<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
SCHEDULE 13E-3
(Amendment No. 3)
Rule 13e-3 Transaction Statement
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
----------------
ANGELES MORTGAGE INVESTMENT TRUST
(Name of Issuer)
ANGELES MORTGAGE
INVESTMENT TRUST
INSIGNIA PROPERTIES TRUST
INSIGNIA FINANCIAL GROUP, INC.
(Name of Person(s) Filing Statement)
Class A Common Shares of Beneficial
Interest, par value $1.00 per share
(Title of Class of Securities)
034638106
---------
(CUSIP Number of Class of Securities)
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<S> <C> <C>
James A. Aston Ronald J. Consiglio Frank M. Garrison
President President Executive Managing Director
Insignia Properties Trust Angeles Mortgage Investment Trust Insignia Financial Group, Inc.
One Insignia Financial Plaza 340 N. Westlake Blvd.--Suite 230 One Insignia Financial Plaza
P.O. Box 19059 Westlake Village, California 91362 P.O. Box 1089
Greenville, South Carolina 29602 (805)449-1333 Greenville, South Carolina 29602
(864) 239-1300 (864) 239-1000
</TABLE>
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
----------------
Copy To:
Robert G. Koen
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
20th Floor
New York, New York 10022
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if soliciting material or information statement
referred to in checking box (a) are preliminary copies: [ ]
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CALCULATION OF FILING FEE
=====================================================================================================================
Transaction Valuation* Amount of Filing Fee
$50,633,047 $10,127
=====================================================================================================================
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* Determined pursuant to Rule 0-11(b)(2) of the Securities Exchange Act of 1934. Pursuant to Rule 0-11(b), the filing
fee was determined as 1/50 of 1% of $50,633,047, the aggregate cash amount currently anticipated to be received by
the current shareholders of Angeles Mortgage Investment Trust ("AMIT") who are unaffiliated with Insignia Properties
Trust ("IPT") in exchange for the common shares of beneficial interest of IPT that will be held by such AMIT
shareholders (after the consummation of the merger of AMIT with and into IPT) in the contemplated merger of IPT into
a wholly-owned subsidiary of Apartment Investment and Management Company.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which
the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form
or schedule of the date of its filing.
Amount Previously Paid: $13,491 Filing Party: Insignia Properties Trust
Form or Registration No: Registration Statement on Form S-4 Date Filed: May 28, 1998
(Reg. No. 333-53815)
Amount Previously Paid: $ 6,485 Filing Party: Angeles Mortgage
Investment Trust
Form or Registration No: Schedule 14A Date Filed: November 14, 1997
=====================================================================================================================
</TABLE>
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (this "Schedule
13E-3") is being filed with the Securities and Exchange Commission (the
"Commission") jointly by Insignia Properties Trust, a Maryland real estate
investment trust ("IPT"), Insignia Financial Group, Inc., a Delaware
corporation and the majority shareholder of IPT ("Insignia")and Angeles
Mortgage Investment Trust, a California unincorporated business trust ("AMIT"),
and relates to the proposed merger (the "Merger") of AMIT with and into IPT and
the contemplated subsequent merger of IPT with a wholly-owned subsidiary of
Apartment Investment and Management Company ("AIMCO") which is to take place
after the consummation of a merger of Insignia with and into AIMCO.
The following cross reference sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Registration
Statement on Form S-4, as amended (the "Registration Statement"), filed by IPT
with the Commission with respect to the IPT Common Shares to be issued in the
Merger, of the information required to be included in response to the items of
this Schedule 13E-3. The Registration Statement includes the proxy statement of
AMIT and the prospectus of IPT with respect to the IPT Common Shares to be
issued in the Merger (the "Proxy Statement/Prospectus"). The information set
forth in the Registration Statement, including all exhibits thereto, is hereby
expressly incorporated by reference as set forth in the Cross Reference Sheet
and the responses to each item herein are qualified in their entirety by
reference to the information contained in the Registration Statement, including
any and all annexes, exhibits and schedules thereto.
3
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- -------------------------------------------------------------------------------
CROSS REFERENCE SHEET
- -------------------------------------------------------------------------------
Item 1. Issuer and Class of Security Subject to the Transaction
(a) Cover page to Proxy Statement/Prospectus; "SUMMARY -- The
Parties"
(b) "THE SPECIAL MEETING -- Voting; Votes Required for Approval"
(c) "BUSINESS OF AMIT -- Market for AMIT's Common Equity and
Related Shareholder Matters"
(d) "BUSINESS OF AMIT -- Market for AMIT's Common Equity and
Related Shareholder Matters"
(e) Not applicable
(f) Not applicable
Item 2. Identity and Background
(a)-(d) "SUMMARY -- The Parties"; Annex E to Proxy
Statement/Prospectus
(e)-(f) During the past five years no executive officer or trustee
of IPT or AMIT or executive officer or director of Insignia
has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a
party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final
order enjoining further violations of, or prohibiting
activities subject to federal or state securities laws or
finding any violations of such laws.
Item 3. Past Contacts, Transactions or Negotiations
(a)-(b) "SPECIAL FACTORS -- Background of the Merger" and "RISK
FACTORS -- Conflicts of Interest; Loans"
Item 4. Terms of the Transaction
(a) "THE MERGER"; "THE MERGER AGREEMENT"; "INSIGNIA/AIMCO
TRANSACTION"
(b) "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger"; "THE MERGER AGREEMENT -- Manner and Basis of
Converting Shares"
Item 5. Plans or Proposals of the Issuer or Affiliate
(a) "INSIGNIA/AIMCO TRANSACTION"; "SPECIAL FACTORS -- Certain
Other Information Concerning the IPT/AIMCO Merger"
(b) Not applicable
(c) "SUMMARY -- Management of IPT Following the Merger";
"SPECIAL FACTORS -- Interests of Certain Persons in the
Merger"
(d) "SUMMARY -- IPT Distribution Policy Following the Merger";
"SPECIAL FACTORS -- Certain Other Information Concerning the
IPT/AIMCO Merger"
4
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(e) "THE MERGER -- Certain Effects of the Merger"
(f) "THE MERGER -- Certain Effects of the Merger"
(g) "THE MERGER -- Certain Effects of the Merger"
Item 6. Source and Amounts of Funds or Other Consideration
(a) "SPECIAL FACTORS -- Certain Other Information Concerning the
IPT/AIMCO Merger"
(b) "SPECIAL FACTORS -- Certain Other Information Concerning the
IPT/AIMCO Merger"
(c) Not applicable
(d) Not applicable
Item 7. Purpose(s), Alternatives, Reasons and Effects
(a) "SPECIAL FACTORS -- Background of the Merger"; "SPECIAL
FACTORS -- AMIT's Reasons for the Merger"; "SPECIAL FACTORS
-- Recommendation of the AMIT Board" and "SPECIAL FACTORS --
Purpose and Structure of the IPT/AIMCO Merger"
(b) "SPECIAL FACTORS -- Background of Merger" and "SPECIAL
FACTORS -- Purpose and Structure of the IPT/AIMCO Merger"
(c) "SPECIAL FACTORS -- Background of the Merger"; "SPECIAL
FACTORS -- Reasons for the Merger" and "SPECIAL FACTORS --
Purpose and Structure of the IPT/AIMCO Merger"
(d) "SPECIAL FACTORS -- Certain Effects of the IPT/AIMCO Merger"
and "THE MERGER -- Federal Income Tax Consequences of the
Merger"
Item 8. Fairness of the Transaction
(a) "SPECIAL FACTORS -- AMIT's Reasons for the Merger"; SPECIAL
FACTORS -- Recommendation of the AMIT Board" and "SPECIAL
FACTORS -- Fairness of the IPT/AIMCO Merger"
(b) "SPECIAL FACTORS -- AMIT's Reasons for the Merger"; SPECIAL
FACTORS -- Recommendation of the AMIT Board"; "SPECIAL
FACTORS -- Fairness of the IPT/AIMCO Merger"; "SPECIAL
FACTORS -- Opinion of AMIT's Financial Advisor" and "SPECIAL
FACTORS -- Opinion of Financial Advisor to Insignia relating
to the IPT/AIMCO Merger"
(c) "SPECIAL FACTORS -- AMIT's Reasons for the Merger"; "THE
SPECIAL MEETING -- Voting; Votes Required for Approval"
(d) "SPECIAL FACTORS --AMIT's Reasons for the Merger"
(e) "SPECIAL FACTORS -- Recommendation to the AMIT Board"
(f) Not applicable
5
<PAGE>
Item 9. Reports, Opinions, Appraisals and Certain Negotiations
(a) "SPECIAL FACTORS -- AMIT's Reasons for the Merger"; "SPECIAL
FACTORS -- Opinion of AMIT's Financial Advisor"; "SPECIAL
FACTORS -- Background of the Merger" and "SPECIAL FACTORS --
Opinion of Financial Advisor to Insignia relating to the
IPT/AIMCO Merger"
(b) "SPECIAL FACTORS -- Opinion of AMIT's Financial Advisor";
"SPECIAL FACTORS -- Background of the Merger"; "SPECIAL
FACTORS -- Opinion of Financial Advisor to Insignia relating
to the IPT/AIMCO Merger"
(c) "SPECIAL FACTORS -- Opinion of AMIT's Financial Advisor" and
"SPECIAL FACTORS -- Opinion of Financial Advisor to Insignia
Relating to the IPT/AIMCO Merger"
Item 10. Interest in Securities of the Issuer
(a) "SUMMARY -- The Parties -- AMIT"; "SUMMARY -- The Special
Meeting"; "PRINCIPAL SECURITY HOLDERS OF AMIT";
(b) None of IPT, Insignia or any of the executive officers or
trustees of IPT or the executive officers or directors of
Insignia, or any affiliate, associate or subsidiary of the
foregoing, has effected any transaction in the AMIT Class A
Shares during the 60 business days prior to the date hereof.
Item 11. Contracts, Arrangements or Understanding with Respect to the Issuer's
Securities
"CERTAIN OTHER AGREEMENTS -- Stock Option Agreement and Class B Voting
Proxy"
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction
(a) Not applicable
(b) "SPECIAL FACTORS -- AMIT's Reasons for the Merger"; "SPECIAL
FACTORS -- Recommendation of the AMIT Board"
Item 13. Other Provisions of the Transaction
(a) "SPECIAL FACTORS -- Appraisal Rights"
(b) Not applicable
(c) Not applicable
Item 14. Financial Information
(a) "SUMMARY -- AMIT Summary Historical Consolidated Financial
Data"; "SUMMARY -- Comparative Per Share Information"; "AMIT
SELECTED CONSOLIDATED FINANCIAL DATA"; and "FINANCIAL
STATEMENTS OF AMIT"
(b) Not applicable
Item 15. Persons and Assets Employed, Retained or Utilized
(a) "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger"
(b) Not applicable
6
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Item 16. Additional Information
The information set forth in the Proxy Statement/Prospectus is
incorporated herein by reference.
Item 17. Material to be Filed as Exhibits
(a) Not applicable
+(b)(1) Fairness Opinion of Christopher Weil & Co. (included as
Annex C to the Proxy Statement/Prospectus which forms a part
of the Registration Statement)
+(b)(2) Fairness Opinion of Lehman Brothers, Inc.
+(b)(3) Report of Natural Decision Systems, Inc.
+(c)(1) Agreement and Plan of Merger dated as of July 18, 1997 among
AMIT, IPT, Insignia and MAE GP Corporation (included as
Annex A to the Proxy Statement/Prospectus which forms a part
of the Registration Statement)
+(c)(2) Stock Option Agreement dated April 14, 1995 by AMIT and MAE
GP Corporation (filed as Exhibit 10.20 to the Registration
Statement)
+(c)(3) Irrevocable Voting Proxy granted by MAE GP Corporation to
AMIT dated April 14, 1995 (filed as Exhibit 10.21 to the
Registration Statement)
+(d)(1) Letter to Shareholders (included with the Proxy
Statement/Prospectus which forms a part of the Registration
Statement)
+(d)(2) Notice of Special Meeting (included with the Proxy
Statement/Prospectus which forms a part of the Registration
Statement)
+(d)(3) Registration Statement on Form S-4 as filed by IPT with the
Commission on May 28, 1998 (of which the Proxy
Statement/Prospectus forms a part), together with the
annexes thereto
+(d)(4) Amendment No. 1 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on June 17, 1998 (of which
the Proxy Statement/Prospectus forms a part), together with
the annexes thereto
+(d)(5) Amendment No. 2 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on July 23, 1998 (of which
the Proxy Statement/Prospectus forms a part), together with
the annexes thereto
+(d)(6) Amendment No. 3 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on August 5, 1998 (of which
the Proxy Statement/Prospectus forms a part) together with
the annexes thereto
*(d)(7) Amendment No. 4 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on August 10, 1998 (of
which the Proxy Statement/Prospectus forms a part) together
with the annexes thereto
+(d)(8) Proxy Card (filed as Exhibit 99.5 to the Registration
Statement)
(e) Not applicable
(f) Not applicable
+ previously filed
* filed herewith
7
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement, as amended, is true,
complete and correct.
Dated: August 7, 1998
INSIGNIA PROPERTIES TRUST
By: /s/ Jeffrey P. Cohen
-----------------------------
Jeffrey P. Cohen
Senior Vice President
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Frank M. Garrison
-----------------------------
Frank M. Garrison
Executive Managing Director
ANGELES MORTGAGE INVESTMENT TRUST
By: /s/ Ronald J. Consiglio
------------------------------
Ronald J. Consiglio
President
8
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(a) Not applicable
+(b)(1) Fairness Opinion of Christopher Weil & Co. (included as
Annex C to the Proxy Statement/Prospectus which forms a part
of the Registration Statement)
+(b)(2) Fairness Opinion of Lehman Brothers, Inc.
+(b)(3) Report of Natural Decision Systems, Inc.
+(c)(1) Agreement and Plan of Merger dated as of July 18, 1997 among
AMIT, IPT, Insignia and MAE GP Corporation (included as
Annex A to the Proxy Statement/Prospectus which forms a part
of the Registration Statement)
+(c)(2) Stock Option Agreement dated April 14, 1995 by AMIT and MAE
GP Corporation (filed as Exhibit 10.20 to the Registration
Statement)
+(c)(3) Irrevocable Voting Proxy granted by MAE GP Corporation to
AMIT dated April 14, 1995 (filed as Exhibit 10.21 to the
Registration Statement)
+(d)(1) Letter to Shareholders (included with the Proxy
Statement/Prospectus which forms a part of the Registration
Statement)
+(d)(2) Notice of Special Meeting (included with the Proxy
Statement/Prospectus which forms a part of the Registration
Statement)
+(d)(3) Registration Statement on Form S-4 as filed by IPT with the
Commission on May 28, 1998 (of which the Proxy
Statement/Prospectus forms a part), together with the
annexes thereto
+(d)(4) Amendment No. 1 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on June 17, 1998 (of which
the Proxy Statement/Prospectus forms a part), together with
the annexes thereto
+(d)(5) Amendment No. 2 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on July 23, 1998 (of which
the Proxy Statement/Prospectus forms a part), together with
the annexes thereto
+(d)(6) Amendment No. 3 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on August 5, 1998 (of which
the Proxy Statement/Prospectus forms a part) together with
the annexes thereto
*(d)(7) Amendment No. 4 to the Registration Statement on Form S-4 as
filed by IPT with the Commission on April 10, 1998 (of
which the Proxy Statement/Prospectus forms a part) together
with the annexes thereto
+(d)(8) Proxy Card (filed as Exhibit 99.5 to the Registration
Statement)
(e) Not applicable
(f) Not applicable
9
+ previously filed
* filed herewith
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1998
REGISTRATION NO. 333-53815
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INSIGNIA PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
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MARYLAND 6798 57-1045190
(I.R.S. Employer
(State or Other Jurisdiction of (Primary Standard Industrial Identification No.)
Incorporation or Organization) Classification Code Number)
</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:
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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
</TABLE>
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. [ ]
-------------------
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
AUGUST 12, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders (the
"Special Meeting") of Angeles Mortgage Investment Trust ("AMIT") on September
4, 1998. The Special Meeting will begin at 10:00 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 August 7, 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 1.516 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 0.0309 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 declares any distributions after the date hereof with a record date
prior to 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 declares any
distributions after the date hereof with a record date prior to the
consummation of the Merger. However, neither AMIT nor IPT intends or expects
to declare any such additional distributions prior to consummation of the
Merger. Nevertheless, there can be no assurance that such a distribution will
not be declared. 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 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 $20.09 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.
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 August 12, 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 September 4, 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 SEPTEMBER 4, 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 September 4, 1998.
The Special Meeting will begin at 10:00 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 August 7, 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
August 12, 1998
<PAGE>
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 September 4,
1998, at the Beverly Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills,
California, commencing at 10:00 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 1.516 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 0.0309 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.
Neither AMIT nor IPT intends or expects to declare any additonal
distributions after the date hereof with a record date prior to consummation
of the Merger. If, however, either AMIT or IPT declares any distributions
after the date of this Proxy Statement/Prospectus with a record date 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, 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,
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 $20.09 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 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.
There will be no opinion of counsel regarding whether or not the Merger
should be treated as a tax-free reorganization in the event that the Merger
is consummated but the IPT/AIMCO Merger is not consummated and AMIT
shareholders will have no assurances as to the federal income tax treatment
of the Merger in such case.
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 4,019,000 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 August 12, 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 17.
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 August 10, 1998.
