995 .......................................................... F-64
Statement of Changes in Shareholders' Equity for years ended
December 31, 1997, 1996 and 1995 .................................. F-65
Statement of Cash Flows for years ended December 31, 1997, 1996
and 1995 .......................................................... F-66
Notes to Financial Statements ....................................... F-67
Schedule III: Real Estate and Accumulated Depreciation as of
December 31, 1997 ................................................. F-78
Schedule IV: Mortgage Loans on Real Estate as of December 31, 1997 .. F-79
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Insignia Properties Trust and Predecessor Entities
We have audited the accompanying consolidated balance sheets of Insignia
Properties Trust (a majority-owned subsidiary of Insignia Financial Group,
Inc.) as of December 31, 1997 and 1996, and the related consolidated statement
of income, shareholders' equity and cash flows for the year ended December 31,
1997, and the combined statements of income, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1996 of the
Insignia Properties Trust Predecessor Entities. Our audits also included the
financial statement schedule included on pages F-22 to F-23. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement 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 Insignia
Properties Trust at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for the year ended December 31, 1997, and the
combined results of the operations and the cash flows of the Insignia
Properties Trust Predecessor Entities for each of the two 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,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
February 13, 1998,
except for Note 11, as to which the date is
March 17, 1998
F-2
<PAGE>
INSIGNIA PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ------------------------
1998 1997 1996
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ........................................... $ 23,338 $ 37,432 $ 4,928
Receivables ......................................................... 1 8 21
Investments in real estate limited partnerships ..................... 177,681 159,469 118,741
Apartment properties, net ........................................... 26,003 22,357 22,125
Other assets ........................................................ 7,068 6,802 1,942
-------- -------- --------
Total assets ......................................................... $234,091 $226,068 $147,757
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable--Due to Insignia ................................... $ 160 $ 841 $ 275
Distribution payable--Insignia ...................................... 1,490 1,260 --
Distributions payable ............................................... 2,914 2,786 5,880
Accrued expenses .................................................... 1,272 1,222 804
Note payable ........................................................ -- -- 430
Non-recourse mortgage notes ......................................... 21,957 19,300 19,300
-------- -------- --------
Total liabilities .................................................... 27,793 25,409 26,689
Minority interests in Operating Partnership .......................... 56,984 54,447 50,429
Shareholders' equity:
Preferred shares, par value $.01 per share--authorized
100,000,000 shares, issued and outstanding -0- (March 31,
1998, 1997 and 1996) .............................................. -- -- --
Common shares, par value $.01 per share--authorized
400,000,000 shares, issued and outstanding 19,427,760
(March 31, 1998), 18,573,151 (1997) and 11,168,036 (1996) ......... 194 186 112
Additional paid-in capital .......................................... 154,984 145,594 70,527
Unearned compensation ............................................... (5,462) -- --
Retained earnings ................................................... (402) 432 --
-------- -------- --------
Total shareholders' equity ........................................... 149,314 146,212 70,639
-------- -------- --------
Total liabilities and shareholders' equity ........................... $234,091 $226,068 $147,757
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------------- ------------------------------------
1998 1997 1997 1996 1995
-------------- -------------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Apartment rentals ............................ $ 1,771 $ 1,583 $ 6,646 $ 6,020 $ --
Equity earnings--limited partnership
interests ................................... 3,361 2,204 8,062 3,587 2,455
Other ........................................ 625 341 2,118 98 4
----------- ----------- ----------- -------- ------
5,757 4,128 16,826 9,705 2,459
EXPENSES
Apartment property operating expenses ........ 890 732 3,258 3,034 --
Apartment property interest .................. 406 372 1,486 1,812 --
Apartment property depreciation .............. 271 239 966 901 --
Administrative ............................... 352 271 1,314 34 113
Amortization ................................. 251 20 285 -- --
Other interest ............................... -- 7 47 11 --
----------- ----------- ----------- -------- ------
2,170 1,641 7,356 5,792 113
----------- ----------- ----------- -------- ------
Income before gain on sale of properties,
minority interest and extraordinary
items ....................................... 3,587 2,487 9,470 3,913 2,346
Gain of sale of properties ................... -- -- 1,044 -- --
----------- ----------- ----------- -------- ------
Income before minority interest and
extraordinary items ......................... 3,587 2,487 10,514 3,913 2,346
Minority interests in consolidated
subsidiaries and the Operating
Partnership ................................. (1,533) (1,827) (4,440) (356) (131)
----------- ----------- ----------- -------- ------
Income before extraordinary item ............. 2,054 660 6,074 3,557 2,215
Extraordinary loss (gain)--property
refinancings (net of minority interest) ..... 26 -- (70) (1,132) --
----------- ----------- ----------- -------- ------
Net income ................................... $ 2,080 $ 660 $ 6,004 $ 2,425 $2,215
=========== =========== =========== ======== ======
Net income per share:
Income before extraordinary item ............ $ .11 $ .06 $ .41 $ -- $ --
Extraordinary item .......................... -- -- ( .01) -- --
----------- ----------- ----------- -------- ------
Net income .................................. $ .11 $ .06 $ .40 $ -- $ --
=========== =========== =========== ======== ======
Weighted average shares outstanding .......... 18,835,911 11,179,036 14,694,327 -- --
=========== =========== =========== ======== ======
</TABLE>
See accompanying notes.
F-4
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS'
EQUITY AND INSIGNIA EQUITY IN PREDECESSORS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DISTRIBUTIONS
COMMON ADDITIONAL IN EXCESS OF INSIGNIA
STOCK PAID-IN UNEARNED ACCUMULATED EQUITY IN
CLASS A CAPITAL COMPENSATION EARNINGS PREDECESSORS
--------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ................. $ -- $ -- $ -- $ -- $ 38,346
Capital contribution by Insignia ............ -- -- -- -- 21,522
Distributions paid .......................... -- -- -- -- (10,209)
Net income for 1995 ......................... -- -- -- -- 2,215
---- -------- -------- -------- ---------
Balance at December 31, 1995 ................. -- -- -- -- 51,874
Issuance of 11,168,036 common shares ........ 112 78,587 -- -- --
Capital contribution by Insignia ............ -- -- -- -- 2,942
Distributions declared and paid ............. -- (2,180) -- -- (6,812)
Distributions declared ...................... -- (5,880) -- -- --
Net income for 1996 ......................... -- -- -- -- 2,425
Issuance of IPLP units in exchange for
Insignia limited partnership interests
--transferred to minority interest ....... -- -- -- -- (50,429)
---- -------- -------- -------- ---------
Balance at December 31, 1996 ................. 112 70,527 -- -- --
Issuance of 7,405,115 common shares ......... 74 75,067 -- -- --
Distributions declared and paid ............. -- -- -- (2,786) --
Distributions declared ...................... -- -- -- (2,786) --
Net income for 1997 ......................... -- -- -- 6,004 --
---- -------- -------- -------- ---------
Balance at December 31, 1997 ................. 186 145,594 -- 432 --
Issuance of 344,609 common shares
(unaudited) ............................... 3 3,625 -- -- --
Restricted share awards (510,000 shares)
(unaudited) ............................... 5 5,765 (5,462) -- --
Distributions declared (unaudited) .......... -- -- -- (2,914) --
Net income for 1998 (unaudited) ............. -- -- -- 2,080 --
---- -------- -------- -------- ---------
Balance at March 31, 1998 (unaudited) ........ $194 $154,984 $ (5,462) $ (402) $ --
==== ======== ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------------- --------------------------------------
1998 1997 1997 1996 1995
-------------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 2,080 $ 660 $ 6,004 $ 2,425 $ 2,215
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Apartment property depreciation ............................ 271 239 966 901 --
Amortization of organization and formation costs ........... 251 20 285 -- --
Equity earnings--partnership investments ................... (3,361) (2,204) (8,062) (3,587) (2,455)
Gain on sale of properties ................................. -- -- (1,044) -- --
Extraordinary loss--property refinancings .................. (26) -- 70 1,132 --
Minority interests in the Operating Partnership and
consolidated subsidiaries ................................ 1,533 1,827 4,440 356 131
Non-cash compensation ...................................... 308 -- -- -- --
Changes in operating assets and liabilities: ...............
Accounts receivable ...................................... 7 -- 13 (21) --
Other assets ............................................. (286) (257) (1,316) 6 --
Accounts payable and accrued expenses .................... (680) 530 982 208 9
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities ......... 97 815 2,338 1,420 (100)
INVESTING ACTIVITIES
Purchase of partnership interests ........................... (13,551) (771) (30,592) (71,427) (24,147)
Investment in apartment property, net ....................... (3,804) -- -- (8,005) --
Distributions from partnerships ............................. 5,356 10,733 18,235 9,258 10,910
Organizational and formation costs .......................... -- -- (3,743) -- --
Acquisition costs ........................................... (163) -- -- -- --
Additions to apartment property ............................. (91) (76) (381) (733) --
Other ....................................................... -- -- -- 73 --
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing activities ......... (12,253) 9,886 (16,481) (70,834) (13,237)
FINANCING ACTIVITIES
Payments on note payable .................................... -- -- (1,080) (310) --
Repayments of non-recourse mortgage note .................... (3) -- -- (16,876) --
Proceeds from note payable .................................. -- 650 650 -- --
Proceeds from refinancing of non-recourse mortgage note ..... 2,660 -- -- 19,300 --
Investments made by minority investors ...................... -- -- -- -- 2,652
Distributions made to minority investors .................... (494) (1,321) (1,321) (431) (100)
Debt issuance costs ......................................... -- -- -- (505) --
Debt extinguishment costs ................................... -- -- -- (333) --
Capital invested by Insignia ................................ -- -- -- 81,961 21,522
Loan costs paid ............................................. (55) -- (19) -- --
Distributions paid to Insignia by IPLP ...................... (1,260) (4,077) (5,337) (6,812) (10,209)
Distributions paid to common shareholders ................... (2,786) (5,880) (8,666) (2,180) --
Proceeds from issuance of common shares ..................... -- 110 62,420 -- --
---------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities ......... (1,938) (10,518) 46,647 73,814 13,865
---------- --------- --------- --------- ---------
Increase in cash and cash equivalents ....................... (14,094) 183 32,504 4,400 528
Cash and cash equivalents at beginning of year .............. 37,432 4,928 4,928 528 --
---------- --------- --------- --------- ---------
Cash and cash equivalents at end of year .................... $ 23,338 $ 5,111 $ 37,432 $ 4,928 $ 528
========== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND
INVESTING ACTIVITIES
Issuance of IPT shares and OP units for partnership
interests .................................................. $ 6,656 $ -- $ 20,379 $ -- $ --
========== ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1998 AND
1997 AND FOR THE PERIODS THEN ENDED ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Insignia Properties Trust ("IPT" or "the Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties, including limited and
general partner interests in partnerships which hold such real estate
properties. IPT has been organized in a manner that will allow it to be taxed
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 beginning with the taxable year ended December 31, 1996. IPT was organized
as a Maryland Business Trust. Insignia and its affiliates have transferred to
IPT equity interests in entities comprising or controlling the general partners
of certain public real estate limited partnerships in exchange for shares of
beneficial interest of IPT. IPT has also issued common shares to Insignia and
certain of its employees and affiliates in exchange for the payment of certain
obligations of IPT. IPT began operations on December 31, 1996 as a result of
such transfers. The transfers were recorded at the historical cost of Insignia.
The Company is the sole general partner of Insignia Properties L.P.
("IPLP" or the "Operating Partnership"). Insignia and its subsidiaries, other
than IPT, have transferred to IPLP certain limited partner interests in real
estate limited partnerships (or equity interests in entities which own such
interests) owned by Insignia and its subsidiaries in exchange for units of
limited partner interest in IPLP, which units are exchangeable for common
shares of IPT or are redeemable for cash. Because these units are held by
Insignia, under the Limited Partnership Agreement, they are Class A units of
limited partner interest having special rights with respect to matters
concerning IPLP. As a result of these formation transactions, at December 31,
1997 and 1996, IPT was 75% and 98% owned by Insignia, with the remainder of its
shares owned by Metropolitan Asset Enhancement L.P. ("MAE LP") (an affiliated
company), certain Insignia employees and other non-affiliated investors. IPT's
ownership of IPLP was 66% and 57% at December 31, 1997 and 1996, respectively
and 66% at March 31, 1998. Insignia owns the remaining units in IPLP.
The formation transactions represent a reorganization of entities under
common control, and the accompanying financial statements represent the
consolidated and combined financial statements applicable to those assets and
entities contributed to IPT as a part of its formation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
The accompanying financial statements include the consolidated balance
sheets of IPT as of March 31, 1998, December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for the
three months ended March 31, 1998 and 1997, the year ended December 31, 1997,
and the combined statements of income, shareholders' equity and cash flows for
the years ended December 31, 1996 and 1995 of Insignia Properties Trust
Predecessor Entities. The financial statements include wholly-owned
subsidiaries which comprise or control the general partners of the underlying
partnerships, the majority-owned subsidiary IPLP, and certain investments in
real estate limited partnerships which were owned by Insignia prior to
contribution to IPLP ("Predecessor Entities"). Insignia's ownership in IPLP is
shown as minority interest. See Notes 3 and 6 regarding consolidation of
National Property Investors 4 ("NPI 4"), a majority-owned operating
partnership.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents
The amount of cash on deposit in federally insured institutions at times
exceeds the limit on insured deposits. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Investments in Real Estate Limited Partnerships
Investments in real estate limited partnerships represent general partner
interests (or interests in general partner interests) generally ranging from
0.2% to 3% in certain limited partnerships and limited partner interests in
real estate limited partnerships ranging from less than 1% to 62%. Partnerships
in which IPT has a general partner interest or limited partnership ownership
(in excess of 2.5%) are accounted for by the equity method, unless IPT has a
majority ownership and controls the partnership on a non-temporary basis, in
which case the partnership is consolidated.
Apartment Properties
At December 31, 1997, Apartment properties, consisting of land of
approximately $1.5 million, buildings and personal property of approximately
$22.7 million, are stated at cost, net of accumulated depreciation of
approximately $1.9 million. On January 28, 1998, Raintree Pensacola, L.P., a
limited partnership controlled by IPLP, acquired a property in Pensacola,
Florida referred to as the Raintree Apartments. The Raintree Apartments contain
168 residential apartment units. The aggregate purchase price paid for the
Raintree Apartments was approximately $3.7 million. Depreciation is computed
principally by the straight-line method over the estimated useful lives of the
assets. Buildings are being depreciated over the estimated life of 30 years and
personal property over the estimated life of 5 years (see Note 7).
In 1996, IPT adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" (FAS 121), which requires
impairment losses to be recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows are
not sufficient to recover the assets carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. The
adoption of FAS 121 had no material effect on the accompanying financial
statements.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
is recognized monthly as it is earned, which is not materially different than
on a straight-line basis. Interest income is recorded on an accrual basis.
Lease Agreements
The Company generally leases apartment units for twelve-month terms or
less, renewable upon consent of both parties.
Loan Costs
Loan costs include fees and costs paid to third parties for obtaining or
refinancing outstanding indebtedness. These costs are amortized over the term
of the respective outstanding debt. Loan costs of approximately $524,000 and
$505,000, net of accumulated amortization of approximately $81,000 and $9,000,
at December 31, 1997 and 1996, respectively, are included in other assets.
Advertising Expense
IPT expenses the cost of advertising as incurred. The amounts incurred for
1997, 1996 and 1995 did not have a material effect on the financial statements.
F-8
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
Deferred Expenses
Deferred expenses are included in other assets and primarily consist of
organization costs which are being amortized using the straight-line method
over five years.
Distributions
The Company intends to pay distributions of at least the amount required
to maintain REIT status under the Internal Revenue Code. In August 1997, the
IPT Board adopted a policy to pay a quarterly distribution of $0.15 per common
share; however, the payment of any distribution will be dependent on the
liquidity and cash flows of the Company, which are primarily dependent on
distributions from the underlying partnerships.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.
Earnings per share is computed based on the weighted average number of
common shares outstanding. The conversion of an OP Unit to a Common Share is
not considered a dilutive item since the allocation of earnings to an OP Unit
is equivalent to a Common Share. Earnings per share was not calculated prior to
1997 because IPT shares were not issued until December 30, 1996. Diluted
earnings per share is not presented because the Company has no dilutive items;
thus, basic and diluted earnings per share are equal.
Fair Value
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. The fair values
of the Company's financial instruments at March 31, 1998, December 31, 1997 and
1996 approximate their carrying values.
Federal Income Taxes
The Company elected to be taxed as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"), beginning
with its taxable year ending December 31, 1996. Generally, a REIT which
complies with the provisions of the Code and distributes at least 95% of its
taxable income to its shareholders does not pay federal income taxes on its
distributed income. Since IPT distributed in excess of 100% of its taxable
income, no provision has been made for federal income taxes. If the Company
fails to qualify as a REIT in any year, its taxable income may be subject to
income tax at regular corporate rates (including any applicable alternative
minimum tax). Even if the Company qualifies for taxation as a REIT, the Company
may be subject to certain state and local taxes.
Distributions declared of $0.53 per share to shareholders of record on
December 30, 1996 and $0.15 per share to shareholders of record on October 31,
1997 were paid during the year ended December 31, 1997. Distributions paid to
shareholders of $0.20 per share were made during the year ended December 31,
1996. For federal tax purposes, the portions of the 1997 distribution relating
to return of capital and earnings and profits are 59% and 41%, respectively.
The 1996 distribution consisted entirely of a return of capital. No REIT
operating income was earned during 1996. Earnings and profits which determine
the taxability of dividends to shareholders, differ from net income reported
for financial reporting purposes due to differences for federal tax purposes in
the estimated useful lives to compute depreciation and the carrying value
(basis) of the investment in partnership interests.
F-9
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain amounts from prior years have been reclassified to conform with
the 1997 presentation.
Interim Unaudited Consolidated Financial Information
The accompanying consolidated financial statements for the three months
ended March 31, 1998 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring accruals)
considered necessary for a fair presentation have been included. The results of
interim periods are not necessarily indicative of the results to be obtained
for a full year.
3. INVESTMENTS IN REAL ESTATE LIMITED PARTNERSHIPS
The Company has significant investments in 28 limited partnerships and
nominal investments in 20 limited partnerships which own (or previously owned)
real estate consisting primarily of apartments, and to a lesser extent
commercial property, throughout the United States. The Company's capital
ownership percentages (which are generally less than the operating percentages)
of the significant investments in partnerships at December 31, 1997 and date
acquired are as follows:
<TABLE>
<CAPTION>
CAPITAL INITIAL
REAL ESTATE LIMITED PARTNERSHIP OWNERSHIP % ACQUISITION DATE
- --------------------------------------------------------- ------------- -----------------
<S> <C> <C>
Consolidated Capital Growth Fund ........................ 39% December 1994
Consolidated Capital Institutional Properties ........... 26% December 1994
Consolidated Capital Institutional Properties/3 ......... 12% December 1994
Consolidated Capital VI ................................. 22% December 1994
Consolidated Capital III ................................ 24% January 1995
Consolidated Capital IV ................................. 27% January 1995
Johnstown/Consolidated Income Partners .................. 10% December 1995
Davidson Growth Plus, L.P. .............................. 11% December 1995
Shelter Properties I .................................... 39% May 1995
Shelter Properties II ................................... 33% May 1995
Shelter Properties III .................................. 34% May 1995
Shelter Properties V .................................... 39% May 1995
Shelter Properties VI ................................... 28% May 1995
National Property Investors III ......................... 45% January 1996
National Property Investors 5 ........................... 47% January 1996
National Property Investors 6 ........................... 44% January 1996
National Property Investors 7 ........................... 43% January 1996
National Property Investors 8 ........................... 38% January 1996
Century Property Fund XIV ............................... 41% January 1996
Century Property Fund XV ................................ 40% January 1996
Century Property Fund XVI ............................... 37% January 1996
Century Property Fund XVII .............................. 38% January 1996
Century Property Fund XVIII ............................. 29% January 1996
Century Property Fund XIX ............................... 33% January 1996
Century Property Fund XXII .............................. 27% January 1996
Fox Strategic Housing Income Partners ................... 15% August 1997
Consolidated Capital Institutional Properties/2 ......... 20% December 1997
Shelter Properties IV ................................... 32% December 1997
</TABLE>
F-10
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
During 1998, as a result of the December Tender Offers and the MAE GP
Corporation Merger (see Note 11), the Company acquired significant investments
in the following 12 limited partnerships. The Company's capital ownership of
these significant investments at March 31, 1998 and date acquired are as
follows:
<TABLE>
<CAPTION>
CAPITAL INITIAL
REAL ESTATE LIMITED PARTNERSHIP OWNERSHIP % ACQUISITION DATE
- ----------------------------------------------------------- ------------- -----------------
<S> <C> <C>
Shelter Properties VII .................................... 15% March 1998
Multi-Benefit Realty Fund `87-1 ........................... 19% March 1998
Consolidated Capital Properties V ......................... 25% March 1998
Angeles Income Properties, Ltd. II ........................ 4% March 1998
Angeles Income Properties, Ltd. IV ........................ 6% March 1998
Angeles Income Properties, Ltd. 6 ......................... 4% March 1998
Angeles Opportunity Properties, Ltd. ...................... 3% March 1998
Angeles Partners IX ....................................... 5% March 1998
Angeles Partners XII ...................................... 4% March 1998
Davidson Diversified Real Estate II, L.P. ................. 3% March 1998
Davidson Income Real Estate, L.P. ......................... 2% March 1998
HCW Pension Real Estate Fund Limited Partnership .......... 1% March 1998
</TABLE>
The Company also owns 62% of National Property Investors 4 and therefore
consolidates the financial statements of this partnership.
The acquisitions were accounted for as purchase transactions by the
predecessor entities of IPT. A summary of the acquisitions follows:
1994 TO 1996 ACQUISITIONS
Limited partnership interests in four of the Consolidated Capital
partnerships were purchased in December 1994 by Insignia. Limited partnership
interests in two other Consolidated Capital partnerships were acquired by
tender offer through consolidated 60% owned subsidiaries of Insignia in January
of 1995. The 40% minority interest in these subsidiaries was purchased in 1996.
The Shelter Properties limited partnership interests were acquired in May
1995 as a result of tender offers commenced by Insignia in April 1995. The
partnership interests in the National Property partnerships and the Century
partnerships were acquired in January 1996 in connection with the acquisition
by Insignia, and certain of its affiliates, of substantially all of the assets
of National Properties Investors, Inc. ("NPI Acquisition").
Limited partner interests in Davidson Growth Plus, L.P. were purchased in
December 1995 through a tender offer, and interests in Johnstown/Consolidated
Income Partners were acquired in private purchases during 1995 and 1996.
1997 ACQUISITIONS
In June 1997, Insignia acquired additional limited partnership interests
in the Shelter Properties portfolio and Davidson Growth Plus, L.P. in a
privately negotiated transaction ("High River Transaction"). Insignia
contributed, at Insignia's cost, the interests acquired in the High River
Transaction (with exception of the limited partner interests in Shelter
Properties IV Limited Partnership) to IPT in exchange for 1,162,451 IPT Common
Shares. IPT then contributed the interests to IPLP in exchange for 1,162,451
general partner units of IPLP.
F-11
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
In October 1997, a wholly-owned subsidiary of IPLP, completed tender
offers for limited partnership interest in six partnerships: Century Property
Fund XVII, Century Property Fund XIX, Century Property Fund XXII, National
Property Investors 4, Consolidated Capital Properties IV, and Fox Strategic
Housing Income Partners (the "August Tender Partnerships").
In December 1997, a wholly-owned subsidiary of IPLP, completed tender
offers for limited partnership interest in two partnerships: Consolidated
Capital Institutional Properties and Consolidated Capital Institutional
Properties/2 (the "December Tender Partnerships").
On December 31, 1997, IPLP exercised an option to acquire 16,010 limited
partner interests in Shelter Properties IV Limited Partnership in exchange for
a total of 1,016,448 units in IPLP to be issued to Insignia. The acquired
limited partner interests were recorded at Insignia's historical cost.
1998 ACQUISITIONS
On various dates in December 1997, a wholly-owned subsidiary of IPLP,
commenced tender offers to purchase units of limited partner interest in
Multi-Benefit Realty Fund 87-1, Century Properties Fund XIV, Century Properties
Fund XV, Century Properties Fund XVIII, Consolidated Capital Growth Fund,
Consolidated Capital Institutional Properties/3, Consolidated Capital
Properties V, Johnstown/ Consolidated Income Partners and Shelter Properties
VII Limited Partnership. These tender offers expired in January and February
1998 with IPLP acquiring additional limited partnership interest of
approximately $11.0 million, including acquisition costs of approximately $0.6
million.
MAE GP Corporation Merger
Effective February 25, 1998, MAE GP Corporation, which until then was a
wholly-owned subsidiary of MAE LP, was merged with and into IPT, with IPT
surviving the merger (the "MAE GP Merger"). As consideration for the MAE GP
Merger, IPT issued 344,609 IPT Common Shares to MAE LP valued for purposes of
the MAE GP Merger at $10.53 per share. MAE GP Corporation owned or controlled
equity interests in entities which comprised or controlled the general partners
of 29 public and 61 private real estate limited partnerships (collectively, the
"MAE Partnerships"), nine of which are included in the IPT Partnerships. The
MAE Partnerships own, in the aggregate, 167 properties containing approximately
31,000 residential apartment units and approximately 2.2 million square feet of
commercial space. In connection with the MAE GP Merger, all of the AMIT Class B
Shares, which were until then owned by MAE GP Corporation, were transferred by
dividend to MAE prior to the MAE GP Merger.
MAE and Insignia Contributions to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP purchased
certain assets from MAE for approximately $596,000 cash. The assets purchased
from MAE consisted of (i) a 99% limited partner interest in Insignia Jacques
Miller, L.P. ("IJM"), which in turn owns non-controlling equity interests in
entities that comprise or control the general partners of 30 of the MAE
Partnerships and various notes receivable (the 1% general partner interest in
IJM was acquired by IPT from MAE GP in the MAE GP Merger), and (ii) a 6.557%
limited partner interest in Buccaneer Trace Limited Partnership, which owns a
208-unit residential apartment complex located in Savannah, Georgia.
Also in connection with the MAE GP Merger, on February 17, 1998, Insignia
contributed all of the limited partner interests it owned in the MAE
Partnerships to IPLP in exchange for OP Units. The value of the interests
contributed was approximately $5,460,000, for which Insignia received 518,528
OP Units, based on a value of $10.53 per unit. The interests will be recorded
at the historical cost of Insignia.
Equity in Earnings
Equity in earnings of the aforementioned partnerships have been included
in these financial statements from the date of their respective acquisition.
Equity in earnings from these partnerships amounted to approximately
$8,062,000, $3,587,000 and $2,455,000 for the years ended 1997, 1996 and
F-12
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
1995, respectively, and $3,361,000 and $2,204,000 for the three months ended
March 31, 1998 and 1997, respectively. Equity in earnings excludes the
Company's equity interest in extraordinary losses by the partnerships from
early extinguishments of debt which are reflected separately in the income
statement. The Company owns 62% of NPI 4 and, therefore, consolidates the
accounts of this partnership.
Summary of Investments
The following table presents a summary of investments made by IPT in
limited partnerships and the carrying amounts. The investment in NPI 4, in
which a 62% interest is held, is not included in the table below but rather is
included as a consolidated subsidiary in the accompanying financial statements.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
ConCap acquisition in December 1994 .................................... $ 38,233
Equity earnings for 1994 ............................................. 113
---------
Balance at December 31, 1994 ........................................... 38,346
ConCap Tender Offers ................................................. 5,479
Shelter Tender Offers ................................................ 16,860
Other purchases ...................................................... 1,807
Equity earnings for 1995 ............................................. 2,455
Distributions received ............................................... (10,910)
---------
Balance at December 31, 1995 ........................................... 54,037
NPI Acquisition in January 1996 ...................................... 66,501
Purchase of minority interest ........................................ 3,923
Other purchases ...................................................... 1,083
Equity earnings for 1996 ............................................. 3,587
Equity in extraordinary losses -- refinancings ....................... (1,132)
Distributions received ............................................... (9,258)
---------
Balance at December 31, 1996 ........................................... 118,741
Purchases ............................................................ 30,592
Equity Earnings ...................................................... 8,062
Equity in extraordinary losses -- refinancings ....................... (70)
Issuance of IPT shares for partnership interests ..................... 20,379
Distributions received ............................................... (18,235)
---------
Balance at December 31, 1997 ........................................... 159,469
Purchases (unaudited) ................................................ 13,551
Equity Earnings (unaudited) .......................................... 3,361
Issuance of IPT shares for partnership interests (unaudited) ......... 6,656
Distributions received (unaudited) ................................... (5,356)
---------
Balance at March 31, 1998 .............................................. $ 177,681
=========
</TABLE>
F-13
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA INFORMATION (UNAUDITED)
Pro forma unaudited results of operations assuming consummation of the
1998 acquisitions at January 1, 1998 and 1997, the 1997 acquisitions at January
1, 1997 and 1996, the 1996 acquisitions at January 1, 1996 and 1995, and the
1995 acquisitions at January 1, 1995, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues ................................... $5,973 $4,350 $20,748 $11,447 $10,720
Income before extraordinary items .......... 2,270 882 8,969 4,561 3,107
Net income ................................. 2,296 882 8,899 3,429 2,140
Per share amounts:
Income before extraordinary items ......... .12 .07 .59 .37 .25
Net income ................................ .12 .07 .58 .28 .17
</TABLE>
Minority interest for years ended December 31, 1997, 1996 and 1995 and for
the three months ended March 31, 1998 and 1997 has been adjusted for the
aforementioned acquisitions. The pro forma information is not necessarily
indicative of what the Company's results of operations would have been if the
transactions had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be an indication of
the Company's results of operations for future periods.
The following summarized financial information represents the combined
results as reported by the forty (1998), twenty-eight (1997) and twenty-five
(1996) partnerships in which IPT has a significant investment (listed on page
F-10 and F-11) in their separate annual reports. The information below excludes
the financial information of NPI 4, which is consolidated by the Company. At
March 31, 1998, the information also excludes Raintree Apartments which is
consolidated by the Company.
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1998 1997 1996
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Cash and investments ................................. $ 124,857 $ 102,994 $ 111,733
Restricted escrows, deposits and receivables ......... 53,774 45,127 21,055
Other assets ......................................... 24,236 19,249 35,473
Real estate .......................................... 1,823,025 1,424,835 1,251,952
Less accumulated depreciation ........................ (969,833) (750,292) (622,433)
---------- ---------- ----------
Net real estate ...................................... 853,192 674,543 629,519
---------- ---------- ----------
Total assets ......................................... $1,056,059 $ 841,913 $ 797,780
========== ========== ==========
Mortgage notes payable ............................... $ 887,366 $ 660,919 $ 618,176
Other liabilities .................................... 37,987 32,196 43,085
---------- ---------- ----------
Total liabilities .................................... 925,353 693,115 661,261
Partners' capital .................................... 130,706 148,798 136,519
---------- ---------- ----------
Total liabilities and partners' capital .............. $1,056,059 $ 841,913 $ 797,780
========== ========== ==========
</TABLE>
F-14
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENT OF EARNINGS INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $91,369 $64,036 $282,375 $247,017 $ 237,946
Expenses:
Property operations ............... 43,399 31,458 149,562 136,646 130,225
Provision for possible losses ..... -- -- -- -- 8,255
Interest .......................... 19,458 13,609 56,307 51,823 54,939
Depreciation and amortization ..... 17,932 12,603 56,456 49,762 49,855
General and administrative ........ 3,907 2,077 11,205 10,103 11,858
Partnership management fees........ -- -- -- -- 626
------- ------- -------- -------- ---------
Total expenses ..................... 84,696 59,747 273,530 248,334 255,758
Gain (loss) on disposition of
property .......................... (123) (39) 8,679 5,572 18,285
------- ------- -------- -------- ---------
Income before extraordinary item ... 6,550 4,250 17,524 4,255 473
Extraordinary items ................ -- (233) (200) 371 (2,884)
------- ------- -------- -------- ---------
Net income (loss) .................. $ 6,550 $ 4,017 $ 17,324 $ 4,626 $ (2,411)
======= ======= ======== ======== =========
</TABLE>
At December 31, 1997, the unamortized excess of the Company's investments
over the respective partnerships' historical cost of their net assets was
approximately $125 million, which has been attributed to the fair values of the
investee's underlying properties and is being depreciated through equity
earnings over their useful lives (30 years). The Company's investment has been
recorded at the historical cost of the acquisitions by Insignia. The
Partnership interests were acquired over a three year period. The financial
results of each individual Partnership are reflected in equity earnings
subsequent to the date of acquisition.
4. LIABILITIES
Accounts Payable -- Due to Insignia
Accounts payable -- Due to Insignia represent payments made by Insignia on
behalf of IPT.
Distributions Payable
IPT's Board of Trustees declared a distribution of $2,786,000 and
$5,880,000 to shareholders of record on December 23, 1997 and December 30,
1996, respectively. The distributions were paid during January 1998 and 1997,
respectively. During March 1998, IPT declared a distribution of $2,914,000.
F-15
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------- -------
(In Thousands)
<S> <C> <C>
Accrued professional fees ......... $ 485 $ --
Tenant security deposits .......... 405 409
Accrued interest .................. 118 118
Management fees ................... 21 120
Other ............................. 193 157
------ ----
$1,222 $804
====== ====
</TABLE>
5. NOTES PAYABLE
Note Payable
A note payable was issued in connection with the acquisition of the stock
of a corporate general partner and is payable as to principal and interest when
proceeds are received by that corporate general partner from an investment in a
limited partnership with a carrying amount of $430,020. The note payable is
unsecured and bears simple interest at 6.5% per annum. During 1997, the note
was paid in full.
Non-recourse Mortgage Notes
The $19.3 million non-recourse mortgage note is a first mortgage
encumbering the real estate of NPI 4. The note bears interest at 7.33%, with
interest only payable in monthly installments, and matures in 2003. IPT paid
interest of approximately $1,415,000 for 1997.
During 1998, as a result of the Raintree Apartment acquisition, IPT has a
non-recourse mortgage note of $2,657,000 encumbering the real estate of the
Raintree Apartments.
6. MINORITY INTEREST
Operating Partnership
Net income is allocated to the Minority Interests based upon their
respective ownership percentage of the Operating Partnership. Ownership
percentage is represented by dividing the number of OP Units held by the
Minority Interests by the OP Units held by Minority Interest and Common Shares
Outstanding. Such transactions and the proceeds therefrom are treated as
capital transactions and result in an allocation between Shareholder's Equity
and Minority Interest to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
IPLP had 27,989,098 and 19,567,535 units outstanding, including and
9,415,947 and 8,399,499 units held by Insignia at December 31, 1997 and 1996,
respectively, and 28,961,835 units outstanding, including 9,934,475 units held
by Insignia at March 31, 1998. Pursuant to IPLP's partnership agreement, the
limited partners have received redemption rights, defined in the partnership
agreement, which will enable them to cause, subject to certain restrictions,
IPLP to redeem each unit for cash equal to the value of a common share of IPT
(or, at the general partner's election, it may purchase each unit offered for
redemption for one common share of IPT, subject to adjustment upon the
occurrence of share splits, merger, consolidations or similar pro rata share
transactions, which would have the effect of diluting the ownership interests
of the limited partners of IPLP or the shareholders of IPT).
NPI 4
NPI 4, in which a subsidiary of IPT is the sole general partner and IPLP
owns 62% of the limited partner interests (as of December 31, 1997 and March
31, 1998), is consolidated in the accompanying
F-16
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
financial statements. The 62% of the NPI 4 property effectively owned by IPLP
is stated at IPLP's cost, while the remaining 38% of the property not owned by
IPLP is stated at the historical depreciated cost of NPI 4. While Insignia paid
approximately $9 million for a 62% interest in the partnership, the 38%
minority interest is recorded at zero since the underlying partnership has a
partners' deficit. Accordingly, assets of $25.6 million and liabilities of $17
million were recorded in connection with the acquisition of a majority
ownership in NPI 4. The result is that the property is recorded on IPT's
financial statements at below estimated fair value. The distribution of $1.3
million to minority partners made in January 1997 by NPI 4 was recognized as a
loss to IPT for financial reporting purposes because generally accepted
accounting principles do not allow a negative (debit) balance in minority
interest. Additional losses will be recognized for NPI 4, or any other
partnership which becomes a consolidated partnership, whenever distributions
are made to minority partners in excess of the recognized minority interest in
such partnership.
7. SHAREHOLDERS' EQUITY
IPT's declaration of trust has authorized the issuance of up to
400,000,000 common shares and 100,000,000 preferred shares of beneficial
interest. In 1996, the Company was initially capitalized by the issuance of
7,283,780 common shares in payment of debt of $72,837,800 owed by IPT to
Insignia as a result of the acquisition of the NPI partnership interests. IPT
issued 3,271,547 common shares to Insignia in respect of Insignia's 100%
ownership interest in IPT. IPT subsequently issued an additional 612,709 common
shares to Insignia and an affiliate of Insignia in exchange for the
contribution to IPT of shares of stock of certain corporate general partners.
During 1997, IPT also issued 6,300 common shares to Insignia and 4,700 shares
to six accredited investors, who are executive officers of Insignia. In June
1997, the Company issued to Insignia 1,162,451 common shares of IPT in return
for the contribution of limited partnership interests owned by Insignia.
A private offering was completed in August 1997 with a total of 5,231,000
common shares issued at $10.00 per share. The Company also granted to certain
potential investors an option to purchase for cash up to 1,000,000 in the
aggregate, common shares of beneficial interest of IPT, at any time on or
before October 10, 1997, at the price of $10 per share, provided that the
purchaser is not in breach of certain covenants at the time of the purchase.
This option was exercised during 1997. IPLP had 27,989,098 and 19,567,535 units
outstanding at December 31, 1997 and 1996, respectively, which may be redeemed,
subject to certain restrictions, for an equivalent number of common shares of
IPT.
At December 31, 1997 approximately $6.3 million of the Company's retained
earnings is represented by undistributed earnings of the Company's underlying
investments in real estate limited partnerships that are accounted for by the
equity method.
Share Incentive Plan
In August 1997, IPT adopted the 1997 Share Incentive Plan (the "Plan") to
provide for the granting of share options and restricted shares to certain key
employees (including officers), directors, consultants and advisors of IPT,
including certain employees of Insignia. The Plan will be administered by the
Board of Trustees of IPT or a committee of the Board of Trustees. The Plan
provides that options granted under the Plan may be "incentive share options"
(as defined in the Code), non-qualified options or restricted shares, which
vest on the attainment of performance goals or subject to vesting requirements
or other restrictions prescribed by the Board of Trustees. The maximum number
of IPT common shares available for awards under the Plan is 1,200,000 shares,
subject to adjustment under certain circumstances. The Plan may be terminated
by the Board of Trustees of IPT at any time. As of December 31, 1997, the IPT
Board of Trustees had approved the granting of 25,000 share options and 38,000
restricted shares. Subsequent to December 31, 1997, these approved share
options and restricted shares were granted.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of an IPT common share on the date of grant.
However, an incentive share option granted to the
F-17
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
holder of more than 10% of the total combined voting power of all of the shares
of beneficial interest of IPT or any subsidiary must have an exercise price of
at least 110% of the fair market value of the shares on the date of grant and
the option by its terms must not be exercisable after the expiration of five
years from the date it is granted. Absent a public market for the IPT common
shares, the Plan provides for the fair market value to be determined by the
Board of Trustees (or a committee thereof if one has been appointed to
administer the Plan.
An option may not be granted with a term exceeding ten years (five years
in the case of incentive stock options granted to a holder of more than 10% of
the total voting power of all classes of IPT's capital stock on the date of the
grant). Options may be exercised by paying the purchase price in cash or, if
the option agreement permits, wholly or partly in IPT common shares already
owned by the optionee.
At or prior to the exercise of a nonqualified share option, the IPT Board
will have the discretion to permit the optionee, in lieu of purchasing the
entire number of shares subject to purchase under the option, to relinquish all
or part of the unexercised portion of the option for cash in the amount of the
difference between the aggregate value of the shares subject to the option and
the aggregate exercise price of the option. In the discretion of the optionee,
this amount may be paid in IPT common shares.
8. COMMITMENTS AND CONTINGENCIES
General Partners
The qualified REIT subsidiaries of IPT either control or serve as general
partner in limited partnerships and these subsidiaries may be liable for
recourse obligations of the limited partnerships if the limited partnerships
were unable to satisfy those obligations. IPT believes that each limited
partnership has more than adequate resources to discharge all recourse
obligations and maintain adequate insurance.
Loan Commitments
IPT is obligated to loan up to $500,000 to certain partnerships
($2,600,000 in aggregate) and $150,000 to certain other partnerships
($6,000,000 in aggregate) at interest rates not to exceed the prime rate plus
2%. Subsidiaries of IPT serve as general partner in these partnerships. There
were no amounts outstanding under these commitments at March 31, 1998, December
31, 1997 or 1996.
Year 2000 (Unaudited)
IPT is dependent upon Insignia for management and administrative services.
Insignia has completed an assessment and has determined that is will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
project is estimated to be completed not later than December 31, 1998, which is
prior to any anticipated impact on its operating systems. Insignia believes
that with modifications to existing software and conversions to new software,
the year 2000 issue will not pose significant operational problems for its
computer systems. IPT does not expect the conversion to have a material effect
on its financial position or results of operations. However, if such
modifications and conversions are not made, or are not completed in a timely
fashion, the year 2000 issue could have a material impact on the operations of
IPT.
Obligations to Former General Partners
Certain corporate general partners owned by IPT were acquired by Insignia
from unaffiliated prior owners. The acquisition agreements provided that
Insignia and IPT would be indemnified from claims attributable to events or
actions prior to their ownership, and Insignia (now IPT) indemnify the prior
owners from claims or causes of action arising after the change in ownership.
In addition, certain former owners of the general partners of seven limited
partners retained the obligation with respect to 100% (and in some instances
75%) for capital contributions that may be required by the general partners
upon windup of the applicable partnerships.
F-18
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
Environmental Liabilities
Under various Federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
cleanup costs incurred by such parties in connection with contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The owner or operator of a site may be liable under common law
to third parties for damages and injuries resulting from environmental
contamination emanating from the site. There can be no assurance that the
Company, any of its affiliates, or any assets owned or controlled by the
Company or any of its affiliates currently are in compliance with all of such
laws and regulations, or that the Company or its affiliates will not become
subject to liabilities that arise in whole or in part out of any such laws,
rules or regulations. Management is not currently aware of any environmental
liabilities which are expected to have a material adverse effect on the
Company's operations or financial condition.
Litigation
In January and February 1998, a limited partner in several partnerships in
which the Company owns limited partner interests commenced arbitration
proceedings and litigation against those partnerships and their corporate
general partners. The claims in both the arbitration and in complaints filed in
the Circuit Court of Jackson County, Missouri assert that the corporate general
partners owned by IPT breached certain contractual and fiduciary duties
allegedly owed to the claimant. The Company believes the claims asserted in
these proceedings to be without merit and intends to vigorously defend the
claims.
Certain subsidiaries and partnerships in which the Company owns limited
partner interests are defendants in lawsuits arising in the ordinary course of
business. Such lawsuits are primarily insured claims arising from accidents at
managed properties. Claims may demand substantial compensatory and punitive
damages. Management believes that the litigation will be resolved without a
material impact on the financial position or results of operations of the
Company.
9. RELATED PARTY TRANSACTIONS
Advisory Agreement
The Company initially engaged Insignia to provide a broad range of
services, including executive advisory, investment advisory, acquisition,
administrative, financial and accounting services. In consideration for these
services, the Company will pay Insignia an advisory fee as defined in the
Advisory Agreement adjusted annually based upon certain performance factors.
The initial fee for these services is $1.0 million divided equally between the
two components. In addition to the advisory fee, the Company agreed to pay to
Insignia an annual incentive fee on January 31 of each year beginning in 1998.
The incentive fee will be equal to 3% of the amount by which IPT's Funds from
Operations per share, as defined in the Advisory Agreement, for the year then
ending exceeds 105% of the greater of IPT's Funds from Operations per share for
the preceding year or the highest level of Funds from Operations per share of
IPT attained during any previous calendar year, multiplied by weighted average
number of IPT common shares then outstanding (including, for this purpose, all
OP Units not owned by IPT). Finally, the Company will reimburse Insignia for
certain costs incurred in connection with acquisition services and additional
services provided to the Company. During 1997, $1.7 million was paid to
Insignia in connection with the advisory agreement, including $0.7 million for
acquisition services which was capitalized by IPT. No such amounts were
incurred during 1996 and 1995.
Effective January 1, 1998, the Advisory Agreement between IPT, IPLP and
Insignia was terminated without penalty to IPT, IPLP or Insignia, and certain
provisions until then contained in the Advisory Agreement were incorporated
into the Partnership Agreement effective as of the same date. Also
F-19
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
effective upon the termination of the Advisory Agreement, IPT, IPLP and
Insignia entered into the Acquisition and Disposition Services Agreement. As of
January 1, 1998, the eleven employees of Insignia, who prior to that time had
worked exclusively on matters concerning IPT, became employees of IPT. Also,
effective on that date, certain executive officers of IPT, who are also
employed as executive officers of Insignia, received 510,000 restricted IPT
common shares, in the aggregate, which will vest ratably over a five-year
period. The restricted shares received by such officers constitutes the sole
compensation that they will receive from IPT for services rendered to IPT over
such five-year period by such shared employees.
Property Management
The Partnership Agreement requires IPT and IPLP to cause Insignia to be
retained as property manager for all properties now and hereafter controlled by
IPT pursuant to separate property management agreements. The property
management services to be provided by Insignia include (i) performing all
accounting functions incidental to the properties, such as rent processing and
collection, accounts payable (e.g., mortgages, taxes and insurance), payroll
and financial reporting, (ii) acting as a rental agent for the properties, and
(iii) overseeing the routine maintenance responsibilities relating to the
properties. The property management agreements generally provide for the
payment of fees to Insignia based on a percentage of rent collections from the
managed properties.
The Partnership agreement also provides that if, after taking into account
certain equitable adjustments specified in the Partnership Agreement, IPLP may
be required to pay an additional fee to Insignia (the "Contract Loss Fee") if
certain parameters are not met as specified in the Partnership Agreement.
IPT's obligation to cause Insignia to be retained as property manager for
all the properties controlled by IPT terminates, on a property by property
basis, upon the earliest to occur of (i) the termination of the Partnership
Agreement, (ii) the termination by Insignia of the applicable property
management agreement, (iii) the termination of the applicable property
management agreement by the applicable property-owning entity for cause (but
not for any other reason, notwithstanding that such termination may have been
expressly permitted by the terms of such property management agreement), or
(iv) such time as IPT no longer controls such property.
Partnership Administration Services
Insignia currently provides partnership administration services to each
Controlled Partnership.
Such services, for which Insignia is typically paid on a reimbursement basis
only, generally include accounting functions, investor relations and the
preparation and filing of required reports under the Exchange Act.
10. ANGELES MORTGAGE INVESTMENT TRUST MERGER
On July 21, 1997, the Company announced that it had executed a definitive
merger agreement to merge with Angeles Mortgage Investment Trust ("AMIT"). The
definitive agreement provides that each AMIT Class A share will be exchanged
for 1.536 IPT common shares and each outstanding AMIT Class B share will be
exchanged for 0.0314 IPT common shares. The exchange ratios will be
appropriately adjusted based on the respective amounts of per-share dividends
declared or paid by AMIT since December 31, 1996 and by IPT since January 31,
1997. The proposed transaction is contingent upon, among other conditions,
AMIT's receipt of a fairness opinion and the approval of the proposed
transaction by certain governmental authorities and by the shareholders of
AMIT.
F-20
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. OTHER MATTERS
Winthrop Option
On February 17, 1998, Insignia granted IPLP an option (the "Winthrop
Option") to acquire all but not less than all of the Winthrop Interest
(acquired by Insignia during 1997) at any time on or before December 31, 1998.
The Winthrop Option is exercisable by IPLP for an aggregate cash amount of
approximately $46 million, plus varying amounts of interest on approximately
$40 million, of such amount at a rate equal to Insignia's cost of funds (based
on the interest rate in effect from time to time under Insignia's revolving
credit agreement) and a ratable portion of the transaction costs incurred by
Insignia in connection with the acquisition.
Apartment Investment Management Company Merger
On March 17, 1998 Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is expected to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. In connection with the proposed merger, AIMCO has committed,
contingent upon consummation of such merger, to offer to acquire the equity of
IPT not owned by Insignia for not less than $13.25 per share.
Costs of Start-Up Activities
In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"),
which is effective for financial statements for fiscal years beginning after
December 15, 1998. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application should be
reported as the cumulative effect of a change in accounting principle and
expensed in the first quarter in the year of adoption. At March 31, 1998, the
Company had approximately $1.8 million capitalized as organizational costs that
would be affected by the requirements of SOP 98-5.
F-21
<PAGE>
SCHEDULE III
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
REAL ESTATE AND ACCUMULATED DEPRECATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
----------------------
COST
BUILDINGS CAPITALIZED
AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Village of Pennbrook
Falls Township, Pennsylvania .. $ 19,300 $ 1,529 $ 21,541 $ 1,154
======== ======= ======== =======
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31,
1997
------------------------------------------------
BUILDINGS
AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
---------- ---------- ----------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Village of Pennbrook
Falls Township, Pennsylvania .. $ 1,529 $ 22,695 $ 24,224 $ 1,867 1973 1/96 5-30
======= ======== ======== =======
</TABLE>
F-22
<PAGE>
SCHEDULE III
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
RECONCILIATION OF REAL ESTATE
Balance at beginning of year ............. $23,026 $ --
Acquisition ............................. 817 22,253
Apartment property improvements ......... 381 773
------- -------
Balance at end of year ................... $24,224 $23,026
======= =======
RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year ............. $ 901 $ --
Additions charged to expense ............ 966 901
------- -------
Balance at end of year ................... $ 1,867 $ 901
======= =======
</TABLE>
F-23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
Shelter Properties Partnerships
We have audited the accompanying combined balance sheets of Shelter
Properties Partnerships as of December 31, 1996 and 1995, and the related
combined statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule included on pages
F-35 to F-37. These financial statements and the financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
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 combined financial position of the Shelter
Properties Partnerships at December 31, 1996 and 1995, and the combined results
of their operations and their 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, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Greenville, South Carolina
February 5, 1997
F-24
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash:
Unrestricted .................................... $ 15,741 $ 11,607
Restricted ...................................... 986 983
Accounts receivable .............................. 125 118
Escrow for taxes and insurance ................... 1,466 1,196
Restricted escrows ............................... 5,505 4,400
Other assets ..................................... 2,480 2,118
Investment properties:
Land ............................................ 13,715 13,714
Buildings and related personal property ......... 180,571 177,167
---------- ---------
194,286 190,881
Less accumulated depreciation ................... (101,529) (94,084)
---------- ---------
92,757 96,797
---------- ---------
$ 119,060 $ 117,219
========== =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable ................................ $ 892 $ 1,411
Tenant security deposits ........................ 986 972
Accrued taxes ................................... 1,375 978
Other liabilities ............................... 1,733 2,963
Mortgage notes payable .......................... 87,997 83,744
---------- ---------
92,983 90,068
Partners' capital (deficit):
General partners ................................ (854) (856)
Limited partners ................................ 26,931 28,007
---------- ---------
26,077 27,151
---------- ---------
$ 119,060 $ 117,219
========== =========
</TABLE>
See accompanying notes.
F-25
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
REVENUES
Rental income .............................................. $36,287 $36,170 $ 34,667
Other income ............................................... 2,366 2,161 1,960
------- ------- --------
Total revenue .............................................. 38,653 38,331 36,627
EXPENSES
Operating .................................................. 12,401 12,506 12,559
General and administrative ................................. 1,148 2,045 986
Maintenance ................................................ 6,237 6,253 6,070
Depreciation ............................................... 7,658 7,776 7,448
Interest ................................................... 7,734 8,156 8,405
Property taxes ............................................. 2,660 2,599 2,654
------- ------- --------
Total expenses ............................................. 37,838 39,335 38,122
Casualty gain .............................................. -- 199 2
Gain (loss) on sale of property, net ....................... -- 1,296 (60)
------- ------- --------
Income (loss) before extraordinary item .................... 815 491 (1,553)
Extraordinary item -- early extinguishment of debt ......... (633) -- (87)
------- ------- --------
Net income (loss) .......................................... $ 182 $ 491 $ (1,640)
======= ======= ========
</TABLE>
See accompanying notes.
F-26
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNERS PARTNERS TOTAL
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net original capital contributions ......... $192,362 $ 10 $161,716 $161,726
======== ====== ======== ========
Partners' (deficit) capital at
December 31, 1993 ......................... 192,362 (817) 32,926 32,109
Distributions payable to partners ......... -- (15) (1,492) (1,507)
Net (loss) for the year ended
December 31, 1994 ....................... -- (16) (1,624) (1,640)
-------- ------ -------- --------
Partners' (deficit) capital at
December 31, 1994 ......................... 192,362 (848) 29,810 28,962
Distributions payable to partners ......... -- (13) (2,289) (2,302)
Net income for the year ended
December 31, 1995 ....................... -- 5 486 491
-------- ------ -------- --------
Partners' (deficit) capital at
December 31, 1995 ......................... 192,362 (856) 28,007 27,151
Distributions payable to partners ......... -- -- (1,256) (1,256)
Net income for the year ended
December 31, 1996 ....................... -- 2 180 182
-------- ------ -------- --------
Partners' (deficit) capital at
December 31, 1996 ......................... $192,362 $ (854) $ 26,931 $ 26,077
======== ====== ======== ========
</TABLE>
See accompanying notes.
F-27
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ........................................... $ 182 $ 491 $(1,640)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation ............................................. 7,658 7,776 7,448
Amortization of discounts and loan costs ................. 757 795 786
Casualty (gain) .......................................... -- (199) (2)
(Gain) loss on sale of property .......................... -- (1,296) 60
Extraordinary item--early extinguishment of debt ......... 633 -- 87
Change in accounts:
Restricted cash ......................................... (4) 24 (77)
Accounts receivable ..................................... (6) (42) 118
Escrows for taxes ....................................... (271) 184 196
Other assets ............................................ (168) (3) 71
Accounts payable ........................................ (608) 376 (214)
Tenant security liability ............................... 16 (52) 95
Accrued taxes ........................................... 396 (200) (86)
Other liabilities ....................................... (230) 78 46
---------- --------- ---------
Net cash provided by operating activities ................... 8,355 7,932 6,888
INVESTING ACTIVITIES
Property improvements and replacements ...................... (3,594) (4,392) (3,670)
Deposits to restricted escrows .............................. (1,422) (793) (860)
Receipts from restricted escrows ............................ 318 1,095 1,487
Proceeds from sale of property .............................. -- 2,412 --
Insurance proceeds from property damage ..................... 59 296 89
Condemnation proceeds ....................................... -- -- 14
---------- --------- ---------
Net cash used in investing activities ....................... (4,639) (1,382) (2,940)
FINANCING ACTIVITIES
Payments on mortgage notes payable .......................... (2,820) (2,294) (2,114)
Repayment of mortgage notes payable ......................... (13,094) -- (7,371)
Proceeds from long-term borrowings .......................... 19,250 -- 7,074
Loan costs .................................................. (597) -- (91)
Debt extinguishment costs ................................... (66) -- (21)
Distributions paid .......................................... (2,255) (1,309) (1,505)
---------- --------- ---------
Net cash provided by (used in) financing activities ......... 418 (3,603) (4,028)
---------- --------- ---------
Net increase (decrease) in cash ............................. 4,134 2,947 (80)
Cash at beginning of year ................................... 11,607 8,660 8,740
---------- --------- ---------
Cash at end of year ......................................... $ 15,741 $11,607 $ 8,660
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ...................................... $ 6,989 $ 7,374 $ 7,621
========== ========= =========
</TABLE>
See accompanying notes.
F-28
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Insignia Properties Trust ("IPT" or "the Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties, including limited and
general partner interests in partnerships which hold such real estate
properties. IPT has been organized in a manner that will allow it to be taxed
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 beginning with the taxable year ended December 31, 1996. Insignia and its
affiliates have transferred to IPT equity interests in entities comprising or
controlling the general partners of 46 public real estate limited partnerships
(the "Equity Partnerships") in exchange for shares of beneficial interest of
IPT. IPT has also issued common shares to Insignia and certain of its employees
and affiliates in exchange for the payment of certain obligations of IPT.
Insignia also transferred its limited partnership interests in certain limited
partnerships, including Shelter Properties Partnerships (defined below), to
Insignia Properties L.P. ("IPLP") in exchange for units of IPLP.
IPT is 98% owned by Insignia, with the remainder of its shares owned by
Metropolitan Asset Enhancement L.P., an affiliated company or certain Insignia
employees. As of December 31, 1996, IPLP is owned 57% by IPT with Insignia
owning the remaining 43%.
The accompanying financial statements represent the combined financial
statements applicable to certain assets and entities contributed to IPT as a
part of its formation.
Basis of Presentation
The accompanying combined financial statements include the assets,
liabilities and results of operations of 5 partnerships that Insignia acquired
limited partnership interests in during May 1995 as a result of tender offers.
Insignia subsequently transferred such partnership interests to IPT. Such
combined group is herein referred to as the Shelter Properties Partnerships
(the "Partnerships"). These Partnerships are part of the Equity Partnerships
mentioned above. The Partnerships operate apartment properties located in the
south and southwest.
Shelter Properties Partnerships
The Partnerships included in these combined financial statements and IPT's
ownership interest in each are as follows:
<TABLE>
<CAPTION>
OWNERSHIP
PARTNERSHIP PERCENTAGE
- ----------------------------------- -----------
<S> <C>
Shelter Properties I ........... 27%
Shelter Properties II .......... 23%
Shelter Properties III ......... 24%
Shelter Properties V ........... 26%
Shelter Properties VI .......... 20%
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include all of the accounts of the
Partnerships and their majority owned partnerships. All significant
interpartnership balances have been eliminated.
F-29
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Escrows for Taxes and Insurance
Currently, these funds are held by the Partnerships for the Partnerships'
properties. All tax escrow funds are designated for the payment of real estate
taxes.
Restricted Escrows
The Partnerships' maintain a capital improvement and a repair and
maintenance escrow account in which the funds deposited into these accounts are
designated for capital improvements or repairs and maintenance. Certain of
these accounts require the properties to maintain a per apartment unit balance
in reserve to cover necessary repairs and maintenance.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the apartment properties and related personal property. The estimated
lives of the apartment properties are from 15 to 37 years and the estimated
lives of the related personal property is from 5 to 7 years.
Loan Costs
Loan costs are included in other assets and are being amortized on a
straight-line basis over the life of the loans.
Unrestricted Cash
Unrestricted cash includes cash on hand and in banks, demand deposits,
money market investments, and certificates of deposit with original maturities
less than 90 days. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Restricted Cash -- Tenant Security Deposits
The Partnerships require security deposits from lessees for the duration
of the lease and such deposits are considered restricted cash. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged the unit
and is current on rental payments.
General and Limited Partner Allocations
Profits, gains, losses and cash distributions are allocated between
general and limited partners in accordance with the provisions of the
respective partnership agreements. In accordance with the partnership
agreements, the general partners of the partnerships may designate a portion of
cash generated from operations as "other reserves" in determining net cash from
operations available for distributions. At December 31, 1996, approximately $2
million has been designated as other reserves.
Leases
The Partnerships generally lease apartment units for twelve-month terms or
less. The Partnerships recognize income as earned on its leases. In addition,
the Corporate General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged to expense as incurred.
F-30
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Investment Properties
The Partnerships have adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. For the years ended December 31, 1996, 1995 and 1994, no
adjustments for impairment of value were recorded. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. The
effect of adoption was not material.
Advertising
The Partnerships expense the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $433,000 (1996),
$411,000 (1995) and $445,000 (1994), respectively.
Fair Value
The Partnerships have implemented FASB Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," which requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The carrying amount of the Partnerships' cash and
investments approximates fair value due to short-term maturities. The
Partnerships estimate the fair value of its fixed rate mortgages by discounted
cash flow analysis, based on estimated borrowing rates currently available to
the Partnership.
3. MORTGAGES PAYABLE
Mortgages payable, which are collateralized by substantially all
investment properties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgages with fixed interest rates ranging from 7.33% to 7.5%, due at
various dates through 2003 .................................................... $ 24,042 $ 4,866
First and second mortgages with fixed interest rates of 7.6%, maturing on
November 15, 2002 ............................................................. 58,533 60,042
First and second mortgages with fixed interest rates at 7.83%, due on
October 15, 2003 .............................................................. 1,727 1,746
Primarily first mortgages with fixed interest rates ranging from 8.00% --
9.5%, due at various dates through 2006 ....................................... -- 12,621
First mortgage with fixed interest rate at 10.375%, due on December 10,
2016 .......................................................................... 6,629 6,722
First mortgage with a variable interest rate due on June 10, 2001 .............. -- 1,600
-------- --------
90,931 87,597
Less unamortized discounts ..................................................... (2,934) (3,853)
-------- --------
Total mortgage payable ......................................................... $ 87,997 $ 83,744
======== ========
</TABLE>
The estimated fair values of the Partnerships' aggregate debt approximates
its carrying value. This estimate is not necessarily indicative of the amounts
the Partnerships may pay in actual market transactions.
F-31
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The Partnerships exercised an interest rate buy-down option for some of
the refinanced mortgage notes reducing the stated rate from 8.76% to 7.6% and
8.13% to 7.83%. The fee for the interest rate reduction amounted to
approximately $4,731,000 and is being amortized as a loan discount by the
interest method over the life of the loan. The discount fee is reflected as a
reduction of the mortgage notes payable and increases the effective rate of the
debt to 8.76% and 8.13%.
During 1996 and 1994, Shelter I and Shelter V refinanced various
properties. As a result of the refinancings, the Partnerships recorded
extraordinary losses of approximately $633,000 (1996) and $87,000 (1994).
Annual principal payments and maturities in all mortgages payable are as
follows (in thousands):
<TABLE>
<S> <C>
1997 ............... $ 1,836
1998 ............... 1,985
1999 ............... 6,653
2000 ............... 2,208
2001 ............... 2,385
Thereafter ......... 75,864
-------
$90,931
=======
</TABLE>
The mortgages payable are nonrecourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. Also, all of the mortgages require prepayment penalties
if repaid prior to maturity and prohibit resale of the properties subject to
existing indebtedness.
4. INCOME TAX
The Partnerships have each received rulings from the Internal Revenue
Service that they will be classified as partnerships for Federal income tax
purposes. Accordingly, no provision for income taxes has been made in the
financial statements of the Partnerships. Taxable income or loss is reported in
the income tax returns of its partners.
The following is a reconciliation between the Partnerships' reported
amounts and Federal tax basis of net assets and liabilities (in thousands):
<TABLE>
<S> <C>
Net assets as reported ........... $ 26,077
Land and buildings ............... 18,244
Accumulated depreciation ......... (60,460)
Syndication fees ................. 20,272
Other ............................ 688
---------
Net assets -- tax basis .......... $ 4,821
=========
</TABLE>
The aggregate cost of the Real Estate for Federal income tax purposes for 1996
and 1995, respectively, is approximately $213 million and $209 million. The
accumulated depreciation taken for Federal income tax purposes for 1996 and
1995, respectively, is approximately $162 million and $152 million.
5. TRANSACTIONS WITH AFFILIATES
The Partnerships have no employees and are dependent on the Corporate
General Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement
F-32
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
provides for payments to affiliates for services and as reimbursement of
certain expenses incurred by affiliates on behalf of the Partnerships. Balances
and other transactions with Insignia Financial Group, Inc. and affiliates in
1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Property management fees ............................ $1,901 $1,894 $1,804
Reimbursement for services of affiliates ............ 779 630 568
Due to General Partners ............................. 344 344 344
Due from General Partners ........................... 10 10 10
Property insurance commissions ...................... -- -- 86
Included in reimbursements for services of affiliates
for construction oversight costs .................. 18 -- --
Legal fees .......................................... 72 -- --
</TABLE>
The Partnerships insure their properties under a master policy through an
agency and insurer unaffiliated with the Corporate General Partner. An
affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was
later acquired by the agent who placed the current year's master policy. The
current agent assumed the financial obligations to the affiliate of the
Corporate General Partner who receives payment on these obligations from the
agent. The amount of the Partnerships' insurance premiums accruing to the
benefit of the affiliate of the Corporate General Partner by virtue of the
agent's obligations is not significant.
A director of Insignia Financial Group, Inc. is affiliated with a
professional legal association that received fees in connection with the 1996
refinancings. These fees totaled $36,000 and have been capitalized as loan
costs.
6. SALE OF PROPERTY
On September 29, 1995, Shelter V sold Marble Hills Apartments to an
unaffiliated party. The buyer assumed the related mortgage notes payable. The
total outstanding balance on the mortgage notes payable was approximately
$3,344,000. The carrying amount of the property was approximately $2,412,000
after payment of closing costs. This disposition resulted in a gain of
approximately $1,296,000. Operating revenues and expenses from Marble Hills
were approximately $1,214,000 and $1,206,000 for 1995 and approximately
$1,242,000 and $1,365,000 for 1994, respectively.
7. CASUALTIES AND CONDEMNATIONS
The partnerships at times have casualty events which result in gains and
losses. During 1995 and 1994, the partnerships recorded $199,000 and $2,000 in
gains resulting from casualty events, respectively. In addition, the
partnerships recorded a gain of $14,000 in 1994 from the condemnation of land
for a road widening project.
8. CONTINGENCIES
Tender Offer Litigation
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnerships commenced tender offers for limited partner
interests in six limited partnerships. On May 27, 1995, the Affiliated
Purchaser acquired 12,616 Units of the Partnerships pursuant to the tender
offer. On or about May 12, 1995, in the United States District Court for the
District of South Carolina, certain limited partners of the Shelter Properties
Partnerships commenced a lawsuit, on behalf of themselves, on
F-33
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
behalf of a putative class of plaintiffs, and derivatively on behalf of the
Partnerships, challenging the actions taken by defendants (including Insignia,
the acquiring entities and certain officers of Insignia) in the management of
the Shelter Properties Partnerships and in connection with the tender offers
and certain other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the Partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the Partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the Partnerships, (ii) the
defendants' actions reduced the demand for the Partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners' interests in order to create a favorable
environment for the tender offers; (iii) through the tender offers, the
acquiring entities sought to acquire effective voting control over the
Partnerships while paying highly inadequate prices; and (iv) the documents
disseminated to the class in connection with the tender offers contained false
and misleading statements and omissions of material facts concerning such
issues as the advantages to limited partners of tendering pursuant to the
tender offers, the true value of the interest, the true financial condition of
the Partnerships, the factors affecting the likelihood that properties owned by
the Partnerships will be sold or liquidated in the near future, the liquidity
and true value of the limited partner interests, the reasons for the limited
secondary market for limited partner interests, and the true nature of the
market for the underlying real estate assets owned by the Shelter Properties
Partnerships, all in violation of the Federal securities laws.
On September 27, 1995, the parties entered into a stipulation to settle
the matter. The principal terms of the stipulation require supplemental
payments to tendering limited partners aggregating approximately $6 million to
be paid by the Affiliated Purchaser, waiver by the Shelter Properties
Partnerships' general partners of any right to certain proceeds from a sale or
refinancing of the Partnerships' properties; some restrictions on Insignia's
ability to vote the limited partner interests it acquired; payment of $1.25
million (which amount is divided among the various partnerships and acquiring
entities) for plaintiffs' attorney fees and expenses in the litigation; and
general releases of all the defendants. Approximately $975,000 was paid by the
Partnerships and was expensed in 1995.
On June 24, 1996, after notice to the class and a hearing on the fairness
and adequacy of the notice and the terms of settlement, the court orally
approved the settlement. The court signed the formal order on July 30, 1996. No
appeal was filed within thirty days after the court entered the formal order,
and the settlement became effective on August 30, 1996. The Affiliated
Purchaser made the payments to investors in accordance with the settlement in
early September 1996.
General Contingencies
Certain of the partnerships are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the partnerships believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the combined
financial statements.
9. SUBSEQUENT EVENT
Apartment Investment Management Company Merger (Unaudited)
On March 17, 1998 Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is expected to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partners of the Shelter Properties Partnerships.
F-34
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
--------------------
COST
BUILDINGS CAPITALIZED
AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Carriage House
Gastonia, North Carolina .......... $ 2,090 $ 166 $ 3,038 $ 592
Colony House Apartments
Murfreesboro, Tennessee ........... 2,474 183 4,408 1,069
Essex Park Apartments
Columbia, South Carolina .......... 3,318 473 7,406 1,820
Foxfire Apartments
Atlanta, Georgia .................. 4,792 830 9,122 301
Foxfire/Barcelona .................. 5,916 1,191 9,998 86
Durham, North Carolina ............ -- -- -- --
Heritage Pointe Apartments
Rome, Georgia ..................... 1,400 239 2,410 637
Lake Johnson Mews Apartments
Raleigh, North Carolina ........... 4,350 338 6,725 1,031
Milhopper Village Apartments
Gainesville, Florida .............. 2,700 239 4,305 949
North River Village Apartments
Atlanta, Georgia .................. 1,727 336 4,085 1,187
Nottingham Square
Des Moines, Iowa .................. 8,185 1,133 9,980 2,274
Old Salem Apartments
Charlottesville, Virginia ......... 6,629 654 12,664 2,306
Parktown Townhouses
Deer Park, Texas .................. 3,318 1,095 5,329 2,972
Quail Hollow Apartments
West Columbia, South
Carolina .......................... 2,850 459 3,754 1,022
Raintree Apartments
Anderson, South Carolina .......... 1,472 184 3,184 620
River Reach
Jacksonville, Florida ............. 7,693 1,872 10,854 1,418
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER
31, 1996
---------------------------------------------
BUILDINGS
AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
-------- ---------- ---------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carriage House
Gastonia, North Carolina .......... $ 166 $ 3,630 $ 3,796 $ 1,906 1970-71 6/29/84 5-27
Colony House Apartments
Murfreesboro, Tennessee ........... 183 5,477 5,660 2,989 1970-72 10/30/81 5-36
Essex Park Apartments
Columbia, South Carolina .......... 473 9,226 9,699 5,074 1973 10/29/81 5-36
Foxfire Apartments
Atlanta, Georgia .................. 830 9,423 10,253 5,630 1969-71 7/19/83 5-29
Foxfire/Barcelona .................. 1,191 10,084 11,275 5,225 1973 3/28/85 5-29
Durham, North Carolina ............ -- -- -- -- 1975 9/30/84 5-31
Heritage Pointe Apartments
Rome, Georgia ..................... 239 3,047 3,286 2,218 1967-70 9/15/80 5-35
Lake Johnson Mews Apartments
Raleigh, North Carolina ........... 338 7,756 8,094 3,907 1972-73 9/30/83 5-30
Milhopper Village Apartments
Gainesville, Florida .............. 239 5,254 5,493 2,820 1970-76 11/22/83 5-29
North River Village Apartments
Atlanta, Georgia .................. 336 5,272 5,608 2,909 1969 4/21/82 5-32
Nottingham Square
Des Moines, Iowa .................. 1,133 12,254 13,387 6,083 1972 8/31/84 5-29
Old Salem Apartments
Charlottesville, Virginia ......... 654 14,970 15,624 8,018 1969-71 8/25/83 5-28
Parktown Townhouses
Deer Park, Texas .................. 1,095 8,301 9,396 5,725 1969 3/1/81 5-35
Quail Hollow Apartments
West Columbia, South
Carolina .......................... 459 4,776 5,235 3,421 1973 9/1/80 5-34
Raintree Apartments
Anderson, South Carolina .......... 184 3,804 3,988 2,486 1972-74 4/30/81 5-38
River Reach
Jacksonville, Florida ............. 1,872 12,272 14,144 6,033 1971 1/30/85 5-27
</TABLE>
F-35
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
----------------------
COST
BUILDINGS CAPITALIZED
AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Rocky Creek
Augusta, Georgia ................... $ 2,268 $ 168 $ 3,821 $ 486
Signal Pointe Apartments
Winter Park, Florida ............... 4,399 535 8,062 2,515
Stone Mountain West
Apartments
Stone Mountain, Georgia ............ 3,000 210 3,408 988
Tar River Estates
Greenville, North Carolina ......... 5,165 474 9,985 2,593
The Lexington Apartments
Sarasota, Florida .................. 3,740 1,102 6,620 1,965
Village Garden
Fort Collins, Colorado ............. 2,663 420 3,050 472
Willowick Apartments
Greenville, South Carolina ......... 1,296 289 3,563 587
Windsor Hills Apartments
Blacksburg, Virginia ............... 4,536 520 4,575 1,082
Woodland Village Apartments
Columbia, South Carolina ........... 4,950 605 9,135 2,118
------- ------- -------- -------
$90,931 $13,715 $149,481 $31,090
======= ======= ======== =======
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31,
1996
------------------------------------------------
BUILDINGS
AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
---------- ---------- ----------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rocky Creek
Augusta, Georgia ................... $ 168 $ 4,307 $ 4,475 $ 1,946 1979 6/29/84 5-35
Signal Pointe Apartments
Winter Park, Florida ............... 535 10,577 11,112 6,832 1970 6/30/81 5-37
Stone Mountain West Apartments
Stone Mountain, Georgia ............ 210 4,396 4,606 3,076 1972 12/31/80 5-37
Tar River Estates
Greenville, North Carolina ......... 474 12,578 13,052 6,861 1969-72 1/18/84 5-27
The Lexington Apartments
Sarasota, Florida .................. 1,102 8,585 9,687 4,247 1973-82 10/31/83 5-34
Village Garden
Fort Collins, Colorado ............. 420 3,522 3,942 1,607 1974 3/1/85 5-30
Willowick Apartments
Greenville, South Carolina ......... 289 4,150 4,439 2,316 1974 6/30/82 5-32
Windsor Hills Apartments
Blacksburg, Virginia ............... 520 5,657 6,177 4,237 1973 9/1/80 5-30
Woodland Village Apartments
Columbia, South Carolina ........... 605 11,253 11,858 5,963 1974 9/1/83 5-30
------- -------- -------- --------
$13,715 $180,571 $194,286 $101,529
======= ======== ======== ========
</TABLE>
F-36
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1996 1995 1994
------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
RECONCILIATION OF REAL ESTATE
Balance at beginning of year ............. $190,881 $194,997 $191,886
Property improvements ................... 3,594 4,392 3,670
Disposal of property .................... (189) (655) (559)
Sale of apartment property .............. -- (7,853) --
-------- -------- --------
Balance at end of year ................... $194,286 $190,881 $194,997
======== ======== ========
RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year ............. $ 94,084 $ 90,437 $ 83,428
Additions charged to expense ............ 7,658 7,776 7,448
Sale of apartment property .............. -- (3,661) --
Disposal of property .................... (213) (468) (439)
-------- -------- --------
Balance at end of year ................... $101,529 $ 94,084 $ 90,437
======== ======== ========
</TABLE>
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the National Property Investors and
Century Properties Partnerships
Greenville, South Carolina
We have audited the accompanying combined balance sheets of National
Property Investors and Century Properties Partnerships as of December 31, 1996
and December 31, 1995, and the related combined statements of operations,
statements of changes in partners' capital and statements of cash flows for
each of the three years in the period ended December 31, 1996, (see Note 1).
Our audit also included the supplemental schedule as of December 31, 1996.
These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the combined financial position of
National Property Investors and Century Properties Partnerships as of December
31, 1996 and 1995, and the combined results of their operations and their 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 supplemental schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
IMOWITZ KOENIG & CO. LLP
Certified Public Accountants
New York, N.Y.
February 18, 1997
F-38
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................ $ 44,080 $ 34,735
Other assets ..................................... 24,757 17,956
Investment properties:
Land ............................................ 70,634 74,215
Buildings and related personal property ......... 590,209 595,812
---------- ----------
660,843 670,027
Less accumulated depreciation ................... (312,410) (298,586)
---------- ----------
Net real estate .................................. 348,433 371,441
---------- ----------
Total assets ..................................... $ 417,270 $ 424,132
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities .......... $ 13,947 $ 10,305
Distribution payable ............................ 12,581 --
Mortgage notes payable .......................... 363,385 354,935
---------- ----------
Total liabilities ................................ 389,913 365,240
Partners' capital (deficit):
General partners ................................ (37,669) (36,877)
Limited partners ................................ 65,026 95,769
---------- ----------
Total partners' capital .......................... 27,357 58,892
---------- ----------
Total liabilities and partners' capital .......... $ 417,270 $ 424,132
========== ==========
</TABLE>
See accompanying notes and auditors' report.
F-39
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ----------- -------------
<S> <C> <C> <C>
REVENUE:
Rental income ........................................... $ 111,867 $115,759 $ 112,563
Other and interest income ............................... 6,703 5,787 2,551
--------- -------- ---------
Total revenue ............................................ 118,570 121,546 115,114
EXPENSES:
Operating ............................................... 63,107 63,802 61,615
General and administrative .............................. 4,014 3,466 4,069
Depreciation ............................................ 22,464 23,551 24,382
Interest ................................................ 31,711 34,740 36,032
--------- -------- ---------
Total expenses ........................................... 121,296 125,559 126,098
Gain on sale of property ................................. 3,638 13,756 1,580
Loss on sale of property ................................. -- (592) (149)
Minority interest in joint venture ....................... -- (868) (145)
Impairment loss .......................................... -- -- (500)
--------- -------- ---------
Income (loss) before extraordinary item .................. 912 8,283 (10,198)
Extraordinary item--early extinguishment of debt ......... (2,704) (3,158) (361)
--------- -------- ---------
Net (loss) income ........................................ $ (1,792) $ 5,125 $ (10,559)
========= ======== =========
</TABLE>
See accompanying notes and auditors' report.
F-40
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNERS PARTNERS TOTAL
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Partners' (deficit) capital at December 31, 1993 ......... 1,012,492 $ (35,774) $ 109,589 $ 73,815
Net (loss) for the year ended December 31, 1994 .......... -- (835) (9,724) (10,559)
--------- --------- --------- ---------
Partners' (deficit) capital at December 31, 1994 ......... 1,012,492 (36,609) 99,865 63,256
Distributions payable to partners ........................ -- (189) (9,300) (9,489)
Net (loss) income for the year ended
December 31, 1995 ....................................... -- (79) 5,204 5,125
--------- --------- --------- ---------
Partners' (deficit) capital at December 31, 1995 ......... 1,012,492 (36,877) 95,769 58,892
Distributions payable to partners ........................ -- (595) (29,148) (29,743)
Net (loss) for the year ended December 31, 1996 .......... -- (197) (1,595) (1,792)
--------- --------- --------- ---------
Partners' (deficit) capital at December 31, 1996 ......... 1,012,492 $ (37,669) $ 65,026 $ 27,357
========= ========= ========= =========
</TABLE>
See accompanying notes and auditors' report.
F-41
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income ................................................. $ (1,792) $ 5,125 $ (10,559)
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation ..................................................... 22,464 23,551 24,382
Amortization of discounts and loan costs ......................... 2,457 2,910 2,731
Loss on disposal of property ..................................... -- 592 149
Gain on disposal of property ..................................... (3,638) (13,756) (1,580)
Provision for doubtful receivables ............................... -- 10 --
Impairment loss .................................................. -- -- 500
Minority interest in joint venture ............................... -- 868 145
Accrued interest added to note principal ......................... -- 81 29
Deferred interest expense ........................................ -- -- 21
Extraordinary item -- early extinguishment of debt ............... 2,704 3,158 361
Change in accounts:
Other assets ................................................... (787) (894) (1,930)
Accounts payable and other liabilities ......................... 4,621 (942) (1,153)
---------- --------- ---------
Net cash provided by operating activities ......................... 26,029 20,703 13,096
INVESTING ACTIVITIES
Property improvements and replacements ............................ (10,853) (6,215) (7,570)
Restricted cash (increase) decrease ............................... (3,346) 1,563 1,343
Net proceeds from sale of property ................................ 12,312 27,825 3,537
Proceeds for cash investments ..................................... -- -- 1,879
Proceeds from note receivable ..................................... -- -- 50
---------- --------- ---------
Net cash (used in) provided by investing activities ............... (1,887) 23,173 (761)
FINANCING ACTIVITIES
Payments on mortgage notes payable ................................ $ (5,898) $ (5,748) $ (7,857)
Repayment of mortgage notes payable ............................... (133,054) (82,470) (79,491)
Proceeds from long-term borrowings ................................ 147,032 79,643 74,100
Loan costs ........................................................ (4,520) (1,568) (1,887)
Debt extinguishment costs ......................................... (1,195) (1,766) --
Joint venture partner distributions ............................... -- (1,640) (143)
Payment of deferred interest payable .............................. -- (456) --
Due to affiliate .................................................. -- -- (103)
Repayment of note payable to affiliate of general partner ......... -- -- (978)
Distributions paid ................................................ (17,162) (9,489) --
---------- --------- ---------
Net cash used in financing activities ............................. (14,797) (23,494) (16,359)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents .............. 9,345 20,382 (4,024)
Cash and cash equivalents at beginning of year .................... 34,735 14,353 18,377
---------- --------- ---------
Cash and cash equivalents at end of year .......................... $ 44,080 $ 34,735 $ 14,353
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $ 28,270 $ 32,842 $ 33,956
========== ========= =========
Property improvements and replacements in notes payable ........... $ -- $ 39 $ --
========== ========= =========
</TABLE>
F-42
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest added to note principal ........................... $ -- $ -- $2,139
======== ====== ======
Replacement reserve holdback from proceeds of mortgage
refinancing ....................................................... $ -- $ -- $ 225
======== ====== ======
Property sales expenses accrued .................................... $ -- $ 91 $ --
======== ====== ======
Accrued interest assumed by purchaser of disposed property ......... $ 667 $ -- $ --
======== ====== ======
Mortgage note assumed by purchaser of disposed property ............ $ 2,173 $ -- $ --
======== ====== ======
Mortgage assumed on property sale .................................. $ -- $7,359 $ --
======== ====== ======
Accrued distribution to partners ................................... $ 12,581 $ -- $ --
======== ====== ======
</TABLE>
See accompanying notes and auditors' report.
F-43
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization of Insignia Properties Trust
Insignia Properties Trust ("IPT" or the "Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties located throughout the
United States, including limited and general partner interests in partnerships
which hold such real estate properties. IPT has been organized in a manner that
will allow it to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986 beginning with the taxable year ended December
31, 1996. Insignia and its affiliates have transferred to IPT equity interests
in entities comprising or controlling the general partners of 46 public real
estate limited partnerships (the "Equity Partnerships") in exchange for shares
of beneficial interest of IPT. IPT has also issued common shares to Insignia
and certain of its employees and affiliates in exchange for the payment of
certain obligations of IPT. Insignia also transferred its limited partnership
interests in certain limited partnerships, including National Property
Investors and Century Properties Partnerships (defined below), to Insignia
Properties L.P. ("IPLP") in exchange for units in IPLP.
IPT is 98% owned by Insignia, with the remainder of its shares owned by
Metropolitan Asset Enhancement L.P. (an affiliated company) or certain Insignia
employees. As of December 31, 1996, IPLP is owned 57% by IPT with Insignia
owning the remaining 43%.
Basis of Presentation
The accompanying combined financial statements include the assets,
liabilities and results of operations of 13 partnerships that Insignia acquired
limited (and general) partnership interests in January 1996 as a result of an
acquisition. Such combined group is herein referred to as the National Property
Investors ("NPI") and Century Properties Partnerships ("CP") (the
"Partnerships"). These Partnerships are part of the Equity Partnerships
mentioned above.
The Partnerships included in these combined financial statements and
IPLP's limited partnership ownership interest in each, as of December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
OWNERSHIP
PARTNERSHIP PERCENTAGE
- --------------------------------------------------------------------- ------------
<S> <C>
National Property Investors III ("NPI III") ............... 45%
National Property Investors 4 ("NPI 4") ................... 54%
National Property Investors 5 ("NPI 5") ................... 46%
National Property Investors 6 ("NPI 6") ................... 44%
National Property Investors 7 ("NPI 7") ................... 42%
National Property Investors 8 ("NPI 8") ................... 37%
Century Properties Fund XIV ("CPF XIV") ................... 41%
Century Properties Fund XV ("CPF XV") ..................... 40%
Century Properties Fund XVI ("CPF XVI") ................... 37%
Century Properties Fund XVII ("CPF XVII") ................. 34%
Century Properties Fund XVIII ("CPF XVIII") ............... 29%
Century Properties Fund XIX ("CPF XIX") ................... 27%
Century Properties Growth Fund XXII ("CPGF XXII") ......... 20%
</TABLE>
The ownership interests in CPF XIV and CPF XV do not include commercial
properties. IPLP did not acquire an economic interest in those properties.
F-44
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The condensed, combined balance sheets of the commercial properties in CPF
XIV and CPF XV at December 31, 1996 and 1995; and the condensed, combined
statements of operations of the commercial properties in CPF XIV and CPF XV for
the years ended December 31, 1996, 1995 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ----------
<S> <C> <C>
Total assets, primarily real estate at December 31, 1996 and 1995 ..... $6,733 $18,575
====== =======
Liabilities, primarily mortgages payable .............................. $4,176 $11,257
Equity ................................................................ 2,557 7,318
------ -------
Total liabilities and equity .......................................... $6,733 $18,575
====== =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Total revenue .................................. $1,889 $6,355 $5,960
Operating and other expenses ................... 715 2,476 2,452
Depreciation ................................... 549 1,483 1,437
Mortgage interest .............................. 543 1,770 1,967
------ ------ ------
Total expenses ................................. 1,807 5,729 5,856
Gain on sale of property ....................... 3,638 3,857 --
Loss on sale of property ....................... -- (592) --
------ ------ ------
Income before extraordinary item ............... 3,720 3,891 104
Extraordinary item:
Loss on early extinguishment of debt ......... (411) (189) --
------ ------ ------
Net income ..................................... $3,309 $3,702 $ 104
====== ====== ======
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include all of the accounts of the
Partnerships and all majority owned partnerships. All significant
interpartnership balances have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the rental properties and related personal property ranging from 5 to
39 years.
Deferred Costs
Deferred costs represent deferred financing costs and deferred leasing
commissions and are included in other assets. Deferred financing costs are
amortized as interest expense over the lives of the related loans, or expensed,
if financing is not obtained. Deferred leasing commissions are amortized over
the life
F-45
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
of the applicable lease. Such amortization is charged to operating expenses. As
of December 31, 1996 and 1995, accumulated amortization of deferred costs
totaled approximately $2,548,000 and $3,933,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. At certain times, the amount of cash deposited at a bank may
exceed the limit of insured deposits.
Leases
The Partnerships generally lease apartment units for twelve-month terms or
less and lease commercial units with remaining lease terms of up to five years.
The Partnership recognized income as earned on its leases.
Investment Properties
The Partnerships have adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. For the year ended December 31, 1994, an adjustment for
impairment of value of $500,000 was recorded. The impairment loss is measured
by comparing the fair value of the asset to its carrying amount. The effect of
adoption was not material.
Discounts on Notes Payable
Discounts on notes payable are amortized using the straight-line method
over the remaining terms of the related notes.
Income Taxes
Taxable income or loss of the Partnerships is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnerships.
The tax basis of the Partnerships' assets and liabilities is approximately
$27.6 million less than the assets and liabilities as reported in the financial
statements.
The aggregate cost of the Real Estate for Federal income tax purposes at
December 31, 1996 and 1995, respectively, is approximately $662.2 million and
$675.7 million. The accumulated depreciation taken for Federal income tax
purposes at December 31, 1996 and 1995, respectively, is approximately $453.1
million and $445.8 million.
Advertising
The Partnerships expense the costs of advertising as incurred.
Fair Value
The Partnerships have implemented FASB Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," which requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The carrying amount of the Partnerships' financial
instruments (except for long term debt) approximates fair value due to
short-term maturities. The fair value of the Partnerships long term debt after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
F-46
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
General and Limited Partner Allocations
Profits, gains, losses and cash distributions are allocated between
general and limited partners in accordance with the provisions of the
respective partnership agreements. Upon sale of all properties and termination
of a Partnership, the general partners may be required to contribute certain
funds to the Partnership in accordance with the partnership agreement.
3. MORTGAGES PAYABLE
Mortgages payable, which are collateralized by substantially all
investment properties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgages with fixed interest rates ranging from 7.00% to 7.33%, due
at various dates through June 2021 ....................................... $103,685 $ 6,963
First mortgages with fixed interest rates ranging from 7.50% to 8.00%,
maturing at various dates through September 2021 ......................... 112,011 87,237
First and second mortgages with fixed interest rates ranging from 8.25% to
8.50%, due at various dates through July 2005 ............................ 54,538 72,346
First mortgages with fixed interest rates ranging from 8.56% to 9.00%, due
at various dates through December 2008 ................................... 26,092 46,080
First mortgages with fixed interest rates ranging from 9.38% to 10.64%, due
at various dates through February 2002 ................................... 41,202 59,762
First and second mortgages with fixed and variable interest rates, due at
various dates ............................................................ 30,465 88,394
-------- --------
367,993 360,782
Less: unamortized discounts ............................................... (4,608) (5,847)
-------- --------
Total mortgages payable ................................................... $363,385 $354,935
======== ========
</TABLE>
The estimated fair value of the Partnerships' aggregate debt approximates
its carrying value. This estimate is not necessarily indicative of the amounts
the Partnerships may pay in actual market transactions.
During 1996, 1995 and 1994, various properties were either sold or
refinanced, which resulted in the Partnerships' recording extraordinary losses
of approximately $2,704,000 (1996), $3,158,000 (1995) and $361,000 (1994). The
extraordinary losses were incurred as a result of writing off unamortized loan
costs and prepayment premiums related to the old mortgages.
Annual principal payments and maturities for all mortgages payable as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997 ............... $ 22,201
1998 ............... 2,770
1999 ............... 24,317
2000 ............... 44,652
2001 ............... 45,368
Thereafter ......... 228,685
--------
$367,993
========
</TABLE>
F-47
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The mortgages payable are nonrecourse and are secured by pledge of the
respective rental properties and by pledge of revenues from the respective
properties. Also, substantially all of the mortgages require prepayment
penalties if repaid prior to maturity and prohibit resale of the properties
subject to existing indebtedness.
As of December 31, 1996, one partnership was in default of a mortgage of
approximately $4,557,000 and in January 1997 two mortgages amounting to
approximately $12,510,000 on the same property were in default. The combined
carrying value of these properties at December 31, 1996 was approximately
$11,230,000.
4. TRANSACTIONS WITH AFFILIATES
The Partnerships have no employees and are dependent on the Corporate
General Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnerships.
Transactions with Insignia, NPI, and affiliates of Insignia and NPI in
1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Property management fees ................................ $5,687 $5,552 $4,758
Reimbursement for services of affiliates ................ 2,326 2,701 2,658
Property insurance premiums ............................. -- 3,218 1,054
Included in reimbursements for services of affiliates for
construction oversight costs ........................... 146 -- --
Brokerage fees .......................................... 1,057 181 --
Included in reimbursements for services of affiliates for
loan costs ............................................. 83 -- --
Partnership management fees ............................. 7 -- --
Management and operation fees paid to joint venture
partners ............................................... -- -- 104
Fees for real estate tax appeals ........................ -- 135 14
Administrative fees ..................................... 185 -- --
</TABLE>
For the period of January 19, 1996 to December 31, 1996, the Partnerships
insured their properties under a master policy through an agency and insurer
unaffiliated with the Corporate General Partner. An affiliate of the Corporate
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Corporate General Partner who
receives payment on these obligations from the agent. The amount of the
Partnerships' insurance premiums accruing to the benefit of the affiliate of
the Corporate General Partner by virtue of the agent's obligations is not
significant.
Prior to January 19, 1996, the Partnerships paid insurance premiums to the
Corporate General Partner under a master insurance policy arranged for by the
Corporate General Partner.
An affiliate of the Corporate General Partner has established a revolving
credit facility (the "Partnership Revolver"), with each NPI Partnership, to be
used to fund deferred maintenance and working capital needs of the NPI
Partnerships. The maximum draw available to the NPI Partnerships under the
Partnership Revolver is $2,800,000. In addition, an affiliate of the Corporate
General Partner
F-48
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
has established a working capital line of credit for the CP Partnerships of
$150,000 per property. The maximum draw available to the CP Partnerships under
this credit facility was $5,100,000 at December 31, 1996. There has been no
loan activity or outstanding balances under these credit facilities during the
three year period ended December 31, 1996.
5. SALE OR DISPOSITION OF REAL ESTATE
On January 5, 1997, CPF XV sold Phoenix Business Park to an unrelated
third party for a contract price of $5,600,000. After payment of the mortgage
payable, closing costs and related expenses, CPF XV received proceeds of
approximately $2,314,000. A gain of approximately $1,000 will be recognized in
1997 on disposition of the property. A loss on early extinguishment of debt of
approximately $233,000 will be recognized in 1997.
On April 26, 1996, CPF XIV sold The Oaks Shopping Center, located in
Beaumont, Texas. The buyer of the property assumed the outstanding debt on the
property, and CPF XIV received net proceeds of $1,000. As a result of the sale,
CPF XIV paid a disposition fee of approximately $16,000. For financial
statement purposes, the sale resulted in a gain of $65,000. The Partnership had
recorded an $883,000 provision for impairment in 1992.
On March 7, 1996, CPF XIV sold Broadway Trade Center located in San
Antonio, Texas, to an unaffiliated third party for $3,825,000. After repayment
of the first, second and third mortgages totaling $1,591,000 and closing
expenses of $244,000, the net proceeds received by CPF XIV were $1,990,000. As
a result of the loans being paid in full, an extraordinary loss representing
the remaining unamortized mortgage discount of $315,000 was recorded. For
financial statement purposes, the sale resulted in a gain of $1,531,000. CPF
XIV had previously recorded a $1,421,000 provision for impairment of value for
the property.
On February 12, 1996, CPF XIV sold University Square, located in Bozeman,
Montana, to an unaffiliated third party for $4,850,000. After closing expenses
of $231,000, the net proceeds received by CPF XIV were $4,619,000. For
financial statement purposes, the sale resulted in a gain of $1,416,000.
On February 1, 1996, CPF XV sold Northbank Office Complex, located in
Eugene, Oregon, to an unaffiliated third party for $4,605,000. After payment of
the mortgage totaling approximately $2,443,000 and closing expenses, the net
proceeds received by CPF XV were approximately $1,992,000. For financial
statement purposes, the sale resulted in a gain on disposal of property of
approximately $881,000 and an extraordinary loss on early extinguishment of
debt of approximately $96,000.
On December 29, 1995, CPF XV sold Farmers Lane Plaza, located in Santa
Rosa, California, to an unaffiliated third party for $8,750,000. Net proceeds
to CPF XV after payment of closing costs and existing debt were approximately
$3,995,000. The sale resulted in a gain of $3,618,000. Subsequent to the
closing, CPF XV paid $255,000 in additional costs in connection with the sale.
On November 9, 1995, CPF XIV sold Wingren Plaza, located in Dallas, Texas,
for $1,000,000. After closing expenses of $68,000, the net proceeds received by
CPF XIV were $932,000. For financial statement purposes, the sale resulted in a
gain of $239,000. CPF XIV had previously recorded a $1,901,000 provision for
impairment of value in 1991.
On October 6, 1995, CPF XIV sold Duck Creek Shopping Center, located in
Garland, Texas, for $2,250,000. After closing expenses of $138,000, the net
proceeds received by CPF XIV were $2,112,000. For financial statement purposes,
the sale resulted in a loss of $36,000.
On September 12, 1995, CPF XIV sold Greenbriar Plaza Shopping Center,
located in Duncanville, Texas, for $1,050,000. After closing expenses of
$70,000, the net proceeds received by CPF XIV were $980,000. For financial
statement purposes, the sale resulted in a loss of $556,000.
F-49
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
On April 12, 1995, an affiliate of CPF XV's joint venture partner in
Plumtree Apartments acquired, pursuant to a right of first refusal, Plumtree
Apartments for $12,500,000. After repayment of existing loans of $4,595,000, a
prepayment premium of $42,000 and closing expenses of $113,000, net proceeds
received by the joint venture were $7,750,000. CPF XV retained $6,229,000 of
the $7,750,000 proceeds in accordance with the joint venture agreement. For
financial statement purposes, the sale resulted in a gain of $7,866,000.
On August 18, 1995, CPGF XXII sold Monterey Village Apartments to an
unaffiliated third party for $10,609,000. After assumption of the mortgage
balance of $7,359,000 and closing costs, CPGF XXII received net proceeds of
$2,926,000. For financial reporting purposes, the sale resulted in a gain on
disposition of $2,033,000. CPGF XXII also recognized an extraordinary loss on
extinguishment of debt of $217,000 in 1995 due to the write-off of unamortized
loan costs.
On January 28, 1994, NPI 7 sold its California property to an unaffiliated
third party, subject to the first and second mortgages. NPI 7's share of the
proceeds after closing expenses was $2,866,000. The sale resulted in a gain of
approximately $105,000. NPI 7 had recorded a $525,000 provision for loss on
disposition of this property during 1992. Net cash proceeds to NPI 7, after
closing expenses and $239,000 to purchase the third mortgage, at a discount
were approximately $277,000.
On January 28, 1994, NPI 8 sold its California property to an unaffiliated
third party, subject to the first and second mortgages. NPI 8's share of the
proceeds after closing expenses was $5,819,000. The sale resulted in a gain of
approximately $229,000. NPI 8 had recorded a $1,063,000 provision for loss on
disposition of this property during 1992. Net cash proceeds to NPI 8, after
deducting closing expenses and $486,000 to purchase the third mortgage at a
discount, were approximately $563,000.
In February 1994, CPF XIX sold Plantation Forest Apartments, located in
Atlanta, Georgia for $2,450,000. After assumption of the existing loan of
$1,965,000 and costs of sale of $3,000, the proceeds to CPF XIX were $482,000.
The net loss on the sale was $149,000.
In February 1994, CPF XVIII sold Plantation Ridge Apartments, located in
Marietta, Georgia for $15,353,000. The existing loans of $13,653,000 were
assumed by the buyer at the time of sale. After assumption of the existing
loans and costs of the sale of $210,000, proceeds to CPF XVIII were $1,490,000.
For financial statement purposes, CPF XVIII recorded a $1,246,000 gain on sale
of property.
6. OPERATING LEASES
The Partnerships lease their residential properties under short-term
operating leases. Lease terms are generally one year or less in duration. The
Partnership expects that in the normal course of business, these leases will be
renewed or replaced by other leases. Commercial office property leases vary
from periods ranging up to five years. The future minimum rental payments to be
received under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996, are as follows (in
thousands):
<TABLE>
<S> <C>
1997 ................. $279
1998 ................. 230
1999 ................. 110
2000 ................. 73
2001 ................. 45
Thereafter ........... --
----
$737
====
</TABLE>
F-50
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
For commercial leases with scheduled rental increases, rental income is
recognized on a straight-line basis over the life of the applicable leases.
There is no assurance that this income will continue at the same level when the
leases expire.
7. DISTRIBUTION PAYABLE
NPI 6 declared a distribution of approximately $10,621,000 in 1996 payable
to its partners. The distribution was paid in January 1997, with approximately
$10,515,000 being paid to the limited partners and approximately $106,000 being
paid to the Corporate General Partner. The distribution was from net proceeds
from mortgage refinancings and cash from operations.
NPI 7 declared a distribution of approximately $1,960,000 in 1996 payable
to its partners. The distribution was paid in January 1997, with approximately
$1,940,000 being paid to the limited partners and $20,000 being paid to the
Corporate General Partner.
F-51
<PAGE>
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
------------------------
COST
CAPITALIZED
BUILDINGS AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Alpine Village
Birmingham, AL ........... $ 2,100 $ 359 $ 3,515 $ 1,096
Autumn Run Apts.
Naperville, IL ........... 9,100 1,462 14,957 1,003
Cherry Creek Gardens Apts.
Englewood, CA ............ 7,766 1,320 11,879 1,448
Colony at Kenilworth
Towson, MA ............... 7,985 1,306 13,187 4,881
Cooper's Pointe Apts.
Charleston, SC ........... 4,217 513 6,696 191
Cooper's Pond Apts.
Tampa, FL ................ 7,771 1,476 12,505 216
Copper Mill Apts.
Richmond, VA ............. 6,052 933 8,061 333
Creekside Apts.
Denver, CO ............... 5,249 1,366 7,307 1,475
Fairview View I Apts.
Baton Rouge, LA .......... 4,000 762 7,048 1,115
Fairway II Apts.
Baton Rouge, LA .......... 4,200 1,086 8,788 474
Four Winds Apts.
Overland, KA ............. 9,607 1,363 14,288 531
Gateway Park
Dublin, CA ............... 1,518 484 1,135 176
Greenspoint Apts.
Phoenix, AZ .............. 8,900 2,165 11,199 426
Hampton Green
Apts. Dallas, TX ......... 5,755 2,086 9,474 568
Huntington Apts.
Morrisville, NC .......... 3,583 1,368 9,233 715
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31,
1996
-------------------------------------------------
BUILDINGS AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
-------- -------------- ---------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alpine Village
Birmingham, AL ........... $ 366 $ 4,604 $ 4,970 $ 3,003 1972 10/16/84 5-27.5
Autumn Run Apts.
Naperville, IL ........... 1,458 15,964 17,422 6,080 1987 6/1/86 5-30
Cherry Creek Gardens Apts.
Englewood, CA ............ 1,320 13,327 14,647 6,419 1979 9/1/82 5-30
Colony at Kenilworth
Towson, MA ............... 1,366 18,008 19,374 12,291 1967 3/15/84 5-27.5
Cooper's Pointe Apts.
Charleston, SC ........... 510 6,890 7,400 2,954 1986 11/1/85 5-30
Cooper's Pond Apts.
Tampa, FL ................ 1,315 12,882 14,197 6,593 1979-81 3/1/83 5-30
Copper Mill Apts.
Richmond, VA ............. 929 8,398 9,327 3,156 1987 9/1/86 5-30
Creekside Apts.
Denver, CO ............... 1,366 8,782 10,148 4,159 1974 10/1/82 5-30
Fairview View I Apts.
Baton Rouge, LA .......... 767 8,158 8,925 5,592 1974 5/31/84 5-27.5
Fairway II Apts.
Baton Rouge, LA .......... 1,094 9,254 10,348 4,642 1981 11/1/84 5-27.5
Four Winds Apts.
Overland, KA ............. 1,357 14,825 16,182 5,494 1987 9/1/85 5-30
Gateway Park
Dublin, CA ............... 487 1,308 1,795 684 1977 10/1/80 5-39
Greenspoint Apts.
Phoenix, AZ .............. 2,141 11,649 13,790 5,007 1986 2/1/84 6-30
Hampton Green
Apts. Dallas, TX ......... 2,086 10,042 12,128 4,375 1986 12/1/85 5-30
Huntington Apts.
Morrisville, NC .......... 1,376 9,940 11,316 3,741 1986 2/1/88 5-29
</TABLE>
F-52
<PAGE>
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
------------------------
COST
CAPITALIZED
BUILDINGS AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Lakeside Apts.
Lisle, IL .................. 17,200 2,087 15,363 3,378
Lakeside Place Apts.
Houston, TX ................ $14,636 $3,659 $21,481 $5,025
The Landings Apts.
Tampa, FL .................. 2,282 504 4,702 519
The Lodge Apts.
Denver, CO ................. 5,775 1,575 8,580 1,808
McMillan Place Apts.
Dallas, TX ................. 12,510 2,399 10,826 548
Misty Woods Apts.
Charlotte, NC .............. 5,407 429 6,846 277
Northwood I & II Apts.
Pensacola, FL .............. 5,000 478 7,919 991
Oak Run Apts.
Dallas, TX ................. 10,626 6,218 8,713 1,762
Oakwood Village
Orlando, FL ................ 4,012 589 7,181 1,626
Overlook Apts.
Salt Lake City, UT ......... 8,049 1,082 8,225 701
Palisades Apts.
Montgomery, AL ............. 4,899 970 8,448 2,444
Patchen Place Apts.
Lexington, KY .............. 3,000 706 6,409 1,286
Phoenix Business Park
Atlanta, GA ................ 2,578 746 5,176 2,412
The Pines Apts.
Roanoke, VA ................ 3,517 579 6,521 671
Pinetree Apts.
Charlotte, NC .............. 2,241 493 3,873 1,726
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31,
1996
------------------------------------------------
BUILDINGS AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
-------- -------------- --------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lakeside Apts.
Lisle, IL .................. 2,093 18,735 20,828 13,439 1973-75 12/18/80 5-27.5
Lakeside Place Apts.
Houston, TX ................ $3,659 $26,506 $30,165 $13,811 1976-78 12/1/80 5-30
The Landings Apts.
Tampa, FL .................. 504 5,221 5,725 2,706 1979 6/1/82 5-30
The Lodge Apts.
Denver, CO ................. 1,577 10,386 11,963 4,886 1974 10/1/82 5-30
McMillan Place Apts.
Dallas, TX ................. 2,427 11,346 13,773 5,072 1985 6/1/85 6-30
Misty Woods Apts.
Charlotte, NC .............. 434 7,118 7,552 3,061 1986 6/1/85 6-30
Northwood I & II Apts.
Pensacola, FL .............. 483 8,905 9,388 4,616 1981 7/1/85 5-27.5
Oak Run Apts.
Dallas, TX ................. 6,218 10,475 16,693 5,037 1979 11/1/83 5-30
Oakwood Village
Orlando, FL ................ 595 8,801 9,396 6,501 1973 8/3/82 5-27.5
Overlook Apts.
Salt Lake City, UT ......... 1,078 8,930 10,008 4,053 1984 7/1/83 5-30
Palisades Apts.
Montgomery, AL ............. 976 10,886 11,862 8,515 1968-72 6/22/83 5-27.5
Patchen Place Apts.
Lexington, KY .............. 714 7,687 8,401 4,765 1971 7/1/85 5-27.5
Phoenix Business Park
Atlanta, GA ................ 746 7,588 8,334 3,286 1980 5/1/82 5-39
The Pines Apts.
Roanoke, VA ................ 584 7,187 7,771 4,152 1978 4/1/85 5-27.5
Pinetree Apts.
Charlotte, NC .............. 499 5,593 6,092 3,979 1974 7/80 5-27.5
</TABLE>
F-53
<PAGE>
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
-------------------------
COST
CAPITALIZED
BUILDINGS AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Place du Plantier Apts.
Baton Rouge, LA ............ 3,800 840 7,773 1,197
Plantation Creek Apts.
Atlanta, GA ................ $15,788 $2,653 $20,827 $1,990
Preston Creek Apts.
Dallas, TX ................. 4,500 2,118 5,793 1,211
Promontory Point
Austin, TX ................. 2,840 1,690 10,129 (180)
Rocky Ridge
Birmingham, AL ............. 1,450 323 2,972 966
Sandspoint Apts.
Phoenix, AZ ................ 9,887 2,124 13,158 761
Ski Lodge Apts.
Montgomery, AL ............. 6,800 672 11,587 2,627
South Point Apts.
Durham, NC ................. 4,600 859 7,686 570
St. Charleston Village Apts.
Las Vegas, NV .............. 6,210 751 7,322 1,423
Stoney Creek Apts.
Dallas, TX ................. 6,995 1,803 12,509 (260)
Summerhill Apts.
Dallas, TX ................. 2,930 1,003 6,069 830
Summerwalk Apts.
Winter Park, FL ............ 4,557 427 6,347 561
Sun River Apts.
Tempe, AZ .................. 6,278 1,102 8,770 784
Sunrunner Apts.
St. Petersburg, FL ......... 3,250 634 6,485 145
Torrey Pines Village Apts.
Las Vegas, NV .............. 3,697 460 4,595 1,020
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31,
1996
--------------------------------------------------
BUILDINGS AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
--------- -------------- ---------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Place du Plantier Apts.
Baton Rouge, LA ............ 844 8,966 9,810 6,204 1974 5/1/84 5-27.5
Plantation Creek Apts.
Atlanta, GA ................ $2,655 $22,815 $25,470 $10,025 1977-78 6/1/84 5-30
Preston Creek Apts.
Dallas, TX ................. 2,107 7,015 9,122 3,466 1979 8/1/81 5-30
Promontory Point
Austin, TX ................. 1,595 10,044 11,639 4,294 1984 10/1/85 5-30
Rocky Ridge
Birmingham, AL ............. 330 3,931 4,261 2,670 1973 10/16/84 5-27.5
Sandspoint Apts.
Phoenix, AZ ................ 2,146 13,897 16,043 6,058 1986 2/1/84 6-30
Ski Lodge Apts.
Montgomery, AL ............. 676 14,210 14,886 9,403 1977 7/19/84 5-27.5
South Point Apts.
Durham, NC ................. 863 8,252 9,115 4,197 1980 3/1/86 5-27.5
St. Charleston Village Apts.
Las Vegas, NV .............. 743 8,753 9,496 4,920 1980 9/1/79 5-30
Stoney Creek Apts.
Dallas, TX ................. 1,689 12,363 14,052 5,461 1983 6/1/85 5-30
Summerhill Apts.
Dallas, TX ................. 999 6,903 7,902 3,600 1979 8/1/81 5-30
Summerwalk Apts.
Winter Park, FL ............ 431 6,904 7,335 4,806 1974 12/24/80 5-27.5
Sun River Apts.
Tempe, AZ .................. 1,090 9,566 10,656 5,169 1981 11/1/80 5-30
Sunrunner Apts.
St. Petersburg, FL ......... 587 6,677 7,264 3,160 1981 7/1/84 6-30
Torrey Pines Village Apts.
Las Vegas, NV .............. 455 5,620 6,075 3,095 1980 9/1/79 5-30
</TABLE>
F-54
<PAGE>
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
--------------------------
COST
CAPITALIZED
BUILDINGS AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
-------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
The Village Apts.
Voorhees Township, NJ ......... 11,058 1,307 17,121 2,632
The Village in the Woods
Apts. Cypress, TX ............. $ 9,813 $ 2,852 $ 20,915 $ (9,497)
Village of Pennbrook
Falls Township, PA ............ 19,300 1,972 18,245 5,505
Williamsburg on the Lake
Indianapolis, IN .............. 7,400 590 14,822 2,808
Willow Park Altamonte
Springs, FL ................... 2,968 567 5,218 1,073
Wood Creek Apts.
Mesa, AZ ...................... 12,810 2,130 13,440 535
Wood Lake Apts.
Atlanta, GA ................... 7,649 1,206 10,980 612
Wood Ridge Apts.
Atlanta, GA ................... 8,883 1,632 12,321 781
Woods of Inverness Apts.
Houston, TX ................... 5,205 1,292 10,305 (2,622)
Plantation Crossing Apts.
Atlanta, GA ................... 5,182 1,062 7,576 417
-------- ------- -------- --------
$363,385 $72,632 $532,500 $ 55,711
======== ======= ======== ========
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT DECEMBER 31, 1996
----------------------------------------------------
BUILDINGS AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE -- YEARS
---------- -------------- ----------- -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Village Apts.
Voorhees Township, NJ ......... 1,329 19,731 21,060 10,703 1979-80 1/5/84 5-27.5
The Village in the Woods
Apts. Cypress, TX ............. $ 1,500 $ 12,770 $ 14,270 $ 6,083 1983 10/1/82 5-30
Village of Pennbrook
Falls Township, PA ............ 1,980 23,742 25,722 17,026 1973 12/15/81 5-27.5
Williamsburg on the Lake
Indianapolis, IN .............. 594 17,626 18,220 10,174 1974-76 3/1/86 5-27
Willow Park Altamonte
Springs, FL ................... 574 6,284 6,858 4,533 1973 12/13/82 5-27.5
Wood Creek Apts.
Mesa, AZ ...................... 2,117 13,988 16,105 6,339 1985 5/1/84 5-30
Wood Lake Apts.
Atlanta, GA ................... 1,206 11,592 12,798 5,299 1983 12/1/83 5-30
Wood Ridge Apts.
Atlanta, GA ................... 1,632 13,102 14,734 5,875 1982 4/1/84 6-30
Woods of Inverness Apts.
Houston, TX ................... 905 8,070 8,975 4,167 1981 7/1/82 5-30
Plantation Crossing Apts.
Atlanta, GA ................... 1,062 7,993 9,055 3,614 1980 6/84 6-30
------- -------- -------- --------
$70,634 $590,209 $660,843 $312,410
======= ======== ======== ========
</TABLE>
F-55
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
RECONCILIATION OF REAL ESTATE
Balance at beginning of year ........................... $ 670,026 $ 700,437 $ 730,969
Property improvements ................................. 10,853 6,215 7,570
Revaluation allowance on rental property sold ......... -- -- (3,073)
Cost of rental property disposed of ................... -- -- (20,288)
Disposal of properties ................................ (20,036) (36,625) (14,741)
--------- --------- ---------
Balance at end of year ................................. $ 660,843 $ 670,027 $ 700,437
========= ========= =========
RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year ........................... $ 298,584 $ 289,734 $ 278,090
Additions charged to expense .......................... 22,464 23,551 24,382
Allowance for impairment of rental properties sold or
disposed of ......................................... -- -- (7,445)
Disposal of properties ................................ (8,638) (14,699) (5,293)
--------- --------- ---------
Balance at end of year ................................. $ 312,410 $ 298,586 $ 289,734
========= ========= =========
</TABLE>
F-56
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Notes Receivable (primarily due from affiliates):
Mortgage notes receivable $ 31,921,000 $ 39,347,000
Promissory notes receivable 6,789,000 6,789,000
------------ ------------
38,710,000 46,136,000
Less: Allowances for estimated losses (8,826,000) (8,826,000)
------------ ------------
29,884,000 37,310,000
Foreclosed real estate held for sale 8,730,000 4,521,000
Cash and cash equivalents 10,860,000 3,947,000
Restricted cash 943,000 --
Accrued interest receivable 615,000 654,000
Prepaid expenses and other 119,000 98,000
------------ ------------
Total assets $ 51,151,000 $ 46,530,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 537,000 $ 588,000
Mortgage loan payable 4,525,000 --
------------ ------------
Total liabilities 5,062,000 588,000
------------ ------------
Shareholders' equity:
Class A Shares (2,617,000 issued and outstanding,
$1.00 par value, unlimited shares authorized) 2,617,000 2,617,000
Class B Shares (1,675,113 issued and outstanding,
$.01 value, unlimited shares authorized) 14,000 14,000
Additional paid-in capital 50,199,000 50,199,000
Accumulated distributions in excess of cumulative net
income (6,741,000) (6,888,000)
------------ ------------
Total shareholders' equity 46,089,000 45,942,000
------------ ------------
Total liabilities and shareholders' equity $ 51,151,000 $ 46,530,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUE:
Interest income $ 973,000 $1,168,000
Rental income 87,000 67,000
---------- ----------
Total revenue 1,060,000 1,235,000
---------- ----------
COSTS AND EXPENSES:
General and administrative 56,000 335,000
Amortization 20,000 18,000
---------- ----------
Total costs and expenses 76,000 353,000
---------- ----------
NET INCOME $ 984,000 $ 882,000
========== ==========
NET INCOME PER CLASS A SHARE $ 0.37 $ 0.33
========== ==========
CASH DISTRIBUTIONS PER CLASS A SHARE $ 0.32 $ 0.22
========== ==========
WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING 2,617,000 2,617,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-58
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
DISTRIBUTIONS IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPTIAL INCOME TOTAL
------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 2,617,000 $ 14,000 $ 50,199,000 ($ 6,888,000) $ 45,942,000
Distributions paid to Class A
Shareholders -- -- -- (837,000) (837,000)
Net income -- -- -- 984,000 984,000
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1998 $ 2,617,000 $ 14,000 $ 50,199,000 ($ 6,741,000) $ 46,089,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-59
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 984,000 $ 882,000
Adjustments to reconcile net income to cash
flows from operating activities:
Amortization 20,000 18,000
Interest income in exchange for notes receivable -- (423,000)
Decrease (increase) in interest receivable 39,000 (43,000)
Decrease (increase) in prepaid expenses and other assets (44,000) 45,000
Decrease in accounts payable and accrued expenses (455,000) (187,000)
Increase (decrease) in unearned loan fee income (63,000) 39,000
------------ ------------
Cash flows provided by (used in) operating activities 481,000 331,000
------------ ------------
Cash flows from investing activities:
Principal collections of notes receivable 11,973,000 2,036,000
Funding of notes receivable (4,865,000) (5,000,000)
Proceeds from foreclosure of real estate 161,000 --
------------ ------------
Cash flows provided by (used in) investing activities 7,269,000 (2,964,000)
------------ ------------
Cash flows used in financing activities:
Distributions to Class A Shareholders (837,000) (576,000)
------------ ------------
Increase (decrease) in cash and cash equivalents 6,913,000 (3,209,000)
Cash and cash equivalents:
At beginning of period 3,947,000 9,789,000
------------ ------------
At end of period $ 10,860,000 $ 6,580,000
============ ============
Schedule of noncash financing and investing activities:
Assumption of first mortgage loan payable $ 4,525,000 $ --
Conversion of second mortgage receivable to real property 380,000 --
Deed-in-lieu of foreclosure, real property 4,369,000 --
</TABLE>
The accompanying notes are an integral part of the financial statements
F-60
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - The accompanying financial statements have not been audited by
independent certified accountants, but in the opinion of management all of the
adjustments necessary to present fairly the financial position of Angeles
Mortgage Investment Trust (the "Trust") and the results of operations and its
cash flows at the date and for periods indicated have been included. Certain
prior year amounts have been reclassified to conform to current year
classifications.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three-month period ended March 31, 1998 are
not indicative of the results that may be expected for the year ending December
31, 1998.
For further information, refer to the financial statements and notes
thereto included in the Trust's annual report on Form 10-K for the year ended
December 31, 1997.
NOTE 2 - The net income per Class A Share was based on 2,617,000 weighted
average Class A Shares outstanding during the three months ended March 31, 1998
and 1997 after deduction of the 1% interest for Class B Shares.
NOTE 3 - The Trust's $5 million line of credit expired April 30, 1997 and
required monthly interest only payments based upon prime plus .50% per annum.
In May 1998 the line of credit was renewed through October 1998 with the
ability to extend the line of credit through April 1999 at the Trust's option.
The renewed line of credit provides for the same interest rate and payment
terms and requires a $12,500 commitment fee paid quarterly. During the quarter
ended March 31, 1998, the Trust did not draw down on the line of credit.
NOTE 4 - In December 1997 the Trust purchased a second mortgage loan for
$380,000 on a 186-unit apartment complex, Silver Ridge Apartments, located in
Maplewood, Minnesota. The Silver Ridge second mortgage has an interest rate of
10% and default rate of 12% and matured December 31, 1997. In addition, during
1997 the Trust obtained judgement liens against the Silver Ridge Apartments
property based upon recourse provisions on other Trust loans. Through a
judgement lien, the Trust foreclosed on the property in October 1997 subject to
a twelve-month redemption period. On January 30, 1998, the Trust received title
to Silver Ridge Apartments through deed-in-lieu of foreclosure as a result of
provisions in the second mortgage held by the Trust. In connection with taking
title to Silver Ridge Apartments the Trust assumed a first trust deed mortgage
from a third party in the amount of $4,525,000. This first mortgage provides
for a variable interest rate not to exceed 12%, interest only paid monthly,
with a current interest rate of 3 1/2% per annum. The loan matures in July
2023.
In addition, the Trust assumed control of restricted cash relating to
Silver Ridge Apartments with a balance of $943,000 as of March 31, 1998. The
restricted cash balance is comprised of approximately $500,000, held by the
first mortgage lender in escrow for: principal $295,000; real estate taxes and
insurance $100,000; and processing and other fees of $43,000. The remaining
$443,000 relates to funds for capital improvements and tenant security
deposits.
F-61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees of
Angeles Mortgage Investment Trust
We have audited the accompanying balance sheets of Angeles Mortgage Investment
Trust (the "Trust") as of December 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. We have also
audited schedules III and IV. These financial statements and schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on the financial statements and schedules 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 and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe that
our audits provide a reasonable basis for our opinion.
