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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 12, 1995)
400,000 SHARES
[LOGO]
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CLASS A COMMON STOCK
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This Prospectus Supplement and the attached Prospectus relate to the sale of
400,000 shares of the Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), of Apartment Investment and Management Company ("AIMCO") to an
institutional investor at a purchase price of $27.50 per share, for an aggregate
purchase price of $11,000,000. No underwriting fees or commissions will be paid
in connection with such sale. The net proceeds to AIMCO, after deducting
estimated offering expenses of $25,000, will be approximately $10,975,000.
The Class A Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "AIV." On May 1, 1997, the last reported sale price of
the Class A Common Stock on the NYSE was $28 per share.
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE S-3 OF THIS PROSPECTUS SUPPLEMENT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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It is expected that delivery of the shares will be effected on or about May
6, 1997 through the facilities of The Depository Trust Company.
The date of this Prospectus Supplement is May 1, 1997
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THE COMPANY
Apartment Investment and Management Company, a Maryland corporation ("AIMCO"
and, together with its subsidiaries and other controlled entities, the
"Company"), is a self-administered and self-managed real estate investment trust
(a "REIT") engaged in the ownership, acquisition, development, expansion and
management of multifamily apartment properties. AIMCO Properties, L.P., a
Delaware limited partnership (the "Operating Partnership"), and its subsidiaries
conduct substantially all of the operations of AIMCO. As of March 31, 1997,
AIMCO held approximately an 86.0% interest in the Operating Partnership. Through
its controlling interests in the Operating Partnership and other limited
partnerships and limited liability companies (collectively, the "Subsidiary
Partnerships"), the Company owns or controls multifamily apartment properties
(the "Owned Properties") and manages other multifamily apartment properties (the
"Managed Properties").
As of March 31, 1997, the Company had 94 Owned Properties containing 23,764
units and 131 Managed Properties, including 17,731 apartment units managed for
third parties and affiliates. The Company's third-party property and asset
management business is principally conducted by Property Asset Management
Services, L.P., a Delaware limited partnership ("PAMS LP"). The Operating
Partnership owns a 1% interest in, and is the general partner of, PAMS LP. The
sole limited partner of PAMS LP is Property Asset Management Services, Inc., a
Delaware corporation ("PAMS Inc." and, together with PAMS LP, the "Management
Subsidiaries"), which owns a 99% interest in PAMS LP.
The Owned Properties are located in the Sunbelt regions of the United
States. The distribution of the Owned Properties reflects the Company's focus on
growth markets and its belief that geographic diversification will help to
insulate the portfolio from regional and economic fluctuations. The Company also
seeks to create concentrations of properties within each of its markets in order
to achieve economies of scale in management and operation.
In April 1997, AIMCO entered into agreements to acquire NHP Incorporated, a
Delaware corporation ("NHP"). (See "NHP Acquisition.") NHP provides a broad
array of real estate services nationwide including property management and asset
management, as well as a group of related services including equity investments,
purchasing, risk management and home health care. According to 1995 year-end
data published by the National Multi Housing Council and April 1994 data
published by the United States Department of Housing and Urban Development
("HUD"), NHP is the nation's second largest property manager of multifamily
properties, based on the number of units managed. As of December 31, 1996, NHP's
management portfolio includes 457 affordable properties and 260 conventional
properties containing 58,504 affordable units and 74,540 conventional units
located in 38 states, the District of Columbia and Puerto Rico. AIMCO is also
continuing to negotiate the terms of a definitive agreement with Demeter
Holdings Corporation, a Massachusetts corporation ("Demeter"), Capricorn
Investors, L.P., a Delaware limited partnership ("Capricorn"), Phemus
Corporation, a Massachusetts corporation ("Phemus") and an affiliate of Demeter,
and Mr. J. Roderick Heller III, Chief Executive Officer of NHP, relating to the
acquisition of certain entities formerly owned by NHP that own direct and
indirect interests in partnerships that own conventional and affordable
multifamily apartment properties managed primarily by NHP, along with a captive
insurance subsidiary and certain related assets (collectively, the "NHP Real
Estate Companies"). The proposed acquisition of NHP and the NHP Real Estate
Companies (collectively, the "NHP Acquisition") is subject to a number of
contingencies, including, in some cases, obtaining approvals of governmental
authorities (including HUD), shareholders of AIMCO and NHP, and other third
parties. Accordingly, there can be no assurance that any part of the proposed
NHP Acquisition will be completed. If completed, the NHP Acquisition is subject
to a number of risks. (See "Risk Factors--Risks Related to the NHP
Acquisition.")
ChaseMellon Shareholder Services, L.L.C. serves as transfer agent and
registrar of the Class A Common Stock. AIMCO's headquarters are located at 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone
number is (303) 757-8101.
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RISK FACTORS
An investment in shares of Class A Common Stock involves various risks. In
addition to general investment risks and those factors set forth elsewhere in
this Prospectus Supplement and in the accompanying Prospectus or incorporated
therein by reference, potential investors should consider, among other things,
the following factors.
RISKS ASSOCIATED WITH THE PROPOSED NHP ACQUISITION
The proposed acquisition of NHP is the largest acquisition ever undertaken
by the Company, involving an aggregate purchase price in excess of $260 million
and the assumption of approximately $134.5 million of indebtedness. In addition
to the risks typically associated with other acquisitions (see "Risk
Factors--Acquisition and Development Risks"), the proposed NHP Acquisition
involves the following risks and uncertainties:
RISKS OF LOSS OF REVENUE DUE TO TERMINATION OR OTHER LOSS OF PROPERTY
MANAGEMENT AGREEMENTS. NHP is substantially dependent on revenue received for
services performed under property management agreements, and would be adversely
affected if a significant number of these agreements were terminated. Contracts
with unaffiliated third parties are for terms ranging from 30 days to 5 years,
with most contracts being terminable within one year. There can be no assurance
that any such contract will be renewed when the term expires. NHP's management
contracts may be terminated or otherwise lost as a result of: (i) disposition of
the property in the ordinary course or as a result of financial distress of the
property owner; (ii) the general partner's fiduciary duty to other partners in
the partnership; (iii) willful misconduct, gross negligence or other conduct
constituting grounds for termination under such contracts; or (iv) termination
by HUD with respect to certain affordable properties managed by NHP. (See "Risk
Factors--Risks of Third-Party Management Business and Ownership Structure.")
RISKS OF NHP'S DEPENDENCE ON THE NHP REAL ESTATE COMPANIES FOR PROPERTY
MANAGEMENT REVENUES. NHP is substantially dependent on revenue from the
provision of services to properties controlled by the NHP Real Estate Companies.
In 1996, NHP derived approximately 67% of its property management revenue from
fees for services to properties controlled by the NHP Real Estate Companies.
Although, pursuant to certain agreements, the NHP Real Estate Companies are
required at least through the year 2020 (subject to certain conditions) to cause
NHP to be selected to provide services to each of the properties the NHP Real
Estate Companies control (and any property they may control in the future), the
NHP Real Estate Companies' obligations under these agreements are subject to
their fiduciary duties as general partner of the partnerships that own the
properties and other conditions provided for in such agreements, and there can
be no assurance that contracts to provide services to the properties controlled
by the NHP Real Estate Companies will be granted or, if granted, will not be
terminated. Although AIMCO is negotiating to acquire the NHP Real Estate
Companies, there can be no assurance as to the success of such negotiations or
that, if successful, such acquisition will be consummated.
RISK OF TERMINATION OF OXFORD CONTRACTS. In connection with AIMCO's
proposed acquisition of NHP, affiliates of Oxford Holding Corporation
(collectively, "Oxford"), which control a portfolio of properties managed by NHP
(collectively, the "Oxford Properties"), have indicated that they believe that
the proposed NHP Acquisition may give Oxford the right to terminate NHP's
contracts for the management of the Oxford Properties. Although AIMCO and NHP
dispute Oxford's contention, there can be no assurance that, upon consummation
of the NHP Acquisition, Oxford will not seek to terminate such contracts. NHP
received $12.9 million of management fees from management of the Oxford
Properties in 1996.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. As of December 31,
1996. NHP's management portfolio includes 58,504 units in 457 properties that
receive some form of interest rate or rental subsidy or are otherwise subject to
government programs aimed at providing low and moderate income housing
("affordable" units or properties). In addition, many of the partnerships in
which the NHP Real Estate Companies hold interests own affordable properties. A
substantial portion of the affordable properties were built or acquired by
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the owners with the assistance of programs administered by HUD that provide
mortgage insurance, favorable financing terms, or rental assistance payments to
the owners. As a condition to the receipt of assistance under these and other
HUD programs, the properties must comply with various HUD requirements including
rents on these properties limited to amounts approved by HUD. HUD approval is
required before AIMCO acquires an interest in NHP and before NHP (or, upon
consummation of the NHP Acquisition, AIMCO) may be appointed as manager of
additional HUD-assisted properties. There can be no assurance that HUD approval
will be received with respect to any particular action for which it is required.
In addition, under its regulations, HUD has the authority to suspend or deny
participation in HUD programs within a geographic region or nationwide where a
manager has committed criminal acts or evidenced a pattern of consistently
violating its contractual and regulatory responsibilities to HUD. If HUD were to
disapprove NHP (or AIMCO) as property manager for one or more affordable
properties, NHP's (or AIMCO's) ability to obtain property management revenues
from new properties would be impaired. In addition to the effects of HUD
regulation on NHP (or AIMCO) as a manager of affordable properties, the business
of NHP (or AIMCO) may be indirectly affected by regulations generally applicable
to the entities owning affordable properties. In particular, HUD limits the
rents that may be charged on certain HUD-assisted properties to approved amounts
and, if permitted rents on a property were insufficient to cover costs, disposal
of the property might become necessary resulting in a loss of management fee
revenue. As of April 30, 1997, and in addition to the 432 HUD-assisted
properties, NHP manages 45 properties that receive assistance from agencies
other than HUD or are subject to regulation by agencies other than HUD.
RISKS RELATING TO UNCERTAINTY REGARDING STATUS OF FEDERAL SUBSIDIES. Many
of the units managed by NHP and many units owned by partnerships in which the
NHP Real Estate Companies hold interests are subsidized under Section 8 of the
United States Housing Act of 1937 ("Section 8"). These subsidies are generally
provided pursuant to project-based contracts with the owners of the properties
or, with respect to a limited number of units managed by NHP, pursuant to
vouchers received by tenants. For the past several years, various proposals have
been advanced by HUD, Congress and others proposing the restructuring of Section
8. These proposals generally seek to lower subsidized rents to market levels and
to lower required debt service costs as needed to ensure financial viability at
the reduced rents, but vary greatly as to how that result is to be achieved.
Some proposals include a phase-out of project-based subsidies on a
property-by-property basis upon expiration of a property's Housing Assistance
Payments Contract ("HAP Contract"), with a conversion to a tenant-based subsidy.
Under a tenant-based system, rent vouchers would be issued to qualified tenants
who then could elect to reside at a property of their choice, provided the
tenant has the financial ability to pay the difference between the selected
property's monthly rent and the value of the voucher, which would be established
based on HUD's regulated fair market rent for that geographic area. Congress has
not yet accepted any of these these restructuring proposals and instead has
elected to renew expiring Section 8 HAP Contracts for one year terms, generally
at existing rents. There can be no assurance that the proposed changes would not
significantly affect NHP's management portfolio and the real estate portfolios
of the partnerships in which the NHP Real Estate Companies hold interests.
Furthermore, there can be no assurance that changes in federal subsidies will
not be more restrictive than those currently proposed or that other changes in
policy will not occur. Any such changes could have an adverse effect on NHP's
property management revenues and the real estate portfolios of the partnerships
in which the NHP Real Estate Companies hold interests.
POSSIBLE CONFLICTS OF INTEREST. In connection with the NHP Acquisition,
AIMCO expects to acquire an interest in one or more new subsidiaries which will
hold interests in NHP and the NHP Real Estate Companies. In order to accomodate
the qualification of AIMCO as a REIT, it is expected that AIMCO will own a 95%
non-voting interest in such subsidiaries, and individuals who are officers of
AIMCO will own a 5% controlling interest in such subsidiaries. As a result,
conflicts of interest may arise in transactions involving AIMCO and such
individuals and subsidiaries.
RISKS RELATING TO AIMCO'S REIT STATUS. In order for AIMCO to qualify for
taxation as a REIT, the value of any one issuer's securities held by AIMCO
generally may not exceed 5% of AIMCO's gross asset value (determined at the
close of each quarter of its taxable year). As part of the NHP Acquisition,
AIMCO expects to
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acquire an interest in a new subsidiary which will hold shares of NHP common
stock acquired from Demeter and Capricorn. The value of AIMCO's interest in this
new subsidiary is expected to be slightly less than 5% of AIMCO's gross asset
value at the time such shares are acquired from Demeter and Capricorn. If
AIMCO's interest in the new subsidiary is more than 5% of AIMCO's value at any
applicable measurement date, AIMCO may be required to reduce the value of its
investment in such subsidiary.
RISKS ASSOCIATED WITH INTEGRATING NHP. The integration of NHP's business
with AIMCO's may place a significant burden on AIMCO's management. Such
integration is subject to risks commonly encountered in making such
acquisitions, including, among others, loss of key personnel of NHP, the
difficulty associated with assimilating the personnel and operations of NHP, the
disruption of AIMCO's ongoing business, the difficulty in maintaining uniform
standards, controls, procedures and policies, and the impairment of AIMCO's
reputation. No assurance exists that AIMCO will be able to integrate the two
businesses successfully. Failure of AIMCO to integrate the two businesses
successfully could have a material adverse effect on AIMCO's results of
operations.
FINANCING RISKS
DEBT FINANCING AND EXISTING DEBT MATURITIES. The Company is subject to the
risks normally associated with debt financing, including the risk that its cash
flow from operations will be insufficient to make required payments of principal
and interest, the risk that existing indebtedness, including secured
indebtedness, will not be able to be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. As
of April 30, 1997, the Company had outstanding $533.0 million of indebtedness,
$508.0 million of which was secured by Owned Properties and other assets of the
Company, including $56.3 million of outstanding borrowings under the Company's
credit facility with Bank of America National Trust and Savings Association (the
"Credit Facility") and $25.0 million of outstanding borrowings under an
unsecured line of credit. Upon the sale of the shares of Class A Common Stock
offered hereby and application of the net proceeds from this offering and an
offering of up to 1,900,000 shares in April 1997 (assuming all such shares are
sold) therefrom, the Company will have $470.1 million of indebtedness
outstanding, of which $445.1 million will be secured by Owned Properties and
other assets of the Company and $25.0 million will be outstanding borrowings
under an unsecured line of credit, in each case, assuming the sale of all of the
shares offered hereby. (See "Use of Proceeds.") In addition, in connection with
the NHP Acquisition, AIMCO expects to incur or assume up to $325 million of
additional indebtedness. (See "Capitalization.") If the Company does not have
sufficient funds to repay its indebtedness at maturity, it may be necessary to
refinance such indebtedness through additional debt financing, private or public
offerings of debt securities or additional equity offerings. If, at the time of
any such refinancing, prevailing interest rates or other factors result in
higher interest rates on refinancings, increases in interest expense could
adversely affect cash flow. If the Company is unable to refinance its
indebtedness on acceptable terms, it might be forced to dispose of properties on
disadvantageous terms, potentially resulting in losses and adverse effects on
cash flow from operating activities. In addition, if the Company is unable to
make required payments of principal and interest on indebtedness secured by
Owned Properties, such properties could be foreclosed upon by the lender with a
consequent loss of income and asset value to the Company.
RISK OF RISING INTEREST RATES. Certain of the Company's borrowings,
including its Credit Facility, bear interest at a variable rate. In addition, as
of April 30, 1997, the Company had approximately $100.4 million of other
indebtedness that bears interest at a variable rate. Although the Company has
certain hedging arrangements in place, increases in interest rates could
increase the Company's interest expense and adversely affect cash flow.