<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. In addition, IPT Insignia and
AMIT have filed a Rule 13e-3 Transaction Statement (the "Schedule 13E-3") with
respect to the Merger. This Proxy Statement/ Prospectus does not contain all
the information set forth in the Registration Statement and the Schedule 13E-3,
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, including the Schedule 13E-3, 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, the Schedule 13E-3 or such
other incorporated 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 and the Schedule 13E-3 (including the exhibits
thereto), 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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
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 6
Recommendation of the AMIT Board 6
Opinion of AMIT's Financial Advisor 6
Interests of Certain Persons in the Merger 7
Conditions to the Merger 7
Effective Time of the Merger 7
Trust Amendment 8
Accounting Treatment 8
Federal Income Tax Consequences 8
Material Conflicts of Interest 8
Summary Risk Factors 9
No Appraisal Rights 10
Forward-Looking Statements 10
Insignia Properties Trust Post-Merger
Organizational Chart 11
IPT Summary Historical Financial Data 12
AMIT Summary Historical Consolidated
Financial Data 14
IPT Summary Pro Forma Financial Data 15
Comparative Per Share Information 16
RISK FACTORS 17
Risk Factors Relating to the
Insignia/AIMCO Transaction 17
No Assurance of Consummation 17
Loss of Opportunity to Participate in
Future of IPT 17
Change of Control of IPT 17
AIMCO Control of Shareholder Vote on
IPT/AIMCO Merger 17
No Direct Rights to Require AIMCO to
Effect IPT/AIMCO Merger 17
Absence of Fairness Opinion 18
Risk Factors Relating to the Merger and
Post-Merger Operations 18
Uncertain Tax Treatment of Merger 18
Adverse Consequences of AMIT's Failure as
a REIT 18
Ownership of the AMIT Class B Shares by
an Affiliate of IPT 19
Integration of the Business of AMIT and
IPT 19
Underlying IPT Assets Create Investment
with Greater Risk 19
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 20
Lack of Independent Valuations of Assets 20
Leverage; No Limitation on Debt 21
Conflicts of Interest 21
Control by Insignia 23
Lack of Shareholder Control Over IPT's
Policies 23
Limitations on Ownership Interests and
Change of Control in Declaration of
Trust 23
Possible Adverse Consequences of
Ownership Limit 24
Dependence on Property Performance; Risks
Related to Investments in Real Estate
Limited Partnerships 24
Adverse Effects of REIT Minimum
Distribution Requirements; Effects of
Distribution Policy 25
Adverse Consequences of the Failure to
Qualify as a REIT 26
Potential Adverse Effects of Future
Offerings 26
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 27
No Established Public Trading Market for
Interests in the IPT Partnerships 27
Competition in Real Estate Market 27
Dependence on Andrew L. Farkas and Other
Senior Managers 28
Concentration of Properties in
Multifamily Residential Housing 28
Environmental Liability 28
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 29
Uncertainty Surrounding Consolidation of
Financial Statements 29
Dilution 29
iii
<PAGE>
PAGE
------
Applicability of the Investment Company
Act 29
Litigation Arising from Tender Offers 30
SPECIAL FACTORS 31
Affiliation Between AMIT and IPT 31
Background of the Merger 31
Determination of the Exchange Ratio 34
AMIT's Reasons for the Merger 34
IPT's Reasons for the Merger 37
Recommendation of the AMIT Board 38
Opinion of AMIT's Financial Advisor 38
Interests of Certain Persons in the
Merger 42
Purpose and Structure of IPT/AIMCO Merger 43
Fairness of IPT/AIMCO Merger 43
Opinion of Financial Advisor to Insignia
Relating to IPT/AIMCO Merger 44
Certain Effects of the IPT/AIMCO Merger 47
Certain Other Information Concerning the
IPT/AIMCO Merger 48
Appraisal Rights 48
THE SPECIAL MEETING 49
Time and Place; Purposes 49
Voting; Votes Required for Approval 49
AMIT Proxies 49
Solicitation 50
THE MERGER 50
General 50
Accounting Treatment 51
Federal Income Tax Consequences of the
Merger 51
Exchange of Share Certificates 53
No Fractional Shares 53
Listing of IPT Common Shares 53
No Appraisal Rights 53
Federal Securities Laws Consequences 53
INSIGNIA/AIMCO TRANSACTION 54
Insignia/AIMCO Merger 54
IPT/AIMCO Merger 54
THE MERGER AGREEMENT 55
Effective Time and Closing of the Merger 55
Manner and Basis of Converting Shares 55
Representations and Warranties 57
Pre-Closing Covenants 57
Conditions to the Merger 59
Termination or Amendment of Merger
Agreement 60
TRUST AMENDMENT 61
CERTAIN OTHER AGREEMENTS 61
Asset Agreement 61
Tax Agreement 62
Stock Option Agreement and Class B Voting
Proxy 62
Expense Reimbursement Agreement 62
BUSINESS OF IPT 63
General 63
The IPT Partnerships 64
Business Objectives 65
Acquisition Strategies 66
Operating Strategies 66
Investment Policies 67
Financing Policies 68
Conflict of Interest Policies 68
Policies with Respect to Other Activities 68
Properties 69
Taxes/Depreciation 71
Mortgages 73
Legal Proceedings 74
IPT FORMATION TRANSACTIONS AND CERTAIN
RECENT DEVELOPMENTS 77
Predecessors of IPT and IPLP 77
The NPI Transaction 77
Formation of IPT and IPLP 78
Certain Recent Developments 79
THE PARTNERSHIP AGREEMENT OF IPLP 84
Management 84
Transferability of Interests 84
Capital Contributions 84
Redemption Rights 85
Operations 85
Distributions and Allocations 86
Property Management and Contract Loss Fee 86
Put Rights 87
Partnership Administration Services 87
Transfers of Controlling Interests in IPT
Entities 88
Term 88
Tax Matters Partner 88
ACQUISITION AND DISPOSITION SERVICES
AGREEMENT 89
Acquisition and Disposition Services 89
Agreements Regarding Certain Real Estate
Opportunities 89
IPT LINE OF CREDIT 90
BUSINESS OF AMIT 92
General 92
Management; Employees 93
Properties 93
iv
<PAGE>
PAGE
------
Investment Policy 94
Legal Proceedings 95
Market for AMIT's Common Equity and
Related Shareholder Matters 96
IPT SELECTED CONSOLIDATED AND COMBINED
FINANCIAL DATA 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF IPT AND THE IPT PARTNERSHIPS 99
Insignia Properties Trust 99
IPT Partnerships 102
AMIT SELECTED CONSOLIDATED FINANCIAL DATA 107
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMIT 108
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
Exchange of OP Units into IPT Common
Shares 136
COMPARISON OF SHAREHOLDER RIGHTS 136
Business Combinations 136
Control Share Acquisitions 137
Shareholders' Meetings 138
Limited Liability and Indemnification of
Trustees, Officers, Employees and Other
Agents 138
Classification of the Board of Trustees 139
Voting Rights 139
Annual Report 140
Amendment to the Declaration of Trust 140
Rights Plan 141
Inspection of Books and Records 141
Asset Requirements 141
SHARES AVAILABLE FOR FUTURE SALE 142
FEDERAL INCOME TAX CONSIDERATIONS 144
Taxation of IPT 144
Taxation of U.S. Shareholders 149
Taxation of Non-U.S. Shareholders 151
Tax Aspects of IPT's Investment in IPLP
and the IPT Partnerships 152
Other Tax Considerations 153
TAXATION OF AMIT 154
EXPERTS 156
LEGAL MATTERS 156
GLOSSARY G-1
Index to Financial Statements F-1
Annex A--Merger Agreement A-1
Annex B--Trust Amendment B-1
Annex C--Fairness Opinion of Christopher
Weil & Company, Inc C-1
Annex D--Opinion of Lehman Brothers, Inc. D-1
Annex E--Information Regarding the
Directors and Executive Officers
of Insignia E-1
</TABLE>
v
<PAGE>
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 124 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 64 hereof. As of the date of this Proxy Statement/Prospectus,
the Controlled Partnerships own, in the aggregate, approximately 349
properties containing approximately 72,000 residential apartment units and
approximately 5.8 million square feet of commercial space, and the IPT
Partnerships own, in the aggregate, approximately 198 properties containing
approximately 49,000 residential apartment units and approximately 2.9
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
1
<PAGE>
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."
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 March 31, 1998, AMIT had 23 loans outstanding, with an aggregate
principal balance of approximately $30 million (net of loan loss reserves)
and owned real property with a book value of approximately $8.7 million. As
of such date, AMIT had 15 loans outstanding to partnerships currently
controlled by IPT, with an aggregate principal balance of approximately $17.8
million (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
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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."
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 September 4, 1998, at the Beverly
Hilton Hotel, 9876 Wilshire Boulevard, Beverly Hills, California, at 10:00
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 August 7, 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 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 SHARES
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share will
be converted into 1.516 IPT Common Shares (the "Class A Exchange Ratio") and
each outstanding AMIT Class B Share will be converted into 0.0309 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 declared or paid by AMIT since December 31, 1996 and by
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IPT since January 31, 1997. IPT's initial exchange value of $10.00 has been
adjusted to $10.72 to account for the distributions of $2.14 per AMIT Class A
Share paid by AMIT since December 31, 1996 and of $.60 per IPT Common Share
declared or paid by IPT since January 31, 1997, resulting in the Class A
Exchange Ratio of 1.516 ($16.25 divided by $10.72). The adjusted Class A
Exchange Ratio, assuming a constant $10.00 IPT Common Share exchange value,
effectively values each AMIT Class A Share at $15.16 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 0.0309). The
Exchange Ratio is subject to further adjustment should either AMIT or IPT
declare any distributions after the date of this Proxy Statement/Prospectus
with a record date prior to the consummation of the Merger, although neither
party intends or expects to declare any such additional distributions. 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 (which will be $10.72,
assuming no distributions are declared 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 and to use its reasonable best efforts to
effect such merger within three months after the effective time of the
Insignia/AIMCO Merger, 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 1.516, 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 $20.09 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. If (i) the Merger
is consummated and the IPT Common Shares are listed on the ASE on the record
date for determining the IPT shareholders entitled to vote on the IPT/AIMCO
Merger and (ii) the IPT/AIMCO Merger is consummated as currently contemplated
and described herein, then IPT shareholders (including the former AMIT
shareholders) will not be entitled to dissenters' rights of appraisal in
connection with the IPT/AIMCO Merger.
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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."
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% of the outstanding IPT Common Shares;
the executive officers, trustees and directors of IPT and Insignia will
collectively own approximately 2% of the outstanding IPT Common Shares; and
the remaining 26% of the outstanding IPT Common Shares will be owned by the
current IPT shareholders who are unaffiliated with IPT. The chart on Page 11
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,
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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 "Special Factors -- 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, on April 15, 1998 to
shareholders of record on March 23, 1998, and on July 15, 1998 to
shareholders of record on June 23, 1998. See "Distributions."
RECOMMENDATION OF THE AMIT BOARD
The AMIT Board recommends approval of the Merger Proposal 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 of 1.516, to approximately $20.09 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 AMIT Class A Shares have ever traded in
the public market. See "Special Factors -- AMIT's Reasons for the Merger" and
"Special Factors -- Recommendation of the AMIT Board." However, 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 "Special Factors -- Opinion of AMIT's
Financial Advisor."
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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 "Special
Factors -- 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 "Special Factors -- Interests of Certain Persons in the Merger."
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 proposed IPT/AIMCO Merger, no opinion of counsel that the
Merger should be treated as a reorganization under Section 368(a) of the Code
will be given. 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."
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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
Akin, Gump, Strauss, Hauer & Feld, L.L.P. ("Akin Gump"), counsel to IPT,
has rendered an opinion with respect to the federal income tax treatment of
the Merger that if both the Merger and the IPT/AIMCO Merger are consummated,
the receipt of IPT Common Shares 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. If the Merger is consummated but
the IPT/AIMCO Merger is not consummated, the federal income tax treatment of
the Merger is unclear and Akin Gump is unable to opine whether or not the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. If the Merger is not
treated as a reorganization under the Code, Akin Gump has opined that the
Merger will have the federal income tax consequences described above. If the
Merger is treated as a reorganization, Akin Gump has opined that 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 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:
Affiliation between AMIT and IPT. All of the outstanding AMIT Class B
Shares, which represent approximately 39% of the total voting power of AMIT,
are owned by MAE. MAE is controlled by Andrew L. Farkas, who is Chairman of
the Board of Trustees 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.
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.
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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.
Risk Factors Relating to the Merger and Post-Merger Operations
o The federal income tax consequences of the Merger are not certain. Akin
Gump has rendered an opinion that if the Merger is consummated and the
IPT/AIMCO Merger is consummated after the Merger as contemplated by the
Insignia/AIMCO Merger Agreement (i.e., in a cash-out merger), the
receipt of IPT Common Shares in the Merger will be treated as a taxable
event for AMIT shareholders. If the Merger is consummated and the
IPT/AIMCO Merger is not consummated, the federal income tax treatment
of the Merger is unclear and Akin Gump is unable to opine whether or
not the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code.
o All of the AMIT Class B Shares, which currently represent approximately
39% of the total voting power of AMIT, are owned by an affiliate of IPT
and Insignia. The Class B Voting Proxy only applies to transactions
involving AMIT and Insignia or its affiliates. Therefore, if the AMIT
shareholders do not approve the Merger Proposal, AMIT's ability to
attract an alternative merger partner or to engage in any other
extraordinary corporate transaction with a party other than Insignia or
its affiliates may be inhibited by the ownership of the AMIT Class B
Shares by an affiliate of IPT. In addition, there can be no assurance
that AMIT could not have entered into an alternative extraordinary
transaction on terms more favorable to the AMIT shareholders had the
AMIT Class B Shares not been owned by an affiliate 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 acquired by IPT in exchange for IPT
Common Shares).
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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. If (i) the
Merger is consummated and the IPT Common Shares are listed on the ASE on the
record date for determining the IPT shareholders entitled to vote on the
IPT/AIMCO Merger and (ii) the IPT/AIMCO Merger is consummated as currently
contemplated and described herein, then IPT shareholders (including the
former AMIT shareholders) will not be entitled to dissenters' rights of
appraisal in connection with the IPT/AIMCO Merger. See "Special Factors -- 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 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
POST-MERGER ORGANIZATIONAL CHART
The chart below depicts the organizational structure and beneficial
ownership of IPT and IPLP after giving effect to the Merger.
<TABLE>
<S> <C> <C> <C> <C>
INSIGNIA(1) MAE AMIT SHAREHOLDERS(2) Executive Officers,
51% 3% 16% Trustees and OTHERS(3)
Directors of IPT and Insignia 26%
2%
Limited
Partner
(30)% INSIGNIA PROPERTIES TRUST
("IPT")
General o Equity Interests in Entities
Partner Comprising or Controlling
(70)% the Managing General
Partners of the Controlled
Partnerships
INSIGNIA PROPERTIES, L.P.
("IPLP") o Certain AMIT Assets
o Limited Partner Interests
in the Controlled Partnerships
o Whole Real Estate Assets
</TABLE>
(1) Includes IPT Common Shares held by affiliates of Insignia including LAC
but excluding MAE and the executive officers, trustees and directors of
IPT and Insignia.
(2) Excludes MAE and LAC.
(3) Includes persons who purchased IPT Common Shares in the Private
Offerings (other than the executive officers, trustees and directors of
IPT and Insignia).
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 (IN THOUSANDS, EXCEPT SHARE DATA)
SHARE DATA) <C> <C> <C> <C>
<S> <C> <C>
STATEMENT OF OPERATIONS DATA $ 16,826 $9,705 $2,459 $113
Revenues ....................... $5,757 $4,128
Income before extraordinary $ 6,074 $3,557 $2,215 $113
item........................... $2,054 $ 660 $ 6,004 $2,425 $2,215 $113
Net income...................... $2,080 $ 660
Income before extraordinary .41 n/a n/a n/a
item per share (diluted) ..... .11 .06 .40 n/a n/a n/a
Net income per share (diluted) . .11 .06
Cash distributions to IPT .30 .20 n/a n/a
Common shareholders per share .15 --
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 (IN THOUSANDS, EXCEPT SHARE DATA)
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 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 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 .......... $ 837 $ 576 $ 2,695 $ 1,407 --
Cash distributions per AMIT
Class A Share ................. $ 0.32 $ 0.22 $ 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 and (ii) 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
necessarily 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
EXCEPT SHARE DATA) DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues........................................... $6,817 $26,584
Net income before extraordinary item .............. $3,038 $13,640
Net income before extraordinary item per IPT
Common Share ..................................... $ .13 $ 0.59
Weighted average IPT Common Shares outstanding ... 23,073,958 23,046,558
</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 ................................... $280,901
Long-term debt ................................. $ 26,482
Minority interest in IPLP ...................... $ 56,984
Shareholders' equity ........................... $189,862
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
(IN THOUSANDS, (IN THOUSANDS,
EXCEPT EXCEPT
PROPERTY PROPERTY
INFORMATION) INFORMATION)
<S> <C> <C>
OTHER DATA
Cash provided by operating 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>
- ------------
(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
15
<PAGE>
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 $17,338
Depreciation and amortization ....... 4,002 14,802
Minority interest in NPI 4 funds from
operations .......................... (150) (819)
------------------ -----------------
Funds from Operations................. $8,423 $31,321
================== =================
</TABLE>
COMPARATIVE PER SHARE INFORMATION
The following table sets forth the 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 Consolidated and Combined
Financial Statements and Notes thereto of IPT and (ii) the Pro Forma
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 .... $ .59 $ .35 $ 8.12
Three months ended March 31, 1998 $ .13 $ .25 $ 8.10
AMIT--Pro Forma Equivalent(2)
Year ended December 31, 1997 .... $ .89 $ .53 $12.31
Three months ended March 31, 1998 $ .20 $ .38 $12.28
</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 or the three months ended March 31, 1998.
(2) Determined by multiplying the Class A Exchange Ratio (1.516) by the IPT
and AMIT pro forma per share amounts.