At December 31, 1997, 50 percent of the Trust's notes receivable are due from
partnerships which affiliates of Insignia Financial Group, Inc. ("Insignia")
are the general partner. As discussed in Note 10, the Trust and an Insignia
affiliate (Insignia Properties Trust) have executed a merger agreement subject
to the approval of the Trust shareholders. If the merger is approved, the
Trust's business activities as it relates to these related party notes
receivable may be impacted due to overlapping management.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Also, in our opinion the schedules present fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
January 15, 1998
F-62
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
NOTES 1997 1996
----- ---- ----
<S> <C> <C>
ASSETS
Notes receivable 2,3,5,6
Mortgage notes receivable, (including
$16,344,000 and $16,791,000 due from affiliates
in 1997 and 1996) $ 39,347,000 $ 26,043,000
Promissory notes receivable, (including
$6,714,000 and $10,650,000 due from affiliates
in 1997 and 1996) 6,789,000 14,175,000
-------------- --------------
46,136,000 40,218,000
Allowance for estimated losses (8,826,000) (12,100,000)
-------------- --------------
37,310,000 28,118,000
Foreclosed real estate held for sale 4 4,521,000 5,070,000
Cash and cash equivalents 3,947,000 9,789,000
Accrued interest receivable 654,000 174,000
Prepaid expenses and other 98,000 224,000
-------------- --------------
Total assets $ 46,530,000 $ 43,375,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 588,000 $ 287,000
-------------- --------------
Total liabilities 588,000 287,000
-------------- --------------
Commitments and contingencies 1,2,3,4,6,10
- -
Shareholders' equity: 8,9
Class A Shares (2,617,000 in 1997 and 1996,
issued and outstanding, $1.00 par value,
unlimited shares authorized) 2,617,000 2,617,000
Class B Shares (1,675,113 issued and outstanding,
$.01 value, unlimited shares authorized) 14,000 14,000
Additional paid-in capital 50,199,000 50,199,000
Accumulated distributions in excess of cumulative net
income (6,888,000) (9,742,000)
-------------- --------------
Total shareholders' equity 45,942,000 43,088,000
-------------- --------------
Total liabilities and shareholders' equity $ 46,530,000 $ 43,375,000
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Interest income (including $2,954,000, $2,405,000, and $1,710,000
from affiliates in 1997, 1996 and 1995, respectively) $ 5,109,000 $ 6,419,000 $ 3,017,000
Rental income 266,000 321,000 96,000
Gain from sale of real property 80,000 184,000 435,000
Recovery of bad debt from Angeles Corporation settlement -- -- 12,844,000
Recovery of other bad debts 1,744,000 3,126,000 3,110,000
------------ ------------ ------------
Total revenue 7,199,000 10,050,000 19,502,000
------------ ------------ ------------
COSTS AND EXPENSES:
Property operating expenses 56,000 180,000 262,000
Loss from sale of real property -- -- 3,000
Interest expense to bank -- -- 227,000
Legal expenses 393,000 (257,000) 851,000
General and administrative 958,000 858,000 835,000
Amortization 63,000 44,000 35,000
Income taxes 180,000 139,000 --
------------ ------------ ------------
Total costs and expenses 1,650,000 964,000 2,213,000
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 5,549,000 9,086,000 17,289,000
EXTRAORDINARY ITEM - Debt forgiveness -- -- 1,844,000
------------ ------------ ------------
NET INCOME $ 5,549,000 $ 9,086,000 $ 19,133,000
============ ============ ============
PER CLASS A SHARE:
Net income before extraordinary $ 2.10 $ 3.33 $ 5.77
Extraordinary item -- -- 0.61
------------ ------------ ------------
Net income $ 2.10 $ 3.33 $ 6.38
============ ============ ============
Cash distributions $ 1.03 $ 0.52 $ --
============ ============ ============
Weighted average Class A Shares 2,617,000 2,704,375 2,968,532
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
DISTRIBUTIONS IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPITAL INCOME TOTAL
------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 3,394,000 $ 14,000 $ 55,656,000 $(36,554,000) $ 22,510,000
Class A Shares received from (567,000) -- (3,687,000) -- (4,254,000)
Angeles Corporation settlement
Purchase of Class B Share Option (250,000) -- (250,000)
Net income -- -- 19,133,000 19,133,000
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 2,827,000 14,000 51,719,000 (17,421,000) 37,139,000
Purchase of Class A Shares (210,000) (1,520,000) -- (1,730,000)
Net income -- -- -- 9,086,000 9,086,000
Cash distributions -- -- -- (1,407,000) (1,407,000)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 2,617,000 14,000 50,199,000 (9,742,000) 43,088,000
Net income -- -- -- 5,549,000 5,549,000
Cash distributions -- -- -- (2,695,000) (2,695,000)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 2,617,000 $ 14,000 $ 50,199,000 $ (6,888,000) $ 45,942,000
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,549,000 $ 9,086,000 $ 19,133,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOWS
FROM OPERATING ACTIVITIES:
- --------------------------
Net gain from sale of real property (80,000) (184,000) (432,000)
Amortization 63,000 44,000 35,000
Recovery of bad debt (1,744,000) (3,126,000) (15,954,000)
Interest income in exchange of notes receivable or real property (864,000) (3,708,000) (501,000)
Extraordinary gain -- -- (1,844,000)
Decrease (increase) in interest receivable (480,000) 87,000 (108,000)
Decrease (increase) in prepaid expenses and other 64,000 215,000 (326,000)
(Decrease) increase in accounts payable and accrued expenses 301,000 94,000 (61,000)
Increase (decrease) in unearned loan fee income 115,000 56,000 (38,000)
------------ ------------ ------------
Cash flows from (used in) operating activities 2,924,000 2,564,000 (96,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of foreclosed real estate (37,000) -- (355,000)
Funding of notes receivable (14,251,000) (2,968,000) --
Principal collections of notes receivable 7,552,000 10,256,000 9,056,000
Proceeds from sale of real estate 665,000 1,845,000 1,952,000
Investment in securities -- (979,000) --
Principal collections of investment in securities -- 979,000 --
------------ ------------ ------------
Cash flows from (used in) investing activities (6,071,000) 9,133,000 10,653,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Draw on bank line of credit -- 430,000 --
Repayment of bank line of credit -- (430,000) (3,500,000)
Repayment of cash advances from affiliate partnerships -- -- (6,682,000)
Purchase of Class B share option -- -- (250,000)
Distributions to shareholders (2,695,000) (1,407,000) --
Purchase of Class A shares -- (1,730,000) --
------------ ------------ ------------
Cash flows used in financing activities (2,695,000) (3,137,000) (10,432,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (5,842,000) 8,560,000 125,000
Cash and cash equivalents:
At beginning of period 9,789,000 1,229,000 1,104,000
------------ ------------ ------------
At end of period $ 3,947,000 $ 9,789,000 $ 1,229,000
============ ============ ============
Supplemental operating cash flow disclosure:
Cash received for interest $ 3,765,000 $ 2,798,000 $ 2,213,000
Cash paid for interest -- -- 312,000
Schedule of noncash financing and investing activities:
Carrying value of real estate in satisfaction of notes $ -- $ 2,019,000 $ 3,969,000
receivable with carrying values of $2,622,000 in 1996 and
$3,580,000 in 1995
Mortgage notes receivable from sale of real estate -- -- 700,000
Restructuring of past due interest into notes receivable -- 2,625,000 1,914,000
Notes receivable from lawsuit settlement -- 75,000 --
Recovery of Class A stock in connection with Angeles Settlement -- -- 4,254,000
Write-off of fully reserved note receivable 1,530,000 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
F-66
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, BUSINESS ACTIVITIES AND SIGNIFICANT EVENTS
Angeles Mortgage Investment Trust ("AMIT" or the "Trust") is an
unincorporated California business trust, which was organized to qualify as a
REIT for federal income tax purposes. AMIT was originally organized as a
publicly held limited partnership that began offering limited partnership units
on August 18, 1986 and commenced operations on July 9, 1987. In January 1989,
the holders of a majority of the limited partnership units elected to transfer
all of the partnership's assets to AMIT. Presently AMIT's capital structure
consists of 2,617,000 outstanding AMIT Class A Shares and 1,675,113 outstanding
AMIT Class B Shares. The AMIT Class A Shares are registered under the Exchange
Act and listed on the American Stock Exchange under the symbol "ANM". Each AMIT
Class A Share and each AMIT Class B Share is entitled to one vote with respect
to all matters put before AMIT's shareholders.
Angeles Funding Corporation ("AFC"), a wholly owned subsidiary of
Angeles Corporation ("Angeles") served as advisor to AMIT until February 1993.
Through AFC, AMIT had invested in various types of intermediate-term real
estate loans (the "AMIT Loans"). Prior to December 1996, the majority of the
AMIT Loans were made to partnerships that were once controlled by Angeles and
are now controlled by Insignia Financial Group, Inc., a Delaware corporation,
which through MAE GP, its affiliate, holds the Trust's Class B Shares,
(Insignia Financial Group, Inc. and its affiliates are collectively referred to
as "Insignia" in this document). These partnerships include private and public
real estate limited partnerships which were formed to acquire, own and operate
income-producing real properties. As of December 31, 1997, there were 23 AMIT
Loans outstanding, with an aggregate portfolio balance of approximately $37
million, net of loan loss reserves, and AMIT owned as a result of foreclosures
or receipt of deeds in lieu of foreclosure on certain assets securing certain
AMIT Loans approximately $4.5 million of real property. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
AMIT."
By virtue of its ownership of the Class B Shares, Insignia owns a 1%
interest in the profits, losses, credits and distributions of the Trust and 39%
of the Trust's total voting shares. As discussed in Note 7, "Notes to Financial
Statements", the Trust and MAE GP entered into an agreement, effective April
1995, pursuant to which MAE GP granted to the Trust the option to purchase all
the Class B Shares currently owned by MAE GP. The option is exercisable by the
Trust in 2005 for approximately $94,000. During the 10 year period that the
option is outstanding, all of the Class B Shares are required to vote, pursuant
to an irrevocable proxy, with the majority of Class A Shares in connection with
any proposal involving the Trust and Insignia or the election of any Trustee
nominated by MAE GP which is an insider affiliate of MAE GP including Insignia.
Such majority will be determined without consideration of the votes of "Excess
Class A Shares," as defined in the Trust's Declaration of Trust. With respect
to all other matters, MAE GP can vote the Class B Shares without restriction.
Beginning in February 1993, AMIT faced significant liquidity problems
caused by (i) the failure of a significant number of the obligors of the AMIT
Loans (primarily partnerships controlled by MAE) to fully service outstanding
debt obligations under their respective AMIT Loans, and (ii) Angeles' inability
to fully service its debt obligations under its promissory note payable to AMIT
or perform its other obligations to AMIT under its third party loan guarantees
and shareholder distribution guarantees. As of February 1993, approximately 75%
of the AMIT Loans were in payment default. In February 1993, Angeles informed
AMIT that it was unable to perform its obligations under its guarantees because
of liquidity problems caused by its inability to complete sales or refinancings
of real estate assets, its inability to fully realize asset values in a
continuing sluggish and depressed real estate market and the failure of the
obligors of the AMIT Loans to service fully, if at all, their debt obligations
to Angeles. On May 3, 1993, Angeles filed for protection under Chapter 11 of
the federal bankruptcy code. Angeles' failure to perform under its guarantees,
together with the defaults on AMIT Loans, resulted in AMIT's suspension of cash
distributions to the holders of AMIT Class A Shares starting in February 1993
and resuming in February 1996. AMIT filed various claims against Angeles and
eventually reached agreement with Angeles and the Committee of Creditors
Holding Unsecured Claims of Angeles to settle all claims between AMIT and
Angeles. The settlement agreement was approved by the Bankruptcy Court in March
1995. Under the agreement, AMIT received over $15 million in cash, notes and
AMIT Class A Shares.
Since February 1993 (when AMIT terminated its advisory agreement with
AFC), AMIT has restructured its loan portfolio and has paid in full its then
outstanding bank loan of $20 million. However, certain AMIT Loans, which in the
aggregate have a carrying value (net of loan loss reserves) of approximately
$1.3 million (constituting approximately 3% of AMIT's net investments), are
currently in default with respect to debt service obligations. AMIT's lending
is primarily concentrated in secured and, to a lesser extent, unsecured real
estate loans. The
F-67
<PAGE>
realizable value of real estate collateralizing notes receivable or acquired in
loan foreclosure proceedings can only be determined based upon a sales
negotiation between independent third parties in an arm's length transaction.
In addition, considering that, in most cases, it is the proceeds of sale and/or
refinancing which will enable AMIT to receive funds, the actual proceeds may be
significantly impacted by the condition of the real estate industry at the time
the principal amounts become due or properties sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
AMIT."
AMIT will terminate December 31, 2003, unless extended to no later
than December 31, 2015 by vote of the shareholders of AMIT, or by the AMIT
Board to no later than December 31, 2020 without a vote of the shareholders of
AMIT if the AMIT Board believes that termination at such time would result in
material under-realization of the value of AMIT's assets. Upon liquidation of
AMIT, disposition proceeds will be distributed to the shareholders.
An entity will qualify for taxation as a REIT if it satisfies certain
income and asset tests. Among these tests is a requirement that a certain
percentage of assets constitute "real estate assets" and a certain percentage
of income be derived from such assets. AMIT's loan assets are collateralized in
a variety of ways, and some loans have not been collateralized. AMIT has not
requested nor obtained an IRS determination that any of its assets qualify as a
"real estate asset", and has not obtained an opinion of counsel that it
currently qualifies as a REIT. If AMIT were to fail to qualify as a REIT in any
taxable year, AMIT would not be allowed a deduction for dividend distributions
in computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. AMIT believes that it has operated
in a manner designed to qualify as a REIT. However, if the Internal Revenue
Service were successfully to challenge the qualification of AMIT's REIT assets,
AMIT would be subject to federal income tax only after the utilization of
AMIT's net operating losses.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Trust are
prepared on the accrual basis and therefore, revenue is recorded as earned and
costs and expenses are recorded as incurred. 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 and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from these
estimates. Certain prior years amounts have been reclassified to conform to
current year classifications.
CASH AND CASH EQUIVALENTS - For financial reporting purposes, the
Trust considers cash and cash equivalents to include cash on deposit and
amounts invested in money market funds with original maturity terms of less
than 90 days.
INTEREST RECOGNITION ON NOTES RECEIVABLE - Interest income is recorded
as earned in accordance with the terms of the loans. Interest income is not
recorded on individual loans if the carrying value of the receivable exceeds
the realizable value of the underlying collateral or if payments are in default
in excess of two months.
FORECLOSED REAL ESTATE HELD FOR SALE - Foreclosed real estate is
initially recorded at new cost, defined as the lower of original cost or fair
value minus estimated costs of sale. After foreclosure, the excess of new cost,
if any, over fair value minus estimated costs of sale is recognized in a
valuation allowance. Subsequent changes in fair value either increases or
decreases such valuation allowance. See "Allowance for Estimated Losses" below.
ALLOWANCE FOR ESTIMATED LOSSES - Valuation allowances are established
by the Trust for estimated losses on notes receivable and properties held for
sale to the extent that the investment in notes or properties exceeds the
Trust's estimate of net realizable values of the property or collateral
securing each note, or fair value if foreclosure is probable. The provision for
losses is based on estimates using the direct capitalization of net operating
income for the underlying properties. Capitalization rates have been determined
by using micro and macro economic factors. Actual losses may vary from current
estimates. Such estimates are reviewed periodically and any additional
provision determined to be necessary is charged against earnings in the period
in which it becomes reasonably estimated.
REVENUE RECOGNITION ON SALE OF REAL ESTATE - Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate."
INCOME TAXES - The Trust has elected to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code for each taxable year
of operations. As a qualified REIT, the Trust is subject to income
F-68
<PAGE>
taxation at corporate rates on its REIT taxable income. However, the Trust is
allowed a deduction for the amount of dividends paid to its shareholders,
thereby subjecting the distributed net income of the Trust to taxation at the
shareholder level only. As of December 31, 1997 the Trust had no tax loss
carryforwards.
NET INCOME PER CLASS A SHARE - The net income per Class A Share was
based on 2,617,000, 2,704,375, and 2,968,532 weighted average Class A Shares
outstanding during the years ended December 31, 1997, 1996 and 1995,
respectively, after deduction of the Class B Shares' 1% interest. The Trust
adopted Statement of Financial Accounting Standards No. 128 during 1997 and it
had no effect on the financial statements.
AMORTIZATION - The Trust amortizes loan fees to interest income over
the lives of the related Trust Loans. Loan fees and refinancing expenses paid
by the Trust are amortized over the life of the relevant loans. The Trust
amortizes leasing commissions to leasing commission expense over the term of
the related leases.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Trust to concentrations of credit risk are primarily temporary cash
investments and mortgage and promissory notes receivable. The Trust places its
temporary cash investments with major financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution. Of all
notes receivable, 50% are with partnerships who have previously defaulted on
their obligations (see Note 3).
INVESTMENT IN JOINT VENTURE - The Trust's investment in joint venture
is accounted for using the equity method since it is the Trust's intention to
dispose of the joint venture interest.
MARKET VALUE OF FINANCIAL INSTRUMENTS - The Trust used the following
assumptions in estimating the fair value of its notes receivable. For
performing notes receivable, the fair value was estimated by discounting future
cash flows using current interest rates for similar loans. For nonperforming
notes receivable, the estimated fair value of the Trust's interest in the
collateral property was used. The market value of notes receivable can only be
determined based upon a sales negotiation between independent third parties in
an arm's length transaction. Actual proceeds may be significantly impacted by
the condition of the real estate industry at the time the principal amounts
become due.
NOTE 3 - NOTES AND INTEREST RECEIVABLE
Notes receivable are collateralized by real property owned by the
borrowers of such Trust Loans, or by an assignment of the limited partnership
interest in the limited partnership that owns the property (but not the
specific underlying property) or by a general obligation of the limited
partnership that owns the property. All of the Trust's notes receivable
collateralize the Trust's line of credit with a third party lender (see Note 6).
Activity in the allowance for estimated loan losses was as follows:
1997 1996 1995
---- ---- ----
Balance at beginning of period $ 12,100,000 $ 13,598,000 $ 26,595,000
Provisions for losses -- 4,334,000 2,350,000
Deductions (3,274,000) (5,832,000) (15,347,000)
------------ ------------ ------------
Balance at end of period $ 8,826,000 $ 12,100,000 $ 13,598,000
============ ============ ============
The provisions for losses for 1996 and 1995 relate to debt
modifications whereby unrecorded past due interest receivable was restructured
as principal (see below).
The deductions to the estimated loan losses relate primarily to the
full or partial repayment of Trust loans and foreclosure of properties by
either the Trust or the first lien holder, where the Trust is in a second
position. During 1995 the Trust modified the Fox Run loans and capitalized
approximately $1,914,000 of past due interest and default interest into the
principal of the loans. The Trust reversed $1,800,000 of allowance for
estimated loss relating to the Fox Run loans, based upon improved property
performance, the commencement of modified debt service in the fourth quarter of
1995 and an anticipated refinancing of the mortgages on the property. In 1996
approximately $660,000 of deductions were due to the significant improvement of
property performance underlying certain of the Trust loans.
Included in the Trust's allowances for estimated losses on notes
receivable is approximately $4.8 million relating to one loan, -- a promissory
note on a Waukegan, Illinois apartment complex, referred to as Fox Crest. The
property has continued to improve in operations since February 1993, which may
lead to some future recovery of some portion of this promissory note. The
property still needs maintenance and capital improvements and has not
F-69
<PAGE>
provided the Trust with any debt service since February 1993 and no debt
service is anticipated in the near future. The Trust has not reduced the
allowance. There can be no assurances that the value in this property will
exceed the first mortgage debt.
During the quarter ended March 31, 1997 the Trust restructured a first
mortgage referred to as LaSalle, on which the Trust had began foreclosure
proceedings in 1996. In connection with the related loan modification, the
Trust capitalized and recognized as interest income, approximately $409,000 of
past due interest, late fees, default interest along with approximately $14,000
of out-of-pocket costs incurred by the Trust during the foreclosure process.
The restructured loan required monthly interest only payments based upon the
stated note rate of 11.5% on the reconstituted loan balance. In October 1997
this loan was paid in full.
During the year ended December 31, 1997, four AMIT loans prepaid the
total outstanding principal balances of approximately, $6,800,000 and another
loan, referred to by the Trust as Northprior, made a substantial repayment in
the amount of $340,000. The four loans, which made full repayments, are
referred to by AMIT as Angeles Partners X ($614,000), Angeles Corporation
($3,450,000), Carriage Hills ($1,404,000) and LaSalle ($1,334,000). The
Northprior and Carriage Hill loans had been previously fully reserved for loan
loss and as a result of the principal repayments AMIT realized recovery of bad
debt in the amounts of $340,000 and $1404,000, respectively. In addition, the
Carriage Hills loan repaid all past due interest in the amount of $237,000
which the Trust recognized as interest income in November 1997.
During 1997 the Trust began receiving debt service on two loans which
had been previously restructured in 1996, the Angeles Partners XIV and Brittany
Point loans. The Angeles Partners XIV loan in October 1997 paid all past due
interest in the amount of $82,000 and made a partial principal repayment of
$48,000. During the first six months of 1997 the Brittany Point loan began
making cash flow interest payments to the Trust and effective July 1997 began
making monthly interest only payments at the stated interest rate of 12 1/2%.
As a result of the commencement of monthly debt service and significant
improvement of the property operations for the Brittany Point loan, the Trust
in December 1997 realized as interest income $337,000 of past due interest.
In December 1997 the Trust wrote-off a promissory note, with a
principal outstanding balance of $1,530,000 referred to by the Trust as Vista
Hills. Based upon the Trust's evaluation of the property operations and
discussions with the borrower regarding the likelihood of foreclosure by the
first lien holder in 1998 the Trust believed there would be no recovery in the
future. The Borrower had indicated to the Trust that the property would most
likely be foreclosed upon the first lien holder during 1998. The Trust had
previously fully provided for loan loss reserves for this loan and did not
realize any loss or gain from the sale.
In February 1997, AMIT made its first new loan since January 1993, in
the amount of $5,000,000, secured by first deeds of trust on three manufactured
home parks located in Texas. This new loan requires interest only payments at
8.9% and matures in December 2003. In April 1997, AMIT made a second new loan
in the amount of $2,950,000 secured by a first deed of trust on a 628,000
square foot industrial warehouse located in Martinsville, Virginia. This loan
requires interest only payments at 11% and matures in April 1998. In June 1997
AMIT made a new first mortgage loan in the amount of $1,900,000 secured by four
manufactured home parks located in Wyoming. The new loan requires interest only
payments of 9.07% and matures in December 2003. In December 1997 AMIT made
three first mortgage loans in the amounts and terms as follows: $1,300,500 on a
144,000 square foot office/warehouse facility located in Houston, Texas with an
8% interest rate, interest only payable monthly; $531,250 on a 56,080 square
foot industrial/warehouse located in Aiken, South Carolina with an 8% interest
rate, principal and interest payable monthly, with principal amortized over 20
years; and $2,185,000 on a 335,000 square foot industrial facility located in
Jackson, Tennessee, initially monthly interest only payable at a rate of 10 1/2
%, with the interest rated reduced to 230 basis points over ten-year Treasuries
upon the debt coverage ratio increasing to a stipulated level. All three of
these December 1997 first mortgage loans mature in December 2007.
In December 1997 the Trust purchased a second mortgage loan for
$384,000. This second mortgage loan is on a 186-unit apartment complex, Silver
Ridge Apartments, located in Maplewood, Minnesota. The Silver Ridge second
mortgage has a contract interest rate of 10% and a default rate of 12% and
matured December 31, 1997. In addition, during 1997 the Trust obtained judgment
liens against the Silver Ridge Apartments property based upon recourse
provisions on other Trust loans. Through one of these judgment liens the Trust
successfully foreclosed on the property in October 1997 and will be the owner
of the property after a twelve-month redemption period which ends in October
1998. Silver Ridge Apartments is also encumbered by a $4.5 million first
mortgage held by an independent third party.
As of December 31, 1997, the Trust has signed and proposed commitments
to fund approximately $1 million of new loans.
F-70
<PAGE>
During 1996, the Trust began foreclosure proceedings on three
industrial properties in Cleveland, Ohio that represent additional collateral
available to the Trust through recourse provisions of a failed loan referred to
as Marina Plaza. Although the properties are heavily indebted and in need of
maintenance and capital improvements, the Trust has received early indications
of sales value from potential purchasers that may provide recovery of
approximately $300,000 which would be recognized as income after foreclosure
and sale of these properties.
As reported by the Trust in 1995, the Trust loan referred to as North
Prior defaulted on its obligation to the Trust as well as to the senior lender
on the property. The property was sold just prior to foreclosure with proceeds
sufficient to pay the senior lender the full amount of the senior obligation.
Proceeds above the senior obligation were escrowed for potential use in an
environmental remediation that occurred prior to the foreclosure and sale.
Approximately $870,000 remains in the escrow and in January 1998 a site closure
letter was received from the state environmental government authority. The
Trust will recognized income for amounts, when and if, received from escrow,
which is anticipated to occur in 1998.
During 1996 the Trust modified five loans referred to as Brittany
Point, Fox Crest, Carriage Hills, Vista Hills and Angeles Partners
XIV-Waterford. In connection, with the modifications, the Trust extended the
maturity dates on all of the loans except for Angeles Partners XIV-Waterford,
to December 31, 2000, March 1, 2003, September 1, 2000 and September 1, 2002,
respectively, and capitalized approximately $320,000, $1,765,000, $204,000,
$230,000 and $134,000, respectively, of past due interest into principal. The
modified notes require payments only out of cash flows provided by the
properties. The Trust did not recognize any interest income in connection with
these loan modifications.
During the last quarter of 1996 the Trust modified and received a
significant repayment on two of the Trust's largest loans. In October 1996, the
Arrowhead Joint Venture $6 million loan (which was previously secured only by a
partnership interest), along with a related $1.2 million unsecured preferred
partnership distribution interest ("Preferred Interest"), was restructured to a
$9 million first trust deed mortgage, with a current effective interest rate of
10.20% reducing to a 9.8% rate upon repayment of $1.5 million which is
scheduled to occur in late 1998. The restructuring has resulted in the Trust
significantly strengthening the collateral on this loan along with increasing
the annual debt service on this loan by approximately $400,000. The $1.2
million Preferred Interest was originally acquired in the settlement with
Angeles (see Note 9 of Notes to Financial Statements) and was previously valued
at zero as it had an indeterminable value when it was acquired. In addition,
the Trust capitalized approximately $1.7 million in deferred interest that was
not previously recognized in income, as full recovery of such interest was
until the modification, considered doubtful.
In December 1996, the Trust received approximately $7 million from its
three Fox Run mortgages as a result of the borrower refinancing the property.
The $7 million of cash proceeds represented the full repayment of approximately
$6.7 million of principal on these three loans with the remainder representing
a portion of the accrued interest associated with the loans. In addition to
this repayment, the Trust took back a new third mortgage on the Fox Run
property in the amount of $875,000. The $875,000 is comprised of approximately
$425,000 of the remaining accrued interest from the three Fox Run loans and
approximately $450,000 of accrued interest and principal on the Angeles
Partners XI-Harbour Landing promissory note. The Trust recognized $2 million of
bad debt recovery on this transaction, and approximately $900,000 of interest
income from accrued interest not previously recognized, as full recovery of
such interest was not reasonably assured until the repayment.
In addition, in December 1996 the Trust acquired, at par, three first
mortgage loans from an unaffiliated third party for approximately $2.9 million.
These mortgages are on three properties known as Hospitality Inns (three
separate properties and locations) on which the Trust held three second
mortgages. All of these six mortgages matured in October 1996. The Trust
restructured the first and second mortgage loans on these three properties
effective April 30, 1997. The loan modifications for each property provided
that the first and second mortgages be combined into one first mortgage loan.
In addition to combining the first and second mortgages on each property, the
Trust also capitalized and recognized as interest income, a total of
approximately $440,000 of accrued interest and late fees for all three loans.
Each restructured loan requires monthly principal and interest based upon the
stated note rate of 11% for two of the loans and 11.25% for the third loan on
the reconstituted loan balance, with principal paid based on a 30-year
amortization. The current monthly debt service the Trust receives from this
restructuring is $50,000. The Trust also received a one-point loan fee in
conjunction with the loan restructuring totaling approximately $52,000.
F-71
<PAGE>
Notes receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------
1997 1996
---------------------------- ---------------------------
ESTIMATED ESTIMATED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MORTGAGE NOTES RECEIVABLE:
First trust deeds, primarily requiring monthly $ 34,510,000 $ 33,038,000 $ 18,385,000 $ 17,868,000
interest only payments ranging from 8% to 12.5%,
maturing through December 2007
Second trust deeds, requiring monthly interest only 4,113,000 5,680,000 4,790,000 7,427,000
payments ranging from 10% to 12.5%, maturing through
December 2000
Third trust deed, requiring monthly interest and
principal payments of 11.25%, maturing January 2002 872,000 872,000 875,000 875,000
------------ ------------ ------------ ------------
39,495,000 39,590,000 24,050,000 26,170,000
Less: Unearned loan fees (243,000) (127,000)
------------ ------------
Net mortgage notes receivable 39,347,000 26,043,000
PROMISSORY NOTES RECEIVABLE:
Promissory notes receivable, requiring monthly 2,697,000 6,789,000 7,314,000 14,175,000
interest payments ranging from 8% to 12.5%, maturing
through March 2003 (See Note 5)
------------ ------------ ------------ ------------
NOTES RECEIVABLE $ 42,192,000 $ 46,136,000 $ 31,364,000 $ 40,218,000
============ ============ ============ ============
</TABLE>
At December 31, 1997 mortgage notes receivable of $3,735,000 and
promissory notes receivable of $1,539,000, all of which are due from
affiliates, are in default.
With respect to the promissory notes receivable as of December 31,
1997, $4,764,000 is secured by partnership interests and other loans and
$2,024,000 are general obligations of partnerships or individuals. The
underlying properties are not collateral for such loans.
During year ended December 31, 1995, debt holders senior to the debts
of the Trust foreclosed upon two Trust Loans referred to as Marina Plaza and
Burnhamthorpe, respectively. Both loans had been fully reserved for loss.
However, due to recourse provisions on the Marina Plaza loan, the Trust was
able to obtain title to a property having an estimated value of $300,000.
Scheduled maturities of notes receivable due subsequent to December
31, 1997 are, $5,236,000 in 1998, $7,504,000 in 1999, $1,645,000 in 2000,
$1,567,000 in 2001, $6,081,000 in 2002 and $19,072,000 thereafter. It is likely
that the scheduled maturity dates, for certain of the notes, will be extended.
NOTE 4 - REAL ESTATE HELD FOR SALE
In August 1993, the Trust foreclosed on a parcel of land located in
Houston, Texas, referred to by the Trust as "Martinique", for which it held a
first trust deed mortgage. The Trust did not recognize a loss on foreclosure in
1993 in excess of the reserve of $600,000 previously provided. The property was
sold in December 1995, for $1.5 million and the Trust received net cash
proceeds of approximately $1,371,000. The Trust realized a $3,000 loss on the
sale.
In 1994, the Trust began a foreclosure action on a $1,500,000 first
trust deed mortgage held on a property referred to as 4851 Van Epps, an
industrial warehouse located in Cleveland, Ohio. The Trust had previously
provided a loss reserve of $600,000 on this loan. In September 1995 the Trust
obtained title to the property through a deed-in-lieu of foreclosure. In
October 1995 the Trust sold the property for $1,370,000, taking back a $700,000
first trust deed mortgage on the property and received net cash proceeds of
approximately $580,000. The Trust realized income of $435,000 from the sale.
F-72
<PAGE>
In January 1994, the Trust acquired, through a foreclosure on its loan
of $3,600,000, a 220-unit apartment complex located in Decatur, Georgia. The
foreclosure resulted in no loss in 1994 as the reserve of $430,000 had been
previously provided. See Note 3. In April 1994, the Trust sold the property and
received net cash proceeds of approximately $3.3 million. The Trust recognized
income of $2,000 from the sale.
The Trust obtained title to the 4705 Van Epps property through a
deed-in-lieu of foreclosure in August 1995. The Trust had obtained a judgment
lien of approximately $2.7 million on this property as a result of recourse
provisions in the $2 million note referred to as Marina Plaza. In consideration
of the deed-in-lieu of foreclosure, the Trust agreed to reduce the judgment
lien by $500,000 and a payment of $5,000. The 4705 Van Epps property had a
$343,000 delinquent first mortgage from an independent financial institution
which the Trust was required to pay upon transfer of title to the Trust. The
Trust recorded this property at $500,000 and recognized approximately $151,000
as recovery of bad debt. The property was sold in February 1996 for $752,000,
received net cash proceeds of approximately $677,000 and realized a $184,000
gain on the sale.
In August 1996, the Trust foreclosed on a 443 unit mobile home park
located in Belton, Missouri, referred to by the Trust as Springdale Lake
Estates MHP ("Springdale"), for which it held a second trust deed mortgage in
the amount of $1,720,000 and had capitalized foreclosure costs of approximately
$2,000. Upon taking title to Springdale, the Trust assumed a first mortgage on
the property in the amount of approximately $2,800,000. The Trust did not
recognize any loss from the foreclosure as a reserve of $531,000 had been
previously provided. In October 1996, the Trust sold Springdale for $4,000,000
and received net cash proceeds of approximately $1,112,000 with no gain or loss
recognized on the sale.
As of December 31, 1997, the Trust owned three real estate properties
held for sale, referred to as University Center Phase IV a 56,000 square foot
retail center and University Center Phase I & II, a 51,200 square foot
warehouse office space, both of these properties are located in Fridley,
Minnesota, and a 240-acre parcel of raw land referred to as Colony Cove located
in Ellenton, Florida.
The Trust foreclosed on University Center Phase IV in December 1995,
on which it held a $1,800,00 first trust deed mortgage. This note contained
recourse provisions, accordingly, the Trust received as a function of the
foreclosure action, a judgment lien in the amount of $464,000 on a property
called University Center Phase I & II. As the Trust had two additional loans
with the same borrower, the borrower agreed to deed-in-lieu of foreclosure the
University Center Phase I & II property in consideration of reducing the
principal loan balance by $880,000 on a second trust deed mortgage held by the
Trust in the original amount of $2,600,000, known as Springdale Lake Estates.
The Trust recorded the University Center Phase I and II property at $1,100,000,
its estimated fair market value.
In October 1997 and previously in April 1996, the Trust foreclosed on
a 40 and an adjacent 200 acre parcel of land, respectively, located in
Ellenton, Florida, referred to by the Trust as "Colony Cove", for which it held
a first trust deed mortgage in the amount of $1,572,000 on the 200-acres and
had recourse, through provisions on the mortgage note, allowing the foreclosure
on the adjacent 40-acres. In conjunction with the foreclosures, the Trust
incurred approximately $178,000 in expenses, which have been capitalized into
the cost of the property. The Trust did not recognize any income or loss from
the foreclosure. During 1997 the Trust entered into a contract to sell
approximately 224 acres of this property zoned residential for $8,500 per acre.
The contract requires the sale to close in the latter part of 1998, although
there can be no assurances that this transaction will occur. Subsequent to
1997, in January 1998 the Trust garnished cash of approximately $160,000 held
by the borrower based upon the recourse provisions of the mortgage note. The
$160,000 reduced the capitalized cost of the property.
In June 1996, the Trust obtained through foreclosure a 57% joint
venture interest in a 160-acre parcel of land in Ocala, Florida. This property
was collateral for a Trust loan in the amount of $1,050,000, referred to as
"Rolling Greens." The Trust did not recognize any loss on the foreclosure as a
reserve of $465,000 had been previously provided. This property was sold in
1997 and the Trust received approximately $665,000 and realized a gain of
$80,000 on the sale.
NOTE 5 - ANGELES PROMISSORY NOTE RECEIVABLE
The Trust had provided Angeles with a $10,000,000 promissory note
receivable secured by real estate, expiring May 31, 1993. At December 31, 1994,
outstanding borrowings on the note were $9,255,000. As a result of the Angeles
settlement as discussed in Note 9 the Trust received over $15 million in cash,
notes and stock to settle this note along with other matters. The new note in
the amount of $6,100,000 received from Angeles in the settlement was fully
repaid during 1997.
F-73
<PAGE>
NOTE 6 - NOTE PAYABLE TO BANK
The Trust's line of credit with the Bank, in the amount of $5 million
requires monthly interest only payments based upon prime plus 1/2% and matures
April 30, 1998. The line of credit with the Bank allows the Trust to draw on
such line to facilitate the foreclosure process on Trust Loans. In August 1995
the Trust drew down on such line of credit in the amount of $343,000 in order
to pay-off the first trust deed on a property obtained through a deed-in-lieu
of foreclosure (see Note 4). As of December 5, 1995, the Trust paid off the
remaining outstanding balance on the line of credit. In June 1996, the Trust
drew down for a three day period of time $480,000. During 1997 the Trust did
not draw on the line of credit and as of December 31, 1997 the Trust has no
outstanding borrowings with the Bank.
The Trust's average month-end borrowings on the working capital line
of credit were $0 in 1997 and 1996. In conjunction with the financing, the
Trust paid loan fees of $25,000, $19,000, and $43,000 in 1997, 1996 and 1995,
respectively.
NOTE 7 - RECORDED CASH ADVANCES FROM AFFILIATED PARTNERSHIPS AND PROPOSED
SETTLEMENT WITH INSIGNIA
In July 1993, the Trust had filed a lawsuit challenging the Trust's
indebtedness and any liability for principal and interest relating to funds
allegedly loaned to the Trust by eight partnerships. The balance outstanding on
these alleged loans, as of December 31, 1994, was $7,585,000 along with accrued
interest of approximately $941,000. Cross complaints were filed against the
Trust by certain of the lending partnerships in this same lawsuit seeking,
among other things, repayment in full of the alleged loans. Effective March 31,
1995, the following settlement was consummated between the Trust and seven
partnerships, Insignia and affiliates of Insignia. Funds were paid to such
entities on April 14, 1995 as follows:
o the Trust paid approximately, $5,752,000 in cash;
o the Trust purchased, for $250,000, an option from MAE GP Corporation,
an affiliate of Insignia, to purchase all the Class B Shares of the
Trust currently owned by the affiliate. Such holdings represent 100%
of the Trust's outstanding Class B Shares. The option is exercisable
by the Trust in 10 years for approximately $94,000. During the 10 year
period the option is outstanding all of the Class B Shares will be
voted, pursuant to an irrevocable proxy, with the majority of Class A
Shares in connection with any proposal involving the Trust and
Insignia or any affiliate thereof or election of any Trustee nominated
by or affiliated with Insignia. Such majority will be determined
without consideration of the votes of "Excess Class A Shares," as
defined in the Trust's Declaration of Trust. With respect to all other
matters the affiliate of Insignia can vote the Class B Shares without
restriction.
In addition, one partnership, not affiliated with Insignia, having an
alleged loan to the Trust of $1,150,000 along with accrued interest of
approximately $145,000 as of March 31, 1995, reached an agreement with the
Trust for a settlement of all claims between the Trust and the partnership.
Pursuant to this agreement the Trust paid a total of $930,000 of cash on May 9,
1995, upon execution of the settlement agreement.
As a result of this settlement the Trust recognized an extraordinary gain
of $1,844,000 summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Recorded cash advances from affiliated partnerships $ 7,585,000
Accrued interest on recorded cash advances through 12/31/94 941,000
-----------
Total recorded liabilities relating to recorded cash advances 8,526,000
Less:
Settlement of principal and interest on Insignia related partnerships (5,686,000)
Additional interest due on settlement of Insignia related partnerships (66,000)
Settlement of principal on non-Insignia related partnership (930,000)
-----------
Extraordinary gain $ 1,844,000
===========
</TABLE>
F-74
<PAGE>
NOTE 8 - SHAREHOLDERS' EQUITY
The Shares of the Trust are of two classes: Class A Shares (par value
$1.00 per share) and Class B Shares (par value $.01 per share). There is no
limit on the number of either Class A or Class B Shares which the Trust is
authorized to issue. Class A and Class B Shares are each entitled to one vote
per share with respect to the election of Trustees and other matters.
In 1995, the Trust purchased, for $250,000, an option from MAE GP
Corporation, an affiliate of Insignia to purchase all the Class B Shares of the
Trust currently owned by the affiliate. Such holdings represent 100% of the
Trust's outstanding Class B Shares. The option is exercisable by the Trust in
10 years for approximately $94,000. During the 10 year period the option is
outstanding, all of the Class B Shares will be voted, pursuant to an
irrevocable proxy, with majority of Class A Shares in connection with any
proposal involving the Trust and Insignia or any affiliate thereof or election
of any Trustee nominated by or affiliated with Insignia. The majority will be
determined without consideration of the votes of "Excess Class A Shares," as
defined in the Trust's Declaration of Trust. With respect to all other matters,
the affiliate of Insignia can vote the Class B Shares without restriction.
In November 1996, the Trust's Board of Trustees adopted a Shareholders
Rights Plan and declared a dividend of one Right on each outstanding share of
the Trust's Class A Shares to stockholders of record on November 18, 1996. The
Rights are exercisable if a person or group acquires 20% or more of the Trust's
Class A Shares or announces or commences a tender offer for 20% or more of the
such shares. When a person or group acquires such 20%, each exercisable Right
will entitle its holder (other than such person or group) to purchase, at the
Right's then-current exercise price, a number of the Trust's Class A Shares
having a market value of twice such price. In addition, if the Trust is
acquired in a merger or other business combination transaction after a person
has acquired 20% or more of the Trust's outstanding Class A Shares, each right
will entitle its holder to purchase, at the Right's then-current exercise
price, a number of the acquiring company's common shares having a market value
of twice such price. Prior to the acquisition by a person or group of
beneficial ownership of 20% or more of the Trust's common stock, the Rights are
redeemable for one cent per Right at the option of the Board of Trustees. The
Board of Trustees is also authorized, under certain circumstances, to reduce
the 20% threshold referred to above to not less than 10%. The Rights will
expire on December 31, 2003 unless otherwise extended by the Board of Trustees.
The Board of Trustees of the Trust has authorized the Trust to
repurchase, in open market transactions, up to 10% of its Class A Shares. The
Trust has repurchased 43,800 shares under this program. There were no purchases
in the open market in 1997, 1996 and 1995 however the Trust acquired 209,700
Class A Shares for $1,730,000 less $764,000 in expenses, in settlement of
actions it had brought against certain third parties.
In February 1993, the Trust's policy of distributing monthly the net
cash from operations to its Class A shareholders was temporarily suspended as a
result of the failure of the Insignia Partnerships and partnerships affiliated
with Angeles to fully service their Trust Loan obligations and Angeles'
inability to perform its guarantee of a minimum annual distribution of $2.00
per Class A Share through May 1994 or meet its obligations under its promissory
note receivable with the Trust because of its own liquidity problems. The Trust
made shareholder distributions aggregating $1.03 and $0.52 per share in 1997
and 1996, respectively, and made no distributions in 1995. In December 1997,
the Board of Trustees of the Trust declared a $.32 per share dividend payable
on February 11, 1998, to shareholders of record on January 13, 1998.
NOTE 9 - SETTLEMENT WITH ANGELES CORPORATION
Angeles had been unable to service its debt obligations under its
promissory note receivable with the Trust or perform its obligations under its
guarantees of the Trust's Loans. In May 1993 Angeles filed for protection under
Chapter 11 of the federal bankruptcy code. Angeles's failure to perform under
its debt obligations and guarantees with the Trust together with other matters,
resulted in the March 1994 filing by the Trustees, on behalf of the Trust, of
substantial claims against Angeles in a proof of claim in the Angeles
bankruptcy.
The Trust reached agreement with Angeles and the Committee of
Creditors Holding Unsecured Claims of Angeles to settlement of all claims
between the Trust and Angeles. The settlement agreement was approved by the
Bankruptcy Court under a plan of reorganization and the Trust received on April
14, 1995, after the effective date of Court approval (March 31, 1995), the
following:
o cash of $6.0 million;
o collateralized note payable of $6,100,000 due December 31, 1998,
interest paid quarterly at prime plus 1% not to exceed 8.5%;
F-75
<PAGE>
o 567,326 Class A Shares of the Trust, owned by Angeles, representing
16% of the then total outstanding Class A Shares of the Trust;
o payment of $1 million on a third party claim;
o assignment of a third party preferred interest with a face value of
$1.2 million; and
o a release of all claims on behalf of Angeles against the Trust.
The $6.1 million note is collateralized with a pledge of Angeles's limited
partnership interest in a limited partnership whose assets are comprised of
notes and receivables from various real estate investment partnerships. This
note was paid in full during 1997.
The third party $1.2 million preferred interest received in the settlement
had an indeterminable value when acquired and therefore was recorded at zero.
The settlement transaction with Angeles resulted in the Trust recording
$12,844,000 as recovery of bad debt, summarized as follows:
Consideration received in settlement:
Cash $ 6,000,000
Collateralized note 6,100,000
Third party subordinated note 1,200,000
Reimbursement for third party claim 1,000,000
567,326 Class A Trust Shares (valued as of
effective date of settlement, $7.50/Class A share) 4,254,000
Other 745,000
------------
Total 19,299,000
Less:
Repayment of Angeles note receivable, net of reserve (4,255,000)
Reserve for third party subordinated note (1,200,000)
Payment of third party claim (1,000,000)
------------
Recovery of bad debt from Angeles Settlement $ 12,844,000
============
NOTE 10 - PROPOSED MERGER
On July 18, 1997, AMIT, IPT, Insignia and MAE GP entered into the
Merger Agreement which, provides for, among other things, the Merger of AMIT
with and into IPT, with IPT surviving the Merger. Upon consummation of the
Merger the separate existence of AMIT will cease. A Special Meeting of AMIT
shareholders will be called to consider and vote on proposals to approve and
adopt the Merger Agreement and the transactions contemplated thereby, including
the merger of AMIT with and into IPT, with IPT being the surviving entity (the
"Merger"), and approve the amendment of AMIT's Declaration of Trust (the "Trust
Amendment") to permit AMIT to merge and consolidate with other entities subject
to the required vote of the AMIT Board and AMIT's shareholders (collectively,
the "Merger Proposal"). It is currently expected that the Special Meeting of
Shareholders will convene in mid 1998. A proxy statement will be circulated to
all AMIT shareholders in advance of the meeting, containing information on the
proposed merger.
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share
will be converted into IPT Common shares (the "Class A Exchange Ratio"). The
Class A Exchange Ratio is determined by adjusting the base exchange values set
in the Merger Agreement of $16.25 per AMIT Class A Share and $10.00 per IPT
Common Share to account for dividends paid by AMIT since December 31, 1996 and
by IPT since January 31, 1997. The Class A Exchange Ratio is subject to further
adjustment should either AMIT or IPT declare any additional dividends prior to
the Merger. No fractional IPT Common Shares will be issued. In lieu of any
fractional shares, an AMIT shareholder otherwise entitled to a fractional IPT
Common Share will receive cash from IPT in an amount determined by multiplying
such fractional share amount by the IPT Share Value.
During the year ending December 31, 1997, Insignia paid approximately
$1 million for professional and legal fees on behalf of the Trust with regard
to the proposed merger.
NOTE 11 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
F-76
<PAGE>
The following table sets forth the selected quarterly financial
data for the Trust (in thousands except for per share amounts).
<TABLE>
<CAPTION>
QUARTER ENDING
-------------------------------------------------
1997 12/31/97 9/30/97 6/30/97 3/31/97
- ---- -------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 3,118 $ 1,088 $ 1,758 $ 1,235
Net income $ 2,427 $ 778 $ 1,462 $ 882
PER CLASS A SHARE
Net income $ 0.92 $ 0.29 $ 0.55 $ 0.33
Weighted average Class A Shares 2,617 2,617 2,617 2,617
outstanding
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDING
-------------------------------------------------
1996 12/31/96 9/30/96 6/30/96 3/31/96
- ---- -------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 7,387 $ 878 $ 631 $ 1,154
Net income $ 6,780 $ 562 $ 1,033 $ 711
PER CLASS A SHARE
Net income $ 2.56 $ 0.21 $ 0.37 $ 0.25
Weighted average Class A Shares 2,617 2,617 2,757 2,827
outstanding
</TABLE>
F-77
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cost capitalized
Initial Cost to subsequent to
Trust acquisition
----------------------------------------
Building Improve- Carrying
Encum- and land ments costs
Description brances improvements
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
University Center Phase IV $1,800,000 - -
Retail Shopping
Friedly, Minnesota
University Center Phase I & II 1,100,000 - -
Warehouse Office
Friedly, Minnesota
Colony Cove 1,714,000 - -
Raw Land
Ellenton, Florida
---------------------------------------------------
Total $0 $4,614,000 $0 $0
===================================================
<CAPTION>
Life on
which
depreciation
in latest
Gross amount at which Date of income
carried at close of Accumulated con- Date statements
Description period(1)(2) Depreciation struction acquired is computed
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
University Center Phase IV $1,671,000 0 1975 Dec.-'95 N/A
Retail Shopping
Friedly, Minnesota
University Center Phase I & II 1,100,000 0 1975 Nov.-'95 N/A
Warehouse Office
Friedly, Minnesota
Colony Cove 1,750,000 0 N/A Apr.-'96 & N/A
Raw Land Oct.-'97
Ellenton, Florida
--------------------------------------
Total $4,521,000 $0
======================================
</TABLE>
FOOTNOTES TO SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(1) Reconcilation of real property investment:
Balance at January 1, 1995
$ 1,400,000
Additions during period:
Acquisition through
foreclosure $ 4,312,000
Deductions during period $(2,312,000)
-----------
Balance at December 31, 1995 $ 3,400,000
-----------
Additions during period:
Acquisition through
foreclosure $ 3,490,000
Deductions during period $(1,820,000)
-----------
Balance at December 31, 1996 $ 5,070,000
-----------
Additions during period:
Acquisition through
foreclosure $ 36,000
Deductions during period
$ (585,000)
-----------
Balance at December 31, 1997 $ 4,521,000
===========
(2) The carrying value for federal income tax purposes is $4,521,000.
F-78
<PAGE>
<TABLE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<CAPTION>
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ---- ---- ----- ----- ---------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST TRUST DEEDS
Lake Arrowhead Resort
Hotel
Lake Arrowhead, California 10.20% Nov-99 (1) (9) - 9,004 9,004 -
Mesa Dunes, Wakonda, Town & Country
Retail Stores, 9.00% Dec-03 (4) - 5,000 3,390 -
Cedar Rapids / Des
Moines, Iowa
Princeton Meadows Joint Venture
Golf Course,
Princeton Meadows, New Jersey 12.50% Sep-01 (1) - 1,280 1,567 -
Virginia Industrial Capital, LLC
Warehouse,
Martinsville, Virginia 11.00% Apr-98 (1) - 2,950 2,950 -
Hospitality Inn
Hotel,
Pensacola, Florida 11.25% Nov-02 (4) - 1,652 1,648 -
Hospitality Inn
Hotel,
Pensacola, Florida 11.00% Nov-02 (4) - 1,297 1,294 -
Hospitality Inn
Hotel,
Jacksonville, Florida 11.00% Nov-02 (4) - 2,274 2,268 -
</TABLE>
F-79
<PAGE>
<TABLE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<CAPTION>
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ---- ---- ----- ----- ---------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST TRUST DEEDS (CONTINUED)
Affordable Residential
Communities, LP I
Three manufactured home parks
Denton and Tyler, Texas 8.90% Dec-03 (1) - 5,000 5,000 -
JJ & T Enterprises, Inc.
Four manufactured home parks
Cheyenne, Wyoming 9.07% Dec-03 (1) - 1,900 1,900 -
American Industrial Capital, LLC
Office/warehouse
Houston, Texas 8.00% Dec-07 (1) - 1,301 1,301 -
American Industrial Capital, LLC
Industrial warehouse
Aiken, South Carolina 8.00% Dec-07 (4) - 531 531 -
American Industrial Capital, LLC
Industrial warehouse
Jackson, Tennessee 10.50% Dec-07 (1) - 2,185 2,185 -
------------------------------------------------------------------
TOTAL FIRST TRUST DEEDS 0 34,374 33,038 0
</TABLE>
F-80
<PAGE>
<TABLE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<CAPTION>
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ---- ---- ----- ----- ---------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECOND TRUST DEEDS
Silver Ridge
Apartments
Maplewood, Minnesota 10.00% Dec-97 (1) 4,525 375 385 385
Bercado Shores
Apartments,
South Bend, Indiana 12.50% Jun-95 (1) 4,307 1,350 1,350 1,350
Brittany Point
Apartments,
Huntsville, Alabama 12.50% Dec-00 (1) 9,536 1,570 1,570 -
Nolana Apartments, Inc.
Los Angeles, California 12.00% Sep-98 (1) 1,873 455 375 -
Southgate
Apartments,
Bedford Heights, Ohio 11.50% Mar-95 (1) 2,723 2,000 2,000 2,000
-------------------------------------------------------------
TOTAL SECOND TRUST DEEDS 22,964 5,750 5,680 3,735
</TABLE>
F-81
<PAGE>
<TABLE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<CAPTION>
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ---- ---- ----- ----- ---------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THIRD TRUST DEEDS
Fox Run (A) 11.25% Jan-02 (4) 30,400 875 872 -
Apartments,
Plainsboro, New Jersey
----------------------------------------------------------
TOTAL THIRD TRUST DEEDS 30,400 875 872 0
PROMISSORY NOTES RECEIVABLE
North Prior 12.25% Jun-96 (1) - 2,000 679 679
Warehouse Complex,
St. Paul, Minnesota
J. Schultz 8.00% May-00 (1) - 75 75 -
An Individual
Angeles Partners 16 12.50% Jun-97 (1) - 860 860 860
California Limited Partnership
Angeles Partners XIV 12.00% Feb-98 (1) - 459 411 -
California Limited Partnership
Fox Crest 12.50% Mar-03 (1) 6,682 4,764 4,764 -
Apartments,
Waukegan, Illinois
----------------------------------------------------------
TOTAL PROMISSORY NOTES RECEIVABLE 6,682 8,158 6,789 1,539
----- ----- ----- -----
</TABLE>
F-82
<PAGE>
<TABLE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<CAPTION>
FACE CARRYING PRINCIPAL AMOUNT OF LOANS
PRIOR AMOUNT OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ----- ---------- ----------- ---------------------
<S> <C> <C> <C> <C>
SUMMARY
TOTAL FIRST TRUST DEEDS 0 34,374 33,038 0
TOTAL SECOND TRUST DEEDS 22,964 5,750 5,680 3,735
TOTAL THIRD TRUST DEEDS 30,400 875 872 0
TOTAL PROMISSORY NOTES RECEIVABLE 6,682 8,158 6,789 1,539
------- ------- ------- ------
TOTAL $60,046 $49,157 46,379 $5,274
========================= ================================
UNEARNED LOAN FEES (243)
-------
46,136
ALLOWANCE FOR ESTIMATED LOSSES (8,826)
-------
$37,310
=======
</TABLE>
F-83
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
FOOTNOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
(1) Note requires periodic interest only payments through maturity, when the
principal balance is due.
(2) Reconciliation of notes receivable:
Balance at January 1, 1996 $ 45,369,000
Additions:
New mortgage loans (5) 15,574,000
Deductions:
Principal collections (6) (16,256,000)
Foreclosures (4,342,000)
------------
Balance at December 31, 1996 $ 40,345,000
Additions:
New mortgage loans (7) 15,116,000
Deductions:
Principal collections (7,552,000)
Write-off of loan (8) (1,530,000)
------------
Balance at December 31, 1997 $ 46,379,000
============
(3) The carrying amount for Federal income tax purposes is approximately
$42,245,000.
(4) Note requires monthly interest and principal payments through maturity,
when the principal balance is due.
(5) Amount includes modified loans in which accrued but unrecorded interest
income was recast as principal for the following loans; Lake Arrowhead -
$9,004,000, Fox Run - $875,000, Fox Crest - $1,764,000, Brittany -
$291,000 and Angeles Partners XIV - $134,000.
(6) Amount includes the refinancing of the Lake Arrowhead promissory note of
$6 million.
(7) Amount includes modified loans in which accrued but unrecorded interest
income was recast as principal for the following loans; Hospitality Inns
Pensacola I - $237,000, Hospitality Inns Pensacola II - $97,000,
Hospitality Inns Jacksonville - $106,000 and LaSalle - $423,000.
(8) Amount represents write-off of Vista Hills promissory note of $1,530,000.
(9) Requires a principal repayment of $1,500,000 in November 1998 with the
remaining outstanding principal balance due in 1999.
F-84
<PAGE>
ANNEX A
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
ANGELES MORTGAGE INVESTMENT TRUST
INSIGNIA PROPERTIES TRUST
INSIGNIA FINANCIAL GROUP, INC.
(solely for the purpose and limited to the provisions of Sections 6.6(b) and
6.16 and Articles 5 and 9)
AND
MAE GP CORPORATION
(solely for the purpose and limited to the provisions of Section 6.13 and
Article 9)
DATED AS OF JULY 18, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. THE MERGER.................................................... 1
Section 1.1 The Merger.......................................... 1
Section 1.2 Effects of the Merger............................... 2
(a) Generally; Surviving Entity......................... 2
(b) Effective Time...................................... 2
(c) Declaration of Trust and Bylaws..................... 2
(d) Trustees and Officers............................... 2
(e) Post-Effective Time Status.......................... 2
ARTICLE 2. EXCHANGE RATIO; CONVERSION OF SHARES.......................... 2
Section 2.1 Exchange Ratio...................................... 2
Section 2.2 Conversion of Shares................................ 2
(a) Canceled AMIT Shares................................ 2
(b) Conversion of AMIT Class A.......................... 2
(c) Conversion of AMIT Class B.......................... 3
Section 2.3 Exchange of Shares; Responsibility for Payments..... 3
(a) Exchange Agent...................................... 3
(b) Exchange of AMIT Certificates....................... 3
Section 2.4 Dividends; Transfer Taxes........................... 3
Section 2.5 No Fractional Shares................................ 4
Section 2.6 Closing of Transfer Books........................... 4
Section 2.7 The Closing......................................... 4
(a) Time and Place...................................... 4
(b) Actions at the Closing.............................. 4
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF AMIT........................ 5
Section 3.1 Organization........................................ 5
(a) AMIT................................................ 5
(b) AMIT Subsidiaries................................... 5
Section 3.2 Qualification....................................... 5
Section 3.3 Power and Authority................................. 5
Section 3.4 Capitalization...................................... 5
(a) AMIT................................................ 5
(b) AMIT Subsidiaries................................... 6
Section 3.5 Authority Relative to Transactions.................. 6
Section 3.6 Noncontravention.................................... 6
Section 3.7 Governmental Consents............................... 6
Section 3.8 Filings with the SEC................................ 7
Section 3.9 Financial Statements................................ 7
Section 3.10 Subsequent Events................................... 7
Section 3.11 Undisclosed Liabilities............................. 7
Section 3.12 Broker's Fees....................................... 7
Section 3.13 Disclosure.......................................... 7
Section 3.14 Compliance with State Takeover Statutes............. 7
i
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF IPT............................ 8
Section 4.1 Organization.......................................... 8
(a) IPT................................................... 8
(b) IPLP.................................................. 8
(c) IPT Subsidiaries...................................... 8
(d) Investment Limited Partnerships....................... 8
Section 4.2 Qualification......................................... 8
Section 4.3 Power and Authority................................... 8
Section 4.4 Capitalization of the Investment Limited Partnerships. 9
Section 4.5 Authority Relative to Transactions.................... 9
Section 4.6 Noncontravention...................................... 9
Section 4.7 Governmental Consents................................. 9
Section 4.8 Filings with the SEC.................................. 9
Section 4.9 Financial Statements.................................. 10
(a) IPT................................................... 10
(b) Investment Limited Partnerships....................... 10
Section 4.10 Subsequent Events..................................... 10
(a) IPT, IPT Subsidiaries and IPLP........................ 10
(b) Investment Limited Partnerships....................... 10
Section 4.11 Undisclosed Liabilities............................... 11
(a) IPT, IPT Subsidiaries and IPLP........................ 11
(b) Investment Limited Partnerships....................... 11
Section 4.12 REIT Status........................................... 11
Section 4.13 Broker's Fees......................................... 11
Section 4.14 Disclosure............................................ 11
Section 4.15 Compliance with State Takeover Statutes............... 11
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF IFG............................ 11
Section 5.1 Capitalization........................................ 12
(a) IPT................................................... 12
(b) IPLP.................................................. 12
(c) IPT Subsidiaries...................................... 12
(d) Investment Limited Partnerships....................... 13
ARTICLE 6. COVENANTS........................................................ 13
Section 6.1 General............................................... 13
Section 6.2 Regulatory Matters and Legal Approvals................ 13
(a) Securities Laws....................................... 13
(b) State Corporate Law--AMIT............................. 14
(c) State Corporate Law--IPT.............................. 14
(d) State Corporate Law--All Parties...................... 14
(e) Listing............................................... 14
Section 6.3 Operation of Business................................. 14
Section 6.4 Dividend Payments..................................... 15
(a) IPT............................... ................... 15
(b) AMIT.................................................. 15
Section 6.5 Obligation to Notify and Update....................... 16
ii
<PAGE>
(a) AMIT's Obligations.................................... 16
(b) IPT Group's Obligations............................... 16
Section 6.6 Confidentiality....................................... 16
(a) AMIT's Obligations.................................... 16
(b) IPT's Obligations..................................... 16
Section 6.7 Full Access........................................... 16
Section 6.8 Notice of Developments................................ 17
Section 6.9 Exclusive Dealing..................................... 17
Section 6.10 Fairness Opinion...................................... 17
Section 6.11 Employment Agreements................................. 17
(a) Ronald J. Consiglio................................... 17
(b) Anna Merguerian....................................... 17
Section 6.12 Expense Reimbursement................................. 17
Section 6.13 Agreements Regarding the Shares of AMIT Class B ...... 18
Section 6.14 Indemnification....................................... 18
(a) Indemnification....................................... 18
(b) Notice Required....................................... 18
(c) Defense of Indemnification Proceeding................. 18
(d) Settlement............................................ 19
(e) Right to Employ Counsel............................... 19
(f) Survival of this Section.............................. 19
(g) Successors and Assigns Bound.......................... 20
Section 6.15 Post-Merger IPT Trustees.............................. 20
Section 6.16 Standstill Obligation................................. 20
ARTICLE 7. CONDITIONS TO CONSUMMATION OF THE MERGER......................... 20
Section 7.1 Conditions to Obligation of AMIT...................... 20
(a) Shareholder Approval.................................. 20
(b) Representations and Warranties........................ 20
(c) Performance of Covenants.............................. 20
(d) Registration Statement................................ 20
(e) Listing............................................... 21
(f) Articles of Merger.................................... 21
(g) No Order.............................................. 21
(h) Maryland Opinion Regarding AMIT....................... 21
(i) Opinion Regarding IPT, IFG and MAE.................... 21
(j) REIT Opinion.......................................... 22
(k) Reorganization Opinion................................ 22
(l) Deliveries by IPT..................................... 22
Section 7.2 Conditions to Obligation of IPT and MAE............... 22
(a) Shareholder Approval.................................. 23
(b) Representations and Warranties........................ 23
(c) Performance of Covenants.............................. 23
(d) Registration Statement................................ 23
(e) Listing............................................... 23
(f) Articles of Merger.................................... 23
(g) No Order.............................................. 23
iii
<PAGE>
(h) Maryland Opinion Regarding IPT........................ 23
(i) Opinion Regarding AMIT................................ 23
(j) REIT Opinion.......................................... 24
(k) Reorganization Opinion................................ 24
(l) Deliveries............................................ 24
ARTICLE 8. TERMINATION...................................................... 25
Section 8.1 Termination of Agreement.............................. 25
Section 8.2 Effect of Termination................................. 25
ARTICLE 9. MISCELLANEOUS.................................................... 26
Section 9.1 Survival of Representations and Warranties............ 26
Section 9.2 Severability.......................................... 26
Section 9.3 Successors and Assigns................................ 26
Section 9.4 Counterparts.......................................... 26
Section 9.5 Headings.............................................. 26
Section 9.6 Waiver................................................ 26
Section 9.7 No Third-Party Beneficiaries.......................... 26
Section 9.8 Other Expenses........................................ 26
Section 9.9 Notices............................................... 26
Section 9.10 Governing Law......................................... 27
Section 9.11 Interpretation........................................ 28
(a) References............................................ 28
(b) Cross-Reference of Disclosures........................ 28
(c) Drafting.............................................. 28
Section 9.12 Public Announcements.................................. 28
Section 9.13 Entire Agreement...................................... 28
Section 9.14 Amendment............................................. 28
Section 9.15 Disclosure Letters.................................... 29
ARTICLE 10. DEFINITIONS..................................................... 29
Section 10.1 Definitions........................................... 29
iv
<PAGE>
EXHIBITS
Exhibit 1.2(b)...............................................Articles of Merger
Exhibit 3.1(a)..............AMIT's Declaration of Trust and Trustee Regulations
Exhibit 4.1(a)............................IPT's Declaration of Trust and Bylaws
Exhibit 5.1(b)...............................IPLP Limited Partnership Agreement
Exhibit 6.11(a)..........................Form of Consiglio Employment Agreement
Exhibit 6.11(b).........................Form of Merguerian Employment Agreement
SCHEDULES
Schedule 1.2(d).................Trustees and Officers of IPT Post-Effective Time
Schedule 3.1(b)...............AMIT Subsidiaries and Jurisdiction of Organization
Schedule 3.4(b)..............................Capitalization of AMIT Subsidiaries
Schedule 4.1(c)................IPT Subsidiaries and Jurisdiction of Organization
Schedule 4.1(d).Investment Limited Partnerships and Jurisdiction of Organization
Schedule 4.4...................Capitalization of Investment Limited Partnerships
Schedule 4.9............................................IPT Financial Statements
Schedule 5.1(c)...............................Capitalization of IPT Subsidiaries
Schedule 5.1(d)..................................Investment Limited Partnerships
v
<PAGE>
INDEX OF DEFINED TERMS
Term Location
- ---- --------
Agreement........................................................First Paragraph
AGSH&F............................................................Section 7.1(i)
AMIT.............................................................First Paragraph
AMIT Class A.....................................................Section 10.1(a)
AMIT Class A Certificate..........................................Section 2.2(b)
AMIT Class B.....................................................Section 10.1(b)
AMIT Class B Certificate..........................................Section 2.2(c)
AMIT Declaration of Trust.........................................Section 3.1(a)
AMIT Disclosure Letter................................First Paragraph, Article 3
AMIT Dividend Amount.............................................Section 10.1(c)
AMIT Group.......................................................Section 10.1(d)
AMIT Public Reports..................................................Section 3.8
AMIT Shareholders................................................Section 10.1(e)
AMIT Shares.......................................................Section 3.4(a)
AMIT Subsidiaries.................................................Section 3.1(b)
Articles of Merger................................................Section 1.2(b)
Canceled AMIT Shares..............................................Section 2.2(a)
Closing...........................................................Section 2.7(a)
Closing Date......................................................Section 2.7(a)
Code................................................................Section 4.12
Competing Transaction...............................................Section 6.12
Effective Time....................................................Section 1.2(b)
Exchange Agent....................................................Section 2.3(a)
Exchange Ratio.......................................................Section 2.1
Expense Letter......................................................Section 6.12
Fairness Opinion....................................................Section 6.10
Funds From Operations............................................Section 10.1(f)
GAAP............................................................ Section 10.1(g)
GGFC&M............................................................Section 2.7(a)
IFG..............................................................First Paragraph
IFG Confidentiality Agreement.....................................Section 6.6(b)
IFG Disclosure Letter.................................First Paragraph, Article 5
Indemnification Proceeding.......................................Section 6.14(a)
Indemnified Liabilities..........................................Section 6.14(a)
Indemnified Parties..............................................Section 6.14(a)
Investment Limited Partnerships.................................. Section 4.1(d)
IPLP............................................................ Section 10.1(h)
IPLP Limited Partnership Agreement................................Section 5.1(a)
IPLP GP Units.....................................................Section 5.1(b)
IPLP LP Units.....................................................Section 5.1(b)
IPLP Units........................................................Section 5.1(b)
IPT..............................................................First Paragraph
IPT Balance Sheets................................................Section 4.9(a)
vi
<PAGE>
Term Location
- ---- --------
IPT Base Value...................................................Section 10.1(i)
IPT Common....................................................... Section 5.1(a)
IPT Disclosure Letter.................................First Paragraph, Article 4
IPT Dividend Amount..............................................Section 10.1(j)
IPT Group....................................................... Section 10.1(k)
IPT Financial Statements..........................................Section 4.9(a)
IPT Preferred.....................................................Section 5.1(a)
IPT Private Placement............................................Section 10.1(l)
IPT Share Value..................................................Section 10.1(m)
IPT Shareholders.................................................Section 10.1(n)
IPT Shares........................................................Section 5.1(a)
IPT Statements of Operations......................................Section 4.9(a)
IPT Stock Option Plan............................................Section 10.1(o)
IPT Subsidiaries..................................................Section 4.1(c)
Irrevocable Voting Proxy............................................Section 6.13
Joint Proxy/Prospectus...........................................Section 10.1(p)
Lien.............................................................Section 10.1(q)
M&S...............................................................Section 7.1(h)
MAE..............................................................First Paragraph
Material Adverse Effect..........................................Section 10.1(r)
MCAA.................................................................Section 1.1
Merger...............................................................Section 1.1
Ordinary Course of Business......................................Section 10.1(s)
Partnership Public Reports...........................................Section 4.8
Party, Parties...................................................First Paragraph
Permitted Debt...................................................Section 10.1(t)
Person...........................................................Section 10.1(u)
Registration Statement...........................................Section 10.1(v)
REIT................................................................Section 4.12
SEC............................................................. Section 10.1(w)
Securities Act.................................................. Section 10.1(x)
Securities Exchange Act......................................... Section 10.1(y)
Share Rights.....................................................Section 10.1(z)
Signing Date.....................................................First Paragraph
Special Meeting.................................................Section 10.1(aa)
Stock Option Agreement............................................Section 3.4(a)
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ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is entered into
and dated as of July 18, 1997 (the "SIGNING DATE") among Angeles Mortgage
Investment Trust, an unincorporated California business trust ("AMIT"),
Insignia Properties Trust, a Maryland real estate investment trust ("IPT"), and
solely for the purpose and limited to the provisions of Sections 6.6(b) and
6.16 and Articles 5 and 9, Insignia Financial Group, Inc., a Delaware
corporation ("IFG"), and solely for the purpose and limited to the provisions
of Section 6.13 and Article 9, MAE GP Corporation, a Delaware corporation
("MAE"). AMIT and IPT are sometimes collectively referred to as the "PARTIES,"
and individually referred to as a "PARTY."
RECITALS
A. Each of AMIT and IPT desires to effect a merger of AMIT with and into IPT, on
the terms and subject to the conditions set forth in this Agreement.
B. In order to induce AMIT to enter into this Agreement, IFG desires to enter
into this Agreement solely for the purpose and limited to the provisions of
Sections 6.6(b) and 6.16 and Articles 5 and 9, and MAE desires to enter into
this Agreement solely for the purpose and limited to the provisions of
Section 6.13 and Article 9.
C. The respective boards of trustees of AMIT and IPT have duly approved such
merger pursuant to the terms of this Agreement.
D. Certain capitalized terms used herein are defined in Article 10. An index of
defined terms has been provided for the convenience of the reader and in
order to eliminate the need for cross-references.
AGREEMENT
NOW, THEREFORE, for good, valid and binding consideration, the receipt
and sufficiency of which are hereby acknowledged, each of AMIT, IPT and, for
the limited purposes specifically stated herein, IFG and MAE, intending to be
legally bound, hereby agrees as follows:
ARTICLE 1.
THE MERGER
Section 1.1 The Merger. On the terms and subject to conditions set
forth in this Agreement, and in accordance with the applicable provisions of
the Maryland Corporations and Associations Article (the "MCAA"), AMIT shall
merge with and into IPT (the "MERGER") at the Effective Time.
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Section 1.2 Effects of the Merger.
----------------------------------
(a) Generally; Surviving Entity. The Merger shall have the
effects set forth in Section 8-501.1(n) of the MCAA. IPT shall survive and
continue as the successor entity and the separate existence of AMIT shall
cease. IPT may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
AMIT in order to carry out and effectuate the transactions contemplated by this
Agreement.
(b) Effective Time. The Merger shall be consummated (the
"EFFECTIVE TIME") upon the State Department of Assessments and Taxation of the
State of Maryland accepting for record the filing of the Articles of Merger in
substantially the form attached hereto as Exhibit 1.2(b) (the "ARTICLES OF
MERGER").
(c) Declaration of Trust and Bylaws. The Declaration of Trust
and Bylaws of IPT, both as in effect at the Effective Time, shall be the
Declaration of Trust and Bylaws of IPT after the Effective Time.
(d) Trustees and Officers. As of the Effective Time, the
persons listed on Schedule 1.2(d) shall be the trustees and officers of IPT
until the earlier of their resignation, removal or death or until their
respective successors are duly elected and qualified, as the case may be.
(e) Post-Effective Time Status. From and after the Effective
Time, no AMIT Shares which were outstanding immediately prior to the Effective
Time shall be deemed to be outstanding or have any rights other than those
rights set forth in this Agreement.
ARTICLE 2.
EXCHANGE RATIO; CONVERSION OF SHARES
Section 2.1 Exchange Ratio. As used herein, the term "EXCHANGE RATIO"
means a number equal to the quotient of (a) the lesser of (i) $16.25 or (ii)
the lowest gross per share dollar amount for which a share of AMIT Class A or
AMIT Class B is issued after the Signing Date, divided by (b) the IPT Share
Value.
Section 2.2 Conversion of Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of any holder of AMIT Class A
and AMIT Class B, as the case may be:
(a) Canceled AMIT Shares. Each share of AMIT Class A and AMIT
Class B which is held in treasury by AMIT or by any AMIT Subsidiary or owned of
record by IPT or any member of the IPT Group shall be canceled (collectively,
the "CANCELED AMIT SHARES").
(b) Conversion of AMIT Class A. Subject to Section 2.5, each
then issued and outstanding share of AMIT Class A (other than the Canceled AMIT
Shares) shall be converted solely into the right to receive, upon surrender of
the certificate formerly evidencing such share of AMIT Class A (an "AMIT CLASS
A CERTIFICATE") in accordance with Section 2.3(b), a number
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of newly-issued, fully-paid and non-assessable shares of IPT Common equal to
the Exchange Ratio.
(c) Conversion of AMIT Class B. Subject to Section 2.5, each
then issued and outstanding share of AMIT Class B (other than the Canceled AMIT
Shares) shall be converted solely into the right to receive, upon surrender of
the certificate formerly evidencing such share of AMIT Class B (an "AMIT CLASS
B CERTIFICATE") in accordance with Section 2.3(b), a number of newly-issued,
fully-paid and non-assessable shares of IPT Common equal to the quotient of (i)
the Exchange Ratio, divided by (ii) 49.
Section 2.3 Exchange of Shares; Responsibility for Payments.
------------------------------------------------------------
(a) Exchange Agent. Prior to the Effective Time, IPT shall
authorize First Union National Bank, or such other nationally-recognized bank
or trust company that is reasonably acceptable to IPT, to act as the exchange
agent hereunder (the "EXCHANGE AGENT").
IPT shall pay all charges and expenses of the Exchange Agent.
(b) Exchange of AMIT Certificates. As soon as practicable
after the Effective Time, the Exchange Agent shall mail and make available to
each record holder of an AMIT Class A Certificate or an AMIT Class B
Certificate a notice and letter of transmittal in customary form advising such
holder of the effectiveness of the Merger and the procedure for surrendering to
the Exchange Agent such AMIT Class A Certificate or such AMIT Class B
Certificate for exchange pursuant to this Agreement. Upon the surrender to the
Exchange Agent of such AMIT Class A Certificate or such AMIT Class B
Certificate, as the case may be, together with such letter of transmittal duly
executed and completed in accordance with the instructions thereon, the
Exchange Agent shall promptly cause to be delivered to such holder, and each
such holder of an AMIT Class A Certificate or an AMIT Class B Certificate, as
the case may be, will be entitled to receive (i) a certificate or certificates
evidencing the number of shares (rounded down to the nearest whole number) of
IPT Common into which the shares of AMIT Class A or AMIT Class B evidenced by
such AMIT Class A Certificate or AMIT Class B Certificate, respectively, were
converted in the Merger and (ii) a check payable to such holder representing
the payment of cash-in-lieu of fractional shares of IPT Common, if any,
determined in accordance with Section 2.4, to which such holder is entitled.
The AMIT Class A Certificates and AMIT Class B Certificates so surrendered
shall forthwith be canceled. The shares of IPT Common into which the shares of
AMIT Class A and AMIT Class B shall be converted in the Merger shall be deemed
to have been issued at the Effective Time.
Section 2.4 Dividends; Transfer Taxes. No dividends or distributions
that are declared or made on shares of IPT Common after the Effective Time or
with a record date after the Effective Time shall be paid to any Person
entitled to receive certificates evidencing shares of IPT Common pursuant to
this Agreement unless and until such Person surrenders his AMIT Class A
Certificates or AMIT Class B Certificates, as the case may be. Upon such
surrender, there shall be paid to the Person in whose name the certificates
evidencing such shares of IPT Common shall be issued, any dividends or
distributions which became payable with respect to such shares of IPT Common
between the Effective Time and the time of such surrender. In no event shall
the Person entitled to receive such dividends or distributions be entitled to
receive any interest thereon. In the event that any certificates evidencing
shares of IPT Common are
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to be issued in a name other than that in which the AMIT Class A Certificates
or AMIT Class B Certificates surrendered in exchange therefor are registered,
it shall be a condition of such exchange that the Person requesting such
exchange (i) pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of certificates evidencing such shares of IPT Common in
a name other than that of the registered holder of the AMIT Class A Certificate
or AMIT Class B Certificate surrendered or (ii) establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
Section 2.5 No Fractional Shares. No certificate or scrip evidencing a
fractional share of IPT Common shall be issued upon the surrender for exchange
of AMIT Class A Certificates or AMIT Class B Certificates evidencing shares of
AMIT Class A and AMIT Class B, respectively, pursuant to this Article 2, and no
dividend, distribution, stock split or other change in the capital structure of
IPT shall relate to any fractional security, and such fractional interest shall
not entitle the owner thereof to vote or to any rights of a security holder of
IPT. In lieu of any such fractional shares, each holder of AMIT Shares who
would otherwise have been entitled to a fraction of a share of IPT Common upon
surrender of AMIT Class A Certificates or AMIT Class B Certificates for
exchange pursuant to this Article 2 shall be paid by IPT an amount in cash
(without interest) upon such surrender equal to such fraction multiplied by the
IPT Share Value.
Section 2.6 Closing of Transfer Books. Upon the date of the Effective
Time, the stock transfer books of AMIT shall be closed and no transfer of AMIT
Shares shall be made thereafter. If, after the Effective Time, AMIT Class A
Certificates or AMIT Class B Certificates are presented to IPT, they shall be
canceled and exchanged for certificates evidencing shares of IPT Common and
cash as provided in this Article 2. Notwithstanding the foregoing, or any other
provision of this Article 2, neither the Exchange Agent nor any Party shall be
liable to a holder of AMIT Shares for any shares of IPT Common or dividends or
distributions thereon, or, in accordance with Section 2.5, amounts due in
respect of fractional interests, delivered to a public official pursuant to any
applicable escheat, unclaimed property or other similar law.
Section 2.7 The Closing.
------------------------
(a) Time and Place. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Greenberg Glusker Fields Claman & Machtinger LLP ("GGFC&M"), 1900 Avenue of
the Stars, Suite 2100, Los Angeles, California, commencing at 9:00 a.m. local
time as soon as practicable following the satisfaction or waiver of all the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than the conditions with respect to actions the
Parties will take at the Closing) or such other date as the Parties may
mutually determine (the "CLOSING DATE").
(b) Actions at the Closing. At the Closing, (i) IPT will
deliver to AMIT the various certificates, instruments and documents referred to
in Section 7.1, (ii) AMIT will deliver to IPT the various certificates,
instruments and documents referred to in Section 7.2 and (iii) IPT and AMIT
will file with the State Department of Assessments and Taxation of the State of
Maryland the Articles of Merger.
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF AMIT
AMIT represents and warrants to IPT and IFG that the statements
contained in this Article 3 are correct and complete, except as set forth in
the disclosure letter provided by AMIT accompanying this Agreement (the "AMIT
DISCLOSURE LETTER"). The AMIT Disclosure Letter will be arranged in paragraphs
corresponding to the numbered and lettered sections contained in this Article
3.
Section 3.1 Organization.
-------------------------
(a) AMIT. AMIT is an unincorporated business trust duly
formed and validly existing under the laws of the State of California, and has
taken no action which would cause its dissolution. Other than the AMIT
Subsidiaries, AMIT is not the record owner of any shares of capital stock of or
other equity interest in any Person. Attached hereto as Exhibit 3.1(a) is a
complete and correct copy of the AMIT Declaration of Trust (the "AMIT
DECLARATION OF TRUST") and the AMIT Trustee Regulations, as each is in effect
as of the Signing Date.
(b) AMIT Subsidiaries. Schedule 3.1(b) lists as of the
Signing Date the name and jurisdiction of organization of each Person in which
AMIT owns any shares of capital stock or other equity interest (collectively,
the "AMIT SUBSIDIARIES"). Each of the AMIT Subsidiaries is an entity validly
existing and in good standing under the laws of the jurisdiction of its
organization. None of the AMIT Subsidiaries is the record owner of any shares
of capital stock of or other equity interest in any Person.
Section 3.2 Qualification. Each member of the AMIT Group is duly
qualified and in good standing (where applicable) as a foreign entity under the
laws of each jurisdiction where such qualification is required, except where
the lack of such qualification would not have a Material Adverse Effect.
Section 3.3 Power and Authority. Each member of the AMIT Group has all
requisite power and authority to own and operate its properties and to conduct
the business in which it is currently engaged, except where the lack of such
power and authority would not have a Material Adverse Effect.
Section 3.4 Capitalization.
---------------------------
(a) AMIT. There is no limit upon the number of shares of AMIT
beneficial interest which may be issued. As of the Signing Date, 2,617,000
shares of AMIT Class A are issued and outstanding and 1,675,113 shares of AMIT
Class B are issued and outstanding (collectively, the "AMIT SHARES"). No other
shares of AMIT beneficial interests are issued and outstanding or held in
treasury. All of the AMIT Shares have been duly authorized and are validly
issued, fully paid and nonassessable. Other than (i) the Share Rights, and (ii)
AMIT's obligation (if AMIT does not exercise its option to acquire the shares
of AMIT Class B pursuant to that certain Stock Option Agreement dated April 14,
1995 between AMIT and MAE (the "STOCK OPTION AGREEMENT")) to issue shares of
AMIT Class A upon the conversion of the shares
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of AMIT Class B into shares of AMIT Class A on the basis of one (1) share of
AMIT Class A for forty-nine (49) shares of AMIT Class B in accordance with the
AMIT Declaration of Trust, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require AMIT to issue,
sell, or otherwise cause to become outstanding any of its shares of beneficial
interests. There are no outstanding or authorized share appreciation rights,
phantom shares, profit participation, or similar rights with respect to AMIT
beneficial interests.
(b) AMIT Subsidiaries. Schedule 3.4(b) lists as of the
Signing Date the following information for each of the AMIT Subsidiaries: (i)
the total number of authorized shares of capital stock or other equity
interests, (ii) the total number of issued and outstanding shares of capital
stock or other equity interests and (iii) the total number of issued and
outstanding shares of capital stock or other equity interests owned by AMIT. No
shares of capital stock or other equity interests are held in treasury at any
of the AMIT Subsidiaries. All of the issued and outstanding shares of capital
stock or other equity interests of each of the AMIT Subsidiaries have been duly
authorized and are validly issued, fully paid, nonassessable and free and clear
of all Liens. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require any of the AMIT Subsidiaries
to issue, sell, or otherwise cause to become outstanding any of their shares of
capital stock or other equity interests. There are no outstanding or authorized
share or unit appreciation rights, phantom shares or units, profit
participation, or similar rights with respect to the shares of capital stock or
other equity interests of any of the AMIT Subsidiaries.
Section 3.5 Authority Relative to Transactions. Subject to AMIT's
amending its Declaration of Trust to allow for, among other things, the Merger,
AMIT has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that
AMIT may not consummate the Merger unless and until it receives the approval of
its shareholders. This Agreement constitutes the valid and legally binding
obligation of AMIT, enforceable against it in accordance with its terms and
conditions.
Section 3.6 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which any member of the AMIT Group
is subject or any provision of the charter or bylaws of any member of the AMIT
Group or (ii) conflict with, result in a breach or the acceleration of,
constitute a default under, create in any Person the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which any member
of the AMIT Group is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Lien upon any of its
assets); except in each case where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or imposition of a Lien would not have a Material Adverse Effect.
Section 3.7 Governmental Consents. Other than in connection with the
provisions of the Securities Act, the Securities Exchange Act and the state
securities laws and the filing of the Articles of Merger, no member of the AMIT
Group needs to give any notice to, make any filing
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with or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except in each case where the failure to give
notice, to file or to obtain any authorization, consent or approval would not
have a Material Adverse Effect.
Section 3.8 Filings with the SEC. AMIT has made all filings with the
SEC required under the Securities Act and the Securities Exchange Act within
the last three years (collectively, the "AMIT PUBLIC REPORTS"). Each of the
AMIT Public Reports complied with the Securities Act or the Securities Exchange
Act, as applicable, in all material respects.
Section 3.9 Financial Statements. The financial statements included in
or incorporated by reference into the AMIT Public Reports (including the
related notes and schedules) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and present
fairly, in all material respects, the financial condition of AMIT as of the
dates indicated and the results of its operations and cash flows for the
periods then ended; provided, however, that the financial statements included
in or incorporated by reference into the interim AMIT Public Reports are
subject to normal year-end adjustments.
Section 3.10 Subsequent Events. Since the date of the balance sheet
included in or incorporated by reference into the most recent AMIT Public
Report, there has been no event or occurrence with respect to AMIT or the AMIT
Subsidiaries that has had, or could be expected to have, a Material Adverse
Effect.
Section 3.11 Undisclosed Liabilities. AMIT and the AMIT Subsidiaries
have no liabilities, contingent or otherwise, required to be disclosed by GAAP
except for (i) liabilities disclosed on the balance sheet or in the notes
relating thereto included in or incorporated by reference into the most recent
AMIT Public Report and (ii) current liabilities incurred in the Ordinary Course
of Business since the most recent AMIT Public Report.
Section 3.12 Broker's Fees. No member of the AMIT Group has any
liability or obligation to pay any broker's, finder's or agency fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
Section 3.13 Disclosure. The portion of the Joint Proxy/Prospectus for
which AMIT is responsible will comply with the Securities Act and the
Securities Exchange Act in all material respects. The Joint Proxy/Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading;
provided, however, that AMIT makes no representation or warranty with respect
to any information that IPT will supply specifically for use in the Joint
Proxy/Prospectus.
Section 3.14 Compliance with State Takeover Statutes. No "fair price,"
"moratorium," "business combination," "control share acquisition," or any other
anti-takeover statute enacted under the laws of the State of California applies
or purports to apply to AMIT, any of its equity securities, the Merger, this
Agreement or any of the transactions contemplated hereunder. AMIT has taken all
actions and done all things necessary to exempt itself and the Merger and all
related transactions with IPT from the operation of all "fair price,"
"moratorium," "business
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combination," "control share acquisition," or any other anti-takeover statutes
enacted under any federal law or regulation.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF IPT
IPT represents and warrants to AMIT that the statements contained in
this Article 4 are correct and complete, except as set forth in the disclosure
letter provided by IPT accompanying this Agreement (the "IPT DISCLOSURE
LETTER"). The IPT Disclosure Letter will be arranged in paragraphs
corresponding to the numbered and lettered sections contained in this Article
4.
Section 4.1 Organization.
-------------------------
(a) IPT. IPT is a real estate investment trust (as defined in
Section 8-101(b) of the MCAA) duly formed, validly existing and in good
standing under the laws of the State of Maryland. Other than the IPT
Subsidiaries and IPLP, as of the Signing Date IPT is not the record owner of
any shares of capital stock of or other equity interest in any Person. Attached
hereto as Exhibit 4.1(a) is a complete and correct copy of IPT's Declaration of
Trust and Bylaws, as each is in effect as of the Signing Date.
(b) IPLP. IPLP is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware. Other
than the Investment Limited Partnerships, as of the Signing Date IPLP is not
the record owner of any shares of capital stock of or other equity interest in
any Person.
(c) IPT Subsidiaries. Schedule 4.1(c) lists as of the Signing
Date the name and jurisdiction of organization of each Person in which IPT is
the record owner of any shares of capital stock or other equity interests
(collectively, the "IPT SUBSIDIARIES"). Each of the IPT Subsidiaries is an
entity validly existing and in good standing under the laws of the jurisdiction
of its organization. Other than as listed on Schedule 4.4, as of the Signing
Date none of the IPT Subsidiaries is the record owner of any shares of capital
stock of or other equity interest in any Person.
(d) Investment Limited Partnerships. Schedule 4.1(d) lists as
of the Signing Date the name and jurisdiction of organization of each limited
partnership in which IPLP is the record owner of an equity interest (the
"INVESTMENT LIMITED PARTNERSHIPS"). Each of the Investment Limited Partnerships
is a limited partnership validly existing and in good standing under the laws
of the jurisdiction of its organization.
Section 4.2 Qualification. Each member of the IPT Group is duly
qualified and in good standing as a foreign entity under the laws of each
jurisdiction where such qualification is required, except where the lack of
such qualification would not have a Material Adverse Effect.
Section 4.3 Power and Authority. Each member of the IPT Group has all
requisite power and authority to own and operate its properties and to conduct
the business in which it
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is currently engaged, except where the lack of such power and authority would
not have a Material Adverse Effect.
Section 4.4 Capitalization of the Investment Limited Partnerships.
Schedule 4.4 lists as of July 11, 1997 for each of the Investment Limited
Partnerships the total number of issued and outstanding units of beneficial
interests. No units are held in treasury at any of the Investment Limited
Partnerships. All of the issued and outstanding units of each of the Investment
Limited Partnerships have been duly authorized and are validly issued. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require any of the Investment Limited Partnerships to
issue, sell, or otherwise cause to become outstanding any of their units. There
are no outstanding or authorized unit appreciation rights, phantom units,
profit participation, or similar rights with respect to any of the Investment
Limited Partnerships.
Section 4.5 Authority Relative to Transactions. IPT has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder; provided, however, that IPT cannot consummate the Merger
unless and until it receives the approval of the IPT Shareholders as required
by the MCAA. This Agreement constitutes the valid and legally binding
obligation of IPT, enforceable against IPT in accordance with its terms and
conditions.
Section 4.6 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which any member of the IPT Group
is subject or any provision of the charter or bylaws of any member of the IPT
Group or (ii) conflict with, result in a breach or the acceleration of,
constitute a default under, create in any Person the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which any member
of the IPT Group is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Lien upon any of its
assets); except in each case where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or the imposition of a Lien would not have a Material Adverse Effect.
Section 4.7 Governmental Consents. Other than in connection with the
provisions of the Securities Act, the Securities Exchange Act and the state
securities laws and the filing of the Articles of Merger, no member of the IPT
Group needs to give any notice to, make any filing with or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except in each case where the failure to give notice, to file or to
obtain any authorization, consent or approval would not have a Material Adverse
Effect.
Section 4.8 Filings with the SEC. Each of the Investment Limited
Partnerships has made all filings with the SEC required under the Securities
Act and the Securities Exchange Act within the last three years (collectively,
the "PARTNERSHIP PUBLIC REPORTS"). Each of the Partnership Public Reports
complied with the Securities Act or the Securities Exchange Act, as applicable,
in all material respects.
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Section 4.9 Financial Statements.
---------------------------------
(a) IPT. Attached hereto as Schedule 4.9 is the unaudited
consolidated balance sheet of IPT, the IPT Subsidiaries and IPLP as of December
31, 1996 and as of March 31, 1997, and the accompanying notes, if any
(collectively, the "IPT BALANCE SHEETS"), together with the related statements
of operations and cash flows for the year ended December 31, 1996 and the
three-month period ended March 31, 1997 (collectively, the "IPT STATEMENTS OF
OPERATIONS," and together with the IPT Balance Sheets, the "IPT FINANCIAL
STATEMENTS"). The IPT Balance Sheets have been prepared in accordance with GAAP
(except for the inclusion of certain notes and related schedules required by
GAAP, and not necessarily in accordance with SEC presentation requirements
regarding consolidation) applied on a consistent basis throughout the periods
covered thereby and present fairly, in all material respects, the consolidated
financial condition of IPT, the IPT Subsidiaries and IPLP as of the dates
indicated; provided, however, that the IPT Balance Sheet dated as of March 31,
1997 is subject to normal year-end adjustments. The IPT Statements of
Operations present fairly (but not necessarily in accordance with GAAP or SEC
presentation requirements), in all material respects, the results of operations
and cash flows of IPT, the IPT Subsidiaries and IPLP for the periods then
ended; provided, however, that the IPT Statements of Operations for the period
ended March 31, 1997 are subject to normal year-end adjustments. The audited
financial statements of IPT included in the Joint Proxy/Prospectus will not
differ substantively from the IPT Financial Statements in any manner which
would have a Material Adverse Effect.
(b) Investment Limited Partnerships. The financial statements
included in or incorporated by reference into the Partnership Public Reports
(including the related notes and schedules) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby
and present fairly, in all material respects, the financial condition of the
reporting party as of the dates indicated and the results of its operations and
cash flows for the periods then ended; provided, however, that the financial
statements included in or incorporated by reference into the interim
Partnership Public Reports are subject to normal year-end adjustments.
Section 4.10 Subsequent Events.
-------------------------------
(a) IPT, IPT Subsidiaries and IPLP. Since the date of the IPT
Financial Statements, there has been no event or occurrence with respect to
IPT, the IPT Subsidiaries or IPLP that has had, or could be expected to have, a
Material Adverse Effect; provided, however, that with respect to any action,
claim, arbitration, inquiry, proceeding, hearing or investigation initiated by
a Person that owns a beneficial interest in a Person the securities for which
any member of the IPT Group has made a tender offer, the phrase "could be
expected to have a Material Adverse Effect" in the immediately preceding clause
shall be replaced by the phrase "will have a Material Adverse Effect".
(b) Investment Limited Partnerships. Since the date of the
balance sheet included in or incorporated by reference into the most recent
Public Report, there has been no event or occurrence with respect to any of the
Investment Limited Partnerships that has had, or could be expected to have, a
Material Adverse Effect.
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Section 4.11 Undisclosed Liabilities.
-------------------------------------
(a) IPT, IPT Subsidiaries and IPLP. IPT, the IPT Subsidiaries
and IPLP have no liabilities, contingent or otherwise, required to be disclosed
by GAAP except for (i) liabilities disclosed on the balance sheet or in the
notes relating thereto included in the IPT Financial Statements and (ii)
current liabilities incurred in the Ordinary Course of Business since the date
of the IPT Financial Statements.
(b) Investment Limited Partnerships. The Investment Limited
Partnerships have no liabilities, contingent or otherwise, required to be
disclosed by GAAP except for (i) liabilities disclosed on the balance sheet or
in the notes relating thereto included in or incorporated by reference into the
most recent Public Report and (ii) current liabilities incurred in the Ordinary
Course of Business since the date of the most recent Public Report.
Section 4.12 REIT Status. For all years in which it has made an
election to be taxed as a real estate investment trust ("REIT"), IPT has
continuously been organized and operated in conformity with the requirements
for qualification as a REIT under the Internal Revenue Code of 1986, as amended
(the "CODE"). IPT has no intention of changing its operations or engaging in
activities which adversely affect its ability to qualify or make economically
undesirable its continued qualification as a REIT.
Section 4.13 Broker's Fees. None of the members of the IPT Group has
any liability or obligation to pay any broker's, finder's or agency fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
Section 4.14 Disclosure. The portions of the Joint Proxy/Prospectus
for which IPT is responsible will comply with the Securities Act and the
Securities Exchange Act in all material respects. The Joint Proxy/Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading;
provided, however, that IPT makes no representation or warranty with respect to
any information that AMIT will supply specifically for use in the Joint
Proxy/Prospectus.
Section 4.15 Compliance with State Takeover Statutes. IPT has taken
all actions and done all things necessary to exempt itself and the Merger and
all related transactions with AMIT from the operation of all "fair price,"
"moratorium," "business combination," "control share acquisition," or any other
anti-takeover statutes enacted under the MCAA (including the Maryland "business
combination" statute at Section 3-601 et. seq. of the MCAA and the Maryland
"control share" statute at Section 3-701 et. seq. of the MCAA) or under any
federal law or regulation.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF IFG
IFG represents and warrants to AMIT that the statements contained in
this Article 5 are correct and complete, except as set forth in the disclosure
letter provided by IFG accompanying
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this Agreement (the "IFG DISCLOSURE LETTER"). The IFG Disclosure Letter will be
arranged in paragraphs corresponding to the numbered and lettered sections
contained in this Article 5.
Section 5.1 Capitalization.
---------------------------
(a) IPT. The total authorized number of shares of beneficial
interest in IPT is 500,000,000 shares (the "IPT SHARES"), of which 400,000,000
shares, par value $.01 per share, are designated common shares (the "IPT
COMMON") and 100,000,000 shares, par value $.01 per share, are designated
preferred shares (the "IPT PREFERRED"). On the Signing Date, 16,003,014 shares
of IPT Common are issued and outstanding and no shares of IPT Preferred are
issued and outstanding. No IPT Shares are held in treasury. All of the issued
and outstanding shares of IPT Common have been duly authorized and are validly
issued, fully paid and nonassessable. Other than IPT's issuance of shares of
IPT Common (i) upon the conversion of IPLP Units into shares of IPT Common on
the basis of one (1) share of IPT Common for one (1) IPLP Unit in accordance
with the Second Amended and Restated Agreement of Limited Partnership of IPLP
(the "IPLP LIMITED PARTNERSHIP AGREEMENT") and (ii) pursuant to an IPT Private
Placement, there are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require IPT to issue, sell, or otherwise
cause to become outstanding any of the IPT Shares. There are no outstanding or
authorized share appreciation rights, phantom shares, profit participation, or
similar rights with respect to the IPT Shares. From April 3, 1997 to the
Signing Date, no IPT Shares have been issued for consideration of less than ten
dollars ($10.00) per share.
(b) IPLP. As of the Signing Date, 16,003,014 general
partnership units of IPLP ("IPLP GP UNITS") and 8,399,499 limited partnership
units of IPLP ("IPLP LP UNITS") are issued and outstanding (the IPLP GP Units
and IPLP LP Units are sometimes collectively referred to as the "IPLP UNITS").
As of the Signing Date, IPT is the record owner of all the IPLP GP Units and
all such IPLP GP Units are owned free and clear of all Liens. As of the Signing
Date, IFG is the record owner of all the IPLP LP Units, and therefore, in
accordance with the IPLP Limited Partnership Agreement, a copy of which is
attached hereto as Exhibit 5.1(b), all such IPLP LP Units are designated as
Class A Units. No IPLP Units are held in treasury. All of the issued and
outstanding IPLP Units have been duly authorized and are validly issued. No
note, bond or other debt security payable to IPLP was exchanged for any IPLP
Units. None of the IPLP Units is subject to any additional capital
contribution, other than capital contributions that may be required to be made
by IPT, in its capacity as the general partner of IPLP, pursuant to applicable
partnership law. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require IPLP to issue, sell, or
otherwise cause to become outstanding any of the IPLP Units. There are no
outstanding or authorized unit appreciation rights, phantom units, profit
participation, or similar rights with respect to the IPLP Units. From April 3,
1997 to the Signing Date, no IPLP Units have been issued for consideration of
less than ten dollars ($10.00) per unit.
(c) IPT Subsidiaries. Schedule 5.1(c) lists as of the Signing
Date the following information for each of the IPT Subsidiaries: (i) the total
number of authorized shares
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of capital stock or other equity interests, (ii) the total number of issued and
outstanding shares of capital stock or other equity interests and (iii) the
total number of issued and outstanding shares of capital stock or other equity
interests owned by IPT. No shares of capital stock or other equity interests
are held in treasury at any of the IPT Subsidiaries. All of the issued and
outstanding shares of capital stock or other equity interests of each of the
IPT Subsidiaries have been duly authorized and are validly issued, fully paid,
nonassessable and free and clear of all Liens. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
any of the IPT Subsidiaries to issue, sell, or otherwise cause to become
outstanding any of their shares of capital stock. There are no outstanding or
authorized share or unit appreciation rights, phantom shares or units, profit
participation, or similar rights with respect to the shares of capital stock or
other equity interests of any of the IPT Subsidiaries.
(d) Investment Limited Partnerships. Schedule 5.1(d) lists as
of July 11, 1997 the following information for each of the Investment Limited
Partnerships: (i) the name of the sole general partner or the managing general
partner and such general partner's percentage ownership interest, and (ii) the
total number of issued and outstanding units of beneficial interests owned by
IPLP. All the issued and outstanding units of beneficial interests owned by
IPLP are free and clear of all Liens.
ARTICLE 6.
COVENANTS
Section 6.1 General. Each of IPT and AMIT will use, and will cause
each member of the IPT Group and AMIT Group, respectively, to use, commercially
reasonable efforts to take all action and to do all things necessary or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement, including obtaining any third party consents.
Section 6.2 Regulatory Matters and Legal Approvals. Each of IPT and
AMIT will, and will cause each member of the IPT Group and AMIT Group,
respectively, to, give any notices to, make any filings with, and use
commercially reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies in connection with the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing:
(a) Securities Laws. IPT and AMIT will prepare and, as soon
as practicable after receipt of the Fairness Opinion but in no event later than
September 1, 1997, file with the SEC a Joint Proxy/Prospectus; provided,
however, that the obligation to file the Joint Proxy/Prospectus shall be
subject to AMIT's receipt of the Fairness Opinion. Each of IPT and AMIT will
use its commercially reasonable efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary or advisable. AMIT
will provide IPT, and IPT will provide AMIT, with whatever information and
assistance in connection with the foregoing filings that the requesting Party
reasonably may request. IPT and AMIT will take all actions that may be
necessary or advisable under state securities laws in connection with the
offering and issuance of the shares of IPT Common to be issued in connection
with the Merger.
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(b) State Corporate Law--AMIT. AMIT will call a Special
Meeting of its shareholders and mail the Joint Proxy/Prospectus as soon as
practicable in order that its shareholders may consider and vote upon an
amendment to the AMIT Declaration of Trust to allow for, among other things,
the Merger, the adoption of this Agreement and the approval of the Merger. The
Joint Proxy/Prospectus will contain the affirmative recommendation of the AMIT
board of trustees in favor of the adoption of each of the foregoing matters;
provided, however, that no trustee of AMIT shall be required to violate any
fiduciary duty or other requirement imposed by law in connection therewith.
(c) State Corporate Law--IPT. IPT will call a Special Meeting
of its shareholders as soon as practicable in order that its shareholders may
consider and vote upon, in accordance with the MCAA, the adoption of this
Agreement, the approval of the Merger, the approval of the issuance of shares
of IPT Common pursuant to Section 2.3(b) and any amendments to the IPT
Declaration of Trust made in accordance with Section 6.3(a). The materials
provided to the IPT Shareholders in connection with the Special Meeting will
contain an affirmative recommendation of the IPT board of trustees in favor of
the adoption of each of the foregoing matters; provided, however, that no
trustee of IPT shall be required to violate any fiduciary duty or other
requirement imposed by law in connection therewith.
(d) State Corporate Law--All Parties. Each of IPT and AMIT
shall take all reasonable actions and do all things necessary so that no "fair
price," "moratorium," "business combination," "control share acquisition," or
any other anti-takeover statute enacted under any state or federal law or
regulation is or becomes applicable to any Party or to this Agreement or the
Merger and, if any such law or regulation becomes applicable, take all
reasonable actions and do all things necessary to consummate the Merger and to
otherwise minimize the effects of such law or regulation.
(e) Listing. IPT will prepare and submit to the American
Stock Exchange, the New York Stock Exchange or the NASDAQ (as will be
determined by an agreement of the Parties) and will take such further actions
as may be necessary to obtain a listing application covering the shares of IPT
Common outstanding as of the Effective Time and the shares of IPT Common
issuable in connection with the Merger.
Section 6.3 Operation of Business. Each of IPT and AMIT will not, and
will cause each member of the IPT Group and AMIT Group, respectively, not to,
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business without the prior written consent of either IPT
or AMIT, as the case may be. Without limiting the generality of the foregoing,
each of IPT and AMIT will not, and will cause each member of the IPT Group and
AMIT Group, respectively, not to:
(a) authorize or effect any change in its charter or bylaws,
other than (i) in the case of AMIT, the amendment to the AMIT Declaration of
Trust as contemplated by Section 6.2(b)(i), or (ii) in the case of IPT, any
amendment to the IPT Declaration of Trust or Bylaws made in connection with the
Merger or an IPT Private Placement, provided that IPT may not amend the IPT
Declaration of Trust or Bylaws in any manner that would be adverse to the
financial interests of the IPT Shareholders;
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(b) grant any options, warrants or other rights to purchase
or obtain any of its shares or beneficial interests or issue, sell, or
otherwise dispose of any of its shares or beneficial interests, other than (i)
in the case of IPT, (A) issuances or sales of shares of IPT Common pursuant to
an IPT Private Placement, (B) grants of options or other rights to purchase or
obtain shares of IPT Common pursuant to an IPT Stock Option Plan, provided,
however, that any option or other right to purchase or obtain shares of IPT
Common granted prior to the Effective Time must have a strike or exercise price
of not less than the IPT Base Value, (C) issuances or sales of shares of IPT
Common for consideration of not less than the IPT Base Value pursuant to a
transaction entered into in the Ordinary Course of Business, and (D) issuances
or sales of shares of IPT Common pursuant to the conversion of IPLP Units into
shares of IPT Common pursuant to the provisions of the IPLP Limited Partnership
Agreement; or (ii) in the case of IPLP, issuances or sales of IPLP Units for
consideration of not less than the IPT Base Value pursuant to a transaction
entered into in the Ordinary Course of Business;
(c) redeem, repurchase, or otherwise acquire any of its
shares or beneficial interests;
(d) issue any note, bond, or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or capitalized
lease obligation other than (i) in the case of IPT or IPLP, a Permitted Debt;
and (ii) in the case of AMIT, in the Ordinary Course of Business;
(e) impose or permit to exist any Lien upon any of its
assets;
(f) make any capital investment in, make any loan to, or
acquire assets or the securities or assets of any other Person other than in
the Ordinary Course of Business; provided, however, that in no event may AMIT
acquire any interest in any asset which would otherwise fail (i) to be a "real
estate asset" as defined in Section 856(c)(6)(B) of the Code or (ii) to
generate income as described in Section 856(c)(3) of the Code; provided,
further, that the immediately preceding proviso shall in no way limit the
ability of AMIT to renegotiate, restructure or exercise rights and default
remedies with respect to its portfolio of assets.
(g) make any change in employment terms for any of its
trustees, officers, and employees other than in the Ordinary Course of
Business; and
(h) commit to any of the foregoing.
Section 6.4 Dividend Payments.
------------------------------
(a) IPT. IPT shall take all actions and do all things
necessary to declare and pay a dividend in an amount equal to $0.15 per share
to all record holders of IPT Common as of the first quarterly dividend record
date after the Effective Time.
(b) AMIT. AMIT shall take all actions and do all things
necessary to declare and pay a dividend in an amount equal to AMIT's earnings
and profits at the Effective Time so that, after giving effect to the Merger,
IPT shall continue to qualify as a REIT. AMIT shall provide to IPT, not later
than twenty (20) business days prior to AMIT's declaring the dividend
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required by this section, all documents necessary to support (to the
satisfaction of IPT and its counsel) the calculation of the amount to be
distributed pursuant to this section. This section does not limit, and shall
not be construed as limiting, AMIT's ability to declare and pay dividends in
the Ordinary Course of Business.
Section 6.5 Obligation to Notify and Update.
---------------------------------------------
(a) AMIT's Obligations. Within ten (10) days after the last
day of each month prior to the Closing and within two (2) days prior to the
Closing Date, AMIT shall provide to IPT a written statement which sets forth
all the material terms of each loan transaction entered into or amended since
the later of January 1, 1997 or the date of the previous written statement
provided pursuant to this section; provided, however, that AMIT shall not be
required to provide a written statement with respect to (i) a restructuring or
refinancing of a loan outstanding before January 1, 1997 so long as such loan
was and remains secured by a direct interest in real property or (ii) any loan
made to, including any restructuring or refinancing of such loan, any member of
the IPT Group or to IFG or any controlled affiliate of IFG. This section does
not provide, and shall not be construed as providing, IPT with the right to
object to, or to otherwise restrict the ability of any member of the AMIT Group
to consummate, any loan transaction entered into in the Ordinary Course of
Business.
(b) IPT Group's Obligations. Within ten (10) days after the
last day of each month prior to the Closing and within two (2) days prior to
the Closing Date, IPT shall provide to AMIT a written statement which sets
forth all the changes to Schedules 4.1(c), 4.1(d), 4.4, 5.1(c) and 5.1(d) since
the later of the Signing Date or the date of the previous written statement
provided pursuant to this section. In addition to the written statement
required by the immediately preceding sentence, IPT shall promptly provide to
AMIT the material terms of any transaction which would affect Schedules 4.1(c),
4.1(d), 4.4, 5.1(c) and 5.1(d) and in which the aggregate purchase price
exceeds five hundred thousand dollars ($500,000). This section does not
provide, and shall not be construed as providing, AMIT with the right to object
to, or to otherwise restrict the ability of any member of the IPT Group to
consummate, any transaction entered into in the Ordinary Course of Business.
Section 6.6 Confidentiality.
-----------------------------
(a) AMIT's Obligations. AMIT affirms all of its obligations
under that certain Letter Agreement dated October 28, 1996 from IFG to AMIT.
(b) IPT's Obligations. IFG affirms, and IPT hereby agrees to
be bound by, all the terms set forth in that certain Confidentiality Agreement
effective December 3, 1996 between IFG and AMIT (the "IFG CONFIDENTIALITY
AGREEMENT") which are applicable to IFG; provided, however, each of IPT, IFG
and AMIT acknowledges that the rights and obligations set forth in paragraph
"e)" of such Confidentiality Agreement have been duly terminated, and that such
rights and obligations are not revived or reinstated by this reference.
Section 6.7 Full Access. Subject to Section 6.6, AMIT will afford IPT
and its authorized representatives, and IPT will afford AMIT and its authorized
representatives, full and
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free access to such party's business, its personnel, properties, contracts,
books and records, and all other documents and data.
Section 6.8 Notice of Developments. Each of IPT and AMIT will give
prompt written notice to the other Parties of any event or occurrence which
causes a breach of any of the representations, warranties or covenants in this
Agreement. No disclosure by any Party pursuant to this section shall be deemed
to amend or supplement the disclosure letters or to prevent or cure any
misrepresentation or breach of covenant.
Section 6.9 Exclusive Dealing. During the period from the Signing Date
until and including the Closing Date, AMIT will not, and will not cause or
permit its affiliates to, directly or indirectly, through any representative or
otherwise, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept, or consider any proposal of any other Person
relating to the acquisition of any shares of AMIT, or the assets or business of
AMIT, in whole or in part, whether directly or indirectly, through purchase,
merger, consolidation, or otherwise (other than transactions in the Ordinary
Course of Business); provided, however, that AMIT and its trustees and officers
will remain free to entertain offers from, negotiate with, or discuss, accept
or consider any proposal of any Person to the extent their fiduciary duties may
require. AMIT shall immediately notify IPT regarding any contact between AMIT
or its representatives and any other Person regarding any of the foregoing.
Section 6.10 Fairness Opinion. AMIT shall take all reasonable actions
and do all things reasonably necessary to cause Christopher Weil & Company,
Inc. to promptly prepare and deliver to each of AMIT and IPT an opinion as to
the fairness to the AMIT Shareholders of the Exchange Ratio from a financial
point of view (the "FAIRNESS OPINION"). The Fairness Opinion shall be delivered
prior to the date the Joint Proxy/Prospectus is filed with the SEC and shall be
satisfactory in form and substance to each of AMIT and IPT.
Section 6.11 Employment Agreements.
-----------------------------------
(a) Ronald J. Consiglio. At the Closing, IPT and Ronald J.
Consiglio shall enter into the Employment Agreement in the form attached hereto
as Exhibit 6.11(a).
(b) Anna Merguerian. At the Closing, IPT and Anna Merguerian
shall enter into the Employment Agreement in the form attached hereto as
Exhibit 6.11(b).
Section 6.12 Expense Reimbursement. If, within fifteen (15) months of
the Signing Date or within nine (9) months of the termination date of this
Agreement, whichever is later, AMIT signs a letter of intent or other agreement
relating to a transaction (whether directly or indirectly, through purchase,
merger, consolidation or otherwise) as a result of which greater than fifty
percent (50%) of the persons comprising the board of trustees or directors of
the post- transaction entity (at any time during the nine month period
immediately following the consummation of such transaction) are persons other
than those persons which constitute the AMIT board of trustees on the Signing
Date (such acquisition, a "COMPETING TRANSACTION") and such Competing
Transaction is ultimately consummated, then, immediately upon the closing of
such Competing Transaction, AMIT shall pay to IPT or IFG, as the case may be,
an amount equal to the actual out-of-pocket expenses of each of IPT and IFG
incurred on behalf of AMIT
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pursuant to that certain Letter Agreement Regarding Expenses dated April 3,
1997 (the "EXPENSE LETTER"); provided, however, that AMIT shall have no payment
obligations under this section if this Agreement is terminated pursuant to
Sections 8.1(a), 8.1(b), 8.1(c) or 8.1(e). This section will not serve as the
exclusive remedy to IPT or IFG under this Agreement in the event of a breach by
AMIT; rather, this section is intended to offset the expenses incurred by IPT
and IFG on behalf of AMIT in connection with this Agreement and transactions
contemplated hereunder. IPT and IFG will be entitled to pursue all rights and
remedies provided by law or in equity.
Section 6.13 Agreements Regarding the Shares of AMIT Class B . MAE and
AMIT hereby agree that, upon the consummation of the Merger, each of the Stock
Option Agreement and that certain Irrevocable Voting Proxy dated April 14, 1995
executed by MAE in favor of AMIT (the "IRREVOCABLE VOTING PROXY") shall
automatically and without any further action on the part of either MAE or AMIT
terminate in its entirety. To the extent any provision of this Agreement is
inconsistent with any provision of the Stock Option Agreement or the
Irrevocable Voting Proxy, such inconsistent provision of the Stock Option
Agreement or the Irrevocable Voting Proxy, as the case may be, shall be deemed
to be waived by AMIT and MAE. Notwithstanding any provision to the contrary,
the Stock Option Agreement and the Irrevocable Voting Proxy shall remain in
full force and effect at all times prior to the Effective Time.
Section 6.14 Indemnification.
-----------------------------
(a) Indemnification. IPT shall indemnify, defend and hold
harmless each person who is now or who becomes prior to the Effective Time, an
officer, trustee or director of AMIT or any AMIT Subsidiary (the "INDEMNIFIED
PARTIES") against all losses, claims, damages, costs, expenses (including
reasonable attorneys' fees and expenses), liabilities, judgments or amounts
that are paid or agreed to be paid (with the approval of IPT, which approval
shall not be unreasonably withheld) in settlement of, or otherwise in
connection with, any threatened or actual claim, action, suit, proceeding or
investigation (an "INDEMNIFICATION PROCEEDING"), whether asserted or claimed at
or after the Signing Date, based on, arising out of or pertaining to this
Agreement or the Merger and which would not otherwise be an indemnifiable claim
under the AMIT Declaration of Trust ("INDEMNIFIED LIABILITIES"), in each case
to the fullest extent a corporation is permitted under the MCAA to indemnify
its own directors or officers as the case may be, and IPT will pay expenses in
advance of the final disposition of any such Indemnification Proceeding to each
Indemnified Party to the full extent permitted by law subject to the
limitations set forth in this section.
(b) Notice Required. Any Indemnified Party proposing to
assert the right to be indemnified under this section shall, promptly after
receipt of notice of commencement of any Indemnification Proceeding against
such Indemnified Party in respect of which a claim is to be made under this
section, notify IPT of the commencement of such Indemnification Proceeding
enclosing a copy of all papers served and other relevant documents.
(c) Defense of Indemnification Proceeding. If any such
Indemnification Proceeding is brought against any of the Indemnified Parties
and such Indemnified Parties notify IPT of its commencement, IPT will be
entitled to participate in and, to the extent that it elects
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by delivering written notice to such Indemnified Parties promptly after
receiving notice of the commencement of the Indemnification Proceeding from the
Indemnified Parties, to assume the defense of the Indemnification Proceeding;
and after notice from IPT to the Indemnified Party of its election to assume
the defense, IPT will not be liable to the Indemnified Parties for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the Indemnified Parties in connection
with the defense.
(d) Settlement. If IPT assumes the defense, then IPT shall
have the right to settle such Indemnification Proceeding without the consent of
the Indemnified Parties; provided, however, that IPT shall be required to
obtain such consent (which consent shall not be unreasonably withheld) if the
settlement includes any admission or wrongdoing on the part of the Indemnified
Parties or any decree or restriction on the Indemnified Parties; provided,
further, that IPT, in the defense of any such Indemnification Proceeding, shall
not, except with the consent of the Indemnified Parties (which consent shall
not be unreasonably withheld), consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Parties of a release
from all liability with respect to such Indemnification Proceeding. IPT will
not be liable for any settlement of any Indemnification Proceeding or claim
effected without its written consent (which consent shall not be unreasonably
withheld).
(e) Right to Employ Counsel. The Indemnified Parties will
have the right to employ their own counsel in any such Indemnification
Proceeding, but the fees, expenses and other charges of such counsel will be at
the expense of such Indemnified Parties unless (i) the employment of counsel by
the Indemnified Parties has been authorized in writing by IPT, (ii) the
Indemnified Parties have reasonably concluded (based on advice of counsel) that
there may be legal defenses available to them that are different from or in
addition to those available to IPT, (iii) an actual or potential conflict
exists (based on advice of counsel to the Indemnified Parties) between the
Indemnified Parties and IPT (in which case IPT will not have the right to
direct the defense of such Indemnification Proceeding on behalf of the
Indemnified Parties) or (iv) IPT has not in fact employed counsel reasonably
acceptable to the Indemnified Parties to assume the defense of such
Indemnification Proceeding within a reasonable time after receiving notice of
the commencement of the Indemnification Proceeding; in each of which cases the
reasonable fees, disbursements and other charges of counsel selected by the
Indemnified Parties will be at the expense of IPT. It is understood that IPT
shall not, in connection with any Indemnification Proceeding or related
Indemnification Proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one separate firm
admitted to practice in such jurisdiction at any one time from all such
Indemnified Parties unless (a) the employment of more than one counsel has been
authorized in writing by IPT, (b) any of the Indemnified Parties have
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to other Indemnified Parties or (c) an actual or potential conflict
exists (based on advice of counsel to the Indemnified Parties) between any of
the Indemnified Parties and the other Indemnified Parties; in each case of
which IPT shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels selected by the Indemnified Party or Indemnified
Parties.
(f) Survival of this Section. In the event that this
Agreement is terminated in accordance with Section 8.1 without the Merger
having been consummated, the obligations of
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IPT under this section shall automatically expire on the second anniversary of
the date of such termination; provided, however, that such expiration shall not
affect IPT's obligations with respect to claims properly asserted hereunder
prior to such expiration.
(g) Successors and Assigns Bound. The provisions of this
section are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his or her heirs and his or her personal
representatives and shall be binding on all successors and assigns of IPT.
Section 6.15 Post-Merger IPT Trustees. As soon as practicable after
the consummation of the Merger, IPT shall take all actions and do all things
necessary (including increasing the number of trustees and seeking and
accepting resignations of incumbent trustees) to cause (i) those persons listed
on Schedule 1.2(d) to be elected or appointed as trustees (in accordance with
the classifications listed on Schedule 1.2(d)) to the IPT board of trustees.
Section 6.16 Standstill Obligation. During the period from the Signing
Date until the earlier of the termination of this Agreement or the Closing
Date, IFG will not, and will not cause any of its Affiliates (as such term is
defined in the IFG Confidentiality Agreement) to, directly or indirectly,
through representatives or otherwise, (a) acquire any additional AMIT Shares or
(b) initiate any communication with any AMIT Shareholder, provided, however,
that neither IFG nor its Affiliates will be restricted in any manner whatsoever
from initiating communication with any of its or their shareholders on matters
unrelated to the Merger, regardless of whether or not its or their shareholders
are also AMIT Shareholders.
ARTICLE 7.
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1 Conditions to Obligation of AMIT. The obligation of AMIT
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction or waiver of each of the conditions set
forth in this Section 7.1.
(a) Shareholder Approval. This Agreement and the Merger shall
have received the requisite approval from the shareholders of each of IPT and
AMIT.
(b) Representations and Warranties. The representations and
warranties made by IPT and IFG in Articles 4 and 5, respectively, shall be true
and correct in all material respects (without giving effect to any
"materiality" qualification or limitation) as though made on and as of the
Closing Date, except to the extent the representation or warranty is expressly
limited by its terms to another date.
(c) Performance of Covenants. IPT shall have performed and
complied in all material respects with all of the covenants required by this
Agreement to be performed by IPT prior to or at the Closing.
(d) Registration Statement. The Registration Statement shall
have become effective under the Securities Act; and it is also a condition that
AMIT shall have become obligated to file the Joint Proxy/Prospectus pursuant to
Section 6.2(a).
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(e) Listing. The American Stock Exchange, the New York Stock
Exchange or the NASDAQ, as the case may be, shall have approved for listing
(subject to official notice of issuance) the shares of IPT Common outstanding
as of the Effective Time and the shares of IPT Common issuable in connection
with the Merger.
(f) Articles of Merger. The State Department of Assessments
and Taxation of the State of Maryland shall have accepted for record the filing
of the Articles of Merger.
(g) No Order. There shall not be any judgment, order, decree,
stipulation, injunction or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement.
(h) Maryland Opinion Regarding AMIT. AMIT shall have received
an opinion of Miles & Stockbridge ("M&S"), special Maryland counsel, addressed
to AMIT dated as of the Closing Date, in form reasonably satisfactory to AMIT,
as to the following matters: (A) IPT has duly executed and delivered this
Agreement; (B) this Agreement is a legal, valid and binding obligation of IPT
enforceable against it in accordance with the terms of this Agreement (assuming
corporate power, authority and authorization); (C) this Agreement is a legal,
valid and binding obligation of each of IFG and MAE enforceable against each of
them in accordance with the terms of this Agreement (assuming corporate power,
authority, authorization, execution and delivery); (D) neither the execution
and delivery by IPT of this Agreement nor the consummation by it of the
transactions contemplated hereby will violate any Maryland law; (E) except for
filing the Articles of Merger, no authorization, consent, action, approval,
license, exemption of or filing or registration with any Maryland governmental
entity or subdivision is necessary for IPT to effect the transactions to be
performed by it in this Agreement; and (F) the shares of IPT Common to be
issued pursuant to the Merger are duly authorized and, when issued, are validly
issued, fully paid and non-assessable; in each case, with customary
representations, exceptions, assumptions and qualifications.
(i) Opinion Regarding IPT, IFG and MAE. AMIT shall have
received an opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. ("AGSH&F"),
counsel to IPT, IFG and MAE, addressed to AMIT dated as of the Closing Date, in
form reasonably satisfactory to AMIT, as to the following matters: (A) each of
IPT, IFG and MAE is validly existing and, as of the date listed on a
certificate of good standing obtained from the Secretary of State of the State
of Delaware or Maryland, as the case may be, in good standing under the laws of
such state; (B) each of IPT, IFG and MAE has the requisite power and authority
to enter into this Agreement and perform its obligations hereunder; (C) the
execution and delivery of this Agreement and the performance by each of IPT,
IFG and MAE of its obligations hereunder have been duly authorized by all
requisite corporate action; (D) each of IFG and MAE has duly executed and
delivered this Agreement (assuming Delaware law applies to matters of execution
and delivery); (E) neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in a breach
under any provision of the declaration of trust or certificate of
incorporation, as the case may be, or bylaws of any of IPT, IFG or MAE or
violate any Delaware law; (F) except for filing the Articles of Merger and the
effectiveness of the Registration Statement and a California permit
application, no authorization, consent, action, approval, license, exemption of
or filing or registration with, in the case of each
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of IFG or MAE, any Delaware governmental entity or subdivision, and in the case
of IPT, IFG or MAE, with any United States governmental entity or subdivision,
is necessary to effect the transactions to be performed by it in this
Agreement; and (G) the portion of Joint Proxy/Prospectus (excluding the
financial statements contained therein) for which IPT is responsible complies
as to form with the Securities Act and the Securities Exchange Act in all
material respects; in each case, with customary representations, exceptions,
assumptions and qualifications.
(j) REIT Opinion. IPT shall have received the opinion
specified in Section 7.2(j).
(k) Reorganization Opinion. AMIT shall have received an
opinion of AGSH&F addressed to AMIT dated as of the Closing Date, in form
reasonably satisfactory to AMIT, that, based upon certificates and letters
acceptable to AGSH&F dated as of the Closing Date, the Merger should qualify as
a "reorganization" within the meaning of Section 368 of the Code, with
customary representations, exceptions, assumptions and qualifications.