RISKS OF THIRD-PARTY MANAGEMENT BUSINESS AND OWNERSHIP STRUCTURE
Risks associated with the management of properties owned by third parties
include risks that management contracts (which are generally cancelable upon 30
days' notice or upon certain events, including the sale of the property) will be
terminated by the property owner or will be lost in connection with a sale of
the property; that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms; and that the rental revenues
upon which management fees are based will decline as a result of general real
estate
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market conditions or other factors and result in decreases in the Company's
management fees. If significant numbers of contracts are terminated or are not
renewed, the Company's net income from fee management operations could be
adversely affected. The owner of substantially all of the commercial properties
that are managed by the Company has indicated that it intends to dispose of such
properties over a period of time. Upon any such disposition, it is not likely
that the Company would continue to manage these properties. The loss of
management fee revenues from such properties would adversely affect the
Company's income from its third-party property management business. In the event
the proposed NHP Acquisition is consummated, the Company will be subject, to a
greater extent, to the risks associated with the management of properties owned
by third parties. (See "Risk Factors -- Risks Associated with the Proposed NHP
Acquisition"; "Recent Developments.")
PAMS Inc. and the Operating Partnership own 99% and 1%, respectively, of
PAMS LP, through which the Company's property management business is principally
conducted. PAMS Inc. also owns 100% of PAM Consolidated Assurance Company, Ltd.,
a Bermuda insurance company ("PCA"). The Operating Partnership is the general
partner of PAMS LP and is therefore responsible for the management of PAMS LP.
However, all of the voting stock of PAMS Inc. is owned by four of AIMCO's
executive officers, Terry Considine, Peter Kompaniez, Steven Ira and Robert
Lacy. Consequently, the Company does not have the ability to elect any directors
of PAMS Inc. (or the board of directors or officers of PCA) or to influence the
day-to-day decisions and other actions of PAMS Inc. or PCA, and Messrs.
Considine, Kompaniez, Ira and Lacy could cause PAMS Inc. or PCA to take actions
that are adverse to the Company's interests. (See "Risk Factors -- Possible
Conflict of Interests; Transactions with Affiliates" and "Certain Federal Income
Tax Considerations" in the accompanying Prospectus.)
POSSIBLE CONFLICT OF INTERESTS; TRANSACTIONS WITH AFFILIATES
Prior to February 1996, in order to accommodate the qualification of AIMCO
as a REIT, Messrs. Considine, Kompaniez, Ira and Lacy, collectively, held a 5%
beneficial interest in each of four regional business trusts (the "Service
Trusts"). The Service Trusts owned four corresponding regional limited liability
companies (the "Service LLCs") through which the Company's third-party property
and asset management business was then principally conducted. In February 1996,
the Operating Partnership and Messrs. Considine, Kompaniez, Ira and Lacy
contributed their respective interests in the Service Trusts to PAMS Inc. in
exchange for 950,000 shares of non-voting preferred stock of PAMS Inc., in the
case of the Operating Partnership, and 50,000 shares of common stock of PAMS
Inc., in the case of Messrs. Considine, Kompaniez, Ira and Lacy. In April 1996,
the Service Trusts were dissolved and their interests in the Service LLCs were
distributed to PAMS Inc. In May 1996, the four Service LLCs were merged into
PAMS LP, with PAMS LP as the surviving entity. Consequently, the Company's
property management and asset management business is now conducted principally
through PAMS Inc. and PAMS LP. The four officers' aggregate share of income in
the four Service Trusts was a loss of less than $5,000 for the period from
AIMCO's initial public offering on July 29, 1994 (the "Initial Offering") to
December 31, 1994 and such income was not material for the 1995 and 1996 fiscal
years. However, because Messrs. Considine and Kompaniez are officers and
directors of AIMCO, and because Messrs. Ira and Lacy are officers of AIMCO,
conflicts of interest may arise for such persons in transactions involving PAMS
Inc. or PAMS LP. For example, in connection with the Company's September 1995
reorganization of ownership interests in certain of its subsidiaries (including
the Service Trusts and the Service LLCs), Messrs. Considine, Kompaniez, Ira and
Lacy made additional contributions to the Service Trusts to maintain their 5%
aggregate interests in the Service Trusts. Although the Company believes such
additional contributions were made on terms that were fair to the Company and
the Service Trusts, the Company did not obtain independent valuations of the
Service Trusts and there can be no assurance that the contributions to the
Service Trusts by Messrs. Considine, Kompaniez, Ira and Lacy were made in
amounts which reflected the market value of their interests.
In addition, PAMS LP provides property management services with respect to
certain Managed Properties in which Messrs. Considine and Ira and other officers
of AIMCO have separate ownership interests. The fees for these services have
been negotiated on an individual basis and typically range from 3% to 6% of
gross receipts
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for the particular property. Although these arrangements were not negotiated on
an arm's-length basis, the Company believes, based on comparisons to the fees
charged by other real estate companies and by PAMS LP with respect to
unaffiliated Managed Properties in comparable locations, that the terms of such
arrangements are fair to the Company.
REAL ESTATE RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the amount
of income generated and expenses incurred. The Company's income from its Owned
Properties may be adversely affected by the general economic climate, local
conditions such as oversupply of apartments or a reduction in demand for
apartments in the area, the attractiveness of the properties to tenants,
competition from other available apartments, the ability of the Company to
provide adequate maintenance and insurance, and increases in operating costs
(including real estate taxes). The Company's income from its Owned Properties
would also be adversely affected if a significant number of tenants were unable
to pay rent or apartments could not be rented on favorable terms. Certain
significant expenditures associated with real property investments (such as
mortgage payments, real estate taxes and maintenance costs) generally are not
reduced when circumstances cause a reduction in income from the investments. In
addition, income from properties and real estate values are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing. If the Company's Owned Properties do not generate
income sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's income and its ability to make distributions to
holders of Class A Common Stock will be adversely affected. Many of the factors
that could adversely affect the Company's income from its Owned Properties could
also adversely affect the Company's income from its Managed Properties by
reducing gross receipts for such properties.
ILLIQUIDITY OF REAL ESTATE. Real estate investments may be illiquid and,
therefore, could tend to limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions. In addition,
the Internal Revenue Code of 1986, as amended (the "Code"), limits the ability
of AIMCO, as a REIT, to sell properties held for fewer than four years.
OPERATING RISKS. The Company's Owned Properties and Managed Properties are
subject to operating risks common to multifamily apartment properties in
general. These risks may adversely affect the Company's cash flow from
operations. For example, increases in unemployment in the areas in which Owned
Properties or Managed Properties are located may adversely affect multifamily
apartment occupancy or rental rates and it may not be possible to offset
increases in operating costs due to inflation and other factors by increased
rents. Local rental market characteristics may also limit the extent to which
rents may be increased without decreasing occupancy rates.
COMPETITION. There are numerous housing alternatives that compete with the
Company's Owned Properties and Managed Properties in attracting residents. The
Company's properties compete directly with other multifamily rental apartments
and single family homes that are available for rent in the markets in which the
Company's properties are located. The Company's properties also compete for
residents with new and existing homes and condominiums. The number of
competitive properties in a particular area could have a material effect on the
Company's ability to lease apartment units at its properties and on the rents
charged. Numerous real estate companies compete with the Company in acquiring,
developing and managing multifamily apartment properties and seeking tenants to
occupy their properties. In addition, numerous property management companies
compete with the Company in the markets where the Managed Properties are
located.
CHANGE IN LAWS. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions, as well as changes in laws affecting
development, construction and safety requirements, may result in significant
unanticipated expenditures, which would adversely affect the Company's cash flow
from operating activities. In addition, future enactment of rent
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control or rent stabilization laws or other laws regulating multifamily housing
may reduce rental revenue or increase operating costs in particular markets.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional Federal, state and local laws exist which also may
require modifications to the Owned Properties, or restrict certain further
renovations thereof, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants and also could
result in an order to correct any non-complying feature, which could result in
substantial capital expenditures. Although management of the Company believes
that the Owned Properties are substantially in compliance with present
requirements, if the Owned Properties are not in compliance, the Company is
likely to incur additional costs to comply with the ADA and FHAA.
ACQUISITION AND DEVELOPMENT RISKS
The Company has engaged in, and intends to continue to engage in, the
selective acquisition, development and expansion of multifamily apartment
properties and the selective acquisition of, or investment in, companies that
own or manage multifamily apartment properties. The Company is currently in
various stages of negotiations with third parties for the acquisition of several
properties, portfolios of properties, companies that own or manage properties,
or interests or rights therein. See "Recent Developments." No assurance can be
given that any of these possible acquisitions will be completed or, if
completed, that they will be accretive on a per share basis. In addition to
general investment risks associated with any new investment, acquisitions entail
risks that such investments will fail to perform in accordance with
expectations, including projected occupancy and rental rates, management fees
and the costs of property improvements. Risks associated with the Company's past
and future acquisitions of general partnership interests include the risks that
the general partner will be liable for breaches of fiduciary duty to the limited
partners of such partnership and that the assets of the general partner may be
subject to claims by creditors of the partnership if the partnership becomes
insolvent. Risks associated with redevelopment and expansion of properties
include the risks that development opportunities may be abandoned; that
construction costs of a property may exceed original estimates, possibly making
the property uneconomical; that occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; that
construction and permanent financing may not be available on favorable terms;
and that construction and lease-up may not be completed on schedule, resulting
in increased debt service expense and construction costs. Development activities
are also subject to risks relating to any inability to obtain, or delays in
obtaining, necessary zoning, land-use, building, occupancy, and other
governmental permits and authorizations. (See "Risk Factors--Risks Associated
with the Proposed NHP Acquisition.")
In November 1996, five limited partners in certain of the English
Partnerships (as defined below) sued the Company, alleging that, in connection
with the English Portfolio Acquisition (as defined below), the Company conspired
with J.W. English to breach his fiduciary duties to the plaintiffs, and that the
offering materials used by the Company in connection with the English Tender
Offers (as defined below) contained misleading statements or omissions. The
plaintiffs made an application for a temporary restraining order with respect to
the English Tender Offers, which was denied. The Company intends to vigorously
defend itself in connection with this action.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Qualification as a REIT involves the application of highly technical and
complex provisions of the Code, for which there are only limited judicial or
administrative interpretations, and the determination of various factual matters
and circumstances not entirely within AIMCO's control. For example, in order to
qualify as a REIT, at least 95% of AIMCO's gross income in any year must be
derived from qualifying sources and AIMCO must
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make distributions to stockholders aggregating annually at least 95% of its REIT
taxable income (excluding net capital gains). Although AIMCO believes that it
has operated since the Initial Offering in a manner so as to qualify as a REIT,
no assurance can be given that AIMCO is or will remain so qualified. (See
"Certain Federal Income Tax Considerations" in the accompanying Prospectus.)
Although AIMCO is not aware of any pending tax legislation that would adversely
affect AIMCO's ability to operate as a REIT, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions will
not change the tax laws with respect to qualification as a REIT or the Federal
income tax consequences of such qualification.
In December 1995, AIMCO received an opinion of Skadden, Arps, Slate, Meagher
and Flom LLP, tax counsel to AIMCO, concerning the qualification of AIMCO as a
REIT. In rendering this opinion, Skadden, Arps, Slate, Meagher & Flom LLP relied
on certain assumptions and representations by AIMCO (including the value of the
Management Subsidiaries and of the Operating Partnership's ownership interests
therein and other items regarding AIMCO's ability to meet the various
requirements for qualification as a REIT) and on opinions of local counsel with
respect to matters of local law. The opinion is expressed based upon facts,
representations and assumptions as of its date and Skadden, Arps, Slate, Meagher
& Flom LLP has no obligation to advise holders of Class A Common Stock of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in applicable law. No assurance can be given that AIMCO will
meet these requirements in the future, and a legal opinion is not binding on the
Internal Revenue Service (the "Service").
If in any taxable year AIMCO fails to qualify as a REIT, AIMCO would not be
allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to Federal income tax on its taxable income at corporate
rates. As a result of the additional tax liability, AIMCO might need to borrow
funds or liquidate certain investments on terms that may be disadvantageous to
the Company in order to pay the applicable tax and AIMCO would not be compelled
to make distributions under the Code. Unless entitled to relief under certain
statutory provisions, AIMCO would also be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. Although AIMCO currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause AIMCO to fail to qualify as a REIT or may cause
the Board of Directors of AIMCO to revoke the REIT election. (See "Risk
Factors--Financing Risks; Real Estate Risks" and "Certain Federal Income Tax
Considerations" in the accompanying Prospectus.)
In December 1995, AIMCO also received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP stating that the Subsidiary Partnerships in which AIMCO has
ownership interests are properly treated as partnerships for Federal income tax
purposes. The opinion is expressed based upon facts, representations and
assumptions as of its date and, with respect to certain matters of local law,
relies on opinions of local counsel. Skadden, Arps, Slate, Meagher & Flom LLP is
under no obligation to advise holders of Class A Common Stock of any subsequent
change in the matters stated, represented or assumed or any subsequent change in
applicable law. If the IRS were to challenge successfully the tax status of any
of the Subsidiary Partnerships as partnerships for Federal income tax purposes,
such Subsidiary Partnerships would be treated as associations taxable as
corporations. As a consequence, the character of AIMCO's assets and items of
gross income would change and thereby preclude AIMCO from qualifying as a REIT.
In addition, the imposition of a corporate tax on the Subsidiary Partnerships
would reduce the amounts that the Subsidiary Partnerships could distribute to
the Operating Partnership and AIMCO, and that AIMCO could then distribute to the
holders of Class A Common Stock. (See "Certain Federal Income Tax
Considerations" in the accompanying Prospectus.)
In addition, certain requirements for REIT qualification may in the future
limit AIMCO's ability to conduct or increase the property management and asset
management operations of the Management Subsidiaries without jeopardizing
AIMCO's qualification as a REIT. (See "Federal Income Tax Considerations" in the
accompanying Prospectus.)
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<PAGE>
OWNERSHIP LIMIT
In order for AIMCO to maintain its qualification as a REIT, not more than
50% of the value of its outstanding stock may be owned, directly or
constructively, by five or fewer individuals or entities (as set forth in the
Code). AIMCO's Charter prohibits direct or constructive ownership of shares of
Class A Common Stock representing more than 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
combined total of outstanding shares of AIMCO's Class A Common Stock and Class B
Common Stock by any person (the "Ownership Limit"). The constructive ownership
rules are complex and may cause shares of AIMCO's Class A Common Stock or Class
B Common Stock owned directly or constructively by a group of related
individuals or entities to be constructively owned by one individual or entity.
AIMCO's Board of Directors may permit ownership of up to 9.8% of the combined
total of outstanding shares of AIMCO's Class A Common Stock and Class B Common
Stock by a particular stockholder if it is satisfied, based upon the advice of
tax counsel or other evidence or undertaking acceptable to it, that ownership in
excess of the limit will not jeopardize AIMCO's status as a REIT. A transfer of
shares to a person who, as a result of the transfer, violates the Ownership
Limit may be void under some circumstances or may be transferred to a trust, for
the benefit of one or more qualified charitable organizations designated by
AIMCO, with the intended transferee having only a right to share (to the extent
of the transferee's original purchase price for such shares) in proceeds from
the trust's sale of such shares. (See "Description of Common Stock --
Restrictions on Transfer" in the accompanying Prospectus.)
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although each of Messrs. Considine, Kompaniez and Ira has entered into
employment agreements with the Company, the loss of any of their services could
have an adverse effect on the operations of the Company. In addition, although
Messrs. Considine, Kompaniez and Ira have had substantial multifamily real
estate experience over the past 20 years, during the real estate recession of
the late 1980's and early 1990's, a number of real estate investments in which
they were involved produced unfavorable results. From 1975 through July 1994,
partnerships or other entities in which Mr. Considine had controlling interests
invested in approximately 35 multifamily apartment properties and commercial
real estate properties and six of these real estate assets (four of which were
multifamily apartment properties and two of which were office properties) did
not generate sufficient cash flow to service their related indebtedness and were
foreclosed upon by their lenders, causing pre-tax losses of approximately $11.9
million to investors and losses of approximately $2.7 million to Mr. Considine.