16
<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 there can be no assurance that
17
<PAGE>
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 AMIT Board 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
Akin Gump has rendered an opinion that if the Merger is consummated and
the IPT/AIMCO Merger is consummated after the consummation of the Merger on
the terms contemplated by the Insignia/AIMCO Merger Agreement (i.e., a
cash-out merger), (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 for any reason, IPT would become liable for the tax resulting from any
such gain; and (ii) the AMIT shareholders would be treated as if all of their
AMIT 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 Shares
and the fair market value of the IPT Common Shares plus the amount of cash
received in exchange therefor. As described more fully under "The Merger --
Federal Income Tax Consequences of the Merger -- 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.
However, if the Merger is consummated but the IPT/AIMCO Merger is not
consummated, the federal income tax treatment of the Merger is unclear and
Akin Gump is unable to opine whether or not the Merger will be treated as a
reorganization under the Code for federal income tax purposes. In such event,
the contemplated IPT/AIMCO Merger makes it sufficiently unclear as to whether
the AMIT shareholders will have retained a substantial proprietary stake and
material interest in the affairs of IPT in order to meet the "continuity of
proprietary interest" requirement with respect to a reorganization under
Section 368(a) of the Code. Additionally, no ruling from the Internal Revenue
Service regarding the federal income tax consequences of the Merger will be
obtained. 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."
ADVERSE CONSEQUENCES IF AMIT FAILED TO QUALIFY AS A REIT
AMIT believes that it has operated in a manner designed to qualify as a
REIT under the Code. To qualify as a REIT, AMIT 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 AMIT fails to qualify as a REIT in any taxable year
and certain relief provisions of the Code do not apply, AMIT would be subject
to federal income tax as a regular domestic corporation, its shareholders
would be subject to tax in the same manner as shareholders of such a
corporation, and unless certain relief provisions in the Code are available
to it, AMIT would not be eligible to re-elect REIT status until the fifth
taxable year after the year in which it failed to qualify as a REIT. As a
result, AMIT could be subject to income tax liability after the utilization
of AMIT's net operating losses, which were fully utilized in 1997. If the
Merger occurs, IPT will succeed to any AMIT tax liabilities. If AMIT were
18
<PAGE>
disqualified as a REIT, it would have approximately $460,000 of taxable
income for federal income tax purposes in 1997, and it expects that it would
have significant taxable income in 1998. If AMIT were disqualified as a REIT
and the Merger does not occur, AMIT could be subject to substantial tax
liability, thereby significantly reducing or eliminating the amount (of cash
available) for distribution to its shareholders. AMIT's qualification as a
REIT is not a condition to the closing of the Merger, and any failure of AMIT
to qualify as a REIT will not affect the closing of the Merger or the
Exchange Ratio. Although management of AMIT believes that AMIT 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 "Taxation
of AMIT" and "Business of AMIT -- General."
OWNERSHIP OF THE AMIT CLASS B SHARES BY AN AFFILIATE OF IPT
All of the AMIT Class B Shares, which currently represent approximately 39%
of the total voting power of AMIT, are owned by an affiliate of IPT and
Insignia. The Class B Voting Proxy only applies to transactions involving AMIT
and Insignia or its affiliates. Therefore, if the AMIT shareholders do not
approve the Merger Proposal, AMIT's ability to attract an alternative merger
partner or to engage in any other extraordinary corporate transaction with a
party other than Insignia or its affiliates may be inhibited by the ownership
of the AMIT Class B Shares by an affiliate of IPT. In addition, there can be no
assurance that AMIT could not have entered into an alternative extraordinary
transaction on terms more favorable to the AMIT shareholders had the AMIT
Class B Shares not been owned by an affiliate of IPT.
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 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 was organized as a mortgage REIT 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.
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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
Although neither AMIT nor IPT intends or expects to declare any additional
distributions prior to consummation of the Merger, the Exchange Ratio is
subject to further adjustment should either AMIT or IPT declare any
distributions after the date of the Proxy Statement/Prospectus with a record
date prior to 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 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
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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 (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.
Affiliation Between AMIT and IPT. All of the outstanding AMIT Class B
Shares, which represent approximately 39% of the total voting power of AMIT,
are owned by MAE. MAE is controlled by Andrew L. Farkas, who is Chairman of
the Board of Trustees 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. Although pursuant to the terms of the
Class B Voting Proxy all (100%) of the AMIT Class B Shares will be voted in
accordance with the majority of the AMIT Class A Shares represented at the
Special Meeting on each of the Proposals, the ownership of the AMIT Class B
Shares by an affiliate of IPT influenced the AMIT Board's decision to engage
in the Merger. See "Special Factors -- AMIT's Reasons for the Merger."
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
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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."
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
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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. For a list of the loans in
AMIT's portfolio to partnerships now controlled by IPT, see "Schedule IV --
Mortgage Loans on Real Estate as of December 31, 1997" on page F-77 of this
Proxy Statement/Prospectus.
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 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
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.
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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 terms of
the first, second and third classes expire with the 2001, 1999 and 2000
annual meetings, respectively. Beginning with the 1998 annual meeting (which
was held in May 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 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
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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 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
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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 "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 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.
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POSSIBLE ADVERSE EFFECT ON SHARE PRICE ARISING FROM SHARES AVAILABLE FOR
FUTURE SALE
Upon consummation of the Merger, 23,446,958 IPT Common Shares will be
outstanding, including the approximately 4,019,198 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
17,771,062 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
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
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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's 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 Chairman of the Board of Trustees
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 5.8 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
environmental laws and common law principles could be used to impose
liability for release of and exposure to hazardous substances, including
asbestos-
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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 3,821,000 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."
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
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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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SPECIAL FACTORS
AFFILIATION BETWEEN AMIT AND IPT
At the time the Merger Agreement was being negotiated, all of the
outstanding AMIT Class B Shares, which represent approximately 39% of the
total voting power of AMIT, were owned by MAE GP, then a wholly-owned
subsidiary of MAE (such shares have since been transferred to MAE). MAE is
controlled by Andrew L. Farkas, who is Chairman of the Board of Trustees 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.
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, Mr.
Farkas 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.
AMIT's management had retained Chanin Capital Partners, LLC ("Chanin"), a
provider of financial advisory services, to review the valuation models
prepared internally by AMIT management and to advise AMIT as to which of the
methodologies was most appropriate to the transaction and whether or not the
valuation arrived at by AMIT management in implementing that methodology fell
within the range of reasonable values for the proposed transaction. Mr.
Consiglio was familiar with Chanin because they had worked on other matters,
unrelated to AMIT, in which Mr. Consiglio was involved as an executive
officer of a former client of Chanin. Mr. Consiglio advised the executive
committee of the AMIT Board that Chanin had concluded that determining the
net asset value was a reasonable method for valuing AMIT, and that $18.00 per
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AMIT Class A Share fell within the range of reasonable values for the
proposed transaction. Chanin's conclusions were provided orally to AMIT
management, and no written report was submitted to AMIT by Chanin. The
executive committee of the AMIT Board 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 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. The
first consultant, Weil, was retained to provide a fairness opinion in
connection with the Exchange Ratio. See "--Opinion of AMIT's Financial
Advisor." The second consultant, Natural Decision Systems, Inc.
("NDS"), was retained to formulate a range of property portfolio
values, based on the use of various economic models, hypotheses and
specific procedures on selected property operations in the IPT
portfolio of properties. AMIT management was familiar with NDS because
one of its principals had previously been a partner with BDO Seidman,
LLP, AMIT's accountants. NDS prepared a written report to AMIT
formulating a range of current values of identified real estate
holdings of the IPT Partnerships which values were determined by
entering lists of the real estate holdings received by AMIT from IPT
and data provided by IPT to AMIT concerning the property operations
into a proprietary real estate statistical software. The range of
values produced by these procedures was reported to be $1,067,000,000
to $1,182,000,000 as of December 31, 1996. The NDS report specifies
that it was provided solely for the use of the board of trustees and
management of AMIT. NDS made no recommendation as to the amount of
consideration to be paid by AMIT for IPT. Weil did not rely on NDS'
formulation of property values in issuing its fairness opinion. The
parties spent a significant amount of time in April, May and June 1997
responding to the inquiries of Weil and NDS.
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.
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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 NDS. 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.
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 "Special
Factors -- IPT's Reasons for the Merger," "Special Factors -- AMIT's Reasons
for the Merger," and "Special Factors -- 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 approval of the Merger to AMIT shareholders without AMIT receiving
a covenant from Insignia/ESG that Insignia/ESG would enforce AIMCO's
obligation to
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propose to acquire IPT by merger pursuant to the terms of the Insignia/AIMCO
Merger Agreement, but it could make such recommendation if AMIT 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. AMIT was
represented by independent legal advisors, Greenberg Glusker Fields Claman
and Machtinger LLP, in the negotiations regarding the letter of intent, and
before the letter of intent was executed by AMIT it was approved by each
member of the AMIT Board, including the members of the AMIT Board who are not
employees of AMIT. There is no affiliation between AMIT and IPT other than
MAE's ownership of the AMIT Class B Shares and LAC's ownership of
approximately 3.7% of the outstanding AMIT Class A Shares. The executive
officers and trustees of AMIT had different economic and other interests than
the representatives of IPT and Insignia in the negotiation of the terms of
the letter of intent, including the base values of the AMIT Class A Shares
and the IPT Common Shares.
Although the base exchange value of $16.25 per AMIT Class A Share fell
below the AMIT Class A Share value of approximately $18.00 indicated by the
net asset valuation prepared by AMIT management and reviewed by Chanin, and
other internally prepared valuations of the AMIT Class A Shares prepared by
AMIT management, AMIT accepted a base exchange value of $16.25 per AMIT Class
A Share because it approximated the then book value of an AMIT Class A Share
and it exceeded the then current market price and all historical market
prices at which the AMIT Class A Shares had traded over the prior three
years. The AMIT Board also considered the $10.00 base exchange value of the
IPT Common Shares to be beneficial to the AMIT shareholders and planned on
making the consummation of the Merger conditional upon the receipt of an
opinion of Weil as to the fairness of the Exchange Ratio.
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.
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, approximated the
then book value of the AMIT Class A Shares and was higher than the
historical trading price of the AMIT Class A Shares over the prior
three years.
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
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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
$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 the
analysis of NDS 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, which initially resulted in AMIT being more
cautious about entering into a transaction with another affiliate of
Insignia.
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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.
o AMIT will no longer receive an opinion of counsel that the Merger
should be treated as a reorganization under the Code.
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
($13.25 per IPT Common Share), which based on the current Class A Exchange
Ratio of 1.516 would result in AMIT shareholders receiving a cash amount for
their IPT Common Shares received in the Merger equivalent to approximately
$20.09 per AMIT Class A Share, which is in excess of the current book value
of the AMIT Class A Shares, is greater than the current market price of the
AMIT Class A Shares, is greater than the price at which the AMIT Class A
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Shares have ever traded in the public market and exceeds the estimate of the
liquidation value of the AMIT Class A Shares prepared by Weil in connection
with the Weil Opinion. 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. In
coming to this conclusion the AMIT Board considered that AMIT will no longer
receive an opinion of counsel that the Merger should be treated as a
reorganization under the Code and that the Merger may be taxable to AMIT and
its shareholders.
Although the Merger is not structured so that the approval of the majority
of the AMIT shareholders unaffiliated with IPT is required to approve the
Merger Proposal, the AMIT Board considered the fact that because affiliates
of IPT own less than 4% of the outstanding AMIT Class A Shares and that the
AMIT Class B Shares owned by MAE are subject to the Class B Voting Proxy and
must be voted as a unit in accordance with the vote of the majority of the
AMIT Class A Shares represented at the Special Meeting on the Merger
Proposal, the AMIT shareholders unaffiliated with IPT will have substantial
influence in determining whether or not the Merger Proposal is approved. In
evaluating the Merger after the announcement of the Insignia/AIMCO Merger
Agreement and the IPT/AIMCO Merger contemplated thereby, the AMIT Board
continued to rely upon the Weil Opinion that the Exchange Ratio is fair to
the AMIT shareholders from a financial point of view, particularly in light
of the fact that there can be no assurance that the Insignia/AIMCO Merger and
the IPT/AIMCO Merger will be consummated. 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. In light of AMITs retention of Weil as its
independent financial advisor and the law firm of Greenberg Glusker Fields
Claman & Machtinger LLP ("GGFC&M") as its legal advisor, the members of the
AMIT Board did not deem it to be necessary to appoint additional independent
advisors to act solely on behalf of the AMIT shareholders unaffiliated with
IPT in connection with the negotiation of the Merger Agreement.
IPT'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 considerations 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.
o Uncertain Tax Treatment of the Merger: The IPT Board considered that
the Merger may be treated as a taxable exchange of the AMIT assets for
IPT Common Shares. 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 such a gain, if any.
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. The
Merger was approved by each member of the AMIT Board, including the members
who are not employees of AMIT. 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
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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 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 by AMIT utilizing
data provided by Insignia and/or IPT. 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.
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
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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:
(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;
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(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 IPT, 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.
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
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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."
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."
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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.
PURPOSE AND STRUCTURE OF IPT/AIMCO MERGER
In connection with the Insignia/AIMCO Merger Agreement, Insignia
negotiated a covenant from AIMCO to propose to acquire the minority interest
in IPT (by merger) for at least $13.25 per IPT Common Share, which is the
same value Insignia assigned to the IPT Common Shares owned by Insignia and
its wholly-owned subsidiaries for purposes of valuing the Insignia/AIMCO
Merger. AIMCO agreed to use its reasonable best efforts to consummate the
IPT/AIMCO Merger within three months after the effective date of the
Insignia/AIMCO Merger. Insignia and AIMCO considered structuring the
IPT/AIMCO Merger in a manner so that the minority shareholders of IPT would
have received shares of common stock of AIMCO in exchange for their IPT
Common Shares; however, AIMCO preferred to acquire the minority interest in
IPT for cash rather than additional common stock.
AMIT and IPT originally determined the structure of the Merger as a
tax-free exchange whereby AMIT would merge into IPT with the AMIT
shareholders acquiring newly issued IPT Common Shares in exchange for their
AMIT Shares. The Merger was not entered into in anticipation of the Insignia/
AIMCO Merger or the IPT/AIMCO Merger. The structure of the IPT/AIMCO Merger
was intended to provide the minority shareholders of IPT the same economic
value as Insignia is to receive for its IPT Common Shares in the
Insignia/AIMCO Merger and to ensure that most of the minority shareholders of
IPT receive long term capital gains treatment on the cash received in the
IPT/AIMCO Merger.
At the time the Merger Agreement was entered into it was not the intent of
either IPT or AMIT to structure a transaction in which IPT would be merged
with another entity after the consummation of the Merger and the former AMIT
shareholders would not longer own an equity interest in IPT. The structure of
the collective transactions contemplated by the Merger Agreement and the
Insignia/AIMCO Merger Agreement is the combined result of two independently
negotiated transactions.
FAIRNESS OF IPT/AIMCO MERGER
Based on the information currently known about the terms of the
contemplated IPT/AIMCO Merger (see "Insignia/AIMCO Transaction -- IPT/AIMCO
Merger"), IPT and Insignia determined that the Merger and the IPT/AIMCO
Merger are fair to the shareholders of AMIT. This conclusion is based on the
following factors:
(i) the fact that the consideration of $13.25 per IPT Common Share to be
received by the minority shareholders of IPT (including former AMIT
shareholders) in the IPT/AIMCO Merger is the same value Insignia assigned
to the IPT Common Shares owned by Insignia and its wholly-owned
subsidiaries for purposes of valuing the Insignia/AIMCO Merger;
(ii) the fact that the Board of Directors of Insignia and the IPT Board
received the opinion of Lehman Brothers, Inc. ("Lehman Brothers") that the
allocation of the consideration to be paid by AIMCO between the merger
consideration to be received by the holders of Insignia common stock and
the consideration to be offered to the holders of IPT Common Shares in the
contemplated IPT/AIMCO Merger are reasonable based on, and subject to, the
assumptions and qualifications set forth in such opinion (which is
summarized below and a copy of which is attached to this Proxy
Statement/Prospectus as Annex D);
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(iii) the fact that Insignia and its legal and financial advisors
determined the amount of consideration to be paid to the holders of IPT
Common Shares in the contemplated IPT/AIMCO Merger on an arm's-length
basis with AIMCO and its legal and financial advisors;
(iv) the fact that the consideration to be received by the former AMIT
shareholders then holding IPT Common Shares in the contemplated IPT/AIMCO
Merger, which based on the current Class A Exchange Ratio approximates
$20.09 per AMIT Class A Share, exceeds 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;
(v) the fact that AMIT received the Weil Opinion that the Exchange Ratio
was fair to the AMIT shareholders from a financial point of view and that
each member of the AMIT Board, including the members who are not employees
of AMIT, voted to recommend the Merger regardless of whether or not the
IPT/AIMCO Merger is consummated;
(vi) the fact that pursuant to the Class B Voting Proxy all (100%) of the
AMIT Class B Shares will be voted in accordance with the vote of a
majority of the AMIT Class A Shares represented at the Special Meeting on
the Merger Proposal as a result of which the AMIT shareholders who are
unaffiliated with IPT and Insignia will have substantial influence in
determining whether or not the Merger Proposal is approved; and
(vii) the fact that AMIT retained and has been advised by independent
legal counsel and financial advisors with respect to matters relating to
the Merger.
In view of the number of factors considered by IPT and Insignia in
evaluating the Merger and the IPT/AIMCO Merger, IPT and Insignia did not
qualify or otherwise attempt to assign relative weights to the various
factors considered in making their determination. However, IPT and Insignia
viewed each of the factors described above as favorable to the determination
that the Merger and the IPT/AIMCO Merger are fair to the shareholders of
AMIT.
OPINION OF FINANCIAL ADVISOR TO INSIGNIA RELATING TO IPT/AIMCO MERGER
Lehman Brothers acted as financial adviser to the board of directors of
Insignia (the "Insignia Board") in connection with the Insignia/AIMCO Merger.