(l) Deliveries by IPT. IPT shall have delivered to AMIT each
of the following documents and instruments:
(i) A Certificate of Good Standing of IPT dated
within ten (10) business days of the Closing Date issued by the
Secretary of State of the State of Maryland;
(ii) A certificate of the Secretary or Assistant
Secretary of IPT dated the Closing Date certifying (A) IPT's
Declaration of Trust, bylaws and good standing, (B) the adoption and
continued effect of the resolutions of IPT's board of trustees
authorizing this Agreement, the Merger and the transactions
contemplated by this Agreement and (C) the incumbency and signatures
of the officers of IPT authorized to execute this Agreement and all
other documents, instruments and agreements to be executed by IPT as
contemplated by this Agreement;
(iii) A certificate of an executive officer of IPT
dated the Closing Date certifying the satisfaction of the conditions
set forth in Sections 7.1(b) and 7.1(c);
(iv) A certificate of an executive officer of IFG
dated the Closing Date certifying the satisfaction of the condition
set forth in Sections 7.1(b) with respect to IFG; and
(v) Such other documents, instruments and
certificates as AMIT may reasonably request for the transactions
contemplated by this Agreement.
Section 7.2 Conditions to Obligation of IPT and MAE. The obligation of
IPT and MAE to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of each of the conditions
set forth in this Section 7.2.
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(a) Shareholder Approval. This Agreement and the Merger shall
have received the requisite approval from the shareholders of each of IPT and
AMIT.
(b) Representations and Warranties. The representations and
warranties made by AMIT in Article 3 shall be true and correct in all material
respects (without giving effect to any "materiality" qualification or
limitation) as though made on and as of the Closing Date, except to the extent
the representation or warranty is expressly limited by its terms to another
date.
(c) Performance of Covenants. AMIT shall have performed and
complied in all material respects with all of the covenants required by this
Agreement to be performed by AMIT prior to or at the Closing.
(d) Registration Statement. The Registration Statement shall
have become effective under the Securities Act.
(e) Listing. The American Stock Exchange, the New York Stock
Exchange or the NASDAQ shall have approved for listing (subject to official
notice of issuance) the shares of IPT Common outstanding as of the Effective
Time and the shares of IPT Common issuable in connection with the Merger.
(f) Articles of Merger. The State Department of Assessments
and Taxation of the State of Maryland shall have accepted for record the filing
of the Articles of Merger.
(g) No Order. There shall not be any judgment, order, decree,
stipulation, injunction or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement.
(h) Maryland Opinion Regarding IPT. IPT shall have received
an opinion of M&S, special Maryland counsel, addressed to IPT dated as of the
Closing Date, in form reasonably satisfactory to IPT, as to the following
matters: (A) AMIT has duly executed and delivered this Agreement (assuming
Maryland law applies to matters of execution and delivery); (B) this Agreement
is a legal, valid and binding obligation of AMIT enforceable against it in
accordance with the terms of this Agreement (assuming corporate power,
authority, authorization, execution and delivery); (C) this Agreement is a
legal, valid and binding obligation of each of IFG and MAE enforceable against
each of them in accordance with the terms of this Agreement (assuming corporate
power, authority, authorization, execution and delivery); and (D) except for
filing the Articles of Merger and the effectiveness of the Registration
Statement, no authorization, consent, action, approval, license, exemption of
or filing or registration with any Maryland governmental entity or subdivision
is necessary for IPT to effect the transactions to be performed by it in this
Agreement; in each case, with customary representations, exceptions,
assumptions and qualifications.
(i) Opinion Regarding AMIT. IPT shall have received an
opinion of GGFC&M, counsel to AMIT, addressed to IPT dated as of the Closing
Date, in form reasonably satisfactory to IPT, as to the following matters: (A)
AMIT is validly existing under the laws
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of California; (B) AMIT has the requisite power and authority to own and
operate its assets and to carry on its business as conducted and to enter into
this Agreement and perform its obligations hereunder; (C) the execution and
delivery of this Agreement and the performance by AMIT of its obligations
hereunder have been duly authorized by all requisite corporate action; (D) AMIT
has duly executed and delivered this Agreement (assuming California law applied
to matters of execution and delivery); (E) neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
resulted in a breach under any provision of the AMIT Declaration of Trust or
AMIT Trustee Regulations or violated any California law; (F) except for filing
the Articles of Merger and the effectiveness of a California permit
application, no authorization, consent, action, approval, license, exemption of
or filing or registration with any California governmental entity or
subdivision or with any United States governmental entity or subdivision is
necessary to effect the transactions to be performed by AMIT in this Agreement;
and (G) the portion of the Joint Proxy/Prospectus (excluding the financial
statements contained therein) for which AMIT is responsible complies as to form
with the Securities Act and the Securities Exchange Act in all material
respects; in each case, with customary representations, exceptions, assumptions
and qualifications.
(j) REIT Opinion. IPT shall have received an opinion of
AGSH&F addressed to IPT dated as of the Closing Date, in form reasonably
satisfactory to IPT, based upon certificates and letters acceptable to AGSH&F
dated as of the Closing Date, as to the following matters: (A) commencing with
the taxable year ending December 31, 1996, IPT was organized and has operated
in conformity with the requirements for qualification as a REIT within the
meaning of the Code and that, after giving effect to the Merger, IPT's proposed
method of operation will enable IPT to continue to meet the requirements for
qualification and taxation as a REIT within the meaning of the Code; (B) IPLP
has been during and since 1996, and continues to be, treated for federal income
tax purposes as a partnership and not as a corporation or an association
taxable as a corporation; in each case, with customary representations,
exceptions, assumptions and qualifications.
(k) Reorganization Opinion. AMIT shall have received the
opinion specified in Section 7.1(k).
(l) Deliveries. AMIT shall have delivered to IPT each of the
following documents and instruments:
(i) A certificate of the Secretary or Assistant
Secretary of AMIT dated the Closing Date certifying (A) the AMIT
Declaration of Trust, as amended, and the AMIT Trustee Regulations,
(B) that no action has been taken that would cause the dissolution of
AMIT, (C) the adoption and continued effect of the resolutions of the
AMIT board of trustees authorizing this Agreement, the Merger and the
transactions contemplated by this Agreement and (D) the incumbency and
signatures of officers of AMIT authorized to execute this Agreement
and all other documents, instruments and agreements to be executed by
AMIT as contemplated by this Agreement;
(ii) A certificate of an executive officer of AMIT
dated the Closing Date certifying the satisfaction of the conditions
set forth in Sections 7.2(b) and 7.2(c); and
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(iii) Such other documents, instruments and
certificates as IPT may reasonably request for the transactions
contemplated by this Agreement.
ARTICLE 8.
TERMINATION
Section 8.1 Termination of Agreement. This Agreement may be terminated
at any time prior to the Effective Time (whether before or after shareholder or
beneficiary approval):
(a) by mutual written consent of the respective boards of
trustees of AMIT and IPT;
(b) by either AMIT or IPT, if the matters to be voted upon by
such Party shall not have received the requisite approval from such Party's
shareholders at the Special Meeting (or any adjournment thereof) called for
such purpose;
(c) by either AMIT or IPT, if the Merger shall not have been
consummated on or before December 31, 1997, provided that, so long as an active
Registration Statement is on file with the SEC, the foregoing date shall be
extended automatically until the earlier of June 30, 1998 or ninety (90) days
after the Registration Statement is declared effective, provided further that
the Party seeking to terminate this Agreement is not otherwise in material
breach of its obligations under this Agreement;
(d) by IPT, if AMIT shall have failed to comply in any
material respect with any of their respective covenants or agreements contained
in this Agreement; provided, however, that if such failure is curable, notice
of such failure shall have been given by IPT to AMIT and AMIT shall not have
cured such failure within 30 days of notice thereof;
(e) by AMIT, if IPT shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement; provided, however, that if such failure is curable, notice of such
failure shall have been given by AMIT to IPT and IPT shall not have cured such
failure within 30 days of notice thereof; or
(f) by AMIT, if IPT's Funds From Operations calculated on a
weighted average per share basis for the period commencing on January 1, 1997
and ending on the ex- dividend date of the last dividend declared by AMIT prior
to the date of the Effective Time is less than the difference between the AMIT
Dividend Amount minus the quotient of (i) the product of (A) the IPT Base
Value, multiplied by (B) the amount of the cash dividend or distribution per
share declared and paid pursuant to Section 6.4(b), divided by (ii) $16.25.
Section 8.2 Effect of Termination. If any Party terminates this
Agreement pursuant to Section 8.1, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party, except for any liability of any Party then in breach; provided, however,
that the provisions set forth in Sections 6.6, 6.12 and 6.14 shall survive any
such termination.
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ARTICLE 9.
MISCELLANEOUS
Section 9.1 Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. This Section 9.1 shall not limit any covenant or agreement
of the Parties, IFG or MAE which by its terms contemplates performance after
the Effective Time.
Section 9.2 Severability. If any provision of this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement and the
application of such provision to any other part or to any other circumstance
shall not be affected or impaired thereby.
Section 9.3 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Parties, IFG and MAE; provided, however, that this
Agreement may not be assigned by any Party, IFG or MAE without the prior
written consent of the other Parties, IFG and MAE.
Section 9.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which when taken together shall constitute the same
instrument.
Section 9.5 Headings. The table of contents, captions and headings
used in this Agreement are inserted for convenience only, and shall not be
deemed to constitute part of this Agreement or to affect the construction or
interpretation hereof.
Section 9.6 Waiver. Any of the terms or conditions of this Agreement
may be waived in writing at any time by the Person which is entitled to the
benefits thereof. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of such provision at any time in the future or a
waiver of any other provision hereof.
Section 9.7 No Third-Party Beneficiaries. Nothing in this Agreement,
express or implied, shall create or confer upon any Person, other than the
Parties, IFG or MAE or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities, except as otherwise provided
herein.
Section 9.8 Other Expenses. Except as otherwise provided herein and in
the Expense Letter, each of the Parties, IFG and MAE shall pay all costs and
expenses incurred by it or on its behalf in connection with this Agreement and
the transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants and legal counsel.
Section 9.9 Notices. Except as otherwise provided herein, any notice,
request, instruction, consent or other document required or permitted to be
given pursuant to this Agreement shall be in writing and delivered personally,
by telecopy, by a nationally-recognized overnight courier service or by
registered or certified mail, postage prepaid, as follows:
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If to AMIT:
Angeles Mortgage Investment Trust
340 North Westlake Blvd., Suite 230
Westlake Village, CA 91362
Attn: Mr. Ronald J. Consiglio
Phone number: 805-449-1333
Fax number: 805-449-1336
copy (which shall not constitute notice to AMIT) to:
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Attn: Jean Morris, Esq.
Fax number: 310-553-0687
If to IPT, IFG or MAE:
Insignia Properties Trust
One Insignia Financial Plaza
Greenville, SC 29602
Attn: Mr. Carroll Vinson
Phone number: 864-239-1000
Fax number: 864-239-1096; and
Insignia Properties Trust
One Insignia Financial Plaza
Greenville, SC 29602
Attn: General Counsel
Phone number: 864-239-1000
Fax number: 864-239-1096
copy (which shall not constitute notice IPT, IFG or MAE) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201
Attn: Roger Arnold, Esq.
Fax number: 214-969-4343
or at such other address as shall be specified in writing by that Party, IFG or
MAE. Any notice, request, instruction, consent or other document delivered as
provided herein shall be deemed effectively given upon actual receipt by the
Party, IFG or MAE (but not necessarily the individual person) to be notified.
Section 9.10 Governing Law. This Agreement shall be construed in
accordance with and governed by the Laws of the State of Maryland applicable to
agreements made and to be performed wholly within such jurisdiction.
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Section 9.11 Interpretation.
----------------------------
(a) References. Except as specifically stated otherwise,
references to articles, sections, exhibits, schedules and disclosure letters
refer to articles, sections, exhibits, schedules and disclosure letters in this
Agreement. References to "includes" and "including" mean "includes without
limitation" and "including without limitation." Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, feminine and neuter gender.
(b) Cross-Reference of Disclosures. Any item disclosed in one
section, schedule or disclosure letter shall be deemed to be disclosed in any
other section, schedule or disclosure letter where such disclosure is relevant,
even if there is no express cross-reference, provided that the relevance of the
disclosure is reasonably apparent. Disclosure of items that may or may not be
required to be disclosed by this Agreement does not mean that such items are
material or create a standard of materiality, and shall not be deemed an
admission that any such disclosed matter is or may give rise to a breach of any
contract or violation of any law.
(c) Drafting. No provision of this Agreement shall be
interpreted in favor of, or against, either of the Parties, IFG or MAE by
reason of the extent to which either such Person or its counsel participated in
the drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
Section 9.12 Public Announcements. Except and to the extent required
by law or the rules of any stock exchange, each of IFG, MAE, IPT and AMIT will
not, and will cause each member of the IPT Group and AMIT Group, respectively,
not to, without the prior written consent of the other Parties, and each will
direct their representatives not to, make, directly or indirectly, any public
comment, statement, or communication with respect to, or otherwise to disclose
or to permit the disclosure of this transaction or any of the terms,
conditions, or other aspects of this Agreement. If any of the Parties, IFG or
MAE is required by law or the rules of any stock exchange to make any such
disclosure, that Person must first provide to the other Parties, IFG and MAE
for approval (which will not be unreasonable withheld) the content of the
proposed disclosure, the reason that such disclosure is required by law, and
the time and place that the disclosure will be made.
Section 9.13 Entire Agreement. The Confidentiality Agreements
described in Section 6.6, this Agreement, the Expense Letter and the schedules,
disclosure letters and exhibits hereto, constitute the sole understanding of
the Parties, IFG and MAE with respect to the matters contemplated hereby and
thereby and supersedes and renders null and void all prior agreements and
understandings, written and oral, between the Parties, IFG and MAE with respect
to such matters. None of the Parties, IFG or MAE shall be liable or bound to
any other Person in any manner by any promises, conditions, representations,
warranties or covenants except as specifically set forth herein or therein.
Section 9.14 Amendment. No amendment, modification or alteration of
the terms or provisions of this Agreement, including any schedules, disclosure
letters and exhibits, shall be
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binding unless the same shall be in writing and duly executed by the Person
against whom such amendment, modification or alteration is sought to be
enforced.
Section 9.15 Disclosure Letters. If the disclosure letters becomes
misleading in any respect, the Parties shall notify the other, in writing, of
any facts making the disclosure letters misleading; provided, however, that no
such notice shall be deemed to amend or modify the representations and
warranties herein.
ARTICLE 10.
DEFINITIONS
Section 10.1 Definitions. For purposes of this Agreement, the terms
set forth below shall have the following meanings:
(a) "AMIT Class A" means any beneficial interest in AMIT
designated as a Class A Share, par value $1.00 per share, by the AMIT
Declaration of Trust and the Share Right associated with such Class A Share.
(b) "AMIT Class B" means any beneficial interest in AMIT
designated as a Class B Share, par value $.01 per share, by the AMIT
Declaration of Trust.
(c) "AMIT Dividend Amount" means a dollar amount equal to the
quotient of (i) the product of (A) the IPT Base Value, multiplied by (B) the
aggregate amount of cash dividends or distributions per share which have been
declared by AMIT with respect to the AMIT Class A after January 1, 1997 and
either (1) have been paid on or prior to the date of the Effective Time or (2)
are payable to the record holders of the AMIT Class A on or prior to the date
of the Effective Time, divided by (ii) $16.25.
(d) "AMIT Group" means AMIT and the AMIT Subsidiaries.
(e) "AMIT Shareholder" means any Person which is a record
holder of AMIT Class A.
(f) "Funds From Operations" means, as to any Person for any
specified period, the sum of (i) such Person's net income before extraordinary
and non-recurring items and cumulative effect of accounting changes (computed
in accordance with GAAP) excluding gains or losses from debt restructuring and
sales of property during such period, plus (ii) depreciation and amortization
of such Person's real estate assets during such period, plus or minus, as the
case may be, (iii) the share of Funds from Operations attributable to such
Person in respect of its interest in each unconsolidated partnership and joint
venture during the same period.
(g) "GAAP" means United States generally accepted accounting
principles in effect at the time the relevant financial statements were
prepared.
(h) "IPLP" means Insignia Properties L.P., a Delaware limited
partnership.
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(i) "IPT Base Value" means the lesser of (i) $10.00 per share
or (ii) the lowest gross per share dollar amount for which an IPLP Unit or a
share of IPT Common or IPT Preferred is issued after the Signing Date.
(j) "IPT Dividend Amount" means a dollar amount equal to the
aggregate amount of cash dividends or distributions per share which have been
declared by IPT with respect to the IPT Common after January 31, 1997 and
either (i) have been paid on or prior to the date of the Effective Time or (ii)
are payable to the record holders of the IPT Common on or prior to the date of
the Effective Time.
(k) "IPT Group" means IPT, IPLP, the IPT Subsidiaries and the
Investment Limited Partnerships.
(l) "IPT Private Placement" means the issuance by IPT of
shares of IPT Common pursuant to an offering exempt from the registration
provisions of the Securities Act.
(m) "IPT Share Value" means a dollar amount equal to the sum
of (i) the IPT Base Value, plus (ii) the AMIT Dividend Amount, minus (iii) the
IPT Dividend Amount.
(n) "IPT Shareholder" means any Person which is a record
holder of IPT Common.
(o) "IPT Stock Option Plan" means a stock option plan adopted
by the IPT board of trustees (and, if applicable, the IPT Shareholders) after
the Signing Date, if at all, pursuant to which grants of options or other
rights to purchase or obtain shares of IPT Common may be made, provided,
however that not more than one million two hundred thousand (1,200,000) shares
of IPT Common may be reserved for issuance under such plan.
(p) "Joint Proxy/Prospectus" means the disclosure document
combining the Registration Statement and the proxy materials required under the
Securities Exchange Act in connection with AMIT's Special Meeting.
(q) "Lien" means any mortgage, pledge, lien, encumbrance,
charge or other security interest, other than (i) mechanic's, materialman's and
similar liens, (ii) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (iii)
purchase money liens and liens securing rental payments under capital lease
arrangements, (iv) liens incurred in the Ordinary Course of Business, (v) liens
incurred to secure Permitted Debt and (vi) liens described in the IPT Financial
Statements.
(r) "Material Adverse Effect" means a material adverse effect
on (i) the financial condition or results of operations of AMIT on the one
hand, or the members of IPT Group on the other hand, each taken as a whole, or
(ii) the ability of any Party to consummate the transactions contemplated by
this Agreement.
(s) "Ordinary Course of Business" means the events which
constitute the usual conduct of business consistent with past custom and
practice, including with respect to quantity
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and frequency. The Parties acknowledge and agree to the following: (i) with
respect to any member of the AMIT Group, Ordinary Course of Business
specifically includes (A) making, negotiating, refinancing or other effecting
loan transactions of the type and nature AMIT is currently authorized to
effect, (B) borrowing under AMIT's existing line of credit with Imperial Bank,
(C) acquiring a fee interest in real property (whether at a foreclosure or by a
deed-in-lieu of foreclosure) which is secured by a mortgage held by AMIT, (D)
the sale of a fee interest in property acquired by AMIT pursuant to a
foreclosure or a deed-in-lieu of foreclosure, and (E) declaring and paying
dividends on the issued and outstanding shares of AMIT Class A in accordance
and in amounts consistent with past practices and trends, provided that AMIT
shall have paid prior to the date of the Effective Time all dividends declared
by it; provided, however, in each case that any action contemplated or taken
must be an action which complies with the requirements of and does not violate
the restrictions set forth in Sections 856-860 of the Code; and (ii) with
respect to any member of the IPT Group, Ordinary Course of Business
specifically includes effecting transactions (whether directly or indirectly,
through purchase, merger, consolidation or otherwise) as a result of which IPT
or IPLP owns, directly or indirectly, a fee or leasehold interest in real
property or the securities or assets of any other Person, provided, however, no
member of the IPT Group may enter into any transaction the effect of which
would disqualify IPT as a REIT.
(t) "Permitted Debt" means debt incurred by IPT or IPLP for
the purpose of acquiring, directly or indirectly, any fee or leasehold interest
in real property or the securities or assets of any other Person in a
transaction entered into in the Ordinary Course of Business.
(u) "Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other legal entity.
(v) "Registration Statement" means a registration statement
under the Securities Act relating to (i) the offering and issuance of the
shares of IPT Common to be issued in connection with the Merger and (ii) the
shares IPT Common issued and outstanding as of the Effective Time.
(w) "SEC" means the Securities and Exchange Commission.
(x) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(y) "Securities Exchange Act" means the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(z) "Share Right" means a right issued pursuant to that
certain Rights Agreement dated as of November 13, 1996 between AMIT, as issuer,
and Chase Mellon Shareholder Services, L.L.C., as rights agent.
(aa) "Special Meeting" means a special or annual meeting of
the shareholders held for the purpose of considering and voting upon the
adoption of this Agreement and the approval of the Merger.
31
<PAGE>
IN WITNESS WHEREOF, each of the Parties, IFG and MAE has caused this
Agreement to executed by a duly authorized officer as of the Signing Date.
Angeles Mortgage Investment Trust ("AMIT")
By:________________________
Ronald J. Consiglio
President
Insignia Properties Trust ("IPT")
By:_________________________
James A. Aston
President
Insignia Financial Group, Inc. ("IFG"), solely for
the purpose and limited to the provisions of
Sections 6.6(b) and 6.16 and Articles 5 and 9
By:_________________________
Andrew L. Farkas
Chairman of the Board of Directors
MAE GP Corporation
("MAE"), solely for the
purpose and limited to the
provisions of Section 6.13
and Article 9
By:_________________________
Carroll D. Vinson
President
32
<PAGE>
ANNEX B
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Greenberg Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars, #2100
Los Angeles, CA 90067
Attention: Jean Morris, Esq.
- ------------------------------------------------------------------------------
SECOND AMENDMENT TO
DECLARATION OF TRUST OF
ANGELES MORTGAGE INVESTMENT TRUST
This Second Amendment to the Declaration of Trust of Angeles Mortgage
Investment Trust is dated as of ______________, 1998, amending that certain
Declaration of Trust dated September 1, 1988, and recorded under Document No.
88-1703136 in the Official Records in the Office of the Los Angeles County
Recorder, as amended by that certain First Amendment to Declaration of Trust
dated as of April 27, 1990, and recorded under Document No. 90-1161822 in the
Official Records in the Office of the Los Angeles County Recorder, State of
California.
Section 6.2 of the Declaration of Trust is hereby amended by
redesignating subsection (e) thereof as subsection (f) and adding a new
subsection (e) as follows:
(e) Merger or Consolidation. The Trust may be incorporated,
merged with another entity (whether or not the Trust is the surviving
entity), consolidated with one or more entities into a new entity,
reorganized as a new entity, and all or substantially all of the
assets of the Trust may be sold, leased, exchanged or otherwise
disposed of upon majority vote of the Shareholders with the Class A
Shareholders and the Class B Shareholders voting together as a single
class with each Share held of record entitled to one vote in person or
by proxy.
The Declaration of Trust is further amended by retitling ARTICLE VIII
"Duration, Termination, Amendment, Merger and Qualification of Trust" and by
adding a new Section 8.5 as follows:
8.5 Merger Procedure.
(a) The Trust may merge with one or more real estate
investment trusts (as that term is defined in Section 23000 of the
California Corporations Code) or one or more limited partnerships, or
consolidate with one or more entities into a new entity, in any such
case whether or not the other party or parties to such merger are
organized under the laws of the State of California and whether or not
the Trust is the surviving entity.
<PAGE>
(b) A merger or consolidation pursuant to this Section 8.5
shall be approved by a majority of the Trustees and the affirmative
vote of the holders of a majority of the Class A Shares and the Class
B Shares voting together as a single class.
(c) If the Trust is the surviving entity in any merger
pursuant to this Section 8.5, a copy of the merger agreement, in
recordable form, and executed by a majority of the Trustees and by the
other party or parties, shall be conclusive evidence of such merger
when lodged among the records of the Trust. The merger agreement shall
be filed and recorded as provided in Section 9.8 hereof.
Except as specifically amended by this Second Amendment, all of the
terms and conditions of the Declaration of Trust remain in full force and
effect. This Second Amendment may be executed in several counterparts, each of
which shall be deemed an original, and all of such counterparts together shall
constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment to the Declaration of Trust as of the date first hereinabove set
forth.
-----------------------------------
Ronald J. Consiglio
-----------------------------------
J. D'Arcy Chisholm
-----------------------------------
Bryan L. Herrmann
-----------------------------------
Curtis J. Crivelli
<PAGE>
STATE OF CALIFORNIA )
) SS:
COUNTY OF VENTURA )
On ________________________, 1998, before me, ______________________,
a Notary Public, personally appeared Ronald J. Consiglio, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature
------------------------------
(Seal)
STATE OF CALIFORNIA )
) SS:
COUNTY OF VENTURA )
On ________________________, 1998, before me, ______________________,
a Notary Public, personally appeared J. D'Arcy Chisholm, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature
------------------------------
(Seal)
STATE OF CALIFORNIA )
) SS:
COUNTY OF VENTURA )
<PAGE>
On ________________________, 1998, before me, ______________________,
a Notary Public, personally appeared Bryan L. Herrmann, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature
------------------------------
(Seal)
STATE OF CALIFORNIA )
) SS:
COUNTY OF VENTURA )
On ________________________, 1998, before me, ______________________,
a Notary Public, personally appeared Curtis J. Crivelli, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature
------------------------------
(Seal)
<PAGE>
ANNEX C
[Christopher Weil & Company, Inc. letterhead]
November 13, 1997
Angeles Mortgage Investment Trust
340 N. Westlake Boulevard, Suite 230
Westlake Village, California 91362
Gentlemen:
You have asked for our opinion with respect to the fairness of the exchange
ratios, from a financial point of view, to the shareholders of Angeles Mortgage
Investment Trust (AMIT) as described in the Agreement and Plan of Merger among
Angeles Mortgage Investment Trust, Insignia Properties Trust (IPT), Insignia
Financial Group, Inc., and MAE GP Corporation dated as of July 18, 1997 (the
"Agreement" or "Proposed Transaction").
For purposes of this opinion we have, among other things, reviewed such
materials and considered such financial and other factors as we deemed
necessary, including:
1. AMIT's Annual Report, Form 10-K and related information for the year
ending December 31, 1996 and its Form 10-Q and related unaudited financial
information for the quarters ending March 31, 1997 and June 30, 1997;
2. IPT's consolidated financial statements and related information for the
period ending December 31, 1996 as well as the quarters ending March 31,
1997 and June 30, 1997;
3. Form 10-K's for the year ending December 31, 1996 and Form 10-Qs for the
quarters ending March 31, 1997 and June 30, 1997, and related financial
information thereto of the real estate limited partnerships in which IPT
has an interest (through the General Partner interest and a significant
Limited Partner interest);
4. Property-level operating and financial data relating to the business,
earnings, cash flow, book values and book/tax differences relating thereto
as well as estimated market value of the assets and prospects for both
AMIT and IPT as presently constituted;
5. The historical market prices and trading activity for the Class A common
shares of AMIT and for companies which we deemed to be reasonably
comparable to both AMIT and the merged entity in light of their current
businesses and prospects;
6. Publicly available financial and operating data for the companies which we
deemed to be reasonably comparable to the merged entity;
<PAGE>
7. The discounted cash flow valuation analysis of the properties of the real
estate limited partnerships in which IPT has an interest prepared by an
independent consultant on behalf of AMIT in conjunction with IPT internal
valuations and/or partnership initiated independent appraisals;
8. Property inspection reports prepared by independent parties on behalf of
AMIT for a sample of the properties of the real estate limited
partnerships in which IPT has an interest;
9. The Agreement and the draft preliminary combined proxy statement and
prospectus related to the Proposed Transaction to be filed with the
Securities and Exchange Commission; and
10. Such other financial studies, analyses and investigations and such other
matters we deemed necessary.
We have met with senior management of AMIT and IPT to discuss: (i) the
prospects for their businesses, (ii) their estimates of such businesses' future
financial performance, (iii) the business plan for the operation of the merged
entity, and (iv) such other matters as we deemed relevant. We have also visited
selected properties. In preparing our opinion, we have relied on the accuracy
and completeness of publicly available information and of all the information
supplied or otherwise made available to us by AMIT and IPT, and we have not
independently verified such information or undertaken an independent appraisal
of the assets.
As you know, we have been retained by AMIT to render this opinion and other
financial advisory services in connection with the Proposed Transaction and
will receive a fee for such service.
This letter and the opinion expressed herein may not be reproduced, summarized,
excerpted from or otherwise publicly referred to or disclosed in any manner,
without our prior written consent. AMIT may, however, set forth in full this
letter in the combined proxy statement and prospectus related to the Proposed
Transaction.
This opinion is not intended to be, and does not constitute a recommendation to
any shareholder of AMIT as to how such shareholder should vote in connection
with the Proposed Transaction.
On the basis of and subject to the foregoing, we are of the opinion that as of
the date hereof, the exchange ratios are fair to the shareholders of AMIT from
a financial point of view.
Very truly yours,
Christopher Weil & Company, Inc.
/s/James H. Kropp
James H. Kropp
Director of Investment Banking
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust and Bylaws of IPT authorize IPT to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The Maryland
General Corporations Law, as applicable to Maryland REITs, currently provides
that indemnification of a person who is a party, or threatened to be made a
party, to legal proceedings by reason of the fact that such a person is or was
a trustee, officer, employee or agent of a corporation, or is or was serving as
a trustee, officer, employee or agent of a corporation or other firm at the
request of a corporation, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, is mandatory in certain circumstances and
permissive in others, subject to authorization by the board of trustees, a
committee of the board of trustees consisting of two or more trustees not
parties to the proceeding (if there does not exist a majority vote quorum of
the board of trustees consisting of trustees not parties to the proceeding),
special legal counsel appointed by the board of trustees or such committee of
the board of trustees, or by the shareholders, so long as it is not established
that the act or omission of such person was material to the matter giving rise
to the proceedings and was committed in bad faith, was the result of active and
deliberate dishonesty, involved such person receiving an improper personal
benefit in money, property or services, or, in the case of criminal
proceedings, such person had reason to believe that his or her act or omission
was unlawful.
IPT has purchased an insurance policy which purports to insure the
officers and trustees of IPT against certain liabilities incurred by them in
the discharge of their functions as such officers and trustees, except for
liabilities resulting from their own malfeasance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
Exhibit No. Title
- ----------- -----
2.1 Agreement and Plan of Merger, dated as of July 18,
1997 among AMIT, IPT, Insignia and MAE GP
Corporation (attached as Annex A to the Proxy
Statement/Prospectus filed as part of this
Registration Statement).
2.2 Amended and Restated Agreement and Plan of Merger
dated as of February 20, 1998 by and between IPT
and MAE GP Corporation.
3.1 Third Amended and Restated Declaration of Trust of
IPT as filed with the Maryland Department of
Assessments and Taxation on February 23, 1998.
3.2 Bylaws of IPT.
4* Specimen certificate for IPT Common Shares.
5.1 Opinion and Consent of Miles & Stockbridge, P.C.
regarding legality of the shares being registered.
<PAGE>
Exhibit No. Title
- ----------- -----
8.1 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain tax matters.
8.2 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain tax matters.
10.1 Fourth Amended and Restated Agreement of Limited
Partnership of IPLP executed by IPT and Insignia,
dated February 17, 1998.
10.2 [Reserved]
10.3 Acquisition and Disposition Services Agreement
among IPT, IPLP and Insignia dated February 17,
1998.
10.4 Second Amended and Restated Advisory Agreement
dated as of August 1, 1997 among IPT, IPLP and
Insignia.
10.5 Termination Agreement dated February 17, 1998 among
IPT, IPLP and Insignia
10.6 Agreement Regarding Certain Assets between AMIT and
Insignia dated July 18, 1997.
10.7 Tax Indemnification Agreement executed by IPT in
favor of the AMIT shareholders dated July 18, 1997.
10.8 Credit Agreement by and among IPLP, First Union
National Bank and Lehman Commercial Paper dated
December 30, 1997.
10.9 Unconditional Guaranty Agreement dated as of
December 30, 1997 made by IPT in favor of First
Union National Bank, as Administrative Agent.
10.10 Pledge and Security Agreement dated as of December
30, 1997 made by IPLP in favor of First Union
National Bank, as Administrative Agent.
10.11 Pledge and Security Agreement dated as of December
30, 1997 made by IPT in favor of First Union
National Bank, as Administrative Agent.
10.12 Winthrop Option Agreement by and between IPLP and
Insignia, dated February 17, 1998.
10.13 Shelter Option Agreement by and among SP IV
Acquisition, L.L.C., Market Ventures, L.L.C.,
Liquidity Assistance L.L.C. and IPLP dated December
30, 1996.
<PAGE>
Exhibit No. Title
- ----------- -----
10.14 Amendment No. 1 to Shelter Option Agreement by and
among Insignia, SP IV Acquisition, L.L.C., Market
Ventures, L.L.C., Liquidity Assistance L.L.C. and
IPLP dated June 17, 1997.
*10.15 Amendment No. 2 to Shelter Option Agreement by and
among Insignia, SP IV Acquisition, L.L.C., Market
Ventures, L.L.C., Liquidity Assistance L.L.C. and
IPLP dated December 30, 1997.
10.16 IPT 1997 Share Incentive Plan.
10.17 Form of Investors Agreement entered into between
IPT and purchasers of IPT Common Shares in the
Private Offerings.
10.18 Registration Rights Agreement dated as of February
17, 1998 by and between IPT and Insignia.
10.19 Form of Registration Rights Agreement entered into
between IPT and Insignia and its affiliates.
*21.1 Subsidiaries of IPT.
23.1 Consent of Miles & Stockbridge, P.C. (Included in
Exhibit 5.1)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in Exhibits 8.1 and 8.2).
23.3 Consent of Ernst & Young, L.L.P., independent
auditors.
23.4 Consent of Ernst & Young, L.L.P., independent
auditors.
23.5 Consent of BDO Seidman, LLP, certified public
accountants.
23.6 Consent of Imowitz & Koenig & Co., LLP, certified
public accountants.
24 Powers of Attorney (see the signature pages to this
Form S-4 Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Ronald J. Consiglio to be named as
proposed trustee of IPT.
99.2 Consent of Bryan L. Hermann to be named as proposed
trustee of IPT.
99.3 Consent of Ronald Uretta to be named as proposed
trustee of IPT.
<PAGE>
Exhibit No. Title
- ----------- -----
99.4 Consent of Warren M. Eckstein to be named as
proposed trustee of IPT.
- -------------------
* To be filed by amendment
FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted since the required information is not
present, or not present in amounts sufficient to require submission of the
Schedule, or because the information is included in the financial statements
or notes thereto.
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period during which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement on Form S-4 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Greenville, State
of South Carolina, on May 22, 1998.
INSIGNIA PROPERTIES TRUST
By: /s/James A. Aston
-------------------------------
James A. Aston
President
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each of the undersigned trustees and
officers of Insignia Properties Trust hereby constitutes and appoints each of
James A. Aston and Jeffrey P. Cohen, and either of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and on his behalf and in his name, place and stead, in any and all
capacities, to sign, execute, and file with the Securities and Exchange
Commission and any state securities regulatory board or commission any
documents relating to the proposed issuance and registration of the securities
offered pursuant to this Registration Statement on Form S-4 under the
Securities Act, including any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement on Form S-4
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) of the securities Act) relating thereto,
with all exhibits and any and all documents required to be filed with respect
thereto any regulatory authority, granting unto said attorneys in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorney-in-fact and agent, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on May 22, 1998.
Name Title
---- -----
/s/ James A. Aston Trustee,
- ----------------------------- President
James A. Aston
/s/ Frank M. Garrison Executive Managing Director,
- ----------------------------- Trustee
Frank M. Garrison
/s/ Andrew L. Farkas Trustee, Chairman of the Board
- ----------------------------- of Trustees, Chief Executive
Andrew L. Farkas Officer
/s/ William D. Falls Controller
- ----------------------------- (Principal Accounting Officer)
William D. Falls
<PAGE>
INDEX TO EXHIBITS
Item 601
Regulation S-K
Exhibit Reference
Number Description
- --------- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of July
18, 1997 among AMIT, IPT, Insignia and MAE GP
Corporation (attached as Annex A to the Proxy
Statement/Prospectus filed as part of this
Registration Statement).
2.2 Amended and Restated Agreement and Plan of
Merger dated as of February 20, 1998 by and
between IPT and MAE GP Corporation.
3.1 Third Amended and Restated Declaration of Trust
of IPT as filed with the Maryland Department of
Assessments and Taxation on February 23, 1998.
3.2 Bylaws of IPT.
4* Specimen certificate for IPT Common Shares.
5.1 Opinion and Consent of Miles & Stockbridge,
P.C. regarding legality of the shares being
registered.
8.1 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain tax matters.
8.2 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain tax matters.
10.1 Fourth Amended and Restated Agreement of
Limited Partnership of IPLP executed by IPT and
Insignia, dated February 17, 1998.
10.2 [Reserved]
10.3 Acquisition and Disposition Services Agreement
among IPT, IPLP and Insignia dated February 17,
1998.
10.4 Second Amended and Restated Advisory Agreement
dated as of August 1, 1997 among IPT, IPLP and
Insignia.
10.5 Termination Agreement dated February 17, 1998
among IPT, IPLP and Insignia
10.6 Agreement Regarding Certain Assets between AMIT
and Insignia dated July 18, 1997.
<PAGE>
Item 601
Regulation S-K
Exhibit Reference
Number Description
- --------- ----------- -----------
10.7 Tax Indemnification Agreement executed by IPT
in favor of the AMIT shareholders dated July
18, 1997.
10.8 Credit Agreement by and among IPLP, First Union
National Bank and Lehman Commercial Paper dated
December 30, 1997.
10.9 Unconditional Guaranty Agreement dated as of
December 30, 1997 made by IPT in favor of First
Union National Bank, as Administrative Agent.
10.10 Pledge and Security Agreement dated as of
December 30, 1997 made by IPLP in favor of
First Union National Bank, as Administrative
Agent.
10.11 Pledge and Security Agreement dated as of
December 30, 1997 made by IPT in favor of First
Union National Bank, as Administrative Agent.
10.12 Winthrop Option Agreement by and between IPLP
and Insignia, dated February 17, 1998.
10.13 Shelter Option Agreement by and among SP IV
Acquisition, L.L.C., Market Ventures, L.L.C.,
Liquidity Assistance L.L.C. and IPLP dated
December 30, 1996.
10.14 Amendment No. 1 to Shelter Option Agreement by
and among Insignia, SP IV Acquisition, L.L.C.,
Market Ventures, L.L.C., Liquidity Assistance
L.L.C. and IPLP dated June 17, 1997.
*10.15 Amendment No. 2 to Shelter Option Agreement by
and among Insignia, SP IV Acquisition, L.L.C.,
Market Ventures, L.L.C., Liquidity Assistance
L.L.C. and IPLP dated December 30, 1997.
10.16 IPT 1997 Share Incentive Plan.
10.17 Form of Investors Agreement entered into
between IPT and purchasers of IPT Common Shares
in the Private Offerings.
10.18 Registration Rights Agreement dated as of
February 17, 1998 by and between IPT and
Insignia.
10.19 Form of Registration Rights Agreement entered
into between IPT and Insignia and its
affiliates.
<PAGE>
Item 601
Regulation S-K
Exhibit Reference
Number Description
- --------- ----------- -----------
*21.1 Subsidiaries of IPT.
23.1 Consent of Miles & Stockbridge, P.C. (Included
in Exhibit 5.1)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in Exhibits 8.1 and 8.2).
23.3 Consent of Ernst & Young, L.L.P., independent
auditors.
23.4 Consent of Ernst & Young, L.L.,P., independent
auditors.
23.5 Consent of BDO Seidman, LLP, certified public
accountants.
23.6 Consent of Imowitz & Koenig & Co., LLP,
certified public accountants.
24 Powers of Attorney (see the signature pages to
this Form S-4 Registration Statement).
27.1 Financial Data Schedule.
99.1 Consent of Ronald J. Consiglio to be named as
proposed trustee of IPT.
99.2 Consent of Bryan L. Hermann to be named as
proposed trustee of IPT.
99.3 Consent of Ronald Uretta to be named as
proposed trustee of IPT.
99.4 Consent of Warren M. Eckstein to be named as
proposed trustee of IPT.
- -------------------
* To be filed by amendment.
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is made and entered into as of the 20th day of February, 1998 by
and between INSIGNIA PROPERTIES TRUST, a Maryland real estate investment trust
(the "Successor"), and MAE GP CORPORATION, a Delaware corporation (the "Merging
Corporation").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties desire to enter into a merger pursuant to which
the Merging Corporation shall merge with and into the Successor on the terms
set forth herein; and
WHEREAS, the parties have previously entered into that certain
Agreement and Plan of Merger dated February 17, 1998 (the "Original
Agreement"), and by this Agreement wish to amend and restate the Original
Agreement in its entirety;
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by each of the parties, the parties hereby agree as
follows:
ARTICLE I
THE MERGER; EFFECTIVE DATE
--------------------------
1.1 Subject to the terms and conditions set forth herein, the parties
hereby agree to merge in accordance with the terms of the Agreement. The merger
between the parties described herein (the "Merger") shall be accomplished in
the manner specified in Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland (the "Maryland REIT Law") and the Delaware
General Corporation Law (the "DGCL").
1.2 The parties contemplate that, effective upon the consummation of
the Merger, the Merging Corporation will be merged with and into the Successor,
that the Merging Corporation thereafter will cease to exist as a separate
corporation and that the Successor will be the surviving business entity in the
Merger.
1.3 The consummation of the Merger is subject to, and contingent upon,
the occurrence of each of the following conditions precedent (the "Conditions
to the Merger"): (i) the Board of Directors of the Merging Corporation adopting
a resolution declaring that the Merger is advisable and is approved; (ii) the
recommendation of the Merger to the sole stockholder of the Merging Corporation
by the Board of Directors of the Merging Corporation; (iii) the approval of the
Merger by the sole stockholder of the Merging Corporation; and (iv) the Board
of Trustees of the Successor approving the Merger.
<PAGE>
1.4 Subject to the occurrence of each of the Conditions to the Merger,
the Merger shall be accomplished as follows:
(a) Each of the parties shall cause the Agreement of Merger
in the form attached hereto as Exhibit A (the "Delaware Agreement of Merger")
to be executed by its appropriate officers and filed with the Secretary of
State of the State of Delaware.
(b) Each of the parties shall cause the Articles of Merger in
the form attached hereto as Exhibit B (the "Maryland Articles of Merger") to be
executed by its appropriate officers and filed with the State Department of
Assessments and Taxation of the State of Maryland.
1.5 Effective as of the Effective Date (as hereinafter defined), the
Merging Corporation shall be merged with and into the Successor; the separate
existence of the Merging Corporation shall cease; the Successor shall continue
in existence and shall thereafter possess any and all purposes and powers of
the Merging Corporation; and all assets, rights, properties and privileges of
the Merging Corporation shall be transferred to, vested in and devolved upon
the Successor without further act or deed, subject to all of the debts and
obligations of the Merging Corporation.
ARTICLE II
MERGER SHARE CONSIDERATION; CONVERSION AND
CANCELLATION IN THE MERGER
------------------------------------------
2.1 The manner and basis of converting the shares of stock of the
Merging Corporation into shares of beneficial interest of the Successor at the
Effective Date shall be as follows:
(a) At the Effective Date, each share of the common stock,
par value $1.00 per share, of the Merging Corporation (the "Common Stock of the
Merging Corporation") which is issued and outstanding immediately prior to the
Effective Date automatically and without any action on the part of the
stockholder thereof shall be converted into and become 332.3 shares of
beneficial interest, par value $.01 per share, of the Successor ("Common Shares
of the Successor").
(b) At the Effective Date, each share of the Common Stock of
the Merging Corporation held in treasury, if any, shall be canceled and retired
without the payment of any consideration.
2.2 Each stock certificate which, prior to the Effective Date,
represented issued shares of the Common Stock of the Merging Corporation shall
be and become, on the Effective Date, a certificate representing 332.3 Common
Shares of the Successor per share of Common Stock of the Merger Corporation
automatically by virtue of the Merger and without any action on the part of the
holder thereof. Upon consummation of the Merger, each stockholder
- 2 -
<PAGE>
of the Merging Corporation may surrender, assign and deliver to the Successor
all of the certificates evidencing the shares of the Common Stock of the
Merging Corporation which have been issued in his, her or its name, or
otherwise assigned or transferred to such stockholder, and the Successor in
exchange therefor will issue to each such stockholder a certificate evidencing
332.3 Common Shares of the Successor for each share of the Common Stock of the
Merger Corporation evidenced by the certificates surrendered, assigned and
delivered to the Successor.
2.3 The Merger shall be effective immediately upon the later to occur
(the "Effective Date") of (i) the date of the acceptance of the Delaware
Agreement of Merger for record by the Delaware Secretary of State or (ii) the
date of the acceptance of the Maryland Articles of Merger for record by the
State Department of Assessments and Taxation of the State of Maryland.
ARTICLE III
DECLARATION OF TRUST; BYLAWS AND TRUSTEES
AND OFFICERS OF SURVIVOR
-----------------------------------------
3.1 The declaration of trust and the bylaws of the Successor in effect
as of the Effective Date shall continue in effect as the declaration of trust
and the bylaws of the Successor following the consummation of the Merger. The
declaration of trust and the bylaws of the Successor shall not be amended or
otherwise modified in connection with or as a result of the Merger.
3.2 The incumbent officers and trustees of the Successor as of the
Effective Date shall continue to serve in such capacities following the
consummation of the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MERGING CORPORATION
---------------------------------------------------------
The Merging Corporation represents and warrants to and for the benefit
of the Successor as follows:
4.1 The Merging Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority to own, operate and lease its properties, and to
conduct its business as it is now being conducted, and is qualified to transact
business as a foreign corporation in each jurisdiction in which the operation
of its business or the ownership of its properties requires such qualification.
The appropriate officers of the Merging Corporation have delivered to the
Successor a complete and correct copy of the articles of incorporation and
bylaws of the Merging Corporation, neither of which has been amended or
repealed since delivery to
- 3 -
<PAGE>
Successor, and each of which is in full force and effect in the form delivered
to Successor.
4.2 (a) The authorized capital stock of the Merging Corporation
consists solely of 1,000 shares of Common Stock of the Merging Corporation,
$1.00 par value, of which 1,000 shares have been issued and are outstanding.
Each of the shares of the Common Stock of the Merging Corporation issued and
outstanding as of the date hereof has been duly authorized and validly issued
and is fully paid and non-assessable. None of the shares of the issued and
outstanding Common Stock of the Merging Corporation has been issued in
violation of shareholder preemptive rights and have been offered, issued, sold
and delivered by the Merging Corporation in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of all
applicable federal and state securities laws. The Merging Corporation has no
issued or outstanding equity securities, debt securities or other instruments
which are convertible at any time into equity securities of the Merging
Corporation other than the 1,000 outstanding shares of Common Stock of the
Merging Corporation. The 1,000 outstanding shares of Common Stock of the
Merging Corporation represent 100% of the issued and outstanding capital stock
of the Merging Corporation.
(b) The Merging Corporation is not subject to any
commitment or obligation which would require the issuance or sale of shares of
its capital stock at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of the Merging Corporation.
(c) The Merging Corporation has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
(d) The Merging Corporation is not under any
obligation to register under the Securities Act any of its presently
outstanding securities or any securities that may be subsequently issued.
4.3 As of the Effective Date, the Merging Corporation does not have,
and the Successor shall not assume, any obligations under any employee benefit
plan or incentive compensation plan.
4.4 The Merging Corporation has the corporate power and authority to
enter into the Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
the Merging Corporation of the Agreement, the consummation by the Merging
Corporation of the Merger and the transactions contemplated hereby, and the
performance by the Merging Corporation of its obligations hereunder, have been
duly authorized by all necessary corporate
- 4 -
<PAGE>
action on the part of the Merging Corporation. The Agreement has been duly
executed and delivered by the Merging Corporation and constitutes a legal,
valid and binding obligation of the Merging Corporation, fully enforceable
against the Merging Corporation in accordance with its terms.
4.5 Except for obtaining approval of the sole stockholder of the
Merging Corporation and the filing of the Maryland Articles of Merger pursuant
to the Maryland REIT Law and the Delaware Agreement of Merger pursuant to the
DGCL, no filing with, or consent, waiver, approval or authorization of, or
notice to, any governmental authority or any third party is required to be made
or obtained by the Merging Corporation in connection with the execution and
delivery by it of the Agreement or any document or instrument contemplated
hereby, the consummation of any of the transactions contemplated hereby or the
performance of any of its obligations hereunder which have not been obtained by
the Merging Corporation.
4.6 On the date hereof, the Board of Directors of Merging Corporation
declared and paid to its sole stockholder, Metropolitan Asset Enhancement,
L.P., a dividend of all of the Class B common shares of Angeles Mortgage
Investment Trust (the "AMIT Shares") held by Merging Corporation, and thus
Successor will not succeed to the AMIT Shares by operation of law as a result
of the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SUCCESSOR
-------------------------------------------
The Successor represents and warrants to and for the benefit of the
Merging Corporation as follows:
5.1 The Successor is a real estate investment trust duly organized,
validly existing and in good standing under the laws of the State of Maryland,
and has full real estate investment trust power and authority to carry on its
businesses as it is now being conducted.
5.2 The Successor has the real estate investment trust power and
authority to enter into, execute and deliver the Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of the Agreement by the Successor, the consummation
by the Successor of the transactions contemplated hereby and the performance of
its obligations hereunder have been duly authorized by all necessary trust
action on the part of the Successor. The Agreement has been duly executed and
delivered by the Successor and constitutes a legal, valid and binding
obligation of the Successor, enforceable against the Successor in accordance
with its terms.
5.3 The Common Shares of the Successor to be issued pursuant to the
Merger shall, when issued, (i) be duly authorized, validly issued, fully paid
and nonassessable and free of liens and
- 5 -
<PAGE>
encumbrances created by the Successor, (ii) be free and clear of any transfer
restrictions, liens and encumbrances other than those imposed under applicable
federal and state securities laws and regulations and the ownership limitations
set forth in the Successor's declaration of trust and (iii) not be subject to
any preemptive rights created by statute, the declaration of trust or the
bylaws of the Successor.
5.4 Pursuant to Section 8-501.1(c)(3) of the Maryland REIT Law,
following a vote in favor of the Merger by a majority of the Successor's Board
of Trustees, no stockholder approval will be necessary because (i) the Merger
will not reclassify or change the Successor's outstanding shares or otherwise
amend its declaration of trust and (ii) the number of shares of Common Stock of
the Successor to be issued in the Merger is not more than 20 percent of the
number of shares of Common Stock of the Successor outstanding before the
Effective Date.
5.5 Except for the filing of the Maryland Articles of Merger pursuant
to the Maryland REIT Law and the Delaware Agreement of Merger pursuant to the
DGCL, no filing with, or consent, waiver, approval or authorization of, or
notice to, any governmental authority or any third party is required to be made
or obtained by the Successor in connection with the execution and delivery of
the Agreement, the consummation of any of the transactions contemplated hereby
or the performance of any of its obligations hereunder which have not been
obtained by the Successor.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 The Agreement may be amended, modified, supplemented or changed in
whole or in part only by an agreement in writing making specific reference to
the Agreement and executed by each of the parties hereto.
6.2 The Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns;
provided, however, that the Agreement and the rights of the parties hereunder
may not be assigned, and the obligations of the parties hereunder may not be
delegated, in whole or in part, without the prior written consent of the other
parties hereto.
6.3 Nothing in the Agreement is intended to confer upon any person or
party other than the parties hereto any rights or remedies hereunder.
6.4 The parties hereto each agree to execute, make, acknowledge, and
deliver such instruments, agreements and other documents as may be reasonably
required to effectuate the purposes
- 6 -
<PAGE>
of the Agreement and to consummate the transactions contemplated
hereby.
6.5 The Agreement shall be interpreted, construed and enforced in
accordance with, and shall be governed by, the laws of the State of Maryland,
without regard to the conflict of laws principles thereof.
6.6 The Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one and
the same instrument.
6.7 Each party to the Agreement shall bear and be responsible for the
costs and other expenses incurred by such party in connection with the Merger.
IN WITNESS WHEREOF, each of the undersigned has caused the Agreement
to be executed and delivered, each intending it to constitute an instrument
under seal, as of the date set forth above.
INSIGNIA PROPERTIES TRUST
By:___________________________
Jeffrey P. Cohen
Senior Vice President
MAE GP CORPORATION
By:___________________________
Carroll D. Vinson
President
- 7 -
<PAGE>
EXHIBIT A
---------
AGREEMENT OF MERGER
-------------------
THIS AGREEMENT OF MERGER (the "Agreement") is made as of the 20th day
of February, 1998 by and between INSIGNIA PROPERTIES TRUST, a Maryland real
estate investment trust (the "Successor") and MAE GP CORPORATION, a Delaware
corporation (the "Merging Corporation").
1. Subject to the terms and conditions set forth herein, the parties
hereby agree to merge.
2. The Merging Corporation will be merged with and into the Successor,
and the Merging Corporation thereafter will cease to exist as a separate
corporation.
3. The manner and basis of converting the shares of stock of the
Merging Corporation into shares of beneficial interest of the Successor at the
Effective Date (as hereinafter defined) shall be as follows:
(a) At the Effective Date, each share of the common stock of
the Merging Corporation which is issued and outstanding immediately prior to
the Effective Date automatically and without any action on the part of the
stockholder thereof shall be converted into and become 332.3 common shares of
beneficial interest of the Successor.
(b) At the Effective Date, each share of the common stock of
the Merging Corporation held in treasury, if any, shall be canceled and retired
without the payment of any consideration.
4. The Merger shall be effective immediately upon the later to occur
(the "Effective Date") of (i) the date of the acceptance of this Agreement for
record by the Secretary of State of the State of Delaware or (ii) the date of
the acceptance for record of Articles of Merger executed by each of the parties
hereto by the State Department of Assessments and Taxation of the State of
Maryland.
5. The terms and conditions of the transaction set forth in this
Agreement of Merger were advised, authorized and approved by the Merging
Corporation in the manner and by the vote required by its certificate of
incorporation and bylaws and the laws of the State of Delaware. The terms and
conditions of the transaction set forth in this Agreement of Merger were
advised, authorized and approved by the Successor in the manner and by the vote
required by its declaration of trust and bylaws and the laws of the State of
Maryland. The manner of approval by the Merging Corporation and the Successor
of the transaction set forth in these Articles of Merger was as follows:
(a) The board of directors of the Merging Corporation adopted
a resolution by unanimous written consent as of February 16, 1998, which
declared that the transaction set forth in
<PAGE>
this Agreement of Merger is advisable and approved, and directed that the
transaction be submitted for consideration by the sole stockholder of the
Merging Corporation. The transaction set forth in this Agreement of Merger was
approved by the sole stockholder of the Merging Corporation by written consent
as of February 16, 1998 in accordance with the certificate of incorporation of
the Merging Corporation and the Delaware General Corporation Law.
(b) The board of trustees of the Successor adopted a
resolution by action by unanimous written consent as of February 13, 1998,
which declared that the transaction set forth in these Articles of Merger was
advisable and approved. Pursuant to Section 8-501.1(c)(3) of the Maryland
Corporations and Associations Article, following a vote in favor of the Merger
by a majority of the Successor's board of trustees, no stockholder approval is
necessary because (i) the Merger will not amend the Successor's declaration of
trust; (ii) will not reclassify or change the Successor's outstanding shares;
and (iii) the number of shares of Common Stock of the Successor to be issued in
the Merger is not more than 20 percent of the number of shares of Common Stock
of the Successor outstanding before the Effective Date.
6. The Successor may be served with process in the State of Delaware
in any proceeding for enforcement of any obligation the Merging Corporation, as
well as for enforcement of any obligation of the survivor arising from the
Merger, including any suit or other proceeding to enforce the right of any
stockholder as determined in appraisal proceedings pursuant to the provisions
of Section 262 of the Delaware General Corporation Law, and it does hereby
irrevocably appoint the Secretary of State of Delaware as its agent to accept
service of process in any such suit or other proceeding. The address to which a
copy of such process shall be mailed by the Secretary of State is: The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
IN WITNESS WHEREOF, the Merging Corporation and the Successor have
caused this Agreement of Merger to be signed in their respective company names
and on their behalf by their respective officers who acknowledge and certify
respectively that this Agreement of Merger is the act of the Merging
Corporation and the Successor and that to the best of their knowledge,
information and
<PAGE>
belief and under penalties for perjury, all matters and facts contained in this
Agreement is true in all material respects.
ATTEST: INSIGNIA PROPERTIES TRUST
______________________________ By:___________________________
Kelley M. Buechler Jeffrey P. Cohen
Assistant Secretary Senior Vice President
ATTEST: MAE GP CORPORATION
______________________________ By:___________________________
Kelley M. Buechler Carroll D. Vinson
Assistant Secretary President
<PAGE>
EXHIBIT B
---------
ARTICLES OF MERGER
BETWEEN
MAE GP CORPORATION,
A DELAWARE CORPORATION
AND
INSIGNIA PROPERTIES TRUST,
A MARYLAND REAL ESTATE
INVESTMENT TRUST
MAE GP CORPORATION, a Delaware corporation (the "Merging
Corporation"), and Insignia Properties Trust, a Maryland real estate investment
trust (the "Successor"), certify as follows:
FIRST: The Merging Corporation and the Successor agree to merge (the
"Merger") in accordance with the terms and conditions set forth herein and in
the Amended and Restated Agreement and Plan of Merger, dated as of February 20,
1998, by and between the Successor and the Merging Corporation.
SECOND: The Merger shall be effective upon the later of (i) the
acceptance for record of these Articles of Merger by the State Department of
Assessments and Taxation of the State of Maryland and (ii) the acceptance of an
Agreement of Merger by the Secretary of State of the State of Delaware (the
"Effective Date").
THIRD: The name of the Merging Corporation is "MAE GP CORPORATION,"
which is incorporated under the laws of the State of Delaware. The name of the
Successor is "Insignia Properties Trust," which is formed under the laws of the
State of Maryland.
FOURTH: The Merging Corporation was incorporated under the
laws of the State of Delaware on December 20, 1991. The Merging
Corporation is not registered or qualified to do business in the
State of Maryland.
FIFTH: The principal office in Maryland of the Successor is located in
Baltimore City at 300 East Lombard Street, Baltimore, Maryland 21202. The
Merging Corporation does not have a principal office in Maryland.
SIXTH: Neither the Merging Corporation nor the Successor owns any
interest in land in the State of Maryland the title to which could be affected
by recording an instrument in the land records.
SEVENTH: The total number of shares of stock that the Merging
Corporation has authority to issue is 1,000 shares of common stock, par value
$1.00 per share ("Common Stock of the Merging Corporation"). The total number
of shares of beneficial interest that the Successor has authority to issue is
400,000,000 common shares of beneficial interest, par value $0.01 per share
("Common Shares of the Successor"), and 100,000,000 preferred shares of
beneficial interest, par value $0.01 per share.
<PAGE>
EIGHTH: The manner and basis of converting the shares of
stock of the Merging Corporation into stock of the Successor at the
Effective Date shall be as follows:
(a) At the Effective Date, each share of the Common Stock of
the Merging Corporation which is issued and outstanding immediately prior to
the Effective Date shall be converted into and become 332.3 fully paid and
nonassessable Common Shares of the Successor.
(b) At the Effective Date, each share of the Common Stock of
the Merging Corporation held in treasury, if any, shall be cancelled and
retired without payment of any consideration.
NINTH: On the Effective Date, the Merging Corporation shall be merged
with and into the Successor, which shall continue its existence as a real
estate investment trust under the laws of the State of Maryland and the
separate existence and corporate organization of the Merging Corporation shall
cease. The Successor shall continue in existence under its declaration of trust
and bylaws as they exist immediately prior to the Effective Date.
TENTH: The terms and conditions of the transaction set forth in these
Articles of Merger were advised, authorized and approved by the Merging
Corporation in the manner and by the vote required by its certificate of
incorporation and bylaws and the laws of the State of Delaware. The terms and
conditions of the transaction set forth in these Articles of Merger were
advised, authorized and approved by the Successor in the manner and by the vote
required by its declaration of trust and bylaws and the laws of the State of
Maryland. The manner of approval by the Merging Corporation and the Successor
of the transaction set forth in these Articles of Merger was as follows:
(a) The board of directors of the Merging Corporation adopted
a resolution by unanimous written consent as of February 16, 1998, which
declared that the transaction set forth in these Articles of Merger is
advisable and approved, and directed that the transaction be submitted for
consideration by the sole stockholder of the Merging Corporation. The
transaction set forth in these Articles of Merger was approved by the sole
stockholder of the Merging Corporation by written consent as of February 16,
1998 in accordance with the certificate of incorporation of the Merging
Corporation and the Delaware General Corporation Law.
(b) The board of trustees of the Successor adopted a
resolution by action by unanimous written consent as of February 3, 1998, which
declared that the transaction set forth in these Articles of Merger was
advisable and approved. Pursuant to Section 8-501.1(c)(3) of the MGCL,
following a vote in favor of the Merger by a majority of the Successor's board
of trustees, no stockholder approval is necessary because (i) the Merger will
not reclassify or change the Successor's outstanding shares or otherwise amend
its declaration of trust and (ii) the number of shares of Common Stock of the
Successor to be issued in the Merger is not more than 20 percent of the number
of shares of Common Stock of the Successor outstanding before the Effective
Date.
<PAGE>
ELEVENTH: No amendment to the declaration of trust of the
Successor, the survivor in the Merger, will be affected by the
Merger.
IN WITNESS WHEREOF, the Merging Corporation and the Successor have
caused these Articles of Merger to be signed in their respective corporate
names and on their behalf by their respective authorized officers and attested
to by their respective corporate Assistant Secretaries as of the 20th day of
February, 1998.
ATTEST: INSIGNIA PROPERTIES TRUST,
a Maryland real estate
investment trust
______________________________ By:___________________________
Kelley M. Buechler Jeffrey P. Cohen
Assistant Secretary Senior Vice President
MAE GP CORPORATION,
a Delaware corporation
______________________________ By:___________________________
Kelley M. Buechler Carroll D. Vinson
Assistant Secretary President
The undersigned, being the duly elected and acting Senior Vice
President of Insignia Properties Trust, a Maryland real estate investment trust
(the "Successor"), hereby acknowledges that the foregoing Articles of Merger,
of which this Certificate is a part, are the act of the Successor and certifies
that, to the best of his knowledge, information and belief, and under penalties
for perjury, all matters and facts contained in these Articles of Merger
relating to the Successor are true in all material respects.
------------------------------
Jeffrey P. Cohen
<PAGE>
The undersigned, being the duly elected and acting President of MAE GP
CORPORATION, a Delaware corporation (the "Merging Corporation"), hereby
acknowledges that the foregoing Articles of Merger, of which this Certificate
is a part, are the act of the Merging Corporation and certifies that, to the
best of his knowledge, information and belief, and under penalties for perjury,
all matters and facts contained in these Articles of Merger relating to the
Merging Corporation are true in all material respects.
------------------------------
Carroll D. Vinson
<PAGE>
INSIGNIA PROPERTIES TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
Insignia Properties Trust, a Maryland real estate investment trust,
hereby certifies as follows:
FIRST: Insignia Properties Trust desires to amend and restate its
Declaration of Trust as currently in effect.
SECOND: The amendments to and the restatement of the Declaration of
Trust set forth herein shall become effective on the date and at the time that
these Articles of Amendment and Restatement are filed with and accepted for
record by the State Department of Assessments and Taxation of the State of
Maryland.
THIRD: The following are the provisions of the Declaration of Trust
currently in effect and as amended hereby:
ARTICLE I
THE TRUST; CERTAIN DEFINITIONS
SECTION 1.1. NAME. The name of the trust (hereinafter called
the "TRUST") is:
Insignia Properties Trust
The Trust shall have the authority to operate under an
assumed name or names in such state or states, or any political subdivision
thereof, in which it would not be legal, practical or convenient to operate in
the name of the Trust. The Board of Trustees (as defined herein) shall have the
authority to file such assumed name certificates or other instruments in such
places as may be required by applicable law to operate under such assumed name
or names.
SECTION 1.2. RESIDENT AGENT. The name and address of the
resident agent of the Trust in the State of Maryland is The Prentice-Hall
Corporation Systems, Maryland, 11 East Chase Street, Baltimore, Maryland 21202.
The Trust may have such offices or places of business within or without the
State of Maryland as the Trustees may from time to time determine.
SECTION 1.3. NATURE OF TRUST. The Trust is a real estate
investment trust within the meaning of Title 8 (as hereinafter defined). The
Shareholders (as defined herein) shall be beneficiaries in that capacity in
accordance with the rights conferred upon them hereunder. The Trust is not
intended to be, and shall not be treated as, a general partnership, limited
partnership, joint stock association or a corporation.
SECTION 1.4. PURPOSE AND BUSINESS. The purpose and nature of
the business to be conducted by the Trust is (i) to conduct any business that
may be lawfully conducted by a real estate investment trust organized pursuant
to the Title 8; provided, however, that such business shall be conducted in
such a manner as to permit the Trust at all times to qualify as a real estate
investment trust under Title 8 and the Code (as hereinafter defined) unless the
Board
<PAGE>
of Trustees determines that it is no longer in the best interest of the Company
to conduct business as a real estate investment trust, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or to own any interests in any entity engaged in any of the foregoing
and (iii) to do anything necessary or incidental to the foregoing.
SECTION 1.5. POWERS. The Trust shall have all of the powers
granted to real estate investment trusts generally by Title 8 and shall have
all other and further powers as are not inconsistent with, and are appropriate
to promote and attain, the purposes of the Trust as set forth in this
Declaration of Trust (as hereinafter defined). In addition, it is intended that
the business of the Trust will be conducted so that the Trust will qualify (so
long as such qualification, in the opinion of the Trustees, is advantageous to
the Trust) as a real estate investment trust under the REIT Provisions of the
Code (as hereinafter defined).
SECTION 1.6. DEFINITIONS. As used in this Declaration of
Trust, the following terms shall have the following meanings unless the context
otherwise requires:
"AFFILIATE" or "AFFILIATED" means, as to any corporation,
partnership, limited liability company, trust or other association, any Person
(as hereinafter defined) which controls, is controlled by, or is under common
control with, such corporation, partnership, limited liability company, trust
or other association. As used in this definition "control" (including with its
correlative meanings, "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"BOARD" or "BOARD OF TRUSTEES" means the Board of Trustees of
the Trust.
"CODE" means the Internal Revenue Code of 1986, as amended,
the regulations promulgated and rulings issued thereunder and any successor
regulations which may be promulgated thereunder.
"DECLARATION" or "DECLARATION OF TRUST" means this
Declaration of Trust, including any amendments or supplements hereto.
"PERSON" means an individual, corporation, partnership,
limited liability company, 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
Section 509(a) of the Code, joint stock company or other entity, or any
governmental agency or political subdivision thereof, and includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
"REIT PROVISIONS OF THE CODE" means Sections 856 through 860
of the Code and any successor or other provisions of the Code relating to real
estate investment trusts (including provisions as to the attribution of
ownership of beneficial interests therein) and the regulations promulgated
thereunder.
- 2 -
<PAGE>
"SECURITIES" means Shares (as hereinafter defined), any
stock, shares or other evidences of equity, beneficial or other interests,
voting trust certificates, bonds, debentures, notes or evidences of
indebtedness, secured or unsecured, convertible, subordinated or otherwise, or
in general any instruments commonly known as "securities" or any certificates
of interest, shares or participations in, temporary or interim certificates
for, receipts for, guarantees of, or warrants, options or rights to subscribe
to, purchase or acquire, any of the foregoing.
"SECURITIES OF THE TRUST" means any Securities issued by the
Trust.
"SHAREHOLDERS" means holders of record of outstanding Shares.
"SHARES" means transferable units of beneficial interest of
the Trust of any class or series.
"TITLE 8" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended, or any successor
statute.
"TRUSTEE" means each of the individuals who are duly elected
and qualify as trustees of the Trust hereunder, in each case as long as he or
she continues in office.
"TRUST PROPERTY" means any and all property, real, personal,
mixed or otherwise, tangible or intangible, which is transferred or conveyed to
the Trust or the Trustees (including all rents, income, profits and gains
therefrom), which is owned or held by, or for the account of, the Trust or the
Trustees.
ARTICLE II
TRUSTEES
SECTION 2.1. CLASSIFICATION AND NUMBERS.
(a) The number of the Trustees shall be determined from time
to time by resolution of the Board of Trustees, provided that there shall not
be less than three Trustees. Whenever the Trustees shall increase the size of
the Board of Trustees then the resulting vacancy or vacancies may be filled in
accordance with Section 2.3 hereof. In no case will a decrease in the number of
Trustees shorten the term of any incumbent Trustee. Except for the initial
terms of Category I and Category II Trustees, as set forth below, the term of
office of each Trustee shall be three years and until the election and
qualification of his or her successor. Trustees may succeed themselves in
office. Trustees shall be individuals who are at least 21 years old and not
under legal disability. No Person shall qualify as a Trustee until he or she
shall have agreed in writing to be bound by this Declaration of Trust. No
Trustee shall be required to give any bond, surety or securities to secure the
performance of his or her duties or obligations hereunder. The Trustees shall
receive such fees for their services and expenses as the Board of Trustees
shall determine from time to time.
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(b) The Trustees of the Trust shall be classified, with
respect to the terms for which they severally hold office, into three classes,
as nearly equal in number as possible, one class ("CATEGORY I") to hold office
initially for a term expiring at the first annual meeting of Shareholders,
another class ("CATEGORY II") to hold office initially for a term expiring at
the second succeeding annual meeting of Shareholders and another class
("CATEGORY III") to hold office initially for a term expiring at the third
succeeding annual meeting of Shareholders. The Trustees of each class shall,
following their initial term, hold office for a term of three years and until
their respective successors shall have been duly elected and qualified.
Shareholder votes to elect Trustees shall be conducted in the manner provided
in the Trust's Bylaws.
(c) The name, address and category of Trustees to which each
Trustee belongs for each of the Trustees serving at the time of this amendment
and restatement of this Declaration of Trust are:
Trustee
Name Address Category
- ---- ------- ---------
Frank M. Garrison One Insignia Financial Plaza Category I
P.O. Box 1089
Greenville, South Carolina 29601
James A. Aston One Insignia Financial Plaza Category II
P.O. Box 1089
Greenville, South Carolina 29601
Andrew L. Farkas One Insignia Financial Plaza Category III
P.O. Box 1089
Greenville, South Carolina 29601
SECTION 2.2. RESIGNATION, REMOVAL OR DEATH. Any Trustee may
resign by written notice to the remaining Trustees, effective upon execution
and delivery to the Trust of such written notice or upon any future date
specified in the notice. Subject to the rights of the holders of any class of
Preferred Shares (as defined herein) designated by the Board pursuant to
Section 4.4 hereof, a Trustee may be removed only for Cause (as hereinafter
defined), at a meeting of the Shareholders called for that purpose, by the
affirmative vote of the holders of not less than two-thirds of the Shares then
outstanding and entitled to vote in the election of Trustees. As used herein,
"CAUSE" shall mean the entry of a final, nonappealable judgment by the highest
court having proper jurisdiction over such matter determining that the Trustee
has committed fraud or willful malfeasance with respect to the Trust. Upon the
resignation or removal of any Trustee, or his or her otherwise ceasing to be a
Trustee, he or she shall automatically cease to have any right, title or
interest in and to the Trust Property other than as a shareholder, and shall
execute and deliver such documents as the remaining Trustees shall reasonably
require for the conveyance of any Trust Property held in his or her name, and
shall account to the remaining Trustees as they require for all property which
he or she holds as Trustee. Upon the incapacity or death of any Trustee, his or
her legal representatives shall perform the acts provided for in the preceding
sentence.
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SECTION 2.3. VACANCIES. The resignation, removal, termination
or death of any or all of the Trustees shall not terminate the Trust or affect
its continuity. Subject to the rights of the holders of any class of Preferred
Shares designated by the Board pursuant to Section 4.4 hereof, any vacancy on
the Board of Trustees, whether resulting from resignation, removal, termination
or death or as a result of an increase in the number of Trustees, may be filled
by a majority of the Trustees of the same class as the vacant Trustee then in
office, even if less than a quorum, or by the sole remaining Trustee of the
same class as the vacant Trustee or if there be no remaining Trustees of that
class by the vote of a majority of the remaining Trustees, even if less than a
quorum. Any Trustee elected to fill a vacancy as provided herein shall hold
office for the full remaining term of his or her predecessor subject to Section
2.2 hereof.
SECTION 2.4. ACTIONS BY AND MEETINGS OF TRUSTEES. The
Trustees may act with or without a meeting. Except as otherwise provided
herein, any action of a majority of Trustees present at a duly convened meeting
of the Trustees at which a quorum is present shall be the action of the Board
of Trustees. A quorum for meetings of the Trustees shall be a majority of the
entire Board of Trustees. Action may be taken without a meeting only by
unanimous consent of all of the Trustees then in office (and only if not less
than a quorum) and shall be evidenced by a written certificate or instrument
signed by all of such Trustees. Meetings may otherwise be held and conducted in
the manner prescribed by the Bylaws of the Trust. Any action taken by Trustees
in accordance with the provisions of this Section 2.4 shall be conclusive and
binding upon the Trust, upon the Trustees, and upon the Shareholders, as an
action of all the Trustees, collectively, and of the Trust.
SECTION 2.5. LEGAL TITLE. Legal title to all Trust Property
shall be vested in the Trust, but the Trust may cause legal title to any Trust
Property to be held by or in the name of any or all of the Trustees or any
other Person as nominee. Any right, title or interest of the Trustees in and to
the Trust Property shall automatically vest in successor and additional
Trustees upon their qualifications and acceptance of election or appointments
as Trustees, and they shall thereupon have all the rights and obligations of
Trustees. Written evidence of the qualification and acceptance of election or
appointment of successor and additional Trustees may be filed with the records
of the Trust and in such other offices, agencies or places as the Trust or
Trustees may deem necessary or desirable.
SECTION 2.6. POWERS OF TRUSTEES. Subject to the express
limitations, and other provisions, herein or in the Bylaws, the business and
affairs of the Trust shall be managed under the direction of the Board of
Trustees, and the Trustees shall have full, exclusive and absolute power,
control and authority over the Trust Property and over the business and affairs
of the Trust as if they in their own right, were the sole owners thereof. The
Trustees may take any actions as in their sole judgment and discretion are
necessary or desirable to conduct the business of the Trust and may exercise,
on behalf of the Trust, all of the powers granted to, or held by, the Trust in
accordance with Section 1.5 of this Declaration of Trust. This Declaration of
Trust shall be construed with a presumption in favor of the grant of power and
authority to the Trustees. Any construction of this Declaration or
determination made in good faith by the Trustees concerning their powers and
authority hereunder shall be conclusive. The powers of the Trustees shall in no
way be construed or deemed by inference or otherwise in any manner to exclude
or limit the powers conferred upon the Trustees under the laws of the State of
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Maryland as now or hereafter in force. The Trustees shall have exclusive power
to adopt, amend and repeal the Bylaws of the Trust.
SECTION 2.7. ELECTION OF OFFICERS. The Trustees may annually
elect a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive
Officer, one or more Chief Operating Officers, a President, one or more Vice
Presidents, a Secretary, a Treasurer, Assistant Secretaries, Assistant
Treasurers, and such other officers as the Trustees shall deem proper. Except
as may be required under the laws of the State of Maryland, the officers of the
Trust need not be Trustees. All officers and agents of the Trust shall have
such authority, and perform such duties, in connection with the management of
the Trust as may be provided in the Bylaws or as may be determined by the
Trustees and not inconsistent with the Bylaws. Any officer or agent elected or
appointed by the Trustees may be removed by the Trustees, with or without
cause, but such removal shall be without prejudice to the contract rights, if
any, of the Person so removed. Election or appointment of any officer or agent
shall not of itself bestow any contract rights. The Board of Trustees shall fix
the compensation of all officers from time to time.
SECTION 2.8. COMMITTEES OF TRUSTEES; DELEGATION OF POWERS AND
DUTIES OF COMMITTEES, TRUSTEES, OFFICERS AND EMPLOYEES. The Trustees may, in
their discretion, by resolution passed by a majority of the Trustees, designate
from among their members one or more committees composed of one or more
Trustees. The Trustees may designate one or more Trustees as alternate members
of any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committees shall have and may exercise such
powers as shall be conferred or authorized by the resolution appointing them;
provided, however, that no committee shall have the power to (i) authorize
dividends on shares of beneficial interest, (ii) issue shares of beneficial
interest except pursuant to a general authorization of the entire board or any
stock option or other plan or program adopted by the board, (iii) recommend to
the shareholders any action which requires shareholder approval, or (iv) amend
the bylaws of the Trust. A majority of the members of any such committee shall
constitute a quorum for the transaction of business by such committee, and may
fix the time and place of its meetings, unless the Board of Trustees shall
otherwise provide. The Trustees, by resolution passed by a majority of the
Trustees, may at any time change the membership of any such committee, fill
vacancies in it, or dissolve it. Subject to any limitations provided in Title 8
or the Bylaws, a majority of the Trustees may authorize any one or more of the
Trustees, or any one or more of the officers or employees or agents of the
Trust, on behalf of the Trust, to exercise and perform any and all powers
granted to the Trustees, and to discharge any and all duties imposed upon the
Trustees, and to do any acts and to execute any instruments deemed by such
Person or Persons to be necessary or appropriate to exercise such power or to
discharge such duties, and to exercise his or her own judgment in so doing.
SECTION 2.9. DETERMINATIONS BY BOARD. Without limiting the
generality of Section 2.6 hereof, the determination as to any of the following
matters, made in good faith by or pursuant to the direction of the Board of
Trustees consistent with this Declaration of Trust and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Trust and every holder of Shares: (a) the amount of
the net income of the Trust for any period and the amount of assets at any time
legally available for the payment of
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dividends, redemption of Shares or the payment of other distributions with
respect to Shares; (b) the amount of paid-in surplus, net assets, other
surplus, annual or other net profit, net assets in excess of capital, undivided
profits or excess of profits over losses on sales of assets; (c) the amount,
purpose, time of creation, increase or decrease, alteration or cancellation of
any reserves or charges and the propriety thereof (whether or not any
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged); (d) the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset
owned or held by the Trust; and (e) any matters relating to the acquisition,
holding and disposition of any assets by the Trust.
SECTION 2.10. DUTIES OF TRUSTEES.
(a) In General. A Trustee shall perform his or her duties as
a Trustee, including his or her duties as a member of a committee of the Board
of Trustees on which he or she serves:
(i) In good faith;
(ii) In a manner he or she reasonably believes to be
in the best interest of the Trust; and
(iii) With the care that an ordinarily prudent
person in a like position would use under
similar circumstances.
(b) Reliance on Information from Others. In performing his or
her duties, a Trustee is entitled to rely on any information, opinion, report
or statement, including any financial statement or other financial data,
prepared or presented by:
(i) An officer or employee of the Trust whom the
Trustee reasonably believes to be reliable and competent in
the matters presented;
(ii) A lawyer, certified public accountant or other
person, as to a matter which the Trustee reasonably believes
to be within the person's professional or expert competence;
or
(iii) A committee of the Board of Trustees on which
the Trustee does not serve, as to a matter within its
designated authority, if the Trustee reasonably believes the
committee to merit confidence.
A Trustee is not acting in good faith if he or she has any knowledge concerning
the matter in question which would cause such reliance to be unwarranted.
(c) Best Interests of the Trust. A Trustee, in determining
what is in the best interest of the Trust, shall consider the interests of the
shareholders of the Trust and, in his or her sole discretion, may consider (i)
the interests of the Trust's employees, suppliers, creditors, customers and
partners, and (ii) the long-term as well as short-term interests of the Trust
and its shareholders.
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ARTICLE III
INVESTMENT POLICY
The fundamental investment policy of the Trust is to make
investments in such a manner as to comply with the requirements of Title 8 and,
as long as the Board of Trustees deems it advantageous for the Trust to qualify
as a real estate investment trust (a "REIT") thereunder, the REIT Provisions of
the Code (with respect to the composition of the Trust's investments and the
derivation of its income). The Board of Trustees shall use its reasonable best
efforts to carry out this fundamental investment policy and to conduct the
affairs of the Trust in such a manner as to continue to qualify the Trust for
the tax treatment provided in the REIT Provisions of the Code; provided,
however, that (i) if the Board of Trustees determines that it is no longer in
the best interests of the Trust for it to continue to qualify as a REIT, the
Board of Trustees may revoke or otherwise terminate the Trust's REIT election
under the REIT Provisions of the Code, and (ii) no Trustee, officer, employee
or agent of the Trust shall be liable for any act or omission resulting in the
loss of tax benefits under the Code, except to the extent provided in Section
10.2. The Board of Trustees may establish and change from time to time, by
resolution or in the Bylaws of the Trust, such additional investment policies
as it determines to be in the best interests of the Trustee, including
prohibitions or restrictions upon certain types of investments.
ARTICLE IV
SHARES
SECTION 4.1. AUTHORIZED SHARES. The Trust shall have
authority to issue a total of 500,000,000 shares of beneficial interest in the
Trust, which shall be comprised of 100,000,000 preferred shares, par value $.01
per share (the "PREFERRED SHARES"), and 400,000,000 common shares, par value
$.01 per share (the "COMMON SHARES"). The Board of Trustees may amend this
Declaration from time to time to increase or decrease the aggregate number of
authorized Shares or the number of authorized Shares of any class of Shares
upon the approval of a two thirds majority of the Trustees comprising the
entire Board, provided that any such amendment may not decrease the aggregate
number of authorized Shares or the number of any class of Shares below the
number of then outstanding Shares or Shares of such class, respectively. The
Board of Trustees may from time to time classify or reclassify any unissued
Shares by setting or changing the designations, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications or terms or conditions of redemption of such
Shares.
SECTION 4.2. LIQUIDATION. Subject to any preferential rights
in favor of any class or series of Preferred Shares, upon liquidation or
dissolution of the Trust, each issued and outstanding share of the Common
Shares shall be entitled to participate pro rata in the assets of the Trust
remaining after payment of, or adequate provisions for, all known and
contingent liabilities of the Trust.
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SECTION 4.3. COMMON SHARES. Subject to Section 2.1(c) and to
the provisions of Article VI regarding Excess Shares (as such term is defined
therein), each of the issued and outstanding Common Shares shall entitle the
holder thereof to one vote on all matters presented for a vote of Shareholders.
SECTION 4.4. PREFERRED SHARES. Preferred Shares may be
issued, from time to time, in one or more series as authorized by the Board of
Trustees. Prior to issuance of shares of each series, the Board of Trustees by
resolution shall designate that series to distinguish it from all other series
and classes of stock of the Trust, shall specify the number of shares to be
included in the series and, subject to the provisions of Article VI regarding
Excess Shares, shall set the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption. Subject to
the express terms of any other series of Preferred Shares outstanding at the
time and notwithstanding any other provision of this Declaration, the Board of
Trustees may increase or decrease the number of shares of, or alter the
designation or classify or reclassify, any unissued shares of any series of
Preferred Shares by setting or changing, in any one or more respects, from time
to time before issuing the shares, subject to the provisions of Article VI
regarding Excess Shares, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms of redemption of the shares of any
series of Preferred Shares.
SECTION 4.5. SALE OF SHARES. The Trustees, in their
discretion, may from time to time issue or sell, or contract to issue or sell,
Shares or other Securities of the Trust to such party or parties and for such
form and amount of consideration at such time or times, and on such terms as
the Trustees may deem appropriate. Without limiting the generality of the
foregoing, the Trustees may, in their discretion, issue, sell or contract to
sell options, warrants, rights or other Securities exercisable or exchangeable
for, or convertible into, Shares. In connection with any issuance of Shares,
the Board of Trustees, in their discretion, may provide for the issuance of
fractional Shares or may provide for the issuance of scrip for fractions of
Shares and determine the terms of such scrip, including, without limiting the
generality of the foregoing, the time within which any such scrip must be
surrendered in exchange for Shares and the right, if any, of holders of scrip
upon the expiration of the time so fixed to receive proportional distributions,
and the right, if any, to redeem scrip for cash, or the Trustees may, in their
discretion, or if they see fit at the option of each holder, provide in lieu of
scrip for the adjustment of fractions in cash. In addition the Trustees may
authorize Share dividends and Share splits. All Shares issued hereunder shall
be, when issued and the consideration therefor received by the Trust, fully
paid, and no assessment shall ever be made upon the Shareholders. Ownership of
Shares shall be evidenced by certificates in such form as shall be determined
by the Trustees from time to time in accordance with the laws of the State of
Maryland. The certificates shall be negotiable and title to the Shares
evidenced thereby shall be transferred by assignment or delivery in all
respects in the same manner as a stock certificate of a Maryland corporation.
SECTION 4.6. REPURCHASED SHARES. The Trust may repurchase or
otherwise acquire its own Shares, and for this purpose the Trust may create and
maintain such reserves as the Trustees may deem necessary and proper. Shares
issued hereunder and purchased or
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otherwise acquired for the account of the Trust become authorized but unissued
Shares of the Trust.
SECTION 4.7. TRANSFERABILITY OF SHARES. Subject to Section
6.19, shares in the Trust shall be transferable in accordance with the
procedure prescribed from time to time in the Trust's Bylaws. The Persons in
whose name the Shares are registered on the books of the Trust shall be deemed
the absolute owners thereof and, until a transfer is effected on the books of
the Trust, the Trustees shall not be affected by any notice, actual or
constructive, of any transfer.
SECTION 4.8. EFFECT OF TRANSFER OF SHARES UPON DEATH,
INSOLVENCY OR INCAPACITY OF SHAREHOLDERS. Neither the transfer of Shares nor
the death, insolvency or incapacity of any Shareholder shall operate to
dissolve or terminate the Trust, nor shall it entitle any transferee, legal
representative or other Person to a partition of the property of the Trust or
to an accounting.
SECTION 4.9. DECLARATION OF TRUST AND BYLAWS. All Persons who
shall acquire Shares shall acquire the same subject to the provisions of this
Declaration of Trust and the Bylaws of the Trust.
SECTION 4.10. PREEMPTIVE AND APPRAISAL RIGHTS. Except as may
be expressly provided by the Board of Trustees in establishing any specific
class or series of Shares pursuant to Section 4.1 or Section 4.4 hereof, no
holder of Shares shall, in such capacity: (a) have any preemptive right to
purchase or subscribe for any additional Shares or any other Securities of the
Trust which the Trust may issue or sell or (b) except as expressly required by
Maryland law, have any right to require the Trust to pay him or her the fair
value of his or her Shares in an appraisal or similar proceeding.
SECTION 4.11. SEPARATE CLASSES. Each class of Preferred
Shares and of Common Shares shall be considered a separate class of Shares for
all purposes.
ARTICLE V
CERTAIN TRANSACTIONS
SECTION 5.1. CONTRACTS WITH THIRD PARTIES; DELEGATION OF
AUTHORITY. Subject to Section 5.2 and such other conditions, if any, as may be
required by any applicable statute or regulation, the Board of Trustees may
authorize the execution and performance by the Trust of one or more agreements
with any Person or other organization (whether or not an Affiliate of the
Trust) whereby, subject to the supervision and control of the Board of
Trustees, such Person or its Affiliates shall render or make available to the
Trust, and any other entity directly or indirectly controlled or owned, in
whole or in part, by the Trust, managerial, administrative, banking,
investment, advisory, property management, asset management, partnership
management and/or related services upon such terms and conditions as may be
provided in such agreement or agreements. In connection with the foregoing, the
Board of Trustees may grant
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or delegate to such Person and its Affiliates such authority and power over the
business, properties and affairs of the Trust as it may deem appropriate.
SECTION 5.2. RELATED PARTY TRANSACTIONS. The Board of
Trustees may authorize any agreement of the character described in Section 5.1,
or any other transaction, agreement or arrangement, with any Person although
one or more of the Trustees or officers of the Trust may be a party to any such
agreement or an officer, director, shareholder, partner, member, trustee or
Affiliate of such other party, and no such agreement or transaction shall be
invalidated or rendered void or voidable solely by reason of the existence of
any such relationship, if either (i) the existence of such relationship is
disclosed to or known by (A) the Board of Trustees and the contract or
transaction is approved by a majority of the Board of Trustees other than any
Trustee who is a party to such agreement or an officer, director, shareholder,
partner, member, trustee or Affiliate of such other party, even if those
disinterested Trustees constitute less than a quorum, or (B) the shareholders
entitled to vote, and the contract or transaction is approved by a majority of
the votes cast by shareholders entitled to vote other than votes of shares
owned of record or beneficially by the interested director or such other party,
or (ii) the contract or transaction is fair and reasonable to the Trust. Any
Trustee who is a party to such an agreement or is an officer, director,
shareholder, partner, member, trustee or Affiliate of such other party may be
counted in determining the existence of a quorum at any meeting of the Board of
Trustees considering such matter.
ARTICLE VI
RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF SHARES
SECTION 6.1. DEFINITIONS. For the purposes of this Article
VI, the following terms shall have the following meanings:
"BENEFICIAL OWNERSHIP" shall mean ownership of Shares by a Person who
would be treated as an owner of such Shares under Section 542(a)(2) of the Code
either directly or constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The terms "BENEFICIAL
OWNER," "BENEFICIALLY OWNS," and cognates thereof shall have the correlative
meanings.
"BENEFICIARY" shall mean any organization that is exempt from federal
income taxation under Section 501(c)(3) and to which contributions are
deductible under Section 170(c) of the Code, which organization shall be
designated a beneficiary (as determined pursuant to Section 6.19) of an
interest in the Special Trust (created pursuant to Section 6.15) representing
Excess Shares; provided, however, that the Excess Shares would not be
considered Excess Shares in the hands of such beneficiary. The term
"BENEFICIARIES" shall have the correlative meaning.
"EXCESS SHARES" shall have the meaning ascribed to it in Section 6.3.
"EXISTING HOLDER" shall mean (a) any Person who is the Beneficial
Owner of Shares in excess of the Ownership Limit, so long as, but only so long
as, such Person Beneficially Owns
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Shares in excess of the Ownership Limit and (b) any Person to whom an Existing
Holder Transfers, subject to the limitations provided in this Article VI,
Beneficial Ownership of Shares causing such transferee to Beneficially Own
Shares in excess of the Ownership Limit.
"EXISTING HOLDER LIMIT" shall mean (a) for any Existing Holder who is
an Existing Holder by virtue of clause (a) of the definition thereof,
initially, the percentage of the outstanding Shares Beneficially Owned by such
Existing Holder and, after any adjustment pursuant to Section 6.9, shall mean
such percentage of the outstanding Shares as so adjusted; and (b) for any
Existing Holder who becomes an Existing Holder by virtue of clause (b) of the
definition thereof, initially, the percentage of the outstanding Shares
Beneficially Owned by such Existing Holder at the time that such Existing
Holder becomes an Existing Holder, but in no event shall such percentage be
greater than the Existing Holder Limit for the Existing Holder who Transfers
Beneficial Ownership of Shares to such transferee Existing Holder or, in the
case of more than one transferor, in no event shall such percentage be greater
than the smallest Existing Holder Limit of any transferring Existing Holder,
and, after any adjustment pursuant to Section 6.9, shall mean such percentage
of the outstanding Shares as so adjusted. Prior to the Restriction Termination
Date, the Secretary of the Trust shall maintain and, upon request, make
available to each Existing Holder a schedule which sets forth the then current
Existing Holder Limit for such Existing Holder.
"MARKET PRICE" shall mean, with respect to any class of Shares, the
last reported sales price reported on the New York Stock Exchange, Inc. (the
"EXCHANGE") of such class of Shares on the trading day immediately preceding
the relevant date, or if not then traded on the Exchange, the last reported
sales price on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which such class of Shares
may be traded, or if not then traded over any exchange or quotation system,
then the market price of such class of Shares on the relevant date as
determined in good faith by the Board of Trustees.
"OWNERSHIP LIMIT" shall initially mean that number of Shares which
represents the lesser of (a) 9.8% of the number of outstanding Shares and (b)
9.8% of the value of outstanding Shares, and after any adjustment as set forth
in Section 6.10, shall mean such greater percentage of the outstanding Shares
as so adjusted. The number and value of outstanding Shares shall be determined
by the Board of Trustees in good faith, which determination shall be conclusive
for all purposes hereof.
"PERSON" shall mean a Person as defined in Article I but solely for
purposes of this Article VI shall not include an underwriter that participated
in a public offering of Shares for the 25-day period immediately following the
purchase by such underwriter of such Shares.
"PURPORTED BENEFICIAL HOLDER" shall mean, with respect to any event,
other than a purported Transfer which results in Excess Shares, the Person for
whom the Purported Record Holder of the Shares that pursuant to Section 6.3
were automatically converted into Excess Shares upon the occurrence of such
event held such Shares.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any
purported Transfer which results in Excess Shares, the purported beneficial
transferee for whom the Purported
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Record Transferee would have acquired Shares, if such Transfer had been valid
under Section 6.2.
"PURPORTED OWNER" shall mean any Purported Beneficial Holder,
Purported Beneficial Transferee, Purported Record Holder or Purported Record
Transferee, as the case may be.
"PURPORTED OWNER LIMITATION" shall mean, as to a Purported Owner, on a
Share-by- Share basis, an amount not exceeding the lesser of: (a) (i) if the
Purported Owner gave value for such Shares converted into Excess Shares, the
price per Share that such Purported Owner paid in the purported Transfer for
the Shares that were converted into such Excess Shares, or (ii) if the
Purported Owner did not give value for such Shares converted into Excess Shares
(through a gift, devise or otherwise), a price per Share equal to the Market
Price for such converted Shares on the date of the purported Transfer or such
other event which results in Excess Shares; and (b) the price per Share
received by the Special Trustee from the sale, exchange or other disposition of
the Excess Shares.
"PURPORTED RECORD HOLDER" shall mean with respect to any event, other
than a purported Transfer which results in Excess Shares, the record holder of
the Shares that, pursuant to Section 6.3, were automatically converted into
Excess Shares upon the occurrence of such event.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any
purported Transfer which results in Excess Shares, the Person who would have
been the record holder of the Shares, if such Transfer had been valid under
Section 6.2.
"RESTRICTION TERMINATION DATE" shall mean the first day on which the
Board of Trustees determines that it is no longer in the best interests of the
Trust to attempt to, or to continue to, qualify under the REIT Provisions of
the Code.
"SPECIAL TRUST" shall mean any special trust created pursuant to
Section 6.15.
"SPECIAL TRUSTEE" shall mean a trustee of any Special Trust,
designated by the Trust and unaffiliated with the Trust or any prohibited
transferee or Purported Owner of Excess Shares.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Shares, including without limitation (a) the granting of
any option or entering into any agreement for the sale, transfer or other
disposition of Shares or (b) the sale, transfer, assignment or other
disposition of any securities or rights convertible into or exchangeable for
Shares, whether voluntary or involuntary, whether of record or beneficially and
whether by operation of law or otherwise.
SECTION 6.2. OWNERSHIP LIMITATION.
---------------------
(a) Except as provided in Section 6.12, prior to the Restriction
Termination Date, no Person other than an Existing Holder shall Beneficially
Own Shares in excess of the Ownership Limit, and no Existing Holder shall
Beneficially Own Shares in excess of the Existing Holder Limit for such
Existing Holder.
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(b) Except as provided in Section 6.12, prior to the Restriction
Termination Date, any Transfer that, if effective, would result in any Person
other than an Existing Holder Beneficially Owning Shares in excess of the
Ownership Limit shall be void ab initio as to the Transfer of such number of
Shares as would be otherwise Beneficially Owned by such Person in excess of the
Ownership Limit, and the intended transferee shall acquire no rights in or to
such number of Shares.
(c) Except as provided in Sections 6.9 and 6.12, prior to the
Restriction Termination Date, any Transfer that, if effective, would result in
any Existing Holder Beneficially Owning Shares in excess of the applicable
Existing Holder Limit shall be void ab initio as to the Transfer of such number
of Shares as would be otherwise Beneficially Owned by such Existing Holder in
excess of the applicable Existing Holder Limit, and such Existing Holder shall
acquire no rights in or to such number of Shares.
(d) Except as provided in Section 6.12, prior to the Restriction
Termination Date, any Transfer that, if effective, would result in Shares being
owned by less than 100 Shareholders (determined without reference to any rules
of attribution) shall be void ab initio and the intended transferee shall
acquire no rights in or to such Shares.
(e) Prior to the Restriction Termination Date, any Transfer that, if
effective, would result in the Trust being "closely held" within the meaning of
Section 856(h) of the Code shall be void ab initio as to the Transfer of such
number of Shares which would cause the Trust to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee shall
acquire no rights in or to such number of Shares.
SECTION 6.3. EXCESS SHARES.
--------------
(a) If, notwithstanding the other provisions contained in this Article
VI, at any time prior to the Restriction Termination Date, there is a purported
Transfer such that any Person would Beneficially Own Shares in excess of the
applicable Ownership Limit or Existing Holder Limit, then, except as otherwise
provided in Sections 6.9 and 6.12, such number of Shares in excess of such
Ownership Limit or Existing Holder Limit (rounded up to the nearest whole
share) shall automatically be converted into "Excess Shares" and be treated as
provided in this Article VI. Such designation and treatment shall be effective
as of the close of business on the business day immediately prior to the date
of the purported Transfer.
(b) If, notwithstanding the other provisions contained in this Article
VI, at any time prior to the Restriction Termination Date, there is a purported
Transfer which, if effective, would cause the Trust to become "closely held"
within the meaning of Section 856(h) of the Code, then the Shares being
Transferred which would cause the Trust to be "closely held" within the meaning
of Section 856(h) of the Code (rounded up to the nearest whole share) shall
automatically be converted into Excess Shares and be treated as provided in
this Article VI. Such designation and treatment shall be effective as of the
close of business on the business day immediately prior to the date of the
purported Transfer.
(c) If, at any time prior to the Restriction Termination Date, an
event other than a purported Transfer (an "EVENT") occurs (including, without
limitation, a change in the Trust's
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capital structure) which would cause any Person to Beneficially Own Shares in
excess of the applicable Ownership Limit or Existing Holder Limit, then, except
as otherwise provided in Sections 6.9 and 6.12, Shares Beneficially Owned by
such Person shall be automatically converted into Excess Shares to the extent
necessary to eliminate such excess ownership. Such conversion shall be
effective as of the close of business on the business day immediately prior to
the date of the Event. In determining which Shares are converted, Shares
directly held or Beneficially Owned by any Person who caused the Event to occur
shall be converted before any Shares not so held are converted. Where several
such Persons exist, the conversion shall be pro rata.
SECTION 6.4. PREVENTION OF TRANSFER. If the Board of Trustees
or its designee shall at any time determine in good faith that a Transfer has
taken place in violation of Section 6.2 or that a Person intends to acquire or
has attempted to acquire Beneficial Ownership (determined without reference to
any rules of attribution) or Beneficial Ownership of any Shares in violation of
Section 6.2, the Board of Trustees or its designee shall take such action as it
deems advisable to refuse to give effect to or to prevent such Transfer
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer;
provided, however, that any Transfers or attempted Transfers in violation of
subparagraphs Section 6.2(b), (c) and (e) shall automatically result in the
designation and treatment described in Section 6.3, irrespective of any action
(or non-action) by the Board of Trustees.
SECTION 6.5. NOTICE TO TRUST. Any Person who acquires or
attempts to acquire Shares in violation of Section 6.2, or any Person who is a
transferee such that Excess Shares result under Section 6.3, shall immediately
give written notice or, in the event of a proposed or attempted acquisition,
give at least 15 days prior written notice, to the Trust of such event, and
shall provide to the Trust such other information as the Trust may request in
order to determine the effect, if any, of such acquisition or attempted
acquisition on the Trust's status as a REIT.
SECTION 6.6. INFORMATION FOR TRUST. Prior to the Restriction
Termination Date:
(a) Every Beneficial Owner of more than 5.0% (or such other
percentage, between 0.5% and 5.0%, as provided in the income tax regulations
promulgated under the Code) of the number or value of outstanding Shares shall,
within 30 days after January 1 of each year (or within such shorter period as
may be reasonably requested by the Trust), give written notice to the Trust
stating the name and address of such Beneficial Owner, the number of Shares
Beneficially Owned, and a description of how such Shares are held. Each such
Beneficial Owner shall provide to the Trust such additional information as the
Trust may reasonably request in order to determine the effect, if any, of such
Beneficial Ownership on the Trust's status as a REIT under the REIT Provisions
of the Code.
(b) Each Person who is a Beneficial Owner of Shares and each Person
(including the Shareholder of record) who is holding Shares for a Beneficial
Owner shall immediately provide to the Trust such information as the Trust may
reasonably request in order to determine the Trust's status as a REIT under the
REIT Provisions of the Code, to comply with the
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requirements of any taxing authority or governmental agency or to determine any
such compliance.
SECTION 6.7. OTHER ACTION BY BOARD. Nothing contained in this
Article VI shall limit the authority of the Board of Trustees to take such
other action as it deems necessary or advisable to protect the Trust and the
interests of the Shareholders by preservation of the Trust's status as a REIT
under the REIT Provisions of the Code.
SECTION 6.8. AMBIGUITIES. In the case of an ambiguity in the
application of any of the provisions of this Article VI, including any
definition contained in Section 6.1 and any ambiguity with respect to which
Shares are to constitute Excess Shares in a given situation, the Board of
Trustees shall have the power to determine the application of the provisions of
this Article VI with respect to any situation based on the facts known to it.
SECTION 6.9. MODIFICATIONS OF EXISTING HOLDER LIMITS. The
Existing Holder Limits may be modified as follows:
(a) Subject to the limitations provided in Section 6.11, the Board of
Trustees may grant stock options which result in Beneficial Ownership of Shares
by an Existing Holder pursuant to a stock option plan approved by the Board of
Trustees and/or the Shareholders. Any such grant shall be deemed to increase,
without any further action by the Board of Trustees, the Existing Holder Limit
for the affected Existing Holder to the maximum extent possible under Section
6.11 to permit the Beneficial Ownership of the Shares issuable upon the
exercise of such stock option.
(b) Subject to the limitations provided in Section 6.11, an Existing
Holder may elect to participate in a dividend reinvestment plan or direct stock
purchase plan approved by the Board of Trustees which results in Beneficial
Ownership of Shares by such participating Existing Holder. Any such
participation shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under Section 6.11 to permit
Beneficial Ownership of the Shares acquired or which can be acquired as a
result of such participation.
(c) The Board of Trustees will reduce the Existing Holder Limit for
any Existing Holder following a Transfer permitted by this Article VI by the
percentage of the total outstanding Shares so Transferred by such Existing
Holder, or after the lapse (without exercise) of a stock option described in
Section 6.9(a), by the percentage of the total outstanding Shares that the
stock option, if exercised, would have represented.
SECTION 6.10. INCREASES IN OWNERSHIP LIMIT AND EXISTING
HOLDER LIMITS. Subject to the limitations provided in Section 6.11, the Board
of Trustees may from time to time increase the Ownership Limit or any Existing
Holder Limit.
SECTION 6.11. LIMITATIONS ON CHANGES IN EXISTING HOLDER AND
OWNERSHIP LIMITS.
(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased if, after giving effect to such increase, five, or fewer, Beneficial
Owners of Shares (including all
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of the then Existing Holders) could Beneficially Own, in the aggregate, more
than 50.0% in number or value (determined as provided in the definition of
"Ownership Limit" in Section 6.1) of the outstanding Shares.
(b) Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to Sections 6.9 or 6.10, the Board of Trustees may
require such opinions of counsel, affidavits, undertakings or agreements as it
may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT under the REIT Provisions of the Code.
(c) No Existing Holder Limit shall be reduced to a percentage which is
less than the Ownership Limit.
SECTION 6.12. EXEMPTIONS.
----------
(a) Notwithstanding any other provisions of this Article VI to the
contrary, there will be no Existing Holder Limit applicable to Insignia and its
Affiliates, individually or in the aggregate, and Insignia may hold an
unlimited amount of Shares except to the extent that any holder of shares of
stock of Insignia would be deemed, by the rules of attribution, to hold more
than the Ownership Limit or the Existing Holder Limit, as the case may be.
(b) The Board of Trustees may exempt a Person from the Ownership Limit
or the Existing Holder Limit as the case may, in its sole and absolute
discretion, be, upon receipt of a ruling from the Internal Revenue Service or
an opinion of counsel or other evidence satisfactory to the Board of Trustees
to the effect that such exemption will not result in the Trust being "closely
held" within Section 856(h) of the Code, and upon such other conditions as the
Board of Trustees may direct (including, without limitation, representations,
warranties and undertakings by the intended Transferee).
SECTION 6.13. LEGEND. Each certificate for Shares shall bear
substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER FOR, AMONG OTHER THINGS, THE PURPOSE OF THE
TRUST'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. EXCEPT AS
OTHERWISE PROVIDED PURSUANT TO THE DECLARATION OF TRUST OF THE TRUST,
NO PERSON (UNLESS SUCH PERSON IS AN EXISTING HOLDER) MAY BENEFICIALLY
OWN SHARES (WHICH INCLUDES OWNERSHIP BY ATTRIBUTION AS WELL AS DIRECT
OWNERSHIP) IN EXCESS OF THAT NUMBER OF SHARES WHICH EQUALS 9.8% (OR
SUCH GREATER PERCENTAGE AS MAY BE DETERMINED BY THE BOARD OF TRUSTEES
OF THE TRUST) OF THE LESSER OF (A) THE NUMBER OF OUTSTANDING SHARES OF
THE TRUST AND (B) THE VALUE OF OUTSTANDING SHARES OF THE TRUST. ANY
PERSON WHO ATTEMPTS OR PROPOSES TO BENEFICIALLY OWN SHARES IN EXCESS
OF THE ABOVE LIMITATIONS MUST NOTIFY THE TRUST IN WRITING AT LEAST 15
DAYS PRIOR TO SUCH PROPOSED OR ATTEMPTED TRANSFER. ALL ITALICIZED
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TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE DECLARATION OF
TRUST OF THE TRUST, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON
TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE TRANSFER
WILL BE VOID AB INITIO AND THE SECURITIES REPRESENTED HEREBY WILL BE
DESIGNATED AND TREATED AS EXCESS SHARES WHICH WILL BE HELD IN A
SPECIAL TRUST.
SECTION 6.14. SEVERABILITY. If any provision of this Article
VI or any application of any such provision is determined to be void, invalid
or unenforceable by any court having jurisdiction over the issue, 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 6.15. SPECIAL TRUST FOR EXCESS SHARES. Upon any
purported Transfer or Event that results in Excess Shares pursuant to Section
6.3, such Excess Shares shall be deemed to have been transferred to the Special
Trustee of a Special Trust for the benefit of such Beneficiary or Beneficiaries
to whom an interest in such Special Trust may later be transferred pursuant to
Section 6.19. Excess Shares so held in trust shall be issued and outstanding
Shares. The Purported Record Transferee or Purported Record Holder of such
Shares shall have no rights in or to such Excess Shares except as specifically
provided herein. The Purported Beneficial Transferee or Purported Beneficial
Holder of such Shares shall have no rights in or to such Excess Shares except
as specifically provided herein.
SECTION 6.16. DIVIDENDS FOR EXCESS SHARES. The Purported
Owner of Excess Shares shall not be entitled to any dividends or other
distributions with respect to such Shares. Any dividend or other distribution
paid to a Purported Owner prior to the discovery by the Trust that Shares have
become Excess Shares pursuant to this Article VI shall be repaid to the Trust
immediately upon notification by the Trust that such dividend or other
distribution was paid with respect to Excess Shares, and such dividend or other
distribution shall then be remitted by the Trust to the Special Trust. All
dividends and other distributions (other than those distributions of Trust
assets described in Section 6.17 hereof) with respect to Excess Shares shall
inure to the benefit of the Beneficiaries.
SECTION 6.17. SALES, EXCHANGES AND LIQUIDATING DISTRIBUTIONS
WITH RESPECT TO EXCESS SHARES. Upon (A) the sale or exchange of Excess Shares
by the Special Trustee, (B) the voluntary or involuntary liquidation,
dissolution or winding up of, or any other distribution of all or substantially
all of the assets of, the Trust, or (C) the purchase of Excess Shares by the
Trust pursuant to Section 6.20 hereof, the Special Trustee, as holder of the
Excess Shares in trust, shall, subject to the Purported Owner Limitation,
distribute ratably to the Purported Owner(s), (i) in the case of any
liquidation, dissolution or winding up of, or any distribution of the assets
of, the Trust, any such assets received in respect of the Excess Shares, (ii)
in the case of a sale or exchange of Excess Shares by the Special Trustee, the
amounts received from such sale or exchange, or (iii) in the case of any
purchase of Excess Shares by the Trust pursuant to Section 6.20 hereof, the
amounts received from such purchase. Any amounts of Trust assets
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or amounts received upon the sale, exchange or purchase by the Trust of Excess
Shares, in excess of the Purported Owner Limitation, shall be distributed to
the Beneficiaries.
If, notwithstanding the foregoing, a Purported Owner receives an
amount from (i) the liquidation, dissolution or winding up of, or any
distribution of the assets of, the Trust, (ii) the sale or exchange of Excess
Shares or (iii) the purchase of Excess Shares by the Trust pursuant to Section
6.20 hereof, that exceeds the Purported Owner Limitation, such Purported Owner
shall pay such excess immediately to the Trust, which shall remit such amount
to the Special Trustee.
SECTION 6.18. VOTING RIGHTS FOR EXCESS SHARES. A Purported
Owner of Excess Shares shall not be entitled to vote on any matter and shall be
deemed to have given to the Special Trustee an irrevocable proxy, coupled with
an interest, to vote the Excess Shares. If a Purported Owner shall vote such
Excess Shares before it is discovered that such Shares are Excess Shares, then
the vote by such Purported Owner shall be void ab initio.
SECTION 6.19. NON-TRANSFERABILITY OF EXCESS SHARES. Excess
Shares shall not be transferable by a Purported Owner. Subject to Section 6.20,
the Special Trustee of any Excess Shares may freely designate a Beneficiary of
an interest in the Special Trust representing such Excess Shares.
SECTION 6.20. CALL BY TRUST ON EXCESS SHARES. Excess Shares
shall be deemed to have been offered for sale to the Trust or its designee at a
price per share equal to: (A) in the case of Excess Shares resulting from a
purported Transfer, the lesser of (i) the price per Share in such purported
Transfer of the Shares that were converted into such Excess Shares (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; and (B) in the case of Excess Shares created by any other Event, the
lesser of (i) the Market Price of the Shares that were converted into such
Excess Shares on the date of such conversion and (ii) the Market Price of such
Shares on the date the Trust or its designee accepts such offer. The Trust
shall have the right to accept such offer for a period of 90 days after the
later of (i) the date of the purported Transfer or other Event which resulted
in an exchange of Shares for such Excess Shares and (ii) the date the Board of
Trustees determines in good faith that a purported Transfer or other Event
resulting in an exchange of Shares for such Excess Shares has occurred, if the
Trust does not receive a notice of any such Transfer pursuant to Section 6.5.
ARTICLE VII
SHAREHOLDERS
SECTION 7.1. MEETINGS OF SHAREHOLDERS. Any action required or
permitted to be taken by Shareholders shall be effected at a duly called annual
or special meeting of the Shareholders and may not be effected by written
consent of the Shareholders. There shall be an annual meeting of the
Shareholders at such time and at such a convenient location, either within or
without the State of Maryland, as the Trustees shall prescribe, at which
Trustees shall be elected or reelected and any other proper business may be
conducted. The annual meeting
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of Shareholders shall be held upon reasonable notice and within a reasonable
period (not less than 30 days) following delivery of the Trust's annual report,
but in any event such meeting must be held within six months after the end of
each full fiscal year. The Chairman of the Board or the President or a majority
of the Trustees may call special meetings of the Shareholders. Special meetings
of Shareholders may also be called by a majority of the Trustees or by the
Secretary upon the written request of the holders of Shares entitled to cast
not less than 25% of all votes entitled to be cast at such meeting. If there
shall be no Trustees, the officers of the Trust shall promptly call a special
meeting of the Shareholders for the election of successor Trustees. Written or
printed notice stating the place, date and hour of the Shareholders' meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than 10 nor more than 60 days
before the day of the meeting either personally or by mail, by or at the
direction of the Trustees or any officer or Person calling the meeting, to each
Shareholder of record entitled to vote in such meeting. No other business than
that which is stated in the call for a special meeting shall be considered at
such meeting.
Shares representing a majority of the votes entitled to be cast at any
meeting represented in Person or by proxy shall, except as otherwise authorized
by law or this Declaration of Trust or the Bylaws, constitute a quorum at any
such meeting. Whenever any action is to be taken by the Shareholders, it shall,
except as otherwise required by law or this Declaration of Trust or the Bylaws,
be authorized by a majority of the votes cast at a meeting of Shareholders by
holders of Shares entitled to vote thereon.
SECTION 7.2. VOTING RIGHTS OF SHAREHOLDERS. Subject to the
provisions of any class or series of Shares entitled to vote as a class under
the articles supplementary establishing such class or series, the Shareholders
shall be entitled to vote only on the following matters: (a) subject to Section
2.1(c), the election or removal of Trustees; (b) except as otherwise provided
in Sections 4.1 and 8.2, the amendment of this Declaration of Trust; (c) the
voluntary dissolution or termination of the Trust; and (d) the merger or
consolidation of the Trust or the sale or other disposition of all or
substantially all of the Trust Property. Except with respect to the foregoing
matters, no action taken by the Shareholders at any meeting shall in any way
bind the Trustees.
SECTION 7.3. ANNUAL REPORT. The annual report shall be
delivered to the Shareholders each year in accordance with ss. 8-401 of Title
8.
SECTION 7.4. INSPECTION OF RECORDS. Shareholders shall have
the right to inspect the books or records of the Trust to the extent permitted
to shareholders of a corporation under ss. 2-512 and ss. 2-513 of the Maryland
General Corporation Law (the "MGCL"), or any successor statute.
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ARTICLE VIII
AMENDMENT
SECTION 8.1. BY SHAREHOLDERS. Except as provided in Sections
1.1, 4.1 and 8.2 hereof, and subject to the right of any class or series of
Shares to vote as a class as set forth in the articles supplementary
establishing such class or series, this Declaration of Trust may be amended
only by the affirmative vote of at least a majority of all votes entitled to be
cast thereon after the adoption of a resolution by the Board of Trustees
setting forth the proposed amendment, declaring it to be advisable and
directing that it be submitted to the Shareholders for consideration in
accordance with Title 8; provided, however, that the affirmative votes of at
least two-thirds of all votes entitled to be cast thereon, with each class
voting as a separate class, shall be required for any amendment to Sections
2.1, 2.2, 4.1 (subject to the second sentence thereof), 5.1, 5.2, 6.12, 10.2,
11.2 or Article IX hereof or this Section 8.1.
SECTION 8.2. BY TRUSTEES. The Trustees, by a two-thirds vote,
may amend provisions of this Declaration of Trust from time to time if they
shall reasonably believe that such amendment is necessary or appropriate to
enable the Trust to qualify as a real estate investment trust under the Code or
under Title 8.
SECTION 8.3. NO OTHER AMENDMENT. This Declaration of Trust
may not be amended except as provided in Section 4.1, this Article VIII and ss.
8-501 of Title 8.
ARTICLE IX
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8. The Trust may be voluntarily dissolved and its
existence terminated only by the affirmative vote of at least two-thirds of all
votes entitled to be cast on the matter (subject to the rights of any class or
series to vote as a class as set forth in the articles supplementary
establishing such class or series). The Trust may sell or otherwise dispose of
all or substantially all of the Trust Property only by the affirmative vote of
at least two-thirds of all votes entitled to be cast on the matter (subject to
such class voting rights).
ARTICLE X
LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
SECTION 10.1. LIMITATION OF SHAREHOLDER LIABILITY. No
Shareholder shall be liable for any debt, claim, demand, judgment or obligation
of any kind of, against or with respect to the Trust by reason of being a
Shareholder, nor shall any Shareholder be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any Person in connection with
the Trust Property or the affairs of the Trust.
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SECTION 10.2. LIMITATION OF TRUSTEE AND OFFICER LIABILITY. To
the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of trustees and officers of a real estate
investment trust, no Trustee or officer of the Trust shall be liable to the
Trust or to any Shareholder for money damages. Neither the amendment nor repeal
of this Section 10.2, nor the adoption or amendment of any other provision of
this Declaration of Trust inconsistent with this Section 10.2, shall apply to
or affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. In the absence of any Maryland statute limiting the
liability of trustees and officers of a Maryland real estate investment trust
for money damages in a suit by or on behalf of the Trust or by any Shareholder,
no Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages except to the extent that (a) it is proven that
the Trustee or officer actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in money,
property or services actually received or (b) a judgment or other final
adjudication adverse to the Trustee or officer is entered in a proceeding based
on a finding in the proceeding that the Trustee's or officer's action or
failure to act as the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. References in
this Article X to Trustees or officers shall be deemed to refer to any Person
who is or was a Trustee or officer of the Trust and any Person who, while a
Trustee or officer of the Trust, is or was serving at the request of the Trust
as a director, officer, partner, member, venturer, proprietor, trustee,
employee, agent, or similar functionary of another corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise.
SECTION 10.3. EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS.
Neither the Shareholders nor the Trustees, officers, employees or agents of the
Trust shall be liable under any written instrument creating an obligation of
the Trust, and all Persons shall look solely to the Trust Property for the
payment of any claim under or for the performance of that instrument. The
omission of the foregoing exculpatory language from any instrument shall not
affect the validity or enforceability of such instrument and shall not render
any Shareholder, Trustee, officer, employee or agent liable thereunder to any
third party, nor shall the Trustees or any officer, employee or agent of the
Trust be liable to anyone for such omission.
SECTION 10.4. INDEMNIFICATION AND ADVANCE FOR EXPENSES.
(a) Any Person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Trust), by reason of the fact that he or she is or was a
Trustee, officer, employee, or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, incorporator, employee, partner,
trustee, member or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including an employee benefit plan), shall be
indemnified by the Trust to the fullest extent then permitted by Maryland law
against expenses (including attorney's fees and disbursements), judgments,
penalties, fines (including excise taxes assessed on a Person with respect to
an employee benefit plan), and amounts paid in settlement incurred by him or
her in connection with such action, suit or proceeding. Neither the amendment
nor repeal of this Section 10.4, nor the adoption or amendment of any other
provision of this Declaration of Trust inconsistent with this Section 10.4,
shall apply to or affect in any respect the applicability of the
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indemnification provided for herein with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption. Such right of
indemnification shall continue as to a Person who has ceased to be a Trustee,
director, officer, incorporator, employee, partner, trustee, member or agent,
and shall inure to the benefit of the heirs, executors, and administrators of
such a Person. The indemnification provided by this Section 10.4 shall not be
deemed exclusive of any other rights which may be provided now or in the future
under any provision currently in effect or hereafter adopted of the Bylaws, by
any agreement, by vote of Shareholders, by resolution of disinterested
Trustees, by provision of law or otherwise. The Board of Trustees may take such
actions as it may from time to time deem necessary or appropriate to carry out
these indemnification provisions, and is expressly empowered to adopt, approve
and amend from time to time such Bylaws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by laws. Notwithstanding the foregoing, the Trust shall be required
to indemnify a Person in connection with a proceeding initiated by such Person
only if such proceeding was authorized by the Board of Trustees.
(b) The Trust shall advance any Person who is eligible for
indemnification for reasonable expenses incurred by such Person who is a party
to a proceeding prior to the final disposition of the proceeding upon receipt
by the Trust of (i) a written affirmation by such Person of such Person's good
faith belief that the standard of conduct necessary under Maryland law for
indemnification by the Trust as authorized in this Section 10.4 has been met
and (ii) a written undertaking by or on behalf of such Person to repay the
amount if it shall ultimately be determined that the standard of conduct has
not been met all in accordance with and to the extent permitted by Maryland
law.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. GOVERNING LAW. The rights of all parties and
the validity, construction and effect of every provision of this Declaration of
Trust shall be subject to and construed according to the laws of the State of
Maryland without regard to conflicts of laws provisions thereof.
SECTION 11.2. CERTAIN EXEMPTIONS. The provisions of Title 3,
Subtitle 6 of the MGCL, entitled "Special Voting Requirements", shall not apply
to business combinations involving the Trust and Insignia, any successor entity
of the Trust or Insignia, any Affiliate of Insignia or such successor entity,
Andrew L. Farkas or any Affiliate of Andrew L. Farkas (each, an "EXEMPTED
SHAREHOLDER"), and the provisions of Title 3, Subtitle 7 of the MGCL, entitled
"Voting Rights of Certain Control Shares" shall not apply to any acquisition of
Shares by any Exempted Shareholder. For purposes of the exemption provided for
in this Section 11.2, the determination of Affiliate status shall be made
without reference to the presumption as to control set forth in Section
3-601(g) of the aforementioned Subtitle 6.
SECTION 11.3. RELIANCE BY THIRD PARTIES. Any certificate
shall be final and conclusive as to any Person dealing with the Trust if
executed by an individual who, according
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to the records of the Trust or of any recording office in which this
Declaration of Trust may be recorded, appears to be the Secretary or an
Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the
number or identify of Trustees, officers of the Trust or Shareholders; (b) the
due authorization of the execution of any document; (c) any action or vote
taken, and the existence of a quorum at a meeting of Trustees or Shareholders;
(d) a copy of this Declaration of Trust or of the Bylaws as a true and complete
copy as then in force; (e) an amendment to this Declaration of Trust; (f) the
termination of the Trust; or (g) the existence of any fact or facts which
relate to the affairs of the Trust. No purchaser, lender, transfer agent or
other Person shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made on behalf of the Trust by the Trustees or by
any officer, employee or agent of the Trust.
SECTION 11.4. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
-----------------------------------------------
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any one or more
of such provisions (the "CONFLICTING PROVISIONS") are in conflict with the REIT
Provisions of the Code, Title 8 or any other applicable federal or state law,
the Conflicting Provisions shall be deemed never to have constituted a part of
this Declaration of Trust, even without any amendment of this Declaration of
Trust pursuant to Article VIII; provided, however, that such determination by
the Trustees shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination. No Trustee shall be liable for making or failing
to make such a determination.
(b) If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
SECTION 11.5. CONSTRUCTION. In this Declaration of Trust,
unless the context otherwise requires, words used in the singular or in the
plural include both the plural and singular and words denoting any gender
include all genders. The title and headings of different parts of this
Declaration of Trust are inserted for convenience and shall not affect the
meaning, construction or effect of this Declaration of Trust.
SECTION 11.6. RECORDATION. This Declaration of Trust and any
amendment or supplement hereto shall be filed for record with the State
Department of Assessments and Taxation of the State of Maryland and may also be
filed or recorded in such other places as the Trustees deem appropriate, but
failure to file for record this Declaration of Trust or any amendment or
supplement hereto in any office other than in the State Department of
Assessments and Taxation of the State of Maryland shall not affect or impair
the validity or effectiveness of this Declaration of Trust or any amendment
hereto. A restated Declaration of Trust shall, upon filing, be conclusive
evidence of all amendments or supplements contained therein and may thereafter
be referred to in lieu of the original Declaration of Trust and the various
amendments or supplements thereto.