In addition, in the late 1980s and early 1990s, three multifamily apartment
properties located in Colorado that were owned by partnerships in which Mr. Ira
had a general partnership interest could not meet their debt payment, and were
foreclosed upon by their respective lenders, causing a pre-tax loss of
approximately $3.2 million to investors. Mr. Ira was not the managing general
partner of two of these partnerships.
The downturn in the real estate markets in the late 1980s and early 1990s
also adversely affected the United States real estate operations of Heron
International N.V. and its subsidiaries and affiliates (the "Heron Group").
During this period from 1986 to 1993, Mr. Kompaniez served as President and
Chief Executive Officer of Heron Financial Corporation ("HFC"), and as a
director or officer of certain other Heron Group entities. In 1993, HFC, its
parent Heron International, and certain other members of the Heron Group
voluntarily entered into restructuring agreements with separate groups of their
United States and international creditors. The restructuring agreement for the
United States members of the Heron Group generally provided for the joint
assumption of certain liabilities and the pledge of unencumbered assets in
support of such liabilities for the benefit of their United States creditors. As
a result of the restructuring, the operations and assets of the United States
members of the Heron Group were generally separated from those of Heron
International and its non-United States subsidiaries. At the conclusion of the
restructuring, Mr. Kompaniez commenced the operations of PDI Realty Enterprises,
Inc., a Delaware corporation ("PDI"), which was engaged to act as asset and
corporate manager of the continuing United States operations of HFC and the
other United States Heron Group members for the benefit of the United States
creditors. In connection with certain transactions effected at the time of the
Initial Offering, Mr. Kompaniez was appointed Vice Chairman of AIMCO and
substantially all of the property management assets of PDI were transferred or
assigned to the Company.
S-10
<PAGE>
POSSIBLE ENVIRONMENTAL LIABILITIES
Under Federal, state and local environmental laws and regulations, a current
or previous owner or operator of real property may be required to investigate
and clean up a release of hazardous substances at such property, and may, under
such laws and common law, be held liable for property damage and other costs
incurred by third parties in connection with such releases. The liability under
certain of these laws has been interpreted to be joint and several unless the
harm is divisible or there is a reasonable basis for allocation of
responsibility. The failure to remediate the property properly may also
adversely affect the owner's ability to sell or rent the property or to borrow
using the property as collateral. In connection with its ownership, operation
and management of the Owned Properties and other real properties, including the
Managed Properties, the Company could be potentially liable for such costs.
Certain Federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition, impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the air.
These laws may also impose liability for a release of ACMs and may enable third
parties to seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with its ownership,
operation and management of properties, the Company could be potentially liable
for those costs. There are ACMs at certain of the Owned Properties, and there
may be ACMs at certain of the Managed Properties. The Company has developed and
implemented operations and maintenance programs that establish operating
procedures with respect to the ACMs at the Owned Properties.
Certain of the Owned Properties are, and some of the Managed Properties may
be, located on or near properties that have contained underground storage tanks
or on which activities have occurred which could have released hazardous
substances into the soil or groundwater. There can be no assurances that such
hazardous substances have not been released or have not migrated, or in the
future will not be released or will not migrate onto the Owned Properties and
Managed Properties. In addition, the Company's Montecito property in Austin,
Texas, is located adjacent to, and may be partially on, land that was used as a
landfill. Low levels of methane and other landfill gas have been detected at
Montecito. The remediation of the landfill gas is now substantially complete.
The environmental authorities have preliminarily approved the methane gas
remediation efforts. Final approval of the site and the remediation process is
contingent upon the results of continued methane gas monitors to confirm the
effectiveness of the remediation efforts. Should further actionable levels of
methane gas be detected, a proposed contingent plan of passive methane gas
venting may be implemented. The Company believes the costs of such further
limited action, if any, will not be material. Testing has also been conducted on
Montecito to determine whether, and to what extent, groundwater has been
impacted. Test reports have indicated that the groundwater is not contaminated
at actionable levels.
All of the Owned Properties were subject to Phase I or similar environmental
audits by independent environmental consultants. The audits did not reveal, nor
is the Company aware of, any environmental liability relating to such properties
that the Company believes would have material adverse effect on the Company's
business, assets or results of operations. Nevertheless, it is possible that the
Company's audits did not reveal all environmental liabilities or that there are
material environmental liabilities of which the Company is unaware. Although the
Managed Properties may not have been subject to Phase I or similar environmental
audits by independent environmental consultants, the Company is not aware of any
environmental liability relating to the Managed Properties that it believes
would have a material adverse effect on its business, assets or results of
operations.
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, of future sales of
shares of Class A Common Stock, or the availability of shares of Class A Common
Stock for future sale, on the market price of the Class A Common Stock
prevailing from time to time. Sales of substantial amounts of the shares of
Class A Common Stock (including
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<PAGE>
shares issued upon the exercise of stock options, the redemption of units of
limited partnership interests in the Operating Partnership ("OP Units") and the
conversion of Class B Common Stock), or the perception that sales could occur,
could adversely affect prevailing market prices for the shares of Class A Common
Stock. In addition to shares of Class A Common Stock currently outstanding and
shares to be sold by AIMCO hereby, (i) at March 31, 1997 there are 2,858,046
outstanding OP Units, which, upon tender for redemption, may be acquired by the
Company in exchange for an equal number of shares of Class A Common Stock, and
325,000 shares of Class B Common Stock which, in certain circumstances, will
convert into an equal number of shares of Class A Common Stock and (ii) in
connection with the proposed acquisition of NHP, the Company expects to issue up
to 7,570,000 shares of Class A Common Stock. See the Company's Current Report on
Form 8-K, dated April 16, 1997, as amended and incorporated by reference in the
accompanying Prospectus, which includes pro forma financial information relating
to the proposed NHP Acquisition and certain other transactions. In addition,
approximately 560,528 shares of Class A Common Stock may be issued upon the
exercise of outstanding options, and these shares of Class A Common Stock will
be available for sale in the public markets from time to time pursuant to
exemptions from registration requirements or upon registration. No prediction
can be made of the effect that future sales of shares of Class A Common Stock
will have on the market price of shares.
S-12
<PAGE>
NHP ACQUISITION
MERGER AGREEMENT
On April 21, 1997, the Company entered into an Agreement and Plan of Merger,
dated as of April 21, 1997 (the "Merger Agreement"), with NHP and AIMCO/NHP
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of AIMCO
("Merger Sub"), which provides for Merger Sub to be merged with and into NHP
(the "Merger"). In the Merger, holders of common stock, par value $.01 per share
("NHP Common Stock"), of NHP may elect to receive, for each share, either (i)
0.74766 shares of AIMCO Class A Common Stock, or (ii) a combination of 0.37383
shares of Class A Common Stock and $10 in cash. NHP has indicated that, as of
March 7, 1997, 12,652,439 shares of NHP Common Stock were issued and outstanding
(excluding options). The Merger Agreement also provides for NHP to distribute
rights ("Rights") to its stockholders that will entitle them to receive shares
of NHP Financial Services, Ltd., a Delaware corporation ("NHP Financial"), NHP's
commercial mortgage banking subsidiary, upon the effectiveness of the Merger or
on December 1, 1997 if the Merger has not yet occurred (the "Spin-Off"). The
Merger is conditioned on, among other things, the approval of the stockholders
of AIMCO and NHP (excluding AIMCO) and certain governmental approvals.
STOCK PURCHASE AGREEMENT
On April 16, 1997, AIMCO entered into a Stock Purchase Agreement, dated as
of April 16, 1997 (the "Stock Purchase Agreement"), with Demeter and Capricorn,
which provides for AIMCO to acquire all of the 5,619,695 shares of NHP Common
Stock currently owned by Demeter, and all of the 1,310,427 shares of NHP Common
Stock currently owned by Capricorn (collectively, the "Stock Purchase"). As
payment for each share of NHP Common Stock acquired, AIMCO will (i) either pay
$20 per share in cash or issue 0.74766 shares of AIMCO Class A Common Stock, and
(ii) deliver to Demeter and Capricorn the shares of NHP Financial that AIMCO
receives in respect of the Rights relating to each share of NHP Common Stock
acquired. Under the Stock Purchase Agreement, AIMCO is obligated to pay Demeter
at least $59.5 million in cash. The shares of NHP Common Stock to be acquired by
AIMCO pursuant to the Stock Purchase Agreement represent approximately 55% of
the outstanding shares of NHP Common Stock.
PROPOSED ACQUISITION OF NHP REAL ESTATE COMPANIES
AIMCO is continuing to negotiate the terms of a definitive agreement with
Demeter, Capricorn, Phemus, and J. Roderick Heller, relating to the acquisition
of the NHP Real Estate Companies. In connection with the Merger Agreement, NHP
has agreed to waive its right of first refusal to purchase the NHP Real Estate
Companies, effective May 3, 1997, provided that such an agreement is entered
into on satisfactory terms no later than May 31, 1997.
DESCRIPTION OF NHP
NHP provides a broad array of real estate services nationwide including
property management, asset management, and mortgage banking and servicing
through NHP Financial, as well as a group of related services including equity
investments, purchasing, risk management and home health care. The NHP group of
companies was formed in 1970 with the organization of the National Corporation
for Housing Partnerships ("NCHP") and The National Housing Partnership (the "NHP
Partnership"). Both NCHP and the NHP Partnership were organized as private,
for-profit entities pursuant to Title IX of the Housing and Urban Development
Act of 1968 and charged by Congress to promote private investment in the
production of low and moderate income housing. In connection with their
development and ownership of low and moderate income housing, NCHP and the NHP
Partnership developed systems for providing property management and related
services to such properties. Beginning in the early 1980s, NCHP and the NHP
Partnership capitalized on the experience gained in the affordable housing
market by expanding into the development of, investment in, and provision of
services to, conventional multifamily properties. NHP was incorporated in
Delaware in 1986 as a holding corporation for NCHP, the NHP Partnership and
other subsidiaries, in part to provide greater flexibility to invest in and
provide services to conventional properties. NHP has subsequently ceased its
development activities. In connection
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<PAGE>
with NHP's initial public offering of NHP Common Stock in August 1995, the NHP
Real Estate Companies (including NCHP and the NHP Partnership) were sold to
Demeter, Phemus, Capricorn and Mr. Heller.
According to 1995 year-end data published by the National Multi Housing
Council and April 1994 data published by HUD, NHP is the nation's second largest
property manager of multifamily properties, based on the number of units
managed. As of December 31, 1996, NHP's management portfolio includes 457
affordable properties and 260 conventional properties containing 58,504
affordable units and 74,540 conventional units, located in 38 states, the
District of Columbia and Puerto Rico.
The completion of each of the above-described transactions is subject to a
number of contingencies, including in some cases, obtaining approvals of
governmental authorities, shareholders and other third parties. Accordingly,
there can be no assurance that any part of the proposed NHP Acquisition will be
completed.
OTHER RECENT DEVELOPMENTS
FIRST QUARTER EARNINGS AND DIVIDEND DECLARATION
On April 23, 1997, AIMCO announced its results for the first quarter of
1997. Net income was $4,584,000, or $0.28 per share, for the quarter ended March
31, 1997, compared to $2,810,000, or $0.24 per share, for the quarter ended
March 31, 1996, a 16.7% increase on a per share basis. AIMCO measures its
economic profitability based on Funds From Operations less a minimum annual
provision for capital replacements of $300 per apartment unit, which AIMCO
defines as Cash Earned For Shareholders ("CEFS"). AIMCO's CEFS was $10,979,000,
or $0.56 per common share, for the quarter ended March 31, 1997, compared to
$6,768,000, or $0.49 per common share, for the quarter ended March 31, 1996, a
14.3% increase on a per share basis. Funds From Operations for the first quarter
of 1997 equaled $12,512,000 or $0.64 per common share, compared to $7,888,000 or
$0.57 per common share for the quarter ended March 31, 1996, a 12.3% increase on
a per share basis. On April 24, 1997, AIMCO announced the declaration of a cash
dividend of $0.4625 per common share for the quarter ended March 31, 1997,
payable on May 15, 1997 to shareholders of record on May 8, 1997.
REAL ESTATE ACQUISITIONS
On April 30, 1997, AIMCO acquired The Bay Club ("Bay Club") at Aventura, a
702-unit luxury high rise apartment community located in Aventura, Florida. The
purchase price is $71 million, which includes the assumption of $49 million of
existing mortgage indebtedness that bears interest at 7.98% per annum and
matures in November 2001. The purchase price includes estimated closing costs
and approximately $0.3 million for initial capital expenditures at the property.
The cash consideration was funded with proceeds from an unsecured line of credit
of $25 million and working capital.
In March 1997, AIMCO entered into an agreement to acquire Stonebrook
Apartments ("Stonebrook"), a 244-unit apartment community located in Orlando,
Florida. The purchase price is $11.0 million, which includes the assumption of
$6.5 million of existing mortgage indebtedness that bears interest at 7.25% per
annum and matures in January 1999. The purchase price includes estimated closing
costs and approximately $0.2 million for initial capital expenditures at the
property. The completion of the Stonebrook acquisition is subject to a number of
contingencies, including AIMCO's satisfactory completion of due diligence and
obtaining approvals of third parties. Accordingly, there can be no assurance
that such acquisition will be completed.
ADDITIONAL FINANCINGS
In April 1997, 23 partnerships controlled by AIMCO borrowed an aggregate of
$108 million from an institutional lender on a fully amortizing, fixed rate
basis with a term of 20 years (the "Refinancing"). The loans have a weighted
average effective interest rate of 7.6% per year. The loans are secured by 27
multifamily apartment properties owned by such partnerships. The net proceeds of
the borrowings, and $29 million of proceeds from additional borrowings under
AIMCO's credit facility, were used to repay approximately $137 million of
secured short-term debt.
S-14
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered Hereby
(the "Offering")................... 400,000 shares
Class A Common Stock to be
Outstanding After the Offering
(1)(2)............................. 19,887,036 shares
Use of Proceeds...................... AIMCO will contribute all of the net proceeds from
the Offering (approximately $11 million) to the
Operating Partnership. The Operating Partnership
will use such amount to repay outstanding
borrowings under the Credit Facility. (See "Use of
Proceeds.")
New York Stock Exchange Symbol....... "AIV"
</TABLE>
- ---------
(1) Excludes (i) an aggregate of 2,858,046 shares of Class A Common Stock which
may be issued in exchange for 2,858,046 outstanding OP Units which may be
tendered for redemption; (ii) 325,000 shares of Class A Common Stock
issuable upon conversion of 325,000 shares of Class B Common Stock if
certain performance standards are met; and (iii) 560,528 shares of Class A
Common Stock issuable upon exercise of outstanding options and warrants.
(2) Does not give effect to the issuance of up to 7,570,000 shares of Class A
Common Stock in connection with the proposed NHP Acquisition. (See "NHP
Acquisition.") Gives effect to the issuance to institutional investors
pursuant to a separate Prospectus Supplement of up to 1,900,000 shares of
Class A Common Stock (the "April Offering"), assuming all such shares are
sold, occurring contemporaneously with the offering made hereby.
USE OF PROCEEDS
AIMCO will contribute approximately $11 million of net proceeds from the
Offering to the Operating Partnership. The Operating Partnership will use such
amount to repay outstanding borrowings under the Credit Facility and a portion
of its secured notes payable. As a result of the contribution of the net
proceeds from the Offering to the Operating Partnership, AIMCO will own
approximately 87.4% of the Operating Partnership.