As part of its role as financial adviser to Insignia, on March 13, 1998,
Lehman Brothers delivered its oral opinion (subsequently confirmed in writing
in an opinion dated March 17, 1998) (the "Lehman Brothers Opinion") to the
Board of Directors of Insignia and the IPT Board to the effect that, as of
those dates, and based on the assumptions made, procedures followed and
matters considered, as set forth in the Lehman Brothers Opinion, the
allocations of the consideration to be paid by AIMCO between the merger
consideration to be received by the holders of Insignia's common stock and
the aggregate consideration to be offered to the holders of IPT Common Shares
are reasonable.
A COPY OF THE LEHMAN BROTHERS OPINION IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX D. AMIT SHAREHOLDERS MAY READ THE LEHMAN
BROTHERS OPINION IN ITS ENTIRETY FOR A DISCUSSION OF THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN
BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF THE LEHMAN BROTHERS OPINION
SET FORTH IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
No limitations were imposed by Insignia on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion, except that Insignia did not authorize Lehman Brothers
to solicit, and Lehman Brothers did not solicit, proposals from third parties
with respect to the purchase of all or a part of Insignia's business. Lehman
Brothers was not requested to and did not make any recommendation to the
Insignia Board as to the form or amount of the consideration to be offered to
the holders of IPT Common Shares, which was determined through arm's-length
negotiations between the parties. In arriving at its opinion, Lehman Brothers
did not ascribe a specific range of value to IPT, but rather made its
determination as to the fairness, from a financial point of view, of the
reasonableness of the allocations of the consideration to be paid by AIMCO
with respect to the Insignia/AIMCO Merger between the merger consideration to
be received by the holders of
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Insignia's common stock required to be offered to the holders of IPT Common
Shares by AIMCO, on the basis of the financial and comparative analysis
described below. The Lehman Brothers Opinion is for the use and benefit of
the Insignia Board and was rendered to the Insignia Board in connection with
its consideration of the Insignia/AIMCO Merger. However, the IPT Board is
expressly permitted to rely upon the Lehman Opinion. The Lehman Brothers
Opinion is not intended to be and does not constitute a recommendation to any
stockholder of Insignia or shareholder of AMIT as to whether to vote in favor
of the Insignia/AIMCO Merger or the Merger respectively, or any matter
related thereto.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Insignia/AIMCO Merger Agreement and the specific terms of the transactions
contemplated thereby, (2) publicly available information concerning Insignia
and AIMCO that it believed to be relevant to its analysis, (3) financial and
operating information with respect to the business, operations and prospects
of Insignia, Insignia/ ESG and AIMCO furnished to it by Insignia and AIMCO,
respectively, (4) a trading history of Insignia's common stock from January
1, 1996 to March 11, 1998 and a comparison of that trading history with those
of other companies that it deemed relevant, (5) a trading history of AIMCO's
common stock from January 1, 1996 to March 11, 1998 and a comparison of that
trading history with those of other companies that it deemed relevant, (6) a
comparison of the historical financial results and present financial
condition of Insignia with those of other companies that it deemed relevant,
(7) a comparison of the historical financial results and present financial
condition of AIMCO with those of other companies that it deemed relevant, (8)
a comparison of the historical financial results and present financial
condition of Insignia/ ESG with those of other companies that it deemed
relevant, (9) a comparison of historical financial results and present
financial condition of IPT with those of other companies that it deemed
relevant, (10) a comparison of the financial terms of the Insignia/AIMCO
Merger with the financial terms of certain other recent transactions that it
deemed relevant, (11) the potential pro forma impact of the Insignia/AIMCO
Merger on AIMCO (including the cost savings, operating synergies and
strategic benefits expected by the managements of Insignia and AIMCO to
result from the Insignia/AIMCO Merger), and (12) liquidation values of
Insignia's and IPT's properties furnished to it by Insignia. In addition,
Lehman Brothers had discussions with the managements of Insignia and AIMCO
concerning their respective businesses, operations, assets, financial
conditions and prospects and have undertaken such other studies, analyses and
investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of the
information and has further relied upon the assurances of managements of
Insignia and AIMCO that they are not aware of any facts or circumstances that
would make the information inaccurate or misleading. With respect to the
financial projections of Insignia, Insignia ESG, IPT, AIMCO and the combined
company upon consummation of the Insignia/AIMCO Merger and the spin-off of
Insignia/ESG to the stockholders of Insignia, upon advice of Insignia and
AIMCO, respectively, Lehman Brothers assumed that the projections have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of Insignia and AIMCO, as the case
may be, as to the future financial performance of Insignia/ESG, IPT, AIMCO
and the combined company and that Insignia, IPT and AIMCO would perform, and
Insignia/ESG and the combined company will perform, substantially in
accordance with such projections. In arriving at its opinion, Lehman Brothers
has not conducted a physical inspection of the properties and facilities of
Insignia, IPT or AIMCO and has not made or obtained any evaluations or
appraisals of the assets or liabilities of Insignia, IPT or AIMCO. In
addition, Insignia did not authorize Lehman Brothers to solicit, and Lehman
Brothers did not solicit, any indications of interest from any third party
with respect to a purchase of all or a part of Insignia's businesses. Upon
advice of Insignia, who was advised by its tax counsel, Lehman Brothers has
assumed that the Insignia/AIMCO Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code, and therefore as a tax-free
transaction to the holders of Insignia's common stock, and the spin-off of
Insignia/ESG to the stockholders of Insignia will qualify as a tax-free
transaction to the holders of Insignia's common stock. The Lehman Brothers
Opinion necessarily is based upon market, economic and other conditions as
they exist on, and can be evaluated as of, the date of such opinion. Lehman
Brothers assumed for the purposes of its opinion that the consideration to be
received by the holders of IPT Common Shares in the IPT/AIMCO Merger will be
equal to $13.25 per IPT Common Share.
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In connection with the preparation and delivery of the Lehman Brothers
Opinion, Lehman Brothers performed a variety of financial and comparative
analyses, as described below. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made
numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
control of Insignia and AIMCO. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
Valuation of IPT
COMPARABLE PUBLIC COMPANY ANALYSIS. Lehman Brothers compared certain
publicly available financial and operating data and projected financial
performance (reflecting research analysts' estimates) of selected publicly
traded REITs with similar financial and operating data and projected
financial performance of IPT (as estimated by the management of Insignia).
The selected REITs reviewed in this analysis (collectively, the "IPT
Comparable Group") were AIMCO, BRE Properties, Equity Residential Properties,
Camden Property Trust, Merry Land & Investment, and United Dominion Realty.
Lehman Brothers analyzed, among other things, the ratios of equity market
value per share to FFO per share, as well as operating and financial
performance data and the capital structures of the IPT Comparable Group.
Lehman Brothers then compared the results of its analyses for the IPT
Comparable Group to the corresponding results for IPT. Lehman Brothers
calculations resulted in a range of equity market value per share to 1998 FFO
per share of 9.5x to 12.6x, with a mean of 10.8x, as compared to IPT at 12.0x
(assuming an allocated IPT consideration of $13.25 per share).
Because of the inherent differences between the businesses, operations and
prospects of IPT and the businesses, operations and prospects of the
companies included in the IPT Comparable Group, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics of IPT and the companies in the IPT Comparable Group that
would affect the public trading values of IPT and such comparable companies.
COMPARABLE TRANSACTION ANALYSIS. Lehman Brothers reviewed certain
information regarding nine selected pending or completed business
combinations involving REITs owning primarily apartment properties since
1994. Lehman Brothers reviewed the prices paid in these transactions in terms
of the equity value per share as a multiple of projected FFO per share
(reflecting research analysts' estimates) and compared the multiples to the
multiples of the financial results for IPT implied by the IPT consideration.
The nine completed business combinations reviewed in this analysis
(collectively, the "IPT Transaction Comparables") were: the acquisition of
Evans Withycombe by Equity Residential, the acquisition of Wellsford
Residential by Equity Residential; the acquisition of Columbus Realty by Post
Properties; the acquisition of Paragon Group by Camden Property Trust; the
acquisition of South West Property Trust by United Dominion Realty; the
acquisition of REIT of California by BRE Properties; the acquisition of Holly
Residential by Wellsford Residential; the acquisition of Oasis Residential by
Camden Property Trust; and the pending acquisition of Ambassador by AIMCO.
Lehman Brothers calculated the implied value of IPT by selecting ranges of
multiples of 1998 FFO, derived from Lehman Brothers' analysis of multiples of
equity value per share to FFO per share for the IPT Transaction Comparables,
and applying this multiple range to the projected FFO of IPT (as projected by
management of Insignia). Lehman Brothers calculations resulted in a range of
equity market value per share to 1998 FFO per share of 9.6x to 14.0x, with a
means of 11.7x, as compared to IPT at 12.0x (assuming an allocated IPT
consideration of $13.25 per share).
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Because the market conditions, rationale and circumstances surrounding
each of the transactions analyzed were specific to each transaction and
because of the inherent differences between the businesses, operations and
prospects of IPT and the acquired businesses analyzed, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on
the quantitative results of the analysis, and accordingly, also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Insignia/AIMCO Merger that would affect the
acquisition values of IPT and such acquired companies.
NET ASSET VALUE ANALYSIS. Lehman Brothers calculated the net asset value
of IPTs proportionate interest in the real estate assets owned by IPT,
adjusted for total debt outstanding, to arrive at an equity value per IPT
Common Share. The analysis of IPT utilized projections provided by management
of Insignia. Lehman Brothers calculated values of Insignia's assets based on
a range of capitalization rates of 9.45% to 10.45% applied to projected 1998
net operating income for IPT's real estate assets, plus an adjustment for the
estimated value of non-income producing property. This analysis indicated an
imputed equity value (defined as aggregate value minus debt) of IPT of $11.21
to $12.88 per fully-diluted IPT Common Share.
General
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in
the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Insignia Board selected
Lehman Brothers because of its expertise, reputation and familiarity with
Insignia in particular and the real estate industry in general, and because
its investment banking professionals have substantial experience in
transactions similar to the Insignia/AIMCO Merger.
As compensation for its services in connection with the Insignia/AIMCO
Merger and the transactions related thereto, Insignia will pay Lehman
Brothers a fee of approximately $4.6 million, of which $1,000,000 has already
been received by Lehman Brothers and approximately $3.6 million will be
payable upon the closing of the Insignia/AIMCO Merger. Insignia has also
agreed to reimburse Lehman Brothers for up to $25,000 of its reasonable
expenses (including, without limitation, professional and legal fees and
disbursements) incurred in connection with its engagement, and to indemnify
Lehman Brothers and certain related persons against certain liabilities in
connection with its engagement, including certain liabilities under the
federal securities laws.
Lehman Brothers is currently a lender under Insignia's credit facility and
under the IPT Line of Credit. In addition, Lehman Brothers and certain
officers thereof own an aggregate of 510,000 IPT Common Shares. Lehman
Brothers has also performed various investment banking services for Insignia
and AIMCO in the past, for which it has received customary fees. In the
ordinary course of its business, Lehman Brothers actively trades in the debt
and equity securities of Insignia and AIMCO for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in these securities.
CERTAIN EFFECTS OF THE IPT/AIMCO MERGER
If the IPT/AIMCO Merger is consummated after the Merger on the terms
described in this Proxy Statement/Prospectus, the IPT shareholders, other
than AIMCO (including the former AMIT shareholders), will cease to have a
common equity interest in IPT or rights as shareholders of IPT and therefore
will cease to participate in IPT's future earnings and growth, if any, as
shareholders of IPT. Instead, each IPT shareholder (including the former AMIT
shareholders) will have the right to receive at least $13.25 in cash per IPT
Common Share. The AMIT shareholders will benefit from the consummation of the
Merger and the IPT/AIMCO Merger because they will receive cash in exchange
for the IPT Common Shares into which their AMIT Class A Shares will have been
converted in an amount believed to be fair by the IPT, Insignia and AMIT
Boards, and which is in excess of the current book value of the AMIT Class A
Shares, is greater than the value ascribed to the AMIT Class A Shares by Weil
for purposes of its fairness opinion and is greater than the highest price at
which the AMIT Class A Shares have ever traded in the public market.
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Upon consummation of the IPT/AIMCO Merger, AIMCO will indirectly own 100%
of the outstanding equity securities of IPT. AIMCO will benefit from the
consummation of the IPT/AIMCO Merger because, among other things, as the
owner of all of the equity interest of IPT, it will obtain the economic
benefit of any future growth of IPT. As a result of the IPT/AIMCO Merger, IPT
will be privately held and there will be no public market for the IPT Common
Shares. Upon consummation of the IPT/AIMCO Merger, the IPT Common Shares will
cease to be quoted on the ASE, the registration of the IPT Common Shares
under the Exchange Act will be terminated and such shares will no longer
constitute "margin securities" under the rules of the Board of Governors of
the Federal Reserve System. Moreover, IPT will be relieved of the obligation
to comply with the proxy rules of Regulation 14A under Section 14 of the
Exchange Act and the obligation to file periodic reports with the Commission
under the Exchange Act. In addition, IPT's officers, trustees and 10%
shareholders will be relieved of the reporting requirements and restrictions
on "short-swing" trading contained in Section 16 of the Exchange Act with
respect to the IPT Common Shares.
AIMCO has not informed IPT as to any changes it may make in the
organizational structure, capitalization, management or distribution policy
of the surviving corporation of the IPT/AIMCO Merger. However, because the
surviving entity of the IPT/AIMCO Merger will be a wholly-owned subsidiary of
AIMCO, it is probable that changes will be made in one or all of the
organizational structure, capitalization, management, board of trustees and
distribution policy of such surviving entity.
CERTAIN OTHER INFORMATION CONCERNING THE IPT/AIMCO MERGER
The total amount of funds to be used to pay the consideration in the
contemplated IPT/AIMCO Merger is estimated to be approximately $151 million
(assuming the consummation of the Merger prior to the IPT/AIMCO Merger and a
purchase price of $13.25 per IPT Common Share). AIMCO has not informed IPT as
to the sources from which AIMCO intends to obtain such funds, nor can the
expenses of the IPT/AIMCO Merger be reasonably estimated at this time.
IPT does not know whether any current executive officer, trustee or
affiliate of IPT will vote for or against the contemplated IPT/AIMCO Merger
if and when a proposal relating to such merger is submitted to the
shareholders of IPT.
If the IPT/AIMCO Merger is consummated after the Merger as currently
contemplated and described herein, it will constitute a "going private"
transaction and AIMCO (and one or more of its affiliates if applicable) will
be required to publicly file with the Commission a Schedule 13E-3 Transaction
Statement with respect to the IPT/AIMCO Merger and to disseminate the
information required thereby to the IPT shareholders (including the former
AMIT shareholders) prior to the IPT shareholder meeting held in connection
with such merger.
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. If (i) the
Merger is consummated and the IPT Common Shares are listed on the ASE on the
record date for determining the IPT shareholders entitled to vote on the
IPT/AIMCO Merger and (ii) the IPT/AIMCO Merger is consummated as currently
contemplated and described herein, then, IPT shareholders (including the
former AMIT shareholders) will not be entitled to dissenters' rights of
appraisal in connection with the IPT/AIMCO Merger.
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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 September 4, 1998, commencing at 10:00
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 August 7, 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 1,338
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 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
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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 3,821,000 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 13,415,000 IPT Common Shares, representing approximately 57% of
the total outstanding IPT Common Shares (approximately 66% on fully diluted
basis assuming all OP Units are 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 Class A Exchange Ratio of
1.516, 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 $20.09 per AMIT Class A
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
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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. If (i) the Merger is consummated and the IPT Common Shares are listed
on the ASE on the record date for determining the IPT shareholders entitled
to vote on the IPT/AIMCO Merger and (ii) the IPT/AIMCO Merger is consummated
as currently contemplated and described herein, then IPT shareholders
(including the former AMIT shareholders) will not be entitled to dissenters'
rights of appraisal in connection with the IPT/AIMCO Merger. See
"Insignia/AIMCO Transaction."
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
Akin Gump, counsel to IPT, has opined that if the Merger is consummated
and the IPT/AIMCO Merger is consummated after the consummation of the Merger
on the terms contemplated by the Insignia/AIMCO Merger Agreement (i.e., in a
cash-out merger) the following federal income tax consequences will 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, the total amount of cash received by the AMIT shareholders
(including cash received in lieu of a fractional IPT Common Share and the
liabilities of AMIT at the time of the Merger). 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);
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(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.
In the event that the IPT/AIMCO Merger does not occur, it is unclear
whether or not the Merger would qualify as a tax-free reorganization under
Section 368(a) of the Code. The Internal Revenue Service and the courts have
held that the continuity of interest requirement for a tax-free
reorganization is not met if the shareholders of the acquired corporation are
obligated to dispose of all of the stock of the acquiring corporation that
they receive in a merger pursuant to a binding agreement in place at the time
of the merger. However, the authorities are unclear as to whether the
continuity of interest requirement would be met if the shareholders of the
acquired corporation were obligated to dispose of the stock of the acquiring
corporation at the time of the merger but if in fact they did not dispose of
the acquiring company stock received in the merger as originally contemplated
at the time of the merger. It is arguable that in such event the continuity
of interest requirement would be met if the shareholders of the acquiring
corporation in the aggregate held at least 40 to 50% of the stock of the
acquiring corporation that they received in the merger for a sufficient
period of time to establish that they maintained a substantial proprietary
interest in the acquiring corporation. Because the law is unclear on this
issue, particularly on the question of the length of the holding period that
would be necessary to establish that the shareholders of the acquired
corporation maintained a substantial proprietary interest in the acquiring
corporation, Akin Gump is unable to opine as to whether the Merger would
qualify as a taxfree reorganization if the IPT/AIMCO Merger does not occur.
