<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 12, 1995)
2,000,000 SHARES
[LOGO]
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CLASS A COMMON STOCK
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Apartment Investment and Management Company ("AIMCO") is a self-administered
and self-managed real estate investment trust (a "REIT") that currently owns or
controls 94 multifamily apartment properties containing 23,764 apartment units.
All of the shares of AIMCO's Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), offered hereby (the "Offering") are being sold by
AIMCO. The Class A Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "AIV." On February 5, 1997, the last reported sale
price of the Class A Common Stock on the NYSE was $26 3/4 per share. For a
description of the Company's Common Stock, see "Description of Common Stock" in
the accompanying Prospectus.
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SEE "RISK FACTORS" BEGINNING ON PAGE S-6 FOR CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
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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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<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share $26.75 $1.40 $25.35
Total (3) $53,500,000 $2,800,000 $50,700,000
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Class A Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $61,525,000, $3,220,000 and $58,305,000,
respectively.
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The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
Class A Common Stock offered hereby will be available for delivery on or about
February 11, 1997, at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
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SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
ROBERTSON, STEPHENS & COMPANY
THE ROBINSON-HUMPHREY COMPANY, INC.
February 5, 1997
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NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY
THE UNDERWRITERS THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS A COMMON STOCK
OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT IN ANY JURISDICTION
WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES.
PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS SUPPLEMENT ARE REQUIRED BY
THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY
RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON STOCK AND THE DISTRIBUTION
OF THIS PROSPECTUS SUPPLEMENT.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS SUPPLEMENT ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED.
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 January 31, 1997,
AIMCO held approximately an 84.4% interest in the Operating Partnership. Upon
completion of the Offering, AIMCO will contribute the net proceeds to, and will
own 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 December 31, 1996, the Company had 94 Owned Properties containing
23,764 units and 138 Managed Properties, including 2,815 apartment units managed
for affiliates and 16,225 apartment units managed for over 90 third parties. 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 Southeastern, Southcentral and
Southwestern 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.
The Owned Properties average 253 apartment units each, with the largest
property containing 670 apartment units. Apartment units in the Owned Properties
have an average size of 822 square feet. The Owned Properties include 1,047
studio apartments, 12,060 one-bedroom apartments, 9,436 two-bedroom apartments,
1,204 three-bedroom apartments and 17 four-bedroom apartments. As of December
31, 1996, the average physical occupancy for the Company's Owned Properties was
94% and their average monthly rent per occupied unit was $555.
The Owned Properties offer residents a range of amenities. Many of the Owned
Properties include a swimming pool and clubhouse, spas, fitness centers, tennis
courts and saunas. Many of the apartment units offer design and appliance
features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable
television, balconies and patios.
The Company focuses on the ownership, acquisition, development, expansion
and management of "middle market" multifamily apartment properties (properties
with rents at or near the averages in their markets). The Company believes that
middle market apartment properties currently offer opportunities for attractive
returns due to favorable supply and demand characteristics for such properties
in the Company's
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principal markets. The Company believes that its strategy of acquiring
properties at a discount to replacement cost, combined with its emphasis on
cost-efficient operations, will enable it to offer housing at competitive rents
while generating attractive returns on investment.
The Company measures its economic profitability based on Funds From
Operations ("FFO") less a minimum annual provision for capital replacements of
$300 per apartment unit, which the Company defines as Cash Earned For
Shareholders ("CEFS"). The Company's primary objective is to maximize
shareholder value by increasing the amount and predictability of CEFS on a per
share basis. The Company seeks to achieve this objective primarily by improving
net operating income from its Owned Properties and by acquiring additional
properties at values that are accretive on a per share basis. The Company
follows conservative operating and financial strategies, including (i)
maintaining a geographically diverse portfolio of properties, (ii) providing a
minimum of $300 per apartment unit per year for capital replacements to help
ensure that its properties remain competitive and attractive, (iii) emphasizing
long-term, fixed rate, fully amortizing debt, (iv) maintaining a ratio of
earnings before interest, taxes, depreciation and amortization ("EBITDA") (less
capital replacements) to interest expense of at least 2 to 1 and (v) maintaining
a conservative dividend payout ratio. See "Selected Financial and Operating
Information" for a definition of "Funds From Operations."
The Company intends to continue to expand its portfolio of Owned Properties
by (i) acquiring selected Managed Properties as they are offered for sale, (ii)
acquiring other properties in markets familiar to the Company's management,
(iii) developing and expanding its Owned Properties and (iv) acquiring
controlling interests 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. 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.