The Company's currently outstanding borrowings under the Credit Facility
were incurred for the Refinancing ($29.0 million) (see "Other Recent
Developments"), for investments in properties ($19.1 million), and to finance a
portion of the acquisition of general partnership and related interests in
limited partnerships ($8.2 million). Borrowings under the Credit Facility bear
interest at a variable rate equal to LIBOR plus 145 basis points (7.35% per
annum as of April 30, 1997). The Credit Facility expires in August 1998;
however, the Company may elect to convert any outstanding borrowings thereunder
into a three-year term loan.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at December 31, 1996 (i) on a historical basis; (ii) as adjusted to
reflect the offering of 2,015,000 shares of Class A Common Stock completed in
February 1997, the April Offering and the use of the net proceeds from such
offerings (assuming all 1,900,000 shares are sold in the April Offering); and
(iii) on a pro forma basis to reflect such offerings, the Stock Purchase, the
Merger, the Spin-Off of NHP Financial, the acquisition of Bay Club and
Stonebrook, the incurrence of indebtedness to finance such transactions and the
anticipated issuance of the Class A Common Stock in connection with such
transactions. The information set forth in the following table should be read in
conjunction with the financial statements and notes thereto and the pro forma
financial information and notes thereto incorporated by reference in the
accompanying Prospectus. (See "Use of Proceeds" and "NHP Acquisition.")
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED PRO FORMA(1)
---------- ----------- ------------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1996
-------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Credit Facility (2)....................................................... $ 44,800 $ -- $ --
---------- ----------- ------------
Secured tax-exempt bond financing......................................... $ 75,497 $ 75,497 75,497
Secured notes payable..................................................... 389,349 332,708 527,022
Unsecured notes payable................................................... 12,500 -- 146,842
Minority interests in Operating Partnership............................... 58,777 58,777 58,777
Minority interest in other partnerships................................... 10,386 10,386 10,386
Stockholders' equity:
Class A Common Stock, $.01 par value, 150,000,000 authorized, 14,980,441
issued and outstanding: 19,295,441 issued and outstanding on an as
adjusted basis; 24,550,199 issued and outstanding on a pro forma basis
(3)................................................................... 150 193 246
Class B Common Stock, $.01 par value, 425,000 authorized, 325,000 issued
and outstanding (4)................................................... 3 3 3
Preferred Stock, $.01 par value, 10,000,000 authorized, none issued or
outstanding........................................................... -- -- --
Additional paid-in capital.............................................. 236,791 350,689 491,201
Retained earnings (accumulated deficit)................................. (14,055) (14,055) (14,055)
---------- ----------- ------------
Total stockholders' equity................................................ 222,889 336,830 477,395
---------- ----------- ------------
Total capitalization...................................................... $ 814,198 $ 814,198 $1,295,919
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ---------
(1) See AIMCO's Current Report on Form 8-K, dated April 16, 1997, as amended,
which is incorporated by reference in the accompanying Prospectus, for a
description of the adjustments reflected in the pro forma capitalization.
(2) As of April 30, 1997, the borrowings outstanding under the Credit Facility
were $56.3 million.
(3) Does not include 521,400 shares subject to issuance upon the exercise of
options and warrants outstanding as of December 31, 1996.
(4) Convertible into 325,000 shares of Class A Common Stock if certain
performance standards are achieved, including 8.5% annual increases in both
the Company's FFO per share and the market price of its Class A Common
Stock. (See "Description of Common Stock--Class B Common Stock" in the
accompanying Prospectus.)
S-16
<PAGE>
PLAN OF DISTRIBUTION
AIMCO will sell the Class A Common Stock offered hereby directly to an
institutional investor. No underwriting fees or commissions will be paid in
connection with the sale. AIMCO may from time to time sell Class A Common Stock
directly to other persons and may engage in other financing transactions,
including public offerings and private placements of equity securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAXATION OF FOREIGN SHAREHOLDERS
The following discussion of recently enacted legislation, affecting the
ownership and disposition of the Class A Common Stock by a Non-U.S. Holder (as
defined below), supplements the discussion set forth in the accompanying
Prospectus under the heading "Certain Federal Income Tax Considerations." A
"Non-U.S. Holder" is any person other than (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or any state thereof, or
(iii) an estate or trust whose income is includable in gross income for U.S.
Federal income tax purposes regardless of its source. This discussion is based
on current law and is for general information only.
Unless the Class A Common Stock constitutes a United States real property
interest ("USRPI") within the meaning of the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), distributions by AIMCO which are not dividends out
of the current and accumulated earnings and profits of AIMCO will not be subject
to U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of the
current and accumulated earnings and profits, the distribution will be subject
to withholding tax at the rate applicable to dividends. A Non-U.S. Holder may
seek a refund of such amounts from the IRS if it is subsequently determined that
such distribution was, in fact, in excess of current and accumulated earnings
and profits of the Company.
Notwithstanding the discussion in the preceding paragraph, if the Class A
Common Stock constitutes a USRPI, under recently enacted legislation which
became effective in August 1996, such distribution will be subject to 10 percent
withholding and may also be subject to tax under FIRPTA. The Class A Common
Stock will not constitute a USRPI so long as AIMCO is a "domestically controlled
REIT." AIMCO believes that it currently is a domestically controlled REIT.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Recently proposed United States Treasury Department regulations (the
"Proposed Regulations") could affect the procedures to be followed by holders of
Class A Common Stock in complying with United States Federal withholding, backup
withholding and information reporting rules. The Proposed Regulations are not
currently effective but, if finalized in their current form, would be effective
for payments made after December 31, 1997. Holders are urged to consult their
tax advisors regarding the tax consequences, if any, of the Proposed
Regulations, on the purchase, ownership and sale of the Class A Common Stock.
EXPERTS
The consolidated financial statements of Apartment Investment and Management
Company and the combined financial statements of the AIMCO Predecessors included
in Apartment Investment and Management Company's Annual Report on Form 10-K for
the year ended December 31, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated by reference in the accompanying Prospectus. Such consolidated
financial statements and combined financial statements are incorporated therein
by reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of NHP Incorporated for the years
ended December 31, 1996, 1995 and 1994 included in Apartment Investment and
Management Company's Current Report on Form 8-K dated
S-17
<PAGE>
April 16, 1997, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon included therein and
incorporated by reference in the accompanying Prospectus. Such consolidated
financial statements are incorporated therein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing. As noted in their report, Arthur Andersen LLP did not audit the 1994
financial statements of certain real estate partnerships whose operating results
are included in "income (loss) from discontinued real estate operations, net of
income taxes" in the 1994 consolidated financial statements. The financial
statements of these real estate partnerships were audited by other auditors,
whose reports are incorporated by reference as exhibits to Apartment Investment
and Management Company's Current Report on Form 8-K, dated April 16, 1997, as
amended, and Arthur Andersen LLP's opinion, insofar as it relates to the amounts
included in the consolidated financial statements for these real estate
partnerships, is based solely on the reports of those auditors included therein
and incorporated by reference in the accompanying Prospectus. The auditors on
whose reports Arthur Andersen LLP relied are: Anders, Minkler & Diehl LLP; Dauby
O'Connor & Zaleski, LLC; Deloitte & Touche LLP; Edwards Leap & Sauer; George A.
Hieronymous & Company, LLC; Goldenberg Rosenthal Friedlander, LLP; Hansen,
Hunter & Kibbee, P.C.; J.H. Cohn LLP; J.A. Plumer & Co., P.A.; Marks Shron &
Company, LLP; Reznick Fedder & Silverman; and Russell Thompson Butler & Houston.
The Historical Summary of Gross Income and Direct Operating Expenses of
Villa Ladera Apartments for the year ended December 31, 1995 included in
Apartment Investment and Management Company's Current Report on Form 8-K, dated
December 19, 1996, has been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated by
reference in the accompanying Prospectus. Such Historical Summary is
incorporated therein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The Historical Summaries of Gross Income and Direct Operating Expenses of
Somerset Village for the years ended December 31, 1995 and 1994 and the period
from June 10, 1993 through December 31, 1993, and the Combined Historical
Summary of Gross Income and Direct Operating Expenses of Sycamore Creek
Apartments and Tustin Woods Apartments for the year ended December 31, 1995,
included in Apartment Investment and Management Company's Current Report on Form
8-K dated November 21, 1996, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated by reference in the accompanying Prospectus. Such Historical
Summaries are incorporated therein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined statement of revenues and certain expenses of GECC Properties
for the year ended December 31, 1994 included in Apartment Investment and
Management Company's Current Report on Form 8-K dated December 29, 1995, and the
statement of revenues and certain expenses of Peachtree Park Apartments for the
years ended December 31, 1993 and 1994 and the nine months ended September 30,
1995 included in Apartment Investment and Management Company's Current Report on
Form 8-K dated January 1, 1996, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports thereon included
therein and incorporated by reference in the accompanying Prospectus. Such
statements have been incorporated therein by reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
LEGAL MATTERS
Certain legal matters will be passed upon for AIMCO by Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California. The legality of the Class A Common
Stock offered hereby will be passed upon for AIMCO by Piper & Marbury L.L.P.,
Baltimore, Maryland. Skadden, Arps, Slate, Meagher & Flom LLP will rely on Piper
& Marbury L.L.P. as to certain matters of Maryland law.
S-18
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PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$200,000,000
DEBT SECURITIES
PREFERRED STOCK
CLASS A COMMON STOCK
WARRANTS
Apartment Investment and Management Company (the "Company") may offer from
time to time (i) debt securities (the "Debt Securities") consisting of
debentures, notes and/or other unsecured evidences of indebtedness, (ii) shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), (iii)
shares of Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), and (iv) warrants to purchase Debt Securities, Preferred Stock or Class
A Common Stock, as shall be designated by the Company at the time of the
offering (the "Warrants"). The Debt Securities, the Preferred Stock, the Class A
Common Stock and the Warrants are collectively referred to as the "Securities"
and will have an aggregate initial offering price of up to $200,000,000. The
Securities may be offered separately or together (in any combination) and as
separate series, in any case, in amounts, at prices and on terms to be
determined at the time of sale.
The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, exchange and sinking fund terms, if any, voting or other
rights, if any, exercise price and detachability, if any, and other specific
terms will be set forth in a Prospectus Supplement (the "Prospectus
Supplement"), together with the terms of offering of such Securities. If so
specified in the applicable Prospectus Supplement, Debt Securities of a series
may be issued in whole or in part in the form of one or more temporary or
permanent global securities. The Prospectus Supplement will also contain
information, as applicable, about certain material United States Federal income
tax considerations relating to the particular Securities offered thereby. The
Prospectus Supplement will also contain information, where applicable, as to any
listing on a national securities exchange of the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
Securities.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" SET FORTH IN THE APPLICABLE PROSPECTUS SUPPLEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRE SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
------------------------
December 12, 1995
<PAGE>
AVAILABLE INFORMATION
The Company 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 and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
can also be inspected at the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Such additional information is available for inspection
and copying at the offices of the Commission. Statements contained in this
Prospectus, in any Prospectus Supplement or in any document incorporated by
reference herein or therein as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to, or incorporated by reference in, the Registration Statement, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Company with the Commission
pursuant to the Exchange Act (File No. 1-13232), are incorporated herein by
reference:
(i) Annual Report on Form 10-K for the year ended December 31, 1994;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995 (and all amendments thereto);
(iii) Current Reports on Form 8-K dated November 22, 1994, and July 20,
1995 (and all amendments thereto); and
(iv) the description of the Class A Common Stock which is contained in a
Registration Statement on Form 8-A filed July 19, 1994, including any
amendment or reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document that is or is deemed to be incorporated by reference herein modifies or
supersedes such previous statement. Any statement so modified or superseded
shall not be deemed to constitute a part of this Prospectus, except as so
modified or superseded.
Copies of all documents which are incorporated herein by reference (other
than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference herein), will be provided without
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<PAGE>
charge to any person to whom this Prospectus has been delivered, upon request.
Requests for such copies should be directed to Apartment Investment and
Management Company, 1873 South Bellaire Street, 17th Floor, Denver, Colorado
80222, Attention: Corporate Secretary, telephone number (303) 757-8101.
------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus or
any Prospectus Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or any underwriter or agent. This Prospectus and any Prospectus Supplement do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction where, or to any person to whom,
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that the
information herein or therein is correct as of any time subsequent to their
respective dates.
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<PAGE>
THE COMPANY
Apartment Investment and Management Company, a Maryland corporation ("AIMCO"
or the "Company," which terms include its subsidiaries and controlled entities,
unless the context indicates otherwise), is a self-administered and self-managed
real estate investment trust (a "REIT") that owns and operates multifamily
apartment properties (the "Owned Properties") and manages other multifamily
apartment properties (the "Managed Properties"). As of September 30, 1995, AIMCO
owned and operated 48 Owned Properties containing 12,513 apartment units located
in the Southwestern, Southcentral and Southeastern regions of the United States.
In addition to its Owned Properties, as of September 30, 1995, AIMCO operated
140 Managed Properties, including 7,430 apartment units for affiliates and
13,825 apartment units for 83 third parties, bringing the total managed
portfolio to 188 multifamily apartment properties containing 33,768 apartment
units.
The Company was formed in January 1994 to continue and expand the
multifamily apartment property ownership, acquisition, redevelopment and
third-party property management operations of Property Asset Management, L.L.C.,
Limited Liability Company, a Colorado limited liability company, and affiliated
companies and PDI Realty Enterprises, Inc., a Delaware corporation
(collectively, the "AIMCO Predecessors"). On July 29, 1994, the Company
completed an initial public offering (the "Initial Offering") and used the net
proceeds to acquire its initial partnership interests in AIMCO Properties, L.P.,
a Delaware limited partnership (the "Operating Partnership"), through which
substantially all of the Company's operations are conducted. The Company's
interest in the Operating Partnership was approximately 83% as of September 30,
1995, and its wholly owned subsidiary is the sole general partner of the
Operating Partnership. The Company's interests in the Owned Properties are held
through controlling ownership interests in the Operating Partnership and other
limited partnerships and limited liability companies (collectively, the
"Property Partnerships"). The Company's third-party property management and
asset management business is principally conducted by four regional limited
liability companies (the "Service LLCs"), which are owned primarily by four
corresponding regional business trusts (the "Service Trusts" and, together with
the Service LLCs and their respective subsidiaries, the "Management
Subsidiaries"). The Operating Partnership is the managing member of all four
Service LLCs.
The Company's headquarters are located at 1873 South Bellaire Street, 17th
Floor, Denver, Colorado 80222 and its telephone number is (303) 757-8101.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
working capital and general corporate purposes, which may include the repayment
of outstanding indebtedness, the financing of future acquisitions (which may
include real properties, interests therein or real estate-related securities)
and the improvement of the Owned Properties. Pending the use thereof, the
Company intends to invest any net proceeds in short-term, interest-bearing
securities. The Company will not receive any proceeds from the registered resale
of any Securities pursuant to this Prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1995 and the period from January 10, 1994 (the date of formation)
to December 31, 1994 was 2.5:1 and 5.8:1, respectively. Prior to the completion
of the Initial Offering, the ratio of earnings to fixed charges of the AIMCO
Predecessors for the years ended December 31, 1993 and 1992 was 1.2:1 and 1.0:1,
respectively. The earnings of the AIMCO Predecessors for the period from January
1, 1994 to July 28, 1994 and for the years ended December 31, 1991 and 1990 were
inadequate to cover fixed charges by $1,463,000, $473,000 and $1,036,000,
respectively.
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<PAGE>
The Company's ratio of earnings to combined fixed charges and preferred
stock dividends for the nine months ended September 30, 1995 and the period from
January 10, 1994 to December 31, 1994 was 1.5:1 and 2:0:1, respectively. The
AIMCO Predecessors did not have any shares of Preferred Stock outstanding during
the period from January 1, 1990 through July 28, 1994.
The ratio of earnings to fixed charges for the Company was computed by
dividing earnings by fixed charges. For this purpose, "earnings" consists of
income before minority interest plus fixed charges (other than any interest
which has been capitalized); and "fixed charges" consists of interest expense
(including amortization of debt expense) and interest which has been
capitalized.