In addition, no ruling from the Internal Revenue Service regarding the
federal income tax consequences of the Merger will be obtained.
If the Merger is not treated as a reorganization under the Code, Akin Gump
has opined that a Merger will have the same federal income tax consequences
described above. If the Merger is treated as a reorganization under Section
368(a) of the Code, Akin Gump has opined that 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;
(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.
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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 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
$10.72 assuming no distributions are declared 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. If (i) the Merger is consummated and the IPT
Common Shares are listed on the ASE on the record date for determining the
IPT shareholders entitled to vote on the IPT/AIMCO Merger and (ii) the
IPT/AIMCO Merger is consummated as currently contemplated and described
herein, then IPT shareholders (including the former AMIT shareholders) will
not be entitled to dissenters' rights of appraisal in connection with the
IPT/AIMCO Merger.
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 was subsequently amended and restated as of May 26,
1998), 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 and to use its
reasonable best efforts to effect such merger within three months after the
effective time of the Insignia/AIMCO Merger, 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 1.516, 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 $20.09 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. AMIT shareholders are not entitled to dissenters'
appraisal rights in connection with the Merger, and assuming that (i) the
Merger is consummated and the IPT Common Shares are listed on the ASE on the
record date for determining the IPT shareholders entitled to vote on the
IPT/AIMCO Merger and (ii) the IPT/AIMCO Merger is consummated as currently
contemplated and described herein, then IPT shareholders (including the
former AMIT shareholders) will not be entitled to dissenters' appraisal
rights in connection with the IPT/AIMCO Merger either.
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 the IPT/AIMCO Merger in detail, will be
distributed to IPT shareholders prior to consummation of the IPT/AIMCO
Merger.
Schedule 13E-3 Transaction Statement. If the IPT/AIMCO Merger is
consummated after the Merger as currently contemplated and described herein,
it will constitute a "going private" transaction and AIMCO (and one or more
of its affiliates if applicable) will be required to publicly file with the
Commission a Schedule 13E-3 Transaction Statement with respect to the
IPT/AIMCO Merger and to disseminate the information required thereby to the
IPT shareholders (including the former AMIT shareholders) prior to the IPT
shareholder meeting held in connection with such merger.
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 1.516, and the Class B Exchange Ratio is
0.0309. 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 1.516 IPT Common Shares, and each outstanding AMIT
Class B Share will be converted into 0.0309 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:
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(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 $2.14, resulting in a corresponding increase in the
base IPT Common Share exchange value of $1.32, and IPT has declared
aggregate per IPT Common Share distributions of $.60, resulting in a
corresponding decrease in the base IPT Common Share exchange value of
$.60, with the net result being an adjusted IPT Common Share exchange
value of $10.72.
o The Class A Exchange Ratio of 1.516 thus results from dividing the AMIT
Class A Share exchange value of $16.25 by the adjusted IPT Common Share
exchange value of $10.72. The adjusted Class A Exchange Ratio, assuming
a constant $10.00 IPT Common Share exchange value, effectively values
each AMIT Class A Share at $15.16 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 0.0309 simply results
from dividing the Class A Exchange Ratio of 1.516 by 49.
Although neither AMIT nor IPT intends or expects to declare any additional
distributions after the date hereof with a record date prior to consummation
of the Merger, the adjusted IPT Common Share exchange value, and thus the
Exchange Ratio, is subject to further adjustment should either AMIT or IPT
declare any such distributions (in the same manner described in the second
bullet point above). Consequently, AMIT shareholders may not know the final
adjusted Class A Exchange Ratio at the time of the Special Meeting.
As of March 31, 1998, the book value per AMIT Class A Share was $17.44.
The closing price of the AMIT Class A Shares on the American Stock Exchange
on that date was $18.75. 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 $10.72
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.
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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 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
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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.
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.
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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.
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
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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 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 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
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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.
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.
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.
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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.
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 converted into IPT Common Shares 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
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"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 NDS 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).
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 124 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 the following page. As of
the date of this Proxy Statement/Prospectus, the Controlled Partnerships own,
in the aggregate, approximately 349 properties containing approximately
72,000 residential apartment units and approximately 5.8 million square feet
of commercial space, and the IPT Partnerships own, in the aggregate,
approximately 198 properties containing approximately 49,000 residential
apartment units and approximately 2.9 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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<PAGE>
THE IPT PARTNERSHIPS
The table below sets forth the following information with respect to each
of the IPT Partnerships, in each case as of June 30, 1998: (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
OWNERSHIP NUMBER OF RESIDENTIAL COMMERCIAL
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) . 40.54% 14 3,572 224,624
Consolidated Capital Institutional
Properties/2(c).................................. 21.36% 11 856 875,541
Consolidated Capital Institutional
Properties/3(c).................................. 24.65% 10 1,661 273,357
Consolidated Capital Properties III(a)(b) ........ 24.32% 4 468 72,559
Consolidated Capital Properties IV(a)(b) ......... 27.08% 17 4,258 --
Consolidated Capital Properties V(a)(b)........... 25.13% 3 454 85,727
Consolidated Capital Properties VI(a)(b) ......... 22.23% 1 261 --
Johnstown/Consolidated Income Partners(b) ........ 20.95% 3 158 143,436
Multi-Benefit Realty Fund 87-1(b)................. 22.69% 3 778 --
Shelter Properties I Limited Partnership(a) ...... 39.40% 4 806 --
Shelter Properties II Limited Partnership(a) ..... 33.46% 3 853 --
Shelter Properties III Limited Partnership(a) .... 34.03% 4 831 --
Shelter Properties IV Limited Partnership(a) ..... 32.34% 3 1,620 --
Shelter Properties V Limited Partnership(a) ...... 38.56% 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)............. 45.35% 3 1,092 --
National Property Investors 4(b)(c)............... 61.92% 1 722 --
National Property Investors 5(b)(c)............... 46.64% 3 457 --
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)................ 38.35% 5 1,993 --
Century Properties Fund XVIII(a)(b)............... 35.69% 2 724 --
Century Properties Fund XIX(a)(b)................. 33.00% 8 2,278 --
Century Properties Growth Fund XXII(a)(b) ........ 26.95% 9 2,895 --
Fox Strategic Housing Income Partners............. 15.67% 2 344 --
Davidson Growth Plus, L.P......................... 11.52% 3 688 --
Davidson Diversified Real Estate II, L.P. ........ 4.68% 5 1,342 160,000
Davidson Income Real Estate, L.P.................. 4.73% 4 580 --
HCW Pension Real Estate Fund...................... 2.45% 2 269 104,312
Angeles Income Properties, Ltd. II................ 13.26% 5 780 169,168
Angeles Income Properties, Ltd. IV................ 8.01% 2 -- 345,287
Angeles Income Properties, Ltd. 6................. 5.09% 7 1,211 278,154
Angeles Opportunity Properties, Ltd............... 4.23% 2 352 --
Angeles Partners IX............................... 18.22% 5 1,441 --
Angeles Partners XII.............................. 22.24% 10 2,855 173,473
Woodhaven Associates, L.P......................... 36.36% 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.
64
<PAGE>
(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.
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.
65
<PAGE>
ACQUISITION 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 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,
66
<PAGE>
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.
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 "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.
67
<PAGE>
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.
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, under IPT's Declaration of Trust, 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.
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
68
<PAGE>
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.
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.
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 4 Apartment/806 units $6,357/unit 94.3%
Partnership.........................
Shelter Properties II Limited 3 Apartment/853 units $6,650/unit 94.6%
Partnership.........................
Shelter Properties III Limited 4 Apartment/830 units $6,754/unit 92.6%
Partnership.........................
Shelter Properties IV Limited 3 Apartment/1,620 units $7,014/unit 94.6%
Partnership.........................
Shelter Properties V Limited 7 Apartment/1,944 units $7,083/unit 93.1%
Partnership.........................
Shelter Properties VI Limited 6 Apartment/1,457 units $7,093/unit 93.9%
Partnership.........................
Shelter Properties VII Limited 2 Apartment/566 units $6,922/unit 91.7%
Partnership.........................
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%
69
<PAGE>
AVERAGE
NUMBER OF RENTAL ANNUAL AVERAGE
NAME OF PARTNERSHIP PROPERTIES PRIMARY USE/UNITS RATES/PER UNIT 1997 OCCUPANCY
- ------------------------------------ ------------ ------------------------------ ------------------- -----------
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 3 (h) 1 Apartment/158 units $5,858/unit 97.0%
Partners............................ 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 2 Apartment/344 units $9,154/unit 93.0%
Partners ...........................
DavidsonDiversified RealEstate II, 5 4 Apartments/1,341 units $6,025/unit 90.2%
L.L.P. ............................. 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, 2 2 Apartments/352 units $6,563/unit 97.7%
Ltd.................................
Angeles Partners IX.................. 5 5 Apartments/1,441 units $5,482/unit 91.7%
7
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.
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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 Institutional
Properties......................... 143,150 80,760 3-18 yrs. S/L 67,337 1,663 2.67%
5-25 yrs.
Consolidated Capital Institutional
Properties/2....................... 99,369 59,501 1-20 yrs. S/L 51,694 1,196 2.37%
3-20 yrs.
Consolidated Capital Institutional
Properties/3....................... 63,326 15,474 3-20 yrs. S/L 56,544 860 1.37%
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%
ConsolidatedCapitalProperties IV ... 9,866 3,641 5-30 yrs. S/L 5,558 113 4.42%
Shelter Properties I Limited
Partnership........................ 19,927 13,590 5-30 yrs. S/L 7,574 238 2.27%
5-37 yrs.
Shelter Properties II Limited
Partnership........................ 24,806 15,996 5-35 yrs. S/L 5,263 400 2.49%
5-38 yrs.
Shelter Properties III Limited
Partnership........................ 25,880 14,229 5-36 yrs. S/L 3,842 346 8.56%
5-32 yrs.
Shelter Properties IV Limited
Partnership........................ 59,996 32,269 5-30 yrs. S/L 7,981 777 1.86%
5-36 yrs.
Shelter Properties V Limited
Partnership........................ 75,253 40,464 5-27 yrs. S/L 13,006 806 2.02%
5-34 yrs.
Shelter Properties VI Limited
Partnership........................ 52,209 24,751 5-27 yrs. S/L 16,536 912 2.37%
5-35 yrs.
Shelter Properties VII Limited
Partnership........................ 21,447 9,906 5-29 yrs. S/L 9,974 181 4.24%
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%
71
<PAGE>
AGGREGATE AGGREGATE
GROSS AGGREGATE FEDERAL AGGREGATE 1997
CARRYING ACCUMULATED RANGE OF TAX 1997 TAX
PARTNERSHIP VALUE DEPRECIATION DEPRECIATION METHOD BASIS TAXES RATE
- ----------------------------------- ----------- -------------- -------------- -------- ----------- ----------- -------
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
Partners .......................... 13,092 6,193 5-19 yrs. S/L 7,629 162 2.17%
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
II, L.P. .......................... 44,544 21,263 5-25 yrs. S/L 17,260 741 3.36%
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%
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%
</TABLE>
72
<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>
<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
73
<PAGE>
AGGREGATE PRINCIPAL AGGREGATE BALANCE
PARTNERSHIP OUTSTANDING RANGE OF INTEREST MATURITIES DUE AT MATURITY
- -------------------------------------- ------------------- ----------------- --------------- -----------------
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>
- ------------
(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%.
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
74
<PAGE>
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 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
75
<PAGE>
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.
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.
5. On July 30, 1998, an action entitled Everest Properties, LLC, et al. v.
Insignia Financial Group, Inc., et al., was filed in the Superior Court of the
State of California, County of Los Angeles. Plaintiffs are Everest Properties,
LLC, Everest Properties II, LLC, KM Investments, LLC, KH Financial, Inc. and
Millennium Investors, LLC. The complaint asserts eleven causes of action,
including breach of contract and fiduciary duty, tortious interference with
prospective economic advantage, interference with contract, unfair business
practices, violations of California's Cartwright Act, and the respective
Limited Partnership Acts of California, Delaware, South Carolina, Massachusetts
and Missouri, under which the relevant limited partnerships are organized. The
complaint names, among others, Insignia, IPT, IPLP, three wholly-owned
subsidiaries of IPT (Angeles Realty Corporation, Angeles Realty Corporation II
and ConCap Equities, Inc.) and 12 other entities alleged to be managing
partners of the defendant limited partnerships.
The action involves 44 of the Controlled Partnerships (each named as a
defendant) in which the plaintiffs own interests and which Insignia or its
affiliates allegedly manage or control (the "Subject Partnerships"). The
plaintiffs allege that they have requested from, but have been denied by,
each of the Subject Partnerships their respective lists of limited partners
for the purpose of making tender offers to purchase up to 4.9% of the units of
limited partner interest of each of the Subject Partnerships. The complaint
also alleges that subsequent to denying plaintiffs' requests, certain of the
defendants made tender offers to purchase units of limited partner interest
in many of the Subject Partnerships, with the result that plaintiffs have been
deprived of the benefits they would have realized from ownership of the
additional units. Plaintiffs estimate compensatory damages to exceed $15
million. Additionally, plaintiffs are seeking punitive and treble damages
based on their assertion that the defendants have willfully refused to turn
over the limited partner lists. IPT and Insignia intend to vigorously contest
this action.
76
<PAGE>
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.
(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
77
<PAGE>
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.
(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.
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(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 (which was subsequently amended and restated as of May 26,
1998). 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 and to
use its reasonable best efforts to effect such merger within three months
after the effective time of the Insignia/AIMCO Merger, 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 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
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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 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.
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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 a 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
a 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-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
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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 a total cost (excluding expenses) of approximately
$10 million.
On various dates in April 1998, Broad River Properties, L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of IPLP ("Broad
River"), commenced tender offers to purchase units of limited partner
interest in Angeles Partners IX, Angeles Partners XII, and Angeles Income
Properties, Ltd. II. These tender offers expired on various dates in May and
June of 1998, and Broad River accepted for purchase all units validly
tendered and not withdrawn. Pursuant to these tender offers, Broad River
acquired 2,529 units (or approximately 12.66%) of the limited partner units
in Angeles Partners IX, 8,002 units (or approximately 17.89%) of the limited
partner units in Angeles Partners XII, and 8,908 units (or approximately
8.93%) of the limited partner units in Angeles Income Properties, Ltd. II,
for a total cost (excluding expenses) of approximately $6 million.
On July 21, 1998, Cooper River Properties, L.L.C., a Delaware limited
liability company and a wholly-owned subsidiary of IPLP ("Cooper River"),
commenced tender offers to purchase up to 2,400 units of limited partner
interest in Shelter Properties I Limited Partnership for a purchase price of
$625 per unit in cash, 9,500 units of limited partner interest in Shelter
Properties II Limited Partnership for a purchase price of $450 per unit in
cash, 20,000 units of limited partner interest in Shelter Properties IV
Limited Partnership for a purchase price of $500 per unit in cash, 19,500
units of limited partner interest in Shelter Properties V Limited Partnership
for a purchase price of $520 per unit in cash, 17,000 units of limited
partner interest in Shelter Properties VI Limited Partnership for a purchase
price of $475 per unit in cash and 6,000 units of limited partner interest in
Shelter Properties VII Limited Partnership for a purchase price of $450 per
unit in cash. Each of these tender offers is scheduled to expire on August
17, 1998.
On July 30, 1998, Cooper River commenced tender offers to purchase up to
50,000 units of limited partner interest in Consolidated Capital
Institutional Properties for a purchase price of $415 per unit in
cash, 300,000 units of limited partner interest in Consolidated Capital
Institutional Properties/2 for a purchase price of $50 per unit in cash,
125,000 units of limited partner interest in Consolidated Capital
Institutional Properties/3 for a purchase price of $100 per unit in cash,
75,000 units of limited partner interest in Consolidated Capital Properties
III for a purchase price of $60 per unit in cash and 40,000 units of limited
partner interest in Consolidated Capital Properties V for a purchase price of
$33 per unit in cash. Each of these tender offers is scheduled to expire on
August 26, 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
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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 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.
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
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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
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will be treated as expenses of IPLP. Such expenses generally include (i) all
expenses relating to the formation and continuity of 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
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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 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
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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 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
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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 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 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 partnership,
limited liability company,
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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.
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
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industry at the 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 cash or cash items
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 qualifies as a "real estate asset", or as to any other tax
matter. AMIT has, however, obtained an opinion of counsel that it has a
reasonable basis for taking the position 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, and if certain relief provisions of the
Code were not available, AMIT could not re-elect to be taxed as a REIT for
five years following the year in which such failure to qualify occurred. If
the Internal Revenue Service were successfully to challenge AMIT's REIT
status, AMIT would be subject to federal income tax only after the
utilization of AMIT's net operating losses, which were fully utilized in
1997. If AMIT were disqualified as a REIT, it would have approximately
$460,000 of taxable income for federal income tax purposes in 1997, and
expects that it would have significant taxable income in 1998. See "Taxation
of AMIT."
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.
PROPERTIES
The following is a list of properties owned by AMIT and held for sale as
of March 31, 1998.
<TABLE>
<CAPTION>
DATE OF TYPE OF
PROPERTY OWNERSHIP OWNERSHIP USE CARRYING VALUE
- ------------------------------ ----------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C>
University Center Phase I & 11/16/95 Fee ownership Warehouse Office $1,100,000
II............................ 51,200 Sq. Ft.
University Center Phase IV .... 12/02/95 Fee ownership Retail Shopping 1,671,000
56,000 Sq. Ft.
Silver Ridge Apartments ...... 1/30/98 Fee ownership 186 unit apartment 4,369,000
complex
Colony Cove.................... 4/15/96 & 10/3/97 Fee ownership Raw land, 240 acres 1,750,000
--------------
$8,730,000
==============
</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,
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on 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.