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FOURTH: The amendments to and the restatement of the Declaration of
Trust set forth in these Articles of Amendment and Restatement were declared
advisable by the Board of Trustees by unanimous written consent dated February
3, 1998, and were approved by the shareholders of the Trust at a meeting held
on February 17, 1998, all in the manner prescribed by and in accordance with
the provisions of Section 8-501 of the Corporations and Associations Article of
the Maryland Annotated Code.
FIFTH: The name and address of the current resident agent of the Trust
are set forth in Section 1.2 of the Declaration of Trust set forth in Article
THIRD hereof.
SIXTH: As of the date hereof, the Trust has three Trustees. The names
of those currently in office are Frank M. Garrison, James A. Aston and Andrew
L. Farkas.
IN WITNESS WHEREOF, these Articles of Amendment and Restatement have
been executed on February 17, 1998, by the undersigned Trustees, each of whom
acknowledges this document to be the act of the Trust and that, to the best of
his knowledge, information and belief and under the penalty of perjury, the
matters and facts set forth herein are true and correct in all material
respects.
-----------------------------------
Frank M. Garrison
-----------------------------------
James A. Aston
-----------------------------------
Andrew L. Farkas
<PAGE>
INSIGNIA PROPERTIES TRUST
FIRST AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall
be located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional offices
at such places as the Trustees may from time to time determine or the business
of the Trust may require.
Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of
the Trust shall begin on January 1 and end on December 31.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States
as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held each year, at a convenient location and on proper
notice, on the date and at the time set by the Trustees. Failure to hold an
annual meeting does not invalidate the Trust's existence or affect any
otherwise valid acts of the Trust.
Section 3. SPECIAL MEETINGS. The Chairman of the Board or the
President may call special meetings of the shareholders. Special meetings of
shareholders may also be called by a majority of the Trustees or by the
secretary upon the written request of the holders of shares entitled to cast
not less than 25% of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. The secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment by such shareholders to the Trust of such costs, the secretary
shall give notice to each shareholder entitled to notice of the meeting.
Section 4. NOTICE. Not less than ten nor more than 60 days before each
meeting of shareholders, the secretary shall give to each shareholder entitled
to vote at such meeting and to each shareholder not entitled to vote (but who
is entitled to notice of the meeting) written or
<PAGE>
printed notice stating the time and place of the meeting and, in the case of a
special meeting or as otherwise may be required by any statute, the purpose for
which the meeting is called, either by mail or by presenting it to such
shareholder personally or by leaving it at his or her residence or usual place
of business. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the shareholder at his post office
address as it appears on the records of the Trust, with postage thereon
prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there is one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there is one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall serve as Chairman, and the
Secretary, or, in his absence, an assistant secretary, or in the absence of
both the Secretary and assistant secretaries, a person appointed by the
Chairman shall serve as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such
quorum shall not be present at any meeting of the shareholders, the
shareholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not
more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A majority of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient
to elect a Trustee. Each share may be voted for as many individuals as there
are Trustees to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of shareholders duly called
and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required herein or by statute or by the Declaration of
Trust. Unless otherwise provided in the Declaration of Trust, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders.
Section 9. PROXIES. A shareholder may cast the votes entitled to be
cast by the shares owned of record by him, her or it, either in person or by
proxy executed in writing by the shareholder or by his, her or its duly
authorized attorney in fact. Such proxy shall be filed with
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the secretary of the Trust before or at the time of the meeting. No proxy shall
be valid more than eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the
partners of the partnership presents a certified copy of such bylaw, resolution
or agreement, in which case such person may vote such shares. Any trustee or
other fiduciary may vote shares registered in his, her or its name as such
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number
of outstanding shares entitled to be voted at any given time, unless they are
held by it in a fiduciary capacity, in which case they may be voted and shall
be counted in determining the total number of outstanding shares at any given
time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person
other than the shareholder. The resolution shall set forth the class of
shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the resolution shall state the time after
the record date or closing of the share transfer books within which the
certification must be received by the Trust; and any other provisions with
respect to the procedure which the Trustees consider necessary or desirable. On
receipt of such certification, the person specified in the certification shall
be regarded as, for the purposes set forth in the certification, the
shareholder of record of the specified shares in place of the shareholder who
makes the certification.
Section 11. INSPECTORS. At any meeting of shareholders, the chairman
of the meeting may, or upon the request of any shareholder shall, appoint one
or more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report
the results and perform such other acts as are proper to conduct the election
and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
her or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
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Section 12. NOMINATIONS AND SHAREHOLDER BUSINESS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board
of Trustees and the proposal of business to be considered by
the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the Trust's notice of meeting,
(ii) by or at the direction of the Trustees or (iii) by any
shareholder of the Trust who was a shareholder of record at
the time of giving of notice provided for in this Section
12(a), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section
12.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to
clause (iii) of paragraph (a)(1) of this Section 12, the
shareholder must have given timely notice thereof in writing
to the secretary of the Trust. To be timely, a shareholder's
notice shall be delivered to the secretary at the principal
executive offices of the Trust not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary
date, notice by the shareholder to be timely must be so
delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later
of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of
such meeting is first made. Such shareholder's notice shall
set forth (i) each person whom the shareholder proposes to
nominate for election or reelection as a Trustee; (ii) as to
any other business that the shareholder proposes to bring
before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material
interest in such business of such shareholder and of the
beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination
or proposal is made, (x) the name and address of such
shareholder, as they appear on the Trust's books, and of such
beneficial owner and (y) the number of each class of shares
of the Trust which are owned beneficially and of record by
such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence
of paragraph (a)(2) of this Section 12 to the contrary, in
the event that the number of Trustees to be elected to the
Board of Trustees is increased and there is no public
announcement naming all of the nominees for Trustee or
specifying the size of the increased Board of Trustees made
by the Trust at least 70 days prior to the first anniversary
of the preceding year's annual meeting, a shareholder's
notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be
delivered to the secretary at the principal executive offices
of the Trust not later
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than the close of business on the tenth day following the day
on which such public announcement is first made by the Trust.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business
shall be conducted at a special meeting of shareholders as shall have
been brought before the meeting pursuant to the Trust's notice of
meeting. Nominations of persons for election to the Board of Trustees
may be made at a special meeting of shareholders at which Trustees are
to be elected (i) pursuant to the Trust's notice of meeting, (ii) by
or at the direction of the Board of Trustees or (iii) provided that
the Board of Trustees has determined that Trustees shall be elected at
such special meeting, by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice provided for in
this Section 12(b) and at the time of the special meeting, who is
entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 12(b). In the event the Trust
calls a special meeting of shareholders for the purpose of electing
one or more Trustees to the Board of Trustees, any such shareholder
may nominate a person or persons (as the case may be) for election to
such position as specified in the Trust's notice of meeting, if the
shareholder's notice containing the information required by paragraph
(a)(2) of this Section 12 shall be delivered to the secretary at the
principal executive offices of the Trust not earlier than the 90th day
prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the
tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the
Trustees to be elected at such meeting.
(c) GENERAL. Only such persons who are nominated in
accordance with the procedures set forth in this Section 12 shall be
eligible to serve as Trustees and only such business shall be
conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in this
Section 12. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the
procedures set forth in this Section 12 and, if any proposed
nomination or business is not in compliance with this Section 12, to
declare that such defective nomination or proposal be disregarded.
Section 13. VOTING BY BALLOT. Voting on any question or in any
election may be via voice vote unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least 21 years of age
who is not under legal disability. In case of failure to elect Trustees at an
annual meeting of the shareholders, the
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Trustees holding over shall continue to direct the management of the business
and affairs of the Trust until their successors are elected and qualify.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the Chairman of the Board or the President or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
Section 4. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, by overnight courier or mailed to each
Trustee at his business or residence address or by telephone, telegram, telex,
facsimile transmission or similar means of same day delivery. Notice personally
delivered or sent by overnight courier shall be given at least two days prior
to the meeting. Notice by mail shall be given at least five days prior to the
meeting. Telephone, facsimile-transmission or other same day delivery notice
shall be given at least 24 hours prior to the meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail properly
addressed, with postage thereon prepaid. If given by telegram, such notice
shall be deemed to be given when the telegram is delivered to the telegraph
company. Telephone notice shall be deemed given when the Trustee is personally
given such notice in a telephone call to which he is a party.
Facsimile-transmission notice shall be deemed given upon completion of the
transmission of the message to the number given to the Trust by the Trustee and
receipt of a completed answer-back indicating receipt. Neither the business to
be transacted at, nor the purpose of, any annual, regular or special meeting of
the Trustees need be stated in the notice, unless specifically required by
statute or these Bylaws.
Section 5. QUORUM. A majority of the entire Board of Trustees shall
constitute a quorum for transaction of business at any meeting of the Trustees,
provided that, if less than a majority of such Trustees are present at said
meeting, a majority of the Trustees present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 6. VOTING. (a) Except as provided in subsection (b) of this
Section 6, the action of the majority of the Trustees present at a meeting at
which a quorum is present shall be the action of the Trustees, unless the
concurrence of a greater proportion is required for such action by applicable
statute or Declaration of Trust.
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<PAGE>
(b) Notwithstanding anything in these Bylaws to the contrary,
any action pertaining to any transaction involving the Trust,
including the purchase, sale, lease, or mortgage of any real estate
asset or any other transaction, in which a Trustee or officer of the
Trust, or any Affiliate (as defined in the Declaration of Trust of the
Trust) of any of the foregoing persons, has any direct or indirect
interest other than solely as a result of his status as a Trustee,
officer, or shareholder of the Trust, must be approved by a majority
of disinterested Trustees.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting are able, at all times, to hear one
another. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by all Trustees and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. VACANCIES. If for any reason any or all the Trustees cease
to be Trustees, such event shall not terminate the Trust or affect these Bylaws
or the powers of the remaining Trustees hereunder (even if fewer than two
Trustees remain). Any vacancy (including a vacancy created by an increase in
the number of Trustees) may be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining Trustees. Any
individual so elected as Trustee shall hold office for the unexpired term of
the Trustee he or she is replacing.
Section 10. COMPENSATION. Trustees shall not receive any stated salary
for their services as Trustees but, by resolution of the Trustees, may receive
a fixed sum of cash and/or common shares of beneficial interest of the Trust
(or options to acquire shares) per year and/or per visit to real property owned
or to be acquired by the Trust and for any service or activity they performed
or engaged in as Trustees. Trustees may be reimbursed for expenses of
attendance, if any, at each annual, regular or special meeting of the Trustees
or of any committee thereof; and for their expenses, if any, in connection with
each property visit and any other service or activity performed or engaged in
as Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving
compensation therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings
and loan association, or other institution with whom moneys or shares have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no Trustee shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
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Section 14. RELIANCE. Each Trustee, officer, employee and agent of the
Trust shall, in the performance of his or her duties with respect to the Trust,
be fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. NUMBER AND QUALIFICATIONS. The number of Trustees of the
Trust shall not be less than three (3) nor more than eight (8). The Trustees
shall be classified, with respect to the terms for which they severally hold
office, into separate classes, if and in the manner prescribed in the Trust's
Declaration of Trust. At any regular meeting or at any special meeting called
for that purpose, a two-thirds majority of the members of the Board of Trustees
may establish, increase or decrease the number of Trustees, provided that the
number thereof shall never be less than required by Maryland law and further
provided that the tenure of office of a Trustee shall not be affected by any
decrease in the number of Trustees. Trustees need not be shareholders of the
Trust.
Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS; VACANCIES. The Board of
Trustees may appoint from among its members an Executive Committee and other
committees comprised of two or more Trustees.
Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Trustees.
Subject to the provisions hereof, the Board of Trustees shall have the
power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified member, or to dissolve any such committee.
Section 2. POWERS. The Trustees may delegate to committees appointed
under Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
Section 3. MEETINGS. One-third, but not less than two, of the members
of any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee.
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<PAGE>
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of Trustees at the meeting next succeeding, and any
action by the committees shall be subject to revision and alteration by the
Board of Trustees, provided that no rights of third persons shall be affected
by any such revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting are able,
at all times, to hear one another. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be
taken without a meeting, if a consent in writing to such action is signed by
all members of the committee and such written consent is filed with the minutes
of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may consist
of a Chairman of the Board, a Vice Chairman of the Board, one or more Chief
Operating Officers, a President, one or more Vice Presidents, a Treasurer, one
or more Assistant Treasurers, a Secretary, and one or more Assistant
Secretaries. In addition, the Trustees may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Trust shall be elected annually by the Trustees at the
first meeting of the Trustees held after each annual meeting of shareholders.
If the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as may be convenient. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
death, resignation or removal in the manner hereinafter provided. Any two or
more offices (except President and Vice President or President and Secretary)
may be held by the same person. In their discretion, the Trustees may leave
unfilled any office except that of President and Secretary. Election of an
officer or agent shall not of itself create contract rights between the Trust
and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust
may be removed by the Trustees if in their judgment the best interests of the
Trust would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the Trust
may resign at any time by giving written notice of his or her resignation to
the Trustees, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified
therein, immediately upon its receipt. The acceptance of a resignation shall
not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.
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Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a chief
executive officer from among the elected officers. The Chief Executive Officer
shall have responsibility for implementation of the policies of the trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the Chairman and the Vice Chairman of the
Board, the Chief Executive Officer shall preside over the meetings of the
Trustees and of the shareholders at which he or she shall be present.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate one or
more Chief Operating Officers from among the elected officers. Said officer
will have the responsibilities and duties as set forth by the Trustees.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a Chief
Financial Officer from among the elected Officers. Said Officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall preside over the meetings of the Trustees and of the
shareholders at which he or she shall be present and shall in general oversee
all of the business and affairs of the Trust. In the absence of the Chairman of
the Board, the Vice Chairman of the Board shall preside at such meetings at
which he shall be present. The Chairman and the Vice Chairman of the Board may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Trustees or by
these Bylaws to some other officer or agent of the Trust or shall be required
by law to be otherwise executed. The Chairman of the Board and the Vice
Chairman of the Board shall perform such other duties as may be assigned to him
or her or them by the Trustees.
Section 8. PRESIDENT. In the absence of the Chairman, the Vice
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the Trustees and of the shareholders at which he
or she shall be present. In the absence of a designation of a Chief Executive
Officer by the Trustees, the President shall be the Chief Executive Officer and
shall be ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The President may execute any deed, mortgage,
bond, contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the Trustees or by these Bylaws to some other
officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Trustees from time
to time.
Section 9. VICE PRESIDENTS. In the absence of the President or in the
event of a vacancy in such office, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President; and shall perform such other duties as from time to time may be
assigned
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<PAGE>
to him by the President or by the Trustees. The Trustees may designate one or
more Vice Presidents as Executive Vice President or as Vice President for
particular areas of responsibility.
Section 10. SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and the committees of the
Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the trust records and of the seal of the
Trust; (d) keep a register of the post office address of each shareholder which
shall be furnished to the secretary by such shareholder; (e) have general
charge of the share transfer books of the Trust; and (f) in general perform
such other duties as from time to time may be assigned to him or her by the
Chief Executive Officer, the President or by the Trustees.
Section 11. TREASURER. The Treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Trust in such depositories as may be designated by the Trustees.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Trustees, taking proper vouchers for such disbursements, and shall
render to the president and Trustees, at the regular meetings of the Trustees
or whenever they may require it, an account of all his or her transactions as
Treasurer and of the financial condition of the Trust.
If required by the Trustees, the Treasurer shall give the Trust a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of the Treasurer's office
and for the restoration to the Trust, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, moneys and
other property of whatever kind in his or her possession or under his or her
control belonging to the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the president or the Trustees. The Assistant Treasurers
shall, if required by the Trustees, give bonds for the faithful performance of
their duties in such sums and with such surety or sureties as shall be
satisfactory to the Trustees.
Section 13. SALARIES. The salaries of the officers shall be fixed from
time to time by the Trustees and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or agent
to enter into any contract or to execute and deliver any instrument in the name
of and on behalf of the
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Trust and such authority may be general or confined to specific instances. Any
agreement, deed, mortgage, lease or other document executed by one or more of
the Trustees or by an authorized person shall be valid and binding upon the
Trustees and upon the Trust when authorized or ratified by action of the
Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers, agent or agents
of the Trust in such manner as shall from time to time be determined by the
Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him or her in the Trust.
Each certificate shall be signed by the Chief Executive Officer, the President
or a Vice President and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the
seal, if any, of the Trust. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Trust shall, from time
to time, issue several classes of shares, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth upon the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable, and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a Maryland stock corporation. No
transfers of shares of the Trust shall be made if (i) void ab initio pursuant
to any provision of the Declaration of Trust or (ii) the Board of Trustees,
pursuant to any provision of the Declaration of Trust, shall have refused to
permit the transfer of such shares. Permitted transfers of shares of the Trust
shall be made on the share records of the Trust only upon the instruction of
the registered holder thereof, or by his or her attorney thereunto authorized
by power of attorney duly executed and filed with the secretary or with a
transfer agent or transfer clerk, and upon surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed share transfer power and the payment of all taxes thereon. Upon
surrender to the Trust or the transfer agent of the Trust
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of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, as to any transfers not
prohibited by any provision of the Declaration of Trust or by action of the
Board of Trustees thereunder, it shall be the duty of the Trust to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, the officer designated by the Trustees may, in his or her
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he or she shall require
and/or to give bond, with sufficient surety, to the Trust to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other purpose. Such date, in any case, shall not be prior
to the close of business on the day the record date is fixed and shall be not
more than 90 days and, in the case of a meeting of shareholders not less than
ten days, before the date on which the meeting or particular action requiring
such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than 20
days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten days before the date of such
meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice
of meeting is mailed or the 30th day before the meeting, whichever is the
closer date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the Trustees, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
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Section 5. STOCK LEDGER. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
shares of the Trust may be authorized and declared by the Trustees, subject to
the provisions of law and the Declaration of Trust. Dividends may be paid in
cash, property or shares of the Trust, subject to the provisions of law and the
Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends, there may
be set aside out of any funds of the Trust available for dividends such sum or
sums as the Trustees may from time to time, in their absolute discretion, think
proper as a reserve fund for contingencies, for equalizing dividends, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE IX
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal by
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its formation. The Trustees may authorize one or more duplicate seals
and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to place its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to
the signature of the person authorized to execute the document on behalf of the
Trust.
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ARTICLE X
INDEMNIFICATION AND ADVANCE FOR EXPENSES
(a) Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Trust), by reason of the fact that he or she is or was a
Trustee, officer, incorporator, employee, or agent of the Trust, or is or was
serving at the request of the Trust as a director, officer, incorporator,
employee, partner, trustee, member or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Trust to the fullest
extent then permitted by Maryland law against expenses (including attorney's
fees and disbursements), judgments, fines (including excise taxes assessed on a
person with respect to an employee benefit plan), and amounts paid in
settlement incurred by him or her in connection with such action, suit or
proceeding. Neither the amendment nor repeal of this Article X, nor the
adoption or amendment of any other provision of these Bylaws or the Declaration
of Trust inconsistent with this Article X, shall apply to or affect in any
respect the applicability of the indemnification provided for herein with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. Such right of indemnification shall continue as to a person
who has ceased to be a Trustee, director, officer, incorporator, employee,
partner, trustee, member or agent, and shall inure to the benefit of the heirs,
executors, and administrators of such a person. The indemnification provided by
this Article X shall not be deemed exclusive of any other rights which may be
provided now or in the future under any provision currently in effect or
hereafter adopted in these Bylaws, the Declaration of Trust, by any agreement,
by vote of Shareholders, by resolution of disinterested Trustees, by provision
of law, or otherwise. The Board of Trustees may take such actions as it may
from time to time deem necessary or appropriate to carry out these
indemnification provisions, and is expressly empowered to adopt, approve and
amend from time to time such bylaws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
laws. Notwithstanding the foregoing, the Trust shall be required to indemnify a
person in connection with a proceeding initiated by such person only if such
proceeding was authorized by the Board of Trustees.
(b) The Trust shall advance any person who is eligible for reasonable
expenses incurred by such person who is a party to a proceeding prior to the
final disposition of the proceeding upon receipt by the Trust of (i) a written
affirmation by such person of such person's good faith belief that the standard
of conduct necessary for indemnification by the Trust as authorized in this
Article X has been met and (ii) a written undertaking by or on behalf of such
person to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
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ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws; provided, however, that
any amendment to Article III, Section 6(b) shall require the affirmative vote
of at least a majority of shareholders entitled to vote thereon.
ARTICLE XIII
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments thereto.
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[MILES & STOCKBRIDGE LETTERHEAD]
EXHIBIT 5.1
-----------
May 22, 1998
Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act") of 4,072,001 common shares of beneficial interest, par
value of $.01 per share (the "Common Shares"), of Insignia Properties Trust, a
Maryland real estate investment trust on its Registration Statement on Form S-4
filed with the Securities and Exchange Commission on the date hereof (the
"Registration Statement"), we have examined such trust records, certificates
and documents as we deemed necessary for the purpose of this opinion. Based on
that examination, we advise you that in our opinion the Common Shares have been
duly and validly authorized and, when issued upon the terms set forth in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Securities and Exchange Commission
thereunder. The opinion expressed herein is limited to the matters set forth in
this letter and no other opinion should be inferred beyond the matters
expressly stated.
Very truly yours,
Miles & Stockbridge P.C.
By: /s/ J.W. Thompson Webb
-------------------------------
Principal
<PAGE>
Exhibit 8.1
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]
May 21, 1998
Insignia Financial Group
One Insignia Financial Plaza
Greenville, South Carolina 29602
Dear Sir or Madam:
You have requested our opinion regarding whether the sale of assets by
Angeles Mortgage Investment Trust, an unincorporated California business trust
("AMIT"), to Insignia Financial Group ("IFG"), the majority shareholder of
Insignia Properties Trust, a Maryland real estate investment trust ("IPT"), and
an entity currently taxed as a real estate investment trust under Section
856(a) of the Internal Revenue Code of 1986, as amended (the "Code"), will
cause AMIT to hold a diversified portfolio of assets following such sale within
the meaning of section 368(a)(2)(F)(ii) of the Code. In rendering our opinion,
we have examined the Agreement and Plan of Merger, dated as of July 18, 1997,
(the "Merger Agreement"), the Agreement Regarding Certain Assets, dated July
18, 1997, by and between AMIT and IFG (the "Asset Purchase Agreement") and such
other documents as we have deemed necessary. Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to them in the Merger
Agreement and Asset Purchase Agreement.
Our opinion is based on the provisions of the Code, Treasury Regulations
promulgated under the Code, judicial authority and currently published revenue
rulings and procedures, all as of the date of this letter, and all of which may
change at any time. Any change in the relevant facts (including any assumptions
upon which this opinion is,in part, based) or law could change our conclusions
and would render our opinion inapplicable. This opinion represents our best
legal judgement and has no binding effect on the IRS. Accordingly, no assurance
can be given that the IRS or a court would concur with the conclusions reached
herein.
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 2
We have assumed certain facts to be as set forth in the "FACTS" section
below and our opinion is based, in substantial part, on the accuracy of all of
such assumed facts. Any change in the facts could change our opinion set forth
herein.
FACTS
Pursuant to the Merger Agreement, AMIT will be merged with and into IPT.
At least one day prior to the Merger and pursuant to the Asset Purchase
Agreement, IFG will purchase an amount of assets from AMIT to assist AMIT, as
of the Effective Time of the Merger, to be treated as holding a
"diversified" portfolio of assets within the meaning of section 368(a)(2)(F)(ii)
of the Code. Currently and immediately prior to the sale of assets to IFG, more
than 50% of AMIT's total assets consist of stocks and securities, within the
meaning of the Investment Company Act of 1940, and more than 80% of the total
value of its assets are held for investment. AMIT's assets currently are not
diversified within the meaning of Section 368(a)(2)(F)(ii). The funds used by
IFG to purchase the AMIT assets will not come directly or indirectly from IPT.
After the acquisition of assets pursuant to the Asset Purchase Agreement, IFG
will not be under any obligation to contribute or surrender these assets to IPT
and will not contribute or surrender such assets to IPT. Upon completion of the
sale of assets pursuant to the Asset Purchase Agreement, not more than 25% of
the aggregate fair market value of AMIT's total assets will be invested in the
stocks and securities (as defined in Section 368(a)(2)(F)(vii)) of any one
issuer and not more than 50% of the aggregate fair market value of AMIT's total
assets will be invested in the stocks and securities of five or fewer issuers.
For purposes of this determination, cash, cash items (including receivables),
government securities, and any assets acquired by AMIT on or after July 18,
1997 or in contemplation of the Merger are excluded for purposes of determining
the total assets of AMIT. Further, for purposes of this determination, all
members of a controlled group of corporations (within the meaning of section
1563(a) of the Code) are treated as one issuer and, to the extent AMIT holds
stock in a regulated investment company, a real estate investment trust, or a
corporation 50% or more by value of whose assets are stocks and securities (as
defined in Section 368(a)(2)(F)(vii)) and 80% or more by value of whose assets
are held for investment, which meets the requirements of section
368(a)(2)(F)(ii), AMIT will be treated as holding its proportionate share of
the assets of such entity. IPT will have conducted its operations so as to
qualify as a real estate investment trust for calendar year 1998.
OPINION
Provided that all steps contemplated in the Merger Agreement and the Asset
Purchase Agreement are followed exactly as set forth therein, we believe that
upon the sale of the assets pursuant to the Asset Purchase Agreement, AMIT will
hold a "diversified" portfolio of assets within the meaning of Section
368(a)(2)(F)(ii) as of the date of the such sale.
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 3
ANALYSIS
1. Diversification
In general, under section 368 (a)(1)(A) of the Code, a merger of one
corporate entity with and into another corporate entity will be a
"reorganization" within the meaning of such section, provided that the merger
is pursuant to a federal or state statute. Section 368(a)(2)(F)(i) provides
that if immediately before a transaction described in section 368(a)(1), two or
more of the parties to the transaction were "investment companies," then the
transaction is not a "reorganization" with respect to any such investment
company unless such company was a regulated investment company, a real estate
investment trust, or a corporation which meets the diversification requirements
of section 368(a)(2)(F)(ii). For purposes of that section, an "investment
company" means a regulated investment company, a real estate investment trust,
or a corporation 50% or more of the value of whose total assets are stock and
securities and 80% or more of the value whose total assets are assets held for
investment. Thus, IPT, because of its status as a real estate investment trust,
will be considered an investment company for purposes of this section. With
respect to AMIT (assuming AMIT is not a real estate investment trust) it would
be considered an investment company because more than 50% of the total value of
its assets are stocks and securities (i.e., the notes constitute securities
within the meaning of Investment Company Act of 1940), and more than 80% of the
total value of its assets are held for investment. In order to be considered
"diversified" within the meaning of section 368(a)(2)(F)(ii), AMIT must hold a
diversified portfolio of assets within the standard set forth in
section 368(a)(2)(F)(ii). AMIT will not hold a "diversified" portfolio of
assets within the meaning of section 368(a)(2)(F)(ii) if "not more than 25% of
the value of its total assets is invested in the stock and securities of any
one issuer and not more than 50% of the value of its total assets is invested
in the stock and securities of five or fewer issuers."
Prior to the consummation of the Assets Purchase Agreement, AMIT will not
hold a diversified portfolio of assets within the meaning of Section
368(a)(2)(F)(ii). The intent of the Asset Purchase Agreement is to enable AMIT
to sell, for cash, as sufficient amount of assets to cause its portfolio of
assets to be considered "diversified" within the meaning of Section
368(a)(2)(F)(ii). Pursuant to the Asset Purchase Agreement, a sale of a portion
of AMIT's assets will be made to IFG, which is the majority shareholder of IPT.
Section 368(a)(2)(F)(iv) provides that for purposes of determining the
total assets of an entity, "assets acquired (through incurring indebtedness or
otherwise)" for purposes of meeting the diversification requirement, are
excluded in making such determination. Thus, to the extent AMIT acquires
additional assets in order to become a "diversified" investment company, such
assets will be excluded, accordingly, AMIT would fail to meet the
diversification requirement of section 368(a)(2)(F)(ii). Significant within the
language of
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 4
section 368(a)(2)(F)(iv) is the absence of any mention of a prohibition against
disposing of assets for purposes of meeting the diversification requirement
therein.
It is significant that the proposed Treasury Regulations promulgated
pursuant to section 368(a)(2)(F) do not address sales of assets in order to
meet the diversification requirements under that section. One example provided
in the proposed Treasury Regulations confirms, by negative inference, the
conclusion that a sale of assets in order to meet the diversification
requirement would be respected. Example 4 under proposed Treasury Regulations
section 1.368-4(j)(9) provides that corporation Q is an undiversified
investment company whose only asset is $80,000 of corporation R stock. Pursuant
to an overall plan to cease being an investment company, Q acquires $20,000 of
real estate. However, at that point, Q does not cease to be an investment
company by reason of such acquisition. Later, as the second step of the
overall plan to cease being an investment company, Q disposes of $1,000 of R
stock and, thus, ceases being an investment company upon such disposition. The
ruling concludes that the real estate acquired by Q is presumed acquired for an
impermissible purpose under a presumption contained in the proposed Treasury
Regulations (that purpose being to cease being an investment company). Notably,
the holding does not disregard the sale of R stock which is the final act that
ultimately leads to Q ceasing to be considered an investment company. If the
proposed Treasury Regulations intended to disregard sales of assets in order
to cease being an investment company, Example 4 could have easily disregarded
the disposition of the R stock instead of the acquisition of the real estate,
which at such time did not cause Q to cease being an investment company.
Example 6 of the same proposed Treasury Regulations under section
368(a)(2)(F), provides further insight into the conclusion that a sale of
assets in order to attain diversification status should be respected for tax
purposes. In that example, corporation U, an undiversified investment company,
sells its entire portfolio of assets for cash. Subsequent to the sale, U
purchased a diversified portfolio of assets for purposes of qualifying as a
diversified investment company in order to merge with and into corporation W
thereafter. The example concludes that the assets acquired by corporation U
were excluded in determining if U was a diversified investment company. The
example further holds that the assets acquired by U would not be excluded in
determining if U was in fact an investment company, because, if so ignored, U
would cease to be an investment company all together. Under section
368(a)(2)(F)(iv) and the proposed Treasury Regulations, assets acquired for
purposes of becoming diversified or for purposes of losing your status as an
investment company are disregarded for purposes of such determination. In
example 6, had corporation U acquired additional assets in order to lose its
status as an investment company, such acquisition would clearly have been
disregarded under the rule provided in section 368(a)(2)(F)(iv). However, the
example itself does not disregard the sale of such assets which causes
corporation U to fail to maintain its status as an investment company.
Accordingly, this example supports the analysis that the sale of such assets by
corporation U in order to lose its status as an investment company should be
respected.
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 5
Further support for the proposition that the sale of assets to produce
diversification should be respected for purposes of section 368(a)(2)(F), is
provided in Revenue Ruling 88-32, 1988-1 CB 113. In that ruling, solely in
exchange for X stock, transferors transferred stock of one corporation, Y, to a
newly created corporation, S, in a transaction intended to comply with Section
351(a). Subsequent to the contributions, X sold the Y stock and purchased
stocks and securities such that X became an investment company within the
meaning of Treasury Regulation section 1.351-1(c)(1)(ii). Under section
351(e)(1), a transfer of assets to a corporation meeting the definition of an
investment company under that section, will not be treated as a transfer as to
which no gain or loss is recognized, as provided under section 351(a). Treasury
Regulation section 1.351-1(c)(2) provides that the determination of whether a
corporation is an investment company, is ordinarily made by reference to the
circumstances in existence immediately after the transfer in question. The
initial transfer of the Y stock to X did not result in diversification,
however, the subsequent sale of the Y stock and the purchase of the additional
stocks and securities did result in diversification to the transferors by
virtue of such sale and acquisition. Rev. Rul. 88-32 concludes that although the
transferors acquired a more diversified investment than the Y stock alone, the
diversification arose pursuant to the taxable sale of the Y stock and the
subsequent purchase of the stocks and securities. Thus, the diversification did
not arise in a transaction which qualified for non-recognition treatment, the
perceived abuse as to which section 351(e)(1) was aimed. The underlying thesis
of this ruling is that achieving diversification pursuant to a taxable
transaction is not the type of transaction as to which section 351(e)(1) is
aimed. Consistent with the analysis of Rev. Rul. 88-32, the sale of assets by
AMIT, pursuant to the Asset Purchase Agreement, should be regarded for purposes
of section 368(a)(2)(F).
Further evidencing this policy of section 351(e)(1) is GCM 39129, (the GCM
underlying Revenue Ruling 88-32), wherein the IRS, in analyzing the tax
consequences of the transaction proposed in Revenue Ruling 88-32, stated that
"the contemplated sales of the stock of Y, being taxable, will not result in
diversification of the transferors' interests within the meaning of Treasury
Regulation section 1.351-1(c)."
The authorities discussed in the foregoing analysis are consistent with our
opinion expressed above.
2. Sale of Assets to IFG
Pursuant to the Assets Purchase Agreement, AMIT will sell a certain amount
of assets to IFG at least one day before the Merger to enable AMIT to meet the
definition of "diversification" within the meaning of section 368(a)(2)(F)(ii).
The following paragraphs analyze whether the purchase of assets by IFG, the
majority shareholder of IPT, would be treated as part of the Merger and, hence,
ignored in determining whether AMIT is a diversified investment company
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 6
under section 368(a)(2)(F). In general, a parent corporation and its subsidiary
corporation are treated as separate entities as long as the subsidiary has a
separate business purpose and is not a mere instrumentality of the parent.
Moline Properties v. Commissioner, 319 U.S. 436 (1943).
In Rev. Rul. 68-562, 1968-2 C.B. 157, the IRS analyzed a transaction in
which an individual owned 90% of the outstanding stock of corporation X. Two
months prior to the acquisition of 100% of the Y stock for X stock, the
principal shareholder of X acquired 50% of the outstanding stock of Y for
cash. At issue was whether the acquisition of 50% of the Y stock by X's
principal shareholder should be attributed to X such that the acquisition of
the Y stock by X solely for X stock would not meet the requirements of section
368(a)(1)(B), since cash would be deemed to have been given pursuant to the
transaction. The ruling states that "[t]he principal shareholder was acting as
an individual and not as a representative of X when he purchased 50% of the
stock of Y." As evidence of this, the ruling further states that "[h]e was
under no obligation to surrender the Y stock to X. X made no reimbursement to
its principal shareholder for the purchase price of the Y stock." The ruling
concluded that since the principal shareholder of X purchased the stock solely
for his own account and on his own behalf, X was not considered the purchaser
of the 50% interest in Y for cash. Thus, the ruling concluded that the
acquisition of 100% of the remaining Y stock, solely in exchange for X stock,
would qualify as a reorganization within the meaning of section 368(a)(1)(B).
In Rev. Rul. 85-139, 1985-2 C.B. 123, the IRS analyzed a transaction in
which a subsidiary of an acquiring corporation purchased stock of the target
for cash prior to the acquisition of the target stock by the parent
corporation. In this ruling corporation P owned all the stock of corporation
S. P entered into a transaction in which control of corporation X would be
acquired by acquiring all the shares of the one outstanding class of X stock
solely in exchange for P voting stock. However, certain shareholders of X that
owned 10% of the X stock, insisted on receiving cash for their stock. In order
to achieve the desired results, S purchased the 10% interest in X stock solely
for cash. Subsequent to that acquisition, P acquired all the remaining
outstanding X stock solely in exchange for P voting stock, thereby attempting
to qualify as a reorganization within the meaning of section 368(a)(1)(B). The
ruling states that the cash paid by S for X's stock was not obtained directly or
indirectly from P and that S retained ownership of the X stock it had
purchased. However, the ruling concluded that S's purchase of the 10% interest
of X Stock for cash was attributed to P's acquisition of X stock and, therefore,
the X stock acquisition failed to qualify as a reorganization within the meaning
section 368(a)(1)(B). See also, Rev. Rul. 85-138, 1985-2 C.B. 122 (wherein the
IRS held similarly in a transaction attempting to qualify as a reorganization
under section 368(a)(1)(C)).
In GCM 39400 (the General Counsel Memorandum relating to Rev. Rul. 85-138
and Rev. Rul. 85-139), in analyzing the transactions contemplated in those
revenue rulings, the IRS stated that the "solely for voting stock" requirement
of section 368(a)(1)(B) and section 368(a)(1)(C) applied only to consideration
furnished directly or indirectly by the
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 7
acquiring corporation. Thus, in concluding that the transactions in Revenue
Rulings 85-138 and 85-139 did not qualify as reorganizations the IRS implicitly
held that the acquisition of target stock (and target assets) by subsidiary of
the acquiring corporation was attributed directly to the acquiring corporation
itself. The GCM noted that Rev. Rul. 68-562 seems to stand in contravention to
Rev. Rul. 85-138 and 85-139. In distinguishing between the opposite conclusions
reached in Rev. Rul. 68-562 and Rev Rul.'s 85-138 and 85-139, the GCM stated
that with respect to affiliated groups of corporations, a higher standard than
that of an individual to a corporation should be applied when attributing acts
of one to the other. In each of Rev. Rul. 85-138 and 85-139, and the ruling
cited in support for the conclusions reached therein, the parent corporation
was the acquiring corporation using its wholly-owned subsidiary as its agent to
aid in such acquisition. However, Rev. Rul. 68-562 involves an acquisition by a
subsidiary where the corporation's principal shareholder acquires a certain
amount of the stock of the target in order to aid the acquisition. In Rev, Rul.
68-562, the assets acquired by the principal shareholder of the acquiring
corporation never economically accrued to the benefit of the acquiring
corporation. To the extent the assets acquired by the principal shareholder
increased in value or decreased in value, the acquiring corporation's
investment in the target corporation's stock was unaffected. However, in Rev.
Rul.'s 85-138 and 85-139, the fluctuation in value of the assets acquired by
the subsidiary of the parent corporation, directly affected the aggregate value
of the assets of the parent corporation by virtue of the value of the
subsidiary stock. Accordingly, Rev. Rul.'s 85-138 and 85-139 stand for the
proposition that a subsidiary's involvement in an acquisition on behalf of a
parent corporation will be attributed directly to such parent corporation.
However, where, as in Rev. Rul. 68-562, a principal shareholder of an acquiring
corporation acquires some of the assets of the target corporation, the
acquisition of those assets should not be attributed to the acquiring
corporation to the extent that the principal shareholder is under no obligation
to recontribute or surrender the assets to the acquiring corporation and that
no part of the purchase price for those assets comes directly or indirectly
from the acquiring corporation itself.
Where, as here, IFG as a principal shareholder of IPT, acquires some of
the assets of AMIT pursuant to the Assets Purchase Agreement, the acquisition
of such assets should not be deemed to be by IPT since the funds used for the
purchase price of those assets will not come directly or indirectly from IPT
itself and IFG will not be under any obligation to recontribute or surrender
such assets to IPT. To the extent the assets acquired by IFG increase or
decrease in value, such increase and/or decrease will not affect the value of
the underlying assets of IPT itself and consequently will not affect the value
of the IPT stock to the other shareholders. Therefore, the acquisition of assets
by IFG pursuant to the Assets Purchase Agreement should likely not be deemed to
be acquired by IPT itself.
The foregoing analysis is consistent with our opinion expressed above.
CONCLUSION
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Insignia Financial Group
May 21, 1998
Page 8
Based on the foregoing (including our Analysis and the accuracy of the
factual assumptions and on which our opinion is predicated) and provided that
all steps contemplated in the Merger Agreement and Asset Purchase Agreement are
followed exactly as set forth therein, we believe that upon sale of the assets
pursuant to the Asset Purchase Agreement, AMIT will hold a "diversified"
portfolio of assets within the meaning of section 368(a)(2)(F)(ii).
We express no opinion as to any other matter, including (i) whether
AMIT qualifies as a "real estate investment trust" under the Code and (ii)
whether the Merger qualifies as a reorganization within the meaning of section
368(a) of the Code.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, estate, local or foreign of the
Merger or any transactions related to the Merger. No reference may be made to
this opinion letter in any financial statement, or document, nor may this
opinion letter be distributed in any manner without our prior written consent,
except (i) such opinion may be furnished to the IRS in connection with an
examination of the transaction contemplated by the Merger Agreement and (ii) we
consent to the filing of this opinion as an Exhibit to the Registration
Statement.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
/s/ Akin, Gump, Strauss, Hauer & Feld, L.L.P.
<PAGE>
Exhibit 8.2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
ATTORNEYS AT LAW
AUSTIN
BRUSSELS
HOUSTON A REGISTERED LIMITED LIABILITY PARTNERSHIP
LONDON INCLUDING PROFESSIONAL CORPORATIONS
LOS ANGELES
MOSCOW 1700 PACIFIC AVENUE
NEW YORK SUITE 4100
PHILADELPHIA DALLAS, TEXAS 75201-4675
SAN ANTONIO (214) 969-2800
WASHINGTON FAX (214) 969-4343
WRITER'S DIRECT DIAL NUMBER (214) 969 - 2800
May 26, 1998
Insignia Financial Group
One Insignia Financial Plaza
Greenville, South Carolina 29602
Dear Sir or Madam:
We have reviewed the section entitled "Federal Income Tax
Considerations" in the Registration Statement on Form S-4 (the "Registration
Statement") filed on May 26, 1998 by Insignia Properties Trust, a Maryland real
estate investment trust ("IPT"). Capitalized terms used herein have the
meanings ascribed to them in the Registration Statement.
The following opinion is based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), regulations promulgated under
the Code, judicial authority and current published revenue rulings and
procedures, all as of the date of this letter, and all of which may change at
any time. Any change in the relevant law could change our conclusions and
render our opinion inapplicable. This opinion represents our best legal
judgment and has no binding effect o the Internal Revenue Service (the "IRS")
or any court. Accordingly, no assurance can be given that the IRS or a court
would concur with the conclusions reached herein.
Based on and subject to the foregoing, it is our opinion that the
statements in the Registration Statement set forth under the heading "Federal
Income Tax Considerations," to the extent they constitute matters of federal
law or legal conclusions with respect thereto, fairly summarize the material
federal income tax consequences that are likely to be material to a holder of
IPT Common Shares.
<PAGE>
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Insignia Financial Group
May 26, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm and this opinion in
the Registration Statement.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
/s/ Akin, Gump Strauss, Hauer & Feld, L.L.P.
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
INSIGNIA PROPERTIES, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
I DEFINED TERMS............................................................... 2
II PARTNERSHIP CONTINUATION AND IDENTIFICATION................................. 15
2.1 Continuation....................................................... 15
2.2 Name, Office and Registered Agent.................................. 15
2.3 Partners........................................................... 16
2.4 Term and Dissolution............................................... 16
2.5 Filing of Certificate and Perfection of Limited Partnership........ 16
2.6 Power of Attorney.................................................. 17
III PURPOSE AND BUSINESS OF THE PARTNERSHIP..................................... 18
3.1 Purpose and Business............................................... 18
IV CAPITAL CONTRIBUTIONS AND ACCOUNTS.......................................... 18
4.1 Capital Contributions.............................................. 18
4.2 Additional Capital Contributions; Issuances of
Additional Partnership Interests................................ 18
4.3 Additional Funding................................................. 20
4.4 No Preemptive Rights............................................... 20
4.5 Capital Accounts................................................... 21
4.6 Percentage Interests............................................... 21
4.7 No Interest on Contributions....................................... 22
4.8 Return of Capital Contributions.................................... 22
4.9 No Third Party Beneficiary......................................... 22
4.10 Cash Incentive Rights.............................................. 22
4.11 Mandatory Repurchases of Partnership Interests Held by IPT......... 22
V PROFITS AND LOSSES DISTRIBUTIONS............................................ 23
5.1 Allocation of Profits and Losses................................... 23
5.2 Distributions of Cash in Respect of Common Partnership Units....... 29
5.3 REIT Distribution Requirements..................................... 29
5.4 No Right to Distributions in Kind.................................. 29
5.5 Limitations on Return of Capital Contributions..................... 29
5.6 Distributions Upon Liquidation..................................... 29
5.7 Substantial Economic Effect........................................ 30
VI MANAGEMENT OF THE PARTNERSHIP; POWERS, RIGHTS AND
OBLIGATIONS OF THE GENERAL PARTNER.......................................... 30
6.1 Management of the Partnership...................................... 30
6.2 Powers of the General Partner...................................... 30
6.3 Delegation of Authority............................................ 33
6.4 Indemnification and Exculpation of Indemnitees..................... 33
6.5 Liability of the General Partner................................... 35
i
<PAGE>
6.6 Expenditures by Partnership........................................ 36
6.7 Outside Activities................................................. 36
6.8 Title to Partnership Properties.................................... 36
6.9 Reimbursement of the General Partner............................... 36
6.10 Other Matters Concerning the General Partner....................... 37
6.11 Contracts With and Employment or Retention of Affiliates
and Insignia Entities........................................... 37
VII PROPERTY MANAGEMENT AND PARTNERSHIP ADMINISTRATION.......................... 38
7.1 Property Management Services....................................... 38
7.2 Partnership Administration Services................................ 40
7.3 Transfers of Controlling Interests in IPT Entities................. 42
VIII CHANGES IN GENERAL PARTNER.................................................. 43
8.1 Transfer of the General Partner's Partnership Interests;
Transactions Involving IPT...................................... 43
8.2 Admission of a Substitute or Successor General Partner............. 44
8.3 Removal of a General Partner....................................... 45
8.4 Effect of Deemed Removal of a General Partner...................... 45
IX RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.............................. 46
9.1 Management of the Partnership...................................... 46
9.2 Limited Liability of Limited Partners.............................. 46
9.3 Ownership by Limited Partners of Interests in the General Partner
and its Affiliates.............................................. 46
9.4 Redemption Rights.................................................. 47
9.5 Consent Rights of the Special Limited Partner...................... 49
9.6 Put Rights......................................................... 50
X TRANSFERS OF COMMON PARTNERSHIP UNITS HELD BY LIMITED
PARTNERS.................................................................... 50
10.1 Purchase for Investment............................................ 50
10.2 Restrictions on Transfers of Common Partnership Units
Held by Limited Partners........................................ 51
10.3 Admission of Substitute Limited Partners and Additional
Limited Partners................................................ 52
10.4 Rights of Assignees of Common Partnership Units.................... 53
10.5 Effect of Bankruptcy, Death, Incompetence or Termination of
a Limited Partner............................................... 53
10.6 Joint Ownership of Interests....................................... 53
XI BOOKS AND RECORDS; ACCOUNTING AND TAX MATTERS............................... 54
11.1 Books and Records.................................................. 54
11.2 Custody and Investment of Partnership Funds; Bank Accounts......... 54
11.3 Fiscal Year........................................................ 55
11.4 Annual Tax Information............................................. 55
11.5 Tax Matters Partner; Tax Elections; Special Basis Adjustments...... 55
ii
<PAGE>
11.6 Reports to Limited Partners........................................ 56
XII AMENDMENT OF AGREEMENT...................................................... 56
12.1 Amendments......................................................... 56
12.2 Meetings of the Partners........................................... 56
XIII GENERAL PROVISIONS.......................................................... 57
13.1 Notices............................................................ 57
13.2 Survival of Rights................................................. 58
13.3 Additional Documents............................................... 58
13.4 Severability....................................................... 58
13.5 Entire Agreement................................................... 58
13.6 Waiver............................................................. 58
13.7 Pronouns and Plurals............................................... 58
13.8 Headings........................................................... 58
13.9 Counterparts....................................................... 58
13.10 Governing Law...................................................... 58
Exhibit A General and Limited Partners
Exhibit B Form of Notice of Redemption
</TABLE>
iii
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
INSIGNIA PROPERTIES, L.P.
This Fourth Amended and Restated Agreement of Limited Partnership of
Insignia Properties, L.P., entered into on February 17, 1998 with retroactive
effect to January 1, 1998 (this "AGREEMENT"), amends and restates in its
entirety that certain Third Amended and Restated Agreement of Limited
Partnership of Insignia Properties, L.P., dated as of August 1, 1997 (the
"PRIOR AGREEMENT"), by and between Insignia Properties Trust, a Maryland real
estate investment trust with offices at One Insignia Financial Plaza, P.O. Box
19059, Greenville, South Carolina 29602 ("IPT"), and Insignia Financial Group,
Inc., a Delaware corporation with offices at One Insignia Financial Plaza,
P.O. Box 1089, Greenville, South Carolina 29602 ("INSIGNIA").
RECITALS
WHEREAS, Insignia Properties Corporation, a Delaware corporation
("IPC"), as general partner, and the Insignia Commercial Group, Inc. (the
"ORIGINAL LIMITED PARTNER"), as the sole limited partner, formed a Delaware
limited partnership under the name Insignia Properties, L.P. (the
"PARTNERSHIP") pursuant to a Certificate of Limited Partnership filed with the
Office of the Secretary of State of the State of Delaware on May 16, 1996 and
an Agreement of Limited Partnership, dated as of May 16, 1996, maintained at
the offices of the Partnership (the "ORIGINAL AGREEMENT");
WHEREAS, pursuant to a merger effective December 19, 1996, IPC was
merged with and into IPT, as a result of which IPT succeeded to IPC's general
partner interest in the Partnership and became the general partner of the
Partnership;
WHEREAS, pursuant to the First Amended and Restated Agreement of
Limited Partnership of the Partnership dated December 30, 1996, the Original
Agreement was amended to provide, among other things, for the withdrawal of
the Original Limited Partner from the Partnership and the admission of
Insignia as a limited partner of the Partnership;
WHEREAS, Insignia, the Partnership and IPT entered into that certain
Advisory Agreement dated December 30, 1996, as amended (the "ADVISORY
AGREEMENT"), pursuant to which Insignia provided certain advisory services to
the Partnership and IPT; and
WHEREAS, the parties to the Advisory Agreement have determined to
terminate such agreement as of the date hereof, and in connection therewith
the Partners wish to amend and restate this Agreement;
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual
covenants between the parties hereto, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
"ACCESSION AGREEMENT" means a written agreement between the
Partnership and a Person seeking to be admitted as an Additional Limited
Partner, a Substitute Limited Partner or an additional or substitute General
Partner, as the case may be, which agreement shall, at a minimum, (i) provide
that such Person accepts and agrees to be bound by all of the terms and
provisions of this Agreement, and (ii) in the case of the admission of an
Additional Limited Partner or a Substitute Limited Partner, grant the General
Partner a power of attorney substantially the same as that contained in
Section 2.6 hereof.
"ACT" means the Uniform Limited Partnership Act of the State of
Delaware, as the same may be amended from time to time.
"ADDITIONAL ADMINISTRATION ENTITIES" has the meaning set forth in
Section 7.2 hereof.
"ADDITIONAL CONTROLLED REAL PROPERTY" means any real property other
than an Initial Controlled Real Property of which IPT or the Partnership, or
either of them, acquires direct or indirect control, whether as a result of a
direct or indirect acquisition of (i) such real property itself or (ii) a
direct or indirect controlling interest in a Business Entity that owns such
real property.
"ADDITIONAL DESIGNATED REAL PROPERTY" means each Additional
Controlled Real Property which is a Multi-Family Residential Property and--
(i) with respect to which an Insignia Entity was providing
Property Management Services immediately prior to its acquisition by
the applicable IPT Entity;
(ii) the Controlling Interest in which was acquired by the
applicable IPT Entity from an Insignia Entity or from MAE or an
Affiliate thereof; or
(iii) with respect to which any Insignia Entity paid some
form of consideration to any Person (other than another Insignia
Entity) for the purpose of acquiring, or otherwise in respect of, the
property management rights relating thereto.
2
<PAGE>
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this
Partnership as a Limited Partner pursuant to Sections 4.2 hereof and 9.3.
"ADJUSTED AGGREGATE DESIGNATED FEES AMOUNT" means, as of any date of
determination, an amount equal to the product of (x) the Base Aggregate
Designated Fees Amount as of such date minus the Excluded Designated Fees
Amount as of such date, multiplied by (y) the Designated Fees Adjustment
Factor as of such date.
"ADJUSTED AGGREGATE TOTAL FEES AMOUNT" means, as of any date of
determination, an amount equal the gross aggregate amount of Property
Management Fees paid or payable to Insignia Entities during the twelve-month
period ending on such date in respect of all Controlled Real Properties
(including Designated Real Properties), but only to the extent that such
Property Management Fees were paid or payable by an IPT Entity (i.e., Property
Management Fees paid or payable to Insignia Entities prior to the acquisition
of a Controlling Interest in a Controlled Real Property shall not be included
in this calculation); provided, however, that for purposes of the foregoing,
with respect to each such Controlled Real Property (if any) which was a
Designated Real Property as of such date of determination but was not a
Designated Real Property throughout such entire twelve-month period, the
amount of Property Management Fees paid or payable to Insignia Entities during
such twelve-month period shall be deemed to be the amount of Property
Management Fees actually paid or payable by IPT Entities to Insignia Entities
during such shorter period annualized.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for
each Partner as of the end of each Fiscal Year (a) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or 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 (b)
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 Fiscal Year.
"ADJUSTED PROPERTY" means any Partnership Property the Carrying Value
of which has been adjusted pursuant to paragraphs (i)-(iv) of the definition
of Carrying Value. For federal income tax purposes, upon a termination of the
Partnership pursuant to Section 708 of the Code, the Partnership shall be
deemed to have contributed its property to a new partnership in exchange for
an interest in the new partnership and immediately thereafter the terminated
partnership shall be deemed to have distributed the interest in the new
partnership to its partners in liquidation thereof, and the property so deemed
to be contributed shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to paragraphs
(i)-(iv) of the definition of Carrying Value.
3
<PAGE>
"ADMINISTRATION ALLOCATION AMOUNT" means, with respect to any
Formation Partnership or Additional Administration Entity as of any date of
determination, the allocated aggregate costs to Insignia Entities of fixed
assets, long term obligations (leases, etc.), insurance, utilities, employees
(including severance and similar termination payments) and other related items
which were required to provide Partnership Administration Services to such
Formation Partnership or Additional Administrative Entity or were incurred in
connection with or as a result of the termination of the retention of Insignia
Entities to provide such services, which allocated costs shall be determined
by Insignia in good faith based on, among other things, the remaining useful
life or alternative use of fixed assets, the remaining term of and financial
commitments relating to long term obligations and losses or increased costs
resulting from decreased economies of scale and bulk purchasing power.
"ADMINISTRATIVE EXPENSES" means all administrative and operating
costs and expenses incurred by the Partnership, the General Partner and/or
IPT, including without limitation costs and expenses (in each case of the
Partnership, the General Partner, IPT or any Subsidiary thereof): (i) relating
to the formation and continuity of existence of thereof and any Subsidiary
thereof, including taxes, fees and assessments associated therewith, and any
and all costs, expenses or fees payable to any trustee, director, officer or
employee thereof (including any costs of indemnification); (ii) relating to
any offer or registration of equity or debt securities and all statements,
reports, fees and expenses incidental thereto, including without limitation
underwriting discounts and selling commissions applicable to any such offer of
securities and any costs and expenses associated with any claims made by any
holders of such securities or any underwriters or placement agents thereof;
(iii) incurred in connection with the issuance, repurchase or redemption of
any securities, including without limitation Common IPT Shares, Other IPT
Securities and Partnership Interests; (iv) associated with the preparation and
filing of any periodic reports under federal, state or local laws or
regulations, including filings with the Commission; (v) associated with
compliance with laws, rules and regulations promulgated by any regulatory
body, including, if applicable, the Commission and any securities exchange;
and (vi) associated with any 401(k) plan, incentive plan, bonus plan or other
plan providing for compensation for trustees, directors, officers or
employees; and (vii) otherwise incurred in the ordinary course of business.
"AFFILIATE" means, with respect to any Person, any other Person which
controls, is controlled by or is under common control with, such Person. As
used in this definition "control" (including with its correlative meanings,
"controlled by" and "under common control with") shall mean the power to
direct or cause the direction of the management or policies of such Person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise). Notwithstanding the foregoing, (a) when
used in connection with Insignia, "Affiliate" shall not include IPT, the
Partnership, MAE or any of their respective Subsidiaries; and (b) when used in
connection with IPT or the Partnership, "Affiliate" shall not include
Insignia, MAE or any of their respective Subsidiaries.
"AGREED VALUE" means the fair market value of Contributed Property or
services contributed to the Partnership as of the date of contribution as
determined in good faith by the General Partner.
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"AGREEMENT" means this Fourth Amended and Restated Agreement of
Limited Partnership, as the same may be amended from time to time.
"AUTHORIZATION DATE" has the meaning set forth in Section 7.6(e)
hereof.
"BANK" has the meaning set forth in Section 9.6 hereof.
"BANKRUPTCY CODE" means the Bankruptcy Code of 1978, as amended.
"BASE AGGREGATE DESIGNATED FEES AMOUNT" means, as of any date of
determination, the sum of (x) $13,258,528 (which represents the total Base
Designated Fee Amounts with respect to each and every Initial Designated Real
Property (notwithstanding that such real property may no longer be controlled
by any IPT Entity)), plus (y) the total Base Designated Fee Amounts with
respect to each and every Additional Designated Real Property which became
such on or prior to such date of determination (regardless of whether such
real property continues to be controlled by an IPT Entity as of such date of
determination).
"BASE DESIGNATED FEE AMOUNT" means, except as otherwise agreed in
writing by the Partnership and Insignia on a property by property basis to
account for special circumstances, (i) with respect to each Initial Designated
Real Property, the aggregate amount of Property Management Fees paid or
payable to Insignia Entities in respect of such Initial Designated Real
Property during the twelve-month period ended December 31, 1996; (ii) with
respect to each Additional Designated Real Property with respect to which an
Insignia Entity was providing Property Management Services immediately prior
to its acquisition by the applicable IPT Entity, the aggregate amount of
Property Management Fees paid or payable to Insignia Entities in respect of
such Additional Designated Real Property during the twelve-month period
immediately preceding the month during which a Controlling Interest therein
was acquired by an IPT Entity (provided, however, that if Insignia Entities
managed such Additional Designated Real Property for less than the entire
twelve-month period immediately preceding such acquisition, then the aggregate
amount of Property Management Fees paid or payable to Insignia Entities during
such shorter period shall be annualized for purposes hereof); and (iii) with
respect to each other Additional Designated Real Property, the amount of
Property Management Fees which would have been payable to Insignia Entities
during the twelve-month period immediately preceding the month during which a
Controlling Interest therein was acquired by an IPT Entity assuming the
Property Management Agreement required to be entered into with respect to such
Additional Designated Real Property pursuant to Section 7.1 hereof had been in
effect throughout such twelve-month period. The Partnership shall maintain a
regularly updated schedule setting forth the Base Designated Fee Amount with
respect to each Designated Real Property.
"BOARD" means the Board of Trustees of IPT.
"BUSINESS DAY" means day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"BUSINESS ENTITY" means any corporation, joint venture, partnership,
limited liability company, trust or other business entity.
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"CAPITAL ACCOUNT" has the meaning set forth in Section 4.5 hereof.
"CAPITAL CONTRIBUTION" means a contribution of cash, services or
Contributed Property to the Partnership in exchange for Partnership Interests
pursuant to the terms of this Agreement. Any reference to the Capital
Contribution of a Partner shall include any Capital Contributions made by a
predecessor holder of the Partnership Interests of such Partner.
"CAPITAL TRANSACTION" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
insurance proceeds not reinvested in the repair, replacement or reconstruction
of Partnership Properties) or other disposition of all or any part of any
Partnership Property (or the Partnership's interest therein).
"CARRYING VALUE" means (a) with respect to a Contributed Property,
the Agreed Value of such property reduced (but not below zero) by all
Depreciation with respect to such property charged to the Partners' Capital
Accounts, and (b) with respect to any other Partnership Property, the adjusted
basis of such property for federal income tax purposes, in each case as of the
time of determination. The Carrying Value of any Partnership Property shall be
adjusted from time to time to reflect changes, additions or other adjustments
to the Carrying Value for dispositions and acquisitions of Partnership
Properties, as deemed appropriate by the General Partner, as follows:
(i) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in the immediate following
paragraph (ii), the Carrying Values of all Partnership Properties
shall be adjusted upward or downward to reflect any Unrealized Gain
or Unrealized Loss attributable to such Partnership Property, as of
the times of the adjustments provided in the immediate following
paragraph (ii), as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such Partnership Property
and allocated pursuant to Section 5.1 hereof.
(ii) Such adjustments shall be made as of the following
times: (A) immediately prior to the acquisition of any additional
Partnership Interests by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (B) immediately prior to
the distribution by the Partnership to a Partner of more than a de
minimis amount of Partnership Property in respect of any Partnership
Interest; and (C) immediately prior to the liquidation of the
Partnership or the General Partner's interest in the Partnership
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clause (A) and (B)
above shall be made only if the General Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
(iii) In accordance with Regulations Section
1.704-1(b)(2)(iv)(e), the Carrying Values of Partnership Property
distributed in kind shall be adjusted upward or downward to reflect
any Unrealized Gain or Unrealized Loss attributable to such
Partnership Property as of the time it is distributed.
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(iv) In determining such Unrealized Gain or Unrealized Loss,
the aggregate cash amount and fair market value of all Partnership
Properties (including cash and cash equivalents) shall be determined
by the General Partner using such reasonable method of valuation as
it may adopt, or in the case of a liquidating distribution pursuant
to Section 5.6 hereof, be determined and allocated by the Liquidator
using such reasonable method of valuation as it may adopt. The
General Partner or the Liquidator, as the case may be, shall allocate
such aggregate value among the Partnership's Properties (in such
manner as it determines in its sole and absolute discretion) to
arrive at a fair market value for each individual Partnership
Property.
"CASH INCENTIVE RIGHT" means any share appreciation right,
performance share award or other similar right pursuant to which the holder
thereof is entitled to receive cash payments based on the performance of
Common IPT Shares.
"CASH REDEMPTION CONSIDERATION" means, with respect to each
Redeemable Unit to be purchased by the Partnership, cash in an amount equal to
the product of (x) the IPT Share Value as of the date of receipt by the
General Partner of the applicable Notice of Redemption, multiplied by (y) the
Conversion Factor in effect on such date.
"CAUSE" means the entry of a final, nonappealable judgment by the
highest court having proper jurisdiction over the matter in question
determining that a Person has committed fraud or willful malfeasance with
respect to another Person or Persons.
"CERTIFICATE" means any instrument or document that is required under
the laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of
the Partnership (either by themselves or pursuant to the power-of-attorney
granted to the General Partner in Section 2.6 hereof) and filed for recording
in the appropriate public offices within the State of Delaware or such other
jurisdiction to (i) perfect or maintain the Partnership as a limited
partnership, (ii) effect the admission, withdrawal or substitution of any
Partner of the Partnership or (iii) protect the limited liability of the
Limited Partners under the laws of the State of Delaware or such jurisdiction.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON IPT SHARE" means a common share of beneficial interest of
IPT, $.01 par value, or a share of the common equity of any successor entity.
"COMMON PARTNERSHIP UNIT" means a fractional, undivided share of
common ownership interest in the Partnership, with economic rights and
preferences substantially the same as a Common IPT Share.
"CONTRACT LOSS FEE" has the meaning set forth in section 7.2 hereof.
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"CONTRIBUTED PROPERTY" means any Partnership Property (excluding
cash) contributed or deemed contributed to the Partnership by a Partner
(including for this purpose any Partnership Property deemed contributed to new
partnership on termination and reconstitution thereof pursuant to Section 708
of the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to paragraphs (i)-(iv) of the definition of Carrying Value, such
property shall no longer constitute a Contributed Property for purposes of
paragraphs (i)-(iv) of the definition of Carrying Value, but shall be deemed
an Adjusted Property for such purposes.
"CONTROLLED REAL PROPERTY" means any Initial Controlled Real Property
or Additional Controlled Real Property.
"CONTROLLING INTEREST" means, with respect to each Controlled Real
Property, the interest (whether equity, debt, contractual or otherwise, and
including fee simple ownership) directly or indirectly held by an IPT Entity
which results in or causes such real property to be classified as an "Initial
Controlled Real Property" or an "Additional Controlled Real Property," as the
case may be, pursuant to the respective definitions thereof.
"CONVERSION ADJUSTMENT EVENT" means each of the following events: (i)
IPT pays a dividend on its outstanding Common IPT Shares in Common IPT Shares,
(ii) IPT otherwise makes a distribution of Common IPT Shares to all holders of
its outstanding Common IPT Shares, (iii) IPT subdivides its outstanding Common
IPT Shares and (iv) IPT combines its outstanding Common IPT Shares into a
smaller number of Common IPT Shares.
"CONVERSION FACTOR" means 1.0, as continuously and automatically
adjusted from time to time to take into account the occurrence of Conversion
Adjustment Events, as follows: as of the "effective date" of each Conversion
Adjustment Event, the Conversion Factor in effect immediately prior to the
"effective date" of such Conversion Adjustment Event shall be multiplied by a
fraction, the numerator of which shall be the number of Common IPT Shares
which will be issued and outstanding immediately after the occurrence of such
Conversion Adjustment Event (without regard to the effect of any non-issuance
of fractional shares), and the denominator of which shall be the actual number
of Common IPT Shares issued and outstanding immediately prior to the
"effective date" of such Conversion Adjustment Event, with the result being
the new Conversion Factor in effect until such time, if ever, as another
Conversion Adjustment Event occurs. For purposes of the foregoing, the
"effective date" of a Conversion Adjustment Event shall be the earlier of (i)
the record date for such Conversion Adjustment Event, if any, or (ii) the
effective or payment date for such Conversion Adjustment Event.
"DEPRECIATION" means, with respect to any particular Partnership
Property for any period, an amount equal to the federal income tax
depreciation, amortization or other cost recovery deduction allowable with
respect to such Partnership Property for such period, except that if the
Carrying Value of such Partnership Property differs from its adjusted basis
for federal income tax purpose at the beginning of such period, Depreciation
shall mean an amount which bears the same ratio to such beginning Carrying
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such period bears to such beginning adjusted tax basis;
provided, however, that if the federal income tax depreciation, amortization
or other cost
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recovery deduction for such year is zero, Depreciation shall be determined
with reference to such beginning Carrying Value using any reasonable method
selected by the General Partner.
"DESIGNATED FEE" means any Property Management Fee paid or payable to
an Insignia Entity pursuant to a Designated Property Management Agreement.
"DESIGNATED FEES ADJUSTMENT FACTOR" means, as of any date of
determination, a fraction, the numerator of which is the aggregate amount of
Property Management Fees paid or payable to Insignia Entities during the
twelve-month period ending on such date in respect of Designated Real
Properties which were the subject of Designated Property Management Agreements
in effect throughout such twelve-month period, and the denominator of which is
the sum of the Base Designated Fee Amounts with respect to the same Designated
Real Properties.
"DESIGNATED PROPERTY MANAGEMENT AGREEMENT" means a Property
Management Agreement relating to a Designated Real Property.
"DESIGNATED REAL PROPERTY" means each Initial Designated Real
Property and Additional Designated Real Property.
"EVENT OF WITHDRAWAL" means any event specified in Section 17-402 of
the Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED DESIGNATED FEES AMOUNT" means, as of any date of
determination, the gross aggregate amount of Property Management Fees which
would have been paid or payable to Insignia Entities during the twelve-month
period ending on such date in respect of Designated Real Properties but were
not solely as a result of one or more of the following: (i) a continuous
material breach of a Designated Property Management Agreement by an Insignia
Entity, as determined by a final, nonappealable judgment of the highest court
having jurisdiction with respect to the matter question, (ii) termination of a
Designated Property Management Agreement by an Insignia Entity or (iii)
termination of a Designated Property Management Agreement by the applicable
Property-Owning Entity for Cause.
"EXISTING TERMS" has the meaning set forth in Section 7.1(a) hereof.
"EXTRAORDINARY TRANSACTION" means any (a) merger, consolidation or
other combination of IPT with or into another Person, or sale of all or
substantially all of IPT's assets (other than in connection with a change in
the jurisdiction of IPT's organization or organizational form), or (b)
reclassification of the Common IPT Shares (other than a change in par value,
or from par value to no par value, or as a result of a subdivision or
combination of Common IPT Shares).
"FISCAL YEAR" has the meaning set forth in Section 11.3 hereof.
"FORMATION PARTNERSHIP" means each of the public real estate limited
partnerships listed on Schedule I hereto.
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"GENERAL PARTNER" means IPT, in its capacity as general partner of
the Partnership, and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.
"INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of its status as General Partner, or as a director, trustee, officer or
employee of the Partnership or the General Partner, and (ii) such other
Persons (including Affiliates of the General Partner or the Partnership) as
the General Partner may designate from time to time, in its sole and absolute
discretion.
"INITIAL CONTROLLED REAL PROPERTY" means any real property owned or
otherwise controlled by a Formation Partnership as of January 1, 1997.
"INITIAL DESIGNATED REAL PROPERTY" means each Initial Controlled Real
Property which is a Multi-Family Residential Property.
"INSIGNIA" means Insignia Financial Group, Inc., in any capacity
other than that of Special Limited Partner.
"INSIGNIA ENTITY" means Insignia and each of its Affiliates.
"INVESTORS AGREEMENTS" means those certain Investors Agreements
entered into by and among IPT, the Partnership, Insignia and the investors who
purchased Common IPT Shares in private offerings, as the same may be amended
from time to time.
"IPT" means Insignia Properties Trust, a Maryland real estate
investment trust, when referred to in any capacity other than as General
Partner.
"IPT CHARTER" means the Declaration of Trust of IPT filed with the
State Department of Assessments and Taxation of the State of Maryland, as the
same has been and may be amended or restated from time to time.
"IPT ENTITY" means each of IPT, the Partnership and each Business
Entity which holds a Controlling Interest.
"IPT SHARE INCENTIVE PLAN" means any incentive compensation plan,
dividend reinvestment plan, direct share purchase plan or other incentive plan
adopted by IPT from time to time pursuant to which Common IPT Shares may be
issued to Persons entitled to participate therein.
"IPT SHARE VALUE" means, as of any date of determination, the Market
Value of a Common IPT Share as of such date.
"LIMITED PARTNER" means Insignia, in its capacity as a limited
partner in the Partnership, and each other Person who is admitted to the
Partnership as a Substitute Limited Partner or Additional Limited Partner, in
such Person's capacity as a limited partner in the Partnership.
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"LOSSES" has the meaning set forth in Section 5.1(f) hereof.
"MAE" means Metropolitan Asset Enhancement, L.P., a Delaware limited
partnership.
"MARKET VALUE" means, with respect to any security, the average daily
market price of such security for the ten consecutive trading days immediately
preceding the date of such valuation, determined as follows: (i) if such
security is listed or admitted to trading on any securities exchange or quoted
on The Nasdaq National Market, the closing price, regular way, on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day; (ii) if such security is not listed or admitted to trading
on any securities exchange or quoted on The Nasdaq National Market, 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
recognized quotation source designated by the General Partner; or (iii) if
such security is not listed or admitted to trading on any securities exchange
or quoted on The Nasdaq National Market 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 recognized
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 and low asked
prices, as so reported, on the most recent day (not more than ten days prior
to the date in question) for which prices have been so reported; provided,
however, that if there are no bid and asked prices reported during the ten
days prior to the date in question, the value of such security 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; and further provided that if such security includes any
additional rights the value of which is not included within such price, 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 and included in determining
the "Market Value" thereof.
"MULTI-FAMILY RESIDENTIAL PROPERTY" means traditional apartment
rental properties located in the United States; provided, however, that
"Multi-Family Residential Property" does not include (i) condominiums, (ii)
cooperatives, (iii) congregate care facilities, (iv) apartment rental
properties with respect to which the landlord provides material services in
addition to those services traditionally provided by landlords to apartment
tenants, (v) apartment rental properties which are deemed "affordable" (based
on a majority of their dwelling units), (vi) apartment rental properties which
are developed by an Insignia Entity or (vii) apartment rental properties in
which IPT and the Partnership are prohibited from investing, whether due to
restrictions herein or in the IPT Charter or as a result of the adoption of a
policy by the Board.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704- 2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal
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 REDEMPTION" means a written notice substantially in the
form attached as Exhibit B hereto.
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"ORIGINAL LIMITED PARTNER" has the meaning set forth in the recitals
of this Agreement.
"OTHER IPT SECURITY" means any of the following securities issued by
IPT: (i) any equity security of IPT other than Common IPT Shares; (ii) any
Right; (iii) any other right, option or warrant to acquire any equity security
of IPT (including Common IPT Shares); and (iv) any security which is
convertible into or exchangeable for any equity security of IPT (including
Common IPT Shares).
"OTHER PARTNERSHIP SECURITY" means any of the following securities
issued by the Partnership: (i) any equity security of the Partnership other
than Common Partnership Units; (ii) any right, option or warrant to acquire
any equity security of the Partnership (including Common Partnership Units);
and (iii) any security which is convertible into or exchangeable for any
equity security of the Partnership (including Common Partnership Units).
"PARTNER" means any General Partner or Limited Partner. The name and
address of each Partner are set forth on Exhibit A hereto, as the same may be
amended from time to time.
"PARTNER MINIMUM GAIN" means, with respect to any Partner Nonrecourse
Debt, an amount 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 Fiscal Year shall
be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"PARTNERSHIP ADMINISTRATION SERVICES" means services relating to the
administration and management of a Business Entity, including without
limitation asset management, accounting and investor relations services.
"PARTNERSHIP INTEREST" means any Common Partnership Unit or Other
Partnership Security.
"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 Fiscal Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"PARTNERSHIP PROPERTY" means any asset, property or other thing of
value any kind or character, whether real, personal or mixed and whether
tangible or intangible, in which the Partnership holds an ownership interest.
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"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for any distribution of cash made pursuant to Section 5.2
hereof, which record date shall be the same as the record date established by
IPT for the corresponding dividend (or distribution) to holders of Common IPT
Shares.
"PERCENTAGE INTEREST" means, with respect to any Partner as of any
date, the percentage common ownership interest in the Partnership of such
Partner, as determined by dividing the number of Common Partnership Units
owned by such Partner on such date by the total number of Common Partnership
Units outstanding on such date.
"PERSON" means any individual, corporation, partnership, limited
liability company, 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 Section 509(a)
of the Code, joint stock company or other entity, or any governmental agency
or political subdivision thereof, and includes a group as that term is used
for purposes of Section 13(d)(3) of the Exchange Act.
"PRIOR AGREEMENT" has the meaning set forth in the introductory
paragraph of this Agreement.
"PROFITS" has the meaning set forth in Section 5.1(f) hereof.
"PROPERTY-OWNING ENTITY" means a Business Entity that owns a
Controlled Real Property.
"PROPERTY MANAGEMENT AGREEMENT" means an agreement between a
Property-Owning Entity and an Insignia Entity pursuant to which an Insignia
Entity has the right to provide Property Management Services with respect to a
Controlled Real Property in exchange for cash fees and reimbursements.
"PROPERTY MANAGEMENT FEE" means any fee paid or payable to any Person
for providing Property Management Services.
"PROPERTY MANAGEMENT SERVICES" means services relating to the
day-to-day management and operations of real property.
"PROPERTY-OWNING ENTITY" means each Business Entity which owns a
Controlled Real Property, including, if applicable, each of IPT and the
Partnership.
"PUT HOLDER" has the meaning set forth in Section 9.6 hereof.
"PUT RIGHT" has the meaning set forth in Section 9.6 hereof.
"REAL ESTATE ASSET FEES" has the meaning set forth in Section 6.9
hereof.
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"REDEEMABLE UNITS" means Common Partnership Units held by a Limited
Partner which have been outstanding for at least one year.
"REDEEMING PARTNER" means a Limited Partner who has delivered a
Notice of Redemption pursuant to and in accordance with Section 9.4(a).
"REDEMPTION DATE" means the first Business Day of the month that
commences at least ten (10) Business Days after the last day of the applicable
Redemption Election Period; subject, however, to the General Partner's right
to extend the Redemption Date as provided in Section 9.4(c).
"REDEMPTION ELECTION PERIOD" means a period commencing on the first
Business Day following the date of receipt by the General Partner of a Notice
of Redemption and ending on the twentieth (20th) Business Day thereafter.
"REDEMPTION RIGHT" has the meaning set forth in Section 9.4(a) hereof.
"REGULATIONS" means the Federal Income Tax Regulations issued under
the Code, as amended and as hereafter amended from time to time. Reference to
any particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 5.1(c)
hereof.
"REIT" means a real estate investment trust under Sections 856
through 860 of the Code.
"RIGHTS" means any rights, options, warrants or convertible or
exchangeable securities issued to all holders of Common IPT Shares entitling
the holders thereof to subscribe for or purchase, or surrender for exchange,
Common IPT Shares or any other securities or property of IPT.
"SALE NOTICE" has the meaning set forth in Section 7.6 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE REDEMPTION CONSIDERATION" means, with respect to each
Redeemable Unit to be acquired by IPT, a number of Common IPT Shares, rounded
down to the nearest whole number, equal to the product of (x) the number of
Redeemable Units to be acquired by IPT pursuant to its first right provided
for in Section 9.4(b), multiplied by (y) the Conversion Factor in effect on
the date of receipt by the General Partner of the applicable Notice of
Redemption; together with a correlative number of any Rights associated with a
Common IPT Share (if any); plus cash in lieu of a fractional Common IPT Share
based on the IPT Share Value on such date.
"SPECIAL LIMITED PARTNER" means Insignia in its capacity as a Limited
Partner.
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"SUBSIDIARY" means, with respect to any Person, Business 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.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 10.3 hereof.
"TRANSFER" has the meaning set forth in Section 10.2(a) hereof.
"TRIGGERING EVENT" has the meaning set forth in Section 7.2 hereof.
"UNREALIZED GAIN" means, with respect to any item of Partnership
Property as of any date of determination, the excess, if any, of (a) the fair
market value of such Partnership Property (as determined under the definition
of Carrying Value) as of such date, over (b) the Carrying Value of such
Partnership Property (prior to any adjustment to be made pursuant to the
definition of Carrying Value) as of such date.
"UNREALIZED LOSS" means, with respect to any item of Partnership
Property as of any date of determination, the excess, if any, of (a) the
Carrying Value of such Partnership Property (prior to any adjustment to be
made pursuant to the definition of Carrying Value) as of such date, over (b)
the fair market value of such Partnership Property (as determined under the
definition of Carrying Value) as of such date.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.1 CONTINUATION. The Partners hereby agree to continue the
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement. 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 Interests of
each Partner shall be personal property for all purposes.
2.2 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership is
"Insignia Properties, L.P." The specified office and principal place of
business of the Partnership is One Insignia Financial Plaza, P.O. Box 19059,
Greenville, South Carolina 29602. The General Partner may at any time change
the location of such office, provided that the General Partner gives notice to
the other Partners of any such change. The name and address of the
Partnership's registered agent in Delaware is The Prentice-Hall Corporation
Systems, Inc., 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805. The sole duty of the registered agent as such is to forward to the
Partnership any notice that is served on it as registered agent.
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2.3 PARTNERS. The Partners are those Persons identified on Exhibit A
hereto. The General Partner shall update Exhibit A from to time to time to
reflect the withdrawal of any Partner, the admission of any Additional Limited
Partner or Substitute Limited Partner and the admission of any additional or
substitute General Partner.
2.4 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force
and effect until December 31, 2097, except that the Partnership shall
be sooner dissolved as provided in Section 8.4 or upon the first to
occur of any of the following events:
(i) an election to dissolve the Partnership made by
the General Partner upon approval by the Special Limited
Partner;
(ii) the passage of 90 days after the sale or other
disposition of all or substantially all of the Partnership
Properties; provided, however, that if the Partnership
receives installment obligations as consideration for such
sale or other disposition, the Partnership shall continue,
unless sooner dissolved under the provisions of this
Agreement, until such time as such obligations are paid in
full or otherwise satisfied;
(iii) the redemption of all Common Partnership
Units held by Limited Partners; or
(iv) the entry of a decree of judicial dissolution
of the Partnership pursuant to the provisions of the Act.
(b) Upon dissolution of the Partnership, the General Partner
(or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership
Properties, applying and distributing the proceeds thereof in
accordance with Section 5.6 hereof. Notwithstanding the foregoing,
the liquidating General Partner may either (i) defer liquidation of
or withhold from distribution, for a reasonable time, any Partnership
Properties (including those necessary to satisfy the Partnership's
debts and obligations) or (ii) distribute Partnership Properties to
the Partners in kind.
2.5 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file, at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each
state or other jurisdiction in which the Partnership conducts business.
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2.6 POWER OF ATTORNEY.
(a) Each Limited Partner and each assignee hereby
constitutes and appoints the General Partner and its authorized
officers, each of them 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:
(i) execute, swear to, seal, acknowledge, deliver,
file and record in the appropriate public offices (a) all
certificates, documents and other instruments (including,
without limitation, the Certificate and all amendments or
restatements thereof and amendments and restatements to this
Agreement approved in accordance with this Agreement) that
the General Partner 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, Articles
VIII or X 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 Partners; and
(ii) execute, swear to, 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, given,
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;
provided, however, that the foregoing shall not be construed as
authorizing the General Partner to amend this Agreement except in
accordance with Article XII 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
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survive and not be affected by the subsequent legal incapacity, death
or dissolution of any Limited Partner or assignee or the transfer of
all or any portion of a Limited Partner's or assignee's Common
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 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, within
fifteen (15) days after receipt of the General Partner's request
therefor, such further designation, powers of attorney and other
instruments as the General Partner deems necessary to effectuate this
Agreement and the purposes of the Partnership.
ARTICLE III
PURPOSE AND BUSINESS OF THE PARTNERSHIP
3.1 PURPOSE AND BUSINESS. The purpose and nature of the business to
be conducted by the Partnership is (i) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act;
provided, however, that such business shall be limited to and conducted in
such a manner as to permit IPT at all times to qualify as a REIT; (ii) to
enter into any partnership, joint venture or other similar arrangement to
engage in any of the foregoing or to own any interests in any entity engaged
in any of the foregoing; and (iii) to do anything necessary or incidental to
the foregoing. In connection with the foregoing, and without limiting IPT's
right in its sole and absolute discretion to cease qualifying as a REIT, the
Partners acknowledge that IPT's current status as a REIT, and the avoidance of
income and excise taxes on IPT, inures to the benefit of all the Partners and
not solely to IPT. Notwithstanding the foregoing, the Limited Partners
acknowledge that IPT may terminate its status as a REIT under the Code at any
time and to the full extent permitted by the IPT Charter. Subject to Article
XII hereof, the General Partner shall also be empowered (but shall not be
required) to do any and all acts and things necessary or prudent to ensure
that the Partnership will not be classified as a "publicly traded partnership"
for the purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS. The General Partner and the Limited
Partners have contributed to the capital of the Partnership cash, services or
Contributed Property in an amount or having an Agreed Value set forth opposite
their names on Exhibit A hereto, as amended from time to time.
4.2 ADDITIONAL CAPITAL CONTRIBUTIONS; ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.2 and Section 4.3
hereof, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. However, with the consent
of the General Partner, which consent may be withheld in its sole
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and absolute discretion, the Partners may contribute additional capital to the
Partnership from time to time, and receive additional Partnership Interests in
respect thereof, in the manner contemplated in this Section 4.2.
(a) General. Subject to Section 9.5(c), the General Partner
is hereby authorized to cause the Partnership to issue additional
Partnership Interests for any Partnership purpose at any time or from
time to time, to the Partners (including the General Partner) or to
other Persons, for such consideration and on such terms and
conditions as shall be determined by the General Partner in its
discretion, all without the approval of any Limited Partners;
provided, however, that only Common Partnership Units may be issued
to Limited Partners; and further provided that no additional
Partnership Interests shall be issued to the General Partner (acting
in its capacity as such) unless such issuance is (x) pursuant to
Section 4.2(b) or (y) in connection with an issuance of Common
Partnership Units to all Partners pro rata in proportion to their
respective Percentage Interests. Without limiting the foregoing, the
General Partner is expressly authorized to cause the Partnership to
issue Partnership Interests for less than fair market value, so long
as the General Partner concludes in good faith that such issuance is
in the best interests of IPT and the Partnership. Upon each issuance
of Partnership Interests hereunder, the General Partner shall amend
Exhibit A hereto to reflect such issuance.
(b) Certain Required Additional Capital Contributions by,
and Issuances of Additional Partnership Interests to, IPT.
(i) Upon the issuance by IPT of any additional
Common IPT Shares on or after the date hereof, including
pursuant to an IPT Share Incentive Plan, IPT, in its
capacity as General Partner, shall contribute to the
Partnership as a Capital Contribution all proceeds of such
issuance (other than non-cash proceeds which, if contributed
to the Partnership, would cause IPT to lose its REIT
status), and (B) the Partnership shall issue to IPT a number
of additional Common Partnership Units equal the product of
(x) the number of additional Common IPT Shares issued by
IPT, multiplied by (y) a fraction, the numerator of which is
1.0 and the denominator of which is the Conversion Factor in
effect on the date of such issuance of additional Common IPT
Shares; provided, however, that this Section 4.2(b)(i) shall
not apply to any issuance of Other Common IPT Shares which
is made (A) in connection with a redemption of Common
Partnership Units pursuant to Section 9.4 hereof, (B) pro
rata to all holders of Common IPT Shares or (C) in
connection with an acquisition of property to be held by IPT
other than by, through of for the benefit of the
Partnership.
(ii) Upon the issuance by IPT of any Other IPT
Securities, IPT, in its capacity as General Partner, shall
contribute to the Partnership as a Capital Contribution all
proceeds of such issuance (other than non-cash proceeds
which, if contributed to the Partnership, would cause IPT to
lose its REIT status), and (B) the Partnership shall issue
to IPT a like number
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of Other Partnership Securities, which Other Partnership
Securities shall have designations, preferences and other
rights substantially similar, with respect to the economic
interests they represent, to those of the corresponding
Other IPT Securities issued by IPT; provided, however, that
this Section 4.2(b)(ii) shall not apply to any issuance of
Other IPT Securities which is made (A) pro rata to all
holders of Common IPT Shares or (B) in connection with an
acquisition of property to be held by IPT other than by,
through or for the benefit of the Partnership.
(iii) IPT is expressly authorized to issue
additional Common IPT Shares and Other IPT Securities for
less than fair market value, and, in its capacity as General
Partner, to cause the Partnership to issue corresponding
Common Partnership Units and Other Partnership Securities to
IPT (including without limitation issuances of additional
Common IPT Shares and corresponding Common Partnership Units
pursuant to an IPT Share Incentive Plan providing for
purchases of additional Common IPT Shares at a discount from
fair market value by the Persons entitled to participate in
such plan), provided that (x) IPT concludes in good faith
that such issuances are in the best interest of IPT and the
Partnership and (y) IPT, in its capacity as General Partner,
contributes all proceeds from such issuances to the
Partnership.
(iv) For all purposes of this Agreement, if, in
connection with any issuance by IPT of additional Common IPT
Shares or Other IPT Securities subject to the provisions of
this Section 4.2(b), the proceeds from such issuance
actually received by IPT and contributed to the Partnership
as a Capital Contribution (as required by Sections 4.2(b)(i)
and (ii), respectively) constitute less than the gross
proceeds of such issuance as a result of any underwriter's
discount or other expenses paid or incurred in connection
with such issuance or the fact that certain of such non-cash
proceeds may not be contributed to the Partnership IPT to
lose its REIT status, then (x) IPT shall be deemed to have
made a Capital Contribution to the Partnership in the
aggregate amount of the gross proceeds of such issuance and
(y) the Partnership shall be deemed simultaneously to have
paid such offering expenses in connection with the required
issuance of additional Partnership Interests to IPT pursuant
to Sections 4.2(b)(i) and (ii), respectively.
4.3 ADDITIONAL FUNDING. If the General Partner determines that it is
in the best interests of the Partnership to provide for additional Partnership
funds for any Partnership purpose, the General Partner may (i) cause the
Partnership to obtain such funds from outside borrowings, (ii) cause the
Partnership to obtain such funds through the sale of additional Partnership
Interests, or (iii) elect to have the General Partner provide such funds to
the Partnership through loans or otherwise.
4.4 NO PREEMPTIVE RIGHTS. Except as specifically provided in this
Agreement, no Person shall have any preemptive, preferential or other similar
right with respect to
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(a) additional Capital Contributions or loans to the Partnership or (b) any
issuance or sale of any Partnership Interests.
4.5 CAPITAL ACCOUNTS.
(a) General. The Partnership shall maintain for each Partner
a separate capital account (each, a "CAPITAL ACCOUNT") in accordance
with the rules of Regulations Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (a) the amount of all Capital
Contributions made by such Partner to the Partnership pursuant to
this Agreement (net of liabilities secured by Contributed Property
that the Partnership is considered to assume or take subject to under
Section 752 of the Code) and (b) all items of Profit (including
income and gain exempt from tax) computed in accordance with Section
5.1(f) hereof and allocated to such Partner pursuant to Sections
5.1(a) and (b) of this Agreement, and decreased by (i) the amount of
cash or Carrying Value (as adjusted in the definition of Carrying
Value) of all actual and deemed distributions of cash or property
made to such Partner pursuant to this Agreement (net of liabilities
secured by such distributed property that such Partner is considered
to assume or take subject to under Section 752 or the Code) and (ii)
all items of Loss computed in accordance with Section 5.1(f) hereof
and allocated to such Partner pursuant to Sections 5.1(a) and 5.1(b)
hereof.
(b) Modification by General Partner. The provisions of this
Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations.
In the event the General Partner shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including without limitation debits or credits
relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership, the
General Partner or any Limited Partners) are computed in order to
comply with such Regulations, the General Partner may make such
modification, provided that it will not have a material effect on the
amounts distributable to any Person pursuant to Section 5.6 hereof
upon the liquidation of the Partnership. The General Partner also
shall (a) 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), and (b) make any
appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
4.6 PERCENTAGE INTERESTS. If the Partners' Percentage Interests
change during a Fiscal Year, then Profits and Losses (and solely for this
purpose, items specially allocated pursuant to Sections 5.1(b) and 5.1(c)
hereof) for such Fiscal Year shall be allocated between the part of the year
ending on the day when the Partnership's Property is revalued by the General
Partner and the part of the year beginning on the following day either (a) as
if the Fiscal Year had ended on the date of the adjustment or (a) based on the
number of days in each part, with the choice between method (a) and method (b)
being in the sole discretion of the General Partner. The allocation of Profits
and Losses for the earlier part of the year shall be based on the Partners'
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respective Percentage Interests before the change, and the allocation of
Profits and Losses for the later part shall be based on the Partners'
respective adjusted Percentage Interests.
4.7 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.8 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.9 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
any Partner hereunder 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 any such right or obligation 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. In addition, it is the intent of the parties hereto that
no distribution to any Limited Partner shall be deemed a return of money or
other property in violation of the Act. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Limited Partner is obligated to return such money or property, such obligation
shall be the obligation of such Limited Partner and not of the General
Partner. Without limiting the generality of the foregoing, a deficit Capital
Account of a Partner shall not be deemed to be a liability of such Partner or
a Partnership Property.
4.10 CASH INCENTIVE RIGHTS. If IPT grants any trustee, officer or
employee of, or advisor or consultant to, IPT any Cash Incentive Right, then
simultaneously the Partnership shall be deemed to have granted to IPT a
corresponding and economically equivalent right. Consequently, upon the cash
payment by IPT to a holder of a Cash Incentive Right, the Partnership shall
make an equal cash payment to IPT.
4.11 MANDATORY REPURCHASES OF PARTNERSHIP INTERESTS HELD BY IPT.
(a) Upon any redemption, repurchase or other acquisition by
IPT of any of its outstanding Common IPT Shares, the General Partner
shall cause the Partnership to purchase from IPT a number of Common
Partnership Units equal to the product of (x) the number Common IPT
Shares so redeemed, repurchased or otherwise acquired, multiplied by
(y) the Conversion Factor in effect on the date of such redemption,
repurchase or other acquisition of outstanding Common IPT Shares,
with the terms (price, form of consideration, timing of payment,
etc.) of such purchase of Common Partnership Units from IPT being as
nearly substantively identical to the terms of such
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redemption, repurchase or other acquisition by IPT of its outstanding
Common IPT Shares as practicable.
(b) Upon any redemption, repurchase or other acquisition by
IPT of any of its outstanding Other IPT Securities, the General
Partner shall cause the Partnership to purchase from IPT a
corresponding number of economically equivalent Other Partnership
Securities, with the terms (price, form of consideration, timing of
payment, etc.) of such purchase of Other Partnership Securities from
IPT being as nearly substantively identical to the terms of such
redemption, repurchase or other acquisition by IPT of its outstanding
Other IPT Securities as practicable.
ARTICLE V
PROFITS AND LOSSES DISTRIBUTIONS
5.1 ALLOCATION OF PROFITS AND LOSSES.
(a) General. Except as otherwise provided in Sections
5.1(b), 5.1(c), 5.1(d) and 5.1(i), Profits and Losses for each Fiscal
Year of the Partnership shall be allocated among the Partners as
follows:
(i) Profits. After giving effect to the special
allocations set forth in Sections 5.1(b) and 5.1(c) hereof,
Profits for any Fiscal Year shall be allocated to the
Partners in proportion to their Percentage Interests.
(ii) Losses. After giving effect to the special
allocations set forth in Sections 5.1(b), 5.1(c) and 5.1(d)
hereof, Losses for any Fiscal Year shall be allocated to the
Partners in proportion to their Percentage Interests.
(b) Special Allocations. The following special allocations
shall be made in the following order:
(i) Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(f), notwithstanding
any other provision of this Article V, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year,
each Partner shall be specially allocated items of
Partnership income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to
such Partner's share of the net decrease in Partnership
Minimum Gain, determined in accordance with 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, and the items to be so allocated shall be
determined in accordance with Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.1(b)(i) is
intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
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(ii) Partner Minimum Gain Chargeback.
Notwithstanding any other provision of this Article V (other
than Section 5.1(b)(i) hereof, except as provided in
Regulations Section 1.704-2(i)(4)), if there is a net
decrease in Partner Minimum Gain attributable to Partner
Nonrecourse Debt during any Fiscal 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
Fiscal Year (and, if necessary, subsequent Fiscal 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, and the items to be so allocated shall be
determined in accordance with Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.1(b)(ii) is
intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any
Limited Partner unexpectedly receives any adjustments,
allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704- 1(b)(2)(ii)(d)(6), items of Partnership income and
gain shall be specially allocated to each such Limited
Partner in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Limited Partner as quickly as
possible; provided, however, that an allocation pursuant to
this Section 5.1(b)(iii) shall be made only if and to the
extent that such Limited Partner would have an Adjusted
Capital Account Deficit after all other allocations provided
for in this Article V have been tentatively made as if this
Section 5.1(b)(iii) were not in this Agreement. This Section
5.1(b)(iii) is intended to constitute a "qualified income
offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii) and shall be interpreted consistently
therewith.
(iv) Gross Income Allocation. In the event any
Limited Partner has an Adjusted Capital Account Deficit at
the end of any Fiscal Year which is in excess of the sum of
(x) the amount such Limited Partner is obligated to restore
pursuant to any provision of this Agreement, and (y) the
amount such Limited 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 Limited
Partner shall be specially allocated items of Partnership
income and gain in the amount of such excess as quickly as
possible; provided, however, that an allocation pursuant to
this Section 5.1(b)(iv) shall be made only if and to the
extent that such Limited Partner would have an Adjusted
Capital Account Deficit in excess of such sum after all
other allocations provided for in this Article V have been
made as if Section 5.1(b)(iii) hereof and this Section
5.1(b)(iv) were not in this Agreement.
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(v) Nonrecourse Deductions. Nonrecourse Deductions
for any Fiscal Year shall be allocated to the Partners in
accordance with their Percentage Interests.
(vi) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year or other period
shall be specially allocated to the 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)(1).
(vii) Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership
Property is required pursuant to Code Section 734(b) or
743(b) and Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
(4), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the
adjustment increases the basis of such Partnership Property)
or loss (if the adjustment decreases such basis), and such
gain or loss shall be specially allocated to the Partners in
a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Code
Sections and Regulations.
(c) Curative Allocations. The allocations set forth in
Sections 5.1(b)(i) through (vii) and 5.1(d) hereof (the "REGULATORY
ALLOCATIONS") are intended to comply with certain requirements of the
Regulations. It is the intent of the Partners that, to the extent
possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other
items of Partnership income, gain loss or deduction pursuant to this
Section 5.1(c). Therefore, notwithstanding any other provision of
this Article V (other than the Regulatory Allocations), the General
Partner shall make such offsetting special allocations of Partnership
income, gain, loss or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each
Partner's Capital Account balance is, to the extent possible, equal
to the Capital Account balance such Partner would have had if the
Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 5.1(a), 5.1(b)
5.1(g) and 5,1(i) hereof; provided, however, that the General Partner
shall not make special allocations of income or gain under this
Section 5.1(c) to offset Regulatory Allocations previously made
pursuant to Sections 5.1(b)(v) and 5.1(b)(vi) hereof.
(d) Loss Limitation. Losses allocated pursuant to Section
5.1(a)(ii) hereof shall not exceed the maximum amount of Losses that
can be allocated without causing any Partner to have an Adjusted
Capital Account Deficit at the end of any Fiscal Year. In the event
some but not all of the Partners would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to
Section 5.1(a)(ii) hereof, the limitation set forth in this Section
5.1(d) shall be applied on a Partner by Partner basis, and Losses not
allocable to any Partner as a result of such limitation shall be
allocated to the other Partners in accordance with the positive
balances in such Partner's
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Capital Accounts so as to allocate the maximum permissible Losses to
each Partner under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
(e) Allocations Between Transferor and Transferee. If a
Partner transfers any part or all of its Partnership Interests, the
distributive shares of the various items of Profit and Loss (and
solely for this purpose, items specially allocated pursuant to
Section 5.1(b) and 5.1(c) hereof) allocable among the Partners during
such Fiscal Year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the
Partnership's Fiscal Year had ended on the date of the transfer, or
(ii) based on the number of days of such Fiscal Year that each was a
Partner without regard to the results of Partnership activities in
the respective portions of such Fiscal Year in which the transferor
and the transferee were Partners, with the choice between method (i)
and method (ii) being in the sole discretion of the General Partner.
(f) Definition of Profits and Losses. "PROFITS" and "LOSSES"
mean, for any period, an amount equal to the Partners's taxable
income or loss, respectively, for such period, 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:
(i) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into account
in computing Profits or Losses shall be added to such
taxable income or loss;
(ii) Any expenditures of the Partnership described
in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses shall be subtracted from such
taxable income or loss;
(iii) In the event the Carrying Value of any
Partnership Property is adjusted pursuant to the definition
of Carrying Value, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of
such Partnership Property for purposes of computing Profits
or Losses;
(iv) Gain or loss resulting from any disposition of
Partnership Property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Carrying Value of the Partnership
Property disposed of, notwithstanding that the adjusted tax
basis of such Partnership Property may differ from its
Carrying Value;
(v) In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken
into account Depreciation for such period (computed in
accordance with the definition of Depreciation herein);
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(vi) To the extent an adjustment to the adjusted
tax basis of any Partnership Property pursuant to Code
Section 734(b) or Code Section 743(b) is required pursuant
to Regulations 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 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 such Partnership Property) or loss
(if the adjustment decreases the basis of such Partnership
Property) from the disposition of such Partnership Property
and shall be taken into account for purposes of computing
Profits or Losses; and
(vii) Notwithstanding any other provisions of this
definition of Profits and Losses, any items which are
specially allocated pursuant to Section 5.1(b) or Section
5.1(c) hereof shall not be taken into account in computing
Profits or Losses.
The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to Sections
5.1(b) and 5.1(c) hereof shall be determined by applying rules
analogous to those set forth above relating to the allocation of
Profits and Losses.
(g) Other Allocation Rules.
(i) For purposes of determining the Profits, Losses
and other items allocable to any period, Profits, Losses and
any such other items shall be determined on a daily, monthly
or other basis, as determined by the General Partner using
any permissible method under Code Section 706 and the
Regulations thereunder.
(ii) All allocations to the Limited Partners
pursuant to this Article V shall, except as otherwise
expressly provided, be divided among them in proportion to
their respective Percentage Interests. In the event there is
more than one General Partner, all such allocations to the
General Partner shall be divided among them in proportion to
their respective Percentage Interests or as they may
otherwise agree.
(iii) Except as otherwise provided in this
Agreement, all items of Partnership income, gain, loss,
deduction and any other allocations not otherwise provided
for shall be divided among the Partners in the same
proportions as they share Profits or Losses, as the case may
be. However, notwithstanding any other provision of this
Agreement, the General Partner shall be allocated not less
than one percent in the aggregate of each item of
Partnership income, gain, loss, deduction or credit, except
to the extent such an allocation would be contrary to the
provisions of Code Section 704(b) or (c) and the related
Regulations.
(iv) The Partners are aware of the income tax
consequences of the allocations made by this Article V and
hereby agree to be bound by the provisions
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of this Article V in reporting their respective shares of
Partnership income and loss for income tax purposes.
(v) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities"
of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), the Partners' interests in Partnership
profits are in proportion to their respective Percentage
Interests.
(vi) To the extent permitted by Regulations Section
1.704-2(h)(3), the General Partner shall endeavor to treat
distributions as having been made from the proceeds of a
Nonrecourse Liability or a Partner Nonrecourse Debt only to
the extent that any such distribution would not cause or
increase an Adjusted Capital Account Deficit for any Limited
Partner.
(h) Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Regulations thereunder, income, gain,
loss, and deduction with respect to any Contributed Property shall,
solely for tax purposes, be allocated among the Partners so as to
take account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes and its
initial Agreed Value. In the event the Carrying Value of any
Partnership Property is adjusted pursuant to the definition of
Carrying Value herein, subsequent allocations of income, gain, loss
and deduction with respect to such Partnership Property shall take
account of any variation between the adjusted basis of such
Partnership Property for federal income tax purposes and its Carrying
Value in the same manner as under Code Section 704(c) and the
Regulations thereunder. For purposes of allocating income, gain, loss
and deduction under this Section 5.1(h), the Partnership shall use
the method described in Regulations Section 1.704-3(b) (i.e., the
"traditional method"), except as otherwise required by law or as may
be determined by the General Partner; provided, however, that the
General Partner may not alter the method of allocating income, gain,
loss or deduction in any manner that is materially adverse to the
Limited Partners taken as a whole, except to the extent that such
alteration by the General Partner of the method of allocating income,
gain, loss or deduction is required in order to comply with the Code
or any applicable rule, regulation or interpretation thereunder. Any
election or other decision relating to such allocations shall be made
by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this
Section 5.1(h) are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into account in
computing, any Partner's Capital Account or share of Profits, Losses,
other items or distributions pursuant to any provision of this
Agreement.
(i) Allocations with respect to Other Partnership
Securities. If during any Fiscal Year the Partnership has outstanding
any Other Partnership Securities issued in connection with an
issuance of Other IPT Securities by IPT, Profits and Losses shall be
allocated in respect of such Other Partnership Securities in amounts
and priorities which reflect the economic rights and preferences
attributable to such Other Partnership Securities.
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5.2 DISTRIBUTIONS OF CASH IN RESPECT OF COMMON PARTNERSHIP UNITS.
(a) Subject to the terms and preferences of Other
Partnership Securities issued and outstanding from time to time, if
any, the General Partner shall distribute cash to the Partners from
time to time (but not less frequently than annually), at such times
and in such amounts as the General Partner shall determine in its
sole discretion, in each case to the Persons who were Partners on the
applicable Partnership Record Date in accordance with their
respective Percentage Interests on such Partnership Record Date.
(b) Any amount withheld pursuant to the Code or any
provision of any other federal, state or local tax law with respect
to any allocation, payment or distribution to any Partner shall be
treated as an amount distributed to such Partner pursuant to Section
5.2(a) for all purposes of this Agreement.
(c) In no event may a Partner receive a distribution of cash
with respect to a Common Partnership Unit if such Partner is entitled
to receive a dividend with respect to a Common IPT Share for which
all or part of such Common Partnership Unit has been or will be
exchanged.
5.3 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient
to enable IPT to pay shareholder dividends that will allow IPT to (i) meet its
distribution requirement for qualification as a REIT as set forth in Section
857(a)(1) of the Code and (ii) avoid any federal income or excise tax
liability imposed by the Code.
5.4 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled
to demand Partnership Property other than cash in connection with any
distributions by the Partnership.
5.5 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding
any other provision of this Article V, no Partner shall have the right to
receive, and the General Partner shall not have the right to make, a
distribution that includes a return of all or part of a Partner's Capital
Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all Partnership liabilities, other than the
liabilities to a Partner for the return of his Capital Contribution, does not
exceed the aggregate fair market value of the Partnership Properties.
5.6 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of,
or adequate provision for, all debts and obligations of the
Partnership (including any Partner loans), any remaining Partnership
Properties shall be distributed to all Partners with positive Capital
Accounts in accordance with their respective positive Capital Account
balances, subject to, and in accordance with, the liquidation
preferences of any series of Other Partnership Securities issued from
time to time in accordance with Section 4.2 hereof. For purposes of
the preceding sentence, the Capital Account of each Partner shall be
determined after all adjustments made in accordance with Sections 5.1
and 5.2 hereof resulting from Partnership operations and from all
sales and dispositions of all or any part of the Partnership
Properties. All distributions pursuant to this Section 5.6 hereof
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shall be made by the end of the Partnership's Fiscal Year in which
the liquidation occurs (or, if later, within 90 days after the date
of the liquidation). To the extent deemed advisable by the General
Partner, appropriate arrangements (including the use of a liquidating
trust) may be made to ensure that adequate funds are available to pay
any contingent debts or obligations of the Partnership.
(b) If the General Partner has a negative balance in its
Capital Account following a liquidation of the Partnership, as
determined after taking into account all Capital Account adjustments
in accordance with Sections 5.1 and 5.2 hereof resulting from
Partnership operations and from all sales and dispositions of all or
any part of the Partnership Properties, the General Partner shall
contribute to the Partnership cash in an amount equal to the negative
balance in its Capital Account, and such cash shall be paid or
distributed by the Partnership to creditors, if any, and then to the
Limited Partners in accordance with Section 5.6(a) hereof. Such
contribution by the General Partner shall be made by the end of the
Partnership's Fiscal Year in which the liquidation occurs (or, if
later, within 90 days after the date of the liquidation).
5.7 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners
that the allocations of Profit and Loss under this Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to
nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the Regulations promulgated pursuant thereto. This Article V
and other relevant provisions of this Agreement shall be interpreted in a
manner consistent with such intent.
ARTICLE VI
MANAGEMENT OF THE PARTNERSHIP;
POWERS, RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER
6.1 MANAGEMENT OF THE PARTNERSHIP. Except as otherwise expressly
provided in this Agreement, the General Partner shall have full, complete and
exclusive discretion to manage and control the business of the Partnership for
the purposes herein stated and shall make all decisions affecting the business
and assets of the Partnership, 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.
6.2 POWERS OF THE GENERAL PARTNER. In addition to the powers now or
hereafter granted a general partner of a limited partnership under the Act or
other applicable law or which are granted to the General Partner under any
other provision of this Agreement, and subject to the restrictions
specifically contained in this Agreement, the powers of the General Partner
shall include, without limitation, the authority to take the following actions
on behalf of the Partnership:
(a) to form, acquire, own, sell or otherwise obtain or
divest of (i) equity interests (including general and limited partner
interests), whether held directly or indirectly, in public or private
limited partnerships and other Business Entities owning real estate
or real estate related assets, and (ii) debt or debt securities
secured by real
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estate, interests in real estate, or ownership interests in Business
Entities that own or invest in real estate, in each case as the
General Partner determines such acquisitions or divestitures to be
necessary or appropriate for the conduct of the activities of the
Partnership;
(b) to make any expenditures or lend or borrow money
(including to make prepayments on loans and to borrow money to permit
the Partnership to make distributions to its Partners in such amounts
as will permit the General Partner (so long as IPT owns any
Partnership Interests and otherwise 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 shareholders sufficient to permit IPT to
maintain its REIT status), to assume or guarantee, or otherwise
contract for, indebtedness and other liabilities, to issue evidences
of indebtedness (including the securing of same by mortgage, deed of
trust or other lien or encumbrance on Partnership Properties) and to
incur any obligations that the General Partner deems to be necessary
or appropriate for the conduct of the activities of the Partnership;
(c) to receive or accept distributions from the operating
cash flows of the limited partnerships or other Business Entities in
which it holds interests;
(d) to acquire, purchase, own or otherwise obtain or dispose
of direct and indirect interests in Multi-family Residential
Properties and commercial properties and to develop or otherwise hire
a third party to develop such Multi-family Residential Properties and
commercial properties as the General Partner deems to be necessary or
appropriate for the conduct of the activities of the Partnership;
(e) to pay, either directly or by reimbursement, all
Administrative Expenses to third parties or to the General Partner or
IPT, as the case may be;
(f) to lease all or any portion of any Partnership Property,
regardless of whether the terms of any such lease extends beyond the
termination date of the Partnership and whether any portion of any
Partnership Property so leased are to be occupied by the lessee or,
in turn, subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may determine
in its discretion to be proper or appropriate;
(g) to merge or otherwise combine the Partnership with or
into any other Business Entity, on such terms as the General Partner
may determine in its discretion to be proper or appropriate;
(h) to use Partnership Property (including cash on hand) for
any purpose not inconsistent with the terms of this Agreement and on
any terms it sees fit, including 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 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, the holding of any real, personal
or mixed
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property of the Partnership in the name of the Partnership or in the
name of a nominee or trustee, and the performance of any and all
related acts that the General Partner deems to be necessary or
appropriate for the conduct of the activities of the Partnership;
(i) to raise additional equity through such means (including
through the sale of additional Partnership Interests) and for such
purposes as the General Partner deems necessary or appropriate for
the conduct of the activities of the Partnership;
(j) to negotiate, execute and perform any contracts,
conveyances or other instruments (including with Affiliates of the
Partnership or IPT) that the General Partner deems necessary or
appropriate for the conduct of the activities of the Partnership or
the implementation of the General Partner's powers under this
Agreement;
(k) to open and close bank accounts, invest Partnership
funds in securities, certificates of deposit, debt and other
instruments, and distribute Partnership cash or other Partnership
Property in accordance with this Agreement;
(l) to prosecute, defend, arbitrate or compromise any and
all claims or liabilities in favor of or against the Partnership, on
such terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership or the Partnership
Properties;
(m) to file applications, communicate and otherwise deal
with any and all governmental agencies having jurisdiction over, or
in any way affecting, the Partnership Properties or any other aspect
of the Partnership's business;
(n) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(o) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership
Properties, or for any other purpose convenient or beneficial to the
Partnership, in such amounts and such types as the General Partner
shall determine from time to time;
(p) to determine whether or not to apply any insurance
proceeds from any Partnership Property to the restoration of such
property or to distribute the same;
(q) to select and dismiss employees of the Partnership or
the General Partner (including employees having titles such as
"president", "vice president", "secretary" and "treasurer"), and
engage and dismiss agents, outside attorneys, accountants, engineers,
appraisers, consultants, contractors and other professionals on
behalf of the General Partner or the Partnership and the
determination of their compensation and other terms of employment or
engagement;
(r) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
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(s) to determine the fair market value of any Partnership
Property distributed in kind using such reasonable method or methods
of valuation as it may adopt;
(t) to contribute Partnership Property to any limited or
general partnership, joint venture, limited liability company or
other Business Entity that the General Partner deems desirable
(including the contributions of Partnership Property to its
Subsidiaries and to any other Person in which it has an equity
interest from time to time);
(u) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(v) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any
and all other acts that the General Partner deems necessary or
appropriate for the formation, continuation and conduct of the
business and affairs of the Partnership (including all actions
consistent with allowing IPT at all times to qualify as a REIT unless
IPT elects to terminate its REIT status) and to possess and enjoy all
of the rights and powers of a general partner as provided by the Act.
6.3 DELEGATION OF AUTHORITY. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with, any Person (including without limitation
Insignia Entities) for the transaction of the business of the Partnership,
which Person may, under the supervision of the General Partner, perform any
acts or services for the Partnership as the General Partner may approve.
6.4 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify each Indemnitee from and
against any and all losses, claims, damages, liabilities (both joint
and several), expenses (including reasonable 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 as set forth in this Agreement in which
any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise; provided, however, that the Partnership shall not
indemnify any Indemnitee (i) for willful misconduct or a knowing
violation of the law, (ii) for any act or omission of such Indemnitee
that was material to the matter giving rise to the proceeding and
that either was committed in bad faith or was the result of active
and deliberate dishonesty, (iii) for any transaction for which such
Indemnitee actually received an improper personal benefit in money,
property or services or (iv) in the case of any criminal proceeding,
for any instance in which such Indemnitee had reasonable cause to
believe that its act or omission was unlawful. The termination of any
proceeding by judgment, order or settlement does not create a
presumption that an Indemnitee did not meet the requisite standard of
conduct set forth in this Section 6.4(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment,
creates a rebuttable presumption that an Indemnitee acted in a manner
contrary to that specified in this
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Section 6.4(a). Any indemnification pursuant to this Section 6.4
shall be made only out of the assets of the Partnership.
(b) The Partnership shall advance funds to each Indemnitee
for reasonable expenses incurred by such Indemnitee who is a party to
a proceeding prior to the final disposition of the proceeding upon
receipt by the Partnership of (i) a written affirmation by such
Indemnitee of its good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in
this Section 6.4 has been met and (ii) a written undertaking by or on
behalf of such Indemnitee to repay all advanced amounts if it shall
ultimately be determined that such standard of conduct has not been
met.
(c) The indemnification provided by this Section 6.4 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.
(d) The Partnership may purchase and maintain insurance, on
behalf 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 pursuant to this Agreement.
(e) For purposes of this Section 6.4, (i) the Partnership
shall be deemed to have requested an Indemnitee to serve as fiduciary
of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise
involves services by, it to the plan or participants or beneficiaries
of the plan; (ii) excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall
constitute fines within the meaning of this Section 6.4; and (iii)
actions taken or omitted by an Indemnitee with respect to an employee
benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g) No Indemnitee shall be denied indemnification in whole
or in part under this Section 6.4 because such 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 6.4 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.
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6.5 LIABILITY OF THE GENERAL PARTNER.
(a) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be
paid to third parties, the General Partner shall not have any
obligations hereunder except to the extent that Partnership funds are
reasonably available to it for the performance of such duties, and
nothing herein shall be deemed to authorize or require the General
Partner to expend its individual funds for payment to third parties
or to undertake any individual liability or obligation on behalf of
the Partnership.
(b) Notwithstanding any other provision of this Agreement to
the contrary, the General Partner shall not be liable for monetary
damages to the Partnership or any Partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act
or omission if the General Partner acted in good faith, nor shall the
General Partner be deemed to have breached any duty that the General
Partner may owe to the Limited Partners or the Partnership or any
other Person under this Agreement or any duty stated or implied by
law or equity if the General Partner, acting in good faith, abides by
the terms of this Agreement.
(c) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, IPT and IPT's
shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including the tax consequences to Limited Partners or the tax
consequences of some, but not all, of the Limited Partners) in
deciding whether to cause the Partnership to take (or decline to
take) any action.
(d) The General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its
agents, and 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.
(e) Any amendment, modification or repeal of this Section
6.5 or any provision hereof shall be prospective only and shall not
in any way affect the limits of the General Partner's liability to
the Partnership and the Limited Partners under this Section 6.5 as in
effect immediately prior to such amendment, modification or repeal
with respect to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when claims relating
to such matters may arise or be asserted.
(f) Any obligation or liability whatsoever of the General
Partner which may arise at any time under this Agreement or any
obligation or liability which may be incurred by it pursuant to any
other instrument, transaction or undertaking contemplated hereby
shall be satisfied, if at all, out of the General Partner's assets
only. No such obligation or liability shall be personally binding
upon, nor shall resort for the enforcement thereof be had to, the
property of its shareholders, trustees, officers, employees or
agents, regardless of whether such obligation or liability is in the
nature of contract, tort or otherwise.
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6.6 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby
authorized to pay compensation for accounting, administrative, legal,
technical, management, advisory and other services rendered to the
Partnership. All of the aforesaid expenditures (including Administrative
Expenses) shall be made on behalf of the Partnership, and the General Partner
shall be entitled to reimbursement by the Partnership for any expenditure
(including Administrative Expenses) incurred by it on behalf of the
Partnership which shall be made other than out of the funds of the
Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.7 OUTSIDE ACTIVITIES. Subject to any agreements entered into by the
General Partner or its Affiliates with the Partnership or a Subsidiary, any
officer, director, employee, agent, trustee, Affiliate or shareholder of the
General 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 substantially similar
or identical to those of the Partnership. Neither the Partnership, any Partner
nor any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business ventures,
interests or activities, and the General Partner shall have no obligation
pursuant to this Agreement to offer any interest in any such business
ventures, interests and activities to the Partnership or any Limited Partner,
even if such opportunity is of a character which, if presented to the
Partnership or any Limited Partner, could be taken by such Person.
6.8 TITLE TO PARTNERSHIP PROPERTIES. Title to Partnership Properties,
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 Properties or any portion thereof. Title to any or all Partnership
Properties may be held in the name of the Partnership, the General Partner or
one or more nominees, as the General Partner may determine, including
Affiliates of the General Partner. The General Partner hereby declares and
warrants that any Partnership Property 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 (or such nominee or Affiliate) 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 Partnership Properties to
be vested in the Partnership as soon as reasonably practicable. All
Partnership Properties 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 Properties is held. Notwithstanding the foregoing, the General
Partner hereby agrees to permit Insignia Entities to have unlimited access to
and unrestricted use of any and all lists of any individuals (including all
other information pertaining to such individuals) who currently reside or
hereafter reside at any Controlled Real Property.
6.9 REIMBURSEMENT OF THE GENERAL PARTNER.
(a) Except as provided in this Section 6.9 and elsewhere in
this Agreement (including the provisions of Article V 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 all Administrative Expenses of the General Partner. Such
reimbursements shall be in addition to any reimbursement of the
General Partner as a result of indemnification pursuant to Section
6.4 hereof.
6.10 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, advisors, 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 the 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 provision 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 IPT to continue to qualify as a
REIT or (ii) to avoid IPT 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.
6.11 CONTRACTS WITH AND EMPLOYMENT OR RETENTION OF AFFILIATES AND
INSIGNIA ENTITIES.
(a) Loans. The Partnership may lend or contribute to its
Subsidiaries and 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 and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
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(b) Transfers of Partnership Properties. Except as otherwise
provided in this Agreement, the Partnership may transfer any Partnership
Property to any Person upon such terms and subject to such conditions as are
consistent with this Agreement and applicable law.
(c) Employee Benefit Plans. The General Partner, in its sole
and absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans funded
by the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them
in respect of services performed, directly or indirectly, for the benefit of
the Partnership, the General Partner or any of the Partnership's Subsidiaries,
including any such plan which requires the Partnership, the General Partner or
any of the Partnership's Subsidiaries to issue or transfer Common Partnership
Units to employees.
(d) Conflict Avoidance Arrangements. The General Partner is
expressly authorized to enter into, in the name and on behalf of the
Partnership, right of first opportunity and/or refusal arrangements and other
conflict avoidance agreements with various Affiliates of the Partnership and
the General Partner and with Insignia Entities, on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable in
connection therewith.
(e) Employment or Retention. Any Affiliate of the General
Partner and any Insignia Entity may be employed or retained by the Partnership
and may otherwise deal with the Partnership (whether as a buyer, seller,
lessor, lessee, advisor, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price or other payment therefor which the General Partner
determines to be fair and reasonable, including without limitation as
contemplated by Article VII hereof.
ARTICLE VII
PROPERTY MANAGEMENT AND PARTNERSHIP ADMINISTRATION
7.1 PROPERTY MANAGEMENT SERVICES. IPT, the Partnership and the
Limited Partners hereby acknowledge and agree that (i) Insignia contributed
(or caused to be contributed) to IPT equity interests in Business Entities
which comprised or controlled the managing general partners of the Formation
Partnerships, which in turn owned or otherwise controlled (as of January 1,
1997) the Initial Controlled Real Properties; (ii) at the time of such
contributions one or more Insignia Entities provided Property Management
Services with respect to each of the Initial Controlled Real Properties; (iii)
the covenants below to continue to retain one or more Insignia Entities to
provide Property Management Services with respect to the Initial Controlled
Real Properties, as well as to retain an Insignia Entity to provide Property
Management Services with respect to each Additional Acquired Property,
constituted a material inducement for Insignia's contribution of such equity
interests to IPT and, in view of Insignia's substantial resources and
recognized expertise in providing Property Management Services, for the
willingness of IPT, the General Partner and the Limited Partners to enter into
this Agreement. Accordingly, IPT and the Partnership hereby covenant and agree
as follows:
(a) Initial Controlled Real Properties. IPT and the
Partnership shall cause the applicable Property-Owning Entity to
continue to retain an Insignia Entity to provide
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Property Management Services with respect to each Initial Controlled
Real Property pursuant to a Property Management Agreement containing
the same or substantially the same terms, including compensation and
reimbursement, as were in effect on January 1, 1997. IPT's and the
Partnership's obligations to cause an Insignia Entity to continue to
be retained to provide Property Management Services pursuant to a
Property Management Agreement with respect to each Initial Controlled
Real Property shall terminate, on a property by property basis, upon
the earliest to occur of (i) the termination of this Agreement, (ii)
the termination of the applicable Property Management Agreement by
Insignia, (iii) the termination of the applicable Property Management
Agreement by the applicable Property-Owning Entity for Cause (but not
for any other reason, notwithstanding that such termination may have
been expressly permitted by the terms of such Property Management
Agreement), or (iv) such time as no IPT Entity holds a Controlling
Interest in such Initial Controlled Real Property.
(b) Additional Controlled Real Properties. Promptly after
acquiring a Controlling Interest in each Additional Controlled Real
Property, IPT and the Partnership shall cause the applicable
Property-Owning Entity to retain an Insignia Entity to provide
Property Management Services with respect to such Additional
Controlled Real Property pursuant to a Property Management Agreement
containing terms which are: (i) the same or substantially the same as
the terms, including compensation and reimbursement, upon which such
Additional Controlled Real Property was being managed immediately
prior to its acquisition by such Property-Owning Entity, if such
Additional Controlled Real Property was being managed by an Insignia
Entity immediately prior to such acquisition; or (ii) comparable to
those employed by other major, full service real estate management
companies given the characteristics and geographic location of such
Additional Controlled Real Property as determined by Insignia in good
faith, if such Additional Controlled Real Property was not being
managed by an Insignia Entity immediately prior to such acquisition.
IPT's and the Partnership's obligations to cause an Insignia Entity
to be retained to provide Property Management Services pursuant to a
Property Management Agreement with respect to each Additional
Controlled Real Property shall terminate, on a property by property
basis, upon the earliest to occur of (i) the termination of this
Agreement, (ii) the termination of the applicable Property Management
Agreement by Insignia, (iii) the termination of the applicable
Property Management Agreement by the applicable Property-Owning
Entity for Cause (but not for any other reason, notwithstanding that
such termination may have been expressly permitted by the terms of
such Property Management Agreement), or (iv) such time as no IPT
Entity holds a Controlling Interest in such Additional Controlled
Real Property.