The ratio of earnings to combined fixed charges and preferred stock
dividends for the Company was computed by dividing earnings by the total of
fixed charges and preferred stock dividends. For this purpose, "earnings"
consists of income before minority interest plus fixed charges (other than any
interest which has been capitalized); "fixed charges" consists of interest
expense (including amortization of debt expense) and interest which has been
capitalized; and "preferred stock dividends" consists of the amount of pre-tax
earnings that would be required to cover preferred stock dividend requirements.
The ratio of earnings to fixed charges for the AIMCO Predecessors was
computed by dividing earnings by fixed charges. For this purpose, "earnings"
consists of income (loss) before extraordinary items and income taxes plus fixed
charges; and "fixed charges" consists of interest expense (including
amortization of debt expense). No preferred stock was issued by the AIMCO
Predecessors.
The Company measures its financial leverage by its earnings before interest
expense, taxes, depreciation and amortization ("EBITDA") coverage of interest
expense and its cash flow coverage of interest expense and preferred stock
dividends. Depreciation and amortization are non-cash charges against earnings
and the Company believes that they are properly added back to compute these
financial leverage ratios. In addition, the Company deducts $300 per apartment
unit per annum, whether actually spent or not, in computing its cash flow
coverage of interest expense and preferred dividends.
The Company's EBITDA coverage of interest expense for the nine months ended
September 30, 1995 and for the period from July 29, 1994 (the date of the
completion of the Initial Offering) through December 31, 1994 was 3.9:1 and
9.0:1, respectively. The Company's cash flow coverage of interest expense and
preferred stock dividends for these same periods was 2.2:1 and 2.7:1,
respectively.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities may be issued, from time to time, in one or more series,
and will constitute either senior Debt Securities ("Senior Debt Securities"),
senior subordinated Debt Securities ("Senior Subordinated Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). Senior Debt
Securities may be issued under an Indenture (the "Senior Debt Securities
Indenture") to be entered into between the Company and a trustee to be named in
the applicable Prospectus Supplement (the "Senior Debt Securities Trustee"). The
Senior Subordinated Debt Securities may be issued from time to time under an
Indenture (the "Senior Subordinated Debt Securities Indenture") to be entered
into between the Company and a trustee to be named in the applicable Prospectus
Supplement (the "Senior Subordinated Debt Securities Trustee"). The Subordinated
Debt Securities may be issued from time to time under an Indenture (the
"Subordinated Debt Securities Indenture") to be entered into between the Company
and a trustee to be named in the applicable Prospectus Supplement (the
"Subordinated Debt Securities Trustee").
5
<PAGE>
The Senior Debt Securities Indenture, the Senior Subordinated Debt
Securities Indenture, and the Subordinated Debt Securities Indenture are
referred to herein individually as an "Indenture" and, collectively, as the
"Indentures." The Senior Debt Securities Trustee, the Senior Subordinated Debt
Securities Trustee and the Subordinated Debt Securities Trustee are referred to
herein individually as a "Trustee" and collectively as the "Trustees." Forms of
the Indentures are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The Indentures will be subject to and governed by the
Trust Indenture Act of 1939, as amended (the "TIA"). Capitalized terms used in
this section which are not otherwise defined in this Prospectus shall have the
meanings set forth in the Indenture to which they relate. The statements made
under this heading relating to the Debt Securities and the Indentures are
summaries of the anticipated provisions of the Debt Securities and the
Indentures, do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Indentures and the
Debt Securities, including the definitions therein of certain terms.
The Debt Securities will be direct, unsecured obligations of the Company.
The Indentures do not limit the aggregate principal amount of Debt Securities
that may be issued thereunder and provide that Debt Securities may be issued
thereunder from time to time in one or more series. Under the Indentures, the
Company will have the ability to issue Debt Securities with terms different from
those of Debt Securities previously issued, without the consent of the holders
of previously issued series of Debt Securities, in an aggregate principal amount
determined by the Company.
The applicable Prospectus Supplement or Prospectus Supplements relating to
any Subordinated Debt Securities will set forth the aggregate amount of
outstanding indebtedness, as of the most recent practicable date, that by the
terms of such Subordinated Debt Securities would be senior to such Subordinated
Debt Securities and any limitation on the issuance of additional senior
indebtedness.
Debt Securities may be issued and sold at a discount below their principal
amount ("Discount Securities"). Special United States Federal income tax
considerations applicable to Debt Securities issued with original issue
discount, including Discount Securities, will be described in more detail in any
applicable Prospectus Supplement. Even if Debt Securities are not issued at a
discount below their principal amount, such Debt Securities may, for United
States Federal income tax purposes, be deemed to have been issued with "original
issue discount" ("OID") because of certain interest payment characteristics. In
addition, special United States Federal tax considerations or other restrictions
or terms applicable to any Debt Securities which are issuable in bearer form,
offered exclusively to United States Aliens or denominated in a currency other
than United States dollars will be set forth in a Prospectus Supplement relating
thereto.
The applicable Prospectus Supplement or Prospectus Supplements will
describe, among other things, the following terms of the Debt Securities offered
thereby (the "Offered Debt Securities"): (i) the title of the Offered Debt
Securities; (ii) any limit on the aggregate principal amount of the Offered Debt
Securities; (iii) whether the Offered Debt Securities may be represented
initially by a Debt Security in temporary or permanent global form, and if so,
the initial Depositary with respect to such temporary or permanent global Debt
Security and whether and the circumstances under which beneficial owners of
interests in any such temporary or permanent global Debt Security may exchange
such interests for Debt Securities of such series and of like tenor of any
authorized form and denomination; (iv) the price or prices at which the Offered
Debt Securities will be issued; (v) the date or dates on which the principal of
the Offered Debt Securities is payable or the method of determination thereof;
(vi) the place or places where and the manner in which the principal of and
premium, if any, and interest, if any, on such Offered Debt Securities will be
payable and the place or places where such Offered Debt Securities may be
presented for transfer and, if applicable, conversion or exchange; (vii) the
rate or rates at which the Offered Debt Securities will bear interest, or the
method of calculating such rate or rates, if any, and the date or dates from
which such interest, if any, will accrue; (viii) the dates (the "Interest
Payment Dates"), if any, on which any interest on the Offered Debt Securities
will be payable, and the regular record date (the "Regular Record Date") for any
interest payable on any Offered Debt Securities; (ix) the right or
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<PAGE>
obligation, if any, of the Company to redeem or purchase Debt Securities of the
series pursuant to any sinking fund or analogous provisions or at the option of
a holder thereof, the conditions, if any, giving rise to such right or
obligation, and the period or periods within which, and the price or prices at
which and the terms and conditions upon which Debt Securities of the series
shall be redeemed or purchased, in whole or part, and any provisions for the
remarketing of such Debt Securities; (x) whether such Offered Debt Securities
are convertible or exchangeable into other debt or equity securities of the
Company, and, if so, the terms and conditions upon which such conversion or
exchange will be effected including the initial conversion or exchange price or
rate and any adjustments thereto, the conversion or exchange period and other
conversion or exchange provisions; (xi) any terms applicable to such Offered
Debt Securities issued at original issue discount below their stated principal
amount, including the issue price thereof and the rate or rates at which such
original issue discount will accrue; (xii) if other than the principal amount
thereof, the portion of the principal amount of the Offered Debt Securities
which will be payable upon declaration or acceleration of the maturity thereof
pursuant to an Event of Default; (xiii) any deletions from, modifications of or
additions to the Events of Default or covenants of the Company with respect to
such Offered Debt Securities, whether or not such Events of Default or covenants
are consistent with the Events of Default or covenants set forth herein; (xiv)
any special United States Federal income tax considerations applicable to the
Offered Debt Securities; and (xv) any other terms of the Offered Debt Securities
not inconsistent with the provisions of the Indenture. The applicable Prospectus
Supplement will also describe the following terms of any series of Senior
Subordinated Debt Securities or Subordinated Debt Securities offered hereby in
respect of which this Prospectus is being delivered: (a) the rights, if any, to
defer payments of interest on the Senior Subordinated Debt Securities or
Subordinated Debt Securities of such series by extending the interest payment
period, and the duration of such extensions, and (b) the subordination terms of
the Senior Subordinated Debt Securities or Subordinated Debt Securities of such
series. The foregoing is not intended to be an exclusive list of the terms that
may be applicable to any Offered Debt Securities and shall not limit in any
respect the ability of the Company to issue Debt Securities with terms different
from or in addition to those described above or elsewhere in this Prospectus
provided that such terms are not inconsistent with the applicable Indenture. Any
such Prospectus Supplement will also describe any special provisions for the
payment of additional amounts with respect to the Offered Debt Securities.
Since the operations of the Company are currently conducted principally
through subsidiaries, the Company's cash flow and its consequent ability to
service debt, including the Debt Securities, are dependent, in large part, upon
the earnings of its subsidiaries and the distribution of those earnings to the
Company, whether by dividends, loans or otherwise. The payment of dividends and
the making of loans and advances to the Company by its subsidiaries may be
subject to statutory or contractual restrictions, are contingent upon the
earnings of those subsidiaries and are subject to various business
considerations. Any right of the Company to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the Debt Securities to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors (including
trade creditors), except to the extent that the Company is itself recognized as
a creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security interests in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The Debt Securities of a series may be issued solely as registered Debt
Securities. Debt Securities of a series may be issuable in whole or in part in
the form of one or more global Debt Securities, as described below under "Global
Debt Securities." Unless otherwise indicated in an applicable Prospectus
Supplement, Debt Securities will be issuable in denominations of $1,000 and
integral multiples thereof. Debt Securities of any series will be exchangeable
for other Debt Securities of the same series of any authorized denominations and
of a like aggregate principal amount and tenor.
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Debt Securities may be presented for exchange as provided above and, unless
otherwise indicated in an applicable Prospectus Supplement, may be presented for
registration of transfer, at the office or agency of the Company designated as
registrar or co-registrar with respect to such series of Debt Securities,
without service charge and upon payment of any taxes, assessments or other
governmental charges as described in the Indenture. Such transfer or exchange
will be effected on the books of the registrar or any other transfer agent
appointed by the Company upon such registrar or transfer agent, as the case may
be, being satisfied with the documents of title and identity of the person
making the request. The Company intends to initially appoint the Trustee for the
Offered Debt Securities as the registrar for such Offered Debt Securities and
the name of any different or additional registrar designated by the Company with
respect to the Offered Debt Securities will be included in the Prospectus
Supplement relating thereto. If a Prospectus Supplement refers to any transfer
agents (in addition to the registrar) designated by the Company with respect to
any series of Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in the Borough of Manhattan, The City of
New York. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities.
In the event of any partial redemption of Debt Securities of any series, the
Company will not be required to (i) issue, register the transfer of or exchange
Debt Securities of that series during a period beginning at the opening of
business 15 days before any selection of Debt Securities of that series to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; or (ii) register the transfer of or exchange any
Debt Security, or portion thereof, called for redemption, except the unredeemed
portion of any Debt Security being redeemed in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and interest, if any, on Debt Securities will be made at the
office of such paying agent or paying agents as the Company may designate from
time to time, except that, at the option of the Company, payment of principal or
interest may be made by check or by wire transfer to an account maintained by
the payee. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on Debt Securities will be made to the
person in whose name such Debt Security is registered at the close of business
on the Regular Record Date for such interest.
Unless otherwise indicated in an applicable Prospectus Supplement, the
Trustee for the Offered Debt Securities will be designated as the Company's sole
paying agent for payments with respect to the Offered Debt Securities. Any other
paying agents initially designated by the Company for the Offered Debt
Securities will be named in an applicable Prospectus Supplement. The Company may
at any time designate additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any paying agent
acts, except that the Company will be required to maintain a paying agent in the
Borough of Manhattan, The City of New York.
All moneys paid by the Company to a paying agent for the payment of
principal of, or interest, if any, on, any Debt Security which remains unclaimed
at the end of two years after such principal or interest shall have become due
and payable will be repaid to the Company, and the holder of such Debt Security
or any coupon will thereafter look only to the Company for payment thereof.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in global
form. A Debt Security in global form will be deposited with, or on behalf of, a
depositary, which will be identified in the applicable Prospectus Supplement. A
global Debt Security may be issued only in registered form and in either
temporary or permanent form. A Debt Security in global form may not be
transferred except as a whole to the depositary for such Debt Security or to a
nominee or successor of such depositary. If any Debt
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Securities of a series are issuable in global form, the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such global Debt Security may exchange such interests
for definitive Debt Securities of such series and of like tenor and principal
amount in any authorized form and denomination, the manner of payment of
principal of and interest, if any, on any such global Debt Security and the
specific terms of the depositary arrangement with respect to any such global
Debt Security.
MERGERS AND SALES OF ASSETS
The Company may not consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an entirety
to another person, unless, among other things, (i) the resulting, surviving or
transferee person (if other than the Company) is organized and existing under
the laws of the United States, any state thereof or the District of Columbia and
such person expressly assumes all obligations of the Company under the Debt
Securities and the Indenture, and (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred or be continuing
under the Indenture. Upon the assumption of the Company's obligations by a
person to whom such properties or assets are conveyed, transferred or leased,
subject to certain exceptions, the Company shall be discharged from all
obligations under the Debt Securities and the Indenture.
EVENTS OF DEFAULT
Each Indenture provides that, if an Event of Default specified therein shall
have occurred and be continuing, with respect to each series of the Debt
Securities outstanding thereunder individually, the Trustee or the holders of
not less than 25% in aggregate principal amount of the outstanding Debt
Securities of such series may declare the principal amount (or, if any of the
Debt Securities of such series are Discount Securities, such portion of the
principal amount of such Debt Securities as may be specified by the terms
thereof) of the Debt Securities of such series to be immediately due and
payable. Under certain circumstances, the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of such series may rescind
such a declaration.
Under each Indenture, an Event of Default is defined as, with respect to
each series of Debt Securities outstanding thereunder individually, any of the
following: (i) default in payment of the principal of any Debt Securities of
such series; (ii) default in payment of any interest on any Debt Securities of
such series when due, continuing for 30 days (or 60 days, in the case of Senior
Subordinated Debt Securities or Subordinated Debt Securities); (iii) default by
the Company in compliance with its other agreements in the Debt Securities of
such series or the Indenture relating to the Debt Securities of such series upon
the receipt by the Company of notice of such default by the Trustee for such
Debt Securities or the holders of at least 25% in aggregate principal amount of
the outstanding Debt Securities of such series and the Company's failure to cure
such default within 60 days after receipt by the Company of such notice; (iv)
certain events of bankruptcy or insolvency; and (v) any other Event of Default
set forth in an applicable Prospectus Supplement.
The Trustee shall give notice to holders of the Debt Securities of any
continuing default known to the Trustee within 90 days after the occurrence
thereof; PROVIDED, that the Trustee may withhold such notice, as to any default
other than a payment default, if it determines in good faith that withholding
the notice is in the interests of the holders.
The holders of a majority in principal amount of the outstanding Debt
Securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Debt Securities of such
series; PROVIDED that such direction shall not be in conflict with any law or
the Indenture and subject to certain other limitations. Before proceeding to
exercise any right or power under the Indenture at the direction of such
holders, the Trustee shall be entitled to receive from such holders reasonable
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with
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any such direction. With respect to each series of Debt Securities, no holder
will have any right to pursue any remedy with respect to the Indenture or the
Debt Securities, unless (i) such holder shall have previously given the Trustee
written notice of a continuing Event of Default with respect to the Debt
Securities of such series; (ii) the holders of at least 25% in aggregate
principal amount of the outstanding Debt Securities of such series shall have
made a written request to the Trustee to pursue such remedy; (iii) such holder
or holders have offered to the Trustee reasonable indemnity satisfactory to the
Trustee; (iv) the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of such series have not given the Trustee a
direction inconsistent with such request within 60 days after receipt of such
request; and (v) the Trustee shall have failed to comply with the request within
such 60-day period.