In December 1997, AMIT purchased a second mortgage loan for $380,000 on a
186-unit apartment complex, Silver Ridge Apartments, located in Maplewood,
Minnesota. In addition, 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 foreclosed on the Silver Ridge Apartments
in October 1997, subject to a twelve-month redemption period. 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 monthly, with a current rate of 3 1/2% per annum. The loan
matures in July 2023.
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.
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<PAGE>
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 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.
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MARKET FOR AMIT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
AMIT had 1,338 record holders of AMIT Class A Shares as of August 7, 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.
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:
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1998, Quarter ended:
September 30
(through August 7). $19 3/16 $17 5/8
June 30 ............ $19 7/8 $18 1/4
March 31 ........... $19 3/8 $17 7/8
1997, Quarter ended:
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
</TABLE>
On August 7, 1998, the last sale price of the AMIT Class A Shares as
reported by the ASE was $17,625. In 1997, AMIT paid quarterly distributions
equaling in the aggregate $1.03 per AMIT Class A Common Share. 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, on May 12, 1998 to shareholders
of record on April 14, 1998 and on July 9, 1998 to shareholders of record on
July 1, 1998. Additionally, on August 3, 1998 AMIT declared a distribution of
$.15 per AMIT Class A Share to shareholders of record on August 14, 1998,
which is expected to be paid on September 3, 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.
<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
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)
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,
EXCEPT SHARE DATA) (IN THOUSANDS, EXCEPT SHARE DATA)
<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 and 1995. 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.
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.
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<PAGE>
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 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
100
<PAGE>
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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<PAGE>
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 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.
102
<PAGE>
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
1997 and
103
<PAGE>
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
104
<PAGE>
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 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
105
<PAGE>
$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.
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.
106
<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
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, and for the three month periods ended
March 31, 1998 and 1997, after deduction of the AMIT Class B Shares' 1%
interest.
107
<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 amount of $1,404,000
for which an allowance for estimated loss had been
108
<PAGE>
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.
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
109
<PAGE>
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 public
documents regarding AMIT. AMIT sought recovery of legal expenses in
connection with certain of these claims.
110
<PAGE>
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 has 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 1998, AMIT's line of credit, in the amount of $5 million, which is
secured by all of AMIT's assets, was renewed through October 1998, with the
ability to renew for an additional six months to April 1999 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. During the year ended December 31, 1997 and the three
months ended March 31, 1998, 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.
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.
111
<PAGE>
AMIT received full and partial paydowns as follows:
<TABLE>
<CAPTION>
NUMBER OF PAYDOWN IN
YEAR LOANS MILLIONS
- ------ ----------- ------------
<S> <C> <C>
1995... 6 $ 9.0
1996... 10 $10.3
1997... 11 $ 7.6
</TABLE>
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 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.
112
<PAGE>
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 foreclosed on the property in October 1997 subject to a twelve-month
redemption period. 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.
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).
113
<PAGE>
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.
114
<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 exercise of the Shelter IV Option and (iv) the
acquisitions of additional limited partner interests in certain IPT
Partnership from High River, as if effected at January 1, 1997.
115
<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) (3,141) 31,592
Other assets.......................... 7,068 1,062 a) (1,200) 6,930
---------- ------------ ------------- ---------------
Total assets........................... $234,091 $51,151 $(4,341) $280,901
========== ============ ============= ===============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities: .........................
Accounts payable--due to Insignia ... $ 160 $ 160
Distributions payable to Insignia ... 1,490 1,490
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 19,427,760, AMIT 2,617,000
(Class A) and 1,675,113 (Class B)
and IPT pro forma 23,446,958......... 194 2,631 a) (2,591) 234
Additional paid-in capital............ 154,984 50,199 a) (9,691) 195,492
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 (5,541) 189,862
---------- ------------ ------------- ---------------
Total liabilities and shareholders'
equity............................... $234,091 $51,151 $(4,341) $280,901
========== ============ ============= ===============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.
116
<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 4,019,198
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):
<TABLE>
<CAPTION>
<S> <C>
Issuance of 4,019,198 IPT Common Shares at
$10.00 per share............................... $40,192
Estimated Registration Costs.................... (200)
---------
Net Proceeds of Issuance........................ 39,992
Professional Fees and other liabilities ........ 2,400
---------
Purchase Price of Class A Common Shares ........ 42,392
Less: Costs paid through March 31, 1998 ........ (1,200)
---------
$41,192
=========
</TABLE>
Under purchase accounting, AMIT's assets and liabilities are required to
be adjusted to their estimated fair values:
<TABLE>
<CAPTION>
NET ASSETS
INCREASE/DECREASE
-----------------
<S> <C>
Amounts reported by AMIT ................. $46,089
Class B Shares Held by an Affiliate ..... (556)
Purchase price adjustment:
Apartment property and other real estate (3,141)
-----------------
$42,392
=================
</TABLE>
117
<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 23,073,958
============= ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Income
118
<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 2,118
------------ -------- ------------- -----------
16,826 7,119 2,639 26,584
EXPENSES
Property operating expenses......... 3,258 56 3,314
Administrative...................... 1,314 1,351 2,665
Apartment property interest......... 1,486 1,486
Apartment property depreciation .... 966 966
Amortization........................ 285 63 c) 240 588
Income taxes........................ 180 180
Other interest...................... 47 47
------------ -------- ------------- -----------
7,356 1,650 240 9,246
------------ -------- ------------- -----------
Income before minority interest and
sale of properties................. 9,470 5,469 2,399 17,338
Minority interests in IPLP and
consolidated subsidiaries.......... 4,440 d) 382 4,822
------------ -------- ------------- -----------
Income before gain on sale of
properties......................... 5,030 5,469 2,017 12,516
Gain on sale of properties (net of
minority interest)................. 1,044 80 1,124
------------ -------- ------------- -----------
Incomebefore extraordinary item .... $ 6,074 $5,549 $2,017 $13,640
============ ======== ============= ===========
Income before extraordinary item
per common share................... $ 0.40 $ 0.59
============ ===========
Weighted average number of shares
outstanding and common share
equivalents........................ 14,694,327 23,046,558
============ ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Income
119
<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 exercise of the Shelter IV Option, (v)
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) Represents adjustment for amortization of estimated formation costs of
$2,200,000 which are being amortized over a five year period.
d) 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%.
120
<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
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------- ------- -----------------------------------------------
<S> <C> <C>
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
</TABLE>
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.
121
<PAGE>
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. 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 2001.
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
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------- ----- --------------------------------
<S> <C> <C>
Andrew L. Farkas . 37 Chief Executive Officer
James A. Aston ... 45 President
Jeffrey P. Cohen . 30 Senior Vice President; Secretary
Frank M. 42 Executive Managing Director
Garrison.........
Ronald Uretta..... 42 Treasurer
</TABLE>
Officers Who Will Serve as Full-Time Employees of IPT
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------------- ----- ----------------------------------
<S> <C> <C>
Carroll D. Vinson....... 56 Chief Operating Officer
Ronald J. Consiglio .... 54 Managing Director
William H. Jarrard, 51 Senior Vice President--Operations
Jr.....................
William D. Falls........ 33 Controller
</TABLE>
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.
123
<PAGE>
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.
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 30, 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 1998 (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.
124
<PAGE>
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 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.
125
<PAGE>
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 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
126
<PAGE>
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.
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.
127
<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 August 10, 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 August 10, 1998, there were 19,427,760 IPT Common Shares outstanding
and 9,934,475 OP Units outstanding not held by IPT.
<TABLE>
<CAPTION>
PRIOR TO THE MERGER AFTER THE MERGER
--------------------------------- ---------------------------------
NUMBER OF SHARES % OF CLASS NUMBER OF SHARES % OF CLASS
NAME OF OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED OUTSTANDING BENEFICIALLY OWNED OUTSTANDING
- -------------------------------------- ------------------ ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Insignia(1)(2)......................... 22,395,087 76.2% 22,545,859 67.6%
MAE.................................... 755,436 3.9% 807,262 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 4.2%
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)................. -- -- 22,361 0.1%
Bryan L. Herrmann(6)................... -- -- 6,898 *
All trustees and executive officers as
a group (11 individuals).............. 506,702 2.6% 549,602 2.3%
</TABLE>
- ------------
* Less than 0.1%
(1) Assumes that all OP Units held by Insignia are acquired by IPT in
exchange for IPT Common Shares.
(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 135,000 restricted IPT Common Shares owned by such person.
(4) Includes certain IPT Common Shares owned by such individual's immediate
family.
(5) Includes 90,000 restricted IPT Common Shares owned by such person.
(6) Represents IPT Common Shares to be issued in the Merger in exchange for
the AMIT Class A Shares owned by such individuals.
128
<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>
NUMBER OF SHARES % OF CLASS
NAME OF OWNER OR IDENTITY OF GROUP TITLE OF CLASS BENEFICIALLY OWNED OUTSTANDING
- ---------------------------------------- -------------- ------------------ -------------
<S> <C> <C> <C>
Gotham Partners, L.P. and
Gotham Partners II, L.P. ............... Class A 249,700 9.5%
East 42nd Street, 18th Floor
New York, New York 10017
Wayne M. Cooperman and
Ricky C. Sandler (1) ................... Class A 225,300 8.6%
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.
129
<PAGE>
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.
<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) 23,446,958
(pro forma)....................................................... 194 234
Unearned compensation.............................................. (5,462) (5,462)
Additional paid-in capital......................................... 154,984 195,492
Distributions in excess of accumulated earnings.................... (402) (402)
------------ -----------
Total shareholders' equity......................................... 149,314 189,862
------------ -----------
Total capitalization............................................... $228,255 $273,328
============ ===========
</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.
130
<PAGE>
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, on April 15, 1998 to
shareholders of record on March 23, 1998, and on July 15, 1998 to
shareholders of record on June 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
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 23,446,958 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 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
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of the IPT Common 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 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.
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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 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.
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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 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
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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.
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.
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") or an affiliate of 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
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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 acquiror 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 acquiror or in respect of which the acquiror 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 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 acquiror 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 acquiror 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 acquiror 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. 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 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.
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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.
LIMITED LIABILITY AND INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
OTHER AGENTS
IPT's Declaration of Trust limit the liability of IPT's trustees and
officers to IPT and its shareholders for money 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.
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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 Declaration of Trust provides that the number of trustees of IPT
shall be determined from time to time by resolution of the IPT Board. 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.
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
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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.
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
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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 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 23,446,958 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 13,414,723 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, 5,199,403 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 the
Corporate GPs owned by IPT at December 31, 1996 will be treated as a
qualified REIT subsidiaries from the date their stock was transferred to IPT.
The additional Corporate GPs acquired by IPT as a result of the MAE GP Merger
in February 1998 will be treated as qualified REIT subsidiaries under Section
856(i) of the Code.
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 certain
representations made by IPT and IPLP as to factual matters
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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
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an owner of 10% or more of the REIT, directly or through the 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 has represented that and Akin Gump has relied on such representation
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
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 complied with the
30% gross income test for 1997. In addition, IPT has represented that and
Akin Gump has relied on such representation 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 has represented
that and Akin Gump has relied on such representation 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 has represented that and Akin Gump has relied on such representation 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
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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.
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 partnership interests in IPLP and each IPT
Partnership. IPT has represented and Akin Gump has relied on such
representation 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 has
represented that and Akin Gump has relied on such representation 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
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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 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
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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 (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
URGED 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.
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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
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
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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.
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.
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
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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 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."
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.
153
<PAGE>
TAXATION OF AMIT
AMIT, which is considered to be a corporation for U.S. federal income tax
purposes, has elected to be taxed as a REIT under Section 856 through 860 of
the Code, commencing with its first taxable year ending December 31, 1988.
Although AMIT has elected to be taxed as a REIT for each of the taxable years
that it has been in existence, the question of whether such election is
effective for federal income tax purposes depends on whether AMIT satisfies
the requirements for REIT status, including the gross income and asset tests
described in "Federal Income Tax Consequences" above, for each of its taxable
years.
Although the proper characterization of certain historical AMIT assets and
income as qualified REIT assets and income is not entirely clear under
current law, AMIT has received the opinion of GGFC&M that AMIT has a
reasonable basis for taking the position that it is organized and operating
in conformity with the requirements for qualification as a REIT for federal
income tax purposes. GGFC&M's opinion is based on a limited review of AMIT's
income and assets for its taxable years 1993 through 1997 and 1998 to date,
upon certain representations and warranties made to it by AMIT's management.
The opinion of GGFC&M is also based on the following assumptions:
(1) That the share ownership of record shown on the various shareholder
censuses taken by AMIT's management during the years 1993 to the present
is substantially similar to the beneficial ownership of such shares for
purposes of the REIT tax rules;
(2) That the amount of gross income and deductions reported by AMIT on
its tax returns for the years in question, and for each of its assets, is
substantially accurate;
(3) That AMIT has no assets not disclosed on its Forms 10-K and 10-Q for
the years in question, and that it is the beneficial owner of each of the
assets which it has reported ownership of on such forms;
(4) That AMIT's method for valuing its assets conforms with the
requirements of Section 856(c) of the Code and the regulations thereunder;
and
(5) That AMIT will timely file Form 1120-REIT for tax year 1998.
The statute of limitations for assessing a federal income tax deficiency
against AMIT for its taxable year 1993 has expired. However, AMIT remains
subject to examination and assessment of a possible deficiency for its
taxable year 1994 and subsequent taxable years. If, following any
examination, it is determined that AMIT failed to qualify as a REIT for a
taxable year, it would be subject to federal income tax as a "C" corporation
for that year, and for subsequent taxable years until AMIT is permitted to
re-elect, and it does in fact re-elect, REIT status. Based upon AMIT's
financial statements and tax returns for the year 1993 through 1997, if AMIT
failed to qualify as a REIT, it would nonetheless not owe any federal income
tax for the years 1993 through 1996 because it either sustained losses or had
available net operating loss carryovers to offset current income, in each of
those years. With respect to 1997, if the IRS determined AMIT were not
qualified as a REIT, AMIT would have approximately $460,000 of taxable income
for federal income tax purposes, and would be subject to corporate tax on
such income. In addition, because AMIT no longer has any net operating loss
carryovers, it would be subject to tax in 1998 on its income for the year. It
should be noted, however, that, AMIT holds assets with fair market values of
more than $7,000,000 less than such assets' tax basis as disclosed on AMIT's
March 31, 1998 balance sheets. Accordingly, if AMIT were to dispose of one or
more of these assets in a taxable transaction, the resulting tax loss could
be used to offset some or all of AMIT's income for 1998 or any future year.
If the Merger is consummated, then any tax liability incurred by AMIT
would become the liability of IPT as the surviving entity in the Merger. If
the Merger of AMIT into IPT is not consummated, then any federal income tax
liability of AMIT will remain AMIT's responsibility.
Generally, if an organization's REIT election is terminated for a taxable
year because the organization has failed to meet the requirements for
taxation as a REIT during that year, the organization is not eligible to
re-elect REIT status until the fifth year following the taxable year in which
the termination of its REIT election occurred. However, Code Section
856(g)(4) provides that, if an
154
<PAGE>
organization's REIT election is terminated due to its failure to satisfy the
REIT tax requirements, the organization may re-elect to be taxed as a REIT in
its next taxable year if (1) the organization did not willfully fail to
timely file an income tax return for the year in which the termination
occurs, (2) inclusion of any incorrect information in such return is not due
to fraud with intent to evade tax, and (3) the organization establishes to
the satisfaction of the IRS that its failure to qualify as a REIT, "is due to
reasonable cause and not due to willful neglect." Although the reasonable
cause standard is a flexible one, and each case must be decided on its own
facts, GGFC&M has advised AMIT that if it is determined that AMIT failed to
satisfy the REIT requirements for any of its years 1993 through the present,
relief under Code Section 856(g)(4) likely would be available to AMIT so that
it would be eligible to re-elect REIT status in any year subsequent to the
year in which the termination occurred.
155
<PAGE>
EXPERTS
The consolidated and combined financial statements of IPT and the IPT
Predecessor Entities at December 31, 1997 and 1996 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., Baltimore, Maryland. Certain tax matters
relating to the Merger will be passed upon by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Dallas, Texas. Certain tax matters relating to AMIT will be
passed upon by Greenberg Glusker Fields Claman & Machtinger LLP, Los Angeles,
California.
156
<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 August 7, 1998.
"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).
"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.
G-1
<PAGE>
"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.
"GGFC&M" means Greenberg Glusker Fields Claman & Machtinger LLP, counsel
to AMIT.
"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 Amended and Restated
Agreement and Plan of Merger dated as of May 26, 1998 among AIMCO, AIMCO
Properties, L.P., Insignia and Insignia/ESG.
"Insignia/ESG" means Insignia/ESG Holdings, Inc., a wholly-owned
subsidiary of Insignia.
"IPLP" means Insignia Properties, L.P., a Delaware limited partnership.
"IPT" means Insignia Properties Trust, a Maryland real estate investment
trust.
"IPT/AIMCO Merger" means the proposed merger of IPT with and into a
subsidiary of 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 $10.72.
"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.
G-2
<PAGE>
"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.
"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.
"NDS" means National Decision Sytems, Inc.
"NPI" means National Property Investors, Inc., a Delaware corporation.
"NPI 4" means National Property Investors 4, a California limited
partnership.
"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 preferred shares of beneficial interest, par
value $.01 per share, of IPT.
"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.
"Special Meeting" means the special meeting of AMIT shareholders to be
held on September 4, 1998, at the Beverly Hilton Hotel, 9876 Wilshire
Boulevard, Beverly Hills, California, commencing at 10:00 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.