(c) Contract Loss Fee. If the Adjusted Aggregate Total Fees
Amount as of the last day of any calendar quarter is less than 90% of
the Adjusted Aggregate Designated Fees Amount for the same
twelve-month period (a "TRIGGERING EVENT"), then the Partnership
shall pay to Insignia a fee (a "CONTRACT LOSS FEE") equal to the
greater of (x) the decrease in market value of Insignia resulting, or
reasonably expected to result, from such Triggering Event and (y) the
increase in market value of IPT resulting, or reasonably expected to
result, from such Triggering Event. The amount of the Contract Loss
Fee arising from a Triggering Event shall be (a) calculated within 30
days following the end of the applicable calendar quarter by a Bank
selected in manner provided in
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Section 9.6(b) hereof (with the Partnership bearing the cost of the
Bank's services), and (b) paid by the Partnership to Insignia, in
cash, within 45 days following the end of such calendar quarter.
Notwithstanding the foregoing, the Partnership shall not be liable
for the payment of any Contract Loss Fee resulting from a Triggering
Event if: (i) a majority of IPT's Board consists of individuals who
also serve as a director, officer or employee of Insignia and (ii)
the Triggering Event occurs before the earlier of (x) June 30, 1998
and (y) the date on which any class of IPT's equity securities are
first registered under the Exchange Act. Further, the Partnership
shall not be required to pay that portion, if any, of a Contract Loss
Fee resulting from a Triggering Event to the extent that such portion
is attributable to a prior Triggering Event with respect to which the
Partnership has previously paid Insignia a Contract Loss Fee.
7.2 PARTNERSHIP ADMINISTRATION SERVICES. IPT, the Partnership and the
Limited Partners hereby acknowledge and agree that (i) Insignia contributed
(or caused to be contributed) to IPT equity interests in Business Entities
which comprised or controlled the managing general partners of the Formation
Partnerships, (ii) at the time of such contributions one or more Insignia
Entities provided certain Partnership Administration Services to or on behalf
of the Formation Partnerships, (iii) IPT and/or the Partnership may (but are
not required to) in the future cause Insignia Entities to be retained to
provide Partnership Administration Services to or on behalf of other Business
Entities directly or indirectly controlled by IPT and/or the Partnership
("ADDITIONAL ADMINISTRATION ENTITIES"), (iv) the ability to provide high
quality Partnership Administration Services to the Formation Partnerships and
the Additional Administration Entities has required and will continue to
require that Insignia invest in a significant amount of fixed assets and
commit to significant long term obligations which Insignia would not have
otherwise invested in or committed to but for the fact that it has provided
and will provide Partnership Administration Services to the Formation
Partnerships and the Additional Administration Entities, (v) Partnership
Administration Services are generally provided on a reimbursements only basis
(i.e., the Insignia Entities generally do not make a profit on such services),
and (vi) the covenants below to continue to retain Insignia Entities to
provide Partnership Administration Services with respect to the Formation
Partnerships, as well as to continue to retain Additional Administration
Entities, constituted a material inducement for Insignia's contribution of
such equity interests to IPT and, in view of Insignia's substantial resources
and recognized expertise in providing Property Management Services, for the
willingness of IPT, the General Partner and the Limited Partners to enter into
this Agreement. Accordingly, IPT and the Partnership hereby covenant and agree
as follows:
(a) IPT and the Partnership shall cause an Insignia Entity
to continue to be retained to provide Partnership Administration
Services to or on behalf of each Formation Partnership on the same or
substantially the same terms, including compensation and
reimbursement, as were in effect on January 1, 1997. IPT's and the
Partnership's obligations to cause an Insignia Entity to continue to
be retained to provide Partnership Administration Services to or on
behalf of each Formation Partnership shall terminate, on an entity by
entity basis, upon the earliest to occur of (i) the termination of
this Agreement, (ii) the termination of the provision of Partnership
Administration Services by Insignia, (iii) the termination of the
retention of an Insignia Entity to provide Partnership Administration
Services by the applicable Formation Partnership for Cause (but not
for any other reason), or (iv) such time as the applicable Formation
Partnership
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is dissolved and its affairs are wound up in connection with an
orderly liquidation thereof. In the event that a Formation
Partnership dissolves or ceases to exist in connection with or as a
result of a merger or other business combination (including a sale of
all or substantially all of its assets in a single or series of
related transactions), the termination of the retention of an
Insignia Entity to provide Partnership Administration Services as a
result thereof shall be deemed to be a breach of this Section 7.2(a)
which gives rise to the obligations set forth in Section 7.2(c).
(b) IPT and the Partnership shall cause an Insignia Entity
to continue to be retained to provide Partnership Administration
Services to or on behalf of each Additional Administration Entity on
the same or substantially the same terms, including compensation and
reimbursement, as those which were agreed to by Insignia and such
Additional Administration Entity at the time of the initial
retention. IPT's and the Partnership's obligations to cause an
Insignia Entity to continue to be retained to provide Partnership
Administration Services to or on behalf of each Additional
Administration Entity shall terminate, on an entity by entity basis,
upon the earliest to occur of (i) the termination of this Agreement,
(ii) the termination of the provision of Partnership Administration
Services by Insignia, (iii) the termination of the retention of an
Insignia Entity to provide Partnership Administration Services by the
applicable Additional Administration Entity for Cause (but not for
any other reason), or (iv) such time as the applicable Additional
Administration Entity is dissolved and its affairs are wound up in
connection with an orderly liquidation thereof. In the event that a
Formation Partnership dissolves or ceases to exist in connection with
or as a result of a merger or other business combination transaction
(including a sale of all or substantially all of its assets in a
single or series of related transactions), the termination of the
retention of an Insignia Entity to provide Partnership Administration
Services as a result thereof shall be deemed to be a breach of this
Section 7.2(b) which gives rise to the obligations set forth in
Section 7.2(c).
(c) In the event of any default under Section 7.2(a) or (b)
with respect to any Formation Partnership or Additional
Administration Entity, the Partnership shall promptly pay or cause to
be paid to Insignia (i) all amounts then due to Insignia Entities in
respect of Partnership Administration Services provided to or on
behalf of such Formation Partnership or Additional Administration
Entity and (ii) the applicable Administration Allocation Amount
attributable to such Formation Partnership or Additional
Administration Entity.
(d) IPT, the Partnership and the Limited Partners
acknowledge and agree that (i) Insignia is currently receiving
certain non-equity incentive management and similar fees from certain
of the Formation Partnerships payable under the terms of the
governing organizational documents thereof to the general partners
thereof, which fees are based in whole or in part on the performance
of the assets owned by such Formation Partnerships or the amount of
cash distributed to the investors in such Formation Partnerships,
(ii) Insignia (as opposed to the general partners) is receiving such
fees because the rights thereto were not contributed to IPT in
connection with the formation thereof, and (iii) Insignia may in the
future acquire or retain rights to receive similar fees relating to
Additional Controlled Properties. If IPT or the Partnership takes any
action
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in the future which causes Insignia not to receive any such future
fees to which it otherwise would have been entitled, the Partnership
shall pay to Insignia the amount of such lost fees; provided,
however, that the Partnership shall not be obligated to pay to
Insignia the amount of any such fees not received by Insignia as a
result of the sale of the underlying assets (other than in connection
with a transaction described in the last sentence of Section 7.2(a)
or (b)).
7.3 TRANSFERS OF CONTROLLING INTERESTS IN IPT ENTITIES.
(a) IPT and the Partnership shall not, and shall not cause
or permit any other IPT Entity to, to sell, transfer or otherwise
assign any controlling interest in any IPT Entity to any Person other
than an Insignia Entity except in accordance with this Section
7.3(a). At least 60 days prior to the sale, transfer or other
assignment of a controlling interest in an IPT Entity to any Person
other than an Insignia Entity, IPT shall deliver a written notice (a
"SALE NOTICE") to Insignia, which notice shall (i) disclose in
reasonable detail the identity of such Person and the material terms
and conditions of such proposed sale, transfer or other assignment
and (ii) constitute an irrevocable offer by IPT and the Partnership
to cause all, but not less than all, of such controlling interest in
an IPT Entity to be sold, transferred or otherwise assigned to any
Insignia Entity designated by Insignia upon the same terms and
conditions as such proposed sale, transfer or other assignment to
such other Person. Insignia shall have 30 days (during which time IPT
and the Partnership shall not, and shall not cause or permit any
other IPT Entity to, consummate such proposed sale, transfer or other
assignment) to elect whether to accept or reject such offer, and
within such 30-day period shall deliver written notice of its
election to IPT; provided, however, that if Insignia fails to timely
deliver such written notice to IPT, it shall be deemed to have
elected to reject such offer. If Insignia elects to accept such offer
and provides timely notice of such election to IPT, IPT and the
Partnership shall cause the sale, transfer or other assignment of
such controlling interest in an IPT Entity to the Insignia Entity
designated by Insignia. If Insignia elects (or is deemed to have
elected) not to accept such offer, then such controlling interest in
an IPT Entity may be sold, transferred or otherwise assigned to any
other Person, at a price and on terms no more favorable to such
Person than those specified in the Sale Notice, at any time during
the 60-day period following the expiration of the 30-day period
referred to in the second preceding sentence; provided, however, that
if such controlling interest in an IPT Entity is not sold,
transferred or otherwise assigned to any other Person within such
60-day period, any proposed sale, transfer or other assignment of
such controlling interest in an IPT Entity will again become subject
to the provisions of this Section 7.3(a).
(b) If a permitted sale, transfer or other assignment of a
controlling interest in an IPT Entity to a Person other than an
Insignia Entity occurs pursuant to Section 7.3(a), and if such Person
does not promptly retain or cause the retention of an Insignia Entity
to provided Property Management Services with respect to each real
property controlled by such former IPT Entity, then the Partnership
shall pay to Insignia an amount equal to the amount (if any) by which
the consideration paid or payable (as set forth in the Sale Notice)
for such controlling interest which exceeds the fair market value of
such controlling interest (determined based on the liquidation value
of such former IPT Entity).
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(c) Nothing contained in Section 7.3(a) or (b) shall in any
way affect any obligations the Partnership may have pursuant to
Section 7.1(c).
ARTICLE VIII
CHANGES IN GENERAL PARTNER
8.1 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTERESTS;
TRANSACTIONS INVOLVING IPT.
(a) The General Partner shall not sell, transfer or
otherwise assign all or any portion of its Partnership Interests or
withdraw as General Partner, except as provided in Section 8.1(b)
hereof or in connection with a transaction described in Section
8.1(c) or 8.1(d) hereof.
(b) The General Partner may pledge or hypothecate the right
to receive all or any portion of any cash distributions or any other
payments received by it in its capacity as the General Partner.
(c) Except as otherwise provided in Section 8.1(d) hereof,
IPT shall not enter into or effect any Extraordinary Transaction
unless such Extraordinary Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the
Partnership, as a result of which all Limited Partners will receive,
for each Common Partnership Unit, an amount of cash, securities or
other property equal to the product of the Conversion Factor
multiplied by the greatest amount of cash, securities or other
property paid in such Extraordinary Transaction to a holder of one
Common IPT Share in consideration of one Common IPT Share; provided,
however, that if such Extraordinary Transaction shall have been
preceded by a related front-end purchase, tender or exchange offer
made to and accepted by the holders of more than 50% of the
outstanding Common IPT Shares, then IPT shall not enter into or
effect such Extraordinary Transaction unless each Limited Partner is
also given the right to receive, in respect of its Common Partnership
Units, the greatest amount of cash, securities or other property such
Limited Partner would have received in the event its Common
Partnership Units had been acquired by IPT pursuant to a theoretical
redemption for Share Redemption Consideration pursuant to Section
9.4(b) and such Limited Partner had sold, tendered or exchanged the
Common IPT Shares received in exchange therefor pursuant to such
front-end offer immediately prior to the expiration thereof.
(d) Notwithstanding the provisions of Section 8.1(c) hereof,
IPT may merge or consolidate with or into another Person if
immediately after such merger or consolidation (i) substantially all
of the assets of the successor or surviving entity (the "SURVIVING
ENTITY"), other than Common Partnership Units held by IPT, are
contributed, directly or indirectly, to the Partnership as a Capital
Contribution in exchange for Common Partnership Units with a fair
market value equal to the value of the assets so contributed as
determined by the Surviving Entity in good faith, and (ii) if IPT is
not the Surviving Entity, the Surviving Entity expressly agrees to
assume all obligations of IPT and the General Partner under this
Agreement. Upon such contribution and assumption,
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the Surviving Entity shall have the right and duty to amend this
Agreement to the extent necessary for purposes of the following: (i)
to establish, in good faith, a new method for the calculations of the
Cash Redemption Consideration, the Share Redemption Consideration and
Conversion Factor for a Common Partnership Unit after any such merger
or consolidation so as to approximate the existing method for such
calculation as closely as reasonably possible (such calculations to
take into account, among other things, the kind and amount of
securities, cash and other property that was receivable upon such
merger or consolidation by a holder of Common IPT Shares or options,
warrants or other rights relating thereto, and which a Limited
Partner could have received in the event its Common Partnership Units
had been acquired by IPT pursuant to a theoretical redemption for
Share Redemption Consideration pursuant to Section 9.4(b) effected
immediately prior to such merger or consolidation); and (ii) to
modify, in good faith, the definition of Common IPT Shares; and (iii)
to make such amendments to Section 9.4 hereof as are necessary so as
to approximate the existing rights and obligations set forth in
Section 9.4 hereof as closely as reasonably possible. The forgoing
provisions of this Section 8.1(d) shall similarly apply to successive
mergers or consolidations permitted hereunder.
8.2 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person
shall be admitted as a substitute or successor General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners (other
than the Special Limited Partner) and the Special Limited Partner
shall have consented in writing to the admission of the substitute or
successor General Partner, which consent may be withheld in the sole
and absolute discretion of such Limited Partners;
(b) the Person to be admitted as a substitute or additional
General Partner (whether by assignment or by operation of law) shall
have executed and delivered an Accession Agreement thereof and such
other documents or instruments as may be required or appropriate in
order to effect the admission of such Person as a General Partner,
and a certificate evidencing the admission of such Person as a
General Partner shall have been filed for recordation and all other
actions required by Section 2.5 hereof in connection with such
admission shall have been performed;
(c) if the Person to be admitted as a substitute or
additional General Partner is a Business Entity, it shall have
provided the Partnership with evidence satisfactory to counsel for
the Partnership of such Person's authority to become a General
Partner and to be bound by the terms and provisions of this
Agreement; and
(d) counsel for the Partnership shall have rendered an
opinion (relying on such opinions from other counsel as may be
necessary) that the admission of the Person to be admitted as a
substitute or additional General Partner is in conformity with the
Act, and that none of the actions taken in connection with the
admission of such Person as a substitute or additional General
Partner should cause (i) the Partnership to be classified other than
as a partnership for federal income tax purposes or (ii) the loss of
any Limited Partner's limited liability.
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8.3 REMOVAL OF A GENERAL PARTNER.
(a) A General Partner may not be involuntarily removed by
action of the Limited Partners, or by any other General Partner(s),
for any reason.
(b) A General Partner shall be deemed to have been removed
automatically upon the occurrence of any Event of Withdrawal of such
General Partner.
8.4 EFFECT OF DEEMED REMOVAL OF A GENERAL PARTNER.
(a) Upon the deemed removal of a General Partner pursuant to
and in accordance with Section 8.3(b), the Partnership shall be
dissolved and terminated unless the Limited Partners, within 90 days
after such removal, elect to reconstitute the Partnership and
continue the business of the Partnership for the balance of the term
specified in Section 2.4 by selecting and admitting a substitute
General Partner in accordance with Section 8.2 hereof. If the Limited
Partners so elect to reconstitute the Partnership and admit a
substitute General Partner, the relationship of such substitute
General Partner with the Limited Partners and with any other Persons
who have acquired Partnership Interests shall be governed by this
Agreement.
(b) If a General Partner has been deemed removed pursuant to
Section 8.3(b) and the Partnership is continued pursuant to Section
8.4(a), such removed General Partner shall promptly transfer and
assign its Partnership Interests to the substitute General Partner
admitted to the Partnership in accordance with Section 8.2 hereof. At
the time of assignment, the removed General Partner shall be entitled
to receive from the substitute General Partner the fair market value
of such Partnership Interests, reduced by the amount, if any, of
damages caused to the Partnership as a result of the occurrence of
the event which resulted in the deemed removal of such removed
General Partner; provided, however, that such removed General Partner
shall only be liable for such damages as are expressly set forth in
Section 6.5 hereof. Such fair market value shall be determined by an
appraiser mutually agreed upon by the removed General Partner and a
majority in interest of the Limited Partners within 10 days following
the removal of the General Partner (or as they may otherwise agree in
writing). For purposes of the preceding sentence, all Limited
Partners shall be permitted to vote upon the selection of an
appraiser, and the outcome of such vote shall be determined by a
majority in interest of only those Limited Partners who participate
in such vote. In the event that the parties are unable to agree upon
an appraiser, the removed General Partner and a designee representing
a majority in interest of the Limited Partners who participate in the
vote each shall select an appraiser. Each such appraiser shall
complete an appraisal of the fair market value of the removed General
Partner's Partnership Interests within 30 days of the General
Partner's removal, and the fair market value of the removed General
Partner's Partnership Interests shall be the average of the two
appraisals; provided, however, that if the higher appraisal exceeds
the lower appraisal by more than 20% of the amount of the lower
appraisal, the two appraisers, no later than 40 days after the
removal of the General Partner, shall select a third appraiser who
shall complete an appraisal of the fair market value of the removed
General Partner's Partnership Interests no later than 60 days after
the removal of the General Partner. In such case, the fair
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market value of the removed General Partner's Partnership Interests
shall be the average of the two appraisals closest in value.
(c) The interests of a removed General Partner, from and
after the time of removal and until such time, if ever, as a
substitute General Partner is approved and admitted to the
Partnership in accordance with Section 8.2 hereof, shall be converted
to that of a "special" Limited Partner; provided, however, that such
removed General Partner shall not have any rights to participate in
the management and affairs of the Partnership, and shall not be
entitled to any portion of the income, expense, profit, gain or loss
allocations or cash distributions allocable or payable, as the case
may be, to the Limited Partners. Instead, during such period such
removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been
entitled to receive in its capacity as General Partner in respect of
its Partnership Interests.
(d) All Partners shall take such actions and execute such
documents as shall be legally necessary and sufficient to effect the
intent of the foregoing provisions of this Section 8.4
ARTICLE IX
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
9.1 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners, in their
capacity as such, shall not be entitled or empowered to, and shall not,
participate in the operation, management or control of Partnership business,
transact any business for or in the name of the Partnership or sign for or
otherwise bind the Partnership, such powers being vested solely and
exclusively in the General Partner (and such Persons as the General Partner
may delegate to act on its behalf pursuant to Section 6.3).
9.2 LIMITED LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. After its initial Capital Contribution is fully paid, no Limited
Partner shall, except as expressly provided in this Agreement or otherwise
required by the Act, be required to make any further Capital Contributions or
other payments or lend any funds to the Partnership.
9.3 OWNERSHIP BY LIMITED PARTNERS OF INTERESTS IN THE GENERAL PARTNER
AND ITS AFFILIATES. No Limited Partner other than Insignia shall at any time
own, directly or indirectly, any equity interest in the General Partner or in
any Affiliate thereof if such ownership, by itself or in conjunction with
other equity interests owned by other Limited Partners, would, in the opinion
of counsel for the Partnership, jeopardize the classification of the
Partnership as a partnership for federal income tax purposes. The General
Partner shall be entitled to make such reasonable inquiry of the Limited
Partners as is required to establish compliance by the Limited Partners with
the provisions of this Section.
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9.4 REDEMPTION RIGHTS.
(a) Grant of Redemption Right. Each Limited Partner has the
right (a "REDEMPTION RIGHT"), subject to the succeeding provisions of
this Section 9.4 and the provisions of any other agreement between
the Partnership and such Limited Partner, to require the Partnership
to redeem all or any portion of such Limited Partner's Redeemable
Units for Cash Redemption Consideration by delivering a Notice of
Redemption to the General Partner; provided, however, that any
exercise of a Redemption Right must be with respect to a minimum of
1,000 Redeemable Units, unless such Limited Partner holds less than
1,000 Redeemable Units, in which case the Redemption Right may only
be exercised with respect to all Redeemable Units held by such
Limited Partner; and further provided that a Limited Partner may not
exercise its Redemption Right more than twice during any calendar
quarter.
(b) First Right of IPT. The delivery of a Notice of
Redemption by a Redeeming Partner pursuant to Section 9.4(a) shall
also constitute an offer by such Limited Partner to sell any or all
of the Redeemable Units that are the subject of such Notice of
Redemption to IPT in exchange for Share Redemption Consideration,
which offer shall be deemed open and irrevocable during the
Redemption Election Period. On or prior to the last day of the
Redemption Election Period, IPT shall deliver a notice to the
Redeeming Partner and the Partnership notifying them whether IPT has
elected (i) to accept the Redeeming Partner's offer to sell some or
all of such Redeemable Units, in which case such notice shall specify
the number of Redeemable Units which IPT has elected to purchase, or
(ii) not to purchase any such Redeemable Units; provided, however,
that if the Redeeming Partner is Insignia or MAE, the determination
of whether to acquire any or all of such Redeemable Units shall be
made by a committee of the Board consisting solely of individuals who
are not officers, directors or employees of Insignia; and further
provided that if IPT fails to timely deliver such notice, then IPT
shall be deemed to have elected not to purchase any such Redeemable
Units. In the event that IPT elects to purchase some but not all of
such Redeemable Units for Share Redemption Consideration pursuant
this Section 9.4(b), the Partnership shall be required to purchase
the balance of such Redeemable Units for Cash Redemption
Consideration.
(c) Payment. Any Cash Redemption Consideration to be paid to
a Redeeming Partner pursuant to this Section 9.4 shall be paid on the
applicable Redemption Date; provided, however, that the Partnership
may elect to cause the Redemption Date to be delayed for up to an
additional 180 days to the extent required for IPT to cause
additional Common IPT Shares to be issued to provide financing to be
used to make such payment of the Cash Redemption Consideration. Any
Share Redemption Consideration to be paid to a Redeeming Partner
pursuant to this Section 9.4 shall be paid on the applicable
Redemption Date (or as soon there after as is reasonably practicable
in the event that IPT elects (pursuant to the following sentence) to
issue the securities that comprise the Share Redemption Consideration
pursuant to an effective registration statement under the Securities
Act). Subject to the terms of any other written agreement between IPT
and the Redeeming Partner, any securities that comprise part of any
Share Redemption Consideration paid to a Redeeming Partner shall be
issued, at the election of IPT in its
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sole and absolute discretion, either (i) pursuant to an exemption
from registration requirements under the Securities Act or (ii)
pursuant to an effective registration statement under the Securities
Act. The Partnership and IPT agree to use their reasonable efforts to
cause the closing of a redemption of Redeemable Units for Cash
Redemption Consideration or Share Redemption Consideration, as the
case may be, hereunder to occur as quickly as reasonably practicable
(but in no event sooner than the applicable Redemption Date).
(d) Miscellaneous.
(i) Notwithstanding any other provision of this
Section 9.4 to the contrary, no Limited Partner shall be
entitled to exercise its Redemption Right if (i) the
delivery of Share Redemption Consideration to such Limited
Partner on the Redemption Date by IPT pursuant to Sections
9.4(b) and (c) (regardless of whether or not IPT would in
fact exercise its rights under Section 9.4(b)) would (A)
result in such Limited Partner or any other Person owning,
directly or indirectly, Common IPT Shares in excess of the
Ownership Limit (as defined in and calculated in accordance
with the IPT Charter), except as provided in the IPT
Charter, (B) result in Common IPT Shares being owned by
fewer than 100 Persons (determined without regard to any
rules of attribution), except as provided in the IPT
Charter, (C) result in IPT being "closely held" within the
meaning of Section 856(h) of the Code, (D) cause IPT to own,
directly or constructively, 10% or more of the ownership
interests in a tenant of a Controlled Real Property within
the meaning of Section 856(d)(2)(B) of the Code, or (E)
cause the acquisition of Common IPT Shares by such Limited
Partner to be "integrated" with any other distribution of
Common IPT Shares for purposes of complying with the
registration provisions of the Securities Act; or (ii) on
the Redemption Date IPT would not either have a class of
equity securities registered under the Exchange Act or have
an exemption from the registration requirements under the
Securities Act available to it with respect to any Share
Redemption Consideration that would be delivered to such
Limited Partner pursuant to Section 9.4(b); provided,
however, that IPT may, in its sole and absolute discretion,
waive the restriction on redemption set forth in the
immediately preceding clause (ii), but in such an event IPT
shall not have any rights under Section 9.4(b) to acquire
the applicable Redeemable Units.
(ii) In the event that IPT acquires some or all of
a Redeeming Partner's Redeemable Units by paying to such
Redeeming Partner Share Redemption Consideration in respect
thereof: (A) the Partnership shall have no obligation to pay
any amount to the Redeeming Partner in respect of such
Redeemable Units; (B) each of the Redeeming Partner, the
Partnership and IPT shall treat the transaction between IPT
and the Redeeming Partner as a sale of such Redeemable Units
to IPT by such Redeeming Partner for federal income tax
purposes; (C) such Redeeming Partner shall enter into a
written agreement substantially similar in form and
substance to the Investors Agreements, provided, however,
that if the Redeeming Partner fails or refuses to enter into
such an agreement, the Redeeming Partner shall nonetheless
be deemed to have entered into such an
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agreement and to be bound by the terms and provisions
thereof, except that such Redeeming Partner shall not be
deemed to have the registration rights granted therein; and
(D) such Redeeming Partner shall execute such other
documents as IPT may reasonably require in connection with
the issuance of such Share Redemption Consideration.
(iii) Notwithstanding any other provision of this
Agreement to the contrary, the General Partner shall be
entitled to, and shall, place appropriate restrictions on
the ability of the Limited Partners to exercise their
Redemption Rights as and if deemed necessary by the General
Partner to ensure that the Partnership does not constitute a
"publicly traded partnership" under Section 7704 of the
Code. If and when the General Partner determines that the
imposition of such restrictions is necessary, the General
Partner shall give prompt notice thereof to each Limited
Partner, which notice shall be accompanied by a copy of an
opinion of counsel to the Partnership which states that, in
the opinion of such counsel, restrictions are necessary in
order to avoid the Partnership being treated as a "publicly
traded partnership" under Section 7704 of the Code. Any such
restriction shall become effective on the later of (i) the
fifth Business Day after such notice is sent by the General
Partner or (ii) the date on which the Regulations under
section 7704 of the Code that would cause the Partnership to
be classified as a "publicly traded partnership" become
effective.
(iv) In the event that the General Partner permits
the pledge of a Limited Partner's Common Partnership Units
to a lender, the General Partner may agree to allow such
lender, in the event of a foreclosure of such Common
Partnership Units, to redeem such Common Partnership Units
regardless of the fact that they may not constitute
Redeemable Units; provided, however, that any such
redemption may be effected only by the Partnership by paying
the Cash Redemption Consideration in respect thereof.
9.5 CONSENT RIGHTS OF THE SPECIAL LIMITED PARTNER. The General
Partner is expressly prohibited from, and agrees not to, take any of the
following actions in the name or on behalf of the Partnership without the
prior written consent of the Special Limited Partner (which consent may be
given or withheld in its sole and absolute discretion), and any attempt to
take any such action without the prior written consent of the Special Limited
Partner shall be deemed ultra vires, ineffective and void ab initio:
(a) the entering into or amending, modifying or terminating
of any conflict avoidance arrangement or conflict avoidance
arrangement contemplated by Section 6.7(d) hereof;
(b) the sale of all or substantially all of the assets of
the Partnership or the merger or consolidation of the Partnership
with or into any other entity; or
(c) the issuance of any additional Partnership Interests by
the Partnership pursuant to Section 4.2 as a result of which the
relative economic interest of the Special Limited Partner in the
Partnership would be materially diluted.
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9.6 PUT RIGHTS.
(a) Upon the occurrence and during the continuation of any
material breach of this Agreement by IPT, the General Partner or the
Partnership (including without limitation the failure to pay any
Contract Loss Fee due), the Insignia Entities, MAE and its Affiliates
(each a "PUT HOLDER") shall each have the right (a "PUT RIGHT"), at
any time and from time to time, to:
(i) require the Partnership to retain, at the
Partnership's expense, a Bank (to be selected as provided in
Section 9.6(b)) to appraise the value of any Partnership
Interests, and Common IPT Shares and Other IPT Securities
held by such Put Holder, which appraisals shall be based on,
respectively, the greatest value ascribed to the Partnership
and IPT based on each of the following analyses: (i) an
independent going concern/continuing operations analysis,
(ii) a sale of the entire entity analysis and (iii) a
liquidation analysis;
(ii) require the Partnership to purchase any or all
of such Partnership Interests for cash based on the
appraised value thereof determined by the Bank; and
(iii) require IPT to purchase any or all of such
Common IPT Shares and/or Other IPT Securities for cash based
on the appraised value thereof determined by the Bank.
(b) The selection of the investment bank to perform the
required appraisal (the "BANK") shall be determined as follows:
Insignia shall select any three of the 15 largest national investment
banks in the United States (as measured by the aggregate dollar
amount of equity underwritings during the previous calendar year),
and the General Partner shall then select one of such three
investment banks; provided, however, that if the General Partner
fails or refuses to select a Bank in accordance with the foregoing
within 10 days of receiving notice of Insignia's selections, Insignia
shall be entitled to select the Bank from among its three selections.
(c) The provisions of this Section 9.6 are in addition to,
and not in lieu of, the Redemption Rights a Put Holder may have
pursuant to Section 9.4 hereof.
ARTICLE X
TRANSFERS OF COMMON
PARTNERSHIP UNITS HELD BY LIMITED PARTNERS
10.1 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby reaffirms to the General
Partner, to IPT and to the Partnership that the acquisition of its
Common Partnership Units was made as a
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principal for its account for investment purposes only and not with a
view to the resale or distribution of such Common Partnership Units.
(b) Each Limited Partner agrees that it will not sell,
transfer or otherwise assign its Common Partnership Units or any
fraction thereof or interest therein, whether voluntarily or by
operation of law or at judicial sale or otherwise, to any Person who
does not make the representations and warranties to the General
Partner set forth in Section 10.1(a) above and similarly agree not to
sell, transfer or otherwise assign such Common Partnership Units or
fraction thereof or interest therein to any Person who does not
similarly represent, warrant and agree.
10.2 RESTRICTIONS ON TRANSFERS OF COMMON PARTNERSHIP UNITS HELD
BY LIMITED PARTNERS.
(a) Subject to the following provisions of this Sections
10.2, each Limited Partner may offer, sell, assign, hypothecate,
pledge or otherwise transfer (collectively, "TRANSFER") all or any
portion of its Common Partnership Units, or any of such Limited
Partner's economic rights as a Limited Partner, to any Person,
whether voluntarily or by operation of law or at judicial sale or
otherwise. The General Partner may require, as a condition of any
Transfer, that the transferor Limited Partner assume all costs
incurred by the Partnership in connection therewith. Any purported
Transfer of Common Partnership Units by a Limited Partner in
contravention of any of the provisions of this Article X shall be
void and of no effect and shall not be binding upon, or recognized
by, the Partnership.
(b) No Limited Partner may Transfer its Common Partnership
Units, in whole or in part, if, in the opinion of legal counsel for
the Partnership, such Transfer would require the registration of the
Limited Partner Interest under the Securities Act or would otherwise
violate any applicable federal or state securities or blue sky law
(including investment suitability standards).
(c) No Transfer by a Limited Partner of its Common
Partnership Units, in whole or in part, may be made to any Person if
(i) in the opinion of legal counsel for the Partnership, such
Transfer would result in the Partnership being treated as an
association taxable as a corporation (other than a "qualified REIT
subsidiary" within the meaning of Section 856(i) of the Code), (ii)
in the opinion of legal counsel for the Partnership, it would
adversely affect the ability of IPT to continue to qualify as a REIT
or subject IPT to any additional taxes under Section 857 or Section
4981 of the Code, or (iii) 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.
(d) No Transfer by a Limited Partner of its Common
Partnership Units may be made to a lender to the Partnership or any
Person who is "related" (within the meaning of Regulations Section
1.752-4(b)) to any lender to the Partnership whose loan constitutes a
"nonrecourse liability" (within the meaning of Regulations Section
1.752-l(a)(2)) without the consent of the General Partner, which may
be withheld in its sole and absolute discretion, it being understood
and agreed that as a condition to such
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consent the lender will be required to enter into an arrangement with
the Partnership and the General Partner to exchange or redeem for
Cash Redemption Consideration any Common Partnership Units in which a
security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752
of the Code.
10.3 ADMISSION OF SUBSTITUTE LIMITED PARTNERS AND ADDITIONAL
LIMITED PARTNERS.
(a) Subject to the other provisions of this Article X, any
Person who is an assignee of Common Partnership Units of a Limited
Partner (which shall be understood to include any purchaser,
transferee, donee or other recipient of any disposition of such
Common Partnership Units) seeking to be admitted as a Substitute
Limited Partner, and any Person seeking to be admitted as an
Additional Limited Partner, as the case may be, shall be deemed
admitted as a Limited Partner of the Partnership only upon the
satisfactory completion of the following:
(i) Such Person shall have executed and delivered
an Accession Agreement and such other documents or
instruments as the General Partner may require in order to
effect the admission of such Person as a Limited Partner;
(ii) If such Person is a Business Entity, such
Person shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of such Person's
authority to become a Limited Partner under the terms and
provisions of this Agreement and such Person's governing
organizational documents;
(iii) Such Person shall have paid (A) all
reasonable legal fees and expenses of the Partnership and
the General Partner, (B) all administrative costs of the
Partnership and the General Partner and (C) all other
reasonable expenses incurred by the General Partner in
effecting the admission of Person; and
(iv) Such Person shall have obtained a written
statement (which statement may be contained in the
applicable Accession Agreement) from the General Partner
that such Person's admission as a Substitute Limited Partner
or an Additional Limited Partner, as the case may be, will
not, in the reasonable business judgment of the General
Partner, jeopardize IPT's status as a REIT or cause the
Partnership to be classified as a "publicly traded
partnership" under the Code.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited
Partner or Additional Limited Partner, as the case may be, shall be
treated as having become, and appearing in the records of the
Partnership as, a Partner as of the later of (x) the date specified
in the applicable Accession Agreement or (y) the date on which the
last of the conditions specified in Section 10.3(a) has been
satisfied.
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(c) The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner or an Additional
Limited Partner, as the case may be, by preparing the documentation
required by this Section and making all official filings and
publications. The Partnership shall take all such action as promptly
as practicable after the satisfaction of the conditions in this
Article X to effect the admission of such Person as a Limited Partner
of the Partnership.
(d) To the extent a Person who is an assignee of Common
Partnership Units of a Limited Partner or who is seeking to be
admitted as an Additional Limited Partner, as the case may be, is not
admitted as a Limited Partner of the Partnership, such Person shall
have no rights or privileges under this Agreement, including
Redemption Rights under Section 9.4 hereof.
10.4 RIGHTS OF ASSIGNEES OF COMMON PARTNERSHIP UNITS.
(a) Subject to the provisions of Sections 10.1 and 10.2
hereof, and except as required by operation of law, the Partnership
shall not be obligated for any purpose whatsoever to recognize the
assignment by any Limited Partner of any of its Common Partnership
Units (or any fraction thereof or interest therein) until the
Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of
a Limited Partner's Limited Partner Interest, but does not become a
Substitute Limited Partner and desires to make a further assignment
of such Limited Partner Interest, shall be subject to all the
provisions of this Article IX to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of its
Limited Partner Interest.
10.5 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED PARTNER. In the event that a Limited Partner becomes bankrupt, dies or
is finally adjudicated as incompetent (which term shall include, but not be
limited to, insanity), (a) the occurrence of such event shall not cause the
termination or dissolution of the Partnership, (b) the business of the
Partnership shall continue and (c) the trustee, receiver, estate, executor,
administrator, committee, guardian or conservator of such Limited Partner, as
the case may be, shall have the rights of such Limited Partner for the purpose
of settling or managing its affairs and the power to assign all or any part of
its Common Partnership Units and to join with the assignee in satisfying the
conditions precedent to the admission of such assignee as a Substitute Limited
Partner, in each case to the same extent and subject to the same terms and
conditions as would have applied to such Limited Partner had such bankruptcy,
death or incompetency not occurred.
10.6 JOINT OWNERSHIP OF INTERESTS.
(a) Common Partnership Units may be acquired by two
individuals as joint tenants with right of survivorship, provided
that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both
owners of any such jointly held Common Partnership Units shall be
required to constitute the action of the owners of such Common
Partnership Units; provided, however, that the written consent of
only one joint owner will be required if the
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Partnership has been provided with evidence satisfactory to the
counsel for the Partnership that the actions of a single joint owner
can bind both owners under the applicable laws of the state of
residence of such joint owners.
(b) Upon the death of one owner of Common Partnership Units
held in a joint tenancy with a right of survivorship, such Common
Partnership Units shall become owned solely by the survivor as a
Limited Partner and not as an assignee. The Partnership need not
recognize the death of one of the owners of jointly-held Common
Partnership Units until it shall have received notice of such death.
(c) Upon the written request to the General Partner by
either owner of Common Partnership Units held in a joint tenancy with
a right of survivorship, the General Partner shall cause such Common
Partnership Units to be divided into two equal allotments of Common
Partnership Units, which shall thereafter be owned separately by each
of the former owners as Limited Partners.
ARTICLE XI
BOOKS AND RECORDS; ACCOUNTING AND TAX MATTERS
11.1 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in
accordance with generally accepted accounting principles, including without
limitation (a) a current list of the full name and last known business address
of each Partner, (b) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, (c) copies of any financial statements of
the Partnership and the Partnership's federal, state and local income tax
returns and reports for the three most recent years, (d) a copy of this
Agreement and (e) all documents and information required under the Act. Any
Limited Partner or its duly authorized representative, upon paying any costs
of collection and duplication, shall be entitled to inspect or copy such
records during certain business hours to be determined in the sole discretion
of the General Partner at the Partnership's specified office; provided,
however, that such Limited Partner must first make written demand to the
General Partner to view such records and set forth a non-fraudulent and
otherwise proper purpose that is reasonably related to such Limited Partner's
interest as a Limited Partner. Any records maintained by or on behalf of the
Partnership in the regular course of its business may be kept on, or be in the
form of, any information storage device, provided that any records so
maintained are convertible into clearly legible written form within a
reasonable period of time.
11.2 CUSTODY AND INVESTMENT OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested
shall be deposited in one or more accounts maintained in such banking
or brokerage institutions as the General Partner shall determine, and
withdrawals shall be made only on such signature or signatures as the
General Partner may, from time to time, determine.
(b) All deposits and other funds not needed in the operation
of the business of the Partnership may be invested by the General
Partner in investment grade
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instruments (or investment companies whose portfolio consists
primarily thereof), government obligations, certificates of deposit,
bankers' acceptances and municipal notes and bonds. The funds of the
Partnership shall not be commingled with the funds of any other
Person, except for such commingling as may necessarily result from an
investment in an investment company permitted by this Section
11.2(b).
(c) Insignia may establish and maintain on behalf of each
Property-Owning Entity (other than IPT and the Partnership) one or
more bank accounts in the name of such IPT Entity, under such terms
and conditions as IPT may approve, and may collect and deposit into
such account or accounts and disburse therefrom any monies on behalf
of such IPT Entity, under such terms and conditions as IPT may
approve, and shall upon request render an appropriate accounting of
such collections and payments to the Board and to the auditors of
IPT.
11.3 FISCAL YEAR. The "FISCAL YEAR" of the Partnership shall be the
calendar year.
11.4 ANNUAL TAX INFORMATION. Within the time prescribed for filing
tax returns plus any extensions thereof after the end of each Fiscal Year of
the Partnership, the General Partner shall furnish to each Person who was a
Limited Partner at any time during such year, the tax information necessary to
file such Limited Partner's individual tax returns as shall be required by
law.
11.5 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of
the Partnership within the meaning of Section 6231(a)(7) of the Code.
As Tax Matters Partner, the General Partner shall have the right and
obligation to take all actions authorized and required, respectively,
by the Code for the Tax Matters Partner. The General Partner shall
have the right to retain professional assistance in respect of any
audit of the Partnership by the Internal Revenue Service, and all
out-of-pocket expenses and fees incurred by the General Partner on
behalf of the Partnership as Tax Matters Partner shall constitute
Administrative Expenses. In the event the General Partner receives
notice of a final Partnership adjustment under Section 6223(a)(2) of
the Code, the General Partner shall either (i) file a court petition
for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition
shall be mailed to all Limited Partners on the date such petition is
filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for
determining not to file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law
shall be made by the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the
Common Partnership Units of any Partner, the Partnership, at the
option of the General Partner, may elect pursuant to Section 754 of
the Code to adjust the basis of the Partnership Properties.
Notwithstanding anything contained in Article V of this Agreement,
any adjustments
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made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and shall in no event be taken
into account in establishing, maintaining or computing Capital
Accounts for the other Partners for any purpose under this Agreement.
Each Partner agrees to furnish the Partnership with all information
necessary to give effect to such election.
11.6 REPORTS TO LIMITED PARTNERS.
(a) As soon as practicable after the close of each fiscal
quarter (other than the last quarter of the Fiscal Year), the General
Partner shall cause to be mailed to each Limited Partner a quarterly
report containing unaudited financial statements of the Partnership,
or of IPT if such statements are prepared solely on a consolidated
basis with IPT, for such fiscal quarter, presented in accordance with
generally accepted accounting principles, and such other information
as may be required by applicable law or regulation, or as the General
Partner determines to be appropriate. As soon as practicable after
the close of each Fiscal Year, the General Partner shall cause to be
mailed to each Limited Partner an annual report containing financial
statements of the Partnership, or of IPT if such statements are
prepared solely on a consolidated basis with IPT, for such Fiscal
Year, presented in accordance with generally accepted accounting
principles. The annual financial statements shall be audited by
accountants selected by the General Partner.
(b) Each Partner shall have the further right to obtain, at
it own expense, a private audit of the books and records of the
Partnership, provided that such audit is conducted (i) for a proper
Partnership purpose, (ii) at the Partnership's specified office, and
(iii) during certain business hours to be determined in the sole
discretion of the General Partner.
ARTICLE XII
AMENDMENT OF AGREEMENT; MEETINGS
12.1 AMENDMENTS. The General Partner, with the consent of the Special
Limited Partner but without the consent of any other Limited Partner, may
amend or modify this Agreement in any respect; provided, however, that any
amendment which would (i) impose on any Limited Partner any obligation to make
any additional Capital Contribution or (ii) materially adversely affect the
economic rights of such Limited Partner hereunder shall require the consent of
such Limited Partner. Except as expressly set forth in this Section 12.1, or
as otherwise required by law, the Limited Partners shall not have any right to
vote on or consent to any amendment to or modification of this Agreement.
12.2 MEETINGS OF THE PARTNERS.
(a) General. Meetings of the Partners may be called by the
General Partner at any time. In addition, meetings of the Partners
shall be called upon the receipt by the General Partner of a written
request by (i) Limited Partners holding 25 percent or more of the
then outstanding Common Partnership Units or (ii) the Special Limited
Partner,
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provided that such request states the nature of the proposed business
to be transacted and such proposed business relates to a matter which
the Limited Partners (including the Special Limited Partner) have
been granted the authority to act upon pursuant to this Agreement.
Notice of any such meeting shall be given to all Partners not less
than 10 days nor more than 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 Partners is permitted or required under this
Agreement, such vote or consent may be given at a meeting of Partners
or may be given in accordance with the procedure prescribed in
12.2(b) hereof. Except as otherwise expressly provided in this
Agreement (including Section 12.1 hereof), the consent of holders of
a majority of the Common Partnership Units shall control.
(b) Action by Written Consent. Any action required or
permitted to be taken at a meeting of the Partners may be taken
without a meeting if one or more written consents setting forth the
action so taken is signed by Partners holding a majority (or such
other percentage as is expressly required by this Agreement) of the
outstanding Common Partnership Units. Such consents shall be filed
with the General Partner, and any action taken pursuant thereto shall
have the same force and effect as if taken pursuant to a vote of
Partners at a duly constituted meeting.
(c) Proxies. Each Limited Partner may authorize any Person
or Persons to act for him by proxy on all matters in which a 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 Limited Partner or his attorney-in-fact. 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 by the Limited Partner executing it.
(d) Conduct of Meeting. Each meeting of 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.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been received (a) if delivered personally, on the date delivered, (b) if
delivered by overnight courier or registered United States mail (postage
prepaid, return receipt requested), on the date on which the package is signed
for on behalf of the addressee, and (c) if delivered in any other manner, on
the date on which the addressee actually receives such notice or other
communication. Notices to the Partners shall be delivered to their respective
addresses set forth on Exhibit A hereto; provided, however, that any Partner
may specify a different address by notifying the General Partner in writing of
such different address. Notices to the Partnership shall be delivered to the
address of its specified office.
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13.2 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
Transfers of Common Partnership Units, this Agreement shall be binding upon
and inure to the benefit of the Partners and the Partnership and their
respective heirs, executors, administrators, legal representatives,
successors, transferees and assigns.
13.3 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents
which may be reasonable, necessary, appropriate or desirable to effect the
intent of this Agreement or which may be required under the Act.
13.4 SEVERABILITY. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from the remaining provisions of
this Agreement (to the extent permitted by law) and shall not affect such
remaining provisions.
13.5 ENTIRE AGREEMENT. This Agreement and the schedules and exhibits
attached hereto, together with that certain Acquisition and Disposition
Services Agreement of even date herewith among IPT, the Partnership and
Insignia (as the same may be amended from time to time in accordance
therewith), constitutes the entire Agreement of the Partners and supersedes
all prior written agreements and prior and contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof.
Upon the execution of this Agreement, the Prior Agreement shall be deemed void
and of no further force or effect.
13.6 WAIVER. 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.
13.7 PRONOUNS AND PLURALS. When the context in which words are used
in the Agreement indicates that such is the intent, words in the singular
number shall include the plural and the masculine gender shall include the
neuter or female gender as the context may require.
13.8 HEADINGS. The Article and Section headings in this Agreement are
for convenience of reference only and shall not be used in construing the
scope or intent of this Agreement or any particular provision hereof.
13.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties may not have signed the same
counterpart.
13.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of Delaware.
[Signature Pages Follow]
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Fourth Amended and Restated Agreement of Limited
Partnership as of the 17th day of February, 1998.
GENERAL PARTNER:
INSIGNIA PROPERTIES TRUST
By:
-------------------------------------
James A. Aston
President
[ADDITIONAL AND SUBSTITUTE GENERAL
PARTNERS, IF ANY, WILL EXECUTE THIS
AGREEMENT BY MEANS OF AN ACCESSION
AGREEMENT]
LIMITED PARTNERS:
INSIGNIA FINANCIAL GROUP, INC.
By:
-------------------------------------
Frank M. Garrison
Executive Managing Director
[ADDITIONAL AND SUBSTITUTE LIMITED
PARTNERS, IF ANY, WILL EXECUTE THIS
AGREEMENT BY MEANS OF AN ACCESSION
AGREEMENT]
59
<PAGE>
Insignia Properties Trust, a Maryland real estate investment trust,
hereby enters into this Agreement for the limited purpose of agreeing to be
bound by any terms hereof which apply to it in any capacity other than that of
a Partner. Executed as of this 17th day of February, 1998.
INSIGNIA PROPERTIES TRUST
By:
-------------------------------------
James A. Aston
President
Insignia Financial Group, Inc., a Delaware corporation, hereby enters
into this Agreement for the limited purpose of agreeing to be bound by any
terms hereof which apply to it in any capacity other than that of a Partner.
Executed as of this 17th day of February, 1998.
INSIGNIA FINANCIAL GROUP, INC.
By:
-------------------------------------
Frank M. Garrison
Executive Managing Director
60
<PAGE>
SCHEDULE I
FORMATION PARTNERSHIPS
Consolidated Capital Growth Fund
Consolidated Capital Institutional Properties
Consolidated Capital Institutional Properties/2
Consolidated Capital Institutional Properties/3
Consolidated Capital Properties III
Consolidated Capital Properties IV
Consolidated Capital Properties V
Consolidated Capital Properties VI
Johnstown/Consolidated Income Partners
Johnstown/Consolidated Income Partners/2
Shelter Properties I Limited Partnership
Shelter Properties II Limited Partnership
Shelter Properties III Limited Partnership
Shelter Properties IV Limited Partnership
Shelter Properties V Limited Partnership
Shelter Properties VI Limited Partnership
Shelter Properties VII Limited Partnership
Davidson Growth Plus, L.P.
National Property Investors III
National Property Investors 4
National Property Investors 5
National Property Investors 6
National Property Investors 7
National Property Investors 8
Fox Strategic Housing Income Partners
Century Properties Fund XIV
Century Properties Fund XV
Century Properties Fund XVI
Century Properties Fund XVII
Century Properties Fund XVIII
Century Properties Fund XIX
Century Properties Fund XX
Century Properties Growth Fund XXII
Century Pension Income Fund XXIII
Century Pension Income Fund XXIV
Multi-Benefit Realty Fund '87-1
U.S. Realty Partners Limited Partnership
I-1
<PAGE>
EXHIBIT A
GENERAL AND LIMITED PARTNERS
As of January 1, 1998
NO. OF
CAPITAL PARTNERSHIP PERCENTAGE
NAME AND ADDRESS CONTRIBUTIONS UNITS HELD INTEREST
- ------------------------------- ------------- ----------- ----------
GENERAL PARTNER:
Insignia Properties Trust $185,731,510 18,573,151 64.43%
One Insignia Financial Plaza
P.O. Box 19059
Greenville, SC 29602
LIMITED PARTNERS:
Insignia Financial Group, Inc. 94,159,470 9,415,947 33.57%
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
TOTALS.......................... $279,890,980 27,989,098 100%
============ ========== ====
A-1
<PAGE>
EXHIBIT B
[FORM OF]
NOTICE OF REDEMPTION
Reference is made to that certain Fourth Amended and Restated
Agreement of Limited Partnership ("Partnership Agreement") of Insignia
Properties, L.P., a Delaware limited partnership (the "Partnership"), dated as
of February 17, 1998 with retroactive effect to January 1, 1998. Capitalized
terms used but not defined herein have the meanings ascribed to the in the
Partnership Agreement.
Pursuant to Section 9.4 of the Partnership Agreement, the undersigned
hereby irrevocably exercise its Redemption Right with respect to _________ of
its Redeemable Units. The undersigned understands and acknowledges that the
delivery of this Notice of Redemption also constitutes an offer by the
undersigned to sell any or all of such Redeemable Units to IPT in exchange for
Share Redemption Consideration, which offer is irrevocable during the
Redemption Election Period.
Please deliver the Cash Redemption Consideration and/or Share
Redemption Consideration, as applicable, to the address indicated below, and
if Common IPT Shares are to be issued, please issue such shares as indicated
below.
Dated:
----------------------
Respectfully submitted,
- ---------------------------- ---------------------------------------
(Print or Type Name of Limited Partner)
- ----------------------------
- ---------------------------- By:
(Address of Limited Partner) ------------------------------------
(Signature)
IF COMMON IPT SHARES ARE TO BE ISSUED,
ISSUE TO:
---------------------------------------
Name: (Print or Type Name and Authority of
------------------------ Person Signing on Behalf of
Address: Limited Partner)
---------------------
---------------------
Social Security ---------------------------------------
or Tax ID No.: (Signature Guarantee)
---------------
B-1
<PAGE>
ACQUISITION AND DISPOSITION SERVICES AGREEMENT
THIS ACQUISITION AND DISPOSITION SERVICES AGREEMENT (this
"AGREEMENT") is entered into on February 17, 1998, with retroactive effect to
January 1, 1998, by and among INSIGNIA PROPERTIES, L.P., a Delaware limited
partnership ("IPLP"), INSIGNIA PROPERTIES TRUST, a Maryland real estate
investment trust (whether acting in its separate capacity or in its capacity
as the sole general partner of IPLP, "IPT"), and INSIGNIA FINANCIAL GROUP,
INC., a Delaware corporation ("INSIGNIA").
W I T N E S S E T H
WHEREAS, IPT is the sole general partner of IPLP;
WHEREAS, IPLP owns interests in real estate and real estate related
assets through its ownership of limited partner interests in various real
estate limited partnerships;
WHEREAS, IPT owns interests in real estate and real estate related
assets through IPLP and through its direct and indirect ownership of general
partner interests in real estate limited partnerships;
WHEREAS, IPT anticipates that it will acquire additional interests in
real estate and real estate related assets either directly or indirectly
through its ownership and control of IPLP;
WHEREAS, Insignia and certain of its Affiliates (as defined herein),
pursuant to various contracts and practices, currently receive fees for
providing various services, directly and indirectly, to, for, on behalf of
and/or for the benefit of IPT and IPLP, including without limitation real
estate acquisition, disposition and other similar services; and
WHEREAS, IPT and IPLP desire to retain Insignia to continue to
provide certain real estate acquisition and disposition services for IPT and
IPLP in the manner and in accordance with the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the respective
meanings set forth below:
"AFFILIATE" means, with respect to any particular Person,
any other Person that directly or indirectly controls, is controlled by or is
under common control with such first Person. For this purpose, "CONTROL"
(including with its correlative meanings, "controlled by" and "under common
control with") means the power to direct or cause the direction of the
management or policies of such Person (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise).
Notwithstanding the foregoing, (a) when used in connection with Insignia or
any other Insignia Entity, "Affiliate" shall not include IPT, IPLP,
<PAGE>
MAE or any of their respective Subsidiaries; and (b) when used in connection
with IPT or IPLP or any other IPT Entity, "Affiliate" shall not include any
Insignia Entity, MAE or any of their respective Subsidiaries.
"AGREEMENT" means this Agreement, as amended or modified from time
to time.
"BANKRUPTCY CODE" means the United States Bankruptcy Code of 1978,
as amended.
"BOARD OF TRUSTEES" means the Board of Trustees of IPT.
"CAUSE" means the occurrence of any of the following events: (i)
entry of a final, nonappealable judgment by the highest court having proper
jurisdiction over the matter in question determining that Insignia has
committed fraud or willful malfeasance with respect to IPT and/or IPLP; (ii)
Insignia or its direct or indirect parent(s) files a petition for relief under
the Bankruptcy Code; (iii) an order for relief is entered against Insignia in
an involuntary case under the Bankruptcy Code; (iv) Insignia makes an
assignment for the benefit of its creditors; (v) any court orders or approves
the appointment of a receiver or custodian for Insignia or a substantial
portion of any of its assets; or (vi) Insignia voluntarily or involuntarily
dissolves and is not subsequently reconstituted.
"CODE" means the Internal Revenue Code of 1986, as amended,
including the rules and regulations promulgated thereunder.
"CONTRACT NOTICE" means a written notice delivered via telecopy or
hand delivery to IPT which (i) states an Insignia Entity has entered into a
Permitted Contract, (ii) describes in reasonable detail the IPT Opportunity to
which the Permitted Contract relates and summarizes the material terms and
conditions of the Permitted Contract, and (iii) attaches as an exhibit a true
and correct copy of such Permitted Contract.
"INSIGNIA" means Insignia Financial Group, Inc., a Delaware
corporation.
"INSIGNIA ENTITY" means each of Insignia and its Affiliates (other
than IPT Entities).
"INSIGNIA OPPORTUNITY" means any opportunity to invest in or
acquire equity or debt securities of or other ownership interests in a Person
that (i) invests primarily in real property other than U.S. Multi-family
Residential Property, (ii) invests primarily in U.S. Multi-family Residential
Property if (x) such Person is controlled by an Insignia Entity or MAE or (y)
an Insignia Entity serves as property manager of the properties owned by such
Person, or (iii) performs property management services (regardless of the type
of property with respect to which such services are performed); provided,
however, that "Insignia Opportunity" shall not include an opportunity to
invest in or acquire equity or debt securities of or other ownership interests
in a Person that invests primarily in U.S. Multi-family Residential Property
if any IPT Entity owned an equity, debt or other ownership interest in such
Person as of the date hereof or acquires an equity, debt or other ownership
interest in such Person in accordance with this Agreement.
"IPLP" means Insignia Properties, L.P., a Delaware limited
partnership.
"IPLP PARTNERSHIP AGREEMENT" means the Fourth Amended and Restated
Agreement of Limited Partnership of IPLP, of even date herewith.
2
<PAGE>
"IPT" means Insignia Properties Trust, a Maryland real estate
investment trust.
"IPT ENTITY" means each of IPT, IPLP and their respective
Subsidiaries.
"IPT OPPORTUNITY" means any opportunity to invest in or acquire
(i) U.S. Multi-family Residential Property, (ii) indebtedness secured by U.S.
Multi-family Residential Property or (iii) equity or debt securities of or
other ownership interests in a Person that primarily owns or invests in U.S.
Multi-family Residential Property located in the United States; provided,
however, that "IPT Opportunity" shall not include an opportunity to invest in
or acquire U.S. Multi-family Residential Property, or an equity or other
ownership interest in a Person which invests primarily in U.S. Multi-family
Residential Property but is not controlled by IPT or IPLP, if any Insignia
Entity owned any equity, debt or other ownership interest in such U.S.
Multi-family Residential Property or Person, as the case may be, on the date
hereof or acquires an equity, debt or other ownership interest in such U.S.
Multi-family Residential Property or Person, as the case may be, in accordance
with this Agreement.
"IPT OPPORTUNITY NOTICE" means a written notice delivered via
telecopy or hand delivery to IPT which (i) states that an Insignia Entity has
identified an IPT Opportunity and (ii) sets forth in reasonable detail (to the
extent then available) the following information: (a) a description of the IPT
Opportunity (including, if applicable, the location and other details relating
to such real property and, in the case of acquisitions of partnership
interests or other equity investments, the number of units or other equity
interests offered for purchase); (b) the identity of the prospective seller of
IPT Opportunity; (c) the offering price of IPT Opportunity; and (d) any other
material terms and conditions associated with the proposed purchase, transfer
or acquisition of such IPT Opportunity.
"MAE" means Metropolitan Asset Enhancement, L.P., a Delaware
limited partnership.
"PERMITTED CONTRACT" means a definitive agreement which (i)
provides an Insignia Entity with a contractual right to acquire an IPT
Opportunity and (ii) expressly provides that the right to acquire such IPT
Opportunity pursuant thereto may be assigned to IPT or IPLP or an Affiliate of
either of them.
"PERSON" means any individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), 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 Section
509(a) of the Code), joint stock company or other entity, or any governmental
agency or political subdivision thereof, and includes a "group" as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
"REAL ESTATE TRANSACTION" means any transaction involving any IPT
Entity the primary purpose of which is to effect the direct or indirect
acquisition or disposition of one or more whole real estate or real
estate-related assets, including without limitation by means of joint venture
and similar arrangements.
"REIMBURSABLE EXPENSES" means out-of-pocket third-party costs and
expenses, including without limitation travel costs, legal fees and expenses,
funds borrowed on behalf of any
3
<PAGE>
IPT Entity (including interest thereon and all other costs, fees and expenses
incurred in connection with such borrowing), taxes and assessments of any
nature (including penalties and interest incurred thereon) levied upon any IPT
Entity, financing and refinancing costs, insurance costs, brokerage and other
sales and leasing costs (including commissions), and maintenance, repair and
improvement expenses.
"SECURITIES TRANSACTION" means any (i) open market or
privately-negotiated acquisition of debt or equity securities of, or other
ownership interests in, any Person (but specifically excluding any transaction
that constitutes a Real Estate Transaction), or (ii) cash tender offer or
exchange offer for debt or equity securities of, or other ownership interests
in, any Person (other than in connection with a merger or other business
combination), in each case by, involving or on behalf of any IPT Entity.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which such first Person owns five percent (5%) or more of the
outstanding equity or other ownership interests.
"U.S. MULTI-FAMILY RESIDENTIAL PROPERTY" means traditional
apartment rental properties located in the United States; provided, however,
that "U.S. Multi-family Residential Property" specifically does not include
(i) condominiums, (ii) cooperatives, (iii) congregate care facilities, (iv)
apartment rental properties with respect to which the landlord provides
material services in addition to those services traditionally provided by
landlords to apartment tenants, (v) apartment rental properties which are
deemed "affordable" (based on a majority of their dwelling units), (vi)
apartment rental properties which are developed by an Insignia Entity or (vii)
apartment rental properties in which IPT and/or IPLP are prohibited from
investing, whether due to restrictions in their organizational documents or as
a result of the adoption of a policy by the Board of Trustees of IPT.
ARTICLE II
ENGAGEMENT
Section 2.1 IPT and IPLP hereby engage Insignia to provide the
following services, on a transaction by transaction basis if, as and when
requested by IPT and/or IPLP, in connection with Real Estate Transactions and
Securities Transactions, and Insignia hereby accepts such engagement and
agrees to provide such services, in each case on the terms and subject to the
conditions set forth herein: (i) consulting advice and financial analysis;
(ii) due diligence review and analysis of documentation and operations; (iii)
negotiation, drafting and review of transaction documents; (iv) brokerage and
other disposition services; and (v) other services reasonably related or
incidental thereto.
Section 2.2 IPT and IPLP may also engage Insignia, on a case by case
basis, to provide financing, refinancing, insurance, foreclosure, legal and/or
appraisal services to or on behalf of any IPT Entity.
Section 2.3 IPT and IPLP understand and expressly acknowledge that some
of the services required to be provided by Insignia pursuant to this Agreement
will be performed by Insignia Entities other than Insignia from time to time,
and agree that performance of such services by other Insignia Entities will be
deemed to constitute performance by Insignia for all purposes hereof.
4
<PAGE>
ARTICLE III
COMPENSATION; REIMBURSEMENT OF EXPENSES
Section 3.1 As compensation for the services to be provided by the
Insignia Entities pursuant to this Agreement, IPLP shall pay (or cause another
IPT Entity to pay) to Insignia, within five (5) business days of receipt of an
invoice therefor, the following fees:
(a) in respect of each Securities Transaction, a fee in an
amount equal to one and one-half percent (1.5%) of the aggregate net asset
value of the securities acquired (for purposes of the foregoing, in the case
of a tender or exchange offer or other transaction which has a related
disclosure document, the "net asset value" of a security shall be deemed to be
the net asset, liquidation or other similar value stated in such disclosure
document; and in all other cases the "net asset value" of a security shall be
the amount determined by Insignia in good faith); and
(b) in respect of each Real Estate Transaction involving an
acquisition (but not a disposition), a fee in an amount equal to
three-quarters of one percent (0.75%) of the aggregate purchase price (or pro
rata portion thereof in the case of an acquisition with one or more partners)
of the real estate or real estate-related assets acquired attributable to the
applicable IPT Entity (for purposes of the foregoing, the "aggregate purchase
price" shall include any debt incurred or assumed in connection with the
acquisition or to which the acquired assets are otherwise subject).
Section 3.2 In addition to the fees described in Section 3.1, IPLP
shall reimburse (or cause another IPT Entity to reimburse) Insignia, within
five (5) business days of receipt of an invoice therefor, all Reimbursable
Expenses incurred or paid by Insignia Entities in connection with their
provision of services pursuant to this Agreement; provided, however, that IPLP
shall also reimburse Insignia for all employee costs (including commissions)
incurred by Insignia Entities in connection with Real Estate Transactions
involving dispositions of real properties, not to exceed 1% of the gross sales
price (in the aggregate, inclusive of Reimbursable Expenses).
Section 3.3 If IPT or IPLP requests Insignia to render services on
behalf of an IPT Entity other than those specifically identified in this
Agreement, including without limitation services of the type contemplated by
Section 2.2, and Insignia agrees to perform such services, Insignia shall be
compensated for such additional services separately on terms to be negotiated
and agreed upon by the parties in good faith.
Section 3.4 Nothing in this Agreement shall be deemed or construed to
entitle Insignia to be reimbursed more than once for the same expense incurred
by an Insignia Entities.
5
<PAGE>
ARTICLE IV
IPT OPPORTUNITIES
Section 4.1 Insignia shall not, and shall not cause or permit any
other Insignia Entity to, enter into any definitive agreement to acquire an
IPT Opportunity unless (i) Insignia shall have first delivered an IPT
Opportunity Notice to IPT and (ii) IPT and IPLP shall have elected (or shall
have been deemed to have elected) not to pursue such IPT Opportunity pursuant
to the provisions of Section 4.4; provided, however, that the foregoing shall
not prohibit an Insignia Entity from entering into a Permitted Contract prior
to the delivery of an IPT Opportunity Notice. Insignia covenants and agrees
that in the event an Insignia Entity enters into a Permitted Contract,
Insignia shall deliver a Contract Notice to IPT within three (3) business days
of the entering into such Permitted Contract by such Insignia Entity.
Section 4.2 Insignia shall not, and shall not cause or permit any
other Insignia Entity to, acquire an IPT Opportunity with respect to which a
Permitted Contract has been entered into unless (i) Insignia shall have first
delivered a Contract Notice to IPT, and (ii) either (x) IPT and IPLP shall
have elected (or shall have been deemed to have elected) not to pursue such
IPT Opportunity pursuant to the provisions of Section 4.4 or (y) after having
elected to pursue such IPT Opportunity pursuant to the provisions of Section
4.4, IPT or IPLP, as the case may be, shall have abandoned its efforts to
acquire such IPT Opportunity.
Section 4.3 Insignia shall not, and shall not cause or permit any
other Insignia Entity to, acquire an IPT Opportunity with respect to which a
Permitted Contract has not been entered into unless (i) Insignia shall have
first delivered an IPT Opportunity Notice to IPT, and (ii) either (x) IPT and
IPLP shall have elected (or shall have been deemed to have elected) not to
pursue such IPT Opportunity pursuant to the provisions of Section 4.4 or (y)
after having elected to pursue such IPT Opportunity pursuant to the provisions
of Section 4.4, IPT or IPLP, as the case may be, shall have abandoned its
efforts to acquire such IPT Opportunity.
Section 4.4 Within five (5) business days of IPT receiving an IPT
Opportunity Notice or a Contract Notice, IPT shall notify Insignia in writing
whether IPT and/or IPLP has elected (i) to pursue the applicable IPT
Opportunity without the assistance of Insignia, (ii) to pursue the applicable
IPT Opportunity with the assistance of Insignia or (iii) not to pursue the
applicable IPT Opportunity at all. In the event that IPT fails to deliver such
notice to Insignia in a timely manner, IPT and IPLP shall each be deemed to
have elected not to pursue the IPT Opportunity at all.
Section 4.5 If IPT and/or IPLP shall elect to pursue an IPT
Opportunity pursuant to the provisions of Section 4.4, Insignia shall use good
faith efforts to facilitate the acquisition of such IPT Opportunity by IPT
and/or IPLP, as the case may be, but shall not be liable in the event the
seller of such IPT Opportunity will not sell such IPT Opportunity to IPT
and/or IPLP, as the case may be.
Section 4.6 Insignia's obligations hereunder with respect to IPT
Opportunities shall terminate upon the earliest to occur of (i) the
termination of this Agreement or a material breach of this Agreement by IPT or
IPLP, (ii) the incurrence by IPLP of an obligation to pay a Contract Loss Fee
(as such term is defined in the IPLP Partnership Agreement) pursuant to the
IPLP Partnership Agreement, or (iii) the failure of IPT and/or IPLP to retain
an Insignia Entity to provide property management services with respect to the
properties owned or controlled by IPT and/or IPLP as required by the IPLP
Partnership Agreement.
6
<PAGE>
ARTICLE V
INSIGNIA OPPORTUNITIES
Section 5.1 IPT and IPLP shall not, and shall not cause or permit any
controlled IPT Entity to, acquire any Insignia Opportunity (either separately
or as a part of an otherwise permitted transaction) without the prior written
consent of Insignia.
Section 5.2 The obligations of IPT and IPLP hereunder with respect to
Insignia Opportunities shall terminate only upon termination of this
Agreement.
ARTICLE VI
LIMITED LIABILITY; INDEMNIFICATION
Section 6.1 No Insignia Entity or officer, director, employee, agent
or representative of an Insignia Entity shall be liable to IPT, its
shareholders, IPLP, its partners, or others, in connection with their
respective responsibilities under this Agreement, except by reason of acts
determined by final, nonappealable judgment by the highest court having proper
jurisdiction over the matter in question to constitute fraud or willful
malfeasance.
Section 6.2 IPLP shall indemnify and hold harmless each Insignia
Entity and each officer, director, employee, agent or representative of an
Insignia Entity from and against any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever relating to
or arising from any acts or omissions of any of the foregoing undertaken in
good faith and not constituting fraud or willful malfeasance (as determined by
final, nonappealable judgment by the highest court having proper jurisdiction
over the matter in question). In the event that any action occurs which may
give rise to a right of indemnification under this section, following written
request to IPLP by the indemnified party, IPLP shall promptly advance the
indemnified party amounts to cover expenses incurred by the indemnified party,
including without limitation legal fees and expenses, with respect to such
action in advance of its final disposition upon receipt by IPT of (i) a
written undertaking executed by or on behalf of the indemnified party to repay
the advance if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified by IPLP under this section and (ii)
satisfactory evidence as to the amount of such expenses. The provisions of
this Section 6.2 shall survive the termination of this Agreement.
ARTICLE VII
NO JOINT VENTURE; OTHER ACTIVITIES OF INSIGNIA
Section 7.1 IPT and Insignia, IPLP and Insignia, and IPT, IPLP and
Insignia are not partners or joint venturers with each other by reason of this
Agreement, and nothing herein shall be construed to make them partners or
joint venturers or to impose any liability as such on either of them.
Section 7.2 Nothing herein shall prevent any Insignia Entity from
engaging in other activities or businesses or from acting as manager or
advisor to any other Person even though such Person has investment policies
and objectives similar to those of IPT and/or IPLP. The parties acknowledge
and agree that personnel of Insignia Entities who perform services for IPT
Entities pursuant to this Agreement may also perform services for Insignia
Entities, including with respect to properties reserved for Insignia pursuant
to Article V of this Agreement and properties which IPT and IPLP have declined
to invest in or to otherwise acquire.
7
<PAGE>
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 This Agreement shall continue in full force until
December 31, 2000 or, if sooner, until the latest to occur of (i) the sale or
other transfer of the last piece of real property (and/or loan secured by real
property) held by IPT (including any successor of IPT by merger) or the
limited partnerships in which IPT or IPLP holds a partnership interest, (ii)
the sale or other transfer of the last partnership interest held by either of
IPT or IPLP in a partnership which owns real property or loans secured by real
property, and (iii) the sale or transfer of the last ownership interest in a
real estate investment trust held by either of IPT or IPLP.
Section 8.2 Notwithstanding the provisions of Section 8.1, this
Agreement may be terminated, except as to any provisions hereof which
expressly survive termination, (i) by Insignia, by delivering written notice
of termination not less than ninety (90) days prior to the effective date of
such termination, and (ii) by IPT, IPLP or the respective successors of either
of them, for Cause.
Section 8.3 Upon the termination of this Agreement, Insignia shall be
entitled to all compensation due for, and reimbursement of all reimbursable
expenses incurred in connection with, services performed hereunder prior to
the termination date.
ARTICLE IX
ASSIGNMENT
Section 9.1 This Agreement may not be assigned by IPT without the
prior written consent of Insignia, except in the case of any assignment by IPT
to a Person which is the successor to IPT, whether by merger, equity purchase
or as purchaser of all or substantially all of the assets of IPT, in which
case such successor shall be bound hereby and by the terms of said assignment
in the same manner and to the same extent as IPT is bound hereby. In
furtherance and not in limitation of the foregoing, any successor to IPT
(whether by merger, equity purchase or purchase of all or substantially all of
the assets of IPT) must agree in writing to be bound by the terms of this
Agreement.
Section 9.2 This Agreement may not be assigned by IPLP without the
prior written consent of Insignia, except in the case of any assignment by
IPLP to a Person which is the successor to IPT, whether by merger, equity
purchase or as purchaser of all or substantially all of the assets of IPLP, in
which case such successor shall be bound hereby and by the terms of said
assignment in the same manner and to the same extent as IPLP is bound hereby.
In furtherance and not in limitation of the foregoing, any successor to IPLP
(whether by merger, equity purchase or purchase of all or substantially all of
the assets of IPLP) must agree in writing to be bound by the terms of this
Agreement.
Section 9.3 This Agreement may not be assigned by Insignia without the
prior written consent of each of IPT (which consent shall not be unreasonably
withheld or delayed), except to another Insignia Entity or to a successor by
merger of Insignia or another Insignia Entity. In the event that IPT consents
to an assignment, such assignment shall bind the assignee in the same manner
and to the same extent as Insignia is bound hereby; provided, however, that in
the event of such an assignment, Insignia shall remain liable for any breach
of this Agreement or other action giving rise to liability hereunder which
occurs prior to the time of such assignment.
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ARTICLE X
MISCELLANEOUS
Section 10.2 Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report or other communication is accepted by the party
to whom it is given, and shall be given by being delivered at the following
address to the parties hereto:
If to IPT or IPLP: Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 19059
Greenville, South Carolina 29602
Attn: President
with a copy to (which shall not constitute notice) to:
Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 19059
Greenville, South Carolina 29602
Attn: Secretary
If to Insignia: Insignia Financial Group, Inc.
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attn: Chief Executive Officer
with a copy to (which shall not constitute notice) to:
Insignia Financial Group, Inc.
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attn: General Counsel
Any party hereto may at any time give notice to the other parties in
writing of a change of its address for purposes of this Section 10.1.
Section 10.2 Any other provision of this Agreement to the contrary
notwithstanding, Insignia may refrain from taking any action which in its
sole, good faith judgment, would adversely affect the status of IPT as a real
estate investment trust within the meaning of Sections 856 through 860 of the
Code, or which, in its sole, good faith judgment, would violate any law, rule
or regulation of any governmental body or agency having jurisdiction over any
IPT Entity or which would otherwise not be permitted by the organizational
documents of IPT or IPLP. In the event such actions shall be ordered by any
IPT Entity, Insignia shall promptly notify the Board of Trustees that, in
Insignia's judgment, such an action would adversely affect such status or
violate such law, rule or regulation or organizational document of IPT or IPLP
and shall refrain from taking such action pending further clarification or
instructions from the Board of Trustees.
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Section 10.3 Insignia shall maintain appropriate books of account and
records relating to services performed pursuant hereto, which books of account
and records shall be available for inspection by representatives of IPT and
IPLP upon reasonable notice during normal business hours.
Section 10.4 Upon the request of IPT, and at the sole expense of IPT,
Insignia shall obtain and maintain a fidelity bond in connection with the
performance of its services hereunder if such fidelity bond is reasonably
available.
Section 10.5 This Agreement may not be modified or amended except by
an instrument in writing signed by each of the parties hereto (or their
respective successors or permitted assigns).
Section 10.6 This Agreement shall be binding upon the respective
successors and/or permitted assigns of the parties hereto.
Section 10.7 This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
Section 10.8 The captions included herein have been inserted for ease
of reference only and shall not be construed to affect the meeting,
construction or effect of this Agreement.
Section 10.9 In case any one or more of the provisions contained in
this Agreement or in any instrument contemplated hereby, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
Section 10.10 This Agreement, together with the IPLP Partnership
Agreement, constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes and cancels any pre-existing
agreements with respect to such subject matter.
Section 10.11 This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and such counterparts shall
together constitute one and the same agreement, binding upon each of the
parties hereto, notwithstanding each of the parties are not signatory to the
same counterpart.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf as of the day and year first above written.
INSIGNIA PROPERTIES TRUST
By:
-----------------------------------
Jeffrey P. Cohen
Senior Vice President
INSIGNIA PROPERTIES, L.P.
By: Insignia Properties Trust,
its General Partner
By:
-----------------------------------
Jeffrey P. Cohen
Senior Vice President
INSIGNIA FINANCIAL GROUP, INC.
By:
-----------------------------------
Frank M. Garrison
Executive Managing Director
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SECOND AMENDED AND RESTATED
ADVISORY AGREEMENT
THIS SECOND AMENDED AND RESTATED ADVISORY AGREEMENT (this "AGREEMENT")
made as of the 1st day of August, 1997, amends and restates in its entirety
that certain First Amended and Restated Advisory Agreement dated as of May 8,
1997 (the "PRIOR AGREEMENT"), by and among INSIGNIA PROPERTIES, L.P., a
Delaware limited partnership (the "OPERATING PARTNERSHIP"), INSIGNIA PROPERTIES
TRUST, a Maryland real estate investment trust (whether acting in its separate
capacity or in its capacity as the sole general partner of the Operating
Partnership, the "COMPANY"), and INSIGNIA FINANCIAL GROUP, INC., a Delaware
corporation (the "ADVISOR").
W I T N E S S E T H
WHEREAS, the Advisor and certain of its Affiliates (as defined herein)
transferred the stock of certain corporations that serve as a general partner
of real estate limited partnerships (the "EXISTING PARTNERSHIPS") to the
Company, and the Advisor and certain of its Affiliates transferred to the
Operating Partnership limited partner interests in the Existing Partnerships
(the "TRANSFERS");
WHEREAS, Affiliates of the Advisor have retained all property
management rights with respect to the Existing Partnerships and will retain all
property management rights with respect to other partnerships and properties
which may be owned by the Operating Partnership and the Company in the future;
WHEREAS, the Company holds the general partnership interest in the
Operating Partnership;
WHEREAS, through its control of and ownership of limited partner
interests in the Existing Partnerships, the Company owns indirectly interests
in real estate and real estate related assets through the Operating
Partnership;
WHEREAS, the Company anticipates that it will acquire additional
interests in real estate and real estate related assets either directly or
indirectly through its ownership and control of the Operating Partnership (such
interests, whether now owned or hereafter acquired, shall be referred to herein
as the "PROPERTIES"). For purposes of the foregoing definition, the phrase
"real estate related assets" shall also include the securities of any Business
Entity (as defined herein) which directly or indirectly owns or controls real
estate or real estate related assets.
WHEREAS, the Company has qualified for the tax benefits accorded to
real estate investment trusts by sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "CODE");
<PAGE>
WHEREAS, the Advisor (or Affiliates thereof), pursuant to various
contracts and practices, currently receives fees for providing various services
for the Existing Partnerships and their Properties, including, without
limitation, property management services, asset management services, investment
advisory services and other similar services;
WHEREAS, in view of the contribution of the Existing Partnerships and
their Properties to the Operating Partnership, the parties believe that the
advisory fee provided for herein more accurately reflects the nature of the
services to be provided by the Advisor to the Company and the Operating
Partnership than does the existing arrangement;
WHEREAS, the Company and the Operating Partnership deem it to be in
their respective best interests to retain the continued services of the
Advisor, which is the largest fully integrated real estate services company in
the United States; and
WHEREAS, the Company and the Operating Partnership desire to retain
the Advisor to provide certain advisory services for the Company and the
Operating Partnership in the manner and in accordance with the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
parties agree as follows:
ARTICLE I
GENERAL DUTIES OF THE ADVISOR
Section 1.1 Subject to the supervision and management of the Board of
Trustees of the Company (the "BOARD OF TRUSTEES"), the Advisor or an Affiliate
of the Advisor shall:
(a) administer the day-to-day investment operations of the
Company and the Operating Partnership and perform or supervise the
performance of such other administrative functions necessary for the
management of the Company and the Operating Partnership as may be
agreed upon by the Advisor and the Board of Trustees;
(b) administer such day-to-day bookkeeping and accounting
functions as are required for the proper management of the assets of
the Company and the Operating Partnership, prepare periodic financial
statements and prepare or cause to be prepared, for review by the
Board, such reports or filings as may be required by any governmental
authority in connection with the ordinary conduct of the Company's
business and the Operating Partnership's business, including without
limitation, any periodic reports, returns or statements required under
the Securities Exchange Act of 1934, as amended, the Code, the
securities and tax statutes of any jurisdiction in which
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the Company or the Operating Partnership is obligated to file such
reports, returns or statements, or the rules and regulations
promulgated under any of the foregoing;
(c) serve as the advisor to the Company and the Operating
Partnership in connection with business and management decisions to be
made by the Board of Trustees and prepare and accumulate or cause to
be prepared and presented to the Board of Trustees, from time to time,
reports and statistical and economic data pertinent to the Company's
and the Operating Partnership's investments;
(d) perform, or cause to be performed by another party, such
property management services and other activities relating to the
Company's and the Operating Partnership's assets as may be agreed upon
by the Board of Trustees and the Advisor from time to time, subject to
Article XIII hereof;
(e) designate institutions that will provide depository
services to the Company and the Operating Partnership;
(f) obtain insurance coverage for the assets owned by the
Company and the Operating Partnership as appropriate after giving
consideration to all relevant factors including cost, coverage needs,
strength of carriers and requirements of mortgagees;
(g) cause, in the Advisor's discretion, (i) the Operating
Partnership to contract with third party service providers to perform
any of the services otherwise to be provided by the Advisor pursuant
to this Agreement and/or (ii) the Operating Partnership to perform any
of the services otherwise to be provided by the Advisor pursuant to
this Agreement, in either case the party performing such services, and
not the Advisor, to be compensated for such services;
(h) serve as the advisor to the Company and the Operating
Partnership in connection with the improvement or repositioning of
improved or unimproved real property directly or indirectly held by
the Company or the Partnership;
(i) with respect to mergers and other business combinations,
asset acquisitions and dispositions (including mergers and other
business combinations, asset acquisitions and dispositions through
joint ventures, partnerships, limited liability companies, other real
estate investment trusts, and qualified REIT subsidiaries and other
business entities (each, a "BUSINESS ENTITY"), including acquisitions
and dispositions through partially or wholly owned Affiliates of the
Company or the Operating Partnership), Advisor shall provide advisory
services to the Board regarding (i) the identity of possible subjects,
(ii) consulting advice and financial analysis, (iii) due diligence
review of documentation, (iv) negotiation of transaction documents and
(v) other services reasonably related thereto;
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(j) provide advisory services to the Board with respect to
tender offers and other securities acquisitions and sales of ownership
interests in Business Entities, (i) provide consulting advice and
financial analysis, (ii) perform due diligence review of
documentation, (iii) negotiate transaction documents, (iv) manage
secondary market purchases and (v) provide other services reasonably
related thereto;
(k) upon request of the Board of Trustees, act as agent for
the Company and the Operating Partnership in disbursing and collecting
the funds of the Company and the Operating Partnership, in paying the
debts and fulfilling the obligations of the Company and the Operating
Partnership and in handling, prosecuting and settling any claims of
the Company and the Operating Partnership;
(l) provide asset management, partnership administration and
similar services for which cost reimbursements are typically provided
with respect to the Controlled Partnerships (as defined herein) and
properties owned or controlled by the Controlled Partnerships;
(m) upon request of and in accordance with the direction of
the Board of Trustees, invest and reinvest any funds of the Company
and the Operating Partnership; and
(n) from time to time, or at any time requested by the Board
of Trustees, make reports thereto of its performance of the foregoing
services to the Company and the Operating Partnership.
Section 1.2 Notwithstanding anything herein to the contrary, the
following actions by the Advisor shall require the prior approval of the Board
of Trustees:
(a) all asset and securities acquisitions and dispositions
(including asset acquisitions and dispositions through any Business
Entity, including acquisitions and dispositions through partially or
wholly owned Affiliates of the Company or the Operating Partnership);
(b) the approval of the Company's capital budget and the
operating budgets of the Operating Partnership;
(c) the calculation of the amount of any distributions by
the Company to its shareholders and any distributions by the Operating
Partnership to its partners; and
(d) the issuance of debt and equity securities of the
Company.
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Section 1.3 The parties hereto acknowledge that all of the services
provided by the Advisor under this Agreement will be provided for the benefit
of the Operating Partnership, until such time, if ever, that the Company shall
acquire the ownership of Properties directly or through entities other than the
Operating Partnership.
Section 1.4 "AFFILIATE" of a person means any person that directly or
indirectly controls, or is under common control with, or is controlled by, such
person. As used in this definition, "CONTROL" (including with its correlative
meanings, "controlled by" and "under common control with") shall mean the power
to direct or cause the direction of the management or policies of such person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise). Notwithstanding the foregoing, (a)
"Affiliate" when used in connection with the Advisor shall not mean the
Company, the Operating Partnership, Metropolitan Asset Enhancement, L.P.
("MAE") or any of their respective controlled entities, and (b) "Affiliate"
when used in connection with the Company or the Operating Partnership shall not
mean the Advisor, MAE or any of their respective controlled entities.
"CONTROLLED PARTNERSHIPS" means the limited partnerships directly or indirectly
owned or controlled by the Company or the Operating Partnership.
ARTICLE II
BANK ACCOUNTS AND RECORDS; FIDELITY BOND
Section 2.1 The Advisor may establish and maintain on behalf of the
Company or the Operating Partnership one or more bank accounts in its own name
or in the name of the Company or the Operating Partnership, under such terms
and conditions as the Board of Trustees may approve, and may collect and
deposit into such account or accounts and disburse therefrom any monies on
behalf of the Company or the Operating Partnership, under such terms and
conditions as the Board of Trustees may approve, and shall from time to time
render an appropriate accounting of such collections and payments to the Board
of Trustees and to the auditors of the Company and the Operating Partnership.
Section 2.2 The Advisor shall maintain appropriate books of account
and records relating to services performed pursuant hereto, which books of
account and records shall be available for inspection by representatives of the
Company and the Operating Partnership upon reasonable notice during normal
business hours.
Section 2.3 The Advisor shall not be required to obtain or maintain a
fidelity bond in connection with the performance of its services hereunder.
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ARTICLE III
REIT QUALIFICATION; COMPLIANCE WITH LAWS;
EXCESS SHARES PROVISIONS
Section 3.1 Any other provision of this Agreement to the contrary
notwithstanding, the Advisor shall refrain from taking any action which in its
sole, good faith judgment, would adversely affect the status of the Company as
a real estate investment trust within the meaning of Sections 856 through 860
of the Code, or which, in its sole, good faith judgement, would violate any
law, rule or regulation of any governmental body or agency having jurisdiction
over the Company, the Operating Partnership or their respective Affiliates or
which would otherwise not be permitted by the Declaration of Trust or By-laws
of the Company or the partnership agreement of the Operating Partnership. In
the event such actions shall be ordered by the Board of Trustees, the Advisor
shall promptly notify the Board of Trustees of the Advisor's judgment it
believes that such an action would adversely affect such status or violate such
law, rule or regulation or the Declaration of Trust or By-laws of the Company
or the partnership agreement of the Operating Partnership and shall refrain
from taking such action pending further clarification or instructions from the
Board of Trustees.
Section 3.2 Notwithstanding anything herein to the contrary, to the
extent that a provision of this Agreement permits or requires that a payment
may be made by delivering shares of the Company's securities, such payment of
shares shall not be made if the payment would cause the Advisor or any of its
Affiliates to exceed the ownership limitations set forth in the excess shares
provisions of the Company's Declaration of Trust. In such a case, the Company
or the Operating Partnership shall, if so directed by the Advisor, make such
payment in cash in the amount of the shares that would have been paid
multiplied by the fair market value (as defined below) per share.
Section 3.3 For purposes of this Agreement, the phrase "FAIR MARKET
VALUE" shall mean, as of the date such determination is made, (a) if the
Company's shares are listed on a national securities exchange, the closing sale
price per share on the principal exchange on which the Company's shares are
listed as reported by such exchange, (b) if the Company's shares are quoted in
the Nasdaq National Market System, the closing sale price per share as reported
by Nasdaq, (c) if the Company's shares are traded in the over the counter
market but not quoted in the Nasdaq National Market System, the average of the
closing bid and asked quotations per share as reported by Nasdaq, or any other
nationally accepted reporting medium if Nasdaq quotations shall be unavailable,
or (d) if none of the foregoing applies, the fair market value of such stock as
reasonably determined in good faith by the Board of Trustees.
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ARTICLE IV
COMPENSATION
Section 4.1 In consideration for the services provided by the Advisor
under this Agreement, the Operating Partnership shall pay the Advisor a base
advisory fee (the "BASE ADVISORY FEE") comprised of two components, a
performance component (the "PERFORMANCE COMPONENT") and a growth component (the
"GROWTH COMPONENT"), which shall be calculated as provided in Sections 4.2(a)
and 4.2(b) respectively. The Base Advisory Fee shall be paid to the Advisor in
twelve (12) equal monthly installments on the first day of each calendar month.
Within thirty (30) days following receipt of the Company's audited annual
financial statements for the fiscal year most recently ended, the Advisor shall
adjust the percentage increase or decrease in either (or both) the Performance
Component or the Growth Component (if applicable) if the financial statements
reflect that the percentage increases or decreases made effective December 31
were not accurate. Any adjustment in either component will be made in the next
succeeding monthly payment and, if necessary, each succeeding monthly payment
until the adjustment is fully accounted for. In addition, the Operating
Partnership shall reimburse the Advisor, pursuant to Article VI hereof, for all
of the Advisor's expenses incurred in connection with the performance of its
duties under this Agreement.
Section 4.2
(a) The Performance Component for calendar year 1997 shall
be an amount equal to $500,000. The Performance Component payable for
each calendar year after 1997 shall be an amount equal to the
Performance Component for the immediately preceding calendar year,
increased or decreased, as the case may be, by a percentage equal to
the ratio of (i) the Company's Funds From Operations (as defined
herein) per the Weighted Average Shares Outstanding (as defined
herein) during the immediately preceding calendar year to (ii) the
Company's Funds From Operations per the Weighted Average Shares
Outstanding during the second preceding calendar year; provided,
however, that the Performance Component payable for the calendar year
immediately following the first calendar year for which the Growth
Component equals $2,000,000, shall be an amount equal to the sum of
the Performance Component for the immediately preceding calendar year
and $2,000,000, as such sum is increased or decreased, as the case may
be, by a percentage equal to the ratio of (i) the Company's Funds From
Operations per the Weighted Average Shares Outstanding during the
immediately preceding calendar year to (ii) the Company's Funds From
Operations per the Weighted Average Shares Outstanding during the
second preceding calendar year; and further provided that the
Performance Component for calendar year 1998 shall not exceed
$550,000.
(b) The Growth Component for calendar year 1997 shall be an
amount equal to $500,000. The Growth Component for each calendar year
thereafter, shall be computed as follows:
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(A) if the Growth Component for the immediately preceding
calendar year was less than $2,000,000, then the Growth Component
for such calendar year shall be an amount equal to the Growth
Component payable for the immediately preceding calendar year,
increased or decreased, as the case may be, by a percentage equal
to the ratio of (i) the amount of the Company's Market
Capitalization (as defined herein) for the immediately preceding
calendar year to (ii) the amount of the Company's Market
Capitalization for the second preceding calendar year; provided,
however, that the Growth Component shall in no event exceed
$2,000,000;
(B) if the Growth Component for the immediately preceding
calendar year was equal to $2,000,000, then the Growth Component
for such calendar year and for each subsequent calendar year
shall be $0.
Section 4.3 For purposes of this Agreement, "FUNDS FROM OPERATIONS"
for a particular year shall mean the Company's net income before extraordinary
items and cumulative effect of accounting changes (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization on real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect Funds From Operations on the same basis. Funds From
Operations is not intended to be an alternative to net income, nor is it
intended to be used as a measure of cash flows or dividend paying capacity. In
addition, Funds From Operations does not reflect the effects of extraordinary
and non-recurring items. In the event that the Company adopts an alternative
method of calculating Funds From Operations, the alternative method adopted by
the Company shall automatically become the method of calculating Funds From
Operations for purposes of this Agreement; provided, however, that any
alternative method of calculating Funds From Operations must be a accepted
within the real estate investment trust industry. In the event that the Company
adopts an alternative method of calculating Funds From Operations, the Company
shall, within ninety (90) days of such adoption, provide written notice
describing such alternative method to each of the Operating Partnership and the
Advisor. Notwithstanding anything herein to the contrary, in determining any
change in the amount of the Advisory Fee to be paid hereunder, the same method
used by the Company in calculating Funds From Operations shall be used for
calculating Funds From Operations for each of the prior and current years.
Section 4.4 For purposes of this Agreement, "MARKET CAPITALIZATION"
for a particular year shall mean (a) the sum of (i) the number of the Company's
equity securities outstanding at the end of such year and (ii) the number of
units of ownership interest in the Operating Partnership not owned by the
Company at the end of such year multiplied by (b) the average trading price of
the Company's equity securities during the fourth calendar quarter of such
year; provided, however, that until such time as the Company's equity
securities are registered with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "SECURITIES ACT"), the average
trading price of the Company's equity securities during the fourth calendar
quarter of any year shall be deemed to be $10.00 and, in the case of any other
class
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of equity securities of the Company not registered pursuant to the Securities
Act, the average trading price of such securities shall be deemed to be equal
to their aggregate book value per share as set forth on the Company's financial
statements. In the event that the Company becomes a subsidiary of another
entity, "Market Capitalization" shall be determined in the same manner, except
that the equity securities and average trading price used to calculate Market
Capitalization shall be those of the parent entity, and the number of equity
securities of the Company not owned by such parent entity and the number of
units of ownership interest in the Operating Partnership not owned by the
Company shall be included in the number of equity securities for the
calculation. If such equity securities are not registered pursuant to the
Securities Act, the average trading price of such securities shall be the
reasonably determined fair market value of such securities at the end of the
applicable year.
Section 4.5 For purposes of this Agreement, Funds From Operations for
the calendar year 1996 shall be $13,608,000 which is the pro forma Funds From
Operations for 1996 set forth in the Selected Financial Information of that
certain private placement memorandum dated May 9, 1997 pursuant to which up to
5,000,000 shares of the Company's common stock, par value $.01 per share, are
being offered and sold to certain accredited investors (the "OFFERING"). Also
for purposes of this Agreement, Market Capitalization for the calendar year
1996 will equal the product of (a) the number of the Company's equity
securities outstanding on December 31, 1996, on a fully diluted basis giving
effect to the Offering, and (b) $10 per share.
Section 4.6 For purposes of this Agreement, (a) the "FFO FACTOR" for
any calendar year shall equal 3% of the amount by which the Company's Funds
From Operations per Weighted Average Shares Outstanding during such calendar
year exceeds 105% of the highest level of Funds From Operations per Weighted
Average Shares Outstanding of the Company attained during any previous calendar
year, and (b) "WEIGHTED AVERAGE SHARES OUTSTANDING" for any calendar year shall
mean the weighted average number of shares of the Company's equity securities
outstanding (assuming the full conversion of all units of ownership interest in
the Operating Partnership not owned by IPT) during such calendar year. In all
instances in which this Agreement provides for a per share comparison based on
a per Weighted Average Shares Outstanding basis, the Weighted Average Shares
Outstanding for any comparison year(s) shall be adjusted to give effect to any
subsequent change in Weighted Average Shares Outstanding resulting from any
stock split, stock dividend or other similar adjustment of the number of shares
of the equity securities of the Company and/or IPLP outstanding.
Section 4.7 In addition to the Base Advisory Fee, the Operating
Partnership shall pay to the Advisor an annual incentive fee (the "INCENTIVE
FEE") on January 31 of each year (commencing January 31, 1998) equal to the
amount (expressed in dollars) obtained by multiplying the FFO Factor for the
immediately preceding calendar year by the Weighted Average Shares Outstanding
for the immediately preceeding calendar year.
Section 4.8 The Company and the Operating Partnership acknowledge that
the Advisor is receiving, as of the date hereof, asset management fees from
certain Controlled Partnerships, which fees are calculated based on a
percentage of the value of the assets managed. If the
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Company or the Operating Partnership takes any action which causes the Advisor
not to receive such fees, the Base Advisory Fee hereunder shall be increased by
the amount of such lost fees; provided, however, that if the Advisor does not
receive such fees as a result of the sale of the underlying assets, the Base
Advisory Fee hereunder shall not be increased by the amount of such lost fees.
ARTICLE V
COMPENSATION FOR CERTAIN ACQUISITIONS
SERVICES AND ADDITIONAL SERVICES
Section 5.1 The parties hereto acknowledge that the Company and the
Operating Partnership cannot at present economically justify maintaining an
internal staff to provide acquisition and disposition services. As a result,
the Company and the Operating Partnership may utilize the Advisor's personnel
to provide services with respect to acquisitions and dispositions. The parties
hereto further acknowledge that although the Advisor's employees may spend a
substantial amount of time identifying and evaluating opportunities on behalf
of the Company and the Operating Partnership, such activities may not result in
any acquisitions or dispositions. Accordingly, until such time as the Company
and the Operating Partnership inform the Advisor in writing (which written
notice has been approved by a majority of the members of the Board of Trustees
of the Company) that they wish to perform acquisition and disposition functions
internally, the Operating Partnership shall pay the Advisor the following:
(a) as a nonaccountable cost reimbursement for cash tender offers
or similar securities acquisitions of equity interests in any Business Entity
for cash (or debt securities secured by equity interests in any Business
Entity), including but not limited to management of secondary market purchases
and negotiated purchases, an amount equal to two and one-half percent (2.5%) of
the aggregate purchase price of such equity interests (or debt securities
secured by such equity interests);
(b) as a nonaccountable cost reimbursement for whole asset
acquisitions (including asset acquisitions through partially or wholly owned
subsidiaries or Affiliates of the Company or the Operating Partnership), an
amount equal to three-quarters of one percent (.75%) of the aggregate purchase
price (which for purposes hereof shall include any debt assumed in connection
with such purchase, together with any debt to which the purchased asset is
subject) of the asset acquired, (or, in the case of whole asset purchases made
through joint ventures, partnerships or other entities, three-quarters of one
percent (.75%) of the purchase price for that portion of the asset that is
attributable to the Company or the Operating Partnership);
(c) as an actual cost reimbursement for all asset acquisitions,
mergers and other business combinations other than the acquisitions
specifically described in (a) and (b) above, all expenses incurred by the
Advisor and its Affiliates in connection with such asset acquisitions, mergers
and business combinations; and
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(d) as an actual cost reimbursement for dispositions of any
assets, all expenses incurred by the Advisor and its Affiliates in connection
with the disposition of the asset (including employee expenses and commissions)
not to exceed one percent (1%) of the sale price of the asset transferred.
In addition to, but not in limitation of the foregoing, with respect to any
asset acquisition described in (a) and (b) above, the Advisor shall also be
reimbursed for all out-of-pocket third-party expenses incurred by the Advisor
and its Affiliates in connection with such acquisition if such acquisition is
consummated or if the Advisor receives notice from the Company or the Operating
Partnership that the Company or the Operating Partnership, as the case may be,
wishes to pursue the acquisition of the asset identified by the Advisor;
provided, however, that with respect to any due diligence assistance provided
by a property management Affiliate of the Advisor in connection with a
potential Property acquisition, if it is contemplated that such property
management Affiliate will be retained to provide property management services
to the acquired Property if the acquisition thereof is consummated, such
Affiliate shall be reimbursed only for all third-party expenses incurred by the
Advisor and its Affiliates in connection with the performance of such services.
Neither the foregoing provisions of this Section 5.1 nor any other provision of
this Agreement shall be construed to entitle the Advisor or its Affiliates to
be reimbursed more than once for the same expense.
Section 5.2 If, and to the extent that, the Board of Trustees shall
request the Advisor to render services on behalf of the Company or the
Operating Partnership other than those required to be rendered by the Advisor
in accordance with the terms of this Agreement, such additional services shall
be compensated separately on terms to be agreed upon between the Advisor and
the Company or the Operating Partnership, from time to time.
Section 5.3 The Advisor or its Affiliates shall be entitled to
reimbursements, transfer fees and other fees or reimbursements from the
Controlled Partnerships for services rendered pursuant to Section 1.1(l) hereof
directly from each applicable Controlled Partnership in accordance with such
Controlled Partnership's partnership agreement and in accordance with recent
past practices of the Advisor.
ARTICLE VI
EXPENSES OF THE ADVISOR
Section 6.1 In addition to the compensation received by the Advisor
from the Operating Partnership pursuant to this Agreement, the Operating
Partnership and the Company shall reimburse the Advisor, for all of the
Advisor's expenses incurred in connection with the performance of its duties
under this Agreement, including without limitation, the following expenses:
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(a) repayment of funds borrowed on behalf of the Company or the
Operating Partnership, including interest thereon and all other costs, fees and
expenses incurred in connection with such borrowing;
(b) taxes on income, if any, and taxes and assessments on real
property and all other taxes applicable to the Company or the Operating
Partnership and their investments and any penalties and interest incurred
thereon, to the extent, in each case, that such taxes, penalties and interest
are advanced by the Advisor;
(c) legal, auditing, accounting, underwriting, brokerage,
listing, reporting, registration, proxy solicitation, appraisal and other fees,
and printing, engraving and other fees, expenses and taxes incurred in
connection with the issuance, distribution, transfer, trading, registration and
stock exchange listing of the Company or Operating Partnership securities.
(d) fees and expenses paid to Trustees, consultants, managers,
third party local property managers or management firms, and other agents
employed by or on behalf of the Company or the Operating Partnership;
(e) expenses connected with the acquisition, disposition,
refinancing and ownership of real estate interests or other property, including
the costs of foreclosure, insurance premiums, legal services, property
appraisals (other than appraisals of real estate interests for property
acquired from or transferred to the Advisor or its Affiliates pertaining to
said transfer), brokerage and sales commissions to third parties, maintenance,
repair, improvement, leasing, and local management of property.
(f) insurance as required by the Board of Trustees (including
directors' and officers' liability insurance);
(g) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the Board
of Trustees to holders of securities of the Company or holders of interests in
the Operating Partnership;
(h) all legal, accounting and auditing fees and expenses
(internal and external) of the Company or the Operating Partnership, including
without limitation, all such fees and expenses incurred in connection with the
preparation of tax returns;
(i) all expenses connected with investor relations and financial
public relations, including retaining a public relations firm, printing and
shipping information, by any manner, regarding the Company or the Operating
Partnership and their respective businesses and all related travel and
entertainment expenses;
(j) all dues and expenses of trade associations (e.g., NAREIT) in
which the Company or the Operating Partnership is a member; and
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(k) all expenses 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 property held by the Company or the
Operating Partnership.
The Operating Partnership shall reimburse the Advisor for amounts
requested pursuant to the above within five (5) days of the receipt of the
request for reimbursement.
Section 6.2 The Advisor or an Affiliate thereof may elect, with the
approval of the Board of Trustees, to provide any or all of the services listed
in Section 6.1(c), (d), (e), (h) and (i) (or any other services performed by a
third party) to the Company and the Operating Partnership in lieu of those
services being provided by an outside third party or in conjunction with an
outside third party. When said services or a portion thereof are provided by
the Advisor and the Advisor is not otherwise compensated therefor pursuant to
Section 5.1 hereof, the Advisor will be compensated at reasonable rates and in
reasonable amounts to be agreed upon by the Board of Trustees and the Advisor.
ARTICLE VII
EXPENSES OF THE OPERATING PARTNERSHIP
Section 7.1 Except as expressly otherwise provided herein and in
addition to the reimbursement obligations to the Advisor set forth in Article
VI hereof, the Operating Partnership shall pay all expenses and obligations for
which the Advisor is not liable hereunder, and without limiting the generality
of the foregoing it is specifically agreed that the following expenses shall be
the obligation of the Operating Partnership and shall not be the obligation of
the Advisor:
(a) employment expenses of the personnel employed by the Advisor
in connection with the performance of the services provided hereunder,
including but not limited to salaries, wages, payroll taxes and the cost of
employee benefit plans;
(b) travel and other expenses of directors, officers and
employees of the Advisor, incurred in their capacities as officers, directors
or employees of the Advisor, but not as a result of specific property
management activities;
(c) allocable portions of rent, telephone, utilities, office
furniture, equipment and machinery (including computers, to the extent
utilized) expenses of the Advisor; and
(d) miscellaneous administrative expenses incurred in
supervising, monitoring and inspecting real property and other investments of
the Company or the Operating Partnership or relating to performance by the
Advisor of its obligations hereunder.
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ARTICLE VIII
LIMITS OF THE ADVISOR'S RESPONSIBILITIES
Section 8.1 The Advisor shall not be responsible for any action of the
Board of Trustees in following or declining to follow any advice or
recommendation of the Advisor. Neither the Advisor nor any of its Affiliates,
officers, directors, employees, agents or representatives will be liable to the
Company, its shareholders, the Operating Partnership, its partners, or others,
except by reason of acts constituting fraud or willful malfeasance in
connection with their respective responsibilities under this Agreement.
Section 8.2 The Operating Partnership shall reimburse, indemnify and
hold harmless the Advisor and its Affiliates and each of their respective
officers, directors, employees, agents and representatives for and from any and
all expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever in respect to or arising from any acts or omissions of the
Advisor undertaken in good faith and in accordance with the standards set forth
in the preceding sentence pursuant to the authority granted to it by this
Agreement. In the event that any action occurs which may give rise to a right
of indemnification under this section, following written request to the
Operating Partnership by the indemnified party, the Operating Partnership shall
promptly advance the indemnified party amounts to cover expenses incurred by
the indemnified party, including without limitation legal fees and expenses,
with respect to such action in advance of its final disposition upon receipt by
the Operating Partnership of (i) a written undertaking executed by or on behalf
of the indemnified party to repay the advance if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified by the
Operating Partnership under this section and (ii) satisfactory evidence as to
the amount of such expenses. The provisions of this Section 8.2 shall survive
the termination of this Agreement.
ARTICLE IX
NO JOINT VENTURE; OTHER ACTIVITIES OF THE ADVISOR
Section 9.1 The Company and the Advisor, the Operating Partnership and
the Advisor, and the Company, the Operating Partnership and the Advisor are not
partners or joint venturers with each other and nothing herein shall be
construed to make them partners or joint venturers or to impose any liability
as such on either of them.
Section 9.2 Nothing herein shall prevent the Advisor or its Affiliates
from engaging in other activities or businesses or from acting as manager or
advisor to any other person or entity even though such person or entity has
investment policies and objectives similar to those of the Company or the
Operating Partnership. The parties hereto acknowledge that the Advisor's
personnel utilized by the Company and the Operating Partnership may also be
used by the Advisor to perform services with respect to properties reserved for
the Advisor pursuant
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to Article XIV of this Agreement and properties in which the Company and the
Operating Partnership have declined to invest or to otherwise acquire.
Notwithstanding anything to the contrary contained in this Agreement, during
the term of this Agreement and for a period of five years following the
termination hereof (for any reason whatsoever), the Company and the Operating
Partnership shall not (a) perform property management services for any third
party or (b) directly or indirectly own any equity or debt securities of any
Business Entity that performs property management services for any third party.
In the event of any breach of this Section 9.2, the Advisor shall, in addition
to any other available remedies, be entitled to an injunction enjoining the
Company and the Operating Partnership or any person or persons acting for or
with the Company and/or the Operating Partnership in any capacity whatsoever
from violating any of the terms of this Agreement.
Section 9.3 Directors, officers, employees and agents of the Advisor
or its Affiliates may serve as directors, officers, employees, agents, nominees
or signatories of the Company and the Operating Partnership. When executing
documents or otherwise acting in such capacities for the Company or the
Operating Partnership, such persons shall use their respective titles in the
Company or the Operating Partnership.
ARTICLE X
TERM, TERMINATION AND TERMINATION FEE
Section 10.1 Unless earlier terminated pursuant to the terms of this
Section XIV, this Agreement shall continue in force until December 31, 1998 and
shall be renewed automatically for successive one (1) year terms, unless
terminated at the end of any such one year term by a written instrument signed
by the Company and the Operating Partnership, or any of their respective
successors, transferees or assigns. Notwithstanding anything herein to the
contrary, the Advisor may terminate this Agreement by delivering written notice
of such termination not less than ninety (90) days prior to the effective date
of such termination.
Section 10.2 This Agreement shall be terminable by the Company, the
Operating Partnership or any of their respective successors, transferees or
assigns upon the occurrence of any event that constitutes Cause, as hereinafter
defined. For purposes of the preceding sentence, Cause shall mean the entry of
a final, nonappealable judgment by the highest court having proper jurisdiction
over such matter determining that the Advisor has committed fraud or willful
malfeasance with respect to the Company and/or the Operating Partnership.
Section 10.3 In the event (a) the Advisor or its direct or indirect
parent(s) files a petition for relief under the United States Bankruptcy Code
(the "BANKRUPTCY CODE"), (b) an order for relief is entered against the
Advisor, or its direct or indirect parent(s) in an involuntary case under the
Bankruptcy Code, (c) the Advisor makes an assignment for the benefit of its
creditors, (d) any court orders or approves the appointment of a receiver or
custodian for the Advisor or its direct or indirect parent(s) or a substantial
portion of any of their assets, or (e) the Advisor
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or its direct or indirect parent(s) voluntarily or involuntarily dissolves and
is not subsequently reconstituted and, as a result thereof, it is, in the
reasonable discretion of the Company and the Operating Partnership or any of
their respective successors, transferees or assigns, necessary for the general
partners of the Operating Partnership and the Board of Trustees of the Company,
in the exercise of their respective fiduciary duties, to transfer custody,
control or discretion of funds from the Advisor to a third party, the Operating
Partnership and the Company or any of their respective successors, transferees
or assigns may make such transfer and deduct from the Base Advisory Fee payable
to the Advisor the reasonable fees and expenses associated with such third
party custody, control or discretion arrangement. In the event that the
Operating Partnership and the Company make such transfer in accordance with
this Section 10.3, this Agreement will be terminable at the discretion of the
Operating Partnership and the Company or any of their respective successors,
transferees or assigns. The Advisor agrees that, if any of the events specified
in (a) through (e) above shall occur, it will give written notice thereof to
the Board of Trustees within seven (7) days following the occurrence of such
event.
Section 10.4 Notwithstanding the foregoing, this Agreement shall
terminate upon the latest to occur of: (a) the sale or other transfer of the
last piece of real property (and/or loan secured by real property) held by the
Company (including any successor of the Company by merger) or the limited
partnerships in which the Company or the Operating Partnership hold partnership
interests, (b) the sale or other transfer of the last partnership interest held
by the Company or the Operating Partnership, which partnership owns real
property or loans secured by real property, (c) the sale or transfer of the
last ownership interest in a real estate investment trust held by the Company
or the Operating Partnership and (d) the sale or transfer of any other asset
held by the Company or the Operating Partnership.
Section 10.5 (a) If the Agreement is terminated other than by the
Advisor, as one of the conditions to the effectiveness of such termination, the
Operating Partnership shall pay the Advisor (i) the fee calculated in
accordance with this Section 10.5 (the "TERMINATION FEE"), and (ii) if
applicable, all sums due in connection with an exercise of the Put Right
pursuant to Section 10.6. For purposes of this section, this Agreement shall be
deemed to be terminated by the Advisor if the Advisor fails to renew or extend
this Agreement within thirty days after being offered an agreement with terms
identical to the terms set forth herein.
(b) Within seven (7) days following the effective date of the
termination of this Agreement, the Advisor shall select any three of the
fifteen largest national investment banks in the United States as measured by
the size of equity underwritings during the previous full calendar year. The
Trustee or Trustees of the Company who are not also officers or directors of
the Advisor or, if the foregoing is not applicable, all of the Trustees of the
Company shall select, within three (3) days following the selection by the
Advisor, one of the three investment banks selected (the "BANK"). Within thirty
(30) days following the effective date of the termination of this Agreement,
the Bank will determine (i) the value to the Company (including its ultimate
shareholders) and the Operating Partnership arising from the termination of
this Agreement and (ii) the decrease in the market value of the Advisor
(including its ultimate shareholders) arising from termination of this
Agreement. The amount equal to the greater of
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(i) and (ii) above shall constitute the Termination Fee. The Operating
Partnership shall pay the Advisor the Termination Fee in cash promptly
following the Bank's determination of the Termination Fee. The Operating
Partnership shall also bear the cost of the Bank's services.
(c) No termination of this Agreement shall be effective and the
Agreement shall remain in full force and effect unless and until (i) the
Operating Partnership shall pay the Advisor the Termination Fee, (ii) the
Company and the Operating Partnership shall release the Advisor from all
liability, obligations, claims, expenses and losses of any nature resulting
from or arising out of this Agreement and the Advisor's relationship with the
Company and the Operating Partnership and (iii) the Advisor shall receive
evidence that both the Company and the Operating Partnership have ceased to use
the "Insignia" name and have filed indicia of such name changes in the
appropriate jurisdictions. Notwithstanding the foregoing, the Advisor may waive
the condition to termination set forth in (iii) above.
Section 10.6 If this Agreement is terminated other than by the
Advisor, each of the Advisor, its Affiliates (other than the Company and the
Operating Partnership) and MAE (each a "PUT HOLDER") shall have the right (the
"PUT RIGHT") to demand an appraisal of (a) any limited partner interests or
general partner interests in the Operating Partnership (collectively, the
"PARTNERSHIP UNITS") held by the Put Holder and (b) any shares of capital stock
of the Company (collectively, the "SHARES") held by the Put Holder and to
require the Operating Partnership (in the case of Partnership Units) and the
Company (in the case of Shares) to redeem all or a portion of such Partnership
Units and/or Shares at any time subsequent to such termination of this
Agreement at a cash redemption price to be determined in accordance with this
Section 10.6 (the "REDEMPTION PRICE"). The Bank (selected pursuant to the
procedure set forth in Section 10.5(b) hereof) will determine the Redemption
Price for the Partnership Units. The Redemption Price for Partnership Units
shall be equal to the aggregate value of the Partnership Units held by the Put
Holder determined by the Bank as the greatest of (a) the value based on the
Operating Partnership continuing operations, (b) the value upon a sale of the
entire Operating Partnership as a going concern or (c) the value upon the
liquidation of the Operating Partnership, in each case determined as of the
date of the written demand for appraisal and redemption. The Redemption Price
for Shares shall be equal to the aggregate fair market value (as defined
herein) of the Shares. If, upon receiving the appraisal from the Bank, the Put
Holder decides to exercise its Put Right, the Operating Partnership (in the
case of Partnership Units) and the Company (in the case of Shares) shall then
pay to the Put Holder an amount in cash equal to the Redemption Price or a pro
rata portion thereof adjusted to reflect the number of Partnership Units and/or
Shares that the Put Holder elects to redeem. The Put Right shall remain in
effect and shall not expire until the earlier to occur of the following: (i)
the Put Holder has otherwise disposed of all Partnership Units and all Shares
which it holds or (ii) the Advisor has been reappointed as the advisor pursuant
to a newly negotiated advisory agreement on such terms that are satisfactory to
the Advisor. In addition, the Operating Partnership shall bear the cost of the
Bank's services.
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ARTICLE XI
ASSIGNMENT
Section 11.1 This Agreement shall not be assignable by the Company
without the prior written consent of the Advisor, except in the case of any
assignment by the Company to a corporation or other organization which is the
successor to the Company whether by merger or as purchaser of all or
substantially all of the assets of the Company, in which case such successor
shall be bound hereby and by the terms of said assignment in the same manner
and to the same extent as the Company is bound hereby.
Section 11.2 This Agreement shall not be assignable by the Operating
Partnership without the prior written consent of the Advisor, except in the
case of any assignment by the Operating Partnership to a corporation or other
organization which is the successor to the Operating Partnership, in which case
such successor shall be bound hereby and by the terms of said assignment in the
same manner and to the same extent as the Operating Partnership is bound
hereby.
Section 11.3 This Agreement shall not be assignable by the Advisor
except to an Affiliate of the Advisor or a successor by merger of the Advisor
or an Affiliate of the Advisor, unless each of the Company and the Operating
Partnership has given its prior consent, in writing, which consent shall not be
unreasonably withheld or delayed. In the event that the Company and the
Operating Partnership consent to an assignment, such assignment shall bind the
assignee in the same manner and to the same extent as the Advisor is bound
hereby; provided, however, that in the event of such an assignment, the Advisor
shall remain liable for any breach of this Agreement or other action giving
rise to liability hereunder which occurs prior to the time of such assignment.
In furtherance and not in limitation of the foregoing, any purchaser of the
Company and the Operating Partnership (whether by merger, stock purchase or
purchase of all or substantially all of the assets of the Company or the
Operating Partnership) must agree in writing to be bound by the terms of this
Agreement.
ARTICLE XII
ACTION UPON TERMINATION
Section 12.1 Upon the termination of this Agreement, in addition to
the Termination Fee, the Advisor shall be entitled to (a) all compensation due
for services performed hereunder prior to the termination date and (b) all
usual and customary severance costs, including without limitation costs of
vacated leased premises until the termination of such lease, equipment leases
and the undepreciated cost of fixed assets.
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Section 12.2 For purposes of this Agreement, the termination date
shall be deemed to be the last day of the Company's then current fiscal year
for purposes of payment. Upon such termination, the Advisor shall promptly:
(a) pay over to the Company or the Operating Partnership all
monies collected and held for the account of the Company or the Operating
Partnership by it pursuant to this Agreement, after deducting therefrom any
accrued compensation and reimbursements for its expenses to which it is then
entitled;
(b) deliver to the Board of Trustees a full and complete
accounting, including a statement showing all sums collected by it and a
statement of all sums held by it for the period commencing with the date
following the date of its last accounting to the Board of Trustees; and
(c) deliver to the Board of Trustees all property and documents
of the Company then in its custody or possession.
ARTICLE XIII
PROCEDURES; STANDARDS
Section 13.1 The Advisor hereby agrees to assign that number of
employees of the Advisor that the Advisor, in its sole discretion, deems
necessary, sufficient and appropriate for the Advisor to perform its services
to the Company and the Operating Partnership under this Agreement. The Company
and the Operating Partnership hereby agree to permit the Advisor and its
Affiliates unlimited access to and unrestricted use of any and all lists of any
individuals (including all information pertaining to such individuals) who
currently reside or who hereafter reside at any of the Properties owned by any
of the limited partnerships in which the Company and/or the Operating
Partnership hold an interest, directly or indirectly. The immediately preceding
sentence shall survive any termination of this Agreement.
Section 13.2 With respect to Properties now owned or hereafter
acquired (in either case, directly or indirectly) by the Company, the Operating
Partnership or the Controlled Partnerships, for which Properties the Advisor or
an Affiliate thereof performed property management services prior to the
acquisition thereof, the Company, the Operating Partnership or the Controlled
Partnerships, as the case may be, shall enter into a property management
agreement with the Advisor or an Affiliate of the Advisor on the same terms as
property management services were provided by the Advisor or its Affiliate with
respect to the Properties prior to the acquisition. With respect to the
Properties hereafter acquired (directly or indirectly) by the Company, the
Operating Partnership or the Controlled Partnerships from parties unaffiliated
with the Advisor, for which Properties the Advisor or an Affiliate thereof did
not provide property management services prior to the acquisition thereof by
the Company, the Operating Partnership or the Controlled Partnerships, as the
case may be, will enter into a property management agreement
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for the Properties with the Advisor or its Affiliates, as property manager, on
terms that are comparable to those employed by major, full service real estate
management companies.
Section 13.3 The following defined terms used in this Article XIII
shall have the meanings specified below:
(a) "ADJUSTED DESIGNATED FEES" shall mean the Designated Fees at
the end of any calendar quarter multiplied by the Adjustment Factor.
(b) "ADJUSTMENT FACTOR" shall mean a fraction, the numerator of
which is the aggregate amount of property management fees earned and received
by the Advisor or its Affiliates during any applicable twelve month period
pursuant to Designated Property Management Agreements in effect throughout such
twelve month period and the denominator of which is the sum of the Designated
Fees applicable to the same Designated Property Management Agreements.
(c) "ANNUAL MANAGEMENT FEES" shall mean, with respect to any
twelve month period, the gross aggregate property management fees paid to the
Advisor and/or its Affiliates pursuant to the property management agreements
for all properties owned or controlled by the Company or the Operating
Partnership, including Designated Property Management Agreements.
(d) "BUY-SELL AGREEMENTS" shall mean the following agreements:
(i) Settlement Agreement dated as of June 17, 1995 by and among SPI
Acquisition, L.L.C., Insignia Financial Group, Inc., High River Limited
Partnership and Carl C. Icahn, (ii) Settlement Agreement dated as of June 17,
1995 by and among SPII Acquisition, L.L.C., Insignia Financial Group, Inc.,
High River Limited Partnership and Carl C. Icahn, (iii) Settlement Agreement
dated as of June 17, 1995 by and among SPIII Acquisition, L.L.C., Insignia
Financial Group, Inc., High River Limited Partnership and Carl C. Icahn, (iv)
Settlement Agreement dated as of June 17, 1995 by and among SPIV Acquisition,
L.L.C., Insignia Financial Group, Inc., High River Limited Partnership and Carl
C. Icahn, (v) Settlement Agreement dated as of June 17, 1995 by and among SPV
Acquisition, L.L.C., Insignia Financial Group, Inc., High River Limited
Partnership and Carl C. Icahn, (vi) Settlement Agreement dated as of June 17,
1995 by and among SPVI Acquisition, L.L.C., Insignia Financial Group, Inc.,
High River Limited Partnership and Carl C. Icahn, and (vii) that certain
Operating Agreement of DGP Acquisition, L.L.C. dated as of December 7, 1995 by
and among DGP Acquisition L.L.C., IB Holdings, Inc. and Riverdale Investors
Corp., Inc., as amended.
(e) "DESIGNATED FEES" shall mean the sum of the property
management fees paid or payable to the Advisor or its Affiliates with respect
to each property which becomes the subject of a Designated Property Management
Agreement during the twelve month period immediately prior to the management
agreement covering such property becoming a Designated Property Management
Agreement minus Excluded Management Fees. In the event the Advisor
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or its Affiliates managed any such property for less than the twelve months
required for this calculation, the amount during the actual period managed
shall be annualized.
(f) "DESIGNATED PROPERTY MANAGEMENT AGREEMENTS" shall mean
agreements pursuant to which the Advisor or its Affiliates elect to perform
property management services for the following properties, collectively:
(i) all multifamily residential properties directly or
indirectly owned or controlled by the Company and the Operating
Partnership as of the date of this Agreement;
(ii) all multifamily residential properties acquired by the
Company and/or the Operating Partnership, which properties were
managed by the Advisor or its Affiliates immediately prior to the
acquisition by the Company and/or the Operating Partnership;
(iii) all multifamily residential properties acquired by the
Company and/or the Operating Partnership from Business Entities
directly or indirectly controlled or owned by the Advisor, its
Affiliates or MAE;
(iv) all multifamily residential properties acquired by the
Company and/or the Operating Partnership in which the Advisor or its
Affiliates contributed funds for the purpose of acquiring property
management rights with respect to such properties; and
(v) all multifamily residential properties (a) indirectly
owned or controlled by the Company and/or the Operating Partnership
through the acquisition of the general partner interests or a majority
of the limited partner interests of limited partnerships controlled by
the Advisor, its Affiliates or MAE immediately prior to the
acquisition by the Company or the Operating Partnership or (b)
directly owned by the Company or the Operating Partnership
provided, however, that in the event that the holder of the buy-sell right
under any of the Buy-Sell Agreements exercises its right to purchase the
general partner interest of the limited partnerships to which the Buy-Sell
Agreements relate, and terminates the property management agreement between the
Advisor and such limited partnership, such property management agreement(s)
shall be excluded from the definition of Designated Property Management
Agreements in this Agreement, and the Advisor shall receive the portion of the
proceeds that exceeds the fair market value of the general partner interest in
distributions from capital transactions as a fee for the termination of the
Advisor's management rights under the property management agreement.