Notwithstanding the foregoing, the right of any holder of any Debt
Securities or coupon to receive payment of the principal of and interest in
respect of such Debt Securities or payment of such coupon on the date specified
in such Debt Securities or coupon representing such installment of interest as
the fixed date on which an amount equal to the principal of such Debt Securities
or an installment of principal thereof or interest thereon is due and payable
(the "Stated Maturity" or "Stated Maturities") or to institute suit for the
enforcement of any such payments shall not be impaired or adversely affected
without such holder's consent. The holders of at least a majority in aggregate
principal amount of the outstanding Debt Securities of any series may waive an
existing default with respect to such series and its consequences, other than
(i) any default in any payment of the principal of, or interest on, any Debt
Securities of such series or (ii) any default in respect of certain covenants or
provisions in the Indenture which may not be modified without the consent of the
holder of each of the outstanding Debt Securities of such series affected as
described in "Modification and Waiver," below.
Each Indenture provides that the Company shall deliver to the Trustee within
120 days after the end of each fiscal year of the Company an officers'
certificate stating whether or not the signers know of any default that occurred
during such period.
MODIFICATION AND WAIVER
The Company and the Trustee may execute a supplemental indenture without the
consent of the holders of the Debt Securities or any related coupons (i) to add
to the covenants, agreements and obligations of the Company for the benefit of
the holders of all the Debt Securities of any series or to surrender any right
or power conferred in the Indenture upon the Company; (ii) to evidence the
succession of another corporation to the Company and the assumption by it of the
obligations of the Company under the Indenture and the Debt Securities; (iii) to
establish the form or terms of Debt Securities of any series as permitted by the
Indenture; (iv) to provide for the acceptance of appointment under the Indenture
of a successor Trustee with respect to the Debt Securities of one or more series
and to add to or change any provisions of the Indenture as shall be necessary to
provide for or facilitate the administration of the trusts by more than one
Trustee; (v) to cure any ambiguity, defect or inconsistency; (vi) to add to,
change or eliminate any provisions (which addition, change or elimination may
apply to one or more series of Debt Securities), PROVIDED that any such
addition, change or elimination does not (a) apply to any Debt Securities of any
series created prior to the execution of such supplemental indenture that is
entitled to the benefit of such provision or (b) modify the rights of the holder
of any such Debt Securities with respect to such provision; (vii) to secure the
Debt Securities; or (viii) to make any other change that does not adversely
affect the rights of any holder of Debt Securities.
Each Indenture provides that, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding Debt Securities
of the series affected by such supplemental indenture, the Company and the
Trustee may also execute a supplemental indenture to add provisions to, or
change in any manner or eliminate any provisions of, the Indenture with respect
to such series of Debt Securities or modify in any manner the rights of the
holders of the Debt Securities of such series; PROVIDED that no such
supplemental indenture will, without the consent of the holder of each such
outstanding Debt Security affected thereby (i) change the stated maturity of the
principal of, or any installment of principal or
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interest on, any such Debt Security or any premium payable upon redemption
thereof, or reduce the amount of principal of any Debt Security that is a
Discount Security and that would be due and payable upon declaration of
acceleration of maturity thereof; (ii) reduce the principal amount of, or the
rate of interest on, any such Debt Security; (iii) change the place or currency
of payment of principal or interest, if any, on any such Debt Security; (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (v) reduce the above-stated percentage of
holders of Debt Securities of any series necessary to modify or amend the
Indenture for such Debt Securities; (vi) modify the foregoing requirements or
reduce the percentage in principal amount of outstanding Debt Securities of any
series necessary to waive any covenant or past default; or (vii) in the case of
Senior Subordinated Debt Securities or Subordinated Debt Securities, amend or
modify any of the provisions of such Indenture relating to subordination of the
Debt Securities in any manner adverse to the holders of such Debt Securities.
Holders of not less than a majority in principal amount of the outstanding Debt
Securities of any series may waive certain past defaults and may waive
compliance by the Company with certain of the restrictive covenants described
above with respect to the Debt Securities of such series.
DISCHARGE AND DEFEASANCE
Unless otherwise indicated in an applicable Prospectus Supplement, each
Indenture provides that the Company may satisfy and discharge obligations
thereunder with respect to the Debt Securities of any series by delivering to
the Trustee for cancellation all outstanding Debt Securities of such series or
depositing with the Trustee, after such outstanding Debt Securities have become
due and payable, cash sufficient to pay at Stated Maturity all of the
outstanding Debt Securities of such series and paying all other sums payable
under the Indenture with respect to such series.
In addition, unless otherwise indicated in an applicable Prospectus
Supplement, each Indenture provides that: the Company (a) shall be discharged
from its obligations in respect of the Debt Securities of such series
("defeasance and discharge"), or (b) may cease to comply with certain
restrictive covenants ("covenant defeasance"), including those described under
"Mergers and Sales of Assets," and any such omission shall not be an Event of
Default with respect to the Debt Securities of such series, in each case, at any
time prior to the Stated Maturity or redemption thereof, when the Company has
irrevocably deposited with the Trustee, in trust, (i) sufficient funds to pay
the principal of and interest to Stated Maturity (or redemption) on, the Debt
Securities of such series, or (ii) such amount of direct obligations of, or
obligations the principal of (and premium, if any) and interest on which are
fully guaranteed by, the government of the United States and which are not
subject to prepayment, redemption or call, as will, together with the
predetermined and certain income to accrue thereon without consideration of any
reinvestment thereof, be sufficient to pay when due the principal of (and
premium, if any) and interest to Stated Maturity (or redemption) on, the Debt
Securities of such series. Upon such defeasance and discharge, the holders of
the Debt Securities of such series shall no longer be entitled to the benefits
of the Indenture, except for the purposes of registration of transfer and
exchange of the Debt Securities of such series and replacement of lost, stolen
or mutilated Debt Securities and shall look only to such deposited funds or
obligations for payment.
THE TRUSTEES
The Senior Debt Securities Trustee, the Senior Subordinated Debt Securities
Trustee and the Subordinated Debt Securities Trustee will be named in the
applicable Prospectus Supplement. Each Trustee will be permitted to engage in
other transactions with the Company and each of its subsidiaries; HOWEVER, if a
Trustee acquires any conflicting interest, it must eliminate such conflict or
resign.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company may issue, from time to time, shares of one or more series or
classes of Preferred Stock. The following description sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The particular terms of any series of Preferred Stock and the
extent, if any, to which such general provisions may apply to the series of
Preferred Stock so offered will be described in the Prospectus Supplement
relating to such Preferred Stock. The following summary of certain provisions of
the Preferred Stock do not purport to be complete and is subject to, and is
qualified in its entirety by express reference to, the provisions of the
Company's Articles of Incorporation relating to a specific series of the
Preferred Stock, which will be in the form filed as an exhibit to or
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of issuance of such series of Preferred Stock.
Under the Company's Articles of Incorporation (the "Articles of
Incorporation"), the Company has the authority to issue 10,000,000 shares of
Preferred Stock. The Board of Directors of the Company is authorized to issue
shares of Preferred Stock, in one or more classes or subclasses, and may
classify or reclassify any unissued shares of Preferred Stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of Preferred Stock
including, but not limited to, ownership restrictions consistent with the
Ownership Limit (defined below) with respect to each class or subclass of
Preferred Stock, and the number of shares constituting each class or subclass,
and to increase or decrease the number of shares of any such class or subclass,
to the extent permitted by the Maryland General Corporation Law (the "MGCL").
The Board of Directors of the Company shall be authorized to determine for
each series of Preferred Stock, and the Prospectus Supplement shall set forth
with respect to such series: (i) the designation of such shares and the number
of shares that constitute such series, (ii) the dividend rate (or the method of
calculation thereof), if any, on the shares of such series and the priority as
to payment of dividends with respect to other classes or series of capital stock
of the Company, (iii) the dividend periods (or the method of calculation
thereof), (iv) the voting rights of the shares, (v) the liquidation preference
and the priority as to payment of such liquidation preference with respect to
other classes or series of capital stock of the Company and any other rights of
the shares of such series upon any liquidation or winding-up of the Company,
(vi) whether or not and on what terms the shares of such series will be subject
to redemption or repurchase at the option of the Company, (vii) whether and on
what terms the shares of such series will be convertible into or exchangeable
for other debt or equity securities of the Company, (viii) whether the shares of
such series of Preferred Stock will be listed on a securities exchange, (x) any
special United States Federal income tax considerations applicable to such
series, and (ix) the other rights and privileges and any qualifications,
limitations or restrictions of such rights or privileges of such series.
DIVIDENDS
Holders of shares of Preferred Stock shall be entitled to receive, when and
as declared by the applicable Board of Directors out of funds of the Company
legally available therefor, an annual cash dividend payable at such dates and at
such rates, if any, per share per annum as set forth in the applicable
Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement, each
series of Preferred Stock will rank junior as to dividends to any Preferred
Stock that may be issued in the future that is expressly senior as to dividends
to the Preferred Stock. If at any time the Company has failed to pay accrued
dividends on any such senior shares at the time such dividends are payable, the
Company may not pay any dividend on the Preferred Stock or redeem or otherwise
repurchase shares of Preferred Stock until such
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accumulated but unpaid dividends on such senior shares have been paid or set
aside for payment in full by the Company.
Unless otherwise set forth in the applicable Prospectus Supplement, no
dividends (other than in common stock or other capital stock ranking junior to
the Preferred Stock of any series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment, nor shall any other distribution be
declared or made upon the common stock, or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
as to dividends, nor shall any common stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
as to dividends or upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the Company (except
by conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for all past dividend periods and the then
current dividend period and (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period; PROVIDED, HOWEVER, that any monies theretofore deposited in any sinking
fund with respect to any preferred stock in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or redemption of
such preferred stock in accordance with the terms of such sinking fund,
regardless of whether at the time of such application full cumulative dividends
upon shares of the Preferred Stock outstanding on the last dividend payment date
shall have been paid or declared and set apart for payment; and provided,
further, that any such junior or parity preferred stock or common stock may be
converted into or exchanged for stock of the Company ranking junior to the
Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
CONVERTIBILITY
No series of Preferred Stock will be convertible into, or exchangeable for,
other securities or property except as set forth in the applicable Prospectus
Supplement. No series of Preferred Stock will be convertible into, or
exchangeable for, securities of an issuer other than the Company.
REDEMPTION AND SINKING FUND
No series of Preferred Stock will be redeemable or receive the benefit of a
sinking fund except as set forth in the applicable Prospectus Supplement.
LIQUIDATION RIGHTS
Unless otherwise set forth in the applicable Prospectus Supplement, in the
event of any liquidation, dissolution or winding up of the Company, the holders
of shares of each series of Preferred Stock are entitled to receive out of
assets of the Company available for distribution to stockholders, before any
distribution of assets is made to holders of: (i) any other shares of preferred
stock ranking junior to such series of Preferred Stock as to rights upon
liquidation, dissolution or winding up; and (ii) shares of common stock,
liquidating distributions per share in the amount of the liquidation preference
specified in the applicable Prospectus Supplement for such series of Preferred
Stock plus any dividends accrued and accumulated but unpaid to the date of final
distribution; but the holders of each series of Preferred Stock will not be
entitled to receive the liquidating distribution of, plus such dividends on,
such shares until the
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liquidation preference of any shares of the Company's capital stock ranking
senior to such series of the Preferred Stock as to the rights upon liquidation,
dissolution or winding up shall have been paid (or a sum set aside therefor
sufficient to provide for payment) in full. If upon any liquidation, dissolution
or winding up of the Company, the amounts payable with respect to the Preferred
Stock, and any other Preferred Stock ranking as to any such distribution on a
parity with the Preferred Stock are not paid in full, the holders of the
preferred stock and such other parity preferred stock will share ratably in any
such distribution of assets in proportion to the full respective preferential
amount to which they are entitled. Unless otherwise specified in a Prospectus
Supplement for a series of Preferred Stock, after payment of the full amount of
the liquidating distribution to which they are entitled, the holders of shares
of Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company. Neither a consolidation or merger of the
Company with another corporation nor a sale of securities shall be considered a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting right except as set
forth below or in the applicable Prospectus Supplement or as otherwise from time
to time required by law. Whenever dividends on any applicable series of
Preferred Stock or any other class or series of stock ranking on a parity with
the applicable series of Preferred Stock with respect to the payment of
dividends shall be in arrears for the equivalent of six quarterly dividend
periods, whether or not consecutive, the holders of shares of such series of
Preferred Stock (voting separately as a class with all other series of Preferred
Stock then entitled to such voting rights) will be entitled to vote for the
election of two of the authorized number of directors of the Company at the next
annual meeting of stockholders and at each subsequent meeting until all
dividends accumulated on such series of Preferred Stock shall have been fully
paid or set apart for payment. The term of office of all directors elected by
the holders of such Preferred Stock shall terminate immediately upon the
termination of the right of the holders of such Preferred Stock to vote for
directors. Unless otherwise set forth in the applicable Prospectus Supplement,
holders of shares of Preferred Stock will have one vote for each share held.
So long as any shares of any series of Preferred Stock remain outstanding,
the Company shall not, without the consent of holders of at least two-thirds of
the shares of such series of Preferred Stock outstanding at the time, voting
separately as a class with all other series of Preferred Stock of the Company
upon which like voting rights have been conferred and are exercisable, (i) issue
or increase the authorized amount of any class or series of stock ranking prior
to the outstanding Preferred Stock as to dividends or upon liquidation or (ii)
amend, alter or repeal the provisions of the Company's Articles of Incorporation
relating to such series of Preferred Stock, whether by merger, consolidation or
otherwise, so as to materially adversely affect any power, preference or special
right of such series of Preferred Stock or the holders thereof; PROVIDED,
HOWEVER, that any increase in the amount of the authorized common stock or
authorized preferred stock or any increase or decrease in the number of shares
of any series of preferred stock or the creation and issuance of other series of
common stock or preferred stock ranking on a parity with or junior to Preferred
Stock as to dividends and upon liquidation, dissolution or winding up shall not
be deemed to materially adversely affect such powers, preferences or special
rights.
MISCELLANEOUS
The holders of Preferred Stock will have no preemptive rights. The Preferred
Stock, upon issuance against full payment of the purchase price therefor, will
be fully paid and nonassessable. Shares of Preferred Stock redeemed or otherwise
reacquired by the Company shall resume the status of authorized and unissued
shares of Preferred Stock undesignated as to series, and shall be available for
subsequent issuance. There are no restrictions on repurchase or redemption of
the Preferred Stock while there is any arrearage on sinking fund installments
except as may be set forth in an applicable Prospectus Supplement. Payment of
dividends on any series of Preferred Stock may be restricted by loan agreements,
indentures
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and other transactions entered into by the Company. The accompanying Prospectus
Supplement will describe any material contractual restrictions on dividend
payments.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the applicable Prospectus Supplement or the
Articles of Incorporation or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Preferred Stock will be
designated in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company's Articles of Incorporation authorize the issuance of up to
150,000,000 shares of Class A Common Stock with a par value of $.01 per share.
There are presently 9,141,145 shares of Class A Common Stock issued and
outstanding. In addition, up to 150,000 shares of Class A Common Stock have been
reserved for issuance under the Company's non-qualified and incentive stock
option plan for employees and directors (the "Plan"). The Class A Common Stock
is traded on the NYSE under the symbol "AIV." First Interstate Bank of
California serves as transfer agent and registrar of the Class A Common Stock.
In addition, the Company's Articles of Incorporation authorize 750,000 shares of
Class B Common Stock with a par value of $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), which
number of authorized shares is subject to automatic reduction by the number of
shares of Class B Common Stock that have been converted into Class A Common
Stock. As of September 30, 1995, 65,000 shares of Class B Common Stock had been
so converted, leaving a total of 685,000 shares of Class B Common Stock
authorized. See "--Class B Common Stock" below.