"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-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
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-36
National Property Investors and Century Properties Partnerships
Report of Independent Auditors............................................................ F-39
Combined Balance Sheets for the years ended December 31, 1996 and 1995 .................. F-40
Combined Statements of Operations for the years ended December 31, 1996, 1995
and 1994................................................................................. F-41
Combined Statements Changes in Partners' Capital (Deficit) for the years ended
December 31, 1996, 1995 and 1994......................................................... F-42
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994................................................................................. F-43
Notes to Combined Financial Statements ................................................... F-45
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 1996 .......... F-53
Angeles Mortgage Investment Trust
Report of Independent Auditors............................................................ F-58
Balance Sheets for years ended December 31, 1997 and 1996................................. F-59
Statement of Operations for years ended December 31, 1997, 1984 and 1995 ................. F-60
Statement of Changes in Shareholders' Equity for years ended December 31, 1997, 1996 and
1995..................................................................................... F-61
Statement of Cash Flows for years ended December 31, 1997, 1996 and 1995 ................. F-62
Notes to Financial Statements............................................................. F-63
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 1997 ........... F-76
Schedule IV: Mortgage Loans on Real Estate as of December 31, 1997........................ F-77
Balance Sheets for the three months ended March 31, 1998 and December 31, 1997 .......... F-81
Statement of Operations for the three months ended March 31, 1998 and 1997 .............. F-82
Statement of Changes in Shareholders' Equity for the three months ended March 31, 1998 .. F-83
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 .............. F-84
Notes to Financial Statements............................................................. F-85
</TABLE>
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.
F-12
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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
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>
DECEMBER 31
MARCH 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.
<TABLE>
<CAPTION>
DECEMBER 31
----------------
ACCRUED EXPENSES 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>
F-15
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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 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.
F-16
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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 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
F-17
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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.
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
F-18
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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 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.
F-19
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-20
<PAGE>
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
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 DEPRECIATION
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
============== ======== =========== ===============
</TABLE>
<TABLE>
<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)
December 31, 1996
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)
December 31, 1996
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)
December 31, 1996
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>
<CAPTION>
<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>
<CAPTION>
<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.
F-32
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1996
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 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.
F-33
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1996
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
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.
F-34
<PAGE>
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1996
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-35
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
---------------- -----------
COST
CAPITALIZED
BUILDINGS (REMOVED)
AND SUBSEQUENT
PERSONAL 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
eer Park, Texas............... 3,318 1,095 5,329 2,972
Quail Hollow Apartments
West Columbia, South
Carolina...................... 2,850 459 3,754 1,022
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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
eer 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
</TABLE>
F-36
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
------------------ -----------
COST
CAPITALIZED
BUILDINGS (REMOVED)
AND SUBSEQUENT
PERSONAL TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
------------ ------- --------- -----------
<S> <C> <C> <C> <C>
Raintree Apartments
Anderson, South Carolina ..... $ 1,472 $ 184 $ 3,184 $ 620
River Reach
Jacksonville, Florida......... 7,693 1,872 10,854 1,418
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
============ ======= ========= ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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>
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
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-37
<PAGE>
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION--(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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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
ACTIVITES
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-44
<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-45
<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-46
<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-47
<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>
<CAPTION>
<S> <C>
1997......... $ 22,201
1998......... 2,770
1999......... 24,317
2000......... 44,652
2001......... 45,368
Thereafter .. 228,685
---------
$367,993
=========
</TABLE>
F-48
<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 has established a working capital line of credit
for the CP Partnerships of $150,000 per property. The
F-49
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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-50
<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>
<CAPTION>
<S> <C>
1997......... $279
1998......... 230
1999......... 110
2000......... 73
2001......... 45
Thereafter .. --
------
$737
======
</TABLE>
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.
F-51
<PAGE>
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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-52
<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
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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-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>
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
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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-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>
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
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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-55
<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
============ ======= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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-56
<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-57
<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-58
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
NOTES 1997 1996
-------------- ------------- --------------
<S> <C> <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-59
<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-60
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ACCUMULATED
DISTRIBUTIONS
ADDITIONAL IN EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE
SHARES SHARES CAPITAL NET 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
Angeles Corporation settlement . (567,000) -- (3,687,000) -- (4,254,000)
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-61
<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
receivable with carrying values of $2,622,000 in 1996
and $3,580,000 in 1995 .................................. $ -- $ 2,019,000 $ 3,969,000
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-62
<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
F-63
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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.
F-64
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
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.
F-65
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
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
============= ============= ==============
</TABLE>
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 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.
F-66
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
F-67
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-68
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 interest only payments
ranging from 8% to 12.5%, maturing
through December 2007 ................ $34,510,000 $33,038,000 $18,385,000 $17,868,000
Second trust deeds, requiring monthly
interest only payments ranging from
10% to 12.5%, maturing through
December 2000 ........................ 4,113,000 5,680,000 4,790,000 7,427,000
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 interest payments ranging
from 8% to 12.5%, maturing through
March 2003 (See Note 5) .............. 2,697,000 6,789,000 7,314,000 14,175,000
------------- ------------- ------------- -------------
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.
F-69
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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,
F-70
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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
F-71
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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
F-72
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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%;
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.
F-73
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
<S> <C>
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
=============
</TABLE>
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.
F-74
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
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
outstanding.................... 2,617 2,617 2,617 2,617
</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
outstanding.................... 2,617 2,617 2,757 2,827
</TABLE>
F-75
<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
AND LAND CARRYING
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS
------------- -------------- --------------- -------------- ----------
<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
============== =============== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
GROSS AMOUNT IN LATEST
AT WHICH INCOME
CARRIED AT CLOSE OF ACCUMULATED DATE OF STATEMENTS
DESCRIPTION PERIOD(1)(2) DEPRECIATION CONSTRUCTION DATE 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:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1995
Additions during period: ..... $ 1,400,000
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
--------------
</TABLE>
(2) The carrying value for federal income tax purposes is $4,521,000.
F-76
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF LOANS
SUBJECT TO
FINAL PERIODIC FACE CARRYING DELINQUENT
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LINES MORTGAGES MORTGAGES(2)(3) 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,
Cedar Rapids / Des Moines,
Iowa............................ 9.00% Dec-03 (4) -- 5,000 3,390 --
*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 --
Affordable Residential
Communities, LPI
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
F-77
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE--(CONTINUED)
December 31, 1997
(In thousands)
PRINCIPAL
AMOUNT
OF LOANS
SUBJECT TO
FINAL PERIODIC FACE CARRYING DELINQUENT
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LINES MORTGAGES MORTGAGES(2)(3) INTEREST
------------- ---------- ---------- ---------- -------- ----------- ------------- --------------
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
THIRD TRUST DEEDS
*Fox Run (A) Apartments,
Plainsboro, New Jersey ......... 11.25% Jan-02 (4) 30,400 875 872 --
-------- ----------- ------------- --------------
TOTAL THIRD TRUST DEEDS......... 30,400 875 872 0
PROMISSORY NOTES RECEIVABLE
*North Prior Warehouse Complex,
St. Paul, Minnesota ............ 12.25% Jun-96 (1) -- 2,000 679 679
J. Schultz
An Individual .................. 8.00% May-00 (1) -- 75 75 --
*Angeles Partners 16
California Limited Partnership 12.50% Jun-97 (1) -- 860 860 860
*Angeles Partners XIV
California Limited Partnership 12.00% Feb-98 (1) -- 459 411 --
*Fox Crest
Apartments,
Waukegan, Illinois ............. 12.50% Mar-03 (1) 6,682 4,764 4,764 --
-------- ----------- ------------- --------------
TOTAL PROMISSORY NOTES
RECEIVABLE..................... 6,682 8,158 6,789 1,539
-------- ----------- ------------- --------------
</TABLE>
F-78
<PAGE>
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE--(CONTINUED)
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF LOAN
SUBJECT TO
FACE DELIQUENT
PRIOR AMOUNT OF CARRYING AMOUNT OF PRINCIPAL OR
DESCRIPTION LINES MORTGAGES MORTGAGES(2)(3) 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-79
<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:
<TABLE>
<CAPTION>
<S> <C>
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
==============
</TABLE>
(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.
* Indicates a transaction with a partnership now controlled by IPT.
F-80
<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 (2,617,000issued 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-81
<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 SHARE OUTSTANDING 2,617,000 2,617,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-82
<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 CAPITAL 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-83
<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-84
<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-85
<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
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE 1
- ---------
THE MERGER
----------
SECTION 1.1 The Merger ................................................. A-1
SECTION 1.2 Effects of the Merger ...................................... A-1
(a) Generally; Surviving Entity ................................ A-1
(b) Effective Time ............................................. A-1
(c) Declaration of Trust and Bylaws ............................ A-1
(d) Trustees and Officers ...................................... A-1
(e) Post-Effective Time Status ................................. A-2
ARTICLE 2
- ---------
EXCHANGE RATIO; CONVERSION OF SHARES
------------------------------------
SECTION 2.1 Exchange Ratio.............................................. A-2
SECTION 2.2 Conversion of Shares ....................................... A-2
(a) Canceled AMIT Shares ....................................... A-2
(b) Conversion of AMIT Class A ................................. A-2
(c) Conversion of AMIT Class B ................................. A-2
SECTION 2.3 Exchange of Shares; Responsibility for Payments ........... A-2
(a) Exchange Agent ............................................. A-2
(b) Exchange of AMIT Certificates .............................. A-2
SECTION 2.4 Dividends; Transfer Taxes .................................. A-2
SECTION 2.5 No Fractional Shares ....................................... A-3
SECTION 2.6 Closing of Transfer Books .................................. A-3
SECTION 2.7 The Closing ................................................ A-3
(a) Time and Place ............................................. A-3
(b) Actions at the Closing ..................................... A-3
ARTICLE 3
- ---------
REPRESENTATIONS AND WARRANTIES OF AMIT
--------------------------------------
SECTION 3.1 Organization ............................................... A-4
(a) AMIT ....................................................... A-4
(b) AMIT Subsidiaries .......................................... A-4
SECTION 3.2 Qualification .............................................. A-4
SECTION 3.3 Power and Authority ........................................ A-4
SECTION 3.4 Capitalization ............................................. A-4
(a) AMIT ....................................................... A-4
(b) AMIT Subsidiaries .......................................... A-4
SECTION 3.5 Authority Relative to Transactions ......................... A-4
SECTION 3.6 Noncontravention ........................................... A-5
SECTION 3.7 Governmental Consents ...................................... A-5
SECTION 3.8 Filings with the SEC........................................ A-5
SECTION 3.9 Financial Statements ....................................... A-5
SECTION 3.10 Subsequent Events .......................................... A-5
SECTION 3.11 Undisclosed Liabilities .................................... A-5
SECTION 3.12 Broker's Fees .............................................. A-5
SECTION 3.13 Disclosure ................................................. A-5
SECTION 3.14 Compliance with State Takeover Statutes .................... A-6
i
<PAGE>
PAGE
--------
ARTICLE 4
- ---------
REPRESENTATIONS AND WARRANTIES OF IPT
-------------------------------------
SECTION 4.1 Organization ............................................... A-6
(a) IPT ........................................................ A-6
(b) IPLP ....................................................... A-6
(c) IPT Subsidiaries ........................................... A-6
(d) Investment Limited Partnerships ............................ A-6
SECTION 4.2 Qualification .............................................. A-6
SECTION 4.3 Power and Authority ........................................ A-6
SECTION 4.4 Capitalization of the Investment Limited Partnerships. .... A-6
SECTION 4.5 Authority Relative to Transactions ......................... A-7
SECTION 4.6 Noncontravention ........................................... A-7
SECTION 4.7 Governmental Consents ...................................... A-7
SECTION 4.8 Filings with the SEC ....................................... A-7
SECTION 4.9 Financial Statements ....................................... A-7
(a) IPT ........................................................ A-7
(b) Investment Limited Partnerships ............................ A-7
SECTION 4.10 Subsequent Events .......................................... A-8
(a) IPT, IPT Subsidiaries and IPLP ............................. A-8
(b) Investment Limited Partnerships ............................ A-8
SECTION 4.11 Undisclosed Liabilities .................................... A-8
(a) IPT, IPT Subsidiaries and IPLP ............................. A-8
(b) Investment Limited Partnerships ............................ A-8
SECTION 4.12 REIT Status ................................................ A-8
SECTION 4.13 Broker's Fees .............................................. A-8
SECTION 4.14 Disclosure ................................................. A-8
SECTION 4.15 Compliance with State Takeover Statutes .................... A-8
ARTICLE 5
- ---------
REPRESENTATIONS AND WARRANTIES OF IFG
-------------------------------------
SECTION 5.1 Capitalization ............................................. A-9
(a) IPT ........................................................ A-9
(b) IPLP ....................................................... A-9
(c) IPT Subsidiaries ........................................... A-9
(d) Investment Limited Partnerships ............................ A-10
ARTICLE 6
- ---------
COVENANTS
---------
SECTION 6.1 General .................................................... A-10
SECTION 6.2 Regulatory Matters and Legal Approvals ..................... A-10
(a) Securities Laws ............................................ A-10
(b) State Corporate Law--AMIT .................................. A-10
(c) State Corporate Law--IPT ................................... A-10
(d) State Corporate Law--All Parties ........................... A-10
(e) Listing .................................................... A-10
SECTION 6.3 Operation of Business ...................................... A-11
SECTION 6.4 Dividend Payments .......................................... A-11
(a) IPT ........................................................ A-11
(b) AMIT ....................................................... A-11
ii
<PAGE>
PAGE
--------
SECTION 6.5 Obligation to Notify and Update ............................ A-12
(a) AMIT's Obligations ......................................... A-12
(b) IPT Group's Obligations .................................... A-12
SECTION 6.6 Confidentiality ............................................ A-12
(a) AMIT's Obligations ......................................... A-12
(b) IPT's Obligations .......................................... A-12
SECTION 6.7 Full Access ................................................ A-12
SECTION 6.8 Notice of Developments ..................................... A-12
SECTION 6.9 Exclusive Dealing .......................................... A-12
SECTION 6.10 Fairness Opinion ........................................... A-13
SECTION 6.11 Employment Agreements ...................................... A-13
(a) Ronald J. Consiglio ........................................ A-13
(b) Anna Merguerian ............................................ A-13
SECTION 6.12 Expense Reimbursement ...................................... A-13
SECTION 6.13 Agreements Regarding the Shares of AMIT Class B ........... A-13
SECTION 6.14 Indemnification ............................................ A-13
(a) Indemnification ............................................ A-13
(b) Notice Required ............................................ A-14
(c) Defense of Indemnification Proceeding ...................... A-14
(d) Settlement ................................................. A-14
(e) Right to Employ Counsel .................................... A-14
(f) Survival of this Section ................................... A-15
(g) Successors and Assigns Bound ............................... A-15
SECTION 6.15 Post-Merger IPT Trustees ................................... A-15
SECTION 6.16 Standstill Obligation ...................................... A-15
ARTICLE 7
- ---------
CONDITIONS TO CONSUMMATION OF THE MERGER
----------------------------------------
SECTION 7.1 Conditions to Obligation of AMIT ........................... A-15
(a) Shareholder Approval ....................................... A-15
(b) Representations and Warranties ............................. A-15
(c) Performance of Covenants ................................... A-15
(d) Registration Statement ..................................... A-15
(e) Listing .................................................... A-15
(f) Articles of Merger ......................................... A-15
(g) No Order ................................................... A-15
(h) Maryland Opinion Regarding AMIT ............................ A-15
(i) Opinion Regarding IPT, IFG and MAE ......................... A-16
(j) REIT Opinion ............................................... A-16
(k) Reorganization Opinion ..................................... A-16
(l) Deliveries by IPT .......................................... A-16
SECTION 7.2 Conditions to Obligation of IPT and MAE .................... A-17
(a) Shareholder Approval ....................................... A-17
(b) Representations and Warranties ............................. A-17
(c) Performance of Covenants ................................... A-17
(d) Registration Statement ..................................... A-17
(e) Listing .................................................... A-17
(f) Articles of Merger ......................................... A-17
(g) No Order ................................................... A-17
iii
<PAGE>
PAGE
--------
(h) Maryland Opinion Regarding IPT ............................. A-17
(i) Opinion Regarding AMIT ..................................... A-17
(j) REIT Opinion ............................................... A-18
(k) Reorganization Opinion ..................................... A-18
(l) Deliveries ................................................. A-18
ARTICLE 8
- ---------
TERMINATION
-----------
SECTION 8.1 Termination of Agreement ................................... A-18
SECTION 8.2 Effect of Termination ...................................... A-19
ARTICLE 9
- ---------
MISCELLANEOUS
-------------
SECTION 9.1 Survival of Representations and Warranties ................. A-19
SECTION 9.2 Severability ............................................... A-19
SECTION 9.3 Successors and Assigns ..................................... A-19
SECTION 9.4 Counterparts ............................................... A-19
SECTION 9.5 Headings 26 ................................................ A-19
SECTION 9.6 Waiver 26 .................................................. A-19
SECTION 9.7 No Third-Party Beneficiaries 26 ............................ A-19
SECTION 9.8 Other Expenses 26 .......................................... A-19
SECTION 9.9 Notices .................................................... A-19
SECTION 9.10 Governing Law .............................................. A-20
SECTION 9.11 Interpretation ............................................. A-20
(a) References ................................................. A-21
(b) Cross-Reference of Disclosures ............................. A-21
(c) Drafting ................................................... A-21
SECTION 9.12 Public Announcements ....................................... A-21
SECTION 9.13 Entire Agreement ........................................... A-21
SECTION 9.14 Amendment .................................................. A-21
SECTION 9.15 Disclosure Letters ......................................... A-21
ARTICLE 10
- ----------
DEFINITIONS
-----------
SECTION 10.1 Definitions ................................................ A-21
</TABLE>
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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
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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)
IPT Base Value ............................................. Section 10.1(i)
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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)
vii
<PAGE>
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.
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.
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(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 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
A-2
<PAGE>
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 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.
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.
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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 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
A-4
<PAGE>
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 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.
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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 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 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.
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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.
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.
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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.
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.
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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 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 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.
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(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.
(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
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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;
(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 required by
this section, all documents necessary to
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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 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
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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 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
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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 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.