(g) "EXCLUDED MANAGEMENT FEES" shall mean the dollar amount of
any decrease in Annual Management Fees, for a given calendar year, resulting
from a continuous
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material breach of a Designated Property Management Agreement by the Advisor or
its Affiliates, as determined by a final nonappealable judgment of the highest
court having jurisdiction with respect to the subject matter thereof.
Section 13.4 If the amount of Annual Management Fees in the rolling
twelve month period ending at the end of any calendar quarter is less than 90%
the of Adjusted Designated Fees for the same twelve month period, (a
"TRIGGERING EVENT"), then the Operating Partnership shall pay to the Advisor a
fee (the "CONTRACT LOSS FEE") equal to the decrease in the market value of the
Advisor and its Affiliates arising or expected to arise by virtue of the Annual
Management Fees being less than the Adjusted Designated Fees; provided,
however, that the Contract Loss Fee shall not duplicate the payment of any
Contract Loss Fee resulting from a prior Triggering Event.
Section 13.5 The calculation of the Contract Loss Fee and the Excluded
Management Fees, if any, shall be made, within 30 days following the end of the
calendar quarter in which the Triggering Event occurs by the Bank selected in
the manner provided for in Section 10.5(b) hereof. The Operating Partnership
and the Company (or either of them) shall pay the Advisor the Contract Loss Fee
in cash no later than 45 days following the end of the calendar quarter in
which the Triggering Event occurs (the "FEE PAYMENT DATE"). The Operating
Partnership shall bear the cost of the Bank's services.
Section 13.6 Notwithstanding the foregoing, the Contract Loss Fee
provided for in this Article XIII shall not apply with respect to any
Triggering Event which occurs during any calendar quarter in which a majority
of the members of the Board of Trustees of the Company are employees of the
Advisor or its Affiliates.
ARTICLE XIV
AGREEMENT REGARDING CERTAIN REAL ESTATE INVESTMENTS
Section 14.1 Unless otherwise defined herein, terms defined in this
Agreement shall have the following meanings:
(a) "REAL ESTATE OPPORTUNITIES" shall include (i) any IPT
Opportunity and (ii) any Insignia Opportunity.
(b) "IPT OPPORTUNITY" shall mean (i) any investment in
multifamily residential property or properties located in the United States,
including without limitation, indebtedness secured by such multifamily
residential property or properties and any investment in a Business Entity
which owns such multi-family residential properties as a majority of its
assets, or (ii) any investment in the equity securities or debt securities of a
Business Entity that invests primarily in multifamily residential properties
located in the United States, including, without limitation, equity securities
and debt securities of Business Entities that are owned by the Operating
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Partnership at the time of an IPT Notice and which Business Entities are
controlled by the Company or an Affiliate of the Company, in case of either (i)
or (ii) above only if the investment is of a type that the Advisor would have
invested prior to the formation of the Company and the Operating Partnership,
it being understood and agreed that an IPT Opportunity shall, in no event,
include any investment or opportunity to invest (a) in which the Advisor or any
of Affiliates is acting as agent for a non-affiliated third party or (b) which
is deemed affordable (by a majority of its dwelling units) multifamily
residential property. Notwithstanding the foregoing, an IPT Opportunity shall
not mean (A) any investment in a multifamily residential property located in
the United States or any investment in the equity securities of a Business
Entity that invests primarily in multifamily residential properties located in
the United States if the Advisor or an Affiliate of the Advisor owns an
interest in such real property or Business Entity, as the case may be, as of
the date of this Agreement, or has acquired an interest in such real property
or Business Entity, as the case may be, in accordance with this Agreement, and
in either such case, the Company does not control the Business Entity that owns
such real property or (B) any investment which is not permitted in accordance
with Section 14.10 of this Agreement. In the event that the Advisor or an
Affiliate of the Advisor develops a multifamily residential property in the
United States, such development shall not be deemed an IPT Opportunity and as a
result, the Advisor shall have no obligations to the Company or the Operating
Partnership hereunder with respect to such property. The Advisor may, in its
sole discretion, provide the Company and the Operating Partnership notice of
such property development, and the Company and the Operating Partnership may,
if approved by a majority of the independent members of the Board of Trustees
of the Company, invest in or acquire the property being developed by the
Advisor or its Affiliate.
(c) "INSIGNIA OPPORTUNITY" shall mean any investment in (i)
equity securities or debt securities of a Business Entity that invests
primarily in any real property located in the United States other than
multifamily residential properties; (ii) equity securities or debt securities
of a Business Entity that invests primarily in multifamily residential
properties located in the United States which Business Entity is controlled by
the Advisor, an Affiliate thereof (other than the Company, the Operating
Partnership and their respective subsidiaries) or MAE, or (if the Company does
not control such Business Entity), the Advisor, an Affiliate thereof or MAE
serves as property manager of the Properties owned by such Business Entity; and
(iii) equity securities or debt securities of a Business Entity that performs
property management services regardless of the type of property for which such
services are performed. For example, if either the Company or the Operating
Partnership seeks to acquire general partner interests or other interests in a
Business Entity, which either controls or provides property management
services, the Company and the Operating Partnership shall be obligated to offer
to the Advisor the right to acquire the management rights associated with such
potential acquisitions. Notwithstanding the foregoing, Insignia Opportunity
shall not mean any investment in the equity securities or debt securities of a
Business Entity that invests primarily in multifamily residential properties
located in the United States if the Company and the Operating Partnership (or
either of them) or an Affiliate of the Company and the Operating Partnership
(or either of them) owns an equity or debt interest in such Business Entity, as
the case may be, as of the date of this Agreement or
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has acquired an equity or debt interest in such Business Entity in accordance
with this Agreement.
(d) "MULTIFAMILY RESIDENTIAL PROPERTIES" shall mean traditional
apartment rental properties and shall not include condominiums, cooperatives,
congregate care facilities or apartment rental properties where the landlord
provides material services in addition to those services traditionally provided
by landlords to apartment tenants. For purposes of this section, "CONTROL"
shall mean the ownership of a majority of the outstanding securities of a
Business Entity, ownership of the general partner interest of a limited
partnership, the power to elect a majority of the members of the board of
directors of a corporation, the board of trustees of a real estate investment
trust or the board of managers of a manager-managed limited liability company,
or the power to otherwise direct or cause the direction of the management or
policies of a Business Entity, including by contract.
Section 14.2 In the event that the Advisor receives a bona fide offer
("BF OFFER") of an IPT Opportunity and/or the Advisor intends to make a BF
Offer to acquire an IPT Opportunity, the Advisor shall provide the Company and
the Operating Partnership notice of the existence and description of the IPT
Opportunity in the manner set forth in Section 14.3 below. In such event, the
Company and the Operating Partnership (or either of them) shall have the
opportunity to acquire the IPT Opportunity upon the same or substantially
similar terms and conditions, if possible, and to the extent agreed to by the
seller, including, but not limited to, the purchase price, that such IPT
Opportunity was offered to or made by the Advisor.
Section 14.3 Within three (3) business days following the Advisor
making a BF Offer to acquire an IPT Opportunity, the Advisor shall deliver
written notice via telecopy or hand delivery (the "IPT NOTICE") to the Company
and the Operating Partnership of such offer to acquire an IPT Opportunity. The
IPT Notice will disclose the following in reasonable detail (to the extent
reasonably available): (a) a description of the IPT Opportunity (including, if
applicable, the location and other details relating to such real property and,
in the case of acquisitions of partnership interests or other equity
investments, the number of units or other equity interests offered for
purchase), (b) the identity of the prospective seller of the IPT Opportunity,
(c) the offering price of the IPT Opportunity and (d) any other material terms
and conditions associated with the proposed purchase, transfer or acquisition
of such IPT Opportunity. The right of the Operating Partnership and the Company
to acquire the IPT Opportunity (the "IPT ACQUISITION RIGHT") shall be available
to the Operating Partnership and/or the Company for a period of one (1)
business day following receipt by both the Operating Partnership and the
Company of the IPT Notice.
Section 14.4 Within three (3) business days of the Company and the
Operating Partnership receiving the IPT Notice, the Company and the Operating
Partnership shall notify the Advisor in writing of (a) their intent to exercise
the IPT Acquisition Right without the Advisor, or (b) their intent to exercise
the IPT Acquisition Right with the Advisor, or (c) their intent to decline to
exercise the IPT Acquisition Right or (d) their request for an additional 48
hours to determine whether to exercise the IPT Acquisition Right. If the
Company and the
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Operating Partnership give notice of their intent to acquire the IPT
Opportunity as set forth in this Section 14.2 hereof, the Advisor shall use
good faith efforts to facilitate the acquisition of the IPT Opportunity by the
Company and the Operating Partnership (or either of them), but shall not be
liable in the event the seller of such IPT Opportunity will not sell such IPT
Opportunity to the Company and the Operating Partnership (or either of them).
Upon the lapse of the period of the IPT Acquisition Right provided to the
Operating Partnership and the Company pursuant to this Section 14.4, the IPT
Acquisition Right shall terminate and the Advisor shall have the right to
purchase or otherwise acquire or retain, as the case may be, the IPT
Opportunity free and clear of any other obligations to the Operating
Partnership and the Company (or either of them).
Section 14.5 In addition, the Advisor shall have the right, but not
the obligation, to notify the Company and the Operating Partnership of an IPT
Opportunity prior to the time, if any, that the Advisor shall make a BF Offer
and to send an IPT Notice (as hereinafter defined) to the Company and the
Operating Partnership, which notice shall have the same force and effect as if
the Advisor had made a BF Offer.
Section 14.6 In the event that the Company and the Operating
Partnership (or either of them) acquires an IPT Opportunity offered to it
pursuant to Section 14.3 hereof, the Advisor shall not be entitled to any
compensation in consideration of the services provided to the Company and/or
the Operating Partnership hereunder except for: (a) payment of any fees and
expenses payable to the Advisor for services rendered pursuant to the Advisory
Agreement and (b) reimbursement for all fees and expenses, including without
limitation, all internal and/or third party fees and expenses, incurred by the
Advisor and its Affiliates, whether prior to or subsequent to giving of the IPT
Notice, in connection with the evaluation and/or negotiation of the IPT
Opportunity. The Advisor agrees to provide the Company and the Operating
Partnership with an estimate of all such reimbursable expenses and covenants to
provide the Company and the Operating Partnership an update of such estimate
promptly upon notice to the Advisor of any anticipated change in such estimate
which is 10% or more of the original estimate.
Section 14.7 In the event that either the Company and the Operating
Partnership (or both of them) makes or receives a BF Offer to acquire an
Insignia Opportunity, the Company and the Operating Partnership shall provide
the Advisor notice of the existence and description of the Insignia Opportunity
in the manner set forth in Section 14.8 below. The Company and the Operating
Partnership agree not to invest in or otherwise acquire such Insignia
Opportunity without the prior written consent of the Advisor.
Section 14.8 Within three (3) business days following the Company or
the Operating Partnership making or receiving a BF Offer to acquire an Insignia
Opportunity, the Company and the Operating Partnership shall deliver written
notice via telecopy or hand delivery (the "INSIGNIA NOTICE") to the Advisor of
such acquisition or offer to acquire an Insignia Opportunity. The Insignia
Notice will disclose the following in reasonable detail (to the extent
reasonably available): (a) a description of the Insignia Opportunity
(including, if applicable, the location
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and other details relating to such real property and, in the case of
acquisitions of partnership interests or other equity investments, the number
of units or other equity interests offered for purchase), (b) the identity of
the prospective seller of the Insignia Opportunity, (c) the offering price of
the Insignia Opportunity and (d) any other terms and conditions associated with
the proposed purchase, transfer or acquisition of such Insignia Opportunity.
Section 14.9 The Advisor's obligations hereunder with respect to IPT
Opportunities shall terminate upon the earliest to occur of (a) the termination
of this Agreement, (b) the incurrence by the Operating Partnership of an
obligation to pay a Contract Loss Fee pursuant to Section 13.5 hereof, (c) the
failure of the Company and the Operating Partnership (or either of them) to
permit the Advisor to acquire property management rights with respect to
properties owned or controlled by the Company and the Operating Partnership, or
(d) the cessation by Insignia Financial Group, Inc. or an Affiliate thereof
serving as the Advisor and/or performing property management services for all
or substantially all of the Properties directly or indirectly owned or
controlled by the Company, the Operating Partnership. The obligations of the
Company and the Operating Partnership hereunder with respect to Insignia
Opportunities shall terminate on the date five years following the termination
of this Agreement.
Section 14.10 In the event that the Board of Trustees of the Company
shall limit the size, geography or shall impose any other limitation or
restriction on any investment in a multifamily residential property or any
investment of general or limited partner interest in limited partnerships that
invest primarily in multifamily residential properties, the Company shall give
prompt notice to the Advisor of such restriction and/or limitation and an IPT
Opportunity shall be deemed to mean such investments in multifamily residential
properties or any investment of general or limited partner interest in limited
partnerships that invest primarily in multifamily residential properties as are
permitted by the Board of Trustees of the Company.
Section 14.11 In the event that either the Company and the Operating
Partnership (or either of them) purchases an interest in a Business Entity,
which interest (a) gives the Company and the Operating Partnership (or either
of them) control of the Business Entity and (b) includes the provision of
property management services as a component, the Company and the Operating
Partnership (or either of them) must offer the Advisor the right to acquire
such property management services component. If the Company and the Operating
Partnership (or either of them) are unable to so offer the Advisor such right,
neither the Company nor the Operating Partnership shall purchase the
controlling interest in the Business Entity.
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SECTION XV
MISCELLANEOUS
Section 15.1 Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
address to the parties hereto:
Board of Trustees and/or the Company and the Operating Partnership:
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attn: President
With a copy to:
General Counsel and Secretary
Advisor:
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attn: Chief Executive Officer
With a copy to:
General Counsel and Secretary
Either party hereto may at any time give notice to the other party in
writing of a change of its address for purposes of this Section 15.1.
Section 15.2 This Agreement shall not be amended, changed, modified,
terminated, or discharged in whole or in part except by an instrument in
writing signed by each of the parties hereto, or their respective successors or
assigns, or otherwise as provided herein.
Section 15.3 This Agreement shall be binding upon any successors or
assigns of the parties hereto as provided herein.
Section 15.4 The provisions of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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<PAGE>
Section 15.5 This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and such counterparts shall together
constitute one and the same agreement, binding upon each of the parties hereto,
notwithstanding each of the parties are not signatory to the original or the
same counterpart.
Section 15.6 The captions included herein have been inserted for ease
of reference only and shall not be construed to affect the meeting,
construction or effect of this Agreement.
Section 15.7 In case any one or more of the provisions contained in
this Agreement or in any instrument contemplated hereby, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
Section 15.8 This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes and
cancels any pre-existing agreements with respect to such subject matter.
Section 15.9 Capitalized terms not otherwise defined herein shall have
the respective meanings set forth in the Company's Declaration of Trust, as
amended.
Section 15.10 Upon the execution of this Agreement, the Prior
Agreement shall be deemed void and of no further force or effect.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first
above written.
INSIGNIA PROPERTIES TRUST
By:
------------------------------------
Title:
---------------------------------
INSIGNIA PROPERTIES, L.P.
By:
------------------------------------
Title:
---------------------------------
INSIGNIA FINANCIAL GROUP, INC.
By:
------------------------------------
Title:
---------------------------------
S-1
<PAGE>
Exhibit 10.5
INSIGNIA FINANCIAL GROUP, INC.
375 Park Avenue, Suite 3401
New York, New York 10152
February 17, 1998
Insignia Properties Trust/
Insignia Properties, L.P.
One Insignia Financial Plaza
Greenville, South Carolina 29602
Attn: President
Re: Second Amended and Restated Advisory Agreement dated as of
August 1, 1997
Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Advisory Agreement (the "Advisory Agreement") dated as of August 1, 1997 among
Insignia Properties Trust, a Maryland real estate investment trust ("IPT),
Insignia Properties, L.P., a Delaware limited partnership ("IPLP"), and
Insignia Financial Group, Inc., a Delaware corporation ("IFG"). Capitalized
terms used herein, but not otherwise defined, have the meanings assigned to
them in the Advisory Agreement.
Pursuant to Section 10 of the Advisory Agreement, each of IPT, IPLP
and IFG desire to terminate the Advisory Agreement in its entirety, retroactive
to January 1, 1998, without penalty to IPT, IPLP or IFG, including without
limitation any termination fee under Section 10.5 of the Advisory Agreement.
Notwithstanding the foregoing, the termination of the Advisory
Agreement shall not become effective until such time as (i) IPT, IPLP and IFG
shall have entered into that certain Acquisition and Disposition Services
Agreement, substantially in the form attached hereto as Exhibit A; (ii) IPT,
IPLP and IFG shall have entered into that certain Fourth Amended and Restated
Agreement of Limited Partnership of IPLP, substantially in the form attached
hereto as Exhibit B; and (iii) IPT shall have granted to certain key employees
of Insignia the number of restricted common shares of beneficial interest, par
vale $.01 per share, of IPT, pursuant to IPT's 1997 Share Incentive Plan, set
forth on Exhibit C hereto.
This letter agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this letter and all of
which, when taken together, will be deemed to constitute one and the same
instrument.
<PAGE>
If you are in agreement with the foregoing, please sign and return one
copy of this letter agreement, which thereupon will constitute our agreement
with respect to its subject matter.
Very truly yours,
INSIGNIA FINANCIAL GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Duly executed and agreed to on February 17, 1998
INSIGNIA PROPERTIES TRUST
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
INSIGNIA PROPERTIES, L.P.
By: Insignia Properties Trust,
Its General Partner
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE>
AGREEMENT REGARDING CERTAIN ASSETS
THIS AGREEMENT REGARDING CERTAIN ASSETS (this "AGREEMENT") is entered
into and dated as of July 18, 1997 (the "SIGNING DATE") between Angeles
Mortgage Investment Trust, an unincorporated California business trust
("AMIT"), and Insignia Financial Group, Inc., a Delaware corporation ("IFG").
AMIT and IFG are sometimes collectively referred to as the "PARTIES," and
individually referred to as a "PARTY."
RECITALS
A. Capitalized terms used in this Agreement, but not otherwise defined,
shall have the meanings set forth in that certain Agreement and Plan
of Merger dated as of the Signing Date among AMIT, Insignia Properties
Trust, IFG and MAE GP Corporation (the "MERGER AGREEMENT").
B. In furtherance of and in connection with the transactions contemplated
by the Merger Agreement, the Parties desire to provide for, among
other things, an arrangement pursuant to which IFG may purchase
certain assets of AMIT in order to assist AMIT in qualifying as a
diversified investment company within the meaning of Section
368(a)(2)(F)(ii) of the Code upon the consummation of such purchase (a
"DIVERSIFIED INVESTMENT COMPANY").
AGREEMENT
NOW, THEREFORE, for good, valid and binding consideration, the receipt
and sufficiency of which are hereby acknowledged, each Party, intending to be
legally bound, hereby agrees as follows:
ARTICLE 1.
PURCHASE OF CERTAIN ASSETS
Section 1.1 Purchase of Certain Assets. On the terms and subject to
the conditions contained in this Agreement, at the Closing (as defined below)
AMIT shall sell, assign, transfer and deliver to IFG, and IFG shall purchase,
receive and accept from AMIT, all right, title and interest (free of all liens
and encumbrances) in and to one or more whole loans, or senior participation
interest therein (to the extent permitted by the applicable loan agreement), to
be selected by IFG, to the extent necessary and in an amount sufficient to
qualify AMIT as a Diversified Investment Company (collectively, the "PURCHASE
ASSETS"); provided, however, that IFG shall have no obligation pursuant to this
Agreement to purchase from AMIT any Purchase Assets if the aggregate amount of
the Purchase Price (as defined below) of the assets which must be sold in order
to qualify AMIT as a Diversified Investment Company (a) is greater than
thirteen million dollars ($13,000,000) or (b) in connection with any other
assets transferred or otherwise disposed of after the Signing Date and not
reinvested in the ordinary course of AMIT's business, would violate, in the
opinion of IFG and its counsel, the "continuity of business enterprise"
requirement as defined in Treasury Regulation Section 1.368-1(d)(3).
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Section 1.2 Option to Purchase Certain Assets. To the extent that the
aggregate amount of the Purchase Price of the assets which must be sold in
order to qualify AMIT as a Diversified Investment Company is greater than
thirteen million dollars ($13,000,000), AMIT hereby grants to IFG an option to
purchase from AMIT all right, title and interest (free of all liens and
encumbrances) in and to one or more loans, or participation interest therein
(to the extent permitted by the applicable loan agreement), to be selected by
IFG, to the extent necessary and in an amount sufficient to qualify AMIT as a
Diversified Investment Company (such assets and the Purchase Assets are
sometimes collectively referred to as the "ASSETS").
Section 1.3 Purchase Price.
(a) Purchase Price. The purchase price for the Assets shall be an
amount equal to the fair market value of such Assets as of the Closing
Date (as defined below); provided, however, that in no event shall such
purchase price of any Asset be less than the net book value of such Asset
(the "PURCHASE PRICE").
(b) Payment of Purchase Price. The Purchase Price shall be payable by
IFG to AMIT on the Closing Date by wire transfer of immediately available
funds to a bank account which shall be specified by AMIT no later than
three (3) business days prior to the Closing Date.
Section 1.4 Closing. The consummation of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of GGFC&M,
1900 Avenue of the Stars, Suite 2100, Los Angeles, California, on the business
day immediately prior to the consummation of the transactions contemplated by
the Merger Agreement (the "CLOSING DATE").
Section 1.5 Identification of Assets. AMIT shall provide to IFG, not
later than thirty (30) days prior to the Closing Date, all documents necessary
for IFG to calculate the aggregate amount of the assets owned by AMIT which
must be sold in order to qualify AMIT as a Diversified Investment Company. IFG
shall deliver to AMIT, not later than fifteen (15) days prior to the Closing
Date, a written notice which specifically identifies the particular assets
which will constitute the Assets and sets forth the Purchase Price.
Section 1.6 Term. This Agreement shall terminate upon the earlier to
occur of the Closing or the termination of the Merger Agreement.
Notwithstanding any provision to the contrary except for Section 5.1 (if
applicable), no Party shall have any further obligation whatsoever pursuant to
or under this Agreement immediately upon the termination of the Merger
Agreement.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF AMIT
AMIT represents and warrants to IFG that the statements contained in
this Article 2 are correct and complete as of the Signing Date and will be
correct and complete as of the Closing Date.
2
<PAGE>
Section 2.1 Organization. AMIT is an unincorporated business trust
duly formed and validly existing under the laws of the State of California, and
has taken no action which would cause its dissolution.
Section 2.2 Authority Relative to Transactions. AMIT has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by AMIT of this
Agreement and the consummation by AMIT of the transactions contemplated hereby
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and legally binding obligation of AMIT, enforceable against
AMIT in accordance with its terms and conditions.
Section 2.3 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which AMIT is subject or any
provision of the charter or bylaws of AMIT or (ii) except for the Merger
Agreement, conflict with, result in a breach or the acceleration of, constitute
a default under, create in any Person the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which AMIT is a party or by which
it is bound or to which any of its assets is subject (or result in the
imposition of any lien upon any of its assets).
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF IFG
IFG represents and warrants to AMIT that the statements contained in
this Article 3 are correct and complete as of the Signing Date and will be
correct and complete as of the Closing Date.
Section 3.1 Organization. IFG is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Section 3.2 Authority Relative to Transactions. IFG has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by IFG of this
Agreement and the consummation by IFG of the transactions contemplated hereby
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and legally binding obligation of IFG, enforceable against
IFG in accordance with its terms and conditions.
Section 3.3 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which IFG is subject or any
provision of the charter or bylaws of IFG or (ii) conflict with, result in a
breach or the acceleration of, constitute a default under, create in any Person
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license,
3
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instrument or other arrangement to which IFG is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
lien upon any of its assets).
ARTICLE 4.
CONDITIONS PRECEDENT TO CLOSING
Section 4.1 Conditions to Obligations of IFG. The obligation of IFG to
consummate the transactions contemplated by this Agreement is subject to
satisfaction or waiver of each of the conditions set forth in this Section 4.1.
(a) Shareholder Approval. The Merger Agreement shall have received
the requisite approval from the shareholders of each of IPT and AMIT.
(b) Accuracy of Representations and Warranties. The representations
and warranties made by AMIT in this Agreement shall be true and correct as
of the Closing Date.
(c) Opinion of Counsel. IFG shall have received an opinion of AGSH&F
addressed to IFG dated as of the Closing Date, in form reasonably
satisfactory to IFG, that, after giving effect to the transactions
contemplated by this Agreement, based upon certificates and letters
acceptable to AGSH&F and subject to customary exceptions, assumptions and
qualifications, AMIT should qualify as a Diversified Investment Company.
(d) Consents. AMIT shall have obtained all consents and approvals
necessary to transfer the Assets free and clear of all liens and
encumbrances.
(e) Deliveries. AMIT shall have delivered to IFG:
(i) Such executed bills of sale, endorsements, assignments,
registrations and other instruments of transfer and conveyance, all
in form and substance reasonably satisfactory to counsel for IFG, as
shall be effective to vest in IFG all right, title and interest in
and to the Assets, free and clear of all liens and encumbrances;
(ii) A written acknowledgement from AMIT that, to the best of
its knowledge, the transfer of Assets as contemplated by this
Agreement shall be sufficient to qualify AMIT as a Diversified
Investment Company; and
(iii) Such other documents, instruments and certificates as IFG
may reasonably request for the transactions contemplated by this
Agreement.
Section 4.2 Conditions to Obligations of AMIT. The obligation of AMIT
to consummate the transactions contemplated by this Agreement is subject to
satisfaction or waiver of each of the conditions set forth in this Section 4.2.
(a) Shareholder Approval. The Merger Agreement shall have received
the requisite approval from the shareholders of each of IPT and AMIT.
4
<PAGE>
(b) Accuracy of Representations and Warranties. The representations
and warranties made by IFG in this Agreement shall be true and correct as
of the Closing Date.
(c) Opinion of Counsel. IFG shall have received the opinion specified
in Section 4.1(c).
(d) Deliveries. IFG shall have delivered to AMIT:
(i) The Purchase Price; and
(ii) Such other documents, instruments and certificates as AMIT
may reasonably request for the transactions contemplated by this
Agreement.
ARTICLE 5.
MISCELLANEOUS
Section 5.1 Remedy for Breach of Section 1.1. Assuming that (a) all
conditions to IFG's obligation to acquire the Purchase Assets have been
satisfied or waived by IFG and (b) AMIT is not then in default of any of its
obligations hereunder, then in the event IFG breaches or fails to perform in
all material respects its obligations set forth in Section 1.1 hereof, IFG will
not, and will cause MAE and its Affiliates (as such term is defined in the IFG
Confidentiality Agreement) (collectively, the "IFG Group") not to, directly or
indirectly, through representatives or otherwise, for the period ending 18
months from the Signing Date:
(a) own or acquire (whether by tender offer or otherwise) more than
9.8% (aggregating all holdings of the IFG Group for this purpose) of the
issued and outstanding shares of AMIT Class A;
(b) vote any of the shares of AMIT Class A or AMIT Class B in any
election of AMIT's board of trustees except in accordance with the vote of
the holders of a majority of the shares of AMIT Class A held by
shareholders who are not members of the IFG Group; or
(c) solicit proxies from, or present any proposals to, AMIT's
shareholders with respect to any matter which a majority of AMIT's board
of trustees have not approved in advance.
Section 5.2 Severability. If any provision of this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement and the
application of such provision to any other part or to any other circumstance
shall not be affected or impaired thereby.
Section 5.3 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Parties; provided, however, that this Agreement may
not be assigned by any Party without the prior written consent of the other
Party. Notwithstanding the immediately preceding sentence, IFG may assign this
Agreement to any controlled affiliate of IFG (other than IPT or IPLP) with the
prior written consent of AMIT, which consent shall not be unreasonably
withheld; provided,
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however, that IFG shall remain liable for the payment of the Purchase Price in
the event that any permitted assign of IFG fails to pay in full the Purchase
Price.
Section 5.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which when taken together shall constitute the same
instrument.
Section 5.5 Headings. The captions and headings used in this Agreement
are inserted for convenience only, and shall not be deemed to constitute part
of this Agreement or to affect the construction or interpretation hereof.
Section 5.6 Waiver. Any of the terms or conditions of this Agreement
may be waived in writing at any time by the Party which is entitled to the
benefits thereof. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of such provision at any time in the future or a
waiver of any other provision hereof.
Section 5.7 No Third-Party Beneficiaries. Nothing in this Agreement,
express or implied, shall create or confer upon any Person, other than the
Parties or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities.
Section 5.8 Notices. Except as otherwise provided herein, any notice,
request, instruction, consent or other document required or permitted to be
given pursuant to this Agreement shall be in writing and delivered personally,
by telecopy, by a nationally-recognized overnight courier service or by
registered or certified mail, postage prepaid, as follows:
If to AMIT:
Angeles Mortgage Investment Trust
340 North Westlake Blvd., Suite 230
Westlake Village, CA 91362
Attn: Mr. Ronald J. Consiglio
Phone number: 805-449-1333
Fax number: 805-449-1336
copy (which shall not constitute notice to AMIT) to:
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Attn: Jean Morris, Esq.
Fax number: 310-553-0687
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If to IFG:
Insignia Financial Group, Inc.
One Insignia Plaza
Greenville, SC 29602
Attn: Mr. Carroll Vinson
Phone number: 864-239-1000
Fax number: 864-239-1096; and
copy (which shall not constitute notice IFG) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201
Attn: Roger Arnold, Esq.
Fax number: 214-969-4343
or at such other address as shall be specified in writing by that Party. Any
notice, request, instruction, consent or other document delivered as provided
herein shall be deemed effectively given upon actual receipt by the Party (but
not necessarily the individual person) to be notified.
Section 5.9 Governing Law. This Agreement shall be construed in
accordance with and governed by the Laws of the State of California applicable
to agreements made and to be performed wholly within such jurisdiction.
Section 5.10 Interpretation.
(a) References. Except as specifically stated otherwise, references
to articles and sections refer to articles and sections in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, feminine and neuter gender.
(b) Drafting. No provision of this Agreement shall be interpreted in
favor of, or against, either of the Parties by reason of the extent to
which such Party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any
prior draft hereof or thereof.
Section 5.11 Public Announcements. Except and to the extent required
by law or the rules of any stock exchange, each Party will not, without the
prior written consent of the other Party, and each will direct their
representatives not to, make, directly or indirectly, any public comment,
statement, or communication with respect to, or otherwise to disclose or to
permit the disclosure of this transaction or any of the terms, conditions, or
other aspects of this Agreement. If any of the Parties is required by law or
the rules of any stock exchange to make any such disclosure, that Party must
first provide to the other Party for approval (which will not be unreasonable
withheld) the content of the proposed disclosure, the reason that such
disclosure is required by law, and the time and place that the disclosure will
be made.
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Section 5.12 Entire Agreement. The Agreement constitutes the sole
understanding of the Parties with respect to the matters contemplated hereby
and supersedes and renders null and void all prior agreements and
understandings, written and oral, between the Parties with respect to such
matters. None of the Parties shall be liable or bound to any other Person in
any manner by any promises, conditions, representations, warranties or
covenants except as specifically set forth herein.
Section 5.13 Amendment. No amendment, modification or alteration of
the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the Party against whom such amendment,
modification or alteration is sought to be enforced.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
executed by a duly authorized officer as of the Signing Date.
Angeles Mortgage Investment Trust ("AMIT")
By:
----------------------------------------
Ronald J. Consiglio
President
Insignia Financial Group, Inc. ("IFG")
By:
-----------------------------------------
Andrew L. Farkas
Chairman of the Board of Directors
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TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (this "AGREEMENT") dated as of July 18,
1997 (the "SIGNING DATE") is made in favor of record owners of beneficial
interests (collectively, the "SHAREHOLDERS") of Angeles Mortgage Investment
Trust, an unincorporated California business trust ("AMIT"), by Insignia
Properties Trust, a Maryland real estate investment trust ("IPT").
RECITALS
A. Capitalized terms used in this Agreement, but not otherwise
defined, shall have the meanings set forth in that certain
Agreement and Plan of Merger dated as of July 18, 1997 among AMIT,
IPT, Insignia Financial Group, Inc. and MAE GP Corporation (the
"MERGER AGREEMENT").
B. In furtherance of and in connection with the transactions contemplated
by the Merger Agreement, IPT desires to indemnify the Shareholders
against Damages as defined herein.
AGREEMENT
NOW, THEREFORE, for good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, IPT, intending to be legally
bound, hereby agrees as follows:
ARTICLE 1.
INDEMNIFICATION
Section 1.1 Indemnification. IPT agrees to indemnify and hold harmless
those Persons who are Shareholders as of the Effective Time (collectively, the
"INDEMNITEES," and individually, an "INDEMNITEE") from and against all actual,
direct and provable damages and losses arising from and directly related to the
recognition of taxable gain with respect to the Merger for Federal and state
income tax purposes ("DAMAGES") which recognition is due to a final and
non-appealable determination binding upon the Shareholder that the Merger is
treated as a taxable event with respect to the Indemnitee by virtue of either
(a) failure of the Merger to satisfy the "continuity of business" requirement
due to any action taken by IPT after the Effective Time, or (b) the fact AMIT
failed to qualify as "diversified" within the meaning of Section
368(a)(2)(F)(ii) of the Code; provided, however, that there shall be no
indemnification under clause (b) if any representation made by AMIT to AGSH&F
in connection with the preparation of its legal opinion related to its status
under Section 368(a)(2)(F)(ii) is inaccurate or determined to be inaccurate in
a final and non-appealable determination.
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Section 1.2 Limitation of Damages. With respect to each Indemnitee, the
Damages provided for pursuant to this Agreement (a) shall not exceed the amount
of gain to the Shareholder resulting from the Merger multiplied by the maximum
combined effective Federal and state income tax rate applicable to long or
short-term capital gain, as the case may be, plus any penalties assessed
against such Indemnitee that relate to the reporting position that the Merger
is not a taxable event; and (b) shall take into account any tax benefit
(including the time value of money) to the Indemnitee that has resulted or will
result from the increased basis arising from the recognition of gain on the
Merger.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF IPT
IPT represents and warrants that the statements contained in this Article
2 are correct and complete.
Section 2.1 Organization. IPT is a real estate investment trust (as
defined in Section 8-101(b) of the MCAA) duly organized, validly existing and
in good standing under the laws of the State of Maryland.
Section 2.2 Authority Relative to Transactions. IPT has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by IPT of this
Agreement and the consummation by IPT of the transactions contemplated hereby
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and legally binding obligation of IPT, enforceable against
IPT in accordance with its terms and conditions.
ARTICLE 3.
MISCELLANEOUS
Section 3.1 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement and the application of such
provision to any other part or to any other circumstance shall not be affected
or impaired thereby.
Section 3.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the successors of
the Indemnitees and IPT; provided, however, that this Agreement may not be
assigned by any person.
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Section 3.3 Headings. The captions and headings used in this Agreement are
inserted for convenience only, and shall not be deemed to constitute part of
this Agreement or to affect the construction or interpretation hereof.
Section 3.4 Waiver. Any of the terms or conditions of this Agreement may
be waived in writing at any time by the person which is entitled to the
benefits thereof. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of such provision at any time in the future or a
waiver of any other provision hereof.
Section 3.5 No Third-Party Beneficiaries. Nothing in this Agreement,
express or implied, shall create or confer upon any Person, other than the
Shareholders or their respective successors, any rights, remedies, obligations
or liabilities.
Section 3.6 Notices. Except as otherwise provided herein, any notice,
request, instruction, consent or other document required or permitted to be
given pursuant to this Agreement shall be in writing and delivered personally,
by telecopy, by a nationally-recognized overnight courier service or by
registered or certified mail, postage prepaid, as follows:
If to IPT:
Insignia Properties Trust
One Insignia Financial Plaza
Greenville, SC 29602
Attn: Mr. Carroll Vinson
Phone number: 864-239-1000
Fax number: 864-239-1096; and
copy (which shall not constitute notice IPT) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201
Attn: Roger Arnold, Esq.
Fax number: 214-969-4343
or at such other address as shall be specified in writing by that person. Any
notice, request, instruction, consent or other document delivered as provided
herein shall be deemed effectively given upon actual receipt by the Person (but
not necessarily the individual person) to be notified.
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<PAGE>
Section 3.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the Laws of the State of California applicable to
agreements made and to be performed wholly within such jurisdiction.
Section 3.8 Interpretation.
(a) References. Except as specifically stated otherwise, references
to articles and sections refer to articles and sections in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, feminine and neuter gender.
(b) Drafting. No provision of this Agreement shall be interpreted in
favor of, or against, any person by reason of the extent to which such
person or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior
draft hereof or thereof.
Section 3.9 Entire Agreement. This Agreement, together with any
contemporaneous agreements, constitute the sole understanding with respect to
the matters contemplated hereby and supersedes and renders null and void all
prior agreements and understandings, written and oral, with respect to such
matters. No person shall be liable or bound to any other person in any manner
by any promises, conditions, representations, warranties or covenants except as
specifically set forth herein.
Section 3.10 Amendment. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the person against whom such amendment,
modification or alteration is sought to be enforced.
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<PAGE>
IN WITNESS WHEREOF, IPT has caused this Agreement to executed as of the
Signing Date by a duly authorized officer.
Insignia Properties Trust ("IPT")
By:
----------------------------------
Jeffrey P. Cohen
Vice President
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 30th day of December, 1997, by
and among INSIGNIA PROPERTIES, L.P., a Delaware limited partnership, the
Lenders who are or may become a party to this Agreement (the "Lenders"), FIRST
UNION NATIONAL BANK, as Administrative Agent for the Lenders, and LEHMAN
COMMERCIAL PAPER INC., as Syndication Agent.
STATEMENT OF PURPOSE
The Borrower has requested and the Lenders have agreed to extend a
credit facility to the Borrower on the terms and conditions in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"Actual Knowledge" means information actually known to Andrew L.
Farkas, James A. Aston, Ronald Uretta, John K. Lines, Thomas R. Shuler, Carroll
Vinson, William Jarrard or Frank Garrison, or any other individual hereafter
holding the office of the Borrower currently held by such individuals, in each
case at the date of determination.
"Adjusted DCFO" means, as of any date of determination, an amount
equal to the aggregate of the Borrower's Pro Rata Portion of the DCFO of each
Real Estate Entity in which the Borrower owns an equity interest after giving
effect to any acquisition by the Borrower of an equity interest in such Real
Estate Entity during the quarterly period ending on the determination date,
plus all fee and other income received by the Borrower during such quarterly
period (excluding extraordinary items) less all fees and expenses paid by the
Borrower or IPT during such period not reimbursed.
"Adjusted Portfolio Equity" means, as of any date of determination and
with respect to each Real Estate Entity, an amount equal to the Pro Rata
Portion of the EFV of the real property owned by each Real Estate Entity whose
Leverage is less than sixty percent (60%) less an amount equal to the Pro Rata
Portion of the Debt of such Real Estate Entity.
<PAGE>
"Administrative Agent" means First Union in its capacity as
Administrative Agent hereunder, and any successor thereto appointed pursuant to
Section 11.9.
"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
12.1.
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary of such first Person) which directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such first Person or any of its Subsidiaries.
"Agents" means the collective reference to the Administrative Agent
and the Syndication Agent; "Agent" means either of such Persons.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be increased or reduced at any time
or from time to time pursuant to Section 2.5. On the Closing Date, the
Aggregate Commitment shall be Fifty Million Dollars ($50,000,000).
"Agreement" means this Credit Agreement, as amended, modified,
restated or supplemented from time to time.
"Applicable Law" means in respect of any Person all provisions of
constitutions, statutes, laws, rules, treaties, regulations and orders of all
Governmental Authorities and all orders and decrees of all courts and
arbitrators applicable to such Person.
"Applicable Margin" means as to the LIBOR Rate, 2.50% per annum.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 12.8.
"Base Rate" means, at any time, the higher of (a) the Prime Rate or
(b) the Federal Funds Rate plus 1/2 of 1%, as applicable; each change in the
Base Rate shall take effect simultaneously with the corresponding change or
changes in the Prime Rate or the Federal Funds Rate, as applicable.
"Base Rate Loan" means any Loan bearing interest at a rate based upon
the Base Rate as provided in Section 3.1(a).
"Borrower" means IPLP in its capacity as borrower hereunder.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day, other than a Saturday, Sunday or legal holiday, on
which banks in Greenville, South Carolina, Charlotte, North Carolina and New
York, New York are open for the conduct of their commercial banking business,
and (b) with respect to all notices and determinations in connection with, and
payments of principal and interest on, any LIBOR Rate Loan, any day that is a
Business Day described in clause (a) and that is also a day for trading by and
between banks in Dollar deposits in the London interbank market.
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"Capital Expenditures" means, with respect to any Person for any
period, the aggregate cost of all assets acquired by such Person during such
period which should, in accordance with GAAP, be classified as capital assets
on the balance sheet of such Person. "Capital Lease" means, with respect to the
Borrower and its Subsidiaries, any lease of any property that is, in accordance
with GAAP, classified and accounted for as a capital lease on a consolidated
balance sheet of the Borrower and its Subsidiaries.
"Closing Date" means December 30, 1997.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means, as to any Lender, the obligation of such Lender to
make Loans to the Borrower hereunder in an aggregate principal amount at any
time outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule 1, as the same may be reduced or modified at any time or from time
to time pursuant to Sections 2.5, 2.6 and 12.8.
"Commitment Percentage" means, as to any Lender at any time prior to
the Termination Date, the ratio (expressed as a percentage) of (a) the amount
of the Commitment of such Lender to (b) the Aggregate Commitment of all of the
Lenders, and on and after the Termination Date, the ratio of (c) the amount of
the Loans of such Lender to (d) the aggregate amount of all Loans then
outstanding.
"Contingent Obligation" means, with respect to the Borrower, without
duplication, any obligation, contingent or otherwise, of the Borrower pursuant
to which the Borrower has directly or indirectly guaranteed any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of the
Borrower (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by agreement to keep
well, to purchase assets, goods, securities or services or to take-or-pay) or
(b) entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided, that the term
Contingent Obligation shall not include (i) endorsements for collection or
deposit in the ordinary course of business, and (ii) for purposes of
determining compliance by IPT and the Borrower with Section 9.2, the
obligations set forth on Schedule 5.1(q) .
"Credit Facility" means the revolving credit facility established
pursuant to Article II.
"DCFO" means, as to any period of time, the aggregate NOI for such
period of each Real Estate Entity in which the Borrower owns an equity interest
less with respect to each Real Estate Entity for such period the sum of the
following:
(i) Cash Interest Expense, plus
(ii) All principal payments (other than in connection with
refinancings) on the Debt of such Real Estate Entity, plus
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(iii) An amount equal to the greater of (x) the capital
expenditures (exclusive of capital expenditures to restore
newly-acquired properties to their original condition in accordance
with a budget provided to the Agents within ninety (90) days after the
acquisition) less funded capital expenditures or (y) an amount equal
to $500 for each apartment unit and $.20 per square foot for each
commercial property owned by such Real Estate Entity.
"Debt" means, with respect to any Person at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all Debt for Money Borrowed, (b) all obligations to pay the deferred purchase
price of property or services of the Borrower, except trade payables arising in
the ordinary course of business not more than ninety (90) days past due, (c)
all Debt of any other Person secured by a Lien on any asset of such Person, (d)
all Contingent Obligations of the Borrower and (e) all net obligations incurred
by the Borrower pursuant to Hedging Agreements; provided that the obligations
of the Borrower to pay the purchase price in connection with investments and
acquisitions permitted hereunder shall not be included in Debt.
"Debt for Money Borrowed" means, with respect to any Person at any
date and without duplication, the sum of the following calculated in accordance
with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money
including, but not limited to, obligations evidenced by bonds, debentures,
notes or other similar instruments of the Borrower, (b) all obligations of such
Person as lessee under Capital Leases, and (c) all obligations, contingent or
otherwise, of any such Person relative to the face amount of letters of credit,
whether or not drawn, and banker's acceptances issued for the account of such
Person.
"Default" means any of the events specified in Section 10.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EFV" means the estimated fair value of the real property owned by any
Real Estate Entity as determined by the Borrower based on assumptions
consistent with those set forth in the December 31, 1996 valuation schedules
provided to the Agents and reasonably acceptable to the Agents.
"Eligible Assignee" means, with respect to any assignment of the
rights, interest and obligations of a Lender hereunder, a Person that is at the
time of such assignment (a) a commercial bank organized under, or which has a
branch or agency licensed under, the laws of the United States or any state
thereof, having combined capital and surplus in excess of $500,000,000, (b) a
finance company, insurance company or other financial institution which in the
ordinary course of business extends credit of the type extended hereunder and
that has total assets in excess of $500,000,000, (c) already a Lender hereunder
(whether as an original party to this Agreement or as the assignee of another
Lender), (d) the successor (whether by transfer of assets, merger or otherwise)
to all or substantially all of the commercial lending business of the assigning
Lender, (e) any Affiliate of the assigning Lender that is not a competitor of
the Borrower and is engaged in the business of making commercial loans in the
ordinary course of its business, or (f) any other Person that has been
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<PAGE>
approved in writing as an Eligible Assignee by the Agents and the Borrower,
which approval by Borrower shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, if a Lender proposes to assign its right,
interest and obligations hereunder to a Person that is at the time of such
assignment either (i) a competitor of the Borrower, or (ii) an Affiliate of a
competitor of the Borrower or a Person who is not engaged in the business of
making commercial loans in the ordinary course of its business, then it shall
be within the Borrower's sole discretion whether such Person is an Eligible
Assignee.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of the
Borrower or any ERISA Affiliate or (b) has at any time within the preceding six
years been maintained for the employees of the Borrower or any current or
former ERISA Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials. Environmental
Laws include, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et. seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 331 et. seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et. seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et. seq.), the Clean Air Act (42
U.S.C. ss. 7401 et. seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et. seq.), the Safe Drinking Water Act (42 U.S.C. ss. 300, et. seq.), the
Environmental Protection Agency's regulations relating to underground storage
tanks (40 C.F.R. Parts 280 and 281), and the Occupational Safety and Health Act
(29 U.S.C. ss. 651 et. seq.), analogous state statutes, and the rules and
regulations promulgated under the foregoing as such statutes are amended or
modified from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person which is, together with the
Borrower, treated as a single employer within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001(b) of ERISA.
"Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Administrative Agent and confirmed in
Federal Reserve Board Statistical Release H.15 (519) or any successor or
substitute publication selected by the Administrative Agent. If, for any
reason, such rate is not available, then "Federal Funds Rate" shall mean the
average of the quotations for the day for
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such transactions received by the Administrative Agent from three brokers of
national standing. Rates for weekends or holidays shall be the same as the rate
for the most immediate preceding Business Day.
"First Union" means First Union National Bank, a national banking
association, and its successors.
"Fiscal Quarter" means any quarter of any Fiscal Year.
"Fiscal Year" means any fiscal year of the Borrower ending on December
31.
"Funded Capital Expenditures" means, with respect to any Person for
any period, all Capital Expenditures during such period for which funds have
been set aside or reserved and which will not be paid from operating revenues
of such Person.
"Funded Debt" means all of the Borrower's Debt for Borrowed Money
(other than Subordinated Debt).
"GAAP" means generally accepted accounting principles, as recognized
by the American Institute of Certified Public Accountants or the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrower and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of the Borrower, provided,
however, that any accounting principle or practice required to be changed by
such American Institute of Certified Public Accounts or the Financial
Accounting Standards Board (or other appropriate board or committee of either)
in order to continue as a generally accepted accounting principal or practice
may be so changed.
"General Partner" means IPT in its capacity as general partner of the
Borrower.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all Governmental Authorities.
"Governmental Authority" means any nation, province, state or
political subdivision thereof, and any government or any Person exercising
executive, legislative, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty Agreement" means the reference to the Guaranty Agreement of
even date executed by IPT in favor of the Administrative Agent for the ratable
benefit of the Agents and the Lenders substantially in the form of Exhibit F,
as such agreement may be amended or supplemented.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of
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which require investigation or remediation under any Environmental Law, (d) the
discharge or emission or release of which requires a permit or license under
any Environmental Law or other Governmental Approval, (e) which are deemed by a
court of law or a Governmental Authority to constitute a nuisance, a trespass
or pose a health or safety hazard to persons or neighboring properties, (f)
which are materials consisting of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation,
petroleum hydrocarbons, petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection
with hedging the interest rate exposure of the Borrower under this Agreement,
and any confirming letter executed pursuant to such hedging agreement, all as
amended or modified.
"Insignia" means Insignia Financial Group, Inc., a Delaware
corporation.
"Interest Expense" means, with respect to the Borrower for any period,
the gross cash interest expense (including but without limitation interest
expense attributable to Capital Leases but excluding interest expense with
respect to Subordinated Debt) of the Borrower, all determined for such period
in accordance with GAAP.
"Interest Period" shall have the meaning assigned thereto in Section
3.1(b).
"IPLP" means Insignia Properties, L.P., a Delaware limited
partnership.
"IPLP Pledge Agreement" means the Pledge Agreement of even date
executed by IPLP in favor of the Administrative Agent for the ratable benefit
of the Agents and the Lenders substantially in the form of Exhibit G, as such
Pledge Agreement may be amended or supplemented, with the consent of the
Lenders.
"IPT" means Insignia Properties Trust, a Maryland real estate
investment trust.
"IPT Advisory Agreement" means the Second Amended and Restated
Advisory Agreement dated August 1, 1997 among the Borrower, IPT and Insignia.
"IPT Pledge Agreement" means the Pledge Agreement of even date
executed by IPT in favor of the Administrative Agent for the ratable benefit of
the Agents and the Lenders substantially in the form of Exhibit H, as such
Pledge Agreement may be amended or supplemented, with the consent of the
Lenders.
"Lehman" means Lehman Commercial Paper Inc., a Delaware corporation,
and its successors.
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"Lender" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that hereafter becomes a
party to this Agreement as a Lender pursuant to Section 12.8.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"Leverage" means, with respect to any Real Estate Entity, an amount
determined by dividing the Debt of such Real Estate Entity by the EFV of the
real property owned by such Real Estate Entity.
"LIBOR" means the rate for deposits in Dollars for a period equal to
the Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 a.m., London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate
is not available, then "LIBOR" shall mean the rate per annum at which, as
determined by First Union in its reasonable judgment, Dollars are being offered
to leading banks at approximately 11:00 a.m., London time, two (2) Business
Days prior to the commencement of the applicable Interest Period for settlement
in immediately available funds by leading banks in the London interbank market
for a period equal to the Interest Period selected and in an amount
approximately equal to the applicable Loan.
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to
the next higher 1/100th of 1%) determined by the Administrative Agent pursuant
to the following formula:
LIBOR
LIBOR Rate = -------------------------------------
1.00-LIBOR Reserve Percentage
"LIBOR Rate Loan" means any Loan bearing interest at a rate based upon
the LIBOR Rate as provided in Section 3.1(a).
"LIBOR Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) in respect of Eurocurrency Liabilities as
defined in Regulation D of the Board of Governors of the Federal Reserve
System.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Loan" means any revolving credit loan made to the Borrower pursuant
to Section 2.1, and all such Loans collectively as the context requires.
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"Loan Documents" means, collectively, this Agreement, the Revolving
Credit Notes, the Security Documents, and each other document, instrument and
agreement executed and delivered by the Borrower, its Subsidiaries or their
counsel in connection with this Agreement or otherwise referred to herein or
contemplated hereby, all as may be amended or supplemented from time to time.
"Material Adverse Effect" means, with respect to IPT or the Borrower,
a material adverse effect on the properties, business, operations or condition
(financial or otherwise) of IPT or the Borrower or the ability of IPT or the
Borrower to perform the payment or other material obligations under the Loan
Documents to which it is a party or which would materially impair the
enforceability of any of the Loan Documents against any Person party thereto,
other than the Agents or any of the Lenders or their Affiliates.
"Material Contract" means (a) any contract or other agreement, written
or oral, of the Borrower involving monetary liability of or to the Borrower in
an amount in excess of $1,000,000 per annum, or (b) any other contract or
agreement, written or oral, of the Borrower the failure to comply with which
could reasonably be expected to have a Material Adverse Effect.
"Maturity Date" shall have the meaning given thereto in Section 2.6.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors; provided that, if such corporation shall be
dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, then "Moody's" shall mean any other nationally
recognized securities rating agency reasonably acceptable to the Borrower which
is designated by the Required Lenders by notice to Administrative Agent and the
Borrower.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions within the
preceding six years.
"Net Operating Income" means, with respect to the Borrower for any
period, the net operating income (or loss) of the Borrower for such period
determined in accordance with GAAP.
"NOI" means for any period:
(a) With respect to any Real Estate Entity in which the
Borrower owned a limited partner or other equity interest prior to the
first day of the quarter ending on the date of such determination, the
Net Operating Income of such Real Estate Entity for the period of four
fiscal quarters ending on the date of determination;
(b) With respect to any Real Estate Entity in which the
Borrower did not own a limited partner or other equity interest on the
first day of the quarter ending on the date of determination (a "New
Real Estate Entity") and for which audited financial statements for
the most recently-completed fiscal year of such New Real Estate Entity
are available, the Net Operating Income of such New Real Estate Entity
for the period of four fiscal quarters ending on the date of
determination; and
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(c) With respect to any New Real Estate Entity for which
audited financial statements are not available, 75% of the pro forma
Net Operating Income of the New Real Estate Entity for the period of
four consecutive fiscal quarters commencing on the date of
determination.
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (b)
all payment and other obligations owing by the Borrower to any Lender, an
Affiliate of any Lender, or any Agent under any Hedging Agreement and (c) all
other fees and commissions (including attorney's fees), charges, indebtedness,
loans, liabilities, financial accommodations, obligations, covenants and duties
owing by the Borrower to any Lender or Agent, of every kind, nature and
description, direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any note, and whether or not for the payment of money under or in
respect of this Agreement, any Revolving Credit Note or any of the other Loan
Documents.
"Other Taxes" shall have the meaning assigned thereto in Section
3.11(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the
Borrower or any ERISA Affiliates or (b) has at any time within the preceding
six years been maintained for the employees of the Borrower or any of their
current or former ERISA Affiliates.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Pledge Agreements" means the collective reference to the IPLP Pledge
Agreement and the IPT Pledge Agreement.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by First Union as its prime rate then in
effect. The parties hereto acknowledge that the rate announced publicly by
First Union as its Prime Rate is an index or base rate and shall not
necessarily be its lowest or best rate charged to its customers or other banks.
"Pro Rata Portion" means, with respect to any Real Estate Entity, the
ratio (expressed as a percentage) of (a) the equity interest owned by the
Borrower in such Real Estate Entity to (b) the total equity in such Real Estate
Entity.
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"Real Estate Entity" means any limited partnership, limited liability
company, corporation or other Person which has as its principal business the
ownership of real property or debt secured by real property.
"Register" shall have the meaning assigned thereto in Section 12.8(d).
"Required Lenders" means, at any date, any combination of holders of
greater than fifty percent of the aggregate unpaid principal amount of the
Revolving Credit Notes, or if no amounts are outstanding under the Revolving
Credit Notes, any combination of Lenders whose Commitment Percentages aggregate
greater than fifty percent.
"Revolving Credit Notes" means the separate Revolving Credit Notes
made by the Borrower payable to the order of each Lender, substantially in the
form of Exhibit A hereto, evidencing the Credit Facility, and any amendments
and modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part; "Note" means
any of such Revolving Credit Notes.
"S&P" means Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies, a New York corporation, and its successors; provided
that, if such division shall be dissolved or liquidated or shall no longer
perform the functions of a securities rating agency, then "S&P" shall mean any
other nationally recognized securities rating agency reasonably acceptable to
the Borrower which is designated by the Required Lenders by notice to
Administrative Agent and the Borrower.
"Security Documents" means the collective reference to the Guaranty
Agreement and the Pledge Agreements and each other agreement or writing
pursuant to which the Borrower or the Guarantor pledges or grants a security
interest in any property or assets securing the Obligations or any such Person
guaranties the payment and/or performance of the Obligations.
"Solvent" means, as to the Borrower on a particular date, that the
Borrower (a) has capital sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage and is able to
pay its debts as they mature and (b) is not "Insolvent" as defined under the
United States Bankruptcy Code or any applicable State insolvency law.
"Subordinated Debt" means the collective reference to all Debt of the
Borrower which (a) has a scheduled maturity date more than one year after the
Maturity Date hereunder, (b) is not subject to any scheduled amortization or
mandatory redemption feature of any kind, and (c) is subordinated with respect
to payment, remedies and covenants to the Obligations and (with respect to Debt
which is incurred by the Borrower after the date hereof) otherwise subordinated
thereto to the reasonable satisfaction of the Agents and Required Lenders.
"Subsidiary" means, as to any Person, any corporation, partnership or
other entity of which more than fifty percent (50%) of the outstanding capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other managers of such
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corporation, partnership or other entity is at the time, directly or
indirectly, owned by such Person (irrespective of whether, at such time,
capital stock or other ownership interest of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"Syndication Agent" means Lehman in its capacity as Syndication Agent.
"Taxes" shall have the meaning assigned thereto in Section 3.11(a).
"Termination Date" means the date on which the Credit Facility
terminates pursuant to Section 2.6.
"Termination Event" means: (a) a "Reportable Event" described in
Section 4043 of ERISA for which notice has not been waived, or (b) the
withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (c) the institution of proceedings to terminate, or the
appointment of a trustee with respect to, any Pension Plan by the PBGC, or (d)
any other event or condition which would constitute grounds under Section
4042(a) of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan, or (e) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA, or (f) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA which results in a Material Adverse Effect, or
(g) any event or condition which results in the termination of a Multiemployer
Plan under Section 4041A of ERISA or the institution by PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA which results in a
Material Adverse Effect.
"United States" means the United States of America.
SECTION 1.2 General. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter. Any reference herein to "Charlotte time" shall
refer to the applicable time of day in Charlotte, North Carolina.
SECTION 1.3 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings
when used in this Agreement, the Revolving Credit Notes and the other Loan
Documents or any certificate, report or other document made or delivered
pursuant to this Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
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ARTICLE II
CREDIT FACILITY
SECTION.2.1 Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally irrevocably commits to make Loans to the
Borrower from time to time from the Closing Date through the Termination Date
as requested by the Borrower in accordance with the terms of Section 2.2;
provided, that (a) the aggregate principal amount of all outstanding Loans
(after giving effect to any amount requested and funded and the use of the
proceeds thereof) shall not exceed the Aggregate Commitment and (b) the
principal amount of outstanding Loans from any Lender to the Borrower shall not
at any time exceed such Lender's Commitment. Each Loan by a Lender shall be in
a principal amount equal to such Lender's Commitment Percentage of the
aggregate principal amount of Loans requested on such occasion. Subject to the
terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans
hereunder until the Termination Date.
SECTION 2.2 Procedure for Advances of Loans.
(a) Requests for Borrowing. The Borrower shall give the Administrative
Agent irrevocable prior written notice substantially in the form attached
hereto as Exhibit B (a "Notice of Borrowing") not later than 12:00 noon
(Charlotte time) (i) at least one Business Day before each Base Rate Loan and
(ii) at least three (3) Business Days before each LIBOR Rate Loan, of its
intention to borrow, specifying (A) the date of such borrowing, which shall be
a Business Day, (B) the amount of such borrowing, which shall be with respect
to Base Rate Loans in an aggregate principal amount of $2,500,000 or a whole
multiple of $500,000 in excess thereof and with respect to LIBOR Rate Loans in
an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000
in excess thereof, (C) whether the Loans are to be LIBOR Rate Loans or Base
Rate Loans or a combination thereof and, if a combination thereof, the amount
allocable to each and (D) in the case of a LIBOR Rate Loan, the duration of the
Interest Period applicable thereto. Notices received after 12:00 noon
(Charlotte time) shall be deemed received on the next Business Day. The
Administrative Agent shall promptly notify and furnish each Lender with a copy
of each Notice of Borrowing.
(b) Disbursement of Loans. Not later than 1:00 p.m. (Charlotte time)
on the proposed borrowing date, each Lender will make available to the
Administrative Agent, for the account of the Borrower, at the office of the
Administrative Agent in funds immediately available to the Administrative
Agent, such Lender's Commitment Percentage of the Loans to be made on such
borrowing date. The Borrower hereby irrevocably authorizes the Administrative
Agent to disburse the proceeds of each borrowing requested pursuant to this
Section 2.2 in immediately available funds by crediting or wiring such proceeds
to the deposit account of the Borrower maintained with the Administrative Agent
as identified in the most recent Notice of Account Designation substantially in
the form of Exhibit I hereto (a "Notice of Account Designation") delivered by
the Borrower to the Administrative Agent or as may be otherwise agreed upon by
the Borrower and the Administrative Agent from time to time. Subject to Section
3.7 hereof, the Administrative Agent shall not be
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obligated to disburse the amounts to be funded by a Lender pursuant to this
Section 2.2 to the extent that such Lender has not made such amounts available
to the Administrative Agent.
SECTION 2.3 Repayment of Loans.
(a) Repayment on Termination Date. The Borrower shall repay the
outstanding principal amount of all Loans in full, together with all accrued
but unpaid interest thereon, on the Termination Date.
(b) Mandatory Repayment of Excess Loans. If at any time the outstanding
principal amount of all Loans exceeds the Aggregate Commitment, the Borrower
shall repay within ten (10) Business Days after notice from the Administrative
Agent, by payment to the Administrative Agent for the account of the Lenders,
the Loans in an amount equal to such excess. Each such repayment shall be
accompanied by accrued interest on the amount repaid and any amount required to
be paid pursuant to Section 3.9 hereof.
(c) Optional Repayments. The Borrower may at any time and from time to
time repay the Loans, in whole or in part without premium (but subject to
Section 3.9), upon irrevocable prior notice to the Administrative Agent not
later than 12:00 noon (Charlotte time) (i) at least three (3) Business Days
with respect to LIBOR Rate Loans and (ii) at least one (1) Business Day with
respect to Base Rate Loans specifying the date and amount of repayment and
whether the repayment is of LIBOR Rate Loans, Base Rate Loans, or a combination
thereof, and, if of a combination thereof, the amount allocable to each. Upon
receipt of such notice, the Administrative Agent shall promptly notify each
Lender. If any such notice is given, the amount specified in such notice shall
be due and payable on the date set forth in such notice. Partial repayments
shall be in an aggregate amount of $2,500,000 or a whole multiple of $500,000
in excess thereof with respect to Base Rate Loans and $5,000,000 or a whole
multiple of $1,000,000 in excess thereof with respect to LIBOR Rate Loans.
SECTION 2.4 Revolving Credit Notes. Each Lender's Loans and the
obligation of the Borrower to repay such Loans shall be evidenced by a
Revolving Credit Note executed by the Borrower payable to the order of such
Lender representing the Borrower's obligation to pay such Lender's Commitment
or, if less, the aggregate unpaid principal amount of all Loans made and to be
made by such Lender to the Borrower hereunder, plus interest and all other
fees, charges and other amounts due thereon. Each Revolving Credit Note shall
be dated the Closing Date and shall bear interest on the unpaid principal
amount thereof at the applicable interest rate per annum specified in Section
3.1.
SECTION 2.5 Increase/Reduction of the Aggregate Commitment.
(a) The Borrower shall have the option, which may be exercised upon at
least three (3) Business Days prior written notice to the Administrative Agent
not later than one hundred eighty (180) days after the Closing Date, to
increase the Aggregate Commitment from Fifty Million Dollars ($50,000,000) to
Seventy Million Dollars ($70,000,000), subject to the satisfaction of each of
the following conditions:
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(i) The merger of IPT and Angeles Mortgage Investment (the
"IPT/Angeles Merger") shall have been consummated;
(ii) No Default or Event of Default shall have occurred and
be continuing; and
(iii) The Borrower shall have paid to First Union and Lehman
the fees and amounts set forth or referenced in Section 3.3(b) of this
Agreement.
(b) The Borrower shall have the right at any time and from time to
time, upon at least three (3) Business Days prior written notice to the
Administrative Agent, to permanently reduce, in whole at any time or in part
from time to time, without premium, the Aggregate Commitment in an aggregate
principal amount not less than $1,000,000 or any whole multiple of $1,000,000
in excess thereof.
(c) Each permanent reduction permitted pursuant to this Section 2.5
shall be accompanied by a payment of principal sufficient to reduce the
aggregate outstanding Loans of the Lenders to an amount not in excess of the
Aggregate Commitment as so reduced and by payment of accrued interest on the
amount of such repaid principal. Any reduction of the Aggregate Commitment to
zero shall be accompanied by payment of all outstanding Obligations and, if
such reduction is permanent, termination of the Commitments and Credit
Facility. Any repayment of a LIBOR Rate Loan resulting from the reduction of
the Aggregate Commitment shall, if such repayment occurs on a day which is not
the last day of the then current Interest Period applicable thereto, be subject
to the provisions of Section 3.9 hereof.
SECTION 2.6 Termination of Credit Facility. The Credit Facility shall
terminate on the earliest of (a) the third anniversary of the Closing Date (the
"Maturity Date"), (b) the date of termination by the Borrower pursuant to
Section 2.5(a) and (c) the date of termination by the Administrative Agent on
behalf of the Lenders pursuant to Section 10.2(a).
SECTION 2.7 Use of Proceeds. The Borrower shall use the proceeds of
the Loans to make investments permitted by and subject to the limitations of
Section 9.4(c). The proceeds of the Loans may also be used to reimburse the
Borrower for amounts previously expended by the Borrower to fund such
acquisitions subject to compliance by the Borrower with Section 9.4(c).
ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1 Interest.
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(a) Interest Rate Options. Subject to the provisions of this Section
3.1, at the election of the Borrower, the aggregate principal balance of the
Revolving Credit Notes or any portion thereof shall bear interest at the Base
Rate or the LIBOR Rate plus the Applicable Margin. The Borrower shall select
the rate of interest and Interest Period, if any, applicable to any Loan at the
time a Notice of Borrowing is given pursuant to Section 2.2 or at the time a
Notice of Conversion/Continuation is given pursuant to Section 3.2. Each Loan
or portion thereof bearing interest based on the Base Rate shall be a "Base
Rate Loan" and each Loan or portion thereof bearing interest based on the LIBOR
Rate shall be a "LIBOR Rate Loan". Any Loan or any portion thereof as to which
the Borrower has not duly specified an interest rate as provided herein shall
be deemed a Base Rate Loan.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Borrower, by giving notice at the times described in Section 3.1(a), shall
elect an interest period (each, an "Interest Period") to be applicable to such
Loan, which Interest Period shall be a period of one (1), two (2), three (3) or
six (6) months with respect to each LIBOR Rate Loan; provided that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any LIBOR Rate Loan or and, in the case of
immediately successive Interest Periods, each successive Interest
Period shall commence on the date on which the next preceding Interest
Period expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided, that if any Interest Period
with respect to a LIBOR Rate Loan would otherwise expire on a day that
is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(iii) any Interest Period with respect to a LIBOR Rate Loan
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the relevant calendar month at the end of such
Interest Period;
(iv) no Interest Period shall be permitted to extend beyond
the Termination Date; and
(v) there shall be no more than five (5) Interest Periods
outstanding at any time.
(c) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, (i) all outstanding LIBOR Rate Loans shall upon the request
of the Required Lenders bear interest at a rate per annum two percent (2%) in
excess of the rate then applicable to LIBOR Rate Loans until the end of the
applicable Interest Period and thereafter at a rate equal to two percent (2%)
in excess of the rate then applicable to Base Rate Loans, and (ii) all
outstanding Base Rate Loans shall bear interest at a rate per annum equal to
two percent (2%) in excess of the rate then applicable to Base Rate Loans. To
the maximum extent permitted by applicable law, interest shall continue to
accrue on the Revolving Credit Notes after the filing by or against the
Borrower of any petition
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seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.
(d) Interest Payment and Computation. Interest on each Base Rate Loan
shall be payable in arrears on the last Business Day of each fiscal quarter and
interest on each LIBOR Rate Loan shall be payable on the last day of each
Interest Period applicable thereto, provided that, in the case of an Interest
Period in excess of three (3) months, accrued interest shall also be paid on
the day which is three (3) months after the commencement of such Interest
Period. All interest rates, fees and commissions provided hereunder shall be
computed on the basis of a 360-day year and assessed for the actual number of
days elapsed.
(e) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the
Revolving Credit Notes and charged or collected pursuant to the terms of this
Agreement or pursuant to any of the Revolving Credit Notes exceed the highest
rate permissible under any Applicable Law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that such a court determines that the Lenders have charged or received
interest hereunder in excess of the highest applicable rate, the rate in effect
hereunder shall automatically be reduced to the maximum rate permitted by
Applicable Law and the Lenders shall at the Administrative Agent's option
promptly refund to the Borrower any interest received by Lenders in excess of
the maximum lawful rate or shall apply such excess to the principal balance of
the Obligations. It is the intent hereof that the Borrower not pay or contract
to pay, and that neither the Administrative Agent nor any Lender receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by the Borrower under Applicable Law.
SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans.
Provided that no Default (other than a Default arising from any of the events
specified in Section 10.1(e), (f) and (n) hereof) or Event of Default has
occurred and is then continuing, the Borrower shall have the option to (a)
convert at any time all or any portion of its outstanding Base Rate Loans in a
principal amount equal to $5,000,000 or any whole multiple of $1,000,000 in
excess thereof into one or more LIBOR Rate Loans or (b) upon the expiration of
any Interest Period, (i) convert all or any part of its outstanding LIBOR Rate
Loans in a principal amount equal to $2,500,000 or a whole multiple of $500,000
in excess thereof into Base Rate Loans or (c) upon the expiration of any
Interest Period, continue the relevant LIBOR Rate Loans as LIBOR Rate Loans.
Whenever the Borrower desires to convert or continue Loans as provided above,
the Borrower shall give the Administrative Agent irrevocable prior written
notice in substantially the form attached as Exhibit C (a "Notice of
Conversion/ Continuation") not later than 12:00 noon (Charlotte time) three (3)
Business Days before the day on which a proposed conversion or continuation of
such Loan is to be effective specifying (A) the Loans to be converted or
continued, and, in the case of any LIBOR Rate Loan to be converted or
continued, the last day of the Interest Period therefor, (B) the effective date
of such conversion or continuation (which shall be a Business Day), (C) the
principal amount of such Loans to be converted or continued, and (D) the
Interest Period to be applicable to such converted or continued LIBOR Rate
Loan. The Administrative Agent shall promptly notify the Lenders of such Notice
of Conversion/Continuation.
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SECTION 3.3 Fees.
(a) Commitment Fee. The Borrower shall pay to the Administrative
Agent, for the account of the Lenders, a non-refundable commitment fee (the
"Commitment Fee") of 0.25% per annum for so long as Loans under Section 2.1 are
limited to an aggregate amount of $50,000,000 and 0.375% per annum for each
day, if any, after the Borrower elects to increase the Aggregate Commitment to
Seventy Millions Dollars ($70,000,000) in accordance with Section 2.5(a). The
Commitment Fee due to each Lender shall commence to accrue on the date hereof
and shall cease to accrue on the earlier of (i) the termination of the
Commitment of such Lender and (ii) the Termination Date. The Commitment Fee
shall be payable in arrears (i) on the last Business Day of each fiscal quarter
during the term of this Agreement with the first payment due on March 31, 1998,
and (ii) on the Termination Date. Such Commitment Fee shall be promptly
distributed by the Administrative Agent to the Lenders pro rata in accordance
with the Lenders' respective Commitment Percentages.
(b) Other Fees. The Borrower agrees to pay to First Union and Lehman,
for their respective accounts, the fees set forth in the separate fee letter
agreement executed by the Borrower in favor of such Persons dated October 24,
1997, as amended by letter agreement of even date.
SECTION 3.4 Manner of Payment. Except as otherwise provided herein,
each payment (including repayments described in Article II) by the Borrower on
account of the principal of or interest on the Loans or of any fee, commission
or other amounts payable to the Lenders under this Agreement or any Revolving
Credit Note shall be made not later than 1:00 p.m. (Charlotte time) on the date
specified for payment under this Agreement to the Administrative Agent for the
account of the Lenders pro rata in accordance with their respective Commitment
Percentages at the Administrative Agent's Office, in Dollars, in immediately
available funds and shall be made without any set-off, counterclaim or
deduction whatsoever. Any payment received after such time but before 2:00 p.m.
(Charlotte time) on such day shall be deemed a payment on such date for the
purposes of Section 10.1, but for all other purposes shall be deemed to have
been made on the next succeeding Business Day. Any payment received after 2:00
p.m. (Charlotte time) shall be deemed to have been made on the next succeeding
Business Day for all purposes. Upon receipt by the Administrative Agent of each
such payment, the Administrative Agent shall credit each Lender's account with
its pro rata share of such payment in accordance with such Lender's Commitment
Percentage and shall wire advice of the amount of such credit to each Lender.
Subject to Section 3.1(b)(ii), if any payment under this Agreement or any
Revolving Credit Note shall be specified to be made upon a day which is not a
Business Day, it shall be made on the next succeeding day which is a Business
Day and such extension of time shall in such case be included in computing any
interest if payable along with such payment.
SECTION 3.5 Crediting of Payments and Proceeds. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 10.2, all payments received by the
Lenders upon the Revolving Credit Notes and the other Obligations and all net
proceeds from the enforcement of the Obligations shall be applied first to all
expenses then due and payable by the Borrower hereunder, then to all indemnity
obligations then due and payable by the Borrower hereunder,
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then to all Administrative Agent's fees then due and payable, then to all
commitment and other fees and commissions then due and payable, then to accrued
and unpaid interest on the Revolving Credit Notes and then to the principal
amount of the Revolving Credit Notes, in that order.
SECTION 3.6 Adjustments. If any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of its Loans, or interest
thereon, or if any Lender shall at any time receive any collateral in respect
to its Loans (whether voluntarily or involuntarily, by set-off or otherwise) in
a greater proportion than any such payment to and collateral received by any
other Lender, if any, in respect of such other Lender's Loans, or interest
thereon, such Benefitted Lender shall purchase for cash from the other Lenders
such portion of each such other Lender's Loans, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned to the extent of such
recovery, but without interest. The Borrower agrees that each Lender so
purchasing a portion of another Lender's Loans may exercise all rights of
payment with respect to such portion as fully as if such Lender were the direct
holder of such portion.
SECTION 3.7 Nature of Obligations of Lenders Regarding Loans;
Assumption by the Administrative Agent. The obligations of the Lenders under
this Agreement to make the Loans are several and are not joint or joint and
several. Unless the Administrative Agent shall have received notice from a
Lender prior to a proposed borrowing date that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of the
amount to be borrowed on such date (which notice shall not release such Lender
of its obligations hereunder), the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the
proposed borrowing date in accordance with Section 2.2(b) and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If such amount is made
available to the Administrative Agent on a date after such borrowing date, such
Lender shall pay to the Administrative Agent on demand an amount, until paid,
equal to the product of (a) the amount of such Lender's Commitment Percentage
of such borrowing, times (b) the average Federal Funds Rate during such period
as determined by the Administrative Agent, times (c) a fraction the numerator
of which is the number of days that elapse from and including such borrowing
date to the date on which such Lender's Commitment Percentage of such borrowing
shall have become immediately available to the Administrative Agent and the
denominator of which is 360. A certificate of the Administrative Agent with
respect to any amounts owing under this Section 3.7 shall be conclusive, absent
manifest error. If such Lender's Commitment Percentage of such borrowing is not
made available to the Administrative Agent by such Lender within three (3)
Business Days of such borrowing date, the Administrative Agent shall be
entitled to recover such amount made available by the Administrative Agent with
interest thereon at the rate per annum applicable to Base Rate Loans hereunder,
on demand, from the Borrower. The failure of any Lender to make its Commitment
Percentage of any Loan available shall not relieve it or any other Lender of
its obligation hereunder to make its Commitment Percentage of such Loan
available on such borrowing date, but
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no Lender shall be responsible for the failure of any other Lender to make its
Commitment Percentage of such Loan available on the borrowing date.
In the event that, at any time when the Borrower is not in Default and
has otherwise satisfied each of the conditions in Section 4.3 hereof, a Lender
for any reason fails or refuses to fund its portion of a borrowing and such
failure shall continue for a period in excess of thirty (30) days, then, until
such time as such Lender has funded its portion of such borrowing (which late
funding shall not absolve such Lender from any liability it may have to the
Borrower), or all other Lenders have received payment in full from the Borrower
(whether by repayment or prepayment) or otherwise of an amount equal to the
principal and interest due in respect of such borrowing, such non-funding
Lender shall not have the right (A) to vote regarding any issue on which voting
is required or advisable under this Agreement or any other Loan Document, and
such Lender's Commitment Percentage of the Loans shall not be counted as
outstanding for purposes of determining "Required Lenders" hereunder, and (B)
to receive payments of principal, interest or fees from the Borrower, the
Administrative Agent or the other Lenders in respect of its Commitment
Percentage of the Loans.
SECTION 3.8 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Administrative Agent or any Lender (after consultation
with the Administrative Agent) shall determine that, by reason of circumstances
affecting the foreign exchange and interbank markets generally, deposits in
eurodollars, in the applicable amounts are not being quoted via Telerate Page
3750 or offered to the Administrative Agent or such Lender for such Interest
Period, then the Administrative Agent shall forthwith give notice thereof to
the Borrower. Thereafter, until the Administrative Agent notifies the Borrower
that such circumstances no longer exist, the obligation of any affected Lender
to make or continue its portion of such LIBOR Rate Loans shall be suspended.
Upon receipt of such notice, notwithstanding anything contained herein, the
then outstanding principal amount of such Lender's Commitment Percentage of
each affected LIBOR Rate Loan, together with accrued interest thereon, shall
automatically be converted to a Base Rate Loan on either (a) the last day of
the then current Interest Period applicable to such affected LIBOR Rate Loan if
such Lender may lawfully continue to maintain and fund its portion of such
LIBOR Rate Loan to such date or (b) immediately if such Lender may not lawfully
continue to fund and maintain its portion of such affected LIBOR Rate Loan to
such day.
(b) Laws Affecting LIBOR Rate Availability. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it
unlawful for any Lender (or its Lending Office) to honor its obligations
hereunder to make or maintain any LIBOR Rate Loan, such Lender shall promptly
give notice thereof to the Administrative Agent and the Administrative Agent
shall promptly give notice to the Borrower and the other Lenders.
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Before giving any notice to the Administrative Agent pursuant to this
Section 3.8, such Lender shall designate a different lending office if such
designation will avoid the need for giving such notice and will not, in the
reasonable judgment of such Lender, be otherwise materially disadvantageous to
such Lender. Upon receipt of such notice, notwithstanding anything contained
herein, the then outstanding principal amount of such Lender's Commitment
Percentage of each affected LIBOR Rate Loan, together with accrued interest
thereon, shall automatically be converted to a Base Rate Loan on either (a) the
last day of the then current Interest Period applicable to such affected LIBOR
Rate Loan if such Lender may lawfully continue to maintain and fund its portion
of such LIBOR Rate Loan to such date or (b) immediately if such Lender may not
lawfully continue to fund and maintain its portion of such affected LIBOR Rate
Loan to such day.
(c) Increased Costs. If, after the date hereof, the introduction of,
or any change in, any Applicable Law, or in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Lending Office) with any request or directive
(whether or not having the force of law) of such Authority, central bank or
comparable agency:
(i) shall subject any Lender (or its Lending Office) to any
tax, duty or other charge with respect to any Revolving Credit Note or
shall change the basis of taxation of payments to any Lender (or its
Lending Office) of the principal of or interest on any Revolving
Credit Note or any other amounts due under this Agreement in respect
thereof (except taxes contemplated by Section 3.11 and for changes in
the rate of tax on the overall net income of such Lender or its
Lending Office imposed by the jurisdiction in which such Lender is
organized or is or should be qualified to do business or such Lending
Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit, insurance
or capital or similar requirement against assets of, deposits with or
for the account of, or credit extended by any Lender (or its Lending
Office) or shall impose on any Lender (or its Lending Office) or the
foreign exchange and interbank markets any other condition affecting
its obligation to make its Commitment Percentage of such LIBOR Rate
Loans or its Commitment Percentage of existing LIBOR Rate Loans;
and the result of any of the foregoing is to increase the costs to
such Lender of maintaining any LIBOR Rate Loan or to reduce the yield
or amount of any sum received or receivable by such Lender under this
Agreement or under the Revolving Credit Notes in respect of a LIBOR
Rate Loan, then, the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or Lenders for such
increased cost or reduction. Each Lender will promptly notify the
Borrower and the Administrative Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section 3.8(c) and will
designate a different lending office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not,
in the reasonable judgment of such Lender made in good faith, be
otherwise disadvantageous to such Lender. Any Lender claiming
compensation under this Section 3.8(c) shall notify the Borrower of
any event occurring after the Closing Date entitling such
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Lender to such compensation as promptly as practicable; provided that
if such Lender fails to give such notice within forty-five (45) days
after its obtains actual knowledge of such an event, such Lender
shall, with respect to such compensation in respect of any costs
resulting from such event, only be entitled to payment under this
Section 3.8(c) for costs incurred from and after the date forty-five
(45) days prior to the date that such Lender does give such notice.
Any Lender claiming compensation under this Section 3.8(c)
shall provide the Borrower with a written certificate setting forth
the additional amount or amounts to be paid to it hereunder and
calculations therefor in reasonable detail. Such certificate shall be
presumptively correct absent manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution
methods. If any Lender demands compensation under this Section 3.8(c),
the Borrower may at any time, upon at least five (5) Business Days'
prior notice to such Lender, prepay in full such Lender's Commitment
Percentage of the then outstanding LIBOR Rate Loans, together with
accrued interest thereon to the date of prepayment, along with any
reimbursement required under Section 3.9 hereof. Concurrently with
prepaying such Commitment Percentage of LIBOR Rate Loans the Borrower
may borrow a Base Rate Loan, or a LIBOR Rate Loan not so affected,
from such Lender, and such Lender shall, if so requested, make such
Advance in an amount such that the outstanding principal amount of the
affected Revolving Credit Note or Revolving Credit Notes held by such
Lender shall equal the outstanding principal amount of such Revolving
Credit Note or Revolving Credit Notes immediately prior to such
prepayment.
(d) Effect on Other Advances. If notice has been given pursuant to
Section 3.8(a), (b) or (c) suspending the obligation of any Lender to make its
Commitment Percentage of any type of LIBOR Rate Loan, or requiring such
Lender's Commitment Percentage of LIBOR Rate Loans to be repaid or prepaid,
then, unless and until such Lender notifies the Borrower that the circumstances
giving rise to such repayment no longer apply (which notice such Lender shall
give promptly), all advances which would otherwise be made by such Lender as
its Commitment Percentage of LIBOR Rate Loans shall, unless otherwise notified
by the Borrower, be made instead as Base Rate Loans.
SECTION 3.9 Reimbursement. Whenever any Lender shall sustain or incur
any losses, other than lost profits, or out-of-pocket expenses (a) as a
consequence of any failure by the Borrower to make any payment when due of any
amount due hereunder in connection with a LIBOR Rate Loan, (b) due to any
failure of the Borrower to borrow on a date specified therefor in a Notice of
Borrowing or Notice of Continuation/Conversion or (c) due to any payment,
prepayment or conversion of any LIBOR Rate Loan on a date other than the last
day of the Interest Period therefor, the Borrower agrees to pay to such Lender,
promptly following such Lender's demand, an amount sufficient to compensate
such Lender for all such losses and out-of-pocket expenses. Such Lender's good
faith determination of the amount of such losses or out-of-pocket expenses, as
set forth in writing and accompanied by calculations in reasonable detail
demonstrating the basis for its demand, shall be presumptively correct absent
manifest error. The obligations of the Borrower contained in this Section 3.9
shall survive for a period of one year following the payment in full of the
Revolving Credit Notes and the termination of the Commitments.
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SECTION 3.10 Capital Requirements. If either (a) the introduction of,
or any change in, or in the interpretation of, any Applicable Law after the
date hereof or (b) compliance with any guideline or request made after the date
hereof by any central bank or comparable agency or other Governmental Authority
(whether or not having the force of law), has or would have the effect of
reducing the rate of return on the capital of, or has affected or would affect
the amount of capital required to be maintained by, any Lender or any
corporation controlling such Lender as a consequence of, or with reference to
the Commitments and other commitments of this type, below the rate which the
Lender or such other corporation could have achieved but for such introduction,
change or compliance, then within five (5) Business Days after written demand
by any such Lender, the Borrower shall pay to such Lender from time to time as
specified by such Lender additional amounts sufficient to compensate such
Lender or other corporation for such reduction. Any Lender claiming
compensation under this Section 3.10 shall notify the Borrower of any event
occurring after the date of this Agreement entitling such Lender to such
compensation as promptly as practicable, but in any event within forty-five
(45) days, after such Lender obtains actual knowledge thereof; provided that if
such Lender fails to give such notice within forty-five (45) days after it
obtains actual knowledge of such an event, such Lender shall, with respect to
such compensation in respect of any costs resulting from such event, only be
entitled to payment under this Section 3.10 for costs incurred from and after
the date forty-five (45) days prior to the date that such Lender does give such
notice. A certificate of such Lender setting forth the amount to be paid to
such Lender by the Borrower as a result of any event referred to in this
paragraph and supporting calculations in reasonable detail shall be
presumptively correct absent manifest error.
SECTION 3.11 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder or under the Revolving Credit Notes shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholding, and all liabilities with respect thereto
excluding, (i) in the case of each Lender and the Administrative Agent, income
and franchise taxes imposed by the jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or is or
should be qualified to do business or any political subdivision thereof and
(ii) in the case of each Lender, income and franchise taxes imposed by the
jurisdiction of such Lender's Lending Office or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Revolving Credit Note to any Lender or the
Administrative Agent, (A) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.11) such Lender or
the Administrative Agent (as the case may be) receives an amount equal to the
amount such party would have received had no such deductions been made, (B) the
Borrower shall make such deductions, (C) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
Applicable Law, and (D) the Borrower shall deliver to the Administrative Agent
evidence of such payment to the relevant taxing authority or other authority in
the manner provided in Section 3.11(d).
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(b) Stamp and Other Taxes. In addition, the Borrower shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the other Loan Documents, or the perfection of any rights or security
interest in respect thereto (hereinafter referred to as "Other Taxes"). The
Borrower shall not be liable for the payment of Other Taxes which are payable
solely by reason of the assignment by any Lender of its interests, rights and
obligations under this Agreement.
(c) Indemnity. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.11) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 12.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence
of payment satisfactory to the Administrative Agent.
(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Administrative Agent, on the Closing Date or
concurrently with the delivery of the relevant Assignment and Acceptance, as
applicable, (i) two United States Internal Revenue Service Forms 4224 or Forms
1001, as applicable (or successor forms) properly completed and certifying in
each case that such Lender is entitled to a complete exemption from withholding
or deduction for or on account of any United States federal income taxes, and
(ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding taxes. Each such Lender further agrees to deliver to the Borrower,
with a copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or
W-9, or successor applicable forms or manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, certifying in the case of a Form
1001 or 4224 that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes (unless in any such case an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders such forms
inapplicable or the exemption to which such forms relate unavailable and such
Lender notifies the Borrower and the Administrative Agent that it is not
entitled to receive payments without deduction or withholding of United States
federal income taxes) and, in the case of a Form W-8 or W-9, establishing an
exemption from United States backup withholding tax. The Borrower shall not be
required to gross-up pursuant to this Section 3.11 or otherwise for any
deductions on account of withholding taxes from amounts owing to a Lender who
has not complied with this clause (e).
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(f) Survival. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.11 shall survive the payment in full of the
Revolving Credit Notes and the termination of the Commitments.
SECTION 3.12 Claims for Increased Costs and Taxes. In the event that
any Lender shall decline to make LIBOR Rate Loans pursuant to Section 3.8(a) or
(b) hereof or shall have notified the Borrower that it is entitled to claim
compensation pursuant to Section 3.8(c), 3.10 or 3.11 hereof or is unable to
complete the form required or is subject to withholding as provided in Section
3.11 hereof (each such lender being an "Affected Lender"), the Borrower at its
own cost and expense may designate a replacement bank (a "Replacement Lender")
to assume the Commitment and the obligations of any such Affected Lender
hereunder, and to purchase the outstanding Revolving Credit Note of such
Affected Lender and such Affected Lender's rights hereunder and with respect
thereto, without recourse upon, or warranty by, or expense to, such Affected
Lender, for a purchase price equal to (unless such Lender agrees to a lesser
amount) the outstanding principal amount of the Loans of such Affected Lender
plus all interest accrued and unpaid thereon and all other amounts owing to
such Affected Lender hereunder, including without limitation, any amount which
would be payable to such Affected Lender pursuant to Section 3.8(c), and upon
such assumption and purchase by the Replacement Lender, such Replacement Lender
shall be deemed to be a "Lender" for purposes of this Agreement and such
Affected Lender shall cease to be a "Lender" for purposes of this Agreement and
shall no longer have any obligations or rights hereunder (other than any
obligations or rights which according to this Agreement shall survive the
termination of the Commitment). In the event any Lender receives a refund or
credit with respect to withholding taxes paid by the Borrower, such Lender
shall promptly repay such amounts to the Borrower.
ARTICLE IV
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1 Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P. at 10:00 a.m. on December 30, 1997,
or on such other place or date as the parties hereto shall mutually agree.
SECTION 4.2 Conditions to Closing and Initial Loan. The obligation of
the Lenders to close this Agreement and to make the initial Loan are subject to
the satisfaction of each of the following conditions:
(a) Executed Loan Documents. This Agreement, the Revolving Credit
Notes, the Guaranty Agreement and the Pledge Agreements shall each have been
duly authorized,
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executed and delivered to the Administrative Agent by the parties
thereto, shall be in full force and effect and no Default shall exist
hereunder.
(b) Closing Certificates; etc.
(i) Certificate of IPT. The Administrative Agent
shall have received a certificate from the chief executive
officer or president of the General Partner, in form and
substance reasonably satisfactory to the Administrative
Agent, to the effect that all representations and warranties
of the Borrower contained in this Agreement and the other
Loan Documents are in all material respects true, correct and
complete to the best knowledge of such Person; that to the
best knowledge of such Person, the Borrower is not in
violation of any of the covenants contained in this Agreement
and the other Loan Documents; that, after giving effect to
the transactions contemplated by this Agreement to occur on
the Closing Date, no Default or Event of Default has occurred
and is continuing; and that to the best knowledge of such
Person, the Borrower has satisfied each of the closing
conditions.
(ii) Certificate of Secretary of the General
Partner. The Administrative Agent shall have received a
certificate of the secretary or assistant secretary of the
General Partner certifying on behalf of the Borrower that
attached thereto is a true and complete copy of the
certificate of limited partnership of the Borrower and all
amendments thereto, certified as of a recent date by the
appropriate Governmental Authority in its jurisdiction of
formation; that attached thereto is a true and complete copy
of the partnership agreement of the Borrower as in effect on
the date of such certification; that attached thereto is a
true and complete copy of resolutions duly adopted by the
Board of Directors or other governing body of IPT in its
capacity as general partner of the Borrower authorizing the
execution, delivery and performance of the Loan Documents to
which the Borrower is a party; and as to the incumbency and
genuineness of the signature of each officer of the General
Partner executing Loan Documents to which the Borrower is a
party.
(iii) Certificates of Good Standing. The
Administrative Agent shall have received long-form
certificates as of a recent date of the good standing of the
Borrower and IPT under the laws of its jurisdiction of
formation and, where available, a certificate of the relevant
taxing authorities of such jurisdictions certifying that such
Person has filed required tax returns and owes no delinquent
taxes.
(iv) Opinions of Counsel. The Administrative Agent
shall have received a favorable opinion of Simpson Thacher &
Bartlett, special counsel to the Borrower and IPT, John K.
Lines, Secretary of IPT, and Douglas G. Brown, Esq., special
counsel to the Borrower and IPT with respect to certain
matters of South Carolina law, addressed to the Agents and
Lenders with respect to such Persons, the Loan Documents, the
security interests created thereunder and such other matters
as the Lenders shall reasonably request. (The opinion of
Simpson Thacher & Bartlett shall be in form and substance
customary for transactions of this type.)
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(v) Insurance. Certificates or other evidence
reasonably satisfactory to the Agents that the insurance
coverage required by this Agreement and the other Loan
Documents is in full force and effect, and true, correct and
complete copies of the policies of such insurance, if
requested by the Administrative Agent.
(vi) Tax Forms. Unless the Borrower otherwise
consents, the Administrative Agent shall have received copies
of the United States Internal Revenue Service forms required
by Section 3.11 hereof.
(c) No Default. No Default or Event of Default shall have
occurred and be continuing.
(d) Financial Matters.
(i) Financial Statements. The Agents shall have
received the most recent audited consolidated financial
statements of IPT and its Subsidiaries and unaudited
consolidated financial statements for the Borrower and its
Subsidiaries. The Agents shall have also received a
certificate of the president or treasurer of the General
Partner in the form of Exhibit D.
(ii) Financial Condition Certificate. The Borrower
shall have delivered to the Administrative Agent a
certificate, in form and substance reasonably satisfactory to
the Agents, and certified as accurate by the chief executive
officer or president of the General Partner on behalf of the
Borrower, that (A) the Borrower is Solvent, (B) the
Borrower's material payables are current and not past due and
(C) the financial data and models previously delivered to the
Agents represent the good faith opinion (based upon the
assumptions set forth therein) of the Borrower as to the
results contained therein.
(iii) Payment at Closing; Fee Letter. The Borrower
shall have paid to First Union, Lehman and the Lenders the
fees set forth or referenced in Section 3.3 of this Agreement
and (to the extent submitted for payment a reasonable time
prior to the Closing Date) any accrued and unpaid fees or
commissions then due hereunder (including, without
limitation, reasonable legal fees and expenses), and (to the
extent submitted for payment a reasonable time prior to the
Closing Date) to any other Person such amount as may be due
thereto in connection with the transactions contemplated
hereby, including all taxes, fees and other charges in
connection with the execution, delivery, recording, filing
and registration of any of the Loan Documents. The Agents
shall have received a duly authorized and executed copy of
the fee letter agreement referred to in Section 3.3(b).
(e) Miscellaneous.
(i) Notice of Borrowing. The Administrative Agent
shall have received the Notice of Borrowing.
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(ii) Proceedings and Documents. All opinions,
certificates and other instruments and all proceedings in
connection with the transactions contemplated by this
Agreement shall be in form and substance reasonably
satisfactory to the Agents and Lenders. The Agents and
Lenders shall have received copies of all other instruments
and other evidence as such Persons may reasonably request, in
form and substance reasonably satisfactory thereto with
respect to the transactions contemplated by this Agreement.
(iii) Due Diligence and Other Documents. The
Borrower shall have delivered to the Agents such other
documents and certificates as the Agents may reasonably
request sufficiently prior to the Closing Date to permit the
delivery thereof, all certified by a secretary or assistant
secretary of the General Partner on behalf of the Borrower as
a true and correct copy thereof.
(iv) Perfection. The Borrower shall have executed
and delivered to the Administrative Agent such instruments
and documents (including, without limitation, UCC Financing
Statements, stock certificates and stock powers, notices to
general partners, etc.) as the Administrative Agent may
reasonably deem necessary to perfect the Liens purported to
be granted under the Security Documents.
(v) IPT Advisory Agreement. The Borrower shall have
delivered to the Agents a fully executed counterpart of the
IPT Advisory Agreement, which shall be in full force and
effect.
(vi) Letter Agreement. The Agent shall have received
a fully-executed counterpart of the letter agreement of even
date with this Agreement between Insignia Commercial Group,
Inc., Insignia Residential Group, Inc. and the Administrative
Agent confirming the right to terminate Management
Agreements, without penalty, upon the occurrence of a Default
or an Event of Default under this Agreement.
SECTION 4.3 Conditions to All Loans. The obligation of the Lenders to
make any Loan is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date:
(a) Continuation of Representations and Warranties. The
representations and warranties contained in Article V shall be true
and correct in all material respects on and as of such borrowing with
the same effect as if made on and as of such date.
(b) No Existing Default. No Default or Event of Default shall
have occurred and be continuing hereunder on the borrowing date with
respect to such Loan or after giving effect to the Loans to be made on
such date.
(c) Notice of Borrowing. The Administrative Agent shall have
received the Notice of Borrowing.
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SECTION 4.4 Delivery of Certificates by Administrative Agent . The
Administrative Agent shall furnish each Lender with a copy of each certificate
delivered to the Administrative Agent pursuant to Section 4.2(b) and (d) and
Section 4.3(c) hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 5.1 Representations and Warranties. To induce the Agents and
Lenders to enter into this Agreement and the Lenders to make Loans hereunder,
the Borrower hereby represents and warrants to the Agents and Lenders that:
(a) Organization; Power; Qualification. The Borrower is a
limited partnership duly organized, validly existing and in good
standing under the laws of Delaware, has the power and authority to
own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character
of its properties or the nature of its business requires such
qualification and authorization, the failure in which to so qualify or
be authorized could reasonably be expected to have a Material Adverse
Effect.
(b) Authorization of Agreement, Loan Documents and Borrowing.
The Borrower has the right, power and authority and has taken all
necessary action to authorize the execution, delivery and performance
of this Agreement and each of the other Loan Documents to which it is
a party in accordance with their respective terms. This Agreement and
each of the other Loan Documents to which the Borrower is a party have
been duly executed and delivered by the duly authorized officers of
the General Partner on behalf of the Borrower, and each such document
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar state or federal debtor relief laws from time to time in
effect which affect the enforcement of creditors' rights in general
and the availability of equitable remedies, and public policy.
(c) Compliance of Agreement, Loan Documents and Borrowing with
Laws, Etc. The execution, delivery and performance by the Borrower of
the Loan Documents to which it is a party, in accordance with their
respective terms, the borrowings hereunder and the transactions
contemplated hereby do not and will not, by the passage of time, the
giving of notice or otherwise, (i) require any Governmental Approval
or violate any Applicable Law relating to the Borrower, (ii) conflict
with, result in a breach of or constitute a default under the
Partnership Agreement of the Borrower or any material indenture,
agreement or other instrument to which the Borrower is a party or by
which any of its properties may be bound or any Governmental Approval
relating to the Borrower, or (iii) result in or require the creation
or imposition of any Lien upon or with respect to any property now
owned or
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hereafter acquired by the Borrower other than Liens arising under the
Loan Documents or permitted by Section 9.3.
(d) Compliance with Law; Governmental Approvals. The Borrower
(i) has all material Governmental Approvals required by any Applicable
Law for it to conduct its business, each of which is in full force and
effect, is final and not subject to review on appeal and is not the
subject of any pending or, to the best knowledge of the Borrower,
overtly threatened attack by direct or collateral proceeding, and (ii)
is in compliance in all material respects with each Governmental
Approval applicable to it and in compliance in all material respects
with all other Applicable Laws relating to it or any of its respective
properties, except to the extent that the failure to have any such
approval or to so be in compliance would not reasonably be expected to
have a Material Adverse Effect.
(e) Tax Returns and Payments. The Borrower has duly filed or
caused to be filed, or has received an extension for, all material
federal, state, local and other tax returns required by Applicable Law
to be filed, and has paid, or made adequate provision for the payment
of, all federal, state, local and other taxes, assessments and
governmental charges or levies upon it and its property, income,
profits and assets which are then due and payable. No Governmental
Authority has asserted any material Lien or other claim against the
Borrower with respect to unpaid taxes which has not been discharged or
resolved. The charges, accruals and reserves on the books of the
Borrower in respect of federal, state, local and other taxes for all
Fiscal Years and portions thereof since the organization of the
Borrower are in the judgment of the Borrower adequate, and the
Borrower does not have any knowledge of additional taxes or
assessments for any of such years.
(f) Intellectual Property Matters. The Borrower owns or
possesses rights to use all franchises, licenses, copyrights,
copyright applications, patents, patent rights or licenses, patent
applications, trademarks, trademark rights, trade names, trade name
rights, copyrights and rights with respect to the foregoing which are
required to conduct its business. No event has occurred which permits,
or after notice or lapse of time or both would permit, the revocation
or termination of any such rights, and (to the best of its knowledge)
the Borrower is not liable to any Person for infringement under
Applicable Law with respect to any such rights as a result of its
business operations, to the extent that such revocation, infringement
or liability would reasonably be expected to have a Material Adverse
Effect.
(g) Environmental Matters.
(i) To the Borrower's Actual Knowledge, the
properties owned by the Borrower do not contain, and to its
Actual Knowledge have not previously contained, any Hazardous
Materials in amounts or concentrations which (A) constitute
or constituted a violation of, or (B) could give rise to
liability under, applicable Environmental Laws, in each case
which could reasonably be expected to have a Material Adverse
Effect upon the Borrower;
(ii) To the Borrower's Actual Knowledge, such
properties and all operations of the Borrower are conducted
in compliance in all respects, and have
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been in compliance in all respects, with all applicable
Environmental Laws the violation of which could reasonably be
expected to have a Material Adverse Effect upon the Borrower,
and the Borrower has not caused contamination at, under or
about such properties or such operations which could
reasonably be expected to have a Material Adverse Effect upon
the continued operation of such properties and which could
reasonably be expected to have a Material Adverse Effect upon
the Borrower;
(iii) The Borrower (a) has not received any notice
of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of its
properties or its operations, nor (b) has Actual Knowledge
that any such notice will be received or is being overtly
threatened, in each case which could reasonably be expected
to have a Material Adverse Effect upon the Borrower;
(iv) To the Borrower's Actual Knowledge, the
Borrower has not caused Hazardous Materials to be transported
or disposed of from the properties of the Borrower in
violation of, or in a manner or to a location which gives
rise to liability under, Environmental Laws, which violation
or liability could reasonably be expected to have a Material
Adverse Effect upon the Borrower, nor to the Borrower's
Actual Knowledge has the Borrower caused any Hazardous
Materials to be generated, treated, stored or disposed of at,
on or under any of such properties in violation of, or in a
manner that could give rise to liability under, any
applicable Environmental Laws which could reasonably be
expected to have a Material Adverse Effect upon the Borrower;
(v) No judicial proceedings or governmental or
administrative action is pending, or, to the Actual Knowledge
of the Borrower, overtly threatened, under any Environmental
Law to which the Borrower is or will be named as a party with
respect to such properties or operations of the Borrower
conducted thereon, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to such
properties or such operations which in each case could
reasonably be expected to have a Material Adverse Effect upon
the Borrower; and
(vi) To its Actual Knowledge, the Borrower has not
caused any release, or to the Borrower's Actual Knowledge,
the threat of release, of Hazardous Materials at or from such
properties, in violation of or in amounts or in a manner that
gives rise to liability under Environmental Laws, in each
case which could reasonably be expected to have a Material
Adverse Effect upon the Borrower.
(h) ERISA.
(i) Neither the Borrower nor any ERISA Affiliate
maintains or contributes to, or has any obligation under, any
Employee Benefit Plans other than those identified on
Schedule 5.1(h);
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(ii) The Borrower and each ERISA Affiliate is in
material compliance with all applicable provisions of ERISA
and the regulations and published interpretations thereunder
with respect to all Employee Benefit Plans except for any
required amendments for which the remedial amendment period
as defined in Section 401(b) of the Code has not yet expired.
Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust
related to such plan has been determined to be exempt under
Section 501(a) of the Code. No liability has been incurred by
the Borrower or any ERISA Affiliate which remains unsatisfied
for any taxes or penalties with respect to any Employee
Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan of the Borrower has been
terminated, and to the knowledge of the Borrower no Pension
Plan of any ERISA Affiliate has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of
the Code) been incurred (without regard to any waiver granted
under Section 412 of the Code), nor has any funding waiver
from the Internal Revenue Service been received or requested
with respect to any Pension Plan, nor has the Borrower or any
ERISA Affiliate failed to make any contributions or to pay
any amounts due and owing as required by Section 412 of the
Code, Section 302 of ERISA or the terms of any Pension Plan
prior to the due dates of such contributions under Section
412 of the Code or Section 302 of ERISA, nor has there been
any event requiring any disclosure under Section
4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension
Plan;
(iv) Neither the Borrower nor any ERISA Affiliate
has: (A) engaged in a nonexempt prohibited transaction
described in Section 406 of the ERISA or Section 4975 of the
Code, (B) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are
no premium payments which are due and unpaid, (C) failed to
make a required contribution or payment to a Multiemployer
Plan, or (D) failed to make a required installment or other
required payment under Section 412 of the Code;
(v) No Termination Event has occurred or, to the
knowledge of the Borrower, is reasonably expected to occur;
and
(vi) No proceeding, claim, lawsuit and/or
investigation (other than routine claims for benefits in the
ordinary course) is existing or, to the best knowledge of the
Borrower after due inquiry, threatened concerning or
involving any (A) employee welfare benefit plan (as defined
in Section 3(1) of ERISA) currently maintained or contributed
to by the Borrower or any ERISA Affiliate, (B) Pension Plan
or (C) Multiemployer Plan.
(i) Margin Stock. The Borrower is not engaged principally in
or has as one of its activities the business of extending credit for
the purpose of "purchasing" or "carrying" any
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"margin stock" (as each such term is defined or used in Regulations G
and U of the Board of Governors of the Federal Reserve System). No
part of the proceeds of any of the Loans will be used for purchasing
or carrying margin stock or for any purpose which violates, or which
would be inconsistent with, the provisions of Regulation G, T, U or X
of such Board of Governors or without executing and delivering to the
Administrative Agent a properly completed Federal Reserve Form U-1.
(j) Government Regulation. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" (as each
such term is defined or used in the Investment Company Act of 1940, as
amended) and neither the Borrower nor any Material Subsidiary thereof
is, or after giving effect to any Loan will be, subject to regulation
under the Public Utility Holding Company Act of 1935 or the Interstate
Commerce Act, each as amended, or any other Applicable Law which
limits its ability to incur or consummate the transactions
contemplated hereby.
(k) Certain Contracts and Properties. Each Material Contract
is, and after giving effect to the consummation of the transactions
contemplated by the Loan Documents will be, in full force and effect
in accordance with the terms thereof. The Borrower has delivered to
each Agent a true and complete copy of each Material Contract with
respect to which a copy has been requested by such Agent.
(l) Financial Statements. The balance sheet of IPT as of
September 30, 1997 and the related statements of income and retained
earnings and cash flows for the fiscal period then ended, copies of
which have been furnished to the Agents and each Lender, fairly
present the financial condition of IPT as at such dates, and the
results of the operations and changes of financial position for the
periods then ended (subject to year-end audit adjustments). All such
financial statements have been prepared in accordance with GAAP (other
than the absence of footnotes). The Borrower has no material Debt,
obligation or other unusual forward or long-term commitment which is
not fairly reflected in the foregoing financial statements or in the
notes to IPT's financial statements of December 31, 1996.
(m) No Material Adverse Change. Since September 30, 1997,
there has been no material adverse change in the business, operations,
or condition (financial or otherwise) of the Borrower and no event has
occurred or condition arisen that could reasonably be expected to have
a Material Adverse Effect.
(n) Solvency. As of the Closing Date and after giving effect
to each Loan made hereunder, the Borrower will be Solvent.
(o) Titles to Properties. The Borrower has such title to the
real property owned by it as is necessary to the conduct of its
business and valid and legal title to all of its material personal
property and assets, including, but not limited to, those reflected on
the balance sheets of the Borrower delivered pursuant to Section
5.1(l), except those which have been disposed of by the Borrower
subsequent to such date, which dispositions have been in the ordinary
course of business or as otherwise of a type permitted hereunder.
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(p) Liens. None of the material properties and assets of the
Borrower is subject to any Lien, except Liens permitted pursuant to
Section 9.3.
(q) Debt and Contingent Obligations. Schedule 5.1(q) is a
complete and correct listing of all Debt and Contingent Obligations of
the Borrower as of the date hereof. The Borrower has performed and is
in compliance with all of the terms of such Debt and Contingent
Obligations and all instruments and agreements relating thereto, and
no default or event of default, or event or condition which with
notice or lapse of time or both would constitute such a default or
event of default on the part of the Borrower exists with respect to
any such Debt or Contingent Obligation.
(r) Litigation. Except as set forth on Schedule 5.1(r), there
are no actions, suits or proceedings pending nor, to the Actual
Knowledge of the Borrower, overtly threatened against or in any other
way directly relating to or directly affecting the Borrower or any of
its properties in any court or before any arbitrator of any kind or
before or by any Governmental Authority that would reasonably be
expected to have a Material Adverse Effect.
(s) Absence of Defaults. No event has occurred or is
continuing which constitutes a Default or an Event of Default, or
which constitutes, or which with the passage of time or giving of
notice or both would constitute, a default or event of default by the
Borrower under any Material Contract or judgment, decree or order to
which the Borrower is a party or by which the Borrower or any of its
properties may be bound or (to the extent the making of such payment
is prohibited hereunder) which would require the Borrower to make any
payment thereunder prior to the scheduled maturity date therefor.
SECTION 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate delivered pursuant
to the terms hereof, or any of the Loan Documents (including but not limited to
any such representation or warranty made in or in connection with any amendment
thereto) shall constitute representations and warranties made under this
Agreement. All representations and warranties made under this Agreement shall
be made or deemed to be made, and shall be true and correct in all material
respects, at and as of the Closing Date and the date of each Loan hereunder,
shall survive the Closing Date and the date of each Loan hereunder, shall not
be waived by the execution and delivery of this Agreement, (except to the
extent that such Lender has actual knowledge to the contrary) any investigation
made by or on behalf of the Lenders or any borrowing hereunder.
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES
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Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner set forth in Section 12.9 hereof, the Borrower will
furnish or cause to be furnished to the Administrative Agent and each Lender at
its address set forth in Schedule 1, or such other office as may be designated
by the Agent or the applicable Lender from time to time:
SECTION 6.1 Financial Statements and Information.
(a) Quarterly Financial Statements. As soon as practicable and in any
event within forty-five (45) days after the end of each fiscal quarter (other
than the last fiscal quarter of each Fiscal Year), an unaudited consolidated
balance sheet of IPT and its Subsidiaries and an unaudited consolidated balance
sheet of the Borrower and its Subsidiaries as of the close of such fiscal
quarter and unaudited statements of income, retained earnings and cash flows
for the fiscal quarter then ended and that portion of the Fiscal Year then
ended, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared in accordance
with GAAP, and certified by the president or principal accounting officer of
IPT to present fairly in all material respects the financial condition of IPT
and Subsidiaries and of the Borrower and its Subsidiaries as of their
respective dates and the results of operations of IPT and Subsidiaries and of
the Borrower and its Subsidiaries for the respective periods then ended,
subject to normal year end adjustments and the absence of footnotes.
(b) Annual Financial Statements. As soon as practicable and in any
event within ninety (90) days after the end of each Fiscal Year, an audited
consolidated balance sheet of IPT and its Subsidiaries and an unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as of the close
of such Fiscal Year and audited consolidated statements of income, retained
earnings and cash flows for the Fiscal Year then ended (unaudited as to the
Borrower and its Subsidiaries), including the notes thereto, all in reasonable
detail and prepared in accordance with GAAP and setting forth in comparative
form the corresponding figures for the preceding Fiscal Year and accompanied by
a report thereon prepared by Ernst & Young, or other independent certified
public accounting firm reasonably acceptable to the Agents, that is not
qualified with respect to scope limitations imposed by IPT or its Subsidiaries
or with respect to accounting principles followed by IPT and its Subsidiaries
or not in accordance with GAAP.
(c) Annual Budget. As soon as practicable and in any event not later
than March 30 of each Fiscal Year, a budget of the Borrower and its
Subsidiaries for such Fiscal Year, such plan to be prepared in a form and on a
basis similar to the plan(s) previously furnished to the Lenders and to
include, on a quarterly basis, the following: a quarterly operating and capital
budget, an income statement, statement of cash flows and balance sheet,
accompanied by a certificate from the chief financial officer of the Borrower,
on behalf of the Borrower, to the effect that, to the best of such officer's
knowledge, such information is a good faith estimate of the financial condition
and operations of the Borrower and its Subsidiaries for such period.
SECTION 6.2 Officer's Compliance Certificate. At each time financial
statements are delivered pursuant to Sections 6.1(a) or (b) and at such other
times as an Agent shall reasonably request or the Borrower shall elect, a
certificate on behalf of the Borrower of the president or the treasurer of the
General Partner in the form of Exhibit D.
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SECTION 6.3 Accountants' Certificate. At each time financial
statements are delivered pursuant to Section 6.1(b), a certificate of the
independent public accountants certifying such financial statements addressed
to the Administrative Agent for the benefit of the Agents and Lenders:
(a) stating that in making the examination necessary for the
certification of such financial statements, they obtained no knowledge
of any Default or Event of Default or, if such is not the case,
specifying such Default or Event of Default and its nature and period
of existence; and
(b) including the calculations prepared by such accountants
required to establish whether or not the Borrower is in compliance
with the financial covenants set forth in Article VIII hereof as at
the end of each respective period.
SECTION 6.4 Other Reports. Such other information regarding the
operations, business affairs and financial condition of the Borrower as any
Agent or Lender (acting through the Administrative Agent) may reasonably
request.
SECTION 6.5 Notice of Litigation and Other Matters. Prompt (but in no
event later than ten (10) Business Days after an executive officer of the
General Partner obtains Actual Knowledge thereof) written notice of:
(a) the commencement of all proceedings and investigations by
or before any Governmental Authority and all actions and proceedings
in any court or before any arbitrator against or involving the
Borrower or any of its properties, assets or businesses which would
reasonably be expected to have Material Adverse Effect;
(b) any labor controversy that has resulted in, or threatens
to result in, a strike or other work action against the Borrower which
in any such case would reasonably be expected to have a Material
Adverse Effect;
(c) (i) any Default or Event of Default or (ii) any event
which constitutes or which with the passage of time or giving of
notice or both would constitute a default or event of default under
any Material Contract to which the Borrower is a party or by which the
Borrower or any of its properties may be bound;
(d) (i) any unfavorable determination letter from the
Internal Revenue Service regarding the qualification of an Employee
Benefit Plan under Section 401(a) of the Code (along with a copy
thereof), (ii) all notices received by the Borrower or any ERISA
Affiliate of the PBGC's intent to terminate any Pension Plan or to
have a trustee appointed to administer any Pension Plan, (iii) all
notices received by the Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA and (iv) the
Borrower obtaining knowledge or reason to know that the Borrower or
any ERISA Affiliate has filed or intends to file a notice
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of intent to terminate any Pension Plan under a distress termination
within the meaning of Section 4041(c) of ERISA; and
(e) any event which would reasonably be expected to have a
Material Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally paid and satisfied in
full and the Commitments terminated, unless consent has been obtained in the
manner provided for in Section 12.9, each of IPT and the Borrower will:
SECTION 7.1 Preservation of Existence and Related Matters. Except as
permitted by Section 9.5, preserve and maintain its separate existence as a
real estate investment trust and partnership, as applicable, and all rights,
franchises, licenses and privileges necessary to the conduct of its business,
and qualify and remain qualified and authorized to do business in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
SECTION 7.2 Maintenance of Property. Protect and preserve all of its
properties useful in and material to its business, including copyrights,
patents, trade names and trademarks; and from time to time make or cause to be
made all renewals, replacements and additions to such property necessary for
the conduct of its business, so that the business carried on in connection
therewith may be conducted at all times.
SECTION 7.3 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law; deliver to any Agent upon its request (which request shall not
be made by the Agents, in the aggregate, more than once per Fiscal Year) a
detailed list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby.
SECTION 7.4 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP and in compliance with the regulations of any Governmental Authority
having jurisdiction over it or any of its properties.
SECTION 7.5 Payment and Performance of Obligations. Pay and perform all
material Obligations under this Agreement and the other Loan Documents, and pay
or perform (a) all taxes, assessments and other governmental charges that may
be levied or assessed upon it or any of its property, and (b) all other
indebtedness, obligations and liabilities in accordance with customary trade
practices; except to the extent that IPT or the Borrower is contesting any item
described in
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clauses (a) or (b) of this Section 7.5 in good faith and is maintaining
adequate reserves with respect thereto in accordance with GAAP.
SECTION 7.6 Compliance With Laws and Approvals. Subject to Section
7.7, observe and remain in compliance with all Applicable Laws and maintain in
full force and effect all Governmental Approvals, in each case applicable to
the conduct of its business and where the failure to comply or maintain could
reasonably be expected to have a Material Adverse Effect.
SECTION 7.7 Environmental Laws. (a) Use reasonable commercial efforts
to comply with all applicable Environmental Laws and use reasonable commercial
efforts to obtain, comply with and maintain any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, in each case where the failure to so obtain or comply with which could
reasonably be expected to have a Material Adverse Effect upon IPT or the
Borrower, and (b) defend, indemnify and hold harmless the Agents and Lenders,
and their respective parents, Subsidiaries, Affiliates, employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements authorized by IPT or the Borrower, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or liability under any Environmental Laws applicable to the operations of IPT
or the Borrower, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of
the foregoing directly result from the negligence or misconduct of the party
seeking indemnification therefor.
SECTION 7.8 Compliance with ERISA. In addition to and without limiting
the generality of Section 7.6, (a) materially comply with all applicable
provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans, (b) not take any action
or fail to take action the result of which could be a material liability to the
PBGC (other than for the payment of premiums) or to a Multiemployer Plan, (c)
not participate in any prohibited transaction that could result in any material
civil penalty under ERISA or tax under the Code, (d) operate each Employee
Benefit Plan in such a manner that will not incur any material tax liability
under Section 4980B of the Code or any material liability to any qualified
beneficiary as defined in Section 4980B of the Code and (e) furnish to any
Agent upon its request such additional information about any Employee Benefit
Plan as may be reasonably requested by such Agent.
SECTION 7.9 Compliance With Agreements. Comply in all material respects
with each material term, condition and provision of all Material Contracts,
except to the extent that IPT or the Borrower is contesting any provision or
Material Contract in good faith through applicable proceedings and is
maintaining adequate reserves in accordance with GAAP.
SECTION 7.10 Visits and Inspections. Permit representatives of any
Agent or Lender (acting through an Agent), from time to time, upon reasonable
notice and during normal business hours, to visit and inspect its properties;
inspect, audit and make extracts from its books, records and files; and discuss
with its principal officers, and (during such time as a Default or an
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Event of Default is continuing) its independent accountants, its business,
assets, liabilities, financial condition, results of operations and business
prospects.
SECTION 7.11 Pledge of Partner Interests. Pledge to the Administrative
Agent for the benefit of the Agents and Lenders, pursuant to the terms of the
IPLP Pledge Agreement substantially in the form of Exhibit G hereto, as
collateral for the Obligations, a first priority security interest in all
limited partner interest now or hereafter owned by the Borrower and in the
equity interest of any Subsidiary of the Borrower which now or hereafter owns
any limited partner interest. IPT shall pledge to the Administrative Agent for
the benefit of the Agents and Lenders, pursuant to the terms of the IPT Pledge
Agreement, as collateral for the performance of the obligations of IPT under
the Guaranty Agreement, a first priority security interest in the stock or
other equity interest of IPT in each Subsidiary which now or hereafter owns,
directly or indirectly, the general partner interest in any Real Estate Entity
in which the Borrower owns, directly or indirectly, a limited partnership
interest.
SECTION 7.12 Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as either Agent may
reasonably require to document and consummate the transactions contemplated
hereby and to vest completely in and insure the Agents and Lenders their
respective rights under this Agreement, the Revolving Credit Notes and the
other Loan Documents.
SECTION 7.13 Application of Non-Operational Distributions. Apply all
distributions received by the Borrower from any Real Estate Entity resulting
from the sale or the refinancing of properties owned by such Real Estate Entity
("Non-Operational Distributions") to the payment of all Loans then outstanding;
provided that if no Default or Event of Default shall have occurred and be
continuing, the Non-Operational Distributions may be used by the Borrower to
purchase additional limited partner or other equity interests in Real Estate
Entities, subject to the limitations of Section 9.4(c)(ii) or distributed to
the limited partners of the Borrower, provided that immediately after giving
effect to any such distribution, (i) the Interest Coverage Ratio is greater
than 7.00 to 1.00, (ii) the Borrower is compliance on a pro forma basis with
all other financial covenants contained in this Agreement and (iii) no Default
or Event of Default exists or would result from such distribution.
SECTION 7.14 Year 2000 Compatibility. Take all action necessary to
assure that from and after January 1, 2000 the computer-based systems of IPT
and the Borrower are able to operate and effectively process data that includes
dates on and after January 1, 2000. At the request of the Agents, IPT and the
Borrower shall provide to the Agents assurance acceptable to the Agents of the
timely year 2000 compatibility of IPT and the Borrower.
ARTICLE VIII
FINANCIAL COVENANTS
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Until all of the Obligations have been finally paid and satisfied in
full and the Commitments terminated, unless consent has been obtained in the
manner set forth in Section 12.9 hereof, the Borrower will not:
SECTION 8.1 Maximum Leverage. Permit, as of any fiscal quarter end,
the ratio of (a) Adjusted Portfolio Equity as of such fiscal quarter end to (b)
Funded Debt as of such fiscal quarter end, to be less than 5.00 to 1.00.
SECTION 8.2 Interest and Dividend Coverage. Permit, as of any fiscal
quarter end, the ratio of (a) Adjusted DCFO for the four (4) preceding fiscal
quarters ending on such date to (b) the sum of (i) Interest Expense of the
Borrower for such period (including interest expense on Subordinated Debt) plus
(ii) an amount equal to the dividends paid which would be payable by IPT during
such period on a fully-diluted basis, to be less than 1.10 to 1.0 .
SECTION 8.3 Interest Coverage Ratio. Permit, as of any fiscal quarter
end, the ratio of (a) Adjusted DCFO for the four (4) preceding fiscal quarters
ending on such fiscal quarter end to (b) Interest Expense of the Borrower for
such period, to be less than 6.0 to 1.0.
ARTICLE IX
NEGATIVE COVENANTS
Until all of the Obligations have been finally paid and satisfied in
full and the Commitments terminated, unless consent has been obtained in the
manner set forth in Section 12.9 hereof, IPT and the Borrower will not:
SECTION 9.1 Limitations on Debt. Create, incur, assume or suffer to
exist any Debt except:
(a) the Obligations;
(b) Debt incurred in connection with a Hedging Agreement
entered into in the ordinary course of business for protective and not
speculative purposes;
(c) Subordinated Debt to Insignia not to exceed $100,000,000
at any one time outstanding;
(d) existing Debt set forth on Schedule 5.1(q) and the
renewal and refinancing (but not the increase) thereof;
(e) Debt consisting of Contingent Obligations permitted by
Section 9.2;
(f) Debt incurred by a Special Purpose Subsidiary to the
extent permitted under Section 9.4(e);
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(g) Debt incurred for all or a portion of the deferred
purchase price of property to the extent IPT or the Borrower, as
applicable, would have been permitted under this Agreement to purchase
such property for cash; and
(h) other Debt of the Borrower not to exceed an aggregate of
$5,000,000 at any time outstanding.
SECTION 9.2 Limitations on Contingent Obligations. Create, incur,
assume or suffer to exist any Contingent Obligations except:
(a) Contingent Obligations in favor of the Administrative
Agent for the benefit of the Agents and the Lenders;
(b) Contingent Obligations of IPT on account of Debt of the
Borrower, to the extent such Debt is permitted by Section 9.1; and
(c) other Contingent Obligations not to exceed $5,000,000 at
any one time outstanding.