The Company believes its property management operations are integral to its
overall business strategy. The economies of scale realized from managing a total
of more than 40,000 apartment units enable the Company to more efficiently
operate its properties. In addition, the Company believes that managing
properties for third parties improves the performance of its Owned Properties by
subjecting property managers to market-based pricing and service standards. The
Company's property management operations also support the Company's acquisition
activities by enhancing its ability to identify and evaluate acquisition and
development opportunities in its markets. The Company's local and regional
personnel maintain first-hand knowledge of local market conditions and often
obtain early notification of Managed Properties and other properties that may be
offered for sale.
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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THE OFFERING
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<S> <C>
Class A Common Stock Offered Hereby..... 2,000,000 shares
Class A Common Stock to be Outstanding
After the Offering (1)(2)(3).......... 17,530,432 shares
Use of Proceeds......................... AIMCO will contribute all of the $50.3 million of
net proceeds from the Offering to the Operating
Partnership. The Operating Partnership will use
$12.5 million of such net proceeds to repay all
outstanding borrowings under the Company's
unsecured line of credit with BankOne, Colorado,
NA (the "BankOne Line of Credit"). The remaining
$37.8 million of net proceeds (together with any
net proceeds of any exercise of the overallotment
option) will be used to repay outstanding
borrowings under the Company's credit facility
with Bank of America National Trust and Savings
Association (the "Credit Facility"). See "Use of
Proceeds."
New York Stock Exchange Symbol.......... "AIV"
</TABLE>
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(1) Excludes an aggregate of 2,861,004 shares of Class A Common Stock which may
be issued in exchange for 2,861,004 outstanding units of limited partnership
interest in the Operating Partnership ("OP Units") which may be tendered for
redemption.
(2) Excludes 325,000 shares of Class B Common Stock convertible into 325,000
shares of Class A Common Stock if certain performance standards are met.
(3) Excludes 554,953 shares of Class A Common Stock issuable upon exercise of
outstanding options and warrants.
S-5
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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, potential
investors should consider, among other things, the following factors.
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 December 31, 1996, the Company had outstanding $522.1 million of
indebtedness, $509.6 million of which was secured by Owned Properties and other
assets of the Company, including $44.8 million of outstanding borrowings under
the Credit Facility. Upon completion of this Offering and application of the net
proceeds therefrom, the Company will have $471.8 million of indebtedness
outstanding, all of which will be secured by Owned Properties and other assets
of the Company, including $7.0 million of outstanding borrowings under the
Credit Facility. 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 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. The Company's borrowings under its Credit
Facility bear interest at a variable rate. In addition, as of December 31, 1996,
the Company had approximately $172.8 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.
POSSIBLE CONFLICT OF INTERESTS; TRANSACTIONS WITH AFFILIATES
Prior to February 1996, in order to accommodate the qualification of AIMCO
as a REIT, four of AIMCO's executive officers, Terry Considine, Peter Kompaniez,
Steven Ira and Robert 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 did not exceed $2,000 for the 1995 fiscal year. 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.
S-6
<PAGE>
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 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
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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 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
Since December 31, 1995, the Company has acquired ownership of, or
controlling interests in limited partnerships that own, 42 Owned Properties and
has sold four Owned Properties, increasing the number of apartment units it owns
or controls to 23,764, a net increase of approximately 68% from the 56 Owned
Properties at December 31, 1995. The Company 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. 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
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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.
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. See "Recent Developments--English
Portfolio Acquisition."
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 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.
AIMCO has 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 "IRS").
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 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 "Certain Federal Income Tax Considerations" in the
accompanying Prospectus.
AIMCO has also received an opinion of Skadden, Arps, Slate, Meagher & Flom
LLP stating that the Subsidiary Partnerships in which AIMCO then had ownership
interests are properly treated as partnerships
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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.
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 Articles of Incorporation prohibit 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.
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 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
S-10
<PAGE>
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.
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 Messrs. Considine,
Kompaniez, Ira and 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.
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-11
<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
S-12
<PAGE>
Common Stock prevailing from time to time. Sales of substantial amounts of the
shares of Class A Common Stock (including shares issued upon the exercise of
stock options, the redemption of 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 sold by AIMCO in
the Offering, there are 2,861,004 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. In addition, approximately 554,953 shares of Class A
Common Stock may be issued upon the exercise of outstanding options and
warrants, 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.