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the Board of Directors, out of funds legally available
therefor. The holders of shares of Class A Common Stock, upon any liquidation,
dissolution or winding-up of the Company, are entitled to receive ratably any
assets remaining after payment in full of all liabilities of the Company and the
liquidation preferences of preferred stock. The shares of Class A Common Stock
possess ordinary voting rights for the election of Directors and in respect of
other corporate matters, each share entitling the holder thereof to one vote.
Holders of shares of Class A Common Stock do not have cumulative voting rights
in the election of Directors, which means that holders of more than 50% of the
shares of Class A Common Stock voting for the election of Directors can elect
all of the Directors if they choose to do so and the holders of the remaining
shares cannot elect any Directors. Holders of shares of Class A Common Stock do
not have preemptive rights, which means they have no right to acquire any
additional shares of Class A Common Stock that may be issued by the Company at a
subsequent date.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock 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 the shares of common stock 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 of the Company--Income Tests"). Because the Board of
Directors believes that it is essential for the Company to continue to qualify
as a REIT, the Board
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of Directors has adopted, and the shareholders have approved, provisions of the
Company's Articles of Incorporation restricting the acquisition of shares of
Common Stock.
Subject to certain exceptions specified in the Company's Articles of
Incorporation, no holder may own, or be deemed to own by virtue of various
attribution and constructive ownership provisions of the Code and Rule 13d-3
under the Exchange Act, more than 8.7% (or 15% in the case of certain pension
trusts described in the Code, investment companies registered under the
Investment Company Act of 1940 and Mr. Considine) of the outstanding shares of
Common Stock (the "Ownership Limit"). The Board of Directors may waive the
Ownership Limit if evidence satisfactory to the Board of Directors and the
Company's tax counsel is presented that such ownership will not then or in the
future jeopardize the Company's status as a REIT. However, in no event may such
holder's direct or indirect ownership of Common Stock exceed 9.8% of the total
outstanding shares of Common Stock. As a condition of such waiver, the Board of
Directors may require opinions of counsel satisfactory to it and/or an
undertaking from the applicant with respect to preserving the REIT status of the
Company. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT and a resolution terminating the Company's status as a REIT and amending
the Company's Articles of Incorporation to remove the foregoing restrictions is
duly adopted by the Board of Directors and a majority of the Company's
shareholders. If shares of Common Stock in excess of the Ownership Limit, or
shares of Common Stock which would cause the REIT to be beneficially owned by
less than 100 persons, or which would result in the Company being "closely
held," within the meaning of Section 856(h) of the Code, or which would
otherwise result in the Company failing to qualify as a REIT, are issued or
transferred to any person, such issuance or transfer shall be null and void to
the intended transferee, and the intended transferee would acquire no rights to
the stock. Shares of Common Stock transferred in excess of the Ownership Limit
or other applicable limitations will automatically be transferred to a trust for
the exclusive benefit of one or more qualifying charitable organizations to be
designated by the Company. Shares transferred to such trust will remain
outstanding, and the trustee of the trust will have all voting and dividend
rights pertaining to such shares. The trustee of such trust may transfer such
shares to a person whose ownership of such shares does not violate the Ownership
Limit or other applicable limitation. Upon a sale of such shares by the trustee,
the interest of the charitable beneficiary will terminate, and the sales
proceeds would be paid, first, to the original intended transferee, to the
extent of the lesser of (a) such transferee's original purchase price (or the
original market value of such shares if purportedly acquired by gift or devise)
and (b) the price received by the trustee, and, second, any remainder to the
charitable beneficiary. In addition, shares of stock held in such trust are
purchasable by the Company for a 90-day period at a price equal to the lesser of
the price paid for the stock by the original intended transferee (or the
original market value of such shares if purportedly acquired by gift or devise)
and the market price for the stock on the date that the Company determines to
purchase the stock. The 90-day period commences on the date of the violation
transfer or the date that the Board of Directors determines in good faith that a
violative transfer has occurred, whichever is later. All certificates
representing shares of Common Stock bear a legend referring to the restrictions
described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code and Rule 13d-3 under the Exchange Act, more than a specified percentage
of the outstanding shares of Common Stock must file an affidavit with the
Company containing the information specified in the Company's Articles of
Incorporation within 30 days after January 1 of each year. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of shares as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to a REIT or to comply with the requirements
of any taxing authority or governmental agency.
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The ownership limitations may have the effect of precluding acquisition of
control of the Company by a third party unless the Board of Directors determines
that maintenance of REIT status is no longer in the best interests of the
Company.
CLASS B COMMON STOCK
In connection with the initial formation of the Company, Messrs. Considine,
Kompaniez, Ira and Lacy acquired an aggregate of 650,000 shares of the Company's
Class B Common Stock. The Class B Common Stock does not have voting or dividend
rights and, unless converted into Class A Common Stock, as described below, is
subject to repurchase by the Company as described below. As of December 31 of
each of the years 1994 through 1998 (each, a "Year-End Testing Date"), a number
of the shares of Class B Common Stock outstanding as of such date (the "Eligible
Class B Shares") become eligible for automatic conversion (subject to the
Ownership Limit) into an equal number of shares of Class A Common Stock (subject
to adjustment upon the occurrence of certain events in respect of the Class A
Common Stock, including stock dividends, subdivisions, combinations and
reclassifications). Once Class B Common Stock has been converted into Class A
Common Stock, holders of such shares of converted Class A Common Stock will have
voting and dividend rights of Class A Common Stock generally. Once converted or
forfeited, the Class B Common Stock may not be reissued by the Company.
The Eligible Class B Shares convert to Class A Common Stock if (i) the
Company's Funds from Operations Per Share (as defined below) reaches certain
annual and cumulative growth targets and (ii) the average market price for a
share of Class A Common Stock for a 90 calendar day period beginning on any day
on or after the October 1 immediately preceding the relevant Year-End Testing
Date equals or exceeds a specified target price. "Funds from Operations Per
Share" or "FFO Per Share" means, for any period, (i) net income (loss), computed
in accordance with generally accepted accounting principles, excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures, less any preferred stock dividend payments, divided by (ii) the sum of
(a) the number of shares of the Class A Common Stock outstanding on the last day
of such period (excluding any shares of the Class A Common Stock into which
shares of the Class B Common Stock shall have been converted as a result of the
conversion of shares of the Class B Common Stock on the last day of such period)
and (b) the number of shares of the Class A Common Stock issuable to acquire
units of limited partnership that (x) may be tendered for redemption in any
limited partnership in which the Company serves as general partner and (y) are
outstanding on the last day of such period.
Set forth below for each of the remaining Year-End Testing Dates is (i) the
number of shares of Class B Common Stock that become Eligible Class B Shares as
of such date, (ii) the annual FFO Per Share growth target (as a percentage
increase in FFO Per Share from the prior year), (iii) the cumulative FFO Per
Share growth target (in FFO Per Share) and (iv) the average market price target:
<TABLE>
<CAPTION>
ELIGIBLE CLASS CUMULATIVE FFO
B ANNUAL FFO PER PER SHARE AVERAGE MARKET
YEAR-END TESTING DATE SHARES(1) SHARE GROWTH TARGET GROWTH TARGET PRICE TARGET
- ----------------------------------------- --------------- ----------------------- --------------- --------------
<S> <C> <C> <C> <C>
December 31, 1995........................ 130,000 8.5%(2) $ 2.161 $ 20.648
December 31, 1996........................ 130,000 8.5% $ 2.345 $ 22.403
December 31, 1997........................ 162,500 8.5% $ 2.544 $ 24.307
December 31, 1998........................ 162,500 8.5% $ 2.760 $ 26.373
</TABLE>
- ------------------------
(1) Assumes that only the shares of Class B Common Stock outstanding as of
September 30, 1995 remain outstanding until converted into shares of Class A
Common Stock.
(2) The annual growth target for December 31, 1995 is FFO Per Share of $2.161,
which is intended to reflect annual growth of 8.5% in FFO Per Share.
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If the annual growth target is not met for a particular Year-End Testing
Date, the Eligible Class B Shares for that date may be converted as of a
subsequent Year-End Testing Date if all of the targets are met for that
subsequent Year-End Testing Date. Any Class B Common Stock that has not been
converted into Class A Common Stock following December 31, 1998 will be subject
to repurchase by the Company at a price of $0.10 per share. Class B Common Stock
is also subject to automatic conversion upon the occurrence of certain events,
including a change of control (as defined in the Company's Articles of
Incorporation). The Board of Directors may increase the number of shares which
are eligible for conversion as of any Year-End Testing Date and may, under
certain circumstances, accelerate the conversion of outstanding Class B Common
Stock at such time and in such amount as it may determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date have been converted. The
currently outstanding Class B Common Stock is held as follows: 336,343 shares by
Mr. Considine, 149,175 shares by Mr. Kompaniez, 49,757 shares by Mr. Ira and
49,725 shares by Mr. Lacy.
BUSINESS COMBINATIONS
Under the MGCL 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
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, 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 then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
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 corporation, voting together
as a single voting group, and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder with whom the business combination is to be
effected, unless, among other conditions, the corporation's shareholders receive
a minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. The business combination statute could have the
effect of discouraging offers to acquire the Company and of increasing the
difficulty of consummating any such offer. These provisions of the MGCL do not
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation 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 stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors 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 or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder 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 corporation's board of directors to
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call a special meeting of shareholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation 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 corporation 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 voting
rights, as of the date of the last control share acquisition or of any meeting
of shareholders at which the voting rights of such shares were 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
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of the appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. The
control share acquisition statute could have the effect of discouraging offers
to acquire the Company and of increasing the difficulty of consummating any such
offer.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue, together with other Securities or separately,
warrants for the purchase of Debt Securities, Preferred Stock or Class A Common
Stock (the "Warrants"). The Warrants may be issued under a Warrant Agreement
(each, a "Warrant Agreement") to be entered into between the Company and a bank
or trust company, as warrant agent (the "Warrant Agent"), as set forth in the
applicable Prospectus Supplement relating to any or all Warrants in respect of
which this Prospectus is being delivered. The Warrant Agent will act solely as
an agent of the Company in connection with the Warrants of a particular series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of Warrants. The Warrant Agreement for
each Warrant, including the forms of certificates representing the Warrants
("Warrant Certificates"), will be filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus forms a part
at or prior to the time of the issuance of such Warrants.
The following description sets forth certain general terms and provisions of
the Warrants to which any Prospectus Supplement may relate. The particular terms
of the Warrants to which any Prospectus Supplement may relate and the extent, if
any, to which such general provisions may apply to the Warrants so offered will
be described in the applicable Prospectus Supplement. Capitalized terms used in
this section which are not otherwise defined in this Prospectus shall have the
meanings set forth in the Warrant Agreement and Warrant Certificate. The
following summary of certain provisions of the Warrants, Warrant Agreement and
Warrant Certificate does not purport to be complete and is subject to, and is
qualified in its entirety by express reference to, all the provisions of the
Warrant Agreement and Warrant Certificate, including the definitions therein of
certain terms.
Reference is made to the applicable Prospectus Supplement for the terms of
Warrants in respect of which this Prospectus is being delivered, the Warrant
Agreement relating to such Warrants and the Warrant Certificates representing
such Warrants, including the following: (i) the designation, aggregate principal
amount and terms of the Debt Securities or the designation and terms of the
Preferred Stock, if any, purchasable upon exercise of such Warrants; (ii) the
procedures and conditions relating to the exercise of such Warrants; (iii) the
designation and terms of any related Securities with which such Warrants are
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issued and the number of such Warrants issued with each such Security; (iv) the
date, if any, on and after which such Warrants and the related Securities will
be separately transferable; (v) the offering price of the Warrants, if any; (vi)
the principal amount of Debt Securities or the number of shares of Preferred
Stock or Common Stock purchasable upon exercise of each Warrant and the price at
which such principal amount of Debt Securities or shares of Preferred Stock or
Class A Common Stock may be purchased upon such exercise; (vii) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (viii) a discussion of United States Federal income tax
considerations applicable to the exercise of such Warrants; (ix) whether the
Warrants represented by the Warrant Certificates will be issued in registered or
bearer form, and, if registered, where they may be transferred and registered;
(x) call provisions of such Warrants, if any; and (xi) any other terms of the
Warrants.
Warrant Certificates will be exchangeable for new Warrant Certificates of
different denominations and Warrants may be exercised at the corporate trust
office of the Warrant Agent or any other office indicated in the applicable
Prospectus Supplement. Prior to the exercise of their Warrants, holders of
Warrants will not have any of the rights of holders of the Securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the Debt Securities purchasable
upon such exercise or to any dividend payments or voting rights that holders of
the Preferred Stock or Common Stock purchasable upon such exercise may be
entitled to.
Each Warrant will entitle the holder to purchase for cash such principal
amount of Debt Securities, or such number of shares of Preferred Stock or Class
A Common Stock, at such exercise price as shall, in each case, be set forth in,
or be determinable as set forth in, the applicable Prospectus Supplement
relating to the Warrants offered thereby. Unless otherwise specified in the
applicable Prospectus Supplement, Warrants may be exercised at any time up to
5:00 p.m. New York City time on the expiration date set forth in the applicable
Prospectus Supplement. After 5:00 p.m. New York City time on the expiration
date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the applicable Prospectus
Supplement relating to the Warrants. Upon receipt of payment and the Warrant
Certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent on any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, forward the Securities
purchasable upon such exercise. If less than all of the Warrants represented by
such Warrant Certificate are exercised, a new Warrant Certificate will be issued
for the remaining amount of Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents or dealers. Any such underwriter, agent or dealer involved in the
offer and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to the prevailing market prices at the time of
sale or at negotiated prices. The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Securities
upon the terms and conditions set forth in the applicable Prospectus Supplement.
In connection with the sale of Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Securities for
whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions (which may be changed from time to time) from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to
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<PAGE>
participating dealers, will be set forth in the applicable Prospectus
Supplement. Underwriters, dealers and agents participating in the distribution
of the Securities may be deemed to be underwriters under the Securities Act, and
any discounts and commissions received by them and any profit realized by them
on resale of the Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to such
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall not be less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but will, in all cases, be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts. Agents and underwriters will have
no responsibility in respect of the delivery or performance of Contracts.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
The Securities may or may not be listed on a national securities exchange.
No assurances can be given that there will be a market for any of the
Securities.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding an investment in Securities of the Company is based on current law, is
for general information only and is not tax advice. This discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
investors in light of their personal investment or tax circumstances, or, except
to the extent discussed under the headings "Taxation of Tax-Exempt Stockholders"
and "Taxation of Non-U.S. Stockholders," to certain types of investors
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) that are subject to special treatment under the
federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The REIT provisions of the Code are highly technical and complex.
The following sets forth the material aspects of the provisions of the Code that
govern the federal income tax treatment of a REIT and its share-holders. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change which may apply
retroactively.
The Company has elected to be taxed as a REIT under the Code commencing with
its taxable year ending December 31, 1994, and the Company intends to continue
to operate in such a manner. In the opinion of Skadden, Arps, Slate, Meagher &
Flom, commencing with the Company's taxable year ending December 31, 1994, the
Company will be treated as being organized in conformity with the requirements
for qualification as a REIT, and its proposed method of operation will enable it
to meet the requirements for qualification and taxation as a REIT under the
Code. It must be emphasized that this opinion is based and conditioned upon
certain assumptions and representations made by the Company as to factual
matters. In addition, this opinion is based upon the factual representations of
the Company concerning its business and properties as set forth in this
Prospectus. The opinion is expressed as of its date and Skadden, Arps, Slate,
Meagher & Flom has no obligation to advise holders of Securities of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in the applicable law. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code as discussed below, the
results of which will not be reviewed by Skadden, Arps, Slate, Meagher & Flom.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any one taxable year will satisfy such requirements. See
"--Failure to Qualify." An opinion of counsel is not binding on the Internal
Revenue Service (the "Service"), and no assurance can be given that the Service
will not challenge the Company's eligibility for taxation as a REIT.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference. Third, if the
Company 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
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be subject to a 100% tax. Fourth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (a) the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% test multiplied by (b) a fraction intended to
reflect the Company's profitability. Fifth, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior periods, the
Company would be subjected to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, the Company
could also be subject to tax in certain situations and on certain transactions
not presently contemplated.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or Directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for the special Code provisions applicable to REITs;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) in which, during the last half of each taxable year,
not more than 50% in value of the outstanding stock is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) which meets certain other tests described below
(including with respect to the nature of its income and assets). The Code
provides that condi-tions (1) to (4), inclusive, must be met during the entire
taxable year, and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. The Company's Articles of Incorporation provide for
restrictions regarding transfer of its shares, which provisions are intended to
assist the Company in continuing to satisfy the share ownership requirements
described in conditions (5) and (6) above. Such transfer restrictions are
described in "Description of Common Stock--Restrictions on Transfer."