SECTION 9.3 NEGATIVE PLEDGE; LIMITATION ON LIENS. CREATE, INCUR,
ASSUME OR SUFFER TO EXIST, ANY LIEN ON OR WITH RESPECT TO ANY OF ITS ASSETS OR
PROPERTIES, REAL OR PERSONAL, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, EXCEPT:
(a) Liens for taxes, assessments and other governmental
charges or levies (excluding any Lien imposed pursuant to any of the
provisions of ERISA or Environmental Laws) not yet due or as to which
the period of grace, if any, related thereto has not expired or which
are being contested in good faith and by appropriate proceedings if
adequate reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers,
warehousemen, processors or landlords for labor, materials, supplies
or rentals incurred in the ordinary course of business, (i) which are
not overdue for a period of more than thirty (30) days or (ii) which
are being contested in good faith and by appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the
ordinary course of business in connection with, or to secure payment
of, obligations under workers' compensation, unemployment insurance or
similar legislation or obligations under customer service contracts;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the
use of real property, which in the aggregate are not substantial in
amount and which do not, in any case, detract from the value of such
property or impair the use thereof in the ordinary conduct of
business; and
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(e) Liens of the Administrative Agent for the benefit of the
Agents and the Lenders.
SECTION 9.4 Limitations on Loans, Advances, Investments and
Acquisitions. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, interests in any partnership or joint venture,
evidence of Debt or other obligation or security, substantially all or a
portion of the business or assets of any other Person or any other investment
or interest whatsoever in any other Person, or make or permit to exist,
directly or indirectly, any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any Person, or enter into,
directly or indirectly, any commitment in respect of the foregoing except:
(a) investments existing on the Closing Date and the other
existing loans, advances and investments described on Schedule 9.4;
(b) investments in (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any
agency thereof maturing within 120 days from the date of acquisition
thereof, (ii) marketable direct obligations issued by any State of the
United States or any political subdivision of any such State or any
public instrumentality thereof maturing within 120 days from the date
of acquisition thereof and, at the time of acquisition, having the
highest or second highest rating obtainable from S&P or Moody's; (iii)
commercial paper maturing within 120 days from the date of the
acquisition thereof, and, at the time of acquisition, having a rating
of A-1 or higher by S&P or P-1 or higher by Moody's, (iv) certificates
of deposit maturing no more than 120 days from the date of creation
thereof issued by commercial banks incorporated under the laws of the
United States of America, each having combined capital, surplus and
undivided profits of not less than $500,000,000 and having a rating of
A or better by a nationally recognized rating agency; (v) time
deposits maturing no more than 30 days from the date of creation
thereof with commercial banks or savings banks or savings and loan
associations each having membership either in the FDIC or the deposits
of which are insured by the FDIC and in amounts not exceeding the
maximum amounts of insurance thereunder; (vi) eligible bankers'
acceptances, repurchase agreements and tax-exempt municipal bonds
having a maturity of less than one year and in each case having a
rating, or being the full recourse obligation of a Person whose senior
debt rating has a rating, of A or higher by S&P or Moody's; or (vii)
any money market fund organized under the laws of the United States or
any State thereof;
(c) investments in Real Estate Entities in which the general
partner or other managing interest is held by a Person in which IPT or
a wholly-owned Subsidiary of IPT owns the controlling interest;
provided (i) an aggregate of up to $5,000,000 may be invested in Real
Estate Entities in which the general partner interest or other
managing interest is not held by a Person in which IPT or a
wholly-owned Subsidiary of IPT owns the controlling interest; (ii) not
more than 50% of the aggregate cost of all limited partner or other
equity interests purchased by the Borrower subsequent to June 30, 1997
may be funded from the proceeds of any Loan; and (iii) the Borrower
shall have invested at least $50,000,000 of its own funds in such
limited partner or other equity interests at all times that any Loan
is outstanding;
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(d) investments in the form of the acquisition of general
partner or other managing interests in Real Estate Entities;
(e) investment of up to $10,000,000 in the aggregate in one
or more new Subsidiaries (each, a "Special-Purpose Subsidiary") to
acquire interests in real estate and in Real Estate Entities, and such
Special-Purpose Subsidiaries shall be permitted to incur Debt of up to
an aggregate of $40,000,000 at any time outstanding, the payment of
which may be secured by a security interest in the limited partner or
other equity interests owned by the relevant Special-Purpose
Subsidiary, provided:
(i) Recourse for payment of such Debt shall be
limited to the Special-Purpose Subsidiary and its assets and
all limited partner or other equity interests pledged by the
Special-Purpose Subsidiary as collateral for such Debt, and
neither the Borrower, IPT nor any other Subsidiary of IPT or
the Borrower shall be liable for the payment of such Debt,
contingently or otherwise;
(ii) The equity of each Special-Purpose Subsidiary
shall be pledged as collateral for the Obligations; and
(f) investments by IPT in Subsidiaries and Affiliates which
hold the general partner interest in Real Estate Entities.
SECTION 9.5 Limitations on Mergers and Liquidation . Merge,
consolidate or enter into any similar combination with any other Person or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), except:
(a) The merger of Angeles Mortgage Investment Trust into IPT;
(b) Any Subsidiary may merge into the Person such Subsidiary
was formed to acquire in connection with an acquisition permitted by
Section 9.4(c); and
(c) Any Person may merge with IPT or the Borrower, provided
such Person is engaged in a similar or complementary line of business
to that of IPT or the Borrower, no Event of Default shall result from
such merger and IPT or the Borrower shall be the surviving Person.
SECTION 9.6 Limitations on Sale of Assets . Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, any capital stock or other ownership
interest in any Subsidiary or Affiliate or the sale of any receivables and
leasehold interests and any sale-leaseback or similar transaction), whether now
owned or hereafter acquired, except:
(a) The sale of obsolete assets no longer used or usable in
the business of IPT or any of its Subsidiaries, including the
Borrower;
(b) The sale of interests in Real Estate Entities;
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(c) Inter-company sales; and
(d) The sale of assets, other than as otherwise permitted
hereunder, not to exceed an aggregate of $10,000,000 in any Fiscal
Year.
SECTION 9.7 Limitations on Distributions. Purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its capital stock or
other ownership interests, or make any distribution of cash, property or assets
among the holders of its shares or of its partnership interests or other
ownership interests, during such time as any Default or Event of Default has
occurred and is continuing or would result therefrom, or make any change in its
capital structure or amend any organizational document which change or
amendment could reasonably be expected to have a Material Adverse Effect.
SECTION 9.8 Transactions with Affiliates. Except as set forth on
Schedule 9.8 and as otherwise expressly permitted hereunder, directly or
indirectly: (a) make any loan or advance to, or purchase or assume any note or
other obligation to or from, any of its partners or officers, directors or
shareholders of any partner or any other Affiliates, or to or from any member
of the immediate family of any officer, director or shareholder of any partner
or other Affiliates, or subcontract any operations to any of its Affiliates, or
(b) enter into, or be a party to, any transaction with any of its Affiliates,
in both cases except upon fair and reasonable terms no less favorable to it
than it would obtain in a comparable arm's length transaction with a Person not
its Affiliate.
SECTION 9.9 Certain Accounting Changes. Change its Fiscal Year end, or
make any change in its accounting treatment and reporting practices except as
permitted by GAAP.
SECTION 9.10 Lines of Business. Change the lines of business in which
it currently is engaged and those reasonably related thereto or change,
directly or indirectly, or substantially alter its method of doing business in
a manner which would have a Material Adverse Effect.
SECTION 9.11 Restrictive Agreements. Incur any Debt which (a) contains
any negative pledge on assets or any other covenants more restrictive (taken as
a whole) than the provisions of Articles VII, VIII and IX hereof, or (b)
restricts, limits or otherwise encumbers its ability to incur Liens on or with
respect to any of its assets or properties, other than (in any such case) the
assets or properties securing such Debt.
ARTICLE X
DEFAULT AND REMEDIES
SECTION 10.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
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(a) Default in Payment of Principal of Loans. The Borrower
shall default in any payment of principal of any Loan or Revolving
Credit Note when and as due (whether at maturity, by reason of
acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the
payment when and as due (whether at maturity, by reason of
acceleration or otherwise) of interest on any Loan or Revolving Credit
Note or the payment of any other Obligation and such payment shall not
have been made within five (5) Business Days thereafter.
(c) Misrepresentation. Any representation or warranty made or
deemed to be made by the Borrower or any of its Subsidiaries under
this Agreement, any Loan Document or any amendment hereto or thereto,
shall at any time prove to have been incorrect in any material respect
when made or deemed made.
(d) Default in Performance of Certain Covenants. The Borrower
shall default in the performance or observance of any covenant or
agreement contained in Articles VIII or IX of this Agreement.
(e) Default in Performance of Other Covenants and Conditions.
The Borrower or any Subsidiary thereof shall default in the
performance or observance of any term, covenant, condition or
agreement contained in this Agreement (other than as specifically
provided for otherwise in this Section 10.1) or any other Loan
Document and such default shall continue for a period of thirty (30)
days after written notice thereof has been given to the Borrower by
the Administrative Agent.
(f) Hedging Agreement. Any termination payment shall be due
by the Borrower under any Hedging Agreement and such amount is not
paid within ten (10) Business Days of the due date thereof.
(g) Other Cross-Defaults. The Borrower shall default in the
payment when due, or in the performance or observance, of any material
obligation or condition of any Material Contract involving monetary
liability in an amount in excess of $5,000,000 unless, but only as
long as, the existence of any such default is being contested by the
Borrower or such Subsidiary in good faith by appropriate proceedings
and adequate reserves in respect thereof have been established on the
books of the Borrower or such Subsidiary to the extent required by
GAAP.
(h) Voluntary Bankruptcy Proceeding. The Borrower thereof
shall (i) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (ii) file a petition seeking to take
advantage of any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or composition for
adjustment of debts, (iii) consent to or fail to contest in a timely
and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, or liquidator of itself or of a substantial part of its
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property, domestic or foreign, (v) admit in writing its inability to
pay its debts as they become due, (vi) make a general assignment for
the benefit of creditors, or (vii) take any corporate action for the
purpose of authorizing any of the foregoing.
(i) Involuntary Bankruptcy Proceeding. A case or other
proceeding shall be commenced against the Borrower thereof in any
court of competent jurisdiction seeking (i) relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, or (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like
for the Borrower or any Material Subsidiary thereof or for all or any
substantial part of their respective assets, domestic or foreign, and
such case or proceeding shall continue undismissed or unstayed for a
period of ninety (90) consecutive days, or an order granting the
relief requested in such case or proceeding (including, but not
limited to, an order for relief under such federal bankruptcy laws)
shall be entered.
(j) Failure of Agreements. Any material provision of this
Agreement or of any other Loan Document shall for any reason cease to
be valid and binding on the Borrower or the Borrower shall so state in
writing, or this Agreement or any Security Document shall for any
reason cease to create a valid and perfected first priority Lien on,
or security interest in, any material portion of the collateral
purported to be covered thereby, in each case other than in accordance
with the express terms hereof or thereof and except where due solely
to the failure to file, on a timely basis, appropriate financing or
continuation statements under the Uniform Commercial Code.
(k) Termination Event. The occurrence of any of the following
events: (i) the Borrower or any ERISA Affiliate fails to make full
payment when due of all amounts which, under the provisions of any
Pension Plan or Section 412 of the Code, the Borrower or any ERISA
Affiliate is required to pay as contributions thereto, (ii) an
accumulated funding deficiency in excess of $250,000 occurs or exists,
whether or not waived, with respect to any Pension Plan, (iii) a
Termination Event or (iv) the Borrower or any ERISA Affiliate as
employers under one or more Multiemployer Plan makes a complete or
partial withdrawal from any such Multiemployer Plan and the plan
sponsor of such Multiemployer Plans notifies such withdrawing employer
that such employer has incurred a withdrawal liability requiring
payments in an amount exceeding $5,000,000.
(l) Judgment. A judgment or order for the payment of money not
covered by insurance which causes the aggregate amount of such
undischarged, unstayed and not removed judgments to exceed $3,000,000
in any Fiscal Year shall be entered against the Borrower by any court
and such judgment or order shall continue undischarged, unstayed or
not removed to bond for a period of thirty (30) days.
SECTION 10.2 Remedies. Upon the occurrence of an Event of Default,
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrower:
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(a) Acceleration; Termination of Facilities. Declare the
principal of and interest on the Loans, the Revolving Credit Notes at
the time outstanding, and all other amounts owed to the Lenders and
Agents under this Agreement or any of the other Loan Documents and all
other Obligations, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or the other Loan Documents to the
contrary notwithstanding, and terminate the Credit Facility and any
right of the Borrower to request borrowings thereunder; provided, that
upon the occurrence of an Event of Default specified in Section
10.1(h) or (i), the Credit Facility shall be automatically terminated
and all Obligations shall automatically become due and payable.
(b) Rights of Collection. Exercise on behalf of the Lenders
all of its other rights and remedies under this Agreement, the other
Loan Documents and Applicable Law, in order to satisfy all of the
Borrower's Obligations.
SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Agents and the Lenders set forth
in this Agreement is not intended to be exhaustive and the exercise by the
Agents and Lenders of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder or under the Loan
Documents or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of any Agent or
Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between the Borrower, the Agents and
Lenders or their respective agents or employees shall be effective to change,
modify or discharge any provision of this Agreement or any of the other Loan
Documents or to constitute a waiver of any Event of Default.
ARTICLE XI
THE AGENTS
SECTION 11.1 Appointment and Authorization. Each of the Lenders hereby
irrevocably designates and appoints First Union as Administrative Agent of such
Lender and Lehman as Syndication Agent of such Lender under this Agreement and
the other Loan Documents and each such Lender irrevocably authorizes First
Union as Administrative Agent for such Lender and Lehman as Syndication Agent
for such Lender, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and such other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or such other Loan Documents, no Agent shall have
any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties,
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obligations or liabilities shall be read into this Agreement or the other Loan
Documents or otherwise exist against any Agent.
SECTION 11.2 Delegation of Duties. Each Agent may execute any of its
respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
such Agent with reasonable care.
SECTION 11.3 Exculpatory Provisions. Neither any Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for actions occasioned by its or such Person's own
gross negligence or willful misconduct), or (b) responsible in any manner to
any of the Lenders for any recitals, statements, representations or warranties
made by the Borrower or any officer of the General Partner contained in this
Agreement or the other Loan Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by such Agent
under or in connection with, this Agreement or the other Loan Documents or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or the other Loan Documents or for any failure of the
Borrower to perform its obligations hereunder or thereunder. No Agent shall be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrower.
SECTION 11.4 Reliance by the Agents. Each Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by such Agent.
Each Agent may deem and treat the payee of any Revolving Credit Note as the
owner thereof for all purposes unless such Revolving Credit Note shall have
been transferred in accordance with Section 12.8 hereof. Each Agent shall be
fully justified in failing or refusing to take any action under this Agreement
and the other Loan Documents unless it shall first receive such advice or
concurrence of the Required Lenders (or, when expressly required hereby or by
the relevant other Loan Document, all the Lenders) as it deems appropriate or
it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of taking
or continuing to take any such action except for its own gross negligence or
willful misconduct. Each Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the Revolving Credit
Notes in accordance with a request of the Required Lenders (or, when expressly
required hereby, all the Lenders), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Revolving Credit Notes.
SECTION 11.5 Notice of Default. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice
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from a Lender or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that an Agent receives such a notice, it shall promptly
give notice thereof to the other Agent and Lenders. Each Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders; provided that unless and until such Agent
shall have received such directions, such Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders.
SECTION 11.6 Non-Reliance on the Agents and Other Lenders. Each Lender
expressly acknowledges that neither any Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact, subsidiaries or
affiliates has made any representations or warranties to it and that no act by
any Agent hereinafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by such
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and made its
own decision to make its Loans and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by an Agent
hereunder or by the other Loan Documents, such Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of such
Agent or any of its respective officers, directors, employees, agents,
attorneys-in-fact, Subsidiaries or Affiliates.
SECTION 11.7 Indemnification. The Lenders agree to indemnify each Agent
in its capacity as such and (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
the respective amounts of their Commitment Percentages, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Revolving Credit Notes) be imposed on, incurred by or asserted
against such Agent in any way relating to or arising out of this Agreement or
the other Loan Documents, or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by such Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct. The agreements in this Section 11.7
shall survive the payment of the Revolving Credit Notes and all other amounts
payable hereunder and the termination of this Agreement.
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SECTION 11.8 Agent in Its Individual Capacity. Each Agent and its
respective subsidiaries and affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though it
were not an Agent hereunder. With respect to any Loans made or renewed by it
and any Revolving Credit Note issued to it, each Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not an Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
SECTION 11.9 Resignation of the Agent; Successor Agent. Subject (in the
case of the Administrative Agent) to the appointment and acceptance of a
successor as provided below, the Administrative Agent or the Syndication Agent
may resign at any time by giving notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Required Lenders with, as long as no
Event of Default has occurred and is continuing, the consent of the Borrower,
which consent shall not be unreasonably withheld, shall have the right to
appoint a successor Administrative Agent, which successor shall have minimum
capital and surplus of at least $1,000,000,000. If no successor Administrative
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment within thirty (30) days after the Administrative
Agent's giving of notice of resignation, then the Administrative Agent may, on
behalf of the Lenders and with, as long as no Event of Default has occurred and
is continuing, the consent of the Borrower (not to be unreasonably withheld),
appoint a successor Administrative Agent, which successor shall be any Lender
or a commercial bank organized under the laws of the United States or any
political subdivision thereof which has minimum capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 11.9 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Administrative Agent. In the event of the
resignation of the Syndication Agent, the Administrative Agent immediately
shall assume the obligations of the Syndication Agent hereunder.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to
be received by a party hereto (i) on the date of delivery if delivered by hand
or sent by telecopy, (ii) on
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the next Business Day if sent by recognized overnight courier service and (iii)
on the third Business Day following the date sent by certified mail, return
receipt requested.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to the Borrower: Insignia Properties, L.P.
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attention: James A. Aston
Telecopy Number: (864) 239-1699
With a copy to: John K. Lines, Esq.
General Counsel
Insignia Financial Group, Inc.
One Insignia Financial Plaza
P. O. Box 1089
Greenville, South Carolina 29602
With a copy (in the case
of extraordinary notices
only) to (which shall not
constitute notice
hereunder): Simpson Thacher & Bartlett
425 Lexington Avenue - 19th Floor
New York, New York 10017-3954
Attention: Charles H. F. Garner
Telecopy Number: (212) 455-2502
If to First Union as First Union National Bank
Administrative Agent One Insignia Financial Plaza
P.O. Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
Telecopy Number: (864) 255-8357
With a copy to: First Union National Bank
One First Union Center
301 S. College Street, TW-10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telecopy Number: (704) 383-0288
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With a copy to
(which shall not
constitute notice
hereunder): Kennedy Covington Lobdell & Hickman, L.L.P.
Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Attention: J. Donnell Lassiter, Esquire
Telecopy Number: (704) 331-7598
If to the
Syndication Agent: Lehman Commercial Paper Inc.
Three World Financial Center
10th Floor
New York, New York 10285
Attention: Michelle Swanson
Telecopy Number: (212) 528-0819
If to any Lender: To its Address set forth on
Schedule 1
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to
the Borrower and Lenders, as the Administrative Agent's Office referred to
herein, to which payments due are to be made and at which Loans will be
disbursed.
SECTION 12.2 Expenses; Indemnity. The Borrower will (a) pay all
reasonable out-of-pocket expenses of the Agents in connection with: (i) the
preparation, execution and delivery of this Agreement and each other Loan
Document, whenever the same shall be executed and delivered, including without
limitation all reasonable out-of-pocket syndication and due diligence expenses
and reasonable fees and disbursements of a single counsel for the Agents (with
the right of such counsel to engage such special or local counsel as the Agents
reasonably deem necessary), (ii) the preparation, execution and delivery of any
waiver, amendment or consent by the Agents or the Lenders relating to this
Agreement or any other Loan Document, including without limitation reasonable
fees and disbursements of a single counsel for the Agents and (iii) the
administration and enforcement of any rights and remedies of the Agents and
Lenders under the Credit Facility, and (b) defend, indemnify and hold harmless
the Agents and Lenders, and their respective parents, Subsidiaries, Affiliates,
employees, agents, officers and directors (collectively, the "indemnitees"),
from and against any losses, penalties, fines, liabilities, settlements,
damages, costs and expenses, suffered by any such indemnitee in connection with
any claim, investigation, litigation or other proceeding (whether or not any
Agent or Lender is a party thereto) and the prosecution and defense thereof,
arising out of the Agreement, any other Loan Document or the Loans, including
without limitation reasonable
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attorney's and consultant's fees, except to the extent that any of the
foregoing result from the gross negligence or willful misconduct of the party
seeking indemnification therefor or the breach by the Agents or the Lenders of
this Agreement. If any claim, demand, action or cause of action is asserted
against any indemnitee, such indemnitee shall promptly notify the Borrower, but
the failure to so promptly notify the Borrower shall not affect the Borrower's
obligations under this Section 12.2 unless such failure materially prejudices
the Borrower's right to participate in the contest of such claim, demand,
action or cause of action, as hereinafter provided. If requested by the
Borrower in writing, and so long as no Default or Event of Default shall have
occurred and be continuing, such indemnitee shall in good faith contest the
validity, applicability and amount of such claim, demand, action or cause of
action and shall permit the Borrower to participate in such contest. Any
indemnitee that proposes to settle or compromise any claim or proceeding for
which the Borrower may be liable for payment of indemnity hereunder shall give
the Borrower written notice of the terms of such proposed settlement or
compromise reasonably in advance of settling or compromising such claim or
proceeding and shall obtain the Borrower's concurrence thereto. The Agents are
authorized at the Borrower's cost and expense to employ one counsel in
enforcing the rights of the Agents and Lenders hereunder and in defending
against any claim, demand, action or cause of action covered by this Section
12.2. In addition, each indemnitee shall have the right to employ its own
separate counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnitee unless the employment of such
counsel shall have been authorized in writing by the Borrower in connection
with the defense of such action, in which case such fees and expenses shall be
paid by the Borrower. If an indemnitee shall have reasonably concluded (based
upon the written advice of counsel to the Administrative Agent) that the
representation by one counsel of the Agents and Lenders creates a conflict of
interest for such counsel, the reasonable fees and expenses of such additional
counsel as are necessary to resolve that conflict chosen by such indemnitee and
reasonably satisfactory to the Borrower (provided that the Borrower's approval
of such counsel shall not be unreasonably delayed or withheld) shall be borne
by the Borrower. Any obligation or liability of the Borrower to any indemnitee
under this Section 12.2 shall survive the expiration or termination of this
Agreement and the repayment of the Obligations.
SECTION 12.3 GOVERNING LAW. THIS AGREEMENT, THE REVOLVING CREDIT NOTES
AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE EXPRESSLY SET FORTH THEREIN,
SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF SOUTH CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW
PRINCIPLES THEREOF.
SECTION 12.4 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
IN GREENVILLE COUNTY, SOUTH CAROLINA, IN ANY ACTION, CLAIM OR OTHER PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
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THE REVOLVING CREDIT NOTES AND THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF A
SUMMONS AND COMPLAINT AND OTHER PROCESS IN ANY ACTION, CLAIM OR PROCEEDING
BROUGHT BY ANY AGENT OR LENDER IN CONNECTION WITH THIS AGREEMENT, THE REVOLVING
CREDIT NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER
OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS, ON BEHALF OF
ITSELF OR ITS PROPERTY, BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, OTHERWISE IN THE MANNER SPECIFIED IN SECTION 12.1. NOTHING IN THIS
SECTION 12.4 SHALL AFFECT THE RIGHT OF ANY AGENT OR LENDER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR AFFECT THE RIGHT OF
ANY AGENT OR LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR
ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTIONS.
SECTION 12.5 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH AGENT AND LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR
OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
THE REVOLVING CREDIT NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
SECTION 12.6 Reversal of Payments. To the extent the Borrower makes a
payment or payments to any Agent for the ratable benefit of the Lenders or any
Agent receives any payment or proceeds of the collateral which payments or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds repaid, the Obligations or part thereof intended to be satisfied shall
be revived and continued in full force and effect as if such payment or
proceeds had not been received by such Agent.
SECTION 12.7 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or any Subsidiary thereof to determine compliance with any covenant
contained herein, shall, except as otherwise expressly contemplated hereby or
unless there is an express written direction by the Agents to the contrary
agreed to by the Borrower, be performed in accordance with GAAP. In the event
of changes in GAAP in accordance with the definition thereof, the Borrower and
the Lenders will thereafter negotiate in good faith to revise, by amendment of
this Agreement, any covenants of this Agreement affected thereby in order to
make such covenants consistent with GAAP then in effect. All projections and
estimates of financial results shall be made in good faith and based on
reasonable assumptions.
SECTION 12.8 Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Agents and Lenders, all permitted
future holders of the Revolving Credit Notes, and their respective successors
and assigns, except that the Borrower shall not assign or transfer any of its
rights or obligations under this Agreement without the prior written consent of
each Lender.
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(b) Assignment by Lenders. Each Lender may, with the consent of the
Agents, which consent shall not be unreasonably withheld or delayed, and, as
long as no Event of Default has occurred and is continuing, the consent of the
Borrower, which consent of the Borrower shall not be unreasonably withheld or
delayed, assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans at the time owing to it and the
Revolving Credit Notes held by it); provided that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement;
(ii) if less than all of the assigning Lender's Commitment is
to be assigned, the Commitment so assigned shall not be less than
$5,000,000 and the assigning Lender shall retain a Commitment of at
least $5,000,000;
(iii) the parties to each such assignment shall execute and
deliver to the Administrative Agent, for its acceptance and recording
in the Register, an Assignment and Acceptance in the form of Exhibit E
(an "Assignment and Acceptance"), together with any Revolving Credit
Note or Revolving Credit Notes subject to such assignment;
(iv) such assignment shall not, without the consent of the
Borrower, require the Borrower to file a registration statement with
the Securities and Exchange Commission or apply to or qualify the
Loans or the Revolving Credit Notes under the blue sky laws of any
state; and
(v) the assigning Lender shall pay to the Administrative
Agent an assignment fee of $3,000 upon the execution by such Lender of
the Assignment and Acceptance; provided that no such fee shall be
payable upon any assignment by a Lender to an Affiliate thereof or
upon any assignment requested by the Borrower pursuant to the terms of
Sections 2.8 or 3.12.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective
date shall, unless the Administrative Agent otherwise agrees, be at least five
(5) Business Days after the execution thereof, (A) the assignee thereunder
shall be a party hereto and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Lender hereby and (B) the
Lender thereunder shall, to the extent provided in such assignment, be released
from its obligations under this Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the amount of the Loans with respect
to each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register
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as a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or Lender at any reasonable time and
from time to time upon reasonable prior notice.
(e) Issuance of New Revolving Credit Notes. Upon its receipt of an
Assignment and Acceptance executed by an assigning Lender and an Eligible
Assignee together with any Revolving Credit Note or Revolving Credit Notes
subject to such assignment and the written consent to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is substantially in the form of Exhibit E:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the
Register;
(iii) give prompt notice thereof to the Lenders and the
Borrower; and
(iv) promptly deliver a copy of such Assignment and
Acceptance to the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Administrative Agent, in exchange for the
surrendered Revolving Credit Note or Revolving Credit Notes, a new Revolving
Credit Note or Revolving Credit Notes to the order of such Eligible Assignee in
amounts equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and a new Revolving Credit Note or Revolving Credit Notes to the
order of the assigning Lender in an amount equal to the Commitment retained by
it hereunder. Such new Revolving Credit Note or Revolving Credit Notes shall be
in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Revolving Credit Note or Revolving Credit Notes, shall be
dated the effective date of such Assignment and Acceptance and shall otherwise
be in substantially the form of the assigned Revolving Credit Notes delivered
to the assigning Lender. Each surrendered Revolving Credit Note or Revolving
Credit Notes shall be canceled and returned to the Borrower.
(f) Participations. Each Lender may sell participations to one or more
banks or other financial institutions which are not competitors of the Borrower
in all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Loans and the Revolving
Credit Notes held by it); provided that:
(i) such Lender's obligations under this Agreement
(including, without limitation, its Commitment) shall remain
unchanged;
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iii) such Lender shall remain the holder of the Revolving
Credit Notes held by it for all purposes of this Agreement;
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(iv) the Borrower, the Agents and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement;
(v) such Lender shall not permit such participant the right
to approve any waivers, amendments or other modifications to this
Agreement or any other Loan Document other than (to the extent that
such Lender would have an approval right with respect thereto)
waivers, amendments or modifications which would reduce the principal
of or the interest rate on any Loan or extend the term or increase the
amount of the Commitment, reduce the amount of any fees to which such
participant is entitled, extend any scheduled payment date for
principal of any Loan; and
(vi) any such disposition shall not, without the consent of
the Borrower, require the Borrower to file a registration statement
with the Securities and Exchange Commission to apply to qualify the
Loans or the Revolving Credit Notes under the blue sky law of any
state.
(g) Disclosure of Information; Confidentiality. The Agents and each
Lender agree to hold any confidential information which it may receive from the
Borrower pursuant to this Agreement in confidence, except for disclosure to (i)
legal counsel, accountants, and other professional advisors, on a need-to-know
basis, (ii) regulatory officials, (iii) as required by law or legal process
(including by subpoena) or in connection with any legal proceeding, and (iv)
another financial institution in connection with a disposition or proposed
disposition of any of its interests hereunder or under any Loan Document, upon
execution by such institution of an agreement to keep such information
confidential to the extent described in this Section 12.8(g). The Agents and
Lenders agree that the breach of this Section 12.8(g), including the disclosure
of any confidential information received from the Borrower pursuant to this
Agreement, shall constitute a material breach of this Agreement.
Notwithstanding (ii) and (iii) above, in the event that any such Person is
requested pursuant to, or required by, Applicable Law or Governmental Authority
to disclose any such information, such Person will provide the Borrower with
prompt notice of such request or requirement, unless prohibited by law or
regulation, in order to enable the Borrower to seek an appropriate protective
order or other remedy, or to consult with such Person with respect to the
Borrower's taking steps to resist or narrow the scope of such request or legal
process. If, in such event, the Borrower has not provided such Person with a
protective order or other remedy in sufficient time, with such Person acting in
good faith and otherwise in its sole discretion, for such Person to avoid
unlawful nondisclosure of such information, such Person may disclose such
information pursuant to such Applicable Law or Governmental Authority, as the
case may be, without any recourse or remedy against such Person by the Borrower
or any Affiliate of the Borrower, which the Borrower hereby expressly waives.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit any
Lender from pledging or assigning any Revolving Credit Note to any Federal
Reserve Bank in accordance with Applicable Law.
SECTION 12.9 Amendments, Waivers and Consents. Except as set forth
below, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents may be amended or waived by the Lenders, and any
consent given by the Lenders, if, but only if, such
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amendment, waiver or consent is in writing signed by the Required Lenders (or
by the Administrative Agent with the consent of the Required Lenders) and
delivered to the Administrative Agent and, in the case of an amendment, signed
by the Borrower; provided, that no amendment, waiver or consent shall (a)
except as specifically set forth in Section 2.8, increase the amount or extend
the time of the obligation of the Lenders to make Loans (including without
limitation pursuant to Section 2.6), (b) extend the originally scheduled time
or times of payment of the principal of any Loan or the time or times of
payment of interest on any Loan, (c) reduce the rate of interest or fees
payable on any Loan, (d) permit any subordination of the principal or interest
on any Loan, (e) release any collateral or Security Document (other than as
specifically permitted in this Agreement) or (f) amend the provisions of this
Section 12.9 or the definition of Required Lenders, without the prior written
consent of each Lender directly affected thereby. In addition, no amendment,
waiver or consent to the provisions of Article XI shall be made without the
written consent of the Agents.
SECTION 12.10 Performance of Duties. The Borrower's obligations under
this Agreement and each of the Loan Documents shall be performed by the
Borrower at its sole cost and expense.
SECTION 12.11 No Fiduciary Relationship. Notwithstanding any provision
to the contrary elsewhere in this Agreement or the other Loan Documents,
neither the Agent nor any Lender shall have any duties or responsibilities,
except those expressly set forth herein and therein, or any fiduciary
relationship with the Borrower or any of its Subsidiaries, any Guarantor or any
Pledgor.
SECTION 12.12 All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Lenders, the Agents and any Persons
designated by any Agent or Lender pursuant to any provisions of this Agreement
or any of the other Loan Documents shall be deemed coupled with an interest and
shall be irrevocable so long as any of the Obligations remain unpaid or
unsatisfied or the Credit Facility has not been terminated.
SECTION 12.13 Survival of Indemnities. Notwithstanding any termination
of this Agreement, the indemnities to which the Agents and the Lenders are
entitled under the provisions of this Article XII and any other provision of
this Agreement and the Loan Documents shall continue in full force and effect
and shall protect the Agents and Lenders against events arising after such
termination as well as before.
SECTION 12.14 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and
neither limit nor amplify the provisions of this Agreement.
SECTION 12.15 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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SECTION 12.16 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
SECTION 12.17 Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been paid and satisfied in full. No termination of this Agreement
shall affect the rights and obligations of the parties hereto arising prior to
such termination.
SECTION 12.18 Independent Effect of Covenants. The Borrower expressly
acknowledges and agrees that each covenant contained in Articles VII, VIII or
IX hereof shall be given independent effect. Accordingly, the Borrower shall
not engage in any transaction or other act otherwise permitted under any
covenant contained in Articles VII, VIII or IX if, before or after giving
effect to such transaction or act, the Borrower shall or would be in breach of
any other covenant contained in Articles VII, VIII or IX.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, all as of the day and year first
written above.
INSIGNIA PROPERTIES, L.P.
By Its General Partner
Insignia Properties Trust
By: /s/ C D Vinson
-------------------------------
Name: C D VINSON
-------------------------------
Title: C O O
-------------------------------
BORROWER
INSIGNIA PROPERTIES TRUST
By: /s/ C D Vinson
-------------------------------
Name: C D VINSON
-------------------------------
Title: C O O
-------------------------------
GUARANTOR
<PAGE>
FIRST UNION NATIONAL BANK,
As Administrative Agent and Lender
By: /s/ Charles P. Cecil
-------------------------------
Name: Charles P. Cecil
-------------------------------
Title: SVP
-------------------------------
<PAGE>
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and Lender
By: /s/ Dennis J. Dee
-------------------------------
Name: DENNIS J. DEE
-------------------------------
Title: ASSISTANT SECRETARY
-------------------------------
<PAGE>
CREDIT AGREEMENT
dated as of December 30, 1997
by and among
INSIGNIA PROPERTIES, L.P.,
as Borrower,
the Lenders referred to herein,
FIRST UNION NATIONAL BANK,
as Administrative Agent
and
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS.......................................................1
SECTION 1.1 Definitions..................................................1
SECTION 1.2 General.....................................................12
SECTION 1.3 Other Definitions and Provisions............................12
ARTICLE II - CREDIT FACILITY.................................................13
SECTION 2.1 Commitment..................................................13
SECTION 2.2 Procedure for Advances of Loans.............................13
SECTION 2.3 Repayment of Loans..........................................14
SECTION 2.4 Revolving Credit Notes......................................14
SECTION 2.5 Increase/Reduction of the Aggregate Commitment..............14
SECTION 2.6 Termination of Credit Facility..............................15
SECTION 2.7 Use of Proceeds.............................................15
ARTICLE III - GENERAL LOAN PROVISIONS........................................15
SECTION 3.1 Interest....................................................15
SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans....17
SECTION 3.3 Fees........................................................18
SECTION 3.4 Manner of Payment...........................................18
SECTION 3.5 Crediting of Payments and Proceeds..........................18
SECTION 3.6 Adjustments.................................................19
SECTION 3.7 Nature of Obligations of Lenders Regarding Loans;
Assumption by the Administrative Agent.... .................19
SECTION 3.8 Changed Circumstances.......................................20
SECTION 3.9 Reimbursement...............................................22
SECTION 3.10 Capital Requirements........................................23
SECTION 3.11 Taxes.......................................................23
SECTION 3.12 Claims for Increased Costs and Taxes........................25
ARTICLE IV - CLOSING; CONDITIONS OF CLOSING AND BORROWING....................25
SECTION 4.1 Closing......................................................25
<PAGE>
SECTION 4.2 Conditions to Closing and Initial Loan.......................25
SECTION 4.3 Conditions to All Loans......................................28
SECTION 4.4 Delivery of Certificates by Administrative Agent.............29
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................29
SECTION 5.1 Representations and Warranties...............................29
SECTION 5.2 Survival of Representations and Warranties, Etc..............34
ARTICLE VI - FINANCIAL INFORMATION AND NOTICES...............................34
SECTION 6.1 Financial Statements and Information.........................35
SECTION 6.2 Officer's Compliance Certificate.............................35
SECTION 6.3 Accountants' Certificate.....................................36
SECTION 6.4 Other Reports................................................36
SECTION 6.5 Notice of Litigation and Other Matters.......................36
ARTICLE VII - AFFIRMATIVE COVENANTS..........................................37
SECTION 7.1 Preservation of Existence and Related Matters................37
SECTION 7.2 Maintenance of Property......................................37
SECTION 7.3 Insurance....................................................37
SECTION 7.4 Accounting Methods and Financial Records.....................37
SECTION 7.5 Payment and Performance of Obligations.......................37
SECTION 7.6 Compliance With Laws and Approvals...........................38
SECTION 7.7 Environmental Laws...........................................38
SECTION 7.8 Compliance with ERISA........................................38
SECTION 7.9 Compliance With Agreements...................................38
SECTION 7.10 Visits and Inspections.......................................38
SECTION 7.11 Pledge of Partner Interests..................................39
SECTION 7.12 Further Assurances...........................................39
SECTION 7.13 Application of Non-Operational Distributions................39
SECTION 7.14 Year 2000 Compatibility......................................39
ARTICLE VIII - FINANCIAL COVENANTS...........................................39
SECTION 8.1 Maximum Leverage.............................................40
SECTION 8.2 Interest and Dividend Coverage...............................40
<PAGE>
SECTION 8.3 Interest Coverage Ratio......................................40
ARTICLE IX - NEGATIVE COVENANTS..............................................40
SECTION 9.1 Limitations on Debt..........................................40
SECTION 9.2 Limitations on Contingent Obligations........................41
SECTION 9.3 Negative Pledge; Limitation on Lien..........................41
SECTION 9.4 Limitations on Loans, Advances, Investments and Acquisitions.42
SECTION 9.5 Limitations on Mergers and Liquidation.......................43
SECTION 9.6 Limitations on Sale of Assets................................43
SECTION 9.7 Limitations on Distributions.................................44
SECTION 9.8 Transactions with Affiliates.................................44
SECTION 9.9 Certain Accounting Changes...................................44
SECTION 9.10 Lines of Business............................................44
SECTION 9.11 Restrictive Agreements.......................................44
ARTICLE X - DEFAULT AND REMEDIES.............................................44
SECTION 10.1 Events of Default............................................44
SECTION 10.2 Remedies.....................................................46
SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc. ............47
ARTICLE XI - THE AGENTS......................................................47
SECTION 11.1 Appointment and Authorization................................47
SECTION 11.2 Delegation of Duties.........................................48
SECTION 11.3 Exculpatory Provisions.......................................48
SECTION 11.4 Reliance by the Agents.......................................48
SECTION 11.5 Notice of Default............................................48
SECTION 11.6 Non-Reliance on the Agents and Other Lenders.................49
SECTION 11.7 Indemnification..............................................49
SECTION 11.8 Agent in Its Individual Capacity.............................50
SECTION 11.9 Resignation of the Agent; Successor Agent....................50
ARTICLE XII - MISCELLANEOUS..................................................50
SECTION 12.1 Notices.....................................................50
SECTION 12.2 Expenses; Indemnity.........................................52
SECTION 12.3 Governing Law...............................................53
SECTION 12.4 Consent to Jurisdiction.....................................53
<PAGE>
SECTION 12.5 Waiver of Jury Trial........................................54
SECTION 12.6 Reversal of Payments........................................54
SECTION 12.7 Accounting Matters..........................................54
SECTION 12.8 Successors and Assigns; Participations......................54
SECTION 12.9 Amendments, Waivers and Consents............................57
SECTION 12.10 Performance of Duties.......................................58
SECTION 12.11 No Fiduciary Relationship...................................58
SECTION 12.12 All Powers Coupled with Interest............................58
SECTION 12.13 Survival of Indemnities.....................................58
SECTION 12.14 Titles and Captions.........................................58
SECTION 12.15 Severability of Provisions..................................58
SECTION 12.16 Counterparts................................................59
SECTION 12.17 Term of Agreement...........................................59
SECTION 12.18 Independent Effect of Covenants.............................59
<PAGE>
Exhibits and Schedules
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Conversion/Continuation
Exhibit D - Form of Officer's Compliance Certificate
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Guaranty Agreement
Exhibit G - Form of IPLP Pledge Agreement
Exhibit H - Form of IPT Pledge Agreement
Exhibit I - Form of Notice of Account Designation
SCHEDULES
Schedule 1 - Lenders and Commitments
Schedule 5.1(h) - Employee Benefit Plans
Schedule 5.1(q) - Debt and Contingent Obligations
Schedule 5.1(r) - Litigation
Schedule 9.4 - Existing Loans, Advances and Investments
Schedule 9.8 - Transactions with Affiliates
<PAGE>
EXHIBIT A
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
REVOLVING CREDIT NOTE
<PAGE>
EXHIBIT B
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
NOTICE OF BORROWING
<PAGE>
EXHIBIT C
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
NOTICE OF CONVERSION/CONTINUATION
<PAGE>
EXHIBIT D
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
OFFICER'S COMPLIANCE CERTIFICATE
<PAGE>
EXHIBIT E
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
ASSIGNMENT AND ACCEPTANCE
<PAGE>
EXHIBIT F
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
GUARANTY AGREEMENT
<PAGE>
EXHIBIT G
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
IPLP PLEDGE AGREEMENT
<PAGE>
EXHIBIT H
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
IPT PLEDGE AGREEMENT
<PAGE>
EXHIBIT I
TO
CREDIT AGREEMENT
BY AND AMONG
INSIGNIA PROPERTIES, L.P.,
FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT FOR THE LENDERS
AND LEHMAN COMMERCIAL PAPER INC.
DATED
DECEMBER 30, 1997
NOTICE OF ACCOUNT DESIGNATION
<PAGE>
AMENDED AND RESTATED
UNCONDITIONAL GUARANTY AGREEMENT
--------------------------------
THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty"), dated as
of December 30, 1997, made by INSIGNIA PROPERTIES TRUST, a Maryland real estate
investment trust (the "Guarantor"), in favor of FIRST UNION NATIONAL BANK, a
national banking association, as Administrative Agent for the ratable benefit
of the Agents and the Lenders party to the Credit Agreement dated December 30,
1997 between Insignia Properties, L.P., a Delaware limited partnership, as
Borrower, the Lenders, and the Agents (as amended, modified, restated or
supplemented, the "Credit Agreement").
STATEMENT OF PURPOSE
--------------------
Pursuant to the terms of the Credit Agreement, the Lenders have
agreed to extend a certain credit facility to the Borrower in the aggregate
principal amount of up to the Aggregate Commitment. The Guarantor is the
general partner of the Borrower, and all Loans to the borrower will inure,
directly or indirectly, to the benefit of the Guarantor.
In connection with the transactions contemplated by the Credit
Agreement, the Lenders have requested, and the Guarantor has agreed to execute
and deliver, this Guaranty.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, and to induce the Lenders to make available Loans
pursuant to the Credit Agreement, it is agreed as follows:
SECTION 1. Definitions. Capitalized terms used herein (including
the preamble hereof) shall have the meanings assigned to them in the Credit
Agreement, unless the context otherwise requires or unless otherwise defined
herein. References in the Credit Agreement to a "Guaranty Agreement" or herein
to this "Guaranty" shall include and mean this Guaranty, including all
amendments and supplements hereto now or hereafter in effect.
SECTION 2. Guaranty of Obligations of Borrower. The Guarantor
hereby, jointly and severally with any other guarantor, unconditionally
guarantees to the Agents for the ratable benefit of the Agents and the Lenders,
and their respective successors, endorsees, transferees and assigns, the prompt
payment and performance of all Obligations of the Borrower, whether primary or
secondary (whether by way of endorsement or otherwise), whether now existing or
hereafter arising, whether or not from time to time reduced or extinguished
(except by payment thereof) or hereafter increased or incurred, whether or not
recovery may be or hereafter become barred by the statute of limitations,
whether enforceable or unenforceable as against the Borrower, whether or not
discharged, stayed or otherwise affected by any bankruptcy, insolvency or other
similar law or proceeding, whether created directly with the Agents or any
Lender or acquired by the Agents or any Lender through assignment, endorsement
or otherwise, whether matured or unmatured, whether joint or several, as and
when the same become due and payable (whether at maturity or earlier, by reason
of acceleration, mandatory
<PAGE>
repayment or otherwise), in accordance with the terms of any such instruments
evidencing any such obligations, including all renewals, extensions or
modifications thereof (all Obligations of the Borrower to the Agents or any
Lender, including all of the foregoing, being hereinafter collectively referred
to as the "Guaranteed Obligations"); provided, that notwithstanding anything to
the contrary contained herein, it is the intention of the Guarantor, the Agents
and the Lenders that, in any proceeding involving the bankruptcy,
reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution or insolvency or any similar proceeding with respect to the
Guarantor or its assets, the amount of the Guarantor's obligations with respect
to the Guaranteed Obligations shall be in, but not in excess of, the maximum
amount thereof not subject to avoidance or recovery by operation of applicable
law governing bankruptcy, reorganization, arrangement, adjustment of debts,
relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances
or other similar laws (including, without limitation, 11 U.S.C. ss.547, ss.548,
ss.550 and other "avoidance" provisions of Title 11 of the United States Code)
applicable in any such proceeding to the Guarantor and this Guaranty
(collectively, "Applicable Insolvency Laws"). To that end, but only in the
event and to the extent that the Guarantor's obligations with respect to the
Guaranteed Obligations or any payment made pursuant to the Guaranteed
Obligations would, but for the operation of the foregoing proviso, be subject
to avoidance or recovery in any such proceeding under Applicable Insolvency
Laws, the amount of the Guarantor's obligations with respect to the Guaranteed
Obligations shall be limited to the largest amount which, after giving effect
thereto, would not, under Applicable Insolvency Laws, render the Guarantor's
obligations with respect to such Guaranteed Obligations unenforceable or
avoidable or otherwise subject to recovery under Applicable Insolvency Laws. To
the extent any payment actually made pursuant to the Guaranteed Obligations
exceeds the limitation of the foregoing proviso and is otherwise subject to
avoidance and recovery in any such proceeding under Applicable Insolvency Laws,
the amount subject to avoidance shall in all events be limited to the amount by
which such actual payment exceeds such limitation and the Guaranteed
Obligations as limited by the foregoing proviso shall in all events remain in
full force and effect and be fully enforceable against the Guarantor. The
foregoing proviso is intended solely to preserve the rights of the Agents
hereunder against the Guarantor in such proceeding to the maximum extent
permitted by Applicable Insolvency Laws and neither the Guarantor, the
Borrower, nor any other Person shall have any right or claim under such proviso
that would not otherwise be available under Applicable Insolvency Laws in such
proceeding.
SECTION 3. Nature of Guaranty. The Guarantor agrees that this
Guaranty is a continuing, unconditional guaranty of payment and performance and
not of collection, and that its obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, the Credit Agreement or any
other Loan Document or any other agreement, document or
instrument to which the Borrower is or may become a party;
(b) the absence of any action to enforce this Guaranty, the Credit
Agreement or any other Loan Document or the waiver or consent
by the Agents or any Lender with respect to any of the
provisions of this Guaranty, the Credit Agreement or any other
Loan Document;
(c) the existence, value or condition of, or failure by the Agents
to perfect their Lien against, any security for or other
guaranty of the Guaranteed Obligations or any action,
<PAGE>
or the absence of any action, by the Agents or any Lender in
respect of such security or guaranty (including, without
limitation, the release of any such security or guaranty); or
(d) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a
surety or guarantor;
it being agreed by the Guarantor that, subject to the proviso in Section 2
hereof, its obligations under this Guaranty shall not be discharged until the
final and indefeasible payment and performance, in full, of the Guaranteed
Obligations and the termination of the Commitments. To the extent permitted by
law, the Guarantor expressly waives all rights it may now or in the future have
under any statute, or at law or in equity, or otherwise, to compel the Agents
or any Lender to proceed in respect of the Guaranteed Obligations against the
Borrower or any other party or against any security for or other guaranty of
the payment and performance of the Guaranteed Obligations before proceeding
against, or as a condition to proceeding against, the Guarantor. To the extent
permitted by law, the Guarantor further expressly waives and agrees not to
assert or take advantage of any defense based upon the failure of the Agents or
any Lender to commence an action in respect of the Guaranteed Obligations
against the Borrower, any other guarantor or any other party or any security
for the payment and performance of the Guaranteed Obligations. The Guarantor
agrees that any notice or directive given at any time to the Agents or any
Lender which is inconsistent with the waivers in the preceding two sentences
shall be null and void and may be ignored by the Agents or Lender, and, in
addition, may not be pleaded or introduced as evidence in any litigation
relating to this Guaranty for the reason that such pleading or introduction
would be at variance with the written terms of this Guaranty, unless the Agents
and the Required Lenders have specifically agreed otherwise in writing. The
foregoing waivers are of the essence of the transaction contemplated by the
Loan Documents and, but for this Guaranty and such waivers, the Agents and
Lenders would decline to enter into the Credit Agreement.
SECTION 4. Demand by the Agents. In addition to the terms set forth
in Section 3, and in no manner imposing any limitation on such terms, if all or
any portion of the then outstanding Guaranteed Obligations under the Credit
Agreement are declared to be immediately due and payable, then the Guarantor
shall, upon demand in writing therefor by the Agents to the Guarantor, pay all
or such portion of the outstanding Guaranteed Obligations then declared due and
payable. Payment by the Guarantor shall be made to the Agents, to be credited
and applied upon the Guaranteed Obligations, in immediately available Dollars
to an account designated by the Agents or at the address referenced herein for
the giving of notice to the Agents or at any other address that may be
specified in writing from time to time by the Agents.
SECTION 5. Waivers. In addition to the waivers contained in Section
3, the Guarantor, to the extent permitted by law, waives and agrees that it
shall not at any time insist upon, plead or in any manner whatever claim or
take the benefit or advantage of, any appraisal, valuation, extension,
marshalling of assets or redemption laws, or exemption, whether now or at any
time hereafter in force, which may delay, prevent or otherwise affect the
performance by the Guarantor of its obligations under, or the enforcement by
the Agents or the Lenders of, this Guaranty. The Guarantor further hereby
waives diligence, presentment, demand, protest and notice of whatever kind or
nature with respect to any of the Guaranteed Obligations and waives the benefit
of all provisions of law which are or might be in conflict with the terms of
this Guaranty. The Guarantor represents, warrants
<PAGE>
and agrees that its obligations under this Guaranty are not and shall not be
subject to any counterclaims, offsets or defenses of any kind against the
Agents, the Lenders or the Borrower whether now existing or which may arise in
the future.
SECTION 6. Benefits of Guaranty. The provisions of this Guaranty
are for the benefit of the Agents and the Lenders and their respective
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between the Borrower, the Agents and the Lenders, the
obligations of the Borrower under the Loan Documents. In the event all or any
part of the Guaranteed Obligations are transferred, endorsed or assigned by the
Agents or any Lender to any Person or Persons, any reference to the "Agents",
or "Lender" herein shall be deemed to refer equally to such Person or Persons.
SECTION 7. Modification of Loan Documents etc. If the Agents or the
Lenders shall at any time or from time to time, with or without the consent of,
or notice to, the Guarantor:
(a) change or extend the manner, place or terms of payment of, or
renew or alter all or any portion of, the Guaranteed
Obligations;
(b) take any action under or in respect of the Loan Documents in
the exercise of any remedy, power or privilege contained
therein or available to it at law, in equity or otherwise, or
waive or refrain from exercising any such remedies, powers or
privileges;
(c) amend or modify, in any manner whatsoever, the Loan Documents;
(d) extend or waive the time for performance by the Guarantor, any
other guarantor, the Borrower or any other Person of, or
compliance with, any term, covenant or agreement on its part
to be performed or observed under a Loan Document (other than
this Guaranty), or waive such performance or compliance or
consent to a failure of, or departure from, such performance
or compliance;
(e) take and hold security or collateral for the payment of the
Guaranteed Obligations or sell, exchange, release, dispose of,
or otherwise deal with, any property pledged, mortgaged or
conveyed, or in which the Agents or the Lenders have been
granted a Lien, to secure any Debt of the Borrower to the
Agents or the Lenders;
(f) release anyone who may be liable in any manner for the payment
of any amounts owed by the Guarantor, any other guarantor or
the Borrower to the Agents or any Lender;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other
creditors of the Guarantor, any other guarantor or the
Borrower are subordinated to the claims of the Agents or any
Lender; or
(h) apply any sums by whomever paid or however realized to any
amounts owing by the Guarantor, any other guarantor or the
Borrower to the Agents or any Lender in such manner as the
Agents or any Lender shall determine in its reasonable
discretion;
<PAGE>
then neither the Agents nor any Lender shall incur any liability to the
Guarantor as a result thereof, and no such action shall impair or release the
obligations of the Guarantor under this Guaranty.
SECTION 8. Reinstatement. The Guarantor agrees that, if any payment
made by the Borrower or any other Person applied to the Obligations is at any
time annulled, set aside, rescinded, invalidated, declared to be fraudulent or
preferential or otherwise required to be refunded or repaid or the proceeds of
any collateral are required to be refunded by the Agents or any Lender to the
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, the Guarantor, under any Applicable Law or equitable cause, then,
to the extent of such payment or repayment, the Guarantor's liability hereunder
(and any Lien securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, and, if prior thereto,
this Guaranty shall have been canceled or surrendered (and if any Lien or
collateral securing the Guarantor's liability hereunder shall have been
released or terminated by virtue of such cancellation or surrender), this
Guaranty (and such Lien) shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect the obligations of the Guarantor in respect of the amount
of such payment (or any Lien securing such obligation).
SECTION 9. Remedies.
--------
(a) Upon the occurrence and continuance of any Event of Default,
with the consent of the Required Lenders, the Agents may, or upon the request
of the Required Lenders, the Agents shall, enforce against the Guarantor its
obligations and liabilities hereunder and exercise such other rights and
remedies as may be available to the Agents hereunder, under the Loan Documents
or otherwise.
(b) No right or remedy herein conferred upon the Agents is intended
to be exclusive of any other right or remedy contained herein or in any other
Loan Document or otherwise, and every such right or remedy contained herein and
therein or now or hereafter existing at law, or in equity, or by statute, or
otherwise shall be cumulative. The Required Lenders may instruct the Agents to
pursue, or refrain from pursuing, any remedy available to the Agents at such
times and in such order as the Required Lenders shall determine, and the
Required Lenders election as to such remedies shall not impair any remedies
against the Guarantor not then exercised. In addition, any election of remedies
which results in the denial or impairment of the right of the Agents to seek a
deficiency judgment against the Borrower shall not impair the Guarantor's
obligation to pay the full amount of the Guaranteed Obligations.
SECTION 10. Miscellaneous.
--------------
(a) Entire Agreement; Amendments. This Guaranty, together with the
other Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements with
respect to the subject matter hereof and may not be amended or supplemented
except by a writing signed by the Guarantor and the Agents, consented to by
such Lenders as required by Section 12.9 of the Credit Agreement.
<PAGE>
(b) Headings. Titles and captions of sections and subsections in
this Guaranty are for convenience of reference only, and neither limit or
amplify the provisions of this Guaranty.
(c) Notices. All notices and communications hereunder shall be
given in accordance with Section 12.1 of the Credit Agreement.
(d) Binding Effect. This Guaranty shall bind the Guarantor and
shall inure to the benefit of the Agents and Lenders and their respective
successors and assigns. The Guarantor may not assign this Guaranty or delegate
any of its duties hereunder, other than in connection with the merger of the
Guarantor into such other Person as permitted by Section 9.5 of the Credit
Agreement.
(e) Non-Waiver. The failure of the Agents or any Lender to enforce
any right or remedy hereunder, or promptly to enforce any such right or remedy,
shall not constitute a waiver thereof, nor give rise to any estoppel against
the Agents or any Lender, nor excuse the Guarantor from its obligations
hereunder. Any waiver of any such right or remedy by the Lenders must be in
writing and signed by the Required Lenders.
(f) Governing Law. This Guaranty shall be governed by and construed
and enforced in accordance with the laws of the State of South Carolina,
without reference to the conflicts or choice of law principles thereof.
(g) Consent to Jurisdiction. The Guarantor hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located
in Greenville County, South Carolina, in any action, claim or other proceeding
arising out of any dispute in connection with this Guaranty, any rights or
obligations hereunder, or the performance of such rights and obligations. The
Guarantor hereby irrevocably consents to the service of a summons and complaint
and other process in any action, claim or proceeding brought by the Agents or
any Lender in connection with this Guaranty, any rights or obligations
hereunder, or the performance of such rights and obligations, on behalf of
itself or its property, by registered or certified mail, return receipt
requested, otherwise in the manner referenced in Section 10(c). Nothing in this
Section 10(g) shall affect the right of the Agents or any Lender to serve legal
process in any other manner permitted by Applicable Law or affect the right of
the Agents or any Lender to bring any action or proceeding against the
Guarantor or its properties in the courts of any other jurisdictions.
(h) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE AGENTS, EACH LENDER AND THE GUARANTOR HEREBY IRREVOCABLY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER
PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
(i) Limitation of Liability. Neither the Agents, the Lenders nor
any Affiliate thereof shall have any liability with respect to, and THE
Guarantor hereby waives, releases and agrees not to sue upon, any claim for any
special, indirect, punitive, exemplary or consequential damages suffered by the
Guarantor in connection with, arising out of, or in any way related to this
Guaranty and the other
<PAGE>
Loan Documents, the transactions contemplated herein or therein, or any act,
omission or event occurring in connection herewith or therewith.
11. No Subrogation. Notwithstanding any payment or payments by the
Guarantor hereunder, or any set-off or application of funds of the Guarantor by
the Administrative Agent or any Lender, or the receipt of any amounts by the
Administrative Agent or any Lender with respect to any of the Guaranteed
Obligations, the Guarantor shall not be entitled to be subrogated to any of the
rights of the Agents or any Lender against the Borrower or any other guarantor
or against any collateral security held by the Administrative Agent or any
Lender for the payment of the Guaranteed Obligations nor shall the Guarantor
seek any reimbursement from the Borrower or any other guarantor in respect of
payments made by the Guarantor in connection with the Guaranteed Obligations,
until all amounts owing to the Agents and the Lenders on account of the
Guaranteed Obligations are paid in full and the Commitments are terminated. If
any amount shall be paid to the Guarantor on account of such subrogation rights
at any time when all of the Guaranteed Obligations shall not have been paid in
full, such amount shall be held by the Guarantor in trust for the
Administrative Agent, segregated from other funds of the Guarantor, and shall,
forthwith upon receipt by the Guarantor, be turned over to the Administrative
Agent in the exact form received by the Guarantor (duly endorsed by the
Guarantor to the Administrative Agent, if required) to be applied against the
Guaranteed Obligations, whether matured or unmatured, in such order as set
forth in the Credit Agreement.
IN WITNESS WHEREOF, the Guarantor has executed and delivered this
Guaranty under seal as of the date first above written.
INSIGNIA PROPERTIES TRUST
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
[CORPORATE SEAL]
ATTEST:
- -------------------------------
Secretary
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement"), dated
as of December 30, 1997, is made by INSIGNIA PROPERTIES, L.P., a limited
partnership formed under the laws of Delaware (the "Pledgor"), in favor of
FIRST UNION NATIONAL BANK, a national banking association, as Administrative
Agent (the "Agent") for the ratable benefit of itself, Lehman Commercial Paper
Inc. ("Lehman") as Syndication Agent, and the financial institutions (the
"Lenders") as are, or may from time to time become, parties to the Credit
Agreement (as hereinafter defined).
STATEMENT OF PURPOSE
Pursuant to the terms of the Credit Agreement of even date among
the Pledgor (as Borrower), the Lenders, the Agent and Lehman (as amended,
restated, modified or otherwise supplemented from time to time, the "Credit
Agreement"), the Lenders extended a certain credit facility to the Pledgor as
more particularly described therein.
The Pledgor is the legal and beneficial owner of (a) the
Partnership Interests (as hereinafter defined) in the partnerships (the
"Partnerships") listed on Schedule I hereto, (b) the shares of Pledged Stock
(as hereafter defined) issued by the issuers (the "Issuers") listed on Schedule
I hereto, and (c) the Membership Interests (as hereinafter defined) in the
limited liability companies (the "Companies") listed on Schedule I hereto.
In connection with the transactions contemplated by the Credit
Agreement and as a condition precedent to the extensions of credit thereunder,
the Lenders have requested, and the Pledgor has agreed to execute and deliver,
this Pledge Agreement.
NOW, THEREFORE, in consideration of the premises, the Pledgor
hereby agrees with the Agent for the ratable benefit of itself, Lehman and the
Lenders as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein (including the preamble and
statement of purpose) are so used as so defined, and the following terms shall
have the following meanings:
"Code" means the Uniform Commercial Code from time to time in
effect in the State of South Carolina.
"Collateral" means the Partnership Collateral.
"LLC Collateral" means all of the Membership Interests of the
Pledgor in the Companies and all Proceeds therefrom.
<PAGE>
"Membership Interests" means the entire membership interest of
the Pledgor in each Company listed on Schedule I hereto, including without
limitation, the Pledgor's capital account, its interest as a member in the
net cash flow, net profit and net loss, and items of income, gain, loss,
deduction and credit of the Companies, its interest in all distributions
made or to be made by the Companies to the Pledgor and all of the other
economic rights, titles and interests of the Pledgor as a member of the
Companies, whether set forth in the membership agreement of the Companies,
by separate agreement or otherwise.
"Partnership Collateral" means all of the Partnership Interests
of the Pledgor in the Partnerships and all Proceeds therefrom.
"Partnership Interests" means the entire partnership interest of
the Pledgor in each Partnership listed on Schedule I hereto, including
without limitation, Pledgor's capital account, its interest as a partner
in the net cash flow, net profit and net loss, and items of income, gain,
loss, deduction and credit of the Partnerships, its interest in all
distributions made or to be made by the Partnerships to the Pledgor and
all of the other economic rights, titles and interests of the Pledgor as a
partner of the Partnerships, whether set forth in the partnership
agreement of the Partnerships, by separate agreement or otherwise.
"Permitted Liens" means Liens permitted pursuant to Section 9.3
of the Credit Agreement.
"Pledge Agreement" means this Pledge and Security Agreement, as
amended or modified.
"Pledged Stock" means the shares of capital stock of each Issuer
listed on Schedule I hereto, together with all stock certificates, options
or rights of any nature whatsoever that may be issued or granted by any
Issuer to the Pledgor while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the Code on the date hereof.
"Stock Collateral" means the Pledged Stock and all Proceeds
therefrom and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Stock, collections thereon,
proceeds of sale thereof or distributions with respect thereto.
2. Pledge and Grant of Security Interest. The Pledgor hereby
delivers to the Agent, for the ratable benefit of the Agents and the Lenders,
all of the Pledged Stock and hereby grants to the Agent, for the ratable
benefit of the Agents, and Lenders, a first priority security interest in the
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations (as defined in the Credit Agreement).
3. Stock Powers; Register of Pledge.
2
<PAGE>
(a) Concurrently with the delivery to the Agent of each certificate
representing one or more shares of Pledged Stock, the Pledgor shall deliver an
undated stock power covering such certificate, duly executed in blank by the
Pledgor;
(b) Concurrently with the execution of this Pledge Agreement, the
Pledgor shall send to each Partnership listed on Schedule I hereto written
instructions substantially in the form of Exhibit A hereto and shall cause each
such Partnership to, and each such Partnership shall, deliver to the Agent the
Transaction Statement in the form of Exhibit B hereto, confirming that each
such Partnership has registered the pledge effected by this Pledge Agreement on
its books.
4. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable to perform all of its
duties and obligations as a member of the Companies to the same extent as if
this Pledge Agreement had not been executed, (b) the exercise by the Agent or
any Lender of any of its rights hereunder shall not release the Pledgor from
any of its duties or obligations as a member of the Companies, and (c) neither
the Agent nor any Lender shall have any obligation or liability as a member of
the Companies by reason of this Pledge Agreement.
5. Representations and Warranties. To induce the Agent and Lenders
to execute the Credit Agreement and to accept the security contemplated hereby
and the Lenders to make extensions of credit under the Credit Agreement, the
Pledgor hereby represents and warrants that:
(a) the shares of Pledged Stock listed on Schedule I constitute
all of the issued and outstanding shares of all classes of the capital
stock of the Issuer;
(b) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and non-assessable;
(c) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Collateral listed on Schedule I, free of
any and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Pledge Agreement or Permitted Liens;
(d) the jurisdiction in which the Pledgor is located for
purposes of Sections 9-103 and 9-401 of the UCC is the address set forth
on Schedule II; and
(e) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock and the filing of properly completed
financing or other statements in all necessary jurisdictions, the Lien on
the Collateral granted pursuant to this Pledge Agreement will constitute a
valid, perfected first priority Lien on the Collateral, enforceable as
such against all creditors of the Pledgor.
6. Certain Covenants. The Pledgor covenants and agrees with the
Agent for the ratable benefit of the Agents and Lenders that, except as
permitted under the Credit Agreement, from and
3
<PAGE>
after the date of this Pledge Agreement until the Obligations are paid in full
and the Commitments are terminated:
(a) The Pledgor will not without thirty (30) days prior written
notice to the Agent change its name, identity or corporate structure so as
to make any financing or other statement filed as provided herein become
seriously misleading. The Pledgor will, upon reasonable request of the
Agent, execute such financing statements, notices of lien, notices of
assignment and continuations or amendments to any of the foregoing, and
other documents (and pay the costs of filing or recording the same in all
public offices deemed necessary by the Agent) and do such other acts and
things, all as the Agent may from time to time reasonably request to
establish and maintain a valid perfected pledge and security interest in
the Collateral. The Pledgor hereby constitutes and appoints the Agent (and
any of its officers) as its attorney-in-fact with full power and authority
to execute and deliver all documents necessary to perfect and keep
perfected the security interests created hereby. This power of attorney
hereby granted is a special power of attorney coupled with an interest and
shall be irrevocable by the Pledgor.
(b) The Pledgor agrees that as a member of the Companies it will
abide by, perform and discharge each and every material obligation,
covenant and agreement to be abided by, performed or discharged by a
member under the terms of the articles of organization and operating
agreements of the Companies, at no cost or expense to the Agent and the
Lenders.
(c) If the Pledgor shall, as a result of its ownership of the
Collateral, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any of the
Collateral, or otherwise in respect thereof, the Pledgor shall accept the
same as the agent of the Agent, hold the same in trust for the Agent and
deliver the same forthwith to the Agent in the exact form received, duly
indorsed by the Pledgor to the Agent, if required, together with an
undated stock power covering such certificate duly executed in blank by
the Pledgor to be held by the Agent, subject to the terms hereof, as
additional collateral security for the Obligations. In addition, any sums
paid upon or in respect of any Collateral upon the liquidation or
dissolution of any Issuer shall be paid over to the Agent to be held by it
hereunder as additional collateral security for the Obligations, and upon
the recapitalization or reclassification of any Issuer, any new securities
issued in connection with or in exchange for any Collateral shall be
delivered to the Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of any Collateral shall be received by the Pledgor,
the Pledgor shall, until such money or property is paid or delivered to
the Agent, hold such money or property in trust for the Agent, segregated
from other funds of the Pledgor, as additional collateral security for the
Obligations.
4
<PAGE>
(d) Without the prior written consent of the Agent, the Pledgor
will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to
issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any
nature of such Issuer, (ii) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, or (iii)
create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Collateral, or any
interest therein, except for the Permitted Liens. The Pledgor will defend
the right, title and interest of the Agent in and to the Collateral
against the claims and demands of all Persons whomsoever.
(e) At any time and from time to time, upon the reasonable
written request of the Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein
granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall
be immediately delivered to the Agent, duly endorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this
Pledge Agreement.
(f) The Pledgor agrees to pay, and to save the Agent and the
Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or
other taxes which may be payable or determined to be payable with respect
to any of the Collateral or in connection with any of the transactions
contemplated by this Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an
Event of Default shall have occurred and be continuing and the Agent shall have
given notice to the Pledgor of the Agent's intent to exercise its rights
pursuant to Section 8 below, the Pledgor shall be permitted to receive all cash
dividends and other distributions paid in accordance with the terms of the
Credit Agreement in respect of the Collateral and to exercise all voting and
corporate, membership or partnership rights, as applicable, with respect to the
Collateral; provided, that no vote shall be cast or corporate, membership or
partnership right exercised or other action taken which would constitute an
Event of Default.
8. Rights of the Agent.
(a) If an Event of Default shall occur and be continuing and the
Agent shall give ten (10) Business Days prior written notice of its intent to
exercise such rights to the Pledgor, the Agent shall have the right to receive
any and all cash distributions paid in respect of the Collateral and make
application thereof to the Obligations in the order set forth in the Credit
Agreement
(b) The rights of the Agent and the Lenders hereunder shall not be
conditioned or contingent upon the pursuit by the Agent or any Lender of any
right or remedy against the Borrower, the Guarantor or against any other Person
which may be or become liable in respect of all or any part
5
<PAGE>
of the Obligations or against any collateral security therefor, guarantee
therefor or right of offset with respect thereto. Neither the Agent nor any
Lender shall be liable for any failure to demand, collect or realize upon all
or any part of the Collateral or for any delay in doing so, nor shall the Agent
be under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing,
with the consent of the Required Lenders, the Agent may, and upon the request
of the Required Lenders, the Agent shall, exercise on behalf of itself and the
Lenders, all rights and remedies granted in this Pledge Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, and in addition thereto, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing with
regard to the scope of the Agent's remedies, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by Section 7 hereof or any Applicable Law)
to or upon the Pledgor, or any other Person (all and each of which demands,
defenses, advertisements and notices (except any notice required by Section 7
hereof or any Applicable Law) are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange,
broker's board or office of the Agent or any Lender or elsewhere in a
commercially reasonable manner. The Agent or any Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Pledgor,
which right or equity is hereby waived or released. The Agent shall apply any
Proceeds from time to time held by it in a collateral account to be held by the
Agent for the benefit of itself and the other Lenders; and the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
respect thereof or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Agent
and the Lenders hereunder, including, without limitation, reasonable attorneys'
fees and disbursements of counsel thereto, to the payment in whole or in part
of the Obligations, in the order set forth in the Credit Agreement, and only
after such application and after the payment by the Agent of any other amount
required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Agent or any Lender
arising out of the exercise by them in good faith of any rights hereunder.
Notice of a proposed sale or other disposition of Collateral shall be given in
writing to the Pledgor and deemed reasonable and proper if given at least 10
Business Days before such sale or other disposition. The Pledgor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Agent or any Lender to collect
such deficiency.
10. Private Sales. (a) The Pledgor recognizes that the Agent may
be unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to
6
<PAGE>
one or more private sales thereof to a restricted group of purchasers which
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. The Pledgor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit such Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
11. Limitation on Duties Regarding Collateral. The Agent's sole
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Agent deals with similar
securities and property for its own account. Neither the Agent, any Lender nor
any of their respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or otherwise.
12. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each Issuer, Partnership and Company to
comply with any instruction received by it from the Agent in writing that (a)
states that an Event of Default has occurred and (b) is otherwise in accordance
with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that each Issuer,
Partnership and Company shall be fully protected in so complying.
13. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral constitute irrevocable
powers coupled with an interest.
14. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Section Headings. The section headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
16. No Waiver; Cumulative Remedies. Neither the Agent nor any
Lender shall by any act (except by a written instrument pursuant to Section 17
hereof) be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent
7
<PAGE>
or any Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Agent or such Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any other rights or remedies provided by law.
17. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Pledge Agreement may be amended, supplemented or
otherwise modified except by a written instrument executed by the Pledgor and
Agent; provided that (a) any provision of this Pledge Agreement may be waived
by the Agent in a letter or agreement executed by the Agent or by telex or
facsimile transmission from the Agent and (b) any consent or waiver by the
Agent to any amendment, supplement or modification hereto shall be subject to
approval thereof by each of the Lenders or Required Lenders, as applicable, in
accordance with Section 12.9 of the Credit Agreement. This Pledge Agreement
shall be binding upon the successors and assigns of the Pledgor and shall inure
to the benefit of the Agent and the Lenders and their respective successors and
assigns.
18. Governing Law, etc. (a) This Pledge Agreement, unless
otherwise expressly set forth herein, shall be governed by, construed and
enforced in accordance with the laws of the State of South Carolina, without
reference to the conflicts or choice of law principles thereof.
(b) The Pledgor hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in Greenville County,
South Carolina, in any action, claim or other proceeding arising out of any
dispute in connection with this Pledge Agreement, any rights or obligations
hereunder, or the performance of such rights and obligations. The Pledgor
hereby irrevocably consents to the service of a summons and complaint and other
process in any action, claim or proceeding brought by the Agent in connection
with this Pledge Agreement or any rights or obligations hereunder, or the
performance of such rights and obligations, on behalf of itself or its
property, by registered or certified mail, return receipt requested, otherwise
in the manner specified in Section 19. Nothing in this Section 18 shall affect
the right of the Agent to serve legal process in any other manner permitted by
Applicable Law or affect the right of the Agent to bring any action or
proceeding against the Pledgor or its properties in the courts of any other
jurisdictions.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE AGENT AND EACH
LENDER BY THEIR ACCEPTANCE OF THIS PLEDGE AGREEMENT OR THE BENEFITS HEREOF AND
THE PLEDGOR HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF OR ANY
DISPUTE IN CONNECTION WITH THIS PLEDGE AGREEMENT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
19. Notices. All notices and communications hereunder shall be
given to the addresses and otherwise in accordance with Section 12.1 of the
Credit Agreement.
20. Authority of Agent. The Pledgor acknowledges that the rights
and responsibilities of the Agent under this Pledge Agreement with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, voting right, request, judgment or other right or remedy
8
<PAGE>
provided for herein or resulting or arising out of this Pledge Agreement shall,
as between the Agent and the Lenders, be governed by the Credit Agreement and
by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Agent and the Pledgor, the Agent shall be
conclusively presumed to be acting as agent for itself and the Lenders with
full and valid authority so to act or refrain from acting, and neither the
Pledgor nor any Partnership shall be under any obligation, or entitlement, to
make any inquiry respecting such authority.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed under seal and delivered as of the date first
above written.
INSIGNIA PROPERTIES, L.P.
By Its General Partner
Insignia Properties Trust
By:
------------------------------
Name:
------------------------
Title:
-----------------------
9
<PAGE>
SCHEDULE I
To Pledge
Agreement
----------
DESCRIPTION OF PLEDGED STOCK
Class of Stock No. of
Issuer Stock Certificate No. Shares
------ -------- -------------- ------
DESCRIPTION OF MEMBERSHIP INTEREST
LLC No. of
Company Certificate No. Shares
- ------- -------------- ------
DESCRIPTION OF PARTNERSHIP INTEREST
Partnership Partnership Interest
- ----------- --------------------
<PAGE>
SCHEDULE II
To Pledge
Agreement
---------
Address of the Pledgor
-----------------------
One Insignia Financial Plaza
Post Office Box 1089
Greenville, South Carolina 29602
<PAGE>
Supplement to Pledge Agreement
PLEDGE AGREEMENT SUPPLEMENT, dated as of __________, 199__ (the
"Supplement"), made by Insignia Properties, L.P., a limited partnership formed
under the laws of Delaware (the "Pledgor"), in favor of First Union National
Bank, a national banking corporation, as Administrative Agent (in such
capacity, the "Agent"), under the Credit Agreement (as defined in the Pledge
Agreement referred to below) for the benefit of itself and the Lenders (as so
defined).
1. Reference is hereby made to that Pledge Agreement, dated as of
__________, 1997 made by the Pledgor in favor of the Agent (as amended,
restated, modified or otherwise supplemented from time to time as of the date
hereof, the "Pledge Agreement"). This Supplement supplements the Pledge
Agreement, forms a part thereof and is subject to the terms thereof. Terms
defined in the Pledge Agreement are used herein as therein defined.
2. The Pledgor hereby confirms and reaffirms the security interest
in the Collateral granted to the Agent for the ratable benefit of itself and
the Lenders under the Pledge Agreement, and, as additional collateral security
for the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
delivers to the Agent, for the benefit of the Lenders, all of the issued and
outstanding shares of capital stock of [INSERT NAME OF NEW SUBSIDIARY] (the
"New Issuer") listed below, together with all stock certificates, options, or
rights of any nature whatsoever which may be issued or granted by the New
Issuer in respect to such stock which the Pledge Agreement, as supplemented
hereby, is in force (the "Additional Pledged Stock"; as used in the Pledge
Agreement as supplemented by this Supplement, "Pledged Stock" shall be deemed
to include the Additional Pledged Stock) and hereby grants to the Agent, for
the ratable benefit of itself and the Lenders, a first priority security
interest in the Additional Pledged Stock and all Proceeds thereof.]
or
[2. The Pledgor hereby confirms and reaffirms the security interest
in the Collateral granted to the Agent for the ratable benefit of itself and
the Lenders under the Pledge Agreement, and, as additional collateral security
for the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
grants to the Agent, for the ratable benefit of itself and the Lenders, a first
priority security interest in the entire partnership interest of Pledgor (the
"Additional Partnership Interest") in [INSERT NAME OF NEW PARTNERSHIP] (the
"New Partnership") listed below and all Proceeds thereof (as used in the Pledge
Agreement as supplemented by this Supplement, "Partnership Interests" shall be
deemed to include the Additional Partnership Interest).]
or
<PAGE>
[2. The Pledgor hereby confirms and reaffirms the security interest
in the Collateral granted to the Agent for the ratable benefit of itself and
the Lenders under the Pledge Agreement, and, as additional collateral security
for the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
delivers to the Agent, for the ratable benefit of the Agents and the Lenders,
all of the certificates of limited liability company interests issued by
[INSERT NAME OF NEW LIMITED LIABILITY COMPANY] (the "New Company") listed
below, and hereby grants to the Agent, for the ratable benefit of the Agents
and Lenders, a first priority security interest in the Membership Interest of
the Pledgor (the "Additional Membership Interest") in the New Company, and all
Proceeds thereof (as used in the Pledge Agreement as supplemented by this
Supplement, "Membership Interest" shall be deemed to include the Additional
Membership Interest).]
3. The Pledgor hereby represents and warrants that the
representations and warranties contained in paragraph 5 of the Pledge Agreement
are true and correct on the date of this Supplement with references therein to
the ["Pledged Stock" to include the Additional Pledged Stock] or ["Membership
Interests" to include the Additional Membership Interest], with references
therein to the ["Issuer" to include the New Issuer] or "Company" to include the
New Company], and with references to the "Pledge Agreement" to mean the Pledge
Agreement as supplemented by this Supplement.
4. The Additional [Pledged Stock] or [Partnership Interest] or
[Membership Interest] pledged hereby is as follows which [Pledged Stock] or
[Partnership Interest] or [Membership Interest] shall be deemed part of
Schedule 1 thereto:
DESCRIPTION OF PLEDGED STOCK
----------------------------
Class of Stock No. of
Issuer Stock Certificate No. Shares
- ------ -------- --------------- ------
New Issuer
DESCRIPTION OF PARTNERSHIP INTEREST
-----------------------------------
Partnership Partnership Interest
- -------------- ------------------------
New Partnership
DESCRIPTION OF MEMBERSHIP INTEREST
----------------------------------
LLC No. of
<PAGE>
Issuer Certificate No. Shares
- ------ -------------- -------
New Company
5. The Pledgor hereby agrees to deliver to the Agent such
certificates and other documents and take such other action as shall be
reasonably requested by the Agent in order to effectuate the terms hereof and
the Pledge Agreement.
6. The address for notices for the [New Issuer] or [New
Partnership] or [New Company] is as follows:
------------------------------
------------------------------
Attention:
--------------------
Telephone No.:
----------------
Telecopy No.:
-----------------
-----------------------------------
-----------------------------------
-----------------------------------
Attention:
-------------------------
Telephone No.:
---------------------
Telecopy No.:
----------------------
IN WITNESS WHEREOF, the Pledgor has caused this Supplement to be
duly executed under seal and delivered as of the date first above written.
INSIGNIA PROPERTIES, L.P.
By Its General Partner
Insignia Properties Trust
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT A
-----------
Authorization Statement
------------------------
, 199
--------------- --
To: [Company or Partnership]
You are hereby instructed to register the pledge of the following
uncertificated security:
All [membership] or [partnership] and other ownership interests of
the undersigned in the [Company or Partnership] in favor of:
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
Post Office Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
Very truly yours,
INSIGNIA PROPERTIES, L.P.
By Its General Partner
Insignia Properties Trust
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
EXHIBIT B
---------
Transaction Statement
---------------------
, 199
-------------- --
To: [Pledgor]
and
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
Post Office Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
This statement is to advise you that a pledge of the following
uncertificated securities has been registered in the name of First Union
National Bank, as Administrative Agent:
1. Uncertificated Security: All [membership] or [partnership] and
other ownership interests of [Pledgor] in the undersigned.
2. Registered Owner:
[Pledgor]
Taxpayer Identification Number:
----------------
3. Registered Pledgee:
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
P.O. Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
Taxpayer Identification Number:
-----------------
<PAGE>
4. There are no liens, restrictions or other encumbrances on the
interests of [Pledgor] in the undersigned, other than Permitted
Liens (as defined in the Pledge and Security Agreement by
[Pledgor] to First Union National Bank as Administrative Agent
for the ratable benefit of itself, Lehman Commercial Paper Inc.
as Syndication Agent and the Lenders referenced therein), and no
adverse claims to which the uncertificated security is or may be
subject are known to the undersigned.
5. The pledge was registered on __________ __, 199__.
THIS STATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEES
AS OF THE TIME OF ITS ISSUANCE. DELIVERY OF THIS STATEMENT, OF ITSELF, CONFERS
NO RIGHTS ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT
NOR A SECURITY.
Very truly yours,
[Company or Partnership]
By:
-------------------------------
Name:
-------------------------
Title:
------------------------
By:
-------------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
SUMMARY AND LOCATION OF DOCUMENT
Document #: 282794.1
Description: FUNB/Insignia - Pledge Agreement
Author: JDL
Document Type: AGT
Client: 13568
Matter: 007
Directory: F:\DATA\USR\JDL\CLI
Date: May 5, 1998
Revised by:
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement"), dated as
of December 30, 1997, is made by INSIGNIA PROPERTIES TRUST, a Maryland real
estate investment trust (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK,
a national banking association, as Administrative Agent (the "Agent") for the
ratable benefit of itself, Lehman Commercial Paper Inc. ("Lehman") as
Syndication Agent, and the financial institutions (the "Lenders") as are, or
may from time to time become, parties to the Credit Agreement (as hereinafter
defined).
STATEMENT OF PURPOSE
Pursuant to the terms of the Credit Agreement of even date among
Insignia Properties, L.P. (the "Borrower"), the Lenders, the Agent and Lehman
(as amended, restated, modified or otherwise supplemented from time to time,
the "Credit Agreement"), the Lenders extended a certain credit facility to the
Borrower as more particularly described therein.
Pursuant to the terms and conditions of the Unconditional Guaranty
Agreement of even date executed by the Pledgor as guarantor in favor of the
Agent for the benefit of the Agents and the Lenders, the Pledgor guaranteed the
Obligations of the Borrower under the Credit Agreement (as supplemented, the
"Guaranty"). The Pledgor is the general partner of the Borrower, and all Loans
to the Borrower will inure directly or indirectly to benefit the Pledgor.
The Pledgor is the legal and beneficial owner of (a) the shares of
Pledged Stock (as hereinafter defined) issued by the issuers (the "Issuers")
listed on Schedule I hereto, (b) the Membership Interests (as hereinafter
defined) in the limited liability companies (the "Companies") listed on
Schedule I hereto, and (c) the Partnership Interests (as hereinafter defined)
in the partnerships (the "Partnerships") listed on Schedule I hereto.
In connection with the transactions contemplated by the Credit
Agreement and as a condition precedent to the extensions of credit thereunder,
the Lenders have requested, and the Pledgor has agreed to execute and deliver,
this Pledge Agreement.
NOW, THEREFORE, in consideration of the premises, the Pledgor hereby
agrees with the Agent for the ratable benefit of itself, Lehman and the Lenders
as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein (including the preamble and
statement of purpose) are so used as so defined, and the following terms shall
have the following meanings:
"Code" means the Uniform Commercial Code from time to time in
effect in the State of South Carolina.
<PAGE>
"Collateral" means the Stock Collateral, the LLC Collateral
and the Partnership Collateral.
"LLC Collateral" means all of the Membership Interests of the
Pledgor in the Companies and all Proceeds therefrom.
"Membership Interests" means the entire membership interest
of the Pledgor in each Company listed on Schedule I hereto, including
without limitation, the Pledgor's capital account, its interest as a
member in the net cash flow, net profit and net loss, and items of
income, gain, loss, deduction and credit of the Companies, its
interest in all distributions made or to be made by the Companies to
the Pledgor and all of the other economic rights, titles and interests
of the Pledgor as a member of the Companies, whether set forth in the
membership agreement of the Companies, by separate agreement or
otherwise.
"Obligations" means the Guaranteed Obligations under the
Guaranty.
"Partnership Collateral" means all of the Partnership
Interests of the Pledgor in the Partnerships and all Proceeds
therefrom.
"Partnership Interests" means the entire partnership interest
of the Pledgor in each Partnership listed on Schedule I hereto,
including without limitation, Pledgor's capital account, its interest
as a partner in the net cash flow, net profit and net loss, and items
of income, gain, loss, deduction and credit of the Partnerships, its
interest in all distributions made or to be made by the Partnerships
to the Pledgor and all of the other economic rights, titles and
interests of the Pledgor as a partner of the Partnerships, whether set
forth in the partnership agreement of the Partnerships, by separate
agreement or otherwise.
"Permitted Liens" means Liens permitted pursuant to Section
9.3 of the Credit Agreement.
"Pledge Agreement" means this Pledge and Security Agreement,
as amended or modified.
"Pledged Stock" means the shares of capital stock of each
Issuer listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the Code on the date hereof.
"Stock Collateral" means the Pledged Stock and all Proceeds
therefrom and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Stock, collections thereon,
proceeds of sale thereof or distributions with respect thereto.
2
<PAGE>
2. Pledge and Grant of Security Interest. The Pledgor hereby delivers
to the Agent, for the ratable benefit of the Agents and the Lenders, all the
Pledged Stock and hereby grants to the Agent, for the ratable benefit of the
Agents, and Lenders, a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Stock Powers; Register of Pledge.
(a) Concurrently with the delivery to the Agent of each
certificate representing one or more shares of Pledged Stock, the
Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor;
(b) Concurrently with the execution of this Pledge Agreement,
the Pledgor shall send to each Company and Partnership listed on
Schedule I hereto written instructions substantially in the form of
Exhibit A hereto and shall cause each such Company or Partnership to,
and each such Company or Partnership shall, deliver to the Agent the
Transaction Statement in the form of Exhibit B hereto, confirming that
each such Company or Partnership has registered the pledge effected by
this Pledge Agreement on its books.
4. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Pledgor shall remain liable to perform all of its
duties and obligations as a member of the Companies to the same extent as if
this Pledge Agreement had not been executed, (b) the exercise by the Agent or
any Lender of any of its rights hereunder shall not release the Pledgor from
any of its duties or obligations as a member of the Companies, and (c) neither
the Agent nor any Lender shall have any obligation or liability as a member of
the Companies by reason of this Pledge Agreement.
5. Representations and Warranties. To induce the Agent and Lenders to
execute the Credit Agreement and to accept the security contemplated hereby and
the Lenders to make extensions of credit under the Credit Agreement, the
Pledgor hereby represents and warrants that:
(a) the shares of Pledged Stock listed on Schedule I
constitute all the issued and outstanding shares of all classes of the
capital stock of the Issuers;
(b) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and
has good and marketable title to, the Collateral listed on Schedule I,
free of any and all Liens or options in favor of, or claims of, any
other Person, except the Lien created by this Pledge Agreement or
Permitted Liens;
(d) the jurisdiction in which the Pledgor is located for
purposes of Sections 9-103 and 9-401 of the UCC is the address set
forth on Schedule II; and
(e) upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock and the filing of properly completed
financing or other statements in all necessary
3
<PAGE>
jurisdictions, the Lien on the Collateral granted pursuant to this
Pledge Agreement will constitute a valid, perfected first priority
Lien on the Collateral, enforceable as such against all creditors of
the Pledgor.
6. Certain Covenants. The Pledgor covenants and agrees with the Agent
for the ratable benefit of the Agents and Lenders that, except as permitted
under the Credit Agreement, from and after the date of this Pledge Agreement
until the Obligations are paid in full and the Commitments are terminated:
(a) The Pledgor will not without thirty (30) days prior
written notice to the Agent change its name, identity or corporate
structure so as to make any financing or other statement filed as
provided herein become seriously misleading. The Pledgor will, upon
reasonable request of the Agent, execute such financing statements,
notices of lien, notices of assignment and continuations or amendments
to any of the foregoing, and other documents (and pay the costs of
filing or recording the same in all public offices deemed necessary by
the Agent) and do such other acts and things, all as the Agent may
from time to time reasonably request to establish and maintain a valid
perfected pledge and security interest in the Collateral. The Pledgor
hereby constitutes and appoints the Agent (and any of its officers) as
its attorney-in-fact with full power and authority to execute and
deliver all documents necessary to perfect and keep perfected the
security interests created hereby. This power of attorney hereby
granted is a special power of attorney coupled with an interest and
shall be irrevocable by the Pledgor.
(b) The Pledgor agrees that as a member of the Companies it
will abide by, perform and discharge each and every material
obligation, covenant and agreement to be abided by, performed or
discharged by a member under the terms of the articles of organization
and operating agreements of the Companies, at no cost or expense to
the Agent and the Lenders.
(c) If the Pledgor shall, as a result of its ownership of the
Collateral, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in
exchange for any of the Collateral, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Agent, hold the
same in trust for the Agent and deliver the same forthwith to the
Agent in the exact form received, duly indorsed by the Pledgor to the
Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor to be held by the
Agent, subject to the terms hereof, as additional collateral security
for the Obligations. In addition, any sums paid upon or in respect of
any Collateral upon the liquidation or dissolution of any Issuer shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and upon the recapitalization
or reclassification of any Issuer, any new securities issued in
connection with or in exchange for any Collateral shall be delivered
to the Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid
or distributed in respect of any Collateral shall be received by the
4
<PAGE>
Pledgor, the Pledgor shall, until such money or property is paid or
delivered to the Agent, hold such money or property in trust for the
Agent, segregated from other funds of the Pledgor, as additional
collateral security for the Obligations.
(d) Without the prior written consent of the Agent, the
Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of
any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any stock or other
equity securities of any nature of such Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral, or (iii) create, incur or permit to exist
any Lien or option in favor of, or any claim of any Person with
respect to, any of the Collateral, or any interest therein, except for
the Permitted Liens. The Pledgor will defend the right, title and
interest of the Agent in and to the Collateral against the claims and
demands of all Persons whomsoever.
(e) At any time and from time to time, upon the reasonable
written request of the Agent, and at the sole expense of the Pledgor,
the Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Agent
may reasonably request for the purposes of obtaining or preserving the
full benefits of this Pledge Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel
paper shall be immediately delivered to the Agent, duly endorsed in a
manner satisfactory to the Agent, to be held as Collateral pursuant to
this Pledge Agreement.
(f) The Pledgor agrees to pay, and to save the Agent and the
Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales
or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an Event of
Default shall have occurred and be continuing and the Agent shall have given
notice to the Pledgor of the Agent's intent to exercise its rights pursuant to
Section 8 below, the Pledgor shall be permitted to receive all cash dividends
and other distributions paid in accordance with the terms of the Credit
Agreement in respect of the Collateral and to exercise all voting and
corporate, membership or partnership rights, as applicable, with respect to the
Collateral; provided, that no vote shall be cast or corporate, membership or
partnership right exercised or other action taken which would constitute an
Event of Default.
8. Rights of the Agent.
(a) If an Event of Default shall occur and be continuing and the Agent
shall give ten (10) Business Days prior written notice of its intent to
exercise such rights to the Pledgor, (i) the Agent shall have the right to
receive any and all cash dividends and distributions paid in respect of the
Collateral and make application thereof to the Obligations in the order set
forth in the Credit Agreement and (ii) all shares of the Pledged Stock shall be
registered in the name of the Agent or its
5
<PAGE>
nominee, and the Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at
any meeting of shareholders of each Issuer or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges
or options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by the Pledgor or the Agent of
any right, privilege or option pertaining to such shares of the Pledged Stock,
and in connection therewith, the right to deposit and deliver any and all of
the Pledged Stock with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as it may determine),
all without liability except to account for property actually received by it,
but the Agent shall have no duty to the Pledgor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
(b) The rights of the Agent and the Lenders hereunder shall not be
conditioned or contingent upon the pursuit by the Agent or any Lender of any
right or remedy against the Borrower, the Guarantors or against any other
Person which may be or become liable in respect of all or any part of the
Obligations or against any collateral security therefor, guarantee therefor or
right of offset with respect thereto. Neither the Agent nor any Lender shall be
liable for any failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, nor shall the Agent be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing,
with the consent of the Required Lenders, the Agent may, and upon the request
of the Required Lenders, the Agent shall, exercise on behalf of itself and the
Lenders, all rights and remedies granted in this Pledge Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, and in addition thereto, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing with
regard to the scope of the Agent's remedies, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by Section 8 hereof or any Applicable Law)
to or upon the Pledgor, any Issuer or any other Person (all and each of which
demands, defenses, advertisements and notices (except any notice required by
Section 8 hereof or any Applicable Law) are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or
any part thereof (or contract to do any of the foregoing), in one or more
parcels at public or private sale or sales, in the over-the-counter market, at
any exchange, broker's board or office of the Agent or any Lender or elsewhere
in a commercially reasonable manner. The Agent or any Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Pledgor,
which right or equity is hereby waived or released. The Agent shall apply any
Proceeds from time to time held by it in a collateral account to be held by the
Agent for the benefit of itself and the other Lenders; and the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
respect thereof or incidental to the care or
6
<PAGE>
safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Agent and the Lenders hereunder, including, without
limitation, reasonable attorneys' fees and disbursements of counsel thereto, to
the payment in whole or in part of the Obligations, in the order set forth in
the Credit Agreement, and only after such application and after the payment by
the Agent of any other amount required by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Code, need the Agent account for
the surplus, if any, to the Pledgor. To the extent permitted by applicable law,
the Pledgor waives all claims, damages and demands it may acquire against the
Agent or any Lender arising out of the exercise by them in good faith of any
rights hereunder. Notice of a proposed sale or other disposition of Collateral
shall be given in writing to the Pledgor and deemed reasonable and proper if
given at least 10 Business Days before such sale or other disposition. The
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Agent or any Lender to
collect such deficiency.
10. Private Sales. () The Pledgor recognizes that the Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Agent shall
be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit such Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
(b) The Pledgor further agrees to use commercially reasonable efforts
to do or cause to be done all such other acts as may be reasonably necessary to
make such sale or sales of all or any portion of the Pledged Stock pursuant to
this Section 10 valid and binding and in compliance with any and all other
Applicable Laws.
11. No Subrogation. Notwithstanding any payment or payments made by the
Pledgor hereunder, or any setoff or application of funds of the Pledgor by the
Agent or any Lender, or the receipt of any amounts by the Agent or any Lender
with respect to any of the Collateral, the Pledgor shall not be entitled to be
subrogated to any of the rights of the Agent or any Lender against the Borrower
or the other Guarantors or against any other collateral security held by the
Agent or any Lender for the payment of the Obligations, nor shall the Pledgor
seek any reimbursement from the Borrower or the other Guarantors in respect of
payments made by the Pledgor in connection with the Collateral, or amounts
realized by the Agent or any Lender in connection with the Collateral, until
all amounts owing to the Agent and Lenders on account of the Obligations are
paid in full and the Commitments are terminated. If any amount shall be paid to
the Pledgor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by the
Pledgor in trust for the Agent, segregated from other funds of the Pledgor, and
shall, forthwith upon receipt by the Pledgor, be turned over to the Agent in
the exact form received by the Pledgor (duly indorsed by the Pledgor to the
Agent, if required) to be applied
7
<PAGE>
against the Obligations, whether matured or unmatured, in such order as set
forth in the Credit Agreement.
12. Amendments, etc. With Respect to the Obligations. The Pledgor shall
remain obligated hereunder, and the Collateral shall remain subject to the Lien
granted hereby, notwithstanding that, without any reservation of rights against
the Pledgor, and without notice to or further assent by the Pledgor, any demand
for payment of any of the Obligations made by the Agent or any Lender may be
rescinded by the Agent or such Lender, and any of the Obligations continued,
and the Obligations, or the liability of the Borrower or any other Person upon
or for any part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised,
waived, surrendered, or released by the Agent or any Lender, and the Credit
Agreement, the Notes, any other Loan Documents and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or part, as the Lenders (or the Required Lenders, as the
case may be) may deem advisable from time to time, and any guarantee, right of
offset or other collateral security at any time held by the Agent or any Lender
for the payment of the Obligations may be sold, exchanged, waived, surrendered
or released. Neither the Agent nor any Lender shall have any obligation to
protect, secure, perfect or insure any other Lien at any time held by it as
security for the Obligations or any property subject thereto. The Pledgor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Agent or any
Lender upon this Pledge Agreement; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Pledge Agreement; and all dealings between the Pledgor, on the one
hand, and the Agent and the Lenders, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Pledge Agreement. The Pledgor waives diligence, presentment, protest, demand
for payment and notice (except as required by the Credit Agreement) of default
or nonpayment to or upon the Pledgor with respect to the Obligations.
13. Limitation on Duties Regarding Collateral. The Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Agent deals with similar
securities and property for its own account. Neither the Agent, any Lender nor
any of their respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Pledgor or otherwise.
14. Irrevocable Authorization and Instruction to Issuers. The Pledgor
hereby authorizes and instructs each Issuer, Partnership and Company to comply
with any instruction received by it from the Agent in writing that (a) states
that an Event of Default has occurred and (b) is otherwise in accordance with
the terms of this Pledge Agreement, without any other or further instructions
from the Pledgor, and the Pledgor agrees that each Issuer, Partnership and
Company shall be fully protected in so complying.
15. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral constitute irrevocable powers
coupled with an interest.
8
<PAGE>
16. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Section Headings. The section headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
18. No Waiver; Cumulative Remedies. Neither the Agent nor any Lender
shall by any act (except by a written instrument pursuant to Section 19 hereof)
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default or in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of the Agent or any Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Agent or
any Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Agent or such Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any other rights or remedies provided by law.
19. Waivers and Amendments; Successors and Assigns. None of the terms
or provisions of this Pledge Agreement may be amended, supplemented or
otherwise modified except by a written instrument executed by the Pledgor and
Agent; provided that (a) any provision of this Pledge Agreement may be waived
by the Agent in a letter or agreement executed by the Agent or by telex or
facsimile transmission from the Agent and (b) any consent or waiver by the
Agent to any amendment, supplement or modification hereto shall be subject to
approval thereof by each of the Lenders or Required Lenders, as applicable, in
accordance with Section 12.9 of the Credit Agreement. This Pledge Agreement
shall be binding upon the successors and assigns of the Pledgor and shall inure
to the benefit of the Agent and the Lenders and their respective successors and
assigns.
20. Governing Law, etc. () This Pledge Agreement, unless otherwise
expressly set forth herein, shall be governed by, construed and enforced in
accordance with the laws of the State of South Carolina, without reference to
the conflicts or choice of law principles thereof.
(b) The Pledgor hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in Greenville County,
South Carolina, in any action, claim or other proceeding arising out of any
dispute in connection with this Pledge Agreement, any rights or obligations
hereunder, or the performance of such rights and obligations. The Pledgor
hereby irrevocably consents to the service of a summons and complaint and other
process in any action, claim or proceeding brought by the Agent in connection
with this Pledge Agreement or any rights or obligations hereunder, or the
performance of such rights and obligations, on behalf of itself or its
property, by registered or certified mail, return receipt requested, otherwise
in the manner specified in Section 21. Nothing in this Section 20 shall affect
the right of the Agent to serve legal process in any
9
<PAGE>
other manner permitted by Applicable Law or affect the right of the Agent to
bring any action or proceeding against the Pledgor or its properties in the
courts of any other jurisdictions.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE AGENT AND EACH
LENDER BY THEIR ACCEPTANCE OF THIS PLEDGE AGREEMENT OR THE BENEFITS HEREOF AND
THE PLEDGOR HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF OR ANY
DISPUTE IN CONNECTION WITH THIS PLEDGE AGREEMENT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
21. Notices. All notices and communications hereunder shall be given
to the addresses and otherwise in accordance with Section 12.1 of the Credit
Agreement.
22. Authority of Agent. The Pledgor acknowledges that the rights and
responsibilities of the Agent under this Pledge Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as between
the Agent and the Lenders, be governed by the Credit Agreement and by such
other agreements with respect thereto as may exist from time to time among
them, but, as between the Agent and the Pledgor, the Agent shall be
conclusively presumed to be acting as agent for itself and the Lenders with
full and valid authority so to act or refrain from acting, and neither the
Pledgor nor any Issuer, Partnership or Company shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed under seal and delivered as of the date first above
written.
INSIGNIA PROPERTIES TRUST
By: ________________________________
Name:___________________________
Title: _______________________
10
<PAGE>
SCHEDULE I
To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
Class of Stock No. of
Issuer Stock Certificate No. . Shares
- ------ -------- ------------------- ------
DESCRIPTION OF MEMBERSHIP INTEREST
LLC No. of
Company Certificate No. Shares
- ------- --------------- ------
DESCRIPTION OF PARTNERSHIP INTEREST
Partnership Partnership Interest
- ----------- --------------------
<PAGE>
SCHEDULE II
To Pledge
Agreement
Address of the Pledgor
One Insignia Financial Plaza
Greenville, South Carolina 29602
<PAGE>
Supplement to Pledge Agreement
PLEDGE AGREEMENT SUPPLEMENT, dated as of __________, 199__ (the
"Supplement"), made by INSIGNIA PROPERTIES TRUST, a Maryland real estate
investment trust (the "Pledgor"), in favor of First Union National Bank, a
national banking corporation, as Administrative Agent (in such capacity, the
"Agent"), under the Credit Agreement (as defined in the Pledge Agreement
referred to below) for the benefit of itself and the Lenders (as so defined).
1. Reference is hereby made to that Pledge Agreement, dated as of
December 30, 1997, made by the Pledgor in favor of the Agent (as amended,
restated, modified or otherwise supplemented from time to time as of the date
hereof, the "Pledge Agreement"). This Supplement supplements the Pledge
Agreement, forms a part thereof and is subject to the terms thereof. Terms
defined in the Pledge Agreement are used herein as therein defined.
[2. The Pledgor hereby confirms and reaffirms the security interest in
the Collateral granted to the Agent for the ratable benefit of itself and the
Lenders under the Pledge Agreement, and, as additional collateral security for
the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
delivers to the Agent, for the benefit of the Lenders, all of the issued and
outstanding shares of capital stock of [INSERT NAME OF NEW SUBSIDIARY] (the
"New Issuer") listed below, together with all stock certificates, options, or
rights of any nature whatsoever which may be issued or granted by the New
Issuer in respect to such stock which the Pledge Agreement, as supplemented
hereby, is in force (the "Additional Pledged Stock"; as used in the Pledge
Agreement as supplemented by this Supplement, "Pledged Stock" shall be deemed
to include the Additional Pledged Stock) and hereby grants to the Agent, for
the ratable benefit of itself and the Lenders, a first priority security
interest in the Additional Pledged Stock and all Proceeds thereof.]
or
[2. The Pledgor hereby confirms and reaffirms the security interest in
the Collateral granted to the Agent for the ratable benefit of itself and the
Lenders under the Pledge Agreement, and, as additional collateral security for
the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
grants to the Agent, for the ratable benefit of itself and the Lenders, a first
priority security interest in the entire partnership interest of Pledgor (the
"Additional Partnership Interest") in [INSERT NAME OF NEW PARTNERSHIP] (the
"New Partnership") listed below and all Proceeds thereof (as used in the Pledge
Agreement as supplemented by this Supplement, "Partnership Interests" shall be
deemed to include the Additional Partnership Interest).]
or
<PAGE>
[2. The Pledgor hereby confirms and reaffirms the security interest in
the Collateral granted to the Agent for the ratable benefit of itself and the
Lenders under the Pledge Agreement, and, as additional collateral security for
the prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations and in order to induce the
Lenders to make their Loans under the Credit Agreement, the Pledgor hereby
delivers to the Agent, for the ratable benefit of the Agents and the Lenders,
all of the certificates of limited liability company interests issued by
[INSERT NAME OF NEW LIMITED LIABILITY COMPANY] (the "New Company") listed
below, and hereby grants to the Agent, for the ratable benefit of the Agents
and Lenders, a first priority security interest in the Membership Interest of
the Pledgor (the "Additional Membership Interest") in the New Company, and all
Proceeds thereof (as used in the Pledge Agreement as supplemented by this
Supplement, "Membership Interest" shall be deemed to include the Additional
Membership Interest).]
3. The Pledgor hereby represents and warrants that the representations
and warranties contained in paragraph 5 of the Pledge Agreement are true and
correct on the date of this Supplement with references therein to the ["Pledged
Stock" to include the Additional Pledged Stock] or ["Membership Interests" to
include the Additional Membership Interest], with references therein to the
["Issuer" to include the New Issuer] or "Company" to include the New Company],
and with references to the "Pledge Agreement" to mean the Pledge Agreement as
supplemented by this Supplement.
4. The Additional [Pledged Stock] or [Partnership Interest] or
[Membership Interest] pledged hereby is as follows which [Pledged Stock] or
[Partnership Interest] or [Membership Interest] shall be deemed part of
Schedule 1 thereto:
DESCRIPTION OF PLEDGED STOCK
Class of Stock No. of
Issuer Stock Certificate No. . Shares
- ------ -------- ------------------- ------
New Issuer
DESCRIPTION OF PARTNERSHIP INTEREST
Partnership Partnership Interest
- ----------- --------------------
New Partnership
<PAGE>
DESCRIPTION OF MEMBERSHIP INTEREST
LLC No. of
Issuer Certificate No. Shares
- ------- --------------- ------
New Company
5. The Pledgor hereby agrees to deliver to the Agent such certificates
and other documents and take such other action as shall be reasonably requested
by the Agent in order to effectuate the terms hereof and the Pledge Agreement.
6. The address for notices for the [New Issuer] or [New Partnership]
or [New Company] is as follows:
______________________________
______________________________
______________________________
Attention:____________________
Telephone No.:________________
Telecopy No.:_________________
IN WITNESS WHEREOF, the Pledgor has caused this Supplement to be duly
executed under seal and delivered as of the date first above written.
[CORPORATE SEAL] INSIGNIA PROPERTIES TRUST
By: ____________________________________
Name: ___________________________
Title: ___________________________
<PAGE>
EXHIBIT A
Authorization Statement
____________ __, 199__
To: [Company or Partnership]
You are hereby instructed to register the pledge of the following
uncertificated security:
All [membership] or [partnership] and other ownership interests of the
undersigned in the [Company or Partnership] in favor of:
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
Post Office Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
Very truly yours,
INSIGNIA PROPERTIES TRUST
By: _______________________________
Name: ______________________
Title: ______________________
<PAGE>
EXHIBIT B
Transaction Statement
___________ __, 199__
To: [Pledgor]
and
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
Post Office Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
This statement is to advise you that a pledge of the following
uncertificated securities has been registered in the name of First Union
National Bank, as Administrative Agent:
1. Uncertificated Security: All [membership] or [partnership]
and other ownership interests of [Pledgor] in the
undersigned.
2. Registered Owner:
[Pledgor]
Taxpayer Identification Number: ______________
3. Registered Pledgee:
First Union National Bank,
as Administrative Agent
One Insignia Financial Plaza
P.O. Box 1329
Greenville, South Carolina 29602
Attention: Portfolio Management and
Relationship Manager
Taxpayer Identification Number: _____________
4. There are no liens, restrictions or other encumbrances on the
interests of [Pledgor] in the undersigned, other than
Permitted Liens (as defined in the Pledge and Security
<PAGE>
Agreement by [Pledgor] to First Union National Bank as
Administrative Agent for the ratable benefit of itself,
Lehman Commercial Paper Inc. as Syndication Agent and the
Lenders referenced therein), and no adverse claims to which
the uncertificated security is or may be subject are known to
the undersigned.
5. The pledge was registered on __________ __, 199__.
THIS STATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEES AS
OF THE TIME OF ITS ISSUANCE. DELIVERY OF THIS STATEMENT, OF ITSELF, CONFERS NO
RIGHTS ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT NOR
A SECURITY.
Very truly yours,
[Company or Partnership]
By: ______________________________
Name: _____________________
Title: _____________________
<PAGE>
WINTHROP OPTION AGREEMENT
This Winthrop Option Agreement (the "Agreement") is entered into as of
the 17th day of February, 1998 (the "Effective Date"), by and between Insignia
Financial Group, Inc., a Delaware corporation ("Insignia"), and Insignia
Properties, L.P., a Delaware limited partnership ("IPLP").
W I T N E S S E T H:
WHEREAS, on October 27, 1997, Insignia and IPT I LLC entered into a
Subscription and Purchase Agreement (the "Winthrop Agreement") with Winthrop
Financial Associates, A Limited Partnership ("WFA"), First Winthrop Corporation
("FWC") and certain of their affiliates (the "Other Sellers") pursuant to
which, among other things:
(i) on such date, IPT I LLC acquired an associate general partner
interest in WFA, which interest gives IPT I LLC the right to
control and direct all aspects of the property management, asset
management and administrative affairs of the six real estate
limited partnerships controlled by WFA listed on Schedule A
hereto (the "WFA Partnerships");
(ii) on such date, Insignia acquired all of the issued and
outstanding shares of Class B Common Stock ("Class B Shares") of
FWC (which until such time was a wholly-owned subsidiary of
WFA), as a result of which Insignia has the right, pursuant to
the Certificate of Incorporation and Bylaws of FWC, as amended
(collectively, the "FWC Charter Documents"), to appoint each of
the two Class B directors of FWC, which directors in turn
effectively have the right to control and direct all aspects of
the property management, asset management and administrative
affairs of the seven real estate limited partnerships controlled
by FWC listed on Schedule B hereto (the "FWC Partnerships,"
and together with the WFA Partnerships, the "Winthrop
Partnerships");
(iii) on such date, Insignia acquired units of limited partner
interest in four of the Winthrop Partnerships, as more
particularly identified on Schedule C hereto as Category 1 Units
(the "Category 1 Units");
(iv) on January 20, 1997, Insignia acquired units of limited partner
interest in six of the Winthrop Partnerships, as more
particularly identified on Schedule C hereto as Category 2 Units
(the "Category 2 Units");
(v) subject to satisfaction of certain conditions, Insignia has the
right and obligation to acquire units of limited partner
interest in two of the Winthrop Partnerships, as more
particularly identified on Schedule C hereto as Category 3 Units
(the "Category 3 Units") on April 30, 1998; and
(vi) subject to satisfaction of certain conditions and receipt of
certain HUD approvals, Insignia has the right and obligation to
acquire units of limited partner interest in one
<PAGE>
of the Winthrop Partnerships, as more particularly identified on
Schedule C hereto as Category 4 Units (the "Category 4 Units,"
and together with the Category 1 Units, Category 2 Units and
Category 3 Units, the "Winthrop Units") as soon as practicable
after receipt of such approvals and satisfaction of such
conditions;
WHEREAS, Insignia and WFA are parties to that certain Stockholders'
Agreement dated as of October 27, 1997 (the "FWC Stockholders' Agreement")
relating to FWC and the Class B Shares, pursuant to which Insignia has certain
put rights with respect to the Class B Shares and the Winthrop Units;
WHEREAS, on October 28, 1997, IPT I LLC caused WFA to enter into
Subcontract, Assignment and Assumption Agreements with IFGP Corporation, which
is a wholly-owned subsidiary of Insignia ("IFGP"), with respect to five of the
six WFA Partnerships, pursuant to which IFGP agreed to provide certain asset
management, investor services and/or partnership management services to such
WFA Partnerships on behalf of WFA and WFA assigned to IFGP its rights to
receive certain fees in respect of such services, and Insignia caused FWC to
enter into Subcontract, Assignment and Assumption Agreements with IFGP with
respect to five of the seven FWC Partnerships, pursuant to which IFGP agreed to
provide certain asset management, investor services and/or partnership
management services to such FWC Partnerships on behalf of FWC and FWC assigned
to IFGP its rights to receive certain fees in respect of such services, in each
case as summarized on Schedule D hereto and more particularly described in such
Subcontract, Assignment and Assumption Agreements (collectively, the "Winthrop
Fees," and together with the Winthrop Units, the "Winthrop Interests");
WHEREAS, Insignia Residential Group, L.P., which is a wholly-owned
subsidiary of Insignia ("IRG"), and Castleton Associates Partnership are
parties to that certain Property Management Agreement dated October 27, 1997
(the "Castleton Management Agreement") relating to that certain real property
described on Exhibit A thereto ("Lake Castleton Apartments");
WHEREAS, pursuant to Article VIII of the Castleton Management
Agreement, IRG has certain rights of first offer with respect to the Lake
Castleton Apartments property, as more particularly described in the Castleton
Management Agreement, which rights are expressly assignable to any of IRG's
"current or future affiliates";
WHEREAS, Insignia and WFA are parties to that certain side letter
dated October 27, 1997 (the "Castleton Side Letter"), pursuant to which WFA has
agreed to pay to Insignia the sum of $2,250,000 in the event that the Lake
Castleton Apartments property is directly or indirectly sold prior to October
27, 2009 (including any sale to Insignia or any of its affiliates); and
WHEREAS, Insignia desires to grant to IPLP, and IPLP desires to
accept, an option to purchase all, but not less than all, of the Winthrop
Interests, on the terms and subject to the conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and
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<PAGE>
sufficiency of which are acknowledged, the parties hereto, each intending to be
legally bound, hereby agree as follows:
1. GRANT OF OPTION; EXPIRATION DATE; PURCHASE PRICE.
1.1 Upon the terms and subject to the conditions set forth herein,
Insignia hereby grants to IPLP an irrevocable option (the "Option") to purchase
all, but not less than all, of the Winthrop Interests.
1.2 The Option shall expire at 5:00 p.m., New York time, on December
31, 1998 (the "Expiration Date").
1.3. Subject to the provisions of Section 3.1, the purchase price (the
"Purchase Price") for the Winthrop Interests to be paid by IPLP to Insignia
upon exercise by IPLP of the Option shall be an amount equal to the sum of:
(A) $28,196,540 (which represents the purchase price paid by
Insignia for the Category 1 Units), plus interest on such
amount from October 27, 1997 through and including the day
immediately preceding the Closing Date (as hereinafter
defined) at the Category 1 Rate (as hereinafter defined),
calculated in simple terms based on the number of days
elapsed and assuming a 365 day year; plus
(B) $6,161,351 (which represents the purchase price paid by
Insignia for the Category 2 Units), plus interest on such
amount from January 20, 1998 through and including the day
immediately preceding the Closing Date at the Category 2
Rate (as hereinafter defined), calculated in simple terms
based on the number of days elapsed and assuming a 365 day
year; plus
(C) $4,570,599 (which represents the purchase price to be paid
by Insignia for the Category 3 Units), plus interest on
such amount from April 30, 1998 (or such later date as
Insignia actually pays for the Category 3 Units) through
and including the day immediately preceding the Closing
Date at the Category 3 Rate (as hereinafter defined),
calculated in simple terms based on the number of days
elapsed and assuming a 365 day year; plus
(D) $1,150,000 (which represents the purchase price to be paid
by Insignia for the Category 4 Units), plus interest on
such amount from the date on which Insignia actually pays
for the Category 4 Units through and including the day
immediately preceding the Closing Date at the Category 4
Rate (as hereinafter defined), calculated in simple terms
based on the number of days elapsed and assuming a 365 day
year; plus
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<PAGE>
(E) $5,957,808 (which represents the portion of the purchase
price paid by Insignia allocable to the Winthrop Fees);
plus
(F) $154,730 (which represents that portion of the costs and
expenses incurred by Insignia and its affiliates in
performing due diligence on the real estate assets owned by
the applicable limited partnerships, and all other ratable
transaction costs and expenses, including legal fees and
expenses, incurred by Insignia in connection with the
Winthrop Agreement, in each case attributable to the
acquisition of the Winthrop Interests), plus interest on
such amount from October 27, 1997 through and including the
day immediately preceding the Closing Date at the Category
1 Rate, calculated in simple terms based on the number of
days elapsed and assuming a 365 day year; plus ----
(G) an amount equal to the product of (x) $871,716 multiplied
by (y) a fraction, the numerator of which is the number of
days that elapse from and including October 27, 1997
through and including the day immediately preceding the
Closing Date and the denominator of which is 1,095 (which
represents a ratable portion of the syndication, agency and
other fees under the Insignia Credit Agreement (as
hereinafter defined) attributable to funds borrowed by
Insignia to acquire the Winthrop Interests); minus
(H) the aggregate amount of distributions paid by the Winthrop
Partnerships in respect of the Winthrop Units between
October 27, 1997 and the Closing Date.
As used herein, "Category 1 Rate" means the average rate of interest
(expressed on an annual basis) in effect during the period commencing on
October 27, 1997 and ending on the date immediately preceding the Closing Date
under that certain Amended and Restated Credit Agreement dated as of March 19,
1997 by and among Insignia, First Union National Bank of South Carolina, Lehman
Commercial Paper, Inc. and the Lenders referred to therein (the "Insignia
Credit Agreement"); "Category 2 Rate" means the average rate of interest
(expressed on an annual basis) in effect during the period commencing on
January 20, 1998 and ending on the date immediately preceding the Closing Date
under the Insignia Credit Agreement; "Category 3 Rate" means the average rate
of interest (expressed on an annual basis) in effect during the period
commencing on April 30, 1998 (or such later date as Insignia actually pays for
the Category 3 Units) and ending on the date immediately preceding the Closing
Date under the Insignia Credit Agreement; and "Category 4 Rate" means the
average rate of interest (expressed on an annual basis) in effect during the
period commencing on the date on which Insignia actually pays for the Category
4 Units and ending on the date immediately preceding the Closing Date under the
Insignia Credit Agreement.
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<PAGE>
2. EXERCISE OF OPTION; CLOSING.
2.1 The Option may be exercised by IPLP by delivering a written notice
of exercise (a "Notice of Exercise") to Insignia at any time prior to 5:00
p.m., New York time, on the Expiration Date.
2.2 The closing (the "Closing") of the transfers of the Winthrop
Interests and the payment of the Purchase Price therefor, and of all other
transactions contemplated hereby, shall occur on a business day to be specified
in the Notice of Exercise which is not sooner than 10 days after the date the
Notice of Exercise is delivered (the "Closing Date"). At the Closing, IPLP
shall pay (or cause to be paid) the Purchase Price to Insignia in immediately
available funds, and Insignia shall execute and deliver to IPLP (or its
designee) (i) instruments of assignment transferring the Winthrop Units from
Insignia to IPLP (or its designee) in form and substance satisfactory to IPLP
and (ii) such other documents and instruments as are necessary to effect the
other transactions and agreements contemplated in Section 3 of this Agreement.
In addition, Insignia will cause IFGP to enter into Subcontract, Assignment and
Assumption Agreements with IPLP, pursuant to which IPLP shall agree to perform
on behalf of IFGP the services to which the Winthrop Fees relate and IFGP shall
assign to IPLP all of IFGP's rights to receive the Winthrop Fees.
3. OTHER AGREEMENTS.
3.1 If IPLP exercises the Option and the Closing Date occurs before
Insignia has purchased all of the Category 3 Units and/or Category 4 Units,
then (i) the Purchase Price shall be deemed automatically reduced by the amount
thereof attributable to such unpurchased Winthrop Units and (ii) at the Closing
Insignia and IPLP shall execute and deliver an instrument pursuant to which
Insignia agrees to act as attorney-in-fact for IPLP in connection with the
purchase(s) of such unpurchased Winthrop Units pursuant to and in accordance
with the Winthrop Agreement, and IPLP agrees to indemnify and reimburse
Insignia for all of its costs and expenses in connection with such purchase(s).
3.2 At the Closing, Insignia shall cause IRG to execute and deliver
such documents as are necessary for IRG to effectively assign all of its rights
under Article VIII of the Castleton Management Agreement to IPLP (or IPLP's
designee). In the event that IPLP or any of its affiliates acquires the Lake
Castleton Apartments property pursuant to such rights, Insignia shall, at its
election, either (i) assign to IPLP all of Insignia's rights under the
Castleton Side Letter at the time of such acquisition or (ii) promptly exercise
its rights under the Castleton Side Letter and in turn pay over to IPLP the
$2,250,000 due thereunder.
3.3 At or promptly after the Closing, Insignia and Insignia Properties
Trust, of which IPLP is the operating partnership ("IPT"), shall amend and
restate the existing Operating Agreement of IPT I LLC (of which Insignia and
IPT are the sole members, with Insignia having a 90.1% interest and IPT having
a 9.9% interest) dated October 21, 1997 to provide that IPT shall be the sole
"managing member" of IPT I LLC, with the sole authority to manage the business
and affairs of IPT I LLC.
-5-
<PAGE>
3.4 From and after the Closing, Insignia, in its capacity as the
holder of all of the issued and outstanding Class B Shares of FWC, shall
appoint the two individuals designated by IPLP from time to time in its sole
discretion as the Class B directors of FWC pursuant to Insignia's rights under
the FWC Charter Documents.
3.5 Insignia agrees that if an "Insignia Trigger Event" (as defined in
the FWC Stockholders' Agreement) occurs subsequent to the Closing, Insignia
will consult and cooperate with IPLP in good faith in determining whether to
elect to exercise its "put" rights under the FWC Stockholders' Agreement as a
result of such Insignia Trigger Event, and shall pay over to IPLP any funds
received by Insignia attributable to the Winthrop Interests upon exercise of
such remedy.
3.6 Insignia and IPLP agree that they will be responsible for
indemnification obligations of Insignia and IPT I LLC, as the case may be,
under the Winthrop Agreement and the FWC Stockholders' Agreement based on their
respective authority with respect to the various Winthrop entities involved in,
and their respective fault with respect to, the matters giving rise to such
indemnification obligations, and will be the beneficiaries of the
indemnification obligations of WFA, FWC and the Other Sellers, as the case may
be, under the Winthrop Agreement and the FWC Stockholders' Agreement based on
their respective ownership of assets and revenue streams acquired under or in
connection with the Winthrop Agreement affected by the matters giving rise to
such indemnification obligations.