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(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 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).
(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
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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 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;
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(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.
(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 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
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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
(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;
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(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.
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
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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
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.
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.
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(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 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
A-21
<PAGE>
(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.
(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 and frequency. The Parties
A-22
<PAGE>
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.
A-23
<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: /s/ Ronald J. Consiglio
----------------------------------------
Ronald J. Consiglio
President
INSIGNIA PROPERTIES TRUST ("IPT")
By: /s/ James A. Aston
----------------------------------------
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: /s/ Andrew L. Farkas
----------------------------------------
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: /s/ Carroll D. Vinson
------------------------------------
Carroll D. Vinson
President
A-24
<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.
FORM OF
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.
(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.
B-1
<PAGE>
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
B-2
<PAGE>
STATE OF CALIFORNIA )
) Section:
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 )
) Section:
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 )
) Section:
COUNTY OF VENTURA )
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)
B-3
<PAGE>
STATE OF CALIFORNIA )
) Section:
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)
B-4
<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;
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
C-1
<PAGE>
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
C-2
<PAGE>
ANNEX D
LEHMAN BROTHERS
March 17, 1998
Board of Directors
Insignia Financial Group, Inc.
Board of Trustees
Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
Members of the Boards:
We understand that Insignia Financial Group, Inc. ("Insignia" or the
"Company") proposes to enter into a merger with Apartment Investment and
Management Company ("AIMCO"), the terms and conditions of which are set forth
in more detail in the Agreement and Plan of Merger between AIMCO and the
Company (the "Agreement"), pursuant to which Insignia will merge with and
into AIMCO (the "Merger") and each share of common stock of Insignia
("Insignia Common Stock") shall be converted into the right to receive (a)
such number of shares of Series E Preferred Stock of AIMCO (the "Series E
Preferred Stock") as is determined by dividing $203,000,000 by the AIMCO
Index Price (as defined in the Agreement), subject to the right of AIMCO to
substitute up to $15,000,000 of cash for such shares under certain
circumstances as provided in the Agreement (the "Series E Consideration"),
which shares of Series E Preferred Stock will entitle the holders of Insignia
Common Stock to receive a special dividend in the aggregate amount of
$50,000,000 and, after payment thereof, will be automatically converted into
shares of common stock of AIMCO ("AIMCO Common Stock") and (b) such number of
shares of Series F Preferred Stock of AIMCO (the "Series F Preferred Stock")
as is determined by dividing $100,000,000 by the AIMCO Index Price (the
"Series F Consideration" and, together with the Series E Consideration, the
"Merger Consideration"), which shares of Series F Preferred Stock will be
automatically converted into shares of AIMCO Common Stock upon receipt of
approval of the holders of AIMCO Common Stock, provided, however, that if the
AIMCO shareholders approve the Merger prior to its consummation, Insignia's
shareholders will receive such additional number of shares of Series E
Preferred Stock as is determined by dividing $100,000,000 by the AIMCO Index
Price and no Series F Preferred Stock. We further understand that AIMCO has
agreed to offer to acquire all of the shares of common stock (the "IPT Common
Stock") of Insignia Properties Trust ("IPT") held by persons other than
Insignia and its subsidiaries for not less than $13.25 per share (the "IPT
Consideration"). It is expected that such offer and acquistion would be
effected through a merger of IPT into AIMCO subsequent to the Merger.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the reasonableness of the allocations of the
Consideration between the Merger Consideration to be received by the holders
of Insignia Common Stock and the IPT Consideration to be offered to the
holders of IPT Common Stock. We have not been requested to opine as to, and
our opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement
and the specific terms of the Merger, (2) publicly available information
concerning the Company and AIMCO that we believe to be relevant to our
analysis, (3) financial and operating information with respect to the
business, operations and prospects of the Company, IPT and AIMCO furnished to
us by the Company and AIMCO, respectively, (4) a trading history of the
common stock of the Company from January 1, 1996 to the present and a
comparison of that trading history with those of other companies that we
deemed relevant, (5) a trading history of the common stock of AIMCO from
January 1, 1996 to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (6) a comparison of the
historical financial results and present financial condition of the Company
with those of other companies that we deemed relevant, (7) a comparison of
the historical financial results and present financial condition of AIMCO
with those of other companies that we deemed relevant, (8) a
D-1
<PAGE>
comparison of the historical financial results and present financial
condition of IPT with those of other companies that we deemed relevant, (9) a
comparison of the financial terms of the Merger with the financial terms of
certain other recent transactions that we deemed relevant, and (10) the
potential pro forma impact of the Merger on AIMCO (including the cost
savings, operating synergies and strategic benefits expected by the
managements of the Company and AIMCO to result from the Merger), and (11)
liquidation values of the Company's and IPT's properties furnished to us by
the Company. In addition, we have had discussions with the management of the
Company and AIMCO concerning their respective businesses, operations, assets,
financial conditions and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of managements of the Company and
AIMCO that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
forecasts of the Company, IPT and AIMCO and the combined company upon
consummation of the Proposed Transaction (the "Combined Company"), upon
advice of the Company and AIMCO we have assumed that such forecasts have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of the Company and AIMCO, as the
case may be, as to the future financial performance of the Company, IPT,
AIMCO Company will perform substantially in accordance with such forecasts.
In arriving at our opinion, we have not conducted a physical inspection of
the properties and facilities of the Company, IPT or AIMCO and have not made
or obtained any evaluations or appraisals of the assets or liabilities of the
Company, IPT or AIMCO. In addition, you have not authorized us to solicit,
and we have not solicited, any indications of interest from any third party
with respect to the purchase of all or a part of the Company's business. Upon
advice of the Company and its legal and accounting advisors, we have assumed
that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and
therefore as a tax-free transaction to the holders of the Insignia Common
Stock. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. We have assumed for purposes of this opinion that the IPT
Consideration will be equal to $13.25 per share.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the allocations of the Consideration between the Merger
Consideration to be received by the holders of Insignia Common Stock and the
IPT Consideration to be offered to the holders of IPT Common Stock are
reasonable.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services, a portion of
which is contingent upon the consummation of the Proposed Transaction. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. Lehman Brothers is currently
a lender under the Company's and IPT's credit facilities. We also have
performed various investment banking services for the Company and AIMCO in
the past and have received customary fees for such services. In addition,
Lehman Brothers and certain officers thereof own an aggregate of 510,000
shares of common stock of IPT and will receive their respective pro rata
portions of the IPT Consideration upon consummation of any transaction
resulting from the AIMCO offer. In the ordinary course of our business, we
actively trade in the debt and equity securities of the Company and AIMCO for
our own account and for the accounts of our customers and, accordingly, may
at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and the Board of Trustees of IPT and is rendered to such Board of
Directors and Board of Trustees in connection with their consideration of the
Merger and the offer required to be made by AIMCO to the holders of IPT
Common Stock. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
D-2
<PAGE>
ANNEX E
INFORMATION REGARDING THE
DIRECTORS AND EXECUTIVE OFFICERS OF INSIGNIA
Set forth in the table below are the name and the present principal
occupations or employment and the name, principal business and address of any
corporation or other organization in which such occupation or employment is
conducted, and the five-year employment history of each of the directors and
executive officers of Insignia. Unless otherwise indicated, each person
identified below is employed by Insignia and is a United States citizen. The
principal business address of Insignia and, unless otherwise indicated, the
business address of each person identified below, is One Insignia Financial
Plaza, Greenville, South Carolina 29602. Directors are identified by an
asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------ --------------------------------
<S> <C>
Andrew L. Farkas* Andrew L. Farkas has been a Director of Insignia since its inception in July 1990.
Mr. Farkas has been Chairman and Chief Executive Officer of Insignia since January
1991 and President since May 1995. Mr. Farkas has also been President of Metropolitan
Asset Group, Ltd. ("MAG"), a real estate investment banking firm, since 1983.
Robert J. Denison* Robert J. Denison has been a Director of Insignia since May 1996. For more than the
1212 North Summit Drive past five years, Mr. Denison's principal occupation has been as a General Partner
Santa Fe, NM 87501 of First Security Company II, L.P., an investment advisory firm.
Robin L. Farkas* Robin L. Farkas has been a Director of Insignia since August 1993. Mr. Farkas is
730 Park Ave. the retired Chairman of the Board and Chief Executive Officer of Alexander's Inc.,
New York, NY 10021 a real estate company. He also serves as a director of Refac Technology Development
Corporation, Noodle Kiddoodle, and Containerways International Ltd.
Robert G. Koen* Robert G. Koen has been a Director of Insignia since August 1993. Since February
125 West 55th Street 1996, Mr. Koen has been a partner in the law firm of Akin, Gump, Strauss, Hauer &
New York, NY 10019 Feld, which represents Insignia and certain of its affiliates from time to time.
From January 1991 to February 1996, Mr. Koen was a partner in the law firm LeBoeuf,
Lamb, Greene & MacRae.
Michael I. Lipstein* Michael I. Lipstein has been a Director of Insignia since August 1993. For more than
110 East 59th Street the past five years, Mr. Lipstein's principal occupation has been as a self-employed
New York, NY 10022 consultant in the real estate business, including ownership, management and lending.
Buck Mickel* Buck Mickel has been a Director of Insignia since August 1993. For more than the
301 N. Main Street past five years, Mr. Mickel's principal occupation has been to serve as Chairman
Greenville, SC 29601 of the Board and Chief Executive Officer of RSI Holdings, a company which distributes
outdoor equipment. Mr. Mickel is also a director of The Liberty Corporation, NationsBank
Corporation, Emergent Group, Inc., Delta Woodside Industries, Inc., Duke Power Company,
and Textile Hall Corporation.
James A. Aston James A. Aston's principal employment has been with Insignia for more than the past
five years. Mr. Aston currently serves as Chief Financial Officer of Insignia (since
August 1996), with the Office of the Chairman (since July 1994) and Executive Managing
Director of Investment Banking of Insignia (since January 1991).
E-1
<PAGE>
PRESENT PRINCIPAL OCCUPATIONS
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------ -------------------------------
Joseph T. Aveni Joseph T. Aveni's principal employment has been with Realty One, Inc., a wholly-owned
6000 Rockside Woods Blvd. subsidiary of Insignia ("Realty One"), for more than the past five years. Mr. Aveni
Cleveland, OH 44131 currently serves as a Director and Chief Executive Officer of Realty One (since October
1997).
Anthony M. Ciepiel Mr. Ciepiel currently serves as a Director and Chief Operating Officer of Realty
6000 Rockside Woods Blvd. One (since October 1997). From 1994 to 1997, Mr. Ciepiel was the President of Realty
Cleveland, OH 44131 One. Prior to 1994, Mr. Ciepiel was the Chief Financial Officer and Executive Vice
President of Griswold, Inc., a full service advertising agency.
Hugh V.A. Ellingham Hugh V.A. Ellingham's principal employment has been with Richard Ellis for more than
Insignia/Richmond Ellis the past five years. Mr. Ellingham currently serves as a Managing Director of Insignia
Berkeley Square House for Richard Ellis (since Insignia's acquisition of Richard Ellis in 1998) and has
London, England W1X 6AN been a director of Richard Ellis since its inception in 1997. Mr. Ellingham is a
citizen of the United Kingdom.
Albert J. Frazia Albert Frazia has been a Senior Vice President--Human Resources of Insignia since
August 1997. Prior to August 1997, Mr. Frazia's principal employment for more than
the prior five years was as Director--Human Resources of E&Y Kenneth Leventhal Real
Estate Group, New York, New York.
Alan C. Froggatt Alan C. Froggatt's principal employment has been with Richard Ellis for more than
Insignia/Richard Ellis the past five years. Mr. Froggatt currently serves as Chief Executive Officer of
Berkeley Square House Richard Ellis (since Insignia's acquisition of Richard Ellis in 1998). Mr. Froggatt
London, England W1X 6AN is a citizen of the United Kingdom.
Frank M. Garrison Frank M. Garrison's principal employment has been with Insignia for more than the
102 Woodmont Boulevard past five years. Mr. Garrison currently serves as an Executive Managing Director
Suite 400 of Insignia (since July 1994) and as President of Insignia Financial Services, a
Nashville, TN 37205 division of Insignia (since July 1994).
Adam B. Gilbert Adam B. Gilbert has been General Counsel and Secretary of Insignia since March 1998.
375 Park Avenue Prior to that time, Mr. Gilbert's principal occupation was as a partner with the
Suite 3401 law firm of Nixon, Hargrave, Devans & Doyle, LLP, New York, New York.
New York, NY 10152
Jeffrey L. Goldberg Jeffrey L. Goldberg's principal employment has been with Insignia for more than the
375 Park Avenue past five years. Mr. Goldberg currently serves as a Managing Director--Investment
Suite 3401 Banking of Insignia (since July 1994).
New York, NY 10152
Edward S. Gordon Edward S. Gordon has been with the Office of the Chairman of Insignia and has been
200 Park Avenue Chairman of Insignia/ESG, Inc. since July 1996. Prior to July 1996, Mr. Gordon's
New York, NY 10166 principal employment for more than the prior five years was as a founder and Chairman
of Edward S. Gordon Company, Incorporated ("ESG"), a commercial property management
and brokerage firm located in New York, New York that was acquired by Insignia in
June 1996.
Albert H. Gossett Albert H. Gossett's principal employment has been with Insignia for more than the
past five years. Mr. Gossett currently serves as a Senior Vice President of Insignia
(since July 1994) and as Chief Information Officer of Insignia (since January 1991).
E-2
<PAGE>
PRESENT PRINCIPAL OCCUPATIONS
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------ -------------------------------
Andrew J.M. Huntley Andrew Huntley's principal employment has been with Richard Ellis Group Limited,
Insignia/Richmond Ellis a wholly-owned U.K. subsidiary of Insignia ("Richard Ellis"), for more than the past
Berkeley Square House five years. Mr. Huntley currently serves as Chairman of Richard Ellis (since Insignia's
London, England W1X 6AN acquisition of Richard Ellis in 1998). Mr. Huntley is a citizen of the United Kingdom.
Neil Kreisel Neil Kreisel has been an Executive Managing Director of Insignia since September
909 Third Avenue 1995 and President of Insignia Residential Group since September 1997. Mr. Kreisel
New York, NY 10022 has also served as President of Insignia Management Services--New York, Inc., a subsidiary
of Insignia, since September 1995. Prior to September 1995, Mr. Kreisel's principal
occupation was to serve as President and Chief Executive Officer of Kreisel Company,
Inc., a residential property management firm located in New York, New York which
Insignia acquired in September 1995.
Martha Long Martha Long has been a Senior Vice President--Finance of Insignia since January 1997
and Controller of Insignia since June 1994. Prior to June 1994, Ms. Long was Senior
Vice President and Controller of The First Savings Bank, FSB located in Greenville,
South Carolina.
Thomas R. Shuler Thomas R. Shuler's principal employment has been with Insignia for more than the
past five years. Mr. Shuler currently serves as Chief Operating Officer of Insignia
Residential Group (since January 1997).
Stephen B. Siegel Stephen B. Siegel has been a Managing Director of Insignia since June 1996, President
200 Park Avenue of Insignia Commercial Group since January 1997 and President of Insignia/ESG, Inc.
New York, NY 10166 since June 1996. From February 1992 until July 1996, Mr. Siegel's principal employment
was as President of ESG. Mr. Siegel currently serves as a Director of Liberty Property
Trust and Tower Realty, Inc.
Ronald Uretta Ronald Uretta's principal employment has been with Insignia for more than the past
five years. Mr. Uretta currently serves as Chief Operating Officer (since August
1996) and Treasurer (since January 1992) of Insignia. Mr. Uretta has also served
as the Chief Financial Officer and Controller of MAG since September 1990.
</TABLE>
E-3
<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
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ----------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
+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.
+8.3 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to certain tax matters.
+8.4 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to certain tax matters.
+8.5 Private Letter Ruling to IPT from the Internal Reveue Service.
II-1
<PAGE>
EXHIBIT
NO. TITLE
- ----------- ---------------------------------------------------------------------------------------------
+8.6 Opinion of Greenberg Glusker Fields Claman & Machtinger LLP 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.
+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.
+10.20 Stock Option Agreement dated April 14, 1995 by and between AMIT and MAE GP Corporation.
+10.21 Irrevocable Voting Proxy granted by MAE GP Corporation in favor of AMIT dated April 14, 1995.
II-2
<PAGE>
EXHIBIT
NO. TITLE
- ----------- ---------------------------------------------------------------------------------------------
+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.
+23.7 Consent of Chanin Capital Partners, LLC.
+23.8 Consent of Greenberg Glusker Fields Claman & Machtinger LLP (included in Exhibit 8.6).
+23.9 Consent of Natural Decision Systems, Inc.
+24 Powers of Attorney (see the signature page 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.
+99.5 Proxy Card.
</TABLE>
- ------------
* Filed herewith.
+ Previously filed.
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.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the even that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act
and will be governed by the final adjudication of such issue.
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:
II-3
<PAGE>
(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.
(6) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by person who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form;
(7) That every prospectus: (i) that is filed pursuant to paragraph (6)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment No. 4 to Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on August 7, 1998.
INSIGNIA PROPERTIES TRUST
By: /s/ Jeffrey P. Cohen
-------------------------------
Jeffrey P. Cohen
Senior Vice President
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 4 to Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on August 7, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ -----------------------------------------------
<S> <C>
*
------------------------------
James A. Aston Trustee, President
*
------------------------------
Frank M. Garrison Executive Managing Director, Trustee
*
------------------------------ Trustee, Chairman of the Board of Trustees,
Andrew L. Farkas Chief Executive Officer
*
------------------------------
William D. Falls Controller (Principal Accounting Officer)
*By /s/Jeffrey P. Cohen
------------------------------
Jeffrey P. Cohen
Attorney-in-Fact
</TABLE>
II-5