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its stock in which the record
holders are to disclose the actual owners of the shares (I.E., the persons
required to include in gross income the REIT dividends). A list of those persons
failing or refusing to comply with this demand must be maintained as part of the
Company's records. A shareholder who fails or refuses to comply with the demand
must submit a statement with its tax return disclosing the actual ownership of
the shares and certain other information.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company satisfies this requirement.
OWNERSHIP OF PARTNERSHIP INTERESTS. In the case of a REIT that is a partner
in a partnership, regulations provide that the REIT will be deemed to own its
proportionate share of the partnership's assets and to earn its proportionate
share of the partnership's income. In addition, the assets and gross income of
the partnership retain the same character in the hands of the REIT for purposes
of the gross income and asset tests applicable to REITs as described below.
Thus, the Company's proportionate share of the assets, liabilities and items of
income of the Partnerships will be treated as assets, liabilities and items of
income of the Company for purposes of applying the REIT requirements described
herein. A summary of the rules governing the federal income taxation of
partnerships and their partners is provided below in "Tax Aspects of the
Company's Investments in Partnerships."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from "prohibited
transactions," i.e., certain sales of property held primarily for sale to
customers in the ordinary course of business) for each taxable year must be
derived directly or indirectly from investments
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<PAGE>
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, and from other dividends,
interest and gain 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 certain sales of property held
primarily for sale, 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 represent less than 30% of the Company's gross income
for each taxable year.
Rents received by the Company through the limited partnerships and limited
liability companies in which the Company has ownership interests (collectively,
the "Partnerships") will qualify as "rents from real property" in satisfying the
gross income requirements described above, only if several conditions are met,
including the following. If rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Moreover, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an "independent contractor" from which the
REIT derives no revenue. However, the Company (or its affiliates) are permitted
to, and do directly perform services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant of the property.
The Management Subsidiaries will receive management fees and other income. A
portion of such fees and other income will accrue to the Company through the
Operating Partnership's direct membership interests in the Service LLCs. Such
fee and other income generally will not qualify under the 95% gross income test.
The Company also expects to receive distributions from the Service Trusts that
will be classified as dividend income to the extent of the earnings and profits
of the Service Trusts. Such distributions will qualify under the 95% gross
income test but not under the 75% gross income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests (though not the 30% gross income test) for any taxable year, it may
nevertheless qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will be generally
available if the Company's failure to meet such tests was due to reasonable
cause and not due to willful neglect, the Company attaches a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. If these relief provisions are
inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "--General," even
where these relief provisions apply, a tax is imposed with respect to the excess
net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including its allocable share of real estate assets held by
partnerships in which the Company owns a direct or indirect interest), stock or
debt instruments held for not more than one year purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of the
Company, cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities.
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The Company will indirectly own interests in the Management Subsidiaries. As
set forth above, the ownership of more than 10% of the voting securities of any
one issuer by a REIT is prohibited by the asset tests. The Company believes that
its indirect ownership interests in the Service Trusts qualify under these
rules. In addition, the value of any one issuer's securities cannot exceed 5% of
the value of the Company's total assets. Skadden, Arps, Slate, Meagher & Flom,
in rendering its opinion as to the qualification of the Company as a REIT, is
relying on representations of the Company as to the value of the Operating
Partnership's total assets and the value of the Operating Partnership's
interests in the Service Trusts. No independent appraisals will be obtained to
support the Company's conclusions as to values, and these values are subject to
change in the future. Accordingly, there can be no assurance that the Service
will not contend that the Operating Partnership's ownership interests in the
Service Trusts disqualifies the Company from treatment as a REIT.
The Company's indirect interests in the Operating Partnership and other
Partnerships are held through wholly owned corporate subsidiaries of the Company
organized and operated as "qualified REIT subsidiaries" within the meaning of
the Code. Qualified REIT subsidiaries are not treated as separate entities from
their parent REIT for federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of the Company. Each
qualified REIT subsidiary therefore will not be subject to federal corporate
income taxation, although it may be subject to state or local taxation. In
addition, the Company's ownership of the voting stock of each qualified REIT
subsidiary does not violate the general restriction against ownership of more
than 10% of the voting securities of any issuer.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, 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 (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid with or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at the capital gains or ordinary corporate tax rates, as
the case may be. Furthermore, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company believes that it has made, and intends to
make, timely distributions sufficient to satisfy this annual distribution
requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income (including receipt
of distributions from the Operating Partnership) and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company. In the event that such
timing differences occur, in order to meet the 95% distribution requirement, the
Company may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution require-ment for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based on the amount of any
deduction taken for deficiency dividends.
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FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
GENERAL. Substantially all of the Company's investments are held indirectly
through the Operating Partnership. In general, partnerships are "pass-through"
entities that are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Partnerships. See "--Taxation of the Company--Ownership of
Partnership Interests."
ENTITY CLASSIFICATION. The Company's direct and indirect investment in
partnerships involves special tax considerations, including the possibility of a
challenge by the Service of the status of any of the Partnerships as a
partnership (as opposed to an association taxable as a corporation) for federal
income tax purposes. If any of these entities were treated as an association for
federal income tax purposes, it would be taxable as a corporation and therefore
subject to an entity-level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and could
preclude the Company from satisfying the asset tests and the income tests (see
"--Taxation of the Company--Asset Tests" and "--Taxation of the Company--Income
Tests"), and in turn could prevent the Company from qualifying as a REIT. See
"--Taxation of the Company--Failure to Qualify" above for a discussion of the
effect of the Company's failure to meet such tests for a taxable year. In
addition, any change in the status of any of the Partnerships for tax purposes
might be treated as a taxable event, in which case the Company might incur a tax
liability without any related cash distributions.
In the opinion of Skadden, Arps, Slate, Meagher & Flom, which opinion is
based upon certain assumptions and representations by the Company and on
opinions of local counsel with respect to matters of local law, each of the
Partnerships will be treated as a partnership for federal income tax purposes.
The opinion is expressed as of its date and Skadden, Arps, Slate, Meagher & Flom
has no obligation to advise holders of Securities of any subsequent change in
the matters stated, represented or assumed or any subsequent change in the
applicable law. An opinion of counsel, however, is not binding on the Service,
and no assurance can be given that the Service will not challenge the status of
these entities as partnerships for federal income tax purposes.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to the Code and
the regulations thereunder, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the 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 of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for federal income tax purposes and do not affect the book
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capital accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed by way of contributions of appreciated property
(including certain of the Owned Properties). Consequently, allocations must be
made in a manner consistent with these requirements. Where a partner contributes
cash to a partnership that holds appreciated property, the Treasury regulations
provide for a similar allocation of such items to the other partners. These
rules apply to the contribution by the Company to the Operating Partnership of
the cash proceeds received in any offerings of its stock.
In general, certain holders of limited partnership interests in the
Operating Partnership ("OP Units") will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on sale by the Operating Partnership or the Property Partnerships of the
contributed Owned Properties. This will tend to eliminate the Book-Tax
Difference over the life of these partnerships. However, the special allocations
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 Owned Properties in the hands of the
Partnerships may cause the Company to be allocated lower depreciation and other
deductions, and possibly greater amounts of taxable income in the event of a
sale of such contributed assets in excess of the economic or book income
allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "--Taxation of the Company--Annual Distribution Requirements."
With respect to any property purchased or to be purchased by any of the
Partnerships (other than through the issuance of OP Units) subsequent to the
formation of the Company, such property will initially have a tax basis equal to
its fair market value and the special allocation provisions described above will
not apply.
SALE OF THE PROPERTIES. The Company's share of any gain realized by the
Operating Partnership or a Property Partnership on the sale of any property held
as inventory or primarily for sale to customers in the ordinary course of
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. See "--Requirements for Qualification--Income Tests."
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a partnership's trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership and the Property
Partnerships intend to hold the Owned Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Owned Properties (and other apartment properties) and
to make such occasional sales of the Owned Properties, including peripheral
land, as are consistent with the Company's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to shareholders is
expected to come from the Management Subsidiaries, through dividends on
interests in the Services Trusts held by the Operating Partnership and interest
on certain installment notes held by the Operating Partnership. The Service
Trusts will not qualify as REITs and will pay federal, state and local income
taxes on their taxable income at normal corporate rates. The Management
Subsidiaries intend to claim annual deductions for interest and amortization. No
assurance can be given that the Service will not challenge such deductions. Any
federal, state or local income taxes that the Management Subsidiaries are
required to pay will reduce the Company's cash flow from operating activities
and its ability to make payments to holders of its Securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
GENERAL. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic shareholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
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dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent that they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares, they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less) assuming the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by the Company in October,
November or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Based upon a published ruling by the Service, distributions by the Company
to a stockholder that is a tax-exempt entity will not constitute "unrelated
business taxable income" ("UBTI"), provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the dividends
paid by the Company may be treated as UBTI to certain domestic private pension
trusts if the Company is treated as a "pension-held REIT." The Company believes
that it is not, and does not expect to become, a "pension-held REIT." If the
Company were to become a pension-held REIT, these rules generally would only
apply to certain pension trusts that hold more than 10% of the Company's stock.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income and
estate tax consequences of the ownership and disposition of the Company's stock
applicable to Non-U.S. Holders of such stock. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includable in gross income for U.S. Federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only. The discussion addresses only certain and not all aspects of
U.S. Federal income and estate taxation.
DISTRIBUTIONS FROM THE COMPANY.
1. ORDINARY DIVIDENDS. The portion of dividends received by Non-U.S.
Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company and which are not effec-tively
connected with a U.S. trade or business of the Non-U.S. Holder will be subject
to U.S. withholding tax at the rate of 30% (unless reduced by treaty). In
general, Non-U.S. Holders will not be considered engaged in a U.S. trade or
business solely as a result of their ownership of stock of the
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Company. In cases where the dividend income from a Non-U.S. Holder's investment
in stock of the Company is (or is treated as) effectively connected with the
Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder
generally will be subject to U.S. tax at graduated rates, in the same manner as
U.S. stockholders are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
foreign corporation).
2. NON-DIVIDEND DISTRIBUTIONS. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the Service if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
3. CAPITAL GAIN DIVIDENDS. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the properties beneficially owned by
the Company ("USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income
tax at the rate applicable to U.S. individuals or corporations, without regard
to whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate stockholder that is not entitled to treaty
exemption.
DISPOSITION OF STOCK OF THE COMPANY. Unless the Company's stock constitutes
a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be subject
to U.S. taxation under FIRPTA. The stock will not constitute a USRPI if the
Company is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which, at all times during a specified testing period, less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Holders. The
Company believes that it is, and it expects to continue to be a domestically
controlled REIT, and therefore that the sale of the Company's stock will not be
subject to taxation under FIRPTA. Because the Company's stock will be publicly
traded, however, no assurance can be given the Company will continue to be a
domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Holder's sale of stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Company's Class A Common Stock is listed)
and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
out-standing stock at all times during a specified testing period.
If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the pur-chaser of the stock could be required to withhold 10%
of the purchase price and remit such amount to the Service.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the stock of the Company is effectively connected with a U.S.
trade or business conducted by such Non-U.S. holder, the Non-U.S. Holder will be
subject to the same treatment as a U.S. stockholder with respect to such gain,
or (ii) if the Non-U.S. Holder is a nonresident alien individual who was present
in the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, the nonresident alien individual will be subject to
a 30% tax on the individual's capital gain.
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ESTATE TAX. Stock of the Company owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. Federal estate
tax purposes) of the United States at the time of death will be includable in
the individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may be
subject to U.S. Federal estate tax on the property includable in the estate for
U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the Service and to each Non-U.S. Holder the amount of dividends
(including any capital gain dividends) paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
stock of the Company to a Non-U.S. Holder at an address outside the United
States.
The payment of the proceeds from the disposition of stock of the Company to
or through a U.S. office of a broker will be subject to information reporting
and backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting.
OTHER TAX CONSEQUENCES
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective holders of Common Stock or other Securities should
recognize that the present federal income tax treatment of an investment in the
Company may be modified by legislative, judicial or administrative action at any
time, and that any such action may affect investments and commitments previously
made. The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the Service and Treasury
Department, resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal tax laws
and interpretations thereof could adversely affect the tax consequences of an
investment in the Company.
STATE AND LOCAL TAXES. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company 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 the Company.
LEGAL MATTERS
Certain tax matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom, Los Angeles, California. The validity of the Securities
offered hereby will be passed upon for the Company by Piper & Marbury L.L.P.,
Baltimore, Maryland. Certain matters as to Maryland law will be passed upon for
the Company by Piper & Marbury L.L.P. Certain matters as to Florida law will be
passed upon for the Company by Shumaker, Loop & Kendrick, Tampa, Florida.
EXPERTS
The consolidated financial statements of Apartment Investment and Management
Company and the combined financial statements of the AIMCO Predecessors included
in Apartment Investment and Management Company's Annual Report on Form 10-K for
the year ended December 31, 1994 have been
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audited by Ernst & Young LLP (successor to Kenneth Leventhal & Company),
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The combined statement of revenue and certain
expenses of the HomeCorp Properties (as defined in the notes thereto) and the
combined statement of revenue and certain expenses of the Sunchase Properties
(as defined in the notes thereto) included in Apartment Investment and
Management Company's Current Report on Form 8-K dated November 22, 1994, as
amended by Amendment No. 1 and Amendment No. 2 thereto, have been audited by
Ernst & Young LLP (successor to Kenneth Leventhal & Company), independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated and combined financial
statements and combined statements of revenue and certain expenses have been
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The combined statement of revenues and certain expenses of the Four
Acquisition Properties (as defined in the notes thereto) for the year ended
December 31, 1994, included in Apartment Investment and Management Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, has been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report thereon included therein and incorporated herein by reference. Such
combined statement of revenues and certain expenses has been incorporated herein
by reference in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
Any financial statements and schedules hereafter filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and
incorporated by reference in this Prospectus that have been examined and are the
subject of a report by independent accountants will be so incorporated herein by
reference in reliance upon such reports given and upon the authority of such
firms as experts in accounting and auditing to the extent covered by consents
filed with the Commission.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS
SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE PLACEMENT AGENT.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES COVERED BY THIS
PROSPECTUS SUPPLEMENT IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
The Company................................. S- 2
Risk Factors................................ S- 3
NHP Acquisition............................. S-13
Other Recent Developments................... S-14
The Offering................................ S-15
Use of Proceeds............................. S-15
Capitalization.............................. S-16
Plan of Distribution........................ S-17
Certain Federal Income Tax Considerations... S-17
Experts..................................... S-17
Legal Matters............................... S-18
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
The Company................................. 4
Use of Proceeds............................. 4
Ratio of Earnings to Fixed Charges.......... 4
Description of Debt Securities.............. 5
Description of Preferred Stock.............. 12
Description of Common Stock................. 15
Description of Warrants..................... 19
Plan of Distribution........................ 20
Certain Federal Income Tax Considerations... 22
Legal Matters............................... 30
Experts..................................... 30
</TABLE>
400,000 SHARES
APARTMENT
INVESTMENT AND
MANAGEMENT COMPANY
CLASS A COMMON STOCK
PROSPECTUS SUPPLEMENT
MAY 1, 1997
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