4. MISCELLANEOUS.
4.1 Expenses. Each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and counsel.
4.2 Waiver and Amendment. Any provision of this Agreement may be
waived, but only in writing, at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
4.3 Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement (a) constitutes the entire agreement among the parties hereto
concerning the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, and (b) is not intended, and shall not
be construed, to confer upon any person other than the parties hereto any
rights or remedies hereunder. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or a federal or
state regulatory agency to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
-6-
<PAGE>
4.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware, without regard
to any otherwise applicable conflicts of law rules.
4.5 Descriptive Headings. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
4.6 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Insignia: Insignia Financial Group, Inc.
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
Telecopy Number: (864) 239-1096
Attention: Ronald Uretta
If to IPLP: Insignia Properties, L.P.
c/o Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 19059
Greenville, SC 29602
Telecopy Number: (864) 239-1096
Attention: James A. Aston and
Carroll D. Vinson
In each case with Insignia Financial Group, Inc.
a copy (which shall One Insignia Financial Plaza
not constitute P.O. Box 1089
notice) to: Greenville, SC 29602
Telecopy Number: (864) 239-1096
Attention: General Counsel and
Secretary
4.7 Counterparts. This Agreement and any amendments hereto may be
executed in counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed,
it being understood that both parties need not sign the same counterpart.
4.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned or
delegated by any party hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, which consent shall not
be unreasonably withheld, conditioned or delayed.
-7-
<PAGE>
4.9 Further Assurances. Upon the exercise of the Option by IPLP, the
parties shall execute and deliver, or cause to be executed and delivered, all
other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
4.10 Specific Performance. The parties hereto agree that this
Agreement may be enforced through specific performance, injunctive relief and
other equitable relief. The parties further agree to waive any requirement for
the securing or posting of any bond in connection with seeking or obtaining any
such equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: _____________________________
Jeffrey P. Cohen
Senior Vice President
INSIGNIA PROPERTIES, L.P.
By: Insignia Properties Trust,
its General Partner
By: _____________________________
Jeffrey P. Cohen
Senior Vice President
-8-
<PAGE>
SCHEDULE A
TO
WINTHROP OPTION AGREEMENT
(WFA Partnerships)
DFW Apartment Investors Limited Partnership
DFW Residential Investors Limited Partnership
Olde Mill Investors Limited Partnership
Riverside Park Associates Limited Partnership
Westbury Investors Limited Partnership
Winrock-Houston Limited Partnership
-9-
<PAGE>
SCHEDULE B
TO
WINTHROP OPTION AGREEMENT
(FWC Partnerships)
Springhill Lake Investors Limited Partnership
Winthrop Texas Investors Limited Partnership
Chestnut Hill Associates Limited Partnership
Real Estate Venture Fund III Limited Partnership
Texas Residential Investors Limited Partnership
Winthrop Apartment Investors Limited Partnership
Winthrop Growth Investors 1 Limited Partnership
-10-
<PAGE>
SCHEDULE C
TO
WINTHROP OPTION AGREEMENT
(Winthrop Units)
Category 1 Units
- -- 200.58 Units of Limited Partner Interest in Riverside Park Associates
Limited Partnership
- -- 241.15 Units of Limited Partner Interest in Springhill Lake Investors
Limited Partnership
- -- 88.5 Units of Limited Partner Interest in Winrock-Houston Limited
Partnership
- -- 25.25 Units of Limited Partner Interest in Winthrop Texas Investors
Limited Partnership
Category 2 Units
- -- 55.625 Units of Limited Partner Interest in Chestnut Hill Associates
Limited Partnership
- -- 27.5 Units of Limited Partner Interest in DFW Apartment Investors Limited
Partnership
- -- 15.5 Units of Limited Partner Interest in DFW Residential Investors
Limited Partnership
- -- 38.75 Units of Limited Partner Interest on Olde Mill Investors Limited
Partnership
- -- 1.5 Units of Limited Partner Interest in Real Estate Venture Fund III
Limited Partnership
- -- 11 Units of Limited Partner Interest in Texas Residential Investors
Limited Partnership
Category 3 Units
- -- 43.5 Units of Limited Partner Interest in Winthrop Apartment Investors
Limited Partnership
- -- 4,872.34 Units of Limited Partner Interest in Winthrop Growth Investors 1
Limited Partnership
Category 4 Units
- -- 18 Units of Limited Partner Interest in Westbury Investors Limited
Partnership
-11-
<PAGE>
SCHEDULE D
TO
WINTHROP OPTION AGREEMENT
(Winthrop Fees)
<TABLE>
<CAPTION>
1996 AMOUNT OF
--------------------------------------------------------------------------------------
PARTNERSHIP NAME ASSET INVESTOR PARTNERSHIP
MANAGEMENT FEE SERVICES FEE MANAGEMENT FEE
- --------------------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Chestnut Hill Associates Limited $119,543
Partnership
DFW Apartment Investors Limited $ 54,114
Partnership
DFW Residential Investors Limited $ 30,712
Partnership
Olde Mill Investors Limited $ 50,000
Partnership
Real Estate Venture Fund III Limited $212,686
Partnership
Riverside Park Associates Limited $175,705
Partnership
Springhill Lake Investors Limited $100,000 $ 10,000
Partnership
Texas Residential Investors Limited $ 48,177
Partnership
Winrock-Houston Limited Partnership $ 75,412 $ 79,693
Winthrop Texas Investors Limited $ 31,560
Partnership
-------------------------- ------------------------- -------------------------
SUBTOTALS $175,412 $539,504 $272,686
-------------------------- ------------------------- -------------------------
-------------------------
GRAND TOTAL $987,602
-------------------------
</TABLE>
-12-
<PAGE>
SHELTER OPTION AGREEMENT
This Shelter Option Agreement ("Agreement") is entered into as of December
30, 1996 by and among SP IV Acquisition, L.L.C. ("SPIV"), Market Ventures,
L.L.C. ("Market Ventures"), Liquidity Assistance L.L.C. ("LAC") and Insignia
Properties, L.P. ("Partnership"). SPIV, Market Ventures and LAC are sometimes
individually referred to as a "Unitholder" and collectively referred to as the
"Unitholders".
BACKGROUND
SPIV, Market Ventures and LAC own respectively eleven thousand one hundred
twenty two (11,122), one hundred twenty (120) and seventeen (17) units of
Shelter Properties IV Limited Partnership (each a "Unit" and collectively the
"Units"). The Unitholders each desire to grant to the Partnership an option to
acquire the Units pursuant to the terms of this Agreement.
STATEMENT OF AGREEMENT
In consideration of the promises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
SECTION 1. GRANT OF OPTION. Each Unitholder hereby grants to the
Partnership the option to acquire the Units owned by such Unitholder for an
aggregate for all of the Units of 536,748 LP Units of the Partnership ("LP
Units") all of which shall be issued to Insignia Financial Group, Inc. ("IFG").
(The number of LP Units to be issued to IFG in exchange for the Units is
subject to adjustment based on those final valuations of the Units as shown in
that certain Confidential Memorandum by which Insignia Properties Trust, a
Maryland business trust, will offer shares of beneficial interest to accredited
investors following the date of this Agreement.) The option may be exercised by
the Partnership, in whole or in part, at any time or from time to time on or
before December 31, 1997.
SECTION 2. EXERCISE OF OPTION. If the Partnership wishes to exercise all
or portion of any of the options, the Partnership shall give written notice
("Notice") to the appropriate Unitholder specifying (A) the total number of
Units it will acquire pursuant to such exercise and (B) the place for closing
and a date for closing between the date of the Notice and ten (10) business
days from the date of the Notice. At any such closing, the Partnership will
issue the appropriate number of LP Units to IFG and the appropriate Unitholder
will deliver the Units to the Partnership. Upon issuance of the appropriate
number of LP Units to IFG, the option shall be deemed exercised to the extent
of the Units specified in the Notice as of the date of the Notice and the
option shall be deemed unexercised and still exercisable with respect to Units
not specified in the Notice and not acquired pursuant to any previous exercises
by the Partnership. Any exercise hereunder shall be treated for all purposes as
a contribution of property by the contributing party to the Partnership in
exchange for interests in the Partnership.
1
<PAGE>
SECTION 3. MISCELLANEOUS PROVISIONS.
(a) INTERPRETATION. Because all of the parties have participated in the
drafting of this Agreement, the rule of construction that a document be
construed strictly against its drafter shall have no application to this
Agreement.
(b) GOVERNING LAW. This Agreement shall be governed under the laws of the
State of South Carolina.
(c) NO CONTINUING WAIVER. This waiver of any party of a breach of any
provision of this Agreement, shall not operate as or be construed to be a
waiver of any subsequent breach.
(d) PARTIAL INVALIDITY. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced as written to the
fullest extent permitted by law.
(e) HEADINGS. The headings in this Agreement are inserted for convenience
of reference only and shall not be a part of or control or affect the meaning
of, this Agreement.
(f) PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to masculine, feminine, neuter, singular or plural, as the identity of
the entity, person or persons may require.
(g) MODIFICATION. The parties may, be mutual written consent and not
otherwise, modify or supplement this Agreement.
(h) AUTHORITY. Each party to this Agreement represents that such party has
the requisite authority to enter into this Agreement and to bind the party it
purports to represent.
(i) BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon each of the parties and their respective successors, successors in
interest, assigns, heirs and personal representatives.
2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed as of the day and year first written above.
SP IV Acquisition, L.L.C.
By: Insignia Financial Group, Inc., Member
By:
----------------------------------------
John K. Lines
General Counsel, Secretary
Liquidity Assistance, L.L.C.
By:
----------------------------------------
Ronald Uretta
Vice President
Market Ventures, L.L.C.
By:
----------------------------------------
Ronald Uretta
Vice President
Insignia Properties, L.P.
By: Insignia Properties Trust,
its General Partner
By:
----------------------------------------
James A. Aston
President
3
<PAGE>
AMENDMENT NO. 1
TO
SHELTER OPTION AGREEMENT
This Amendment No. 1 to the Shelter Option Agreement (this "Amendment") is
entered into as of the 17th day of June, 1997 by and among Insignia Financial
Group, Inc. ("IFG"), SP IV Acquisition, L.L.C. ("SPIV"), Market Ventures,
L.L.C. ("Market Ventures"), Liquidity Assistance L.L.C. ("LAC") and Insignia
Properties, L.P. (the "Partnership").
WHEREAS, SPIV, Market Ventures, LAC and the Partnership have entered into
that certain Shelter Option Agreement dated as of December 30, 1996 (the
"Agreement");
WHEREAS, IFG has acquired four thousand two hundred and sixty-three
(4,263) units of limited partnership interest of Shelter Properties IV Limited
Partnership and desires to grant the Partnership an option to acquire such
units under the terms of the Agreement;
NOW, THEREFORE, in consideration of the premises and the desire of the
parties to amend the Agreement to provide for the granting to the Partnership
of the option described above, the parties hereby agree as follows:
1. The term "Unitholder" in the Agreement is hereby amended to
include IFG.
2. The term "Units" in the Agreement is hereby amended to include
the 4,263 units of limited partnership interest of Shelter
Properties IV Limited Partnership currently owned by IFG.
3. Section 1 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"Each Unitholder hereby grants to the
Partnership the option to acquire the Units
owed by such Unitholder for an aggregate
for all of the Units of 985,466 LP Units of
the Partnership ("LP Units") all of which
shall be issued to IFG. The option may be
exercised by the Partnership, in whole or
in part, at any time or from time to time
on or before December 31, 1997."
4. Except as described herein, the Agreement is not amended, waived
or modified in any way and shall continue to be in full force
and effect.
5. This Amendment may be signed in counterparts, each of which
shall be deemed an original but all of which together shall
constitute one and the same instrument.
1
<PAGE>
IN WITNESS WHEREOF, each of IFG, SPIV, Market Ventures, LAC and the
Partnership has caused this Amendment to be duly executed on its behalf as of
the date first above written.
SP IV Acquisition, L.L.C.
By: Insignia Financial Group, Inc.,
Member
By:_________________________________________
John K. Lines
General Counsel
Market Ventures, L.L.C.
By:_________________________________________
John K. Lines
Vice President
Liquidity Assistance L.L.C.
By:_________________________________________
John K. Lines
Vice President
Insignia Financial Group, Inc.
By:_________________________________________
John K. Lines
General Counsel
Insignia Properties, L.P.
By: Insignia Properties Trust,
its General Partner
By:_________________________________________
Jeffrey P. Cohen
Vice President
2
<PAGE>
INSIGNIA PROPERTIES TRUST
1997 SHARE INCENTIVE PLAN
1. PURPOSE OF PLAN
The purpose of the Insignia Properties Trust 1997 Share Incentive Plan
(hereinafter the "Plan") is to provide for the granting of share options and
restricted shares to key employees (including officers) of, trustees of, and
consultants and advisors to, the Company or its Subsidiaries. The general
purpose of the Plan is to promote the interests of the Company and its
shareholders by providing to certain employees, trustees, consultants and
advisors of the Company or its Subsidiaries additional incentives to continue
and increase their efforts with respect to, and to remain in the employ or
service of, the Company or its Subsidiaries.
2. CERTAIN DEFINITIONS
The following terms (whether used in the singular or plural) have the
meanings indicated when used in the Plan:
2.1 "Agreement" means the share option agreement or the restricted
shares agreement specified in Section 12, both individually and collectively,
as the context so requires.
2.2 "Award" means a grant of Options and/or Restricted Shares under
this Plan.
2.3 "Board" means the Committee, if one has been appointed, or the
Board of Trustees of the Company, if no Committee is appointed.
2.4 "Cash Award" means the amount of cash, if any, to be paid to an
Employee or Consultant pursuant to Section 7.5.
2.5 "Cause" has the meaning ascribed thereto in any employment
agreement to which a Holder is a party or, in the absence thereof, shall mean
insubordination, dishonesty, incompetence, moral turpitude, other misconduct of
any kind and the refusal to perform his duties and responsibilities for any
reason other than illness or incapacity.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
2.7 "Committee" means the Committee of the Board appointed pursuant to
Section 4, if one is appointed.
2.8 "Company" means Insignia Properties Trust, a Maryland real estate
investment trust, and any successor thereto.
2.9 "Consultant" means (i) any person who is engaged by the Company or
any Subsidiary to render consulting services and is compensated for such
consulting services and (ii) a trustee of the Company who qualifies as a
Non-Employee Trustee, whether compensated for his or her services or not.
2.10 "Dividend Equivalents" means, with respect to the Restricted
Shares to be issued at the end of the Restriction Period, to the extent
specified by the Board only, an amount equal to the regular cash dividends and
all other distributions (or the economic equivalent thereof) which were payable
to shareholders of record during the Restriction Period on an equivalent number
of Shares.
<PAGE>
2.11 "Effective Date" means the date the Plan becomes effective
pursuant to Section 17.
2.12 "Employee" means any person employed by the Company or any Parent
or Subsidiary, including officers and also including trustees who are also
officers or are otherwise employed by any of these entities. Mere service as a
trustee for a fee shall not be sufficient to constitute "employment" by the
Company.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto.
Reference to any specific Exchange Act section shall include any successor
section.
2.14 "Fair Market Value" of a Share as of any particular date, shall
be determined as follows: (i) if the Shares are listed on a national securities
exchange, the closing sale price per Share on the principal exchange on which
the Shares are listed as reported by such exchange on such date, (ii) if the
Shares are quoted in the National Market System, the closing sale price per
Share as reported by NASDAQ on such date, (iii) if the Shares are traded in the
over-the-counter market but not quoted in the National Market System, the
average of the closing bid and asked quotations per Share on such date as
reported by NASDAQ, or any other nationally accepted reporting medium if NASDAQ
quotations shall be unavailable, or (iv) if none of the foregoing applies, the
fair market value of a Share on such date will be the fair value of a Share as
reasonably determined in the good faith judgment of the Board.
2.15 "Holder" means a recipient of an Award under this Plan.
2.16 "ISO" means an "incentive share option" for the purchase of
Shares that meets the requirements of Section 422(b) of the Code and that is
designated by the Board as an incentive share option.
2.17 "Non-Employee Trustee" shall mean a Non-Employee Director as
defined in Rule 16b-3 of the Exchange Act, promulgated under SEC Release
34-37260 (May 31, 1996), as such Rule may be amended from time to time.
2.18 "Nonqualified Share Option" means a share option for the purchase
of Shares, other than an ISO.
2.19 "Option" means any ISO or Nonqualified Share Option.
2.20 "Option Share" means a Share subject to an Option.
2.21 "Optionee" means a recipient of an Award of an Option.
2.22 "Parent" means any "parent corporation" of the Company, whether
now or hereafter existing, as such term is defined in Section 424(e) of the
Code.
2.23 "Permitted Transferee" means one or more of the following: (i)
any member of the Holder's immediate family; (ii) a trust established for the
exclusive benefit of one or more members of such immediate family; or (iii) a
partnership in which such immediate family members are the only partners. The
term "immediate family" is defined for such purpose as spouses, children,
stepchildren and grandchildren, including relationships arising from adoption.
2.24 "Plan" has the meaning ascribed thereto in Section 1.
2.25 "Restricted Shares" means Shares or the right to receive Shares,
as the case may be, that are awarded to an Employee or Consultant pursuant to
Section 7 hereof and that are made subject to restrictions or conditions to
vesting that are set forth in the Agreement.
<PAGE>
2.26 "Restriction Period" means a period of time beginning on the date
of each Award of Restricted Shares and ending on the date on which restrictions
or conditions as to the vesting of Restricted Shares shall lapse, terminate or
be fulfilled under the terms of the Agreement.
2.27 "Retained Distributions" has the meaning ascribed thereto in
Section 7.3.
2.28 "Share" means a common share of beneficial interest, par value
$.01 per share, in the Company.
2.29 "SEC" means the Securities and Exchange Commission.
2.30 "Subsidiary" means any present or future subsidiary of the
Company as such term is defined in Section 424(f) of the Code and any present
or future trade or business, whether or not incorporated, controlled by or
under common control with the Company. An entity shall be deemed a Subsidiary
of the Company only for such periods as the requisite ownership or control
relationship is maintained.
2.31 "Total Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the
Code.
3. SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to the provisions of Section 13 and this
Section 3, the maximum aggregate number of Shares in respect of which Awards
may be granted is 1,200,000. If and to the extent that an Option shall expire,
terminate or be cancelled for any reason without having been exercised, the
Shares subject to such expired, terminated or cancelled Option (or portion
thereof) shall again become available for grants of Awards for purposes of the
Plan, unless the Plan shall have terminated. In addition, any Restricted Shares
which are forfeited under the terms of the Plan or any Agreement shall again
become available for grants of Awards for purposes of the Plan.
3.2 Character of Shares. Shares deliverable under the terms of the
Plan may be, in whole or in part, authorized and unissued Shares or issued
Shares held in the Company's treasury, or both.
3.3 Reservation of Shares. If necessary under the Company's charter
documents, the Company shall at all times reserve a number of Shares
(authorized and unissued Shares, issued Shares held in the Company's treasury,
or both) equal to the maximum number of Shares that may be subject to
outstanding Awards and future Awards under the Plan.
4. ADMINISTRATION
4.1 Powers. The Plan shall be administered by the Board. Subject to
the express provisions of the Plan, the Board shall have plenary authority, in
its discretion, to grant Awards under the Plan and to determine the terms and
conditions (which need not be identical as to different Holders) of all Awards
so granted, including without limitation, (a) the purchase price, if any, of
each Restricted Share, (b) the exercise price per Option Share, (c) the
particular Employees and Consultants to whom, and the time or times at which,
Awards shall be granted or awarded, (d) the number of Shares to be subject to
each Award, (e) whether an Option shall be an ISO or a Nonqualified Share
Option, (f) when and how an Option can be exercised and whether it is
exercisable in whole or in installments, (g) the acceleration or, with the
consent of the Optionee, deferral of the exercise date of any Option, (h) the
time or times or conditions subject to which Restricted Shares shall become
vested and any Cash Awards shall become payable, and (i) the form, terms and
provisions of any Agreement (which terms may be amended, subject to Section
15). The Board may authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Award previously granted by
the Board.
3
<PAGE>
4.2 Factors to Consider. In making determinations hereunder, the Board
may take into account the nature of the services rendered by the respective
Employees and Consultants, their present and potential contributions to the
success of the Company and its Subsidiaries and such other factors as the Board
in its discretion shall deem relevant.
4.3 Interpretation. Subject to the express provisions of the Plan, the
Board shall have plenary authority to interpret the Plan, to prescribe, amend
and rescind the rules and regulations relating to it and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. The determinations of the Board on the matters referred to in this
Section 4 shall be final, conclusive and binding on all Holders.
4.4 Delegation to Committee. Notwithstanding anything to the contrary
contained herein, the Board may at any time, or from time to time, appoint a
Committee of at least two members, who shall be members of the Compensation
Committee of the Board, both of whom shall be Non-Employee Trustees, and
delegate to such Committee the authority of the Board to administer the Plan,
subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board. Upon such appointment and delegation, the Committee shall have all
the powers, privileges and duties of the Board, and shall be substituted for
the Board, in the administration of the Plan, except for the power to appoint
members of the Committee and to terminate, modify or amend the Plan. The Board
may from time to time appoint members of any such Committee in substitution for
or in addition to members previously appointed, may fill vacancies in the
Committee and may discharge the Committee. The Committee shall select one of
its members as its chairman and hold its meetings at such times and places as
it shall deem advisable. A majority of its members shall constitute a quorum
and all determinations shall be made by a majority of such quorum. Any
determination reduced to writing and signed by all of the members shall be
fully as effective as if it had been made by a majority vote at a meeting duly
called and held. Notwithstanding the foregoing, the Board may designate one or
more persons, who at the time of such designation are not Non-Employee
Trustees, to serve on the Committee effective upon the date such person or
persons qualify as Non-Employee Trustees.
5. ELIGIBILITY
5.1 General. Awards may be made only to individuals selected by the
Board who are either (i) Employees or Consultants at the time of grant or (ii)
prospective Employees or trustees of the Company or any of its Subsidiaries.
The exercise of Options and the vesting of Restricted Shares granted to a
prospective Employee or trustee shall be conditioned upon such person actually
becoming an Employee or trustee. For purposes of the Plan, the term
"prospective Employee" shall mean any person who holds an outstanding offer of
employment on specific terms from the Company or any of its Subsidiaries.
Awards may be made to Employees who hold or have held Awards under this Plan or
any similar or other awards under any other plan of the Company or its
Subsidiaries. The Plan shall not confer upon any Holder any right with respect
to continuation of such Holder's employment or consulting relationship with the
Company nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time.
5.2 Special ISO Rule. ISOs may be granted only to Employees. No ISO
shall be granted to an Employee who, at the time the ISO is granted, owns (or
is considered as owning within the meaning of Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary, unless at the time the ISO is granted
the option price is at least 110% of the Fair Market Value of the Common Stock
subject to the ISO and the ISO by its terms is not exercisable after the
expiration of five years from the date it is granted. To the extent that any
Option does not qualify as an ISO (whether because of its provisions or the
time or manner of its exercise or otherwise), such Option or the portion
thereof which does not qualify shall constitute a separate Nonqualified Share
Option.
4
<PAGE>
6. OPTIONS
6.1 Prices. The purchase price of the Option Shares issuable upon
exercise of each Option shall be determined by the Board and set forth in the
applicable Agreement. Notwithstanding the foregoing, the purchase price per
Option Share issuable upon exercise of each ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant.
6.2 Term. The term of each Option shall be for such period as the
Board shall determine, as set forth in the applicable Agreement, but not more
than 10 years from the date of grant in the case of an ISO (five years in the
case of ISOs granted to a holder of more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary).
6.3 Exercising; Vesting. An Option granted under the Plan shall vest
and thereby become exercisable during the term of the Option to the extent
provided in the applicable Agreement and this Plan and, unless the Agreement
otherwise provides, may be exercised to the extent exercisable, in whole or in
part, at any time and from time to time during such term; provided, however,
that subsequent to the grant of an Option, the Board may at any time before
complete termination of such Option accelerate the time or times at which such
Option vests in whole or in part (without reducing the term of such Option).
Except as otherwise provided in Section 8.2, no Option shall vest before the
expiration of six months after it is granted. The Board may provide that an
Option vests only upon the fulfillment of certain conditions, including
performance criteria applicable to the Company or Optionee.
6.4 Means of Payment of Exercise Price. Payment of the Option purchase
price shall be made in cash or in whole Shares (having a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised) already owned by the Holder, or partly in
cash and partly in such Common Stock; provided, however, that such payment may
be made in whole or in part in Shares only if and to the extent permitted by
the applicable Agreement; and further provided that exercise through
"pyramiding" or similar means shall be prohibited. An Agreement may provide
that Nonqualified Stock Options may be exercised pursuant to a "cashless"
exercise procedure with a broker.
6.5 Relinquishment of Nonqualified Share Options. At or prior to the
exercise of a Nonqualified Share Option hereunder, the Board shall have
discretion to permit an Optionee, or his heirs or other legal representative
(to the extent entitled to exercise the Option under the terms thereof), in
lieu of purchasing the entire number of Option Shares subject to purchase
thereunder, to relinquish all or any part of the unexercised portion of such
Option for cash, or, in the discretion of the Optionee, a number of Option
Shares in either case equal in value to the quotient of (a) the excess of (i)
the aggregate current Fair Market Value of the Option Shares issuable upon
exercise of the relinquished portion of the Option over (ii) the aggregate
purchase price for such Option Shares specified in the applicable Agreement,
divided by (b) the then current Fair Market Value per Share. The Committee
shall have discretion to determine the terms upon which such Options shall be
relinquishable, subject to the applicable provisions of the Plan.
6.6 Persons with Right to Exercise. Options may be exercised during
the lifetime of the Holder thereof only by such Holder (or his or her legal
representative).
6.7 Procedure for Exercise; Rights as a Shareholder; Withholding. An
Option shall be deemed to be exercised when written notice of such exercise has
been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company. The
Company shall effect the transfer of the Option Shares purchased under the
Option as soon as practicable, and within a reasonable time thereafter such
transfer shall be evidenced on the books of the Company. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of the duly
authorized transfer agent of the
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Company) of the stock certificate evidencing such Option Shares, no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Option Shares, notwithstanding the exercise of the Option. An
Option may not be exercised for a fraction of an Option Share. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 13
of the Plan. Prior to the time of issuance, the Company shall satisfy its
employment tax and other tax withholding obligations by requiring the Optionee
to pay the amount of withholding tax, if any, that must be paid under federal,
state and local law due to the exercise of the Option, subject to such
restrictions or procedures, if any, as the Company deems necessary to satisfy
Rule 16b-3 of the Exchange Act. The payment of such withholding tax may be by
certificate or official bank check or by the delivery or withholding of a
number of Shares (plus cash if necessary) having a Fair Market Value equal to
the amount of such withholding tax.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Option Shares for which
such Option is exercised.
7. RESTRICTED SHARES
7.1 Grants; Price. The Board may grant Awards of Restricted Shares,
which shall vest in the Holder only after the termination or fulfillment of the
restrictions or conditions specified in the Agreement. The Board (i) shall
determine whether the Restricted Shares covered by Awards of Restricted Shares
will be issued at the beginning or the end of a Restriction Period and whether
Dividend Equivalents will be paid during the Restriction Period in the event
Restricted Shares are to be issued at the end of the Restriction Period, and
(ii) may prescribe other restrictions, terms and conditions applicable to the
vesting of such Restricted Shares in addition to those provided in the Plan.
The Board shall determine the price, if any, to be paid by the Holder for the
Restricted Shares; provided, however, that the issuance of Restricted Shares
shall be made for at least the minimum consideration, if any, necessary to
permit such Restricted Shares to be deemed fully paid and nonassessable.
Additional determinations made by the Board pursuant to this Section 7.1 shall
be specified in the applicable Agreement.
7.2 Issuance of Restricted Shares at Beginning of the Restriction
Period. If Restricted Shares are issued at the beginning of the Restriction
Period, the stock certificate or certificates representing such Restricted
Shares shall be registered in the name of the Holder to whom such Restricted
Shares shall have been awarded. During the Restriction Period, certificates
representing the Restricted Shares and any securities constituting Retained
Distributions shall bear a restrictive legend to the effect that ownership of
the Restricted Shares (and such Retained Distributions), and the equivalent of
all rights appurtenant thereto, are subject to the restrictions, terms and
conditions provided in the Plan and the applicable Agreement. Such certificates
shall remain in the custody of the Company, and the Holder shall deposit with
the Company stock powers or other instruments of assignment, each endorsed in
blank, so as to permit retransfer to the Company of all or any portion of the
Restricted Shares and any securities constituting Retained Distributions that
shall be forfeited or otherwise not become vested in accordance with the Plan
and the applicable Agreement.
7.3 Restrictions. Restricted Shares issued at the beginning of the
Restriction Period shall constitute issued and outstanding Shares for all
purposes. The Holder will have the right to vote such Restricted Shares, to
receive and retain all regular cash dividends and such other distributions, as
the Board may in its sole discretion designate, pay or distribute on such
Restricted Shares, and to exercise all other rights, powers and privileges of a
holder of Shares with respect to such Restricted Shares; provided, however,
that (a) the Holder will not be entitled to delivery of the share certificate
or certificates representing such Restricted Shares until the Restriction
Period shall have expired and unless all other vesting requirements with
respect thereto shall have been fulfilled or waived; (b) the Company will
retain custody of the share certificate or certificates representing the
Restricted Shares during the Restriction Period as provided in Section 7.2; (c)
other than regular cash dividends and such other distributions with respect to
the Restricted Shares as the
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Board may in its sole discretion designate, the Company will retain custody of
all distributions ("Retained Distributions") made or declared with respect to
the Restricted Shares (and such Retained Distributions will be subject to the
same restrictions, terms and vesting and other conditions as are applicable to
the Restricted Shares) until such time, if ever, as the Restricted Shares with
respect to which such Retained Distributions shall have been made, paid or
declared shall have become vested, and such Retained Distributions shall not
bear interest or be segregated in a separate account; (d) the Holder may not
sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted
Shares or any Retained Distributions or his interest in any of them during the
Restriction Period; and (e) a breach of any restrictions, terms or conditions
provided in the Plan or established by the Board with respect to any Restricted
Shares or Retained Distributions will cause a forfeiture of such Restricted
Shares and any Retained Distributions with respect thereto.
7.4 Issuance of Shares at End of the Restriction Period. Restricted
Shares issued at the end of a Restriction Period shall not constitute issued
and outstanding Shares and the Holder shall not have any of the rights of a
shareholder with respect to the Restricted Shares covered by an Award of
Restricted Shares until a certificate or certificates for such Restricted
Shares shall have been issued to the Holder (as evidenced by the appropriate
entry on the books of the Company or of its duly authorized transfer agent). If
and to the extent that Restricted Shares are to be issued at the end of the
Restriction Period, the Holder shall be entitled to receive Dividend
Equivalents with respect to the Restricted Shares covered thereby as and to the
extent that the Board may specify in the Agreement.
7.5 Cash Awards. In connection with any Award of Restricted Shares,
the Agreement may provide for the payment of a cash amount to the Holder of
such Restricted Shares at any time after such Restricted Shares shall have
become vested. Such Cash Awards shall be payable in accordance with such
additional restrictions, terms and conditions as shall be prescribed by the
Board in the Agreement and shall be in addition to any other salary, incentive,
bonus or other compensation payments which such Holder shall be otherwise
entitled to or eligible to receive from the Company.
7.6 Completion of Restriction Period. Upon the satisfaction of any
applicable restrictions, terms and conditions, (a) the appropriate portion of
an Award of Restricted Shares shall become vested, (b) any Retained
Distributions and unpaid Dividend Equivalents with respect to such Restricted
Shares shall become vested to the same extent that the Restricted Shares
related thereto shall have become vested and (c) any Cash Award to be received
by the Holder with respect to such Restricted Shares shall become payable, all
in accordance with the terms of the applicable Agreement. Any such Restricted
Shares, Retained Distributions and unpaid Dividend Equivalents that shall not
become vested shall be forfeited to the Company and the Holder shall not
thereafter have any rights (including dividend and voting rights) with respect
to such Restricted Shares, Retained Distributions and unpaid Dividend
Equivalents that have been so forfeited.
8. ACCELERATION OF OPTIONS AND RESTRICTED SHARES
8.1 Death or Disability. If a Holder shall cease to be an Employee or
Consultant by reason of the death or Total Disability of such Holder, then
notwithstanding any contrary waiting period or installment period or
Restriction Period in any Agreement or in the Plan: (a) in the case of Options,
each then outstanding Option granted to such Holder under the Plan shall
immediately become exercisable in full in respect of the aggregate number of
Option Shares covered thereby and shall thereafter be exercisable for a period
ending on the earlier of the date which is one year following such death or
Total Disability or the scheduled expiration date of such Option, and (b) in
the case of Restricted Shares, the Restriction Period applicable to each Award
of Restricted Shares to such Holder shall be deemed to have expired and all
such Restricted Shares, any related Retained Distributions and any unpaid
Dividend Equivalents shall become vested and any Cash Award payable pursuant to
the applicable Agreement shall be adjusted and paid in such manner as provided
in the Agreement.
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8.2 Discretionary Acceleration. The Board, at any time before complete
termination of an Option or the lapsing of restrictions on Restricted Shares,
may, in its sole discretion, accelerate the time or times at which such Option
may be exercised in whole or in part or accelerate the vesting of such
Restricted Shares, as applicable.
8.3 Change of Control. Except to the extent provided in the applicable
Agreement (or in any other agreement, including without limitation an
employment agreement between the Holder and the Company), as such Agreement or
other agreement may be amended from time to time, Options granted and not
previously exercisable shall not become exercisable solely because of a change
of control of the Company and any Restricted Shares granted prior to the change
of control shall not vest upon such change of control.
9. TERMINATION OF SERVICE OF AN EMPLOYEE OR CONSULTANT
9.1 General. If a Holder shall cease to be an Employee or Consultant
(other than by reason of the death or Total Disability of such Holder) prior to
the complete exercise of an Option (or termination, surrender or relinquishment
thereof), then such Option shall thereafter be exercisable solely to the extent
provided in the applicable Agreement; provided, however, that (a) no Option may
be exercised after the scheduled expiration date of such Option and (b) any
termination by the Company for Cause will be treated in accordance with the
provisions of Section 9.2.
9.2 Termination by Company for Cause. If a Holder shall cease to be an
Employee or Consultant as a result of a termination for Cause during the
Restriction Period with respect to any Restricted Shares or prior to the
exercise of any Option, then (a) all Options held by such Holder shall
immediately terminate and (b) such Holder's rights to all Restricted Shares,
Retained Distributions, unpaid Dividend Equivalents and Cash Awards shall be
forfeited immediately.
9.3 Miscellaneous. The Board may determine whether any given leave of
absence constitutes a termination of Holder's status as an Employee or a
Consultant. Awards made under the Plan shall not be affected by any change of
employment so long as the Holder continues to be an Employee or Consultant.
10. RIGHT OF COMPANY TO TERMINATE EMPLOYMENT
Nothing contained in the Plan or in any Award shall confer on any
Holder any right to continue in the employ of the Company or any of its
Subsidiaries or interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of the Holder at any time, with or
without Cause; subject, however, to the provisions of any employment agreement
between the Holder and the Company or any Subsidiary.
11. NONALIENATION OF BENEFITS
11.1 General. Except for transfers by will or the laws of descent and
distribution and except as otherwise provided in Section 11.2 below, no Option,
Restricted Shares, Award or other right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void and of no effect. No Option, Restricted Shares,
Award or other right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefits.
11.2 Assignability of Nonqualified Share Options. Subject to the prior
consent of the Board, Nonqualified Share Options granted hereunder may be
transferred by the Holder thereof to one or more Permitted Transferees;
provided, however, that (a) there may be no consideration for any such
transfer, (b) the Holder (or such Holder's estate or representative) shall
remain obligated to satisfy all employment tax and
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other withholding tax obligations associated with the exercise of the Options,
(c) the Holder shall notify the Company in writing that such transfer has
occurred, the identity and address of the Permitted Transferee and the
relationship of the Permitted Transferee to the Holder and (d) such transfer
shall be effected pursuant to transfer documents approved from time to time by
the Board. To the extent a Nonqualified Share Option transferred pursuant to
this Section 11.2 is not fully exercisable as of the date of transfer thereof,
the Holder thereof shall specify in the transfer document whether and to what
extent the transferred Options (if less than all of the Options subject to the
applicable Agreement) are exercisable, subject to the limitations on
exercisability contained in the applicable Agreement. Furthermore, to the
extent the Holder transfers Options that are not exercisable as of the date of
transfer and such Options are less than all of the Options subject to the
applicable Agreement, the Holder shall specify in the transfer documents,
subject to the limitations on exercisability contained in the applicable
Agreement, when the transferred Options become exercisable as Options under the
applicable Agreement. No Permitted Transferee may further assign or transfer
the transferred Option otherwise than by will or the laws of the descent and
distribution. Following any permitted transfer, any such Options shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that, to the extent provided in the approved
transfer documents, the terms "Holder" and "Optionee" shall be deemed to refer
also to each Permitted Transferee. The consequences of a termination of service
as an Employee or Consultant described in Section 9 hereof shall continue to be
applied with respect to the original Holder, and following such a termination
the transferred Options shall be exercisable by the Permitted Transferee only
to the extent and for the periods specified in Section 9.
12. WRITTEN AGREEMENT
Each Award of Restricted Shares and any right to a Cash Award shall be
evidenced by a restricted shares agreement, and each grant of an Option shall
be evidenced by a stock option agreement which shall designate the Options
granted thereunder as ISOs or Nonqualified Share Options, each in such form and
containing such terms and provisions not inconsistent with the provisions of
the Plan as the Board from time to time shall approve; provided, however, that
a grant of more than one type of Award may be evidenced by a single Agreement.
The effective date of the granting of an Award shall be the date on which the
Board approves such grant, except that with respect to a prospective Employee
or prospective Consultant where the effective date shall be the date that such
individual becomes an Employee or a Consultant. Each grantee of an Option or
Restricted Shares shall be notified promptly of such grant and a written
Agreement shall be promptly executed and delivered by the Company and the
grantee, provided that such grant of Options or Restricted Shares shall
terminate (i) if such written Agreement is not signed by such grantee and
delivered to the Company within 60 days after the date the Board approved such
grant or (ii) if the effectiveness of such grant is conditioned upon the
grantee becoming an Employee or Consultant, the execution by the grantee of an
employment agreement with the Company or one of its Subsidiaries or any other
similar condition, within 60 days after the occurrence of such condition, if
later. Any such written Agreement shall contain such provisions as the Board
deems appropriate.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
Subject to any required action by the shareholders of the Company, the
Board may make or provide for such adjustments in the maximum number of Shares
specified in Section 3.1 that may be issued pursuant to Awards granted
hereunder and/or in the exercise price, grant price or purchase price that may
be applicable to such Awards or such other adjustments in the number and kind
of securities received upon the exercise of Awards, as the Board in its sole
discretion may determine is equitably required to prevent dilution or
enlargement of the rights of Holders or to otherwise recognize the effect that
otherwise would result from any stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, recapitalization or
other change in the capital structure of the Company, merger, consolidation,
spin-off, reorganization, partial or complete liquidation, issuance of rights
or warrants to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing and effected without receipt
of consideration by the Company; provided, however, that for this purpose
conversion of any convertible
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securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of any class,
or securities convertible into shares of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Option Shares subject to an Option or to the number of Restricted Shares
with respect to which an Award of Restricted Shares is made.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances,
declare that any Option shall terminate as of a date fixed by the Board and
give each Optionee the right to exercise his Option as to all or any part of
the Option Shares issuable upon exercise thereof, including Option Shares as to
which the Option would not otherwise be exercisable. In the event of the
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another company with such other company
being the survivor, the Option shall be assumed or an equivalent option shall
be substituted by such successor company or a parent or subsidiary of such
successor company, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Optionee
shall have the right to exercise the Option as to all of the Option Shares,
including Option Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for
a period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
If any merger, consolidation or similar transaction affects the Option
Shares or Restricted Shares, as the case may be, subject to any unexercised or
unvested Award theretofore granted under the Plan, the board or a committee of
the board of directors or trustees (or equivalent governing body) of any
surviving or acquiring company shall take such action as is equitable and
appropriate to substitute a new award for such Award or to assume such Award in
order to make such new or assumed Award, as nearly as may be practicable,
equivalent to the old Award. If any such change or action shall occur, the
number and kind of shares of stock for which Awards may be thereafter granted
under the Plan shall be adjusted to give effect thereto.
14. RIGHT OF FIRST REFUSAL
The Agreements may contain such provisions as the Board shall
determine to the effect that if a Holder elects to sell all or any Option
Shares that such Holder acquired upon the exercise of an Option or upon the
vesting of Restricted Shares awarded under the Plan, then such Holder shall not
sell such Option Shares or Restricted Shares unless such Holder shall have
first offered in writing to sell them to the Company at Fair Market Value on a
date specified in such offer (which date shall be at least three business days
and not more than 10 business days following the date of such offer). In any
such event, certificates representing Option Shares issued upon exercise of
Options and the vesting of Restricted Shares shall bear a restrictive legend to
the effect that transferability of such Shares are subject to the restrictions
contained in the Plan and the applicable Agreement and the Company may cause
the registrar of its Shares to place a stop transfer order with respect to such
Shares.
15. TERMINATION AND AMENDMENT
15.1 General. No Awards may be made under the Plan on or after the
tenth anniversary of the Effective Date. Subject to the provisions of Section
15.2, the Board may at any time prior to the tenth anniversary of the Effective
Date terminate the Plan, and the Board may at any time modify or amend the Plan
in such respects as it shall deem advisable; provided, however, that any such
modification or amendment shall comply with all applicable laws, applicable
stock exchange listing requirements, and applicable requirements
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for exemption (to the extent necessary) under Rule 16b-3 under the Exchange
Act. In particular, the following revisions or amendments shall require
approval of the shareholders of the Company:
(i) an increase in the number of Shares subject to the Plan other than in
connection with an adjustment under Section 13 of the Plan;
(ii) any change in the designation of the class of persons eligible to be
granted Awards, and
(iii) any other revision or amendment for which shareholder approval is
required by any applicable rule or law.
Any amendment requiring shareholder approval under Section 15 of the Plan must
be given within twelve (12) months of the Board approval of such amendment.
15.2 Modification. No termination, modification or amendment of the
Plan may, without the consent of the person to whom any Award shall theretofore
have been granted, adversely affect the rights of such person with respect to
such Award. No modification, extension, renewal or other change in any Award
granted under the Plan shall be made after the grant of such Award, unless the
same is consistent with the provisions of the Plan. With the consent of the
Holder and subject to the terms and conditions of the Plan (including Section
15.1), the Board may amend outstanding Agreements with any Holder, including,
without limitation, any amendment which would (a) accelerate the time or times
at which the Award may be exercised or vested and/or (b) extend the scheduled
expiration date of the Award. Without limiting the generality of the foregoing,
the Board may, but solely with the Holder's consent, agree to cancel any Award
under the Plan and issue a new Award in substitution therefor, provided that
the Award shall satisfy all of the requirements of the Plan as of the date such
new Award is made.
15.3 Effect of Amendment or Termination. Any amendment or termination
of the Plan shall not affect Awards already granted and such Awards shall
remain in full force and effect as if the Plan had not been amended or
terminated, unless mutually agreed otherwise between the Holder and the
Company, which agreement must be in writing and signed by the Holder and the
Company.
16. RESERVATION OF SHARES; LIABILITY FOR FAILURE TO ISSUE SHARES
The Company, during the term of this Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
17. EFFECTIVENESS OF THE PLAN
The Plan shall become effective upon approval by the vote, within six
(6) months before or after Board approval of the Plan, of a majority of the
voting securities of the Company present, either in person or by proxy, and
entitled to vote at a duly called and held meeting of shareholders of the
Company. Prior to the Effective Date, the Board may, in its discretion, grant
or authorize the making of Awards under the Plan as if the Effective Date had
occurred, provided that the exercise of Options and the vesting of Restricted
Shares so granted or made shall be expressly subject to the occurrence of the
Effective Date.
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18. GOVERNMENT AND OTHER REGULATIONS; CONDITION UPON ISSUANCE OF SHARES
The obligations of the Company with respect to Awards shall be subject
to all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
effectiveness of any registration statement required under the Securities Act
of 1933, and the rules and regulations of any securities exchange on which the
Shares may be listed. For so long as the Shares are registered under the
Exchange Act, the Company shall use its reasonable efforts to comply with any
legal requirements (a) to maintain a registration statement in effect under the
Securities Act of 1933 with respect to all sales of Shares that may be issued
to Holders under the Plan and (b) to file in a timely manner all reports
required to be filed by it under the Exchange Act.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
19. WITHHOLDING
The Company's obligation to deliver Shares or pay cash in respect of
any Award or Cash Award under the Plan shall be subject to applicable federal,
state and local tax withholding requirements which, in the case of Options,
shall be satisfied in accordance with Section 6.7 of the Plan.
20. SEPARABILITY
If any of the terms and provisions of this Plan conflict with the
requirements of Rule 16b-3 under the Exchange Act and/or Section 422 of the
Code, then such terms and provisions shall be deemed inoperative to the extent
they so conflict. With respect to ISOs, if the Plan does not contain any
provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out at length herein; provided,
however, that to the extent any Option which is intended to qualify as an ISO
cannot so qualify, such Option, to that extent, shall be deemed to be a
Nonqualified Share Option for all purposes of the Plan.
21. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options and the awarding of stock and cash otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION
By acceptance of the grant of an Award or the payment of Cash Award,
as applicable, each Holder shall be deemed to have agreed that such Award or
Cash Award, as applicable, is special incentive compensation and that it will
not be taken into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment under any pension, retirement or other
employee benefit plan of the Company or any Subsidiary. In addition, each
beneficiary of a deceased Holder shall be deemed to have agreed that such Award
or Cash Award, as applicable, will not affect the amount of any life insurance
coverage, if any, provided by the Company on the life of the Holder which is
payable to such beneficiary under any life insurance plan covering employees of
the Company or any Subsidiary.
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23. CHOICE OF LAW
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION
OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF MARYLAND.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Plan effective as of the ______ day of ______________, 1997.
INSIGNIA PROPERTIES TRUST
By:
---------------------------
James A. Aston
President
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INVESTORS AGREEMENT
THIS INVESTORS AGREEMENT (this "AGREEMENT"), entered into as of the
____ day of ________________, 1997, is made by and among INSIGNIA PROPERTIES
TRUST, a Maryland real estate investment trust ("IPT"), Insignia Financial
Group, Inc., a Delaware corporation ("IFG"), and the undersigned investor in
IPT (the "INVESTOR").
WITNESSETH:
WHEREAS, pursuant to that certain Confidential Memorandum dated May 9,
1997 (the "MEMORANDUM"), IPT offered to certain investors the opportunity to
purchase up to 5,000,000 (the "SHARES") common shares of beneficial interest of
IPT, par value $.01 per share ("COMMON SHARES");
WHEREAS, the Investor has executed a Subscription Agreement (the
"SUBSCRIPTION AGREEMENT") providing, among other things, for the issuance by
IPT and subscription and purchase by the Investor of the number of Shares
specified, and on the terms and conditions set forth, in the Subscription
Agreement;
WHEREAS, the execution of this Agreement is a condition to the
issuance and sale of the Shares by IPT; and
WHEREAS, the parties hereto desire to set forth more fully their
agreements regarding the ownership by the Investor or its Affiliates (as
defined herein) of interests in IPT.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are acknowledged, the parties hereto, each intending to be legally bound
hereby, agree as follows:
ARTICLE I.
DEFINITIONS
As used herein, the following terms shall have the respective
meanings set forth below:
"AFFILIATE" of any person means any person that directly or
indirectly controls, or is under common control with, or is controlled by, such
person. As used in this definition, "CONTROL" (including with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person (whether through ownership
of securities or partnership or other ownership interests, by contract or
otherwise).
"AGREEMENT" has the meaning set forth in the recitals.
"BOARD OF TRUSTEES" means the Board of Trustees of IPT, as
constituted from time to time in accordance with IPT's Declaration of Trust and
IPT's Bylaws.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" has the meaning set forth in the recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"IFG" has the meaning set forth in the recitals.
"INDEMNIFIED PARTY" has the meaning set forth in Section
5.5(c).
"INDEMNIFYING PARTY" has the meaning set forth in Section
5.5(c).
"INVESTOR" has the meaning set forth in the recitals.
"IPT" has the meaning set forth in the recitals.
"MEMORANDUM" has the meaning set forth in the recitals.
"PARTNERSHIP" means any partnership in which IPT, IFG or
Metropolitan Asset Enhancement, L.P. holds a general partner interest or
limited partner interest, at any time and from time to time.
"PIGGYBACK MAXIMUM NUMBER" has the meaning set forth in
Section 5.2(b).
"PRIORITY RIGHTS HOLDER" means (i) the Investor, (ii) all
other holders of Common Shares who entered into registration rights agreements
with IPT in connection with the offering made pursuant to the Memorandum, and
(iii) IFG and any of its Affiliates pursuant to any registration rights
agreements with IPT in effect as of the date hereof.
"REQUESTING HOLDER" has the meaning set forth in Section
5.2(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" has the meaning set forth in the recitals.
"SUBSCRIPTION AGREEMENT" has the meaning set forth in the
recitals.
"TRUSTEE" means a member of the Board of Trustees.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms. The words "herein,"
"hereof" and words of similar import as used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision in this
Agreement.
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ARTICLE II.
COVENANTS OF INVESTOR
Neither the Investor nor any of its Affiliates, nor any other
person acting on their behalf or in concert with them shall, directly or
indirectly (except through their investments directly in IPT):
(i) acquire, offer to acquire, or agree to acquire,
by purchase, gift or otherwise, any interest in a Partnership,
including without limitation any right to receive allocations or
distributions of the profits and losses of any Partnership or the
right to a share of the assets of any Partnership upon its winding up
and dissolution;
(ii) seek to control, disrupt, influence or
participate in the management, the policies or affairs of any
Partnership, including any Partnership in which the Investor acquired
an ownership interest prior to the date of this Agreement; or
(iii) make, or in any way participate in, any
"solicitation" of "proxies" to vote (as such terms are defined in Rule
14a-1 of the Exchange Act), solicit or communicate with or seek to
advise or influence any person or entity with respect to the voting of
any interest in any Partnership, including any Partnership in which
the Investor acquired an ownership interest prior to the date of this
Agreement.
Notwithstanding the foregoing, nothing herein shall be deemed to
prohibit the Investor from owning any interest in a Partnership, including,
without limitation, any right to receive allocations or distributions of the
profits and losses of any Partnership or the right to a share of the assets of
any Partnership upon its winding up and dissolution provided that such interest
was acquired prior to the date of this Agreement.
ARTICLE III.
TRANSFER COVENANT OF INVESTOR
SECTION 3.1 Restrictions on Transfer.
The Investor hereby agrees that it will not assign, transfer
or convey any Shares held by it unless and until the transferee, assignee or
successor of such Shares agrees in writing to be bound by the provisions of
this Agreement; provided, however, that this Section 3.1 shall not apply to (i)
any sale or exchange of Shares if any securities of IPT are registered pursuant
to Section 12 of the Exchange Act and are listed on a national securities
exchange or quoted on the NASDAQ, (ii) any sale or exchange of Shares pursuant
to any merger or other business combination to which IPT is a party, or (iii)
any transfer of securities received in a transaction described in the
immediately preceding clause (ii), provided such securities (or any other
securities of the same issuer) are registered pursuant to Section 12 of the
Exchange Act and are listed on a national securities exchange or quoted on the
NASDAQ; and further provided that the foregoing proviso shall not in any way
affect any transfer restrictions the Investor may be subject to other than
pursuant to this Section 3.1.
SECTION 3.2 Share Certificate Legend.
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The certificates representing the Shares will bear the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL
FOR THE COMPANY) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT. THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN INVESTORS AGREEMENT
AMONG THE COMPANY, INSIGNIA FINANCIAL GROUP, INC. AND THE
HOLDER HEREOF, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
ARTICLE IV.
TERMINATION
This Agreement shall commence on the date hereof and shall
terminate on the earliest to occur of:
(i) the written agreement of the parties hereto to
terminate this Agreement;
(ii) the final dissolution of IPT in accordance with
applicable law; and
(iii) the date on which all the Shares come to be owned by a
single shareholder or a group of shareholders that are Affiliates of
each other.
ARTICLE V.
REGISTRATION RIGHTS
SECTION 5.1 Registration on Request.
(a) Request. Provided that (i) IPT has not at any time prior
to the fifth anniversary of this Agreement had any Common Shares registered
under the Exchange Act and listed on a national securities exchange or quoted
on the NASDAQ and (ii) at the time of the request specified below the Investor
holds not less than 50,000 Shares, then, subject to the limitations provided
herein, at any time subsequent to the fifth anniversary of the date hereof,
upon the Investor's written request that IPT effect the registration under the
Securities Act of all, but not less than all, of such Investor's Shares, which
request shall specify (A) that the request is being made pursuant to this
Section 5.1, (B) the Investor's intended method of dispo-
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sition of such Shares, (C) whether or not such requested registration is to be
an underwritten offering, and (D) the price range (net of underwriting
discounts and commissions) acceptable to such Investor to be received for such
Shares, IPT will use reasonable efforts to effect the registration under the
Securities Act of such Shares. If IPT is required to effect a registration
pursuant to this Section 5.1 and IPT furnishes to the Investor a certificate
signed by the President of IPT stating that in the good faith judgment of the
Board of Trustees of IPT it would not be in the best interests of IPT and its
shareholders for such registration statement to be filed on or before the date
such filing would otherwise be required hereunder and it is therefore necessary
to defer the filing of such registration statement, then IPT shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request for such registration from the Investor; provided that during
such time IPT may not file a registration statement for securities to be issued
and sold for its own account or that of anyone other than the Investor. In
addition to the other limitations set forth herein, the Investor shall not be
entitled to request and have effected more than one registration under this
Section 5.1.
(b) Method of Distribution. The Investor requesting a
registration pursuant to Section 5.1(a) shall determine the method of
distribution of the Shares included in such registration.
(c) Registration of Other Securities. Whenever IPT shall
effect a registration pursuant to this Section 5.1 in connection with an
underwritten offering, no securities other than Shares requested by the
Investor to be included shall be included among the securities covered by such
registration unless (i) the managing underwriter of such offering shall have
advised the Investor in writing that the inclusion of such other securities
would not adversely affect the price the Investor will receive for its Shares
in such offering or (ii) the Investor shall have consented in writing to the
inclusion of such other securities.
(d) Registration Statement Form. Registrations under this
Section 5.1 shall be on such appropriate registration form of the Commission
(i) as shall be selected by IPT and as shall be reasonably acceptable to the
Investor, and (ii) as shall permit the disposition of such Shares in accordance
with the method or methods of disposition selected pursuant to Section 5.1(b)
hereof.
(e) Effective Registration Statement. A registration
requested pursuant to this Section 5.1 shall not be deemed to have been
effected (i) unless a registration statement with respect thereto has become
effective (unless a substantial cause of the failure of such registration
statement to become effective shall be attributable to the Investor), (ii) if
after a registration statement with respect thereto has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason, resulting in a failure to consummate the offering of Shares offered
thereby, (iii) if after a registration statement with respect thereto has
become effective, the offering of Shares offered thereby is not consummated due
to factors beyond the control of the Investor, including, without limitation,
in the context of a proposed firm commitment underwriting, the fact that the
underwriters have advised the Investor that its Shares cannot be sold at a net
price equal to or above the net price anticipated at the time of filing of the
preliminary prospectus, or (iv) if the conditions to closing specified in the
underwriting
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agreement entered into in connection with such registration are not satisfied
(unless a substantial cause of such conditions to closing not being satisfied
shall be attributable to the Investor).
(f) Selection of Underwriters. If a requested registration
pursuant to this Section 5.1 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by IPT and the Investor. The Investor
(together with IPT and other holders, if any, of Common Shares participating
therein) shall enter into an underwriting agreement in customary form with the
representative of such underwriter(s).
(g) Expenses. All expenses of any registration requested
under this Section 5.1 shall be paid by the Investor and the other holders of
Common Shares, if any, participating in such registration, pro rata among such
holders based on the ratio the number of Common Shares included by each selling
holder bears to the number of all Common Shares included in the registration.
In all cases, the Investor shall pay the underwriting discounts and commissions
applicable to the Shares sold by the Investor.
SECTION 5.2 Right to Include Shares.
(a) Inclusion. If IPT at any time proposes to register any of
its Common Shares under the Securities Act (other than by a registration on
Form S-8, S-4 or any successor similar forms or any other form not available
for registering the Shares for sale to the public), whether or not for sale for
its own account, it will each such time, at least 30 days prior to filing the
registration statement, give written notice to the Investor of its intention to
do so. Upon the written request of the Investor made within 15 days after the
receipt of any such notice (which request shall specify the Shares intended to
be disposed of by the Investor and the intended method of disposition thereof),
IPT will use reasonable efforts to effect the registration under the Securities
Act of all Shares which IPT has been so requested to register by the Investor,
to the extent requisite to permit the disposition of the Shares to be so
registered, provided, however, that if, at any time after giving written notice
of its intention to register any Common Shares and prior to the effective date
of the registration statement filed in connection with such registration, IPT
shall determine for any reason not to register or to delay registration of such
Common Shares, IPT may, at its election, give written notice of such
determination to the Investor and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Shares in connection with such registration (but not from its obligation to
pay expenses in accordance with Section 5.4 hereof) and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Shares being registered pursuant to this Section 5.2 for the same period as the
delay in registering such other securities.
(b) Priority. If (i) a registration pursuant to this Section
5.2 involves an underwritten offering whereby the Common Shares so being
registered, whether or not for sale for the account of IPT, are to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing, whether or not the Investor has requested that its
Shares be included in such underwritten offering, and (ii) the managing
underwriter of such underwritten offering shall inform IPT in writing of its
belief that the number of Common Shares requested to be included in such
registration exceeds the maximum number (the "PIGGYBACK MAXIMUM NUMBER") which
can be sold in (or during the time of) such offering
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within a price range reasonably acceptable to IPT, IPT shall be entitled to
reduce the aggregate number of Common Shares included in the registration to an
aggregate number equal to the Piggyback Maximum Number, with participation in
the offering being allocated (A) if IPT initiated the registration of Common
Shares for its own account, (1) first, for the account of IPT, and (2) second,
pro rata among all Priority Rights Holders (including, without limitation, the
Investor) (based upon the number of Common Shares held by such holders
(including, without limitation, the Investor) immediately prior to the filing
of the registration statement with respect to such registration), and (B) if
the registration was initiated by a Priority Rights Holder (the "REQUESTING
HOLDER"), (1) first, for the account of the Requesting Holder, (2) second for
the account of IPT, and (3) third, pro rata among all Priority Rights Holders,
other than the Requesting Holder, requesting registration of Common Shares
pursuant to any registration rights agreements with IPT (based on the number of
Common Shares held by such holders immediately prior to the filing of the
registration statement with respect to such registration).
(c) Expenses. All expenses incurred in connection with each
registration pursuant to Section 5.2 initiated by IPT (excluding in each case
underwriting discounts and commissions applicable to Common Shares), including,
without limitation, in each case, all registration, filing and National
Association of Securities Dealer fees; all fees and expenses of complying with
securities or blue sky laws; all word processing, duplicating and printing
expenses, messenger, delivery and shipping expenses; fees and disbursements of
the accountants and counsel for IPT including the expenses of any special
audits or "cold comfort" letters or opinions required by or incident to such
registrations; such premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Common Shares; and any
fees and disbursements of underwriters customarily paid by issuers or sellers
of securities, but excluding underwriting discounts and commissions, if any,
shall be borne by IPT. All expenses incurred in connection with a registration
pursuant to Section 5.2 initiated by a Requesting Holder shall be paid by the
holders, including, without limitation, the Investor, participating in such
registration, pro rata among such holders based on the ratio the number of
Common Shares included by each selling holder bears to the number of all Common
Shares included in the registration. In all cases, the Investor shall pay the
underwriting discounts and commissions applicable to the Shares sold by the
Investor.
(d) Underwritten Offerings. If any Common Shares to be
registered under the Securities Act as contemplated by this Section 5.2 are to
be distributed by or through one or more underwriters, and the Investor has
requested that its Shares be included in such offering as provided in Section
5.2(a), then IPT shall not be obligated to include the Investor's Shares in
such offering unless the Investor accepts the terms of the underwritten
offering agreed on between the Company or the Requesting Holder, as the case
may be, and the underwriters selected by the Company or the Requesting Holder,
as the case may be. Furthermore, if requested by the underwriters, the Investor
agrees to enter into an agreement with such underwriters not to sell any Common
Shares owned by the Investor for a period of time (not to exceed 180 days)
after the effectiveness of a registration statement equal to the period of time
which the sellers of Common Shares in such registration have agreed not to sell
the Common Shares owned by them after the effectiveness of such registration
statement. The Investor shall be party to the underwriting agreement between
IPT or the Requesting Holder, as the case may be, and such underwriters and
may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of, IPT to and for the
benefit of such
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underwriters shall also be made to and for the benefit of such Investor and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of the Investor. The Investor shall not be required to make any
representations or warranties to or agreements with IPT or the underwriters
other than representations, warranties or agreements regarding the Investor,
the Investor's Common Shares or other securities of IPT, the Investor's
intended method of distribution and any representations, warranties or
agreements required by law.
SECTION 5.3 Registration Procedures.
If and whenever any Shares of the Investor are proposed to be
registered under the Securities Act as contemplated in this Agreement, IPT
will, subject to the limitations set forth in this Agreement, as expeditiously
as possible:
(i) prepare and (as soon thereafter as possible or in any
event no later than 60 days after the end of the period within which
requests for registration may be given to IPT or such longer period as
IPT shall in good faith require to produce the financial statements
required in connection with such registration) file with the
Commission the requisite registration statement to effect such
registration and thereafter use reasonable efforts to cause such
registration statement to become effective, provided that IPT may
discontinue or delay any registration of any Common Shares in its sole
discretion;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Shares covered
by such registration statement until such time as all of such Shares
have been disposed of in accordance with the intended methods of
disposition by the Investor; provided, however, that IPT shall not in
any event be required to keep the registration statement effective for
a period of more than nine months after such registration statement
becomes effective;
(iii) furnish to the Investor such number of conformed copies
of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act,
and such other documents, as the Investor may reasonably request;
(iv) use its best efforts to register or qualify all Shares
covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Investor thereof shall
reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect
(provided, however, that IPT shall not in any event be required to
keep such registration or qualification in effect for a period of more
than nine months after such registration or qualification becomes
effective) and take any other action which may be reasonably necessary
or advisable to enable the Investor to consummate the disposition in
such jurisdictions of the Shares owned by the Investor, except that
IPT shall not for any such purpose be required
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to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause all Shares covered by such
registration statement to be registered with or approved by such other
United States federal or state governmental agencies or authorities as
may be necessary to enable the Investor to consummate the disposition
of such Shares;
(vi) furnish to the Investor a copy, or, upon request, a
signed counterpart, addressed to the Investor (and the underwriters,
if any) of
(x) an opinion of counsel for IPT, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
and
(y) a "comfort" letter addressed to the
underwriters, dated the effective date of such registration
statement (or, if such registration includes an underwritten
public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public
accountants who have audited IPT's financial statements
included in such registration statement, covering
substantially the same matters with respect to such
registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case
of the accountants' letter, such other financial matters,
and, in the case of the legal opinion such other legal matters, as the Investor
(or the underwriters, if any) may reasonably request;
(vii) notify the Investor, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the
Investor, prepare and furnish to the Investor a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Shares, such prospectus shall not include 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 in
the light of the circumstances under which they were made;
(viii) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months
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beginning with the first full calendar month after the effective date
of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act, and will
furnish to the Investor, upon request of the Investor, at least five
days prior to the filing thereof, a copy of any amendment or
supplement to such registration statement or prospectus and shall not
file any amendment or supplement thereof to which the Investor shall
have delivered to IPT an opinion of counsel that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent for
all Shares covered by such registration statement from and after a
date not later than the effective date of such registration statement;
(x) use its best efforts to list all Shares covered by
such registration statement on any securities exchange on which any of
the Shares is then listed; and
(xi) refrain from making any sale or distribution of its
equity securities, except pursuant to any employee stock option plan
and any preexisting agreement for the sale of such securities, for at
least ninety (90) days after the closing of the public offering
pursuant to such registration.
It shall be a condition precedent to the obligations of IPT to take any action
with respect to registering the Investor's Shares pursuant to this Section 5.3
that the Investor furnish IPT in writing such information regarding the
Investor, the Shares and other securities of IPT held by the Investor, and the
distribution of such Shares as IPT may from time to time reasonably request in
writing. If the Investor refuses to provide IPT with any of such information on
the grounds that it is not necessary to include such information in the
registration statement, IPT may exclude the Investor's Shares from the
registration statement if IPT provides the Investor with an opinion of counsel
to the effect that such information must be included in the registration
statement and the Investor thereafter continues to withhold such information.
The exclusion of the Investor's Shares from a registration statement shall not
affect the registration of the other Shares to be included in such registration
statement.
The Investor agrees that upon receipt of any notice from IPT
of the happening of any event of the kind described in subdivision (vii) of
this Section 5.3, the Investor will forthwith discontinue the Investor's
disposition of Shares pursuant to the registration statement relating to such
Shares until the Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 5.3 and,
if so directed by IPT, will deliver to IPT (at IPT's expense) all copies, other
than permanent file copies then in the Investor's possession, of the prospectus
relating to such Shares current at the time of receipt of such notice.
SECTION 5.4 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each
registration statement under the Securities Act which includes shares of the
Investor pursuant to this Agreement, IPT will give the Investor, its
underwriters, if any, its counsel and its accountants the opportunity to
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participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of IPT with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of the Investor, to conduct a
reasonable investigation within the meaning of the Securities Act.
SECTION 5.5 Indemnification.
(a) Indemnification by IPT. In the event any of the
Investor's Shares are included in a registration statement under this Article
V, to the extent permitted by law, IPT will, and hereby does, indemnify and
hold harmless the Investor, each of the directors and officers of the Investor,
each Affiliate of the Investor, each of the directors and officers of such
Affiliate of the Investor, each other person who participates as an underwriter
in the offering or sale of such securities and each other person, if any, who
controls the Investor, such Affiliate or any such underwriter within the
meaning of the Securities Act, against any losses, claims, damages, costs,
expenses or liabilities, joint or several, to which the Investor or any such
director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, any offering circular or other similar document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or any amendment or supplement
thereto, or 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, and IPT will reimburse the Investor and each such director,
officer, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, cost, expense, liability, action or proceeding;
provided that IPT shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, offering
circular, amendment or supplement in reliance upon and in conformity with
written information furnished to IPT by any seller expressly for use in the
preparation thereof, and provided further that IPT shall not be liable to any
person who participates as an underwriter in the offering or sale of Shares or
any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, cost, expense, liability (or action or proceeding in respect thereof)
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of Shares
to such person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Investor or any such director,
officer, underwriter or controlling person and shall survive the transfer of
such Shares by the Investor
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(b) Indemnification by the Investor. IPT may require, as a
condition to including any of the Investor's Shares in any registration
statement filed pursuant to Section 5.3 hereof, that IPT shall have received an
undertaking satisfactory to it from the Investor and/or its Affiliates, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 5.5) each underwriter, each person who
controls such underwriter within the meaning of the Securities Act, IPT, each
Trustee of IPT, each officer of IPT, each Affiliate of IPT, each director of
each Affiliate of IPT, each trustee of each Affiliate of IPT, each officer of
each Affiliate of IPT and each other person, if any, who controls IPT within
the meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus, summary prospectus or offering
circular contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in strict conformity with written information furnished to
IPT by the Investor and/or its Affiliates expressly for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, offering circular, amendment or supplement; provided that
the Investor and/or its Affiliates shall not be liable to any person who
participates as an underwriter in the offering or sale of Shares or any other
person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, cost, expense or liability (or action or proceeding in respect thereof)
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of Shares
to such person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of any underwriter, IPT or any such
director, trustee, officer or controlling person and shall survive the transfer
of such Shares by the Investor. In no event shall the liability of the Investor
under this Section 5.5 be greater in amount than the dollar amount of the
proceeds received by the Investor upon the sale of the Common Shares giving
rise to such indemnification obligation.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party (the "INDEMNIFIED PARTY") of notice of the commencement of
any action or proceeding involving a claim referred to in the preceding
subdivisions of this Section 5.5, such Indemnified Party will, if a claim in
respect thereof is to be made against an indemnifying party (the "INDEMNIFYING
PARTY"), give written notice to the Indemnifying Party of the commencement of
such action; provided that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under the preceding subdivisions of this Section 5.5, except to the extent that
the Indemnifying Party is actually prejudiced by such failure to give notice.
In case any such action is brought against an Indemnified Party, unless in such
Indemnified Party's reasonable judgment a conflict of interest between such
Indemnified Party and such Indemnifying Parties may exist in respect of such
claim, the Indemnifying Party shall be entitled to participate in and to assume
the defense thereof, jointly with any other Indemnifying Party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory
to such Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No
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Indemnifying Party shall, without the consent of the Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses available to such
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and will
reimburse such Indemnified Party and any person controlling such Indemnified
Party for the reasonable fees and expenses of any counsel retained by the
Indemnified Party, it being understood that the Indemnifying Party shall not,
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for such Indemnified Party or controlling person
and, in the case of indemnification by IPT, all other parties entitled to
indemnification pursuant to agreements with IPT or its Affiliates, which firm
shall be designated in writing by the Indemnified Party (and, in the case of
indemnification by IPT, by holders of a majority of Common Shares pursuant to
which such indemnification obligation arose under this Agreement and other
agreements between other parties and IPT or its Affiliates) to the Indemnifying
Party.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 5.5 (with appropriate
modifications) shall be given by IPT and the Investor and its Affiliates with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority other than
the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 5.5 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this
Section 5.5 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Parties shall be determined by reference to,
among other things, whether any action in question, including any untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in this Section 5.5, any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
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The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5.5 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5.5, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Common Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason on
such untrue or alleged untrue statement or omission or alleged omission, and no
selling holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Common Shares of such selling
holder were offered to the public exceeds the amount of any damages which such
selling holder has otherwise been required to pay by reason of such untrue
statement or omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 5.5, the
Indemnifying Parties shall indemnify each Indemnified Party to the full extent
provided in Section 5.5(a) through Section 5.5(e) hereof without regard to the
relative fault of said Indemnifying Party or Indemnified Party or any other
equitable consideration provided for in this Section 5.5(f).
SECTION 5.6 Reporting Requirements Under Exchange Act.
When IPT is first legally required to do so, IPT shall
register its Common Shares under Section 12 of the Exchange Act and shall keep
effective such registration and shall timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 of the
Exchange Act. From and after the effective date of the first registration
statement filed by IPT under the Securities Act, IPT shall (whether or not it
shall then be required to do so) timely file such information, documents and
reports which a corporation, partnership or other entity subject to Section 13
or 15(d) (whichever is applicable) of the Exchange Act is required to file.
Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, IPT shall
forthwith upon request furnish to the Investor (i) a written statement by IPT
that it has complied with such reporting requirements, (ii) a copy of the most
recent annual or quarterly report of IPT, and (iii) such other reports and
documents filed by IPT with the Commission as such Investor may reasonably
request in availing itself of an exemption for the sale of Shares without
registration under the Securities Act. IPT acknowledges and agrees that the
purposes of the requirements contained in this Section 5.6 are (a) to enable
the Investor to comply with the current public information requirement
contained in Paragraph (c) of Rule 144 under the Securities Act should the
Investor ever wish to dispose of any of the Shares acquired by it without
registration under the Securities Act in reliance upon Rule 144 (or any other
similar exemptive provision) and (b) to qualify IPT for the use of registration
statements on Form S-3. In addition, IPT shall take such other measures and
file such other information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability of Rule 144 under
the Securities Act (or any similar exemptive provision hereafter in effect) and
the use of Form S-3. IPT also covenants to use its best efforts, to the extent
that it is reasonably within its power to do so, to qualify for the use of Form
S-3.
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SECTION 5.7 Investor Information.
IPT may require the Investor, if any of the Investor's Shares
are to be registered pursuant to this Article V, to furnish IPT such
information in writing with respect to the Investor and the distribution of
such Shares (and any other securities of IPT) as IPT may from time to time
reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.
SECTION 5.8 Forms.
All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or to
apply to similar transactions as, the forms herein referenced.
SECTION 5.9 Transfer of Registration Rights.
The registration rights granted the Investor under this
Article V may not be transferred without the prior written consent of IPT;
provided that such registration rights may be transferred, in whole or in part,
without such prior written consent upon written notice to IPT in connection
with a permitted transfer of Shares to a partner in or an Affiliate of the
Investor.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1 Survival.
Without intending to exclude the provisions hereof which by
their nature survive, the provisions of Article II hereof and Section 5.5
hereof shall survive any termination of this Agreement.
SECTION 6.2 Successors and Assigns.
This Agreement shall bind and inure to the benefit of and be
enforceable by IPT, IFG and the Investor. Either IPT or IFG may assign its
rights under this Agreement without the consent of the Investor or its
permitted successors or assigns, and this Agreement (with the exception of
Article V) shall bind and inure to the benefit of and be enforceable by any
successor or assign of IPT or IFG. Except as provided in Section 5.9, the
Investor may not assign its rights under this Agreement without the prior
written consent of all other parties to this Agreement.
SECTION 6.3 Counterparts.
This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
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SECTION 6.4 Severability.
In case any one or more of the provisions contained in this
Agreement or in any instrument contemplated hereby, or any application thereof,
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein, and any other application thereof, shall not in any way be affected or
impaired thereby.
SECTION 6.5 Headings.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms hereof.
SECTION 6.6 Amendment and Waiver.
This Agreement may be amended only by agreement in writing
signed by all of the parties. No waiver of any provision or consent to any
exception to the terms of this Agreement shall be effective unless in writing
and signed by the party to be bound and then only to the extent, specific
purpose and instance so provided.
SECTION 6.7 Remedies.
Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. In the event a party hereto
brings an action under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals. No course of dealing between IPT, IFG and the
Investor and no delay or failure in exercising any rights hereunder shall
operate as a waiver of the rights of any party hereto.
SECTION 6.8 GOVERNING LAW.
THE CORPORATE LAW OF THE STATE OF MARYLAND WILL GOVERN ALL
QUESTIONS CONCERNING THE RELATIVE RIGHTS OF IPT AND ITS SHAREHOLDERS. ALL OTHER
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF NEW YORK.
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SECTION 6.9 Jurisdiction.
Each of the parties hereto hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or United States federal court
sitting in the City of New York over any suit, action or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby and
irrevocably waives, to the fullest extent they may exclusively do so, any
objection which they may now or hereafter have to the laying of venue of any
such proceeding.
SECTION 6.10 Further Acts.
Each of the parties hereto agrees to perform such other and
further acts and to execute such other further documents as may be reasonably
required to effect the transactions contemplated hereby.
SECTION 6.11 Relationship with Declaration of Trust and Bylaws.
In the event of any conflict between this Agreement, IPT's
Declaration of Trust, as amended and Bylaws, as amended, the provisions of this
Agreement shall prevail to the extent permitted by applicable law, and the
parties shall take all action necessary or desirable to effect any amendments
to such documents necessary to avoid any such conflict.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date hereof.
INSIGNIA PROPERTIES TRUST
By:
--------------------------------------
Jeffrey P. Cohen
Vice President
INSIGNIA FINANCIAL GROUP, INC.
By:
--------------------------------------
Jeffrey P. Cohen
Senior Vice President
INVESTOR:
-----------------------------------------
Name of Investor
By:
--------------------------------------
Name:
---------------------------------
Title:
---------------------------------
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), entered into as
of the 17th day of February, 1998, is made by and among INSIGNIA PROPERTIES
TRUST, a Maryland real estate investment trust ("IPT"), and Insignia Financial
Group, Inc., a Delaware corporation ("IFG").
WITNESSETH:
WHEREAS, in connection with the formation of IPT, IFG and its
Affiliates (as defined herein) contributed certain interests in limited
partnerships which principally own multifamily residential properties and, to a
lesser extent commercial properties, to Insignia Properties, L.P., a Delaware
limited partnership and the operating partnership of IPT ("IPLP"), in exchange
for units of limited partner interest in IPLP ("OP UNITS");
WHEREAS, pursuant to the terms of the Third Amended and Restated
Agreement of Limited Partnership of IPLP dated as of August 1, 1997 (the
"PARTNERSHIP AGREEMENT"), IFG, as a limited partner of IPLP, has the right,
under certain circumstances, to cause IPLP to redeem all or a portion of the OP
Units owned by IFG for cash, subject to IPT's first right to acquire such OP
Units in exchange for common shares of beneficial interest, par value $.01 per
share, of IPT ("COMMON SHARES");
WHEREAS, the Partnership Agreement contains certain registration
rights for the limited partners of IPLP in the event that IPT elects to acquire
their OP Units in exchange for Common Shares upon a request for redemption by a
limited partner;
WHEREAS, in connection with the amendment and restatement of the
Partnership Agreement of even date herewith, which provided for, among other
things, the removal of such registration rights granted to the limited partners
of IPLP, IPT agreed to grant IFG certain registration rights with respect to
the Shares (as defined herein); and
WHEREAS, IPT and IFG desire to set forth more fully their agreements
regarding such registration rights relating to the Shares.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are acknowledged, the parties hereto, each intending to be legally bound
hereby, agree as follows:
ARTICLE I.
DEFINITIONS
As used herein, the following terms shall have the respective meanings
set forth below:
"AFFILIATE" of any person means any person that directly or
indirectly controls, or is under common control with, or is controlled by, such
person. As used in this definition, "CONTROL"
<PAGE>
(including with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"AGREEMENT" has the meaning set forth in the recitals.
"BOARD OF TRUSTEES" means the Board of Trustees of IPT, as
constituted from time to time in accordance with IPT's Declaration of Trust and
Bylaws.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" has the meaning set forth in the recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"IFG" has the meaning set forth in the recitals.
"INDEMNIFIED PARTY" has the meaning set forth in Section 2.5(c).
"INDEMNIFYING PARTY" has the meaning set forth in Section 2.5(c).
"IPLP" has the meaning set forth in the recitals.
"IPT" has the meaning set forth in the recitals.
"OP UNITS" has the meaning set forth in the recitals.
"PARTNERSHIP AGREEMENT" has the meaning set forth in the
recitals.
"PROSPECTUS" means the prospects included in the Shelf
Registration Statement, as amended or supplemented by any prospectus supplement
and by other amendments thereto, including post-effective amendments and all
material incorporated by reference into such Prospectus.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means any Common Shares which may be issued to IFG upon
a redemption of all or a portion of the OP units owned by IFG on or after the
date hereof.
"SHELF FILING DEADLINE" has the meaning set forth in Section
2.1(a).
"SHELF REGISTRATION" means a registration effected by the filing
of a Shelf Registration Statement pursuant to Section 2 hereof.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in
Section 2.1(a).
"TRUSTEE" means a member of the Board of Trustees.
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The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. The words "herein," "hereof"
and words of similar import as used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision in this Agreement.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1. Shelf Registration.
(a) Shelf Registration. Provided that IPT has registered any Common
Shares under the Exchange Act, upon IFG's written request, IPT shall:
(i) use its best efforts to cause to be filed a shelf
registration statement pursuant to Rule 415 under the Securities Act
(the "SHELF REGISTRATION STATEMENT"), on or prior to the 30th day
after the date on which IPT receives IFG's written request (the "SHELF
FILING DEADLINE"), which Shelf Registration Statement shall provide
for resales of all Shares; and
(ii) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
120th day after the obligation to file such Shelf Registration
Statement arises.
IPT shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Section 2.2 hereof to the extent necessary to ensure that it is
available for resales of Shares by IFG and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time.
(b) Provision by IFG of Certain Information in Connection with the
Shelf Registration Statement. Notwithstanding Section 2.1(a) hereof, IPT shall
not be required to file with the Commission any Shelf Registration Statement
pursuant to this Agreement unless and until IFG furnishes to IPT in writing,
within 20 business days after receipt of a request therefor, such information
as IPT may reasonably request specified in Item 507 and Item 508 of Regulation
S-K under the Securities Act for use in connection with any Shelf Registration
Statement or Prospectus therein. IFG agrees to furnish promptly to IPT all
information required to be disclosed in order to make the information
previously furnished to IPT by IFG not materially misleading.
SECTION 2.2. Registration Procedures.
In connection with the Shelf Registration Statement, IPT shall comply
with all the provisions of this Section 2.2 and shall use its best efforts to
effect such registration to permit the sales of the Shares being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto IPT will as expeditiously as practicable prepare and file with
the Commission a registration statement relating to the registration on any
appropriate form under the
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Securities Act, which form shall be available for the sale of the Shares in
accordance with the intended method or methods of distribution thereof.
In connection with any Shelf Registration Statement and any related
Prospectus required by this Agreement to permit the resale of the Shares, IPT
shall:
(i) prepare and (as soon thereafter as possible or in any
event no later than 60 days after the end of the period within which
requests for registration may be given to IPT or such longer period as
IPT shall in good faith require to produce the financial statements
required in connection with such registration) file with the
Commission the requisite Shelf Registration Statement to effect such
registration and thereafter use reasonable efforts to cause such Shelf
Registration Statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such Shelf Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Shelf
Registration Statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Shares
covered by such Shelf Registration Statement until such time as all of
such Shares have been disposed of in accordance with the intended
methods of disposition by IFG;
(iii) furnish to IFG such number of conformed copies of such
Shelf Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the Prospectus contained in such Shelf Registration Statement
(including each preliminary Prospectus and any summary Prospectus) and
any other Prospectus filed under Rule 424 under the Securities Act,
and such other documents, as IFG may reasonably request;
(iv) use its best efforts to register or qualify all Shares
covered by such Shelf Registration Statement under such other
securities or blue sky laws of such jurisdictions as IFG thereof shall
reasonably request, to keep such Registration or qualification in
effect for so long as such Shelf Registration Statement remains in
effect, and take any other action which may be reasonably necessary or
advisable to enable IFG to consummate the disposition in such
jurisdictions of the Shares owned by IFG, except that IPT shall not
for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Shares covered by such
Shelf Registration Statement to be registered with or approved by such
other United States federal or state governmental agencies or
authorities as may be necessary to enable IFG to consummate the
disposition of such Shares;
(vi) furnish to IFG a copy, or, upon request, a signed
counterpart, addressed to IFG (and the underwriters, if any) of:
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(x) an opinion of counsel for IPT, dated the
effective date of such Shelf Registration Statement (or, if
such registration includes an underwritten public offering,
dated the date of the closing under the underwriting
agreement), and
(y) a "comfort" letter addressed to the
underwriters, dated the effective date of such Shelf
Registration Statement (or, if such registration includes an
underwritten public offering, dated the date of the closing
under the underwriting agreement), signed by the independent
public accountants who have audited IPT's financial
statements included in such Shelf Registration Statement,
covering substantially the same matters with respect to such
Shelf Registration Statement (and the Prospectus included
therein) and, in the case of the accountants' letter, with
respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities
and, in the case of the accountants' letter, such other
financial matters,
and, in the case of the legal opinion such other legal matters, as IFG (or the
underwriters, if any) may reasonably request;
(vii) notify IFG, at any time when a Prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the Prospectus included in such Shelf Registration Statement,
as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of
IFG, prepare and furnish to IFG a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Shares,
such Prospectus shall not include 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 in the light
of the circumstances under which they were made;
(viii) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months
beginning with the first full calendar month after the effective date
of such Shelf Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act, and
will furnish to IFG, upon request of IFG, at least five days prior to
the filing thereof, a copy of any amendment or supplement to such
Shelf Registration Statement or Prospectus and shall not file any
amendment or supplement thereof to which IFG shall have delivered to
IPT an opinion of counsel that such amendment or supplement does not
comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
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(ix) provide and cause to be maintained a transfer agent for
all Shares covered by such Shelf Registration Statement from and after
a date not later than the effective date of such Shelf Registration
Statement; and
(x) use its best efforts to list all Shares covered by such
Shelf Registration Statement on any securities exchange on which any
of the Shares is then listed.
IFG agrees that upon receipt of any notice from IPT of the happening
of any event of the kind described in subdivision (vii) of this Section 2.2,
IFG will forthwith discontinue its disposition of Shares pursuant to the
registration statement relating to such Shares until IFG's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section 2.2 and, if so directed by IPT, will deliver to IPT (at
IPT's expense) all copies, other than permanent file copies then in IFG's
possession, of the prospectus relating to such Shares current at the time of
receipt of such notice.
SECTION 2.3. Expenses.
All expenses of any registration requested under this Agreement shall
be borne equally by IFG and IPT. In all cases, IFG shall pay the underwriting
discounts and commissions applicable to the Shares sold by IFG.
SECTION 2.4. Preparation; Reasonable Investigation.
In connection with the preparation and filing of each Shelf
Registration Statement under the Securities Act which includes Shares owned by
IFG pursuant to this Agreement, IPT will give IFG, its underwriters, if any,
its counsel and its accountants the opportunity to participate in the
preparation of such Shelf Registration Statement, each Prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of IPT with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of IFG, to conduct a reasonable
investigation within the meaning of the Securities Act.
SECTION 2.5. Indemnification.
(a) Indemnification by IPT. IPT agrees to indemnify and hold
harmless IFG, each of the directors and officers of IFG, each Affiliate of IFG,
each of the directors and officers of such Affiliate of IFG, each other person
who participates as an underwriter in the offering or sale of such securities
and each other person, if any, who controls IFG, such Affiliate or any such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages, costs, expenses or liabilities, joint or several, to which IFG
or any such director or officer or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Shelf Registration Statement under which such securities were registered under
the Securities Act, any preliminary Prospectus, final
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Prospectus or summary Prospectus contained therein, any offering circular or
other similar document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or any amendment or supplement thereto, or 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, and IPT will reimburse
IFG and each such director, officer, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, cost, expense,
liability, action or proceeding; provided that IPT shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Shelf Registration Statement, any such preliminary Prospectus, final
Prospectus, summary Prospectus, offering circular, amendment or supplement in
reliance upon and in conformity with written information furnished to IPT by
IFG expressly for use in the preparation thereof, and provided further that IPT
shall not be liable to any person who participates as an underwriter in the
offering or sale of Shares or any other person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, cost, expense, liability (or action
or proceeding in respect thereof) arises out of such person's failure to send
or give a copy of the final Prospectus, as the same may be then supplemented or
amended, to the person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Shares to such person if such statement or omission
was corrected in such final Prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of IFG or
any such director, officer, underwriter or controlling person and shall survive
the transfer of such Shares by IFG.
(b) Indemnification by IFG. IPT may require, as a condition to
including any of IFG's Shares in any Shelf Registration Statement filed
pursuant to Section 2.2 hereof, that IPT shall have received an undertaking
satisfactory to it from IFG and/or its Affiliates, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 2.5) each underwriter, each person who controls such
underwriter within the meaning of the Securities Act, IPT, each Trustee of IPT,
each officer of IPT, each Affiliate of IPT, each director of each Affiliate of
IPT, each trustee of each Affiliate of IPT, each officer of each Affiliate of
IPT and each other person, if any, who controls IPT within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Shelf Registration Statement, any
preliminary Prospectus, final Prospectus, summary Prospectus or offering
circular contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in strict conformity with written information furnished to
IPT by IFG and/or its Affiliates expressly for use in the preparation of such
Shelf Registration Statement, preliminary Prospectus, final Prospectus, summary
Prospectus, offering circular, amendment or supplement; provided that IFG
and/or its Affiliates shall not be liable to any person who participates as an
underwriter in the offering or sale of Shares or any other person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, cost, expense or
liability (or action or proceeding in respect thereof) arises out of such
person's failure to send or give a copy of the final prospectus, as the same
may be
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then supplemented or amended, to the person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Shares to such person if such statement or
omission was corrected in such final prospectus. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or on behalf of
any underwriter, IPT or any such director, trustee, officer or controlling
person and shall survive the transfer of such Shares by IFG. In no event shall
the liability of IFG under this Section 2.5 be greater in amount than the
dollar amount of the proceeds received by IFG upon the sale of the Shares
giving rise to such indemnification obligation.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party (the "INDEMNIFIED Party") of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions of this
Section 2.5, such Indemnified Party will, if a claim in respect thereof is to
be made against an indemnifying party (the "INDEMNIFYING PARTY"), give written
notice to the Indemnifying Party of the commencement of such action; provided
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under the preceding
subdivisions of this Section 2.5, except to the extent that the Indemnifying
Party is actually prejudiced by such failure to give notice. In case any such
action is brought against an Indemnified Party, unless in such Indemnified
Party's reasonable judgment a conflict of interest between such Indemnified
Party and such Indemnifying Parties may exist in respect of such claim, the
Indemnifying Party shall be entitled to participate in and to assume the
defense thereof, jointly with any other Indemnifying Party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No Indemnifying
Party shall, without the consent of the Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses available to such
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and will
reimburse such Indemnified Party and any person controlling such Indemnified
Party for the reasonable fees and expenses of any counsel retained by the
Indemnified Party, it being understood that the Indemnifying Party shall not,
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for such Indemnified Party or controlling person
and, in the case of indemnification by IPT, all other parties entitled to
indemnification pursuant to agreements with IPT or its Affiliates, which firm
shall be designated in writing by the Indemnified Party (and, in the case of
indemnification by IPT, by holders of a majority of Common Shares pursuant to
which such indemnification obligation arose under this Agreement and other
agreements between other parties and IPT or its Affiliates) to the Indemnifying
Party.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.5 (with appropriate
modifications) shall be given by IPT and IFG
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and its Affiliates with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 2.5 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this Section
2.5 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Parties shall be determined by reference to,
among other things, whether any action in question, including any untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in this Section 2.5, any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.5 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.5, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Common Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason on such untrue or
alleged untrue statement or omission or alleged omission, and no selling holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Common Shares of such selling holder were offered to
the public exceeds the amount of any damages which such selling holder has
otherwise been required to pay by reason of such untrue statement or omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 2.5, the
Indemnifying Parties shall indemnify each Indemnified Party to the full extent
provided in Section 2.5(a) through Section 2.5(e) hereof without regard to the
relative fault of said Indemnifying Party or Indemnified Party or any other
equitable consideration provided for in this Section 2.5(f).
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SECTION 2.6. Forms.
All references in this Agreement to particular forms of registration
statements are intended to include, and shall be deemed to include, references
to all successor forms which are intended to replace, or to apply to similar
transactions as, the forms herein referenced.
SECTION 2.7. Transfer of Registration Rights.
The registration rights granted IFG under this Agreement may not be
transferred without the prior written consent of IPT; provided that such
registration rights may be transferred, in whole or in part, without such prior
written consent upon written notice to IPT in connection with a permitted
transfer of OP Units to a partner in or an Affiliate of IFG.
ARTICLE III.
MISCELLANEOUS
SECTION 3.1. Survival.
Without intending to exclude the provisions hereof which by their
nature survive, the provisions of Section 2.5 hereof shall survive any
termination of this Agreement.
SECTION 3.2. Successors and Assigns.
This Agreement shall bind and inure to the benefit of and be
enforceable by IPT and IFG. IPT may assign its rights under this Agreement
without the consent of IFG or its permitted successors or assigns. Except as
provided in Section 2.7 hereof, IFG may not assign its rights under this
Agreement without the prior written consent of IPT.
SECTION 3.3. Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
SECTION 3.4. Severability.
In case any one or more of the provisions contained in this Agreement
or in any instrument contemplated hereby, or any application thereof, shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein, and
any other application thereof, shall not in any way be affected or impaired
thereby.
SECTION 3.5. Headings.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect any of the terms hereof.
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SECTION 3.6. Amendment and Waiver.
This Agreement may be amended only by agreement in writing signed by
all of the parties. No waiver of any provision or consent to any exception to
the terms of this Agreement shall be effective unless in writing and signed by
the party to be bound and then only to the extent, specific purpose and
instance so provided.
SECTION 3.7. Remedies.
Each of the parties to this Agreement will be entitled to enforce its
rights under this Agreement specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. In the event a party hereto brings an action
under this Agreement, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals. No course of dealing between IPT and IFG and no delay or
failure in exercising any rights hereunder shall operate as a waiver of the
rights of any party hereto.
SECTION 3.8. GOVERNING LAW.
THE CORPORATE AND REAL ESTATE INVESTMENT TRUST LAW OF THE STATE OF
MARYLAND WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF IPT AND
ITS SHAREHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT
THE LAW OF CONFLICTS, OF THE STATE OF NEW YORK.
SECTION 3.9. Jurisdiction.
Each of the parties hereto hereby irrevocably submits to the
nonexclusive jurisdiction of any New York State or United States federal court
sitting in the City of New York over any suit, action or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby and
irrevocably waives, to the fullest extent they may exclusively do so, any
objection which they may now or hereafter have to the laying of venue of any
such proceeding.
SECTION 3.10. Further Acts.
Each of the parties hereto agrees to perform such other and further
acts and to execute such other further documents as may be reasonably required
to effect the transactions contemplated hereby.
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SECTION 3.11. Termination.
This Agreement shall commence on the date hereof and shall terminate
on the earlier to occur of (i) the written agreement of the parties hereto to
terminate this Agreement and (ii) the final dissolution of IPT in accordance
with applicable law.
SECTION 3.12. Relationship with Declaration of Trust and Bylaws.
In the event of any conflict between this Agreement, IPT's Declaration
of Trust, as amended, and Bylaws, as amended, the provisions of this Agreement
shall prevail to the extent permitted by applicable law, and the parties shall
take all action necessary or desirable to effect any amendments to such
documents necessary to avoid any such conflict.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date hereof.
INSIGNIA PROPERTIES TRUST
By:
------------------------------
Jeffrey P. Cohen
Senior Vice President
INSIGNIA FINANCIAL GROUP, INC.
By:
------------------------------
Jeffrey P. Cohen
Senior Vice President
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), entered into as
of the 1st day of January, 1997, is made by and among INSIGNIA PROPERTIES
TRUST, a Maryland real estate investment trust ("IPT"), and Insignia Financial
Group, Inc., a Delaware corporation ("IFG").
WITNESSETH:
WHEREAS, in connection with the formation of IPT, IFG and its
Affiliates (as defined herein) contributed certain interests in limited
partnerships which principally own multi-family residential properties and, to
a lesser extent commercial properties, to IPT in exchange for among other
things, common shares of beneficial interest of IPT, par value $.01 per share
("COMMON SHARES");
WHEREAS, in connection with the above-described transactions IPT
agreed to grant IFG certain registration rights with respect to the Shares (as
defined herein) owned by IFG;
WHEREAS, IPT and IFG desire to set forth more fully their agreements
regarding such registration rights relating to the Shares owned by IFG.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are acknowledged, the parties hereto, each intending to be legally bound
hereby, agree as follows:
ARTICLE I.
DEFINITIONS
As used herein, the following terms shall have the respective
meanings set forth below:
"AFFILIATE" of any person means any person that directly or
indirectly controls, or is under common control with, or is controlled by, such
person. As used in this definition, "CONTROL" (including with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person (whether through ownership
of securities or partnership or other ownership interests, by contract or
otherwise).
"AGREEMENT" has the meaning set forth in the recitals.
"BOARD OF TRUSTEES" means the Board of Trustees of IPT, as
constituted from time to time in accordance with IPT's Declaration of Trust and
IPT's Bylaws.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" has the meaning set forth in the recitals.
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"IFG" has the meaning set forth in the recitals.
"INDEMNIFIED PARTY" has the meaning set forth in Section
2.5(c).
"INDEMNIFYING PARTY" has the meaning set forth in Section
2.5(c).
"IPT" has the meaning set forth in the recitals.
"PIGGYBACK MAXIMUM NUMBER" has the meaning set forth in
Section 2.2(b).
"PRIORITY RIGHTS HOLDER" (i) IFG and any of its Affiliates
(including Metropolitan Asset Enhancement, L.P.) pursuant to any registration
rights agreements with IPT, and (ii) all holders of Common Shares who enter
into registration rights agreements with IPT in connection with the offering of
Common Shares made pursuant to that certain Confidential Memorandum dated May
9, 1997.
"REQUESTING HOLDER" has the meaning set forth in Section
2.2(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means any Common Shares owned by IFG on or after
the date hereof.
"TRUSTEE" means a member of the Board of Trustees.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms. The words "herein,"
"hereof" and words of similar import as used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision in this
Agreement.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1 Registration on Request.
(a) Request. Provided that (i) IPT has not at any time prior
to the fifth anniversary of this Agreement had any Common Shares registered
under the Exchange Act and listed on a national securities exchange or quoted
on the NASDAQ and (ii) at the time of the request specified below IFG holds not
less than 50,000 Shares, then, subject to the limitations provided herein, at
any time subsequent to the fifth anniversary of the date hereof, upon IFG's
written request that IPT effect the registration under the Securities Act of at
least 50,000 of IFG's Shares, which request shall specify (A) that the request
is being made pursuant to this Section 2.1, (B) IFG's intended method of
disposition of such Shares, (C) whether or not such requested registration is
to be an underwritten offering, and (D) the price range (net of underwriting
discounts and commissions) acceptable to IFG to be received for such Shares,
IPT will
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use reasonable efforts to effect the registration under the Securities Act of
such Shares. If IPT is required to effect a registration pursuant to this
Section 2.1 and IPT furnishes to IFG a certificate signed by the President of
IPT stating that in the good faith judgment of the Board of Trustees of IPT it
would not be in the best interests of IPT and its shareholders for such
registration statement to be filed on or before the date such filing would
otherwise be required hereunder and it is therefore necessary to defer the
filing of such registration statement, then IPT shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
for such registration from IFG; provided that during such time IPT may not file
a registration statement for securities to be issued and sold for its own
account or that of anyone other than IFG.
(b) Method of Distribution. IFG shall determine the method
of distribution of the Shares included in such registration pursuant to Section
2.1(a).
(c) Registration of Other Securities. Whenever IPT shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering, no securities other than Shares requested by IFG to be
included shall be included among the securities covered by such registration
unless (i) the managing underwriter of such offering shall have advised IFG in
writing that the inclusion of such other securities would not adversely affect
the price IFG will receive for its Shares in such offering or (ii) IFG shall
have consented in writing to the inclusion of such other securities.
(d) Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form of the Commission
(i) as shall be selected by IPT and as shall be reasonably acceptable to IFG,
and (ii) as shall permit the disposition of such Shares in accordance with the
method or methods of disposition selected pursuant to Section 2.1(b) hereof.
(e) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been
effected (i) unless a registration statement with respect thereto has become
effective (unless a substantial cause of the failure of such registration
statement to become effective shall be attributable to IFG), (ii) if after a
registration statement with respect thereto has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason, resulting in a failure to consummate the offering of Shares offered
thereby, (iii) if after a registration statement with respect thereto has
become effective, the offering of Shares offered thereby is not consummated due
to factors beyond the control of IFG, including, without limitation, in the
context of a proposed firm commitment underwriting, the fact that the
underwriters have advised IFG that its Shares cannot be sold at a net price
equal to or above the net price anticipated at the time of filing of the
preliminary prospectus, or (iv) if the conditions to closing specified in the
underwriting agreement entered into in connection with such registration are
not satisfied (unless a substantial cause of such conditions to closing not
being satisfied shall be attributable to IFG).
(f) Selection of Underwriters. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by IPT and IFG. IFG (together with
IPT and other holders, if any, of Common Shares
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participating therein) shall enter into an underwriting agreement in customary
form with the representative of such underwriter(s).
(g) Expenses. All expenses of any registration requested
under this Section 2.1 shall be paid by IFG and the other holders of Common
Shares, if any, participating in such registration, pro rata among such holders
based on the ratio the number of Common Shares included by each selling holder
bears to the number of all Common Shares included in the registration. In all
cases, IFG shall pay the underwriting discounts and commissions applicable to
the Shares sold by IFG.
SECTION 2.2 Right to Include Shares.
(a) Inclusion. If IPT at any time proposes to register any of
its Common Shares under the Securities Act (other than by a registration on
Form S-8, S-4 or any successor similar forms or any other form not available
for registering the Shares for sale to the public), whether or not for sale for
its own account, it will each such time, at least 30 days prior to filing the
registration statement, give written notice to IFG of its intention to do so.
Upon the written request of IFG made within 15 days after the receipt of any
such notice (which request shall specify the Shares intended to be disposed of
by IFG and the intended method of disposition thereof), IPT will use reasonable
efforts to effect the registration under the Securities Act of all Shares which
IPT has been so requested to register by IFG, to the extent requisite to permit
the disposition of the Shares to be so registered, provided, however, that if,
at any time after giving written notice of its intention to register any Common
Shares and prior to the effective date of the registration statement filed in
connection with such registration, IPT shall determine for any reason not to
register or to delay registration of such Common Shares, IPT may, at its
election, give written notice of such determination to IFG and, thereupon, (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Shares in connection with such registration (but not
from its obligation to pay expenses in accordance with Section 2.4 hereof) and
(ii) in the case of a determination to delay registering, shall be permitted to
delay registering any Shares being registered pursuant to this Section 2.2 for
the same period as the delay in registering such other securities.
(b) Priority. If (i) a registration pursuant to this Section
2.2 involves an underwritten offering whereby the Common Shares so being
registered, whether or not for sale for the account of IPT, are to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing, whether or not IFG has requested that its Shares be
included in such underwritten offering, and (ii) the managing underwriter of
such underwritten offering shall inform IPT in writing of its belief that the
number of Common Shares requested to be included in such registration exceeds
the maximum number (the "PIGGYBACK MAXIMUM NUMBER") which can be sold in (or
during the time of) such offering within a price range reasonably acceptable to
IPT, IPT shall be entitled to reduce the aggregate number of Common Shares
included in the registration to an aggregate number equal to the Piggyback
Maximum Number, with participation in the offering being allocated (A) if IPT
initiated the registration of Common Shares for its own account, (1) first, for
the account of IPT, and (2) second, pro rata among all Priority Rights Holders
(including, without limitation, IFG) (based upon the number of Common Shares
held by such holders (including, without limitation, IFG) immediately prior to
the filing of the registration statement with respect to such
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registration), and (B) if the registration was initiated by a Priority Rights
Holder (the "REQUESTING HOLDER"), (1) first, for the account of the Requesting
Holder, (2) second, for the account of IPT, and (3) third, pro rata among all
Priority Rights Holders, other than the Requesting Holder, requesting
registration of Common Shares pursuant to any registration rights agreements
with IPT (based on the number of Common Shares held by such holders immediately
prior to the filing of the registration statement with respect to such
registration).
(c) Expenses. All expenses incurred in connection with each
registration pursuant to Section 2.2 initiated by IPT (excluding in each case
underwriting discounts and commissions applicable to Common Shares), including,
without limitation, in each case, all registration, filing and National
Association of Securities Dealer fees; all fees and expenses of complying with
securities or blue sky laws; all word processing, duplicating and printing
expenses, messenger, delivery and shipping expenses; fees and disbursements of
the accountants and counsel for IPT including the expenses of any special
audits or "cold comfort" letters or opinions required by or incident to such
registrations; such premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Common Shares; and any
fees and disbursements of underwriters customarily paid by issuers or sellers
of securities, but excluding underwriting discounts and commissions, if any,
shall be borne by IPT. All expenses incurred in connection with a registration
pursuant to Section 2.2 initiated by a Requesting Holder shall be paid by the
holders, including, without limitation, IFG, participating in such
registration, pro rata among such holders based on the ratio the number of
Common Shares included by each selling holder bears to the number of all Common
Shares included in the registration. In all cases, IFG shall pay the
underwriting discounts and commissions applicable to the Shares sold by IFG.
(d) Underwritten Offerings. If any Common Shares to be
registered under the Securities Act as contemplated by this Section 2.2 are to
be distributed by or through one or more underwriters, and IFG has requested
that its Shares be included in such offering as provided in Section 2.2(a),
then IPT shall not be obligated to include IFG's Shares in such offering unless
IFG accepts the terms of the underwritten offering agreed on between IPT or the
Requesting Holder, as the case may be, and the underwriters selected by IPT or
the Requesting Holder, as the case may be. Furthermore, if requested by the
underwriters, IFG agrees to enter into an agreement with such underwriters not
to sell any Common Shares owned by IFG for a period of time (not to exceed 180
days) after the effectiveness of a registration statement equal to the period
of time which the sellers of Common Shares in such registration have agreed not
to sell the Common Shares owned by them after the effectiveness of such
registration statement. IFG shall be party to the underwriting agreement
between IPT or the Requesting Holder, as the case may be, and such underwriters
and may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of, IPT to and for the
benefit of such underwriters shall also be made to and for the benefit of IFG
and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of IFG. IFG shall not be required to make any representations or
warranties to or agreements with IPT or the underwriters other than
representations, warranties or agreements regarding IFG, IFG's Common Shares or
other securities of IPT, IFG's intended method of distribution and any
representations, warranties or agreements required by law.
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SECTION 2.3 Registration Procedures.
If and whenever any Shares of IFG are proposed to be
registered under the Securities Act as contemplated in this Agreement, IPT
will, subject to the limitations set forth in this Agreement, as expeditiously
as possible:
(i) prepare and (as soon thereafter as possible or in any
event no later than 60 days after the end of the period within which
requests for registration may be given to IPT or such longer period as
IPT shall in good faith require to produce the financial statements
required in connection with such registration) file with the
Commission the requisite registration statement to effect such
registration and thereafter use reasonable efforts to cause such
registration statement to become effective, provided that IPT may
discontinue or delay any registration of any Common Shares in its sole
discretion;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Shares covered
by such registration statement until such time as all of such Shares
have been disposed of in accordance with the intended methods of
disposition by IFG; provided, however, that IPT shall not in any event
be required to keep the registration statement effective for a period
of more than nine months after such registration statement becomes
effective;
(iii) furnish to IFG such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, and such
other documents, as IFG may reasonably request;
(iv) use its best efforts to register or qualify all Shares
covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as IFG thereof shall reasonably
request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect (provided,
however, that IPT shall not in any event be required to keep such
registration or qualification in effect for a period of more than nine
months after such registration or qualification becomes effective) and
take any other action which may be reasonably necessary or advisable
to enable IFG to consummate the disposition in such jurisdictions of
the Shares owned by IFG, except that IPT shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified
or to consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause all Shares covered by such
registration statement to be registered with or approved by such other
United States federal or state governmental agencies or authorities as
may be necessary to enable IFG to consummate the disposition of such
Shares;
6
<PAGE>
(vi) furnish to IFG a copy, or, upon request, a signed
counterpart, addressed to IFG (and the underwriters, if any) of
(x) an opinion of counsel for IPT, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
and
(y) a "comfort" letter addressed to the
underwriters, dated the effective date of such registration
statement (or, if such registration includes an underwritten
public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public
accountants who have audited IPT's financial statements
included in such registration statement, covering
substantially the same matters with respect to such
registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case
of the accountants' letter, such other financial matters,
and, in the case of the legal opinion such other legal matters, as IFG (or the
underwriters, if any) may reasonably request;
(vii) notify IFG, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of IFG,
prepare and furnish to IFG a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Shares,
such prospectus shall not include 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 in the light
of the circumstances under which they were made;
(viii) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months
beginning with the first full calendar month after the effective date
of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act, and will
furnish to IFG, upon request of IFG, at least five days prior to the
filing thereof, a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any amendment
or supplement thereof to which IFG shall have delivered to IPT an
opinion of counsel that such amendment or supplement does not comply
in all material respects with the requirements of the Securities Act
or of the rules or regulations thereunder;
7
<PAGE>
(ix) provide and cause to be maintained a transfer agent for
all Shares covered by such registration statement from and after a
date not later than the effective date of such registration statement;
(x) use its best efforts to list all Shares covered by such
registration statement on any securities exchange on which any of the
Shares is then listed; and
(xi) refrain from making any sale or distribution of its
equity securities, except pursuant to any employee stock option plan
and any preexisting agreement for the sale of such securities, for at
least ninety (90) days after the closing of the public offering
pursuant to such registration.
It shall be a condition precedent to the obligations of IPT to take any action
with respect to registering IFG's Shares pursuant to this Section 2.3 that IFG
furnish IPT in writing such information regarding IFG, the Shares and other
securities of IPT held by IFG, and the distribution of such Shares as IPT may
from time to time reasonably request in writing. If IFG refuses to provide IPT
with any of such information on the grounds that it is not necessary to include
such information in the registration statement, IPT may exclude IFG's Shares
from the registration statement if IPT provides IFG with an opinion of counsel
to the effect that such information must be included in the registration
statement and IFG thereafter continues to withhold such information. The
exclusion of IFG's Shares from a registration statement shall not affect the
registration of the other Shares to be included in such registration statement.
IFG agrees that upon receipt of any notice from IPT of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, IFG will forthwith discontinue its disposition of Shares pursuant
to the registration statement relating to such Shares until IFG's receipt of
the copies of the supplemented or amended prospectus contemplated by
subdivision (vii) of this Section 2.3 and, if so directed by IPT, will deliver
to IPT (at IPT's expense) all copies, other than permanent file copies then in
IFG's possession, of the prospectus relating to such Shares current at the time
of receipt of such notice.
SECTION 2.4 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each
registration statement under the Securities Act which includes shares of IFG
pursuant to this Agreement, IPT will give IFG, its underwriters, if any, its
counsel and its accountants the opportunity to participate in the preparation
of such registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of IPT with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of IFG, to conduct a reasonable investigation within the meaning
of the Securities Act.
SECTION 2.5 Indemnification.
(a) Indemnification by IPT. In the event any of IFG's
Shares are included in registration statement under this Article II, to the
extent permitted by law, IPT will, and
8
<PAGE>
hereby does, indemnify and hold harmless IFG, each of the directors and
officers of IFG, each Affiliate of IFG, each of the directors and officers of
such Affiliate of IFG, each other person who participates as an underwriter in
the offering or sale of such securities and each other person, if any, who
controls IFG, such Affiliate or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages, costs, expenses or
liabilities, joint or several, to which IFG or any such director or officer or
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, any
offering circular or other similar document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or any amendment or supplement thereto, or 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, and
IPT will reimburse IFG and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, cost, expense, liability, action or proceeding; provided that IPT shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, offering circular, amendment
or supplement in reliance upon and in conformity with written information
furnished to IPT by any seller expressly for use in the preparation thereof,
and provided further that IPT shall not be liable to any person who
participates as an underwriter in the offering or sale of Shares or any other
person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, cost, expense, liability (or action or proceeding in respect thereof)
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of Shares
to such person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of IFG or any such director, officer,
underwriter or controlling person and shall survive the transfer of such Shares
by IFG.
(b) Indemnification by IFG. IPT may require, as a condition
to including any of IFG's Shares in any registration statement filed pursuant
to Section 2.3 hereof, that IPT shall have received an undertaking satisfactory
to it from IFG and/or its Affiliates, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 2.5) each underwriter, each person who controls such underwriter within
the meaning of the Securities Act, IPT, each Trustee of IPT, each officer of
IPT, each Affiliate of IPT, each director of each Affiliate of IPT, each
trustee of each Affiliate of IPT, each officer of each Affiliate of IPT and
each other person, if any, who controls IPT within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus, summary prospectus or offering circular contained
therein, or any amendment or supplement thereto, if
9
<PAGE>
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in strict conformity with written information furnished to
IPT by IFG and/or its Affiliates expressly for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, offering circular, amendment or supplement; provided that IFG
and/or its Affiliates shall not be liable to any person who participates as an
underwriter in the offering or sale of Shares or any other person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, cost, expense or
liability (or action or proceeding in respect thereof) arises out of such
person's failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Shares to such person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any underwriter, IPT or any such director, trustee, officer or
controlling person and shall survive the transfer of such Shares by IFG. In no
event shall the liability of IFG under this Section 2.5 be greater in amount
than the dollar amount of the proceeds received by IFG upon the sale of the
Common Shares giving rise to such indemnification obligation.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party (the "INDEMNIFIED PARTY") of notice of the commencement of
any action or proceeding involving a claim referred to in the preceding
subdivisions of this Section 2.5, such Indemnified Party will, if a claim in
respect thereof is to be made against an indemnifying party (the "INDEMNIFYING
PARTY"), give written notice to the Indemnifying Party of the commencement of
such action; provided that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under the preceding subdivisions of this Section 2.5, except to the extent that
the Indemnifying Party is actually prejudiced by such failure to give notice.
In case any such action is brought against an Indemnified Party, unless in such
Indemnified Party's reasonable judgment a conflict of interest between such
Indemnified Party and such Indemnifying Parties may exist in respect of such
claim, the Indemnifying Party shall be entitled to participate in and to assume
the defense thereof, jointly with any other Indemnifying Party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory
to such Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No Indemnifying
Party shall, without the consent of the Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses available to such
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and will
reimburse such Indemnified Party and any person controlling such Indemnified
Party for the reasonable fees and expenses of any counsel retained by the
Indemnified Party, it being understood that the Indemnifying Party shall not,
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of
10
<PAGE>
more than one separate firm of attorneys for such Indemnified Party or
controlling person and, in the case of indemnification by IPT, all other
parties entitled to indemnification pursuant to agreements with IPT or its
Affiliates, which firm shall be designated in writing by the Indemnified Party
(and, in the case of indemnification by IPT, by holders of a majority of Common
Shares pursuant to which such indemnification obligation arose under this
Agreement and other agreements between other parties and IPT or its Affiliates)
to the Indemnifying Party.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.5 (with appropriate
modifications) shall be given by IPT and IFG and its Affiliates with respect to
any required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority other than the
Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 2.5 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this
Section 2.5 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Parties shall be determined by reference to,
among other things, whether any action in question, including any untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in this Section 2.5, any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 2.5 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 2.5, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Common Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason on
such untrue or alleged untrue statement or omission or alleged omission, and no
selling holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Common Shares of such selling
holder were offered to the public exceeds the amount of any damages which such
selling holder has otherwise
11
<PAGE>
been required to pay by reason of such untrue statement or omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 2.5, the
Indemnifying Parties shall indemnify each Indemnified Party to the full extent
provided in Section 2.5(a) through Section 2.5(e) hereof without regard to the
relative fault of said Indemnifying Party or Indemnified Party or any other
equitable consideration provided for in this Section 2.5(f).
SECTION 2.6 Reporting Requirements Under Exchange Act.
When IPT is first legally required to do so, IPT shall
register its Common Shares under Section 12 of the Exchange Act and shall keep
effective such registration and shall timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 of the
Exchange Act. From and after the effective date of the first registration
statement filed by IPT under the Securities Act, IPT shall (whether or not it
shall then be required to do so) timely file such information, documents and
reports which a corporation, partnership or other entity subject to Section 13
or 15(d) (whichever is applicable) of the Exchange Act is required to file.
Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, IPT shall
forthwith upon request furnish to IFG (i) a written statement by IPT that it
has complied with such reporting requirements, (ii) a copy of the most recent
annual or quarterly report of IPT, and (iii) such other reports and documents
filed by IPT with the Commission as such Investor may reasonably request in
availing itself of an exemption for the sale of Shares without registration
under the Securities Act. IPT acknowledges and agrees that the purposes of the
requirements contained in this Section 2.6 are (a) to enable IFG to comply with
the current public information requirement contained in Paragraph (c) of Rule
144 under the Securities Act should IFG ever wish to dispose of any of the
Shares acquired by it without registration under the Securities Act in reliance
upon Rule 144 (or any other similar exemptive provision) and (b) to qualify IPT
for the use of registration statements on Form S-3. In addition, IPT shall take
such other measures and file such other information, documents and reports, as
shall hereafter be required by the Commission as a condition to the
availability of Rule 144 under the Securities Act (or any similar exemptive
provision hereafter in effect) and the use of Form S-3. IPT also covenants to
use its best efforts, to the extent that it is reasonably within its power to
do so, to qualify for the use of Form S-3.
SECTION 2.7 Information Concerning IFG.
IPT may require IFG, if any of IFG's Shares are to be
registered pursuant to this Article V, to furnish IPT such information in
writing with respect to IFG and the distribution of such Shares (and any other
securities of IPT) as IPT may from time to time reasonably request in writing
and as shall be required by law or by the Commission in connection therewith.
12
<PAGE>
SECTION 2.8 Forms.
All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or to
apply to similar transactions as, the forms herein referenced.
SECTION 2.9 Transfer of Registration Rights.
The registration rights granted IFG under this Agreement may
not be transferred without the prior written consent of IPT; provided that such
registration rights may be transferred, in whole or in part, without such prior
written consent upon written notice to IPT in connection with a permitted
transfer of Shares to a partner in or an Affiliate of IFG.
ARTICLE III.
MISCELLANEOUS
SECTION 3.1 Survival.
Without intending to exclude the provisions hereof which by
their nature survive, the provisions of Section 2.5 hereof shall survive any
termination of this Agreement.
SECTION 3.2 Successors and Assigns.
This Agreement shall bind and inure to the benefit of and be
enforceable by IPT and IFG. IPT may assign its rights under this Agreement
without the consent of IFG or its permitted successors or assigns. Except as
provided in Section 2.9 hereof, IFG may not assign its rights under this
Agreement without the prior written consent of IPT.
SECTION 3.3 Counterparts.
This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
SECTION 3.4 Severability.
In case any one or more of the provisions contained in this
Agreement or in any instrument contemplated hereby, or any application thereof,
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein, and any other application thereof, shall not in any way be affected or
impaired thereby.
SECTION 3.5 Headings.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms hereof.
13
<PAGE>
SECTION 3.6 Amendment and Waiver.
This Agreement may be amended only by agreement in writing
signed by all of the parties. No waiver of any provision or consent to any
exception to the terms of this Agreement shall be effective unless in writing
and signed by the party to be bound and then only to the extent, specific
purpose and instance so provided.
SECTION 3.7 Remedies.
Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. In the event a party hereto
brings an action under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals. No course of dealing between IPT and IFG and no
delay or failure in exercising any rights hereunder shall operate as a waiver
of the rights of any party hereto.
SECTION 3.8 GOVERNING LAW.
THE CORPORATE LAW OF THE STATE OF MARYLAND WILL GOVERN ALL
QUESTIONS CONCERNING THE RELATIVE RIGHTS OF IPT AND ITS SHAREHOLDERS. ALL OTHER
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF NEW YORK.
SECTION 3.9 Jurisdiction.
Each of the parties hereto hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or United States federal court
sitting in the City of New York over any suit, action or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby and
irrevocably waives, to the fullest extent they may exclusively do so, any
objection which they may now or hereafter have to the laying of venue of any
such proceeding.
SECTION 3.10 Further Acts.
Each of the parties hereto agrees to perform such other and
further acts and to execute such other further documents as may be reasonably
required to effect the transactions contemplated hereby.
14
<PAGE>
SECTION 3.11 Termination.
This Agreement shall commence on the date hereof and shall
terminate on the earlier to occur of (i) the written agreement of the parties
hereto to terminate this Agreement and (ii) the final dissolution of IPT in
accordance with applicable law.
SECTION 3.12 Relationship with Declaration of Trust and Bylaws.
In the event of any conflict between this Agreement, IPT's
Declaration of Trust, as amended and Bylaws, as amended, the provisions of this
Agreement shall prevail to the extent permitted by applicable law, and the
parties shall take all action necessary or desirable to effect any amendments
to such documents necessary to avoid any such conflict.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date hereof.
INSIGNIA PROPERTIES TRUST
By:
--------------------------------------
James A. Aston
President
INSIGNIA FINANCIAL GROUP, INC.
By:
--------------------------------------
Frank M. Garrison
Executive Managing Director
16
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 5, 1997 with respect to the financial
statements and schedules of Shelter Properties Partnerships, included in the
Proxy Statement of Angeles Mortgage Investment Trust that is made a part of the
Registration Statement (Form S-4) and Prospectus of Insignia Properties Trust.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
May 22, 1998
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 13, 1998, except for Note 11, as to which the
date is March 17, 1998 with respect to the financial statements and schedules
of Insignia Properties Trust and Predecessor Entities, included in the Proxy
Statement of Angeles Mortgage Investment Trust that is made a part of the
Registration Statement (Form S-4) and Prospectus of Insignia Properties Trust.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
May 22, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Trustees of
Angeles Mortgage Investment Trust
We hereby consent to the use in the Proxy/Prospectus constituting a part of
this Registration Statement of our report dated January 15, 1998, relating to
the financial statements and schedules of Angeles Mortgage Investment Trust,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Dallas, Texas
May 22, 1998
<PAGE>
IMOWITZ KOENIG & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by Insignia Properties Trust on Form S-4 our
report dated February 18, 1997, on audits of the combined financial statements
of National Property Investor and Century Properties PArtnershits as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996. We also consent to the reference to our firm under the
caption "Experts"
/s/ IMOWITZ KOENIG & CO., LLP
New York, NY
May 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1998 S-4
FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-4 FILING.
</LEGEND>
<CIK> 0001062508
<NAME> INSIGNIA PROPERTIES TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,338
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,091
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 21,957
0
0
<COMMON> 194
<OTHER-SE> 149,120
<TOTAL-LIABILITY-AND-EQUITY> 234,091
<SALES> 0
<TOTAL-REVENUES> 5,757
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (26)
<CHANGES> 0
<NET-INCOME> 2,080
<EPS-PRIMARY> 11<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet.
<F2> Multiplier is 1.
</FN>
</TABLE>
<PAGE>
CONSENT OF RONALD J. CONSIGLIO
I hereby consent to the reference to me as a person who has been
designated to serve as a trustee of Insignia Properties Trust in the Proxy
Statement/Prospectus constituting a part of the Registration Statement on Form
S-4 with which this consent is filed.
/s/ Ronald J. Consiglio
---------------------------
Ronald J. Consiglio
Date: May 22, 1998
<PAGE>
CONSENT OF BRYAN L. HERRMANN
I hereby consent to the reference to me as a person who has been
designated to serve as a trustee of Insignia Properties Trust in the Proxy
Statement/Prospectus constituting a part of the Registration Statement on Form
S-4 with which this consent is filed.
/s/ Bryan L. Herrmann
---------------------------
Bryan L. Herrmann
Date: May 22, 1998
<PAGE>
CONSENT OF RONALD URETTA
I hereby consent to the reference to me as a person who has been
designated to serve as a trustee of Insignia Properties Trust in the Proxy
Statement/Prospectus constituting a part of the Registration Statement on Form
S-4 with which this consent is filed.
/s/ Ronald Uretta
--------------------------
Ronald Uretta
Date: May 22, 1998
<PAGE>
CONSENT OF WARREN M. ECKSTEIN
I hereby consent to the reference to me as a person who has been
designated to serve as a trustee of Insignia Properties Trust in the Proxy
Statement/Prospectus constituting a part of the Registration Statement on Form
S-4 with which this consent is filed.
/s/ Warren M. Eckstein
----------------------------
Warren M. Eckstein
Date: May 22, 1998