THE COMPANY
AIMCO is a self-administered and self-managed REIT engaged in the ownership,
acquisition, development, expansion and management of multifamily apartment
properties. The Operating Partnership and its subsidiaries conduct substantially
all of the operations of AIMCO. As of January 31, 1997, AIMCO held approximately
an 84.4% interest in the Operating Partnership. Upon completion of the Offering,
AIMCO will contribute the net proceeds to, and will own 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, the Company owns or controls multifamily apartment properties and
manages other multifamily apartment properties.
As of December 31, 1996, the Company had 94 Owned Properties containing
23,764 units and 138 Managed Properties, including 2,815 apartment units managed
for affiliates and 16,225 apartment units managed for over 90 third parties. The
Company's third-party property and asset management business is principally
conducted by 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 PAMS
Inc., which owns a 99% interest in PAMS LP.
The Owned Properties are located in the Southeastern, Southcentral and
Southwestern 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.
The Owned Properties average 253 apartment units each, with the largest
property containing 670 apartment units. Apartment units in the Owned Properties
have an average size of 822 square feet. The Owned Properties include 1,047
studio apartments, 12,060 one-bedroom apartments, 9,436 two-bedroom apartments,
1,204 three-bedroom apartments, and 17 four-bedroom apartments. As of December
31, 1996, the average physical occupancy for the Company's Owned Properties was
94% and their average monthly rent per occupied unit was $555.
The Owned Properties offer residents a range of amenities. Many of the Owned
Properties include a swimming pool and clubhouse, spas, fitness centers, tennis
courts and saunas. Many of the apartment units offer design and appliance
features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable
television, balconies and patios.
The Company focuses on the ownership, acquisition, development, expansion
and management of "middle market" multifamily apartment properties (properties
with rents at or near the averages in their markets). The Company believes that
middle market apartment properties currently offer opportunities for attractive
returns due to favorable supply and demand characteristics for such properties
in the Company's
S-13
<PAGE>
principal markets. The Company believes that its strategy of acquiring
properties at a discount to replacement cost, combined with its emphasis on
cost-efficient operations, will enable it to offer housing at competitive rents
while generating attractive returns on investment.
The Company measures its economic profitability based on FFO less a minimum
annual provision for capital replacements of $300 per apartment unit, which the
Company defines as CEFS. The Company's primary objective is to maximize
shareholder value by increasing the amount and predictability of CEFS on a per
share basis. The Company seeks to achieve this objective primarily by improving
net operating income from its Owned Properties and by acquiring additional
properties at values that are accretive on a per share basis. The Company
follows conservative operating and financial strategies, including (i)
maintaining a geographically diverse portfolio of properties, (ii) providing a
minimum of $300 per apartment unit per year for capital replacements to help
ensure that its properties remain competitive and attractive, (iii) emphasizing
long-term, fixed rate, fully amortizing debt, (iv) maintaining a ratio of EBITDA
(less capital replacements) to interest expense of at least 2 to 1 and (v)
maintaining a conservative dividend payout ratio.
The Company intends to continue to expand its portfolio of Owned Properties
by (i) acquiring selected Managed Properties as they are offered for sale, (ii)
acquiring other properties in markets familiar to the Company's management,
(iii) developing and expanding its Owned Properties and (iv) acquiring
controlling interests 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. 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.
The Company believes its property management operations are integral to its
overall business strategy. The economies of scale realized from managing a total
of more than 40,000 apartment units enable the Company to more efficiently
operate its properties. In addition, the Company believes that managing
properties for third parties improves the performance of its Owned Properties by
subjecting property managers to market-based pricing and service standards. The
Company's property management operations also support the Company's acquisition
activities by enhancing its ability to identify and evaluate acquisition and
development opportunities in its markets. The Company's local and regional
personnel maintain first-hand knowledge of local market conditions and often
obtain early notification of Managed Properties and other properties that may be
offered for sale.
AIMCO's headquarters are located at 1873 South Bellaire Street, 17th Floor,
Denver, Colorado 80222, and its telephone number is (303) 757-8101.
S-14
<PAGE>
RECENT DEVELOPMENTS
1996 RESULTS. On January 24, 1997, AIMCO announced the following results
for the three months and year ended December 31, 1996:
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Funds From Operations.................................. $ 35,185 $ 25,285 $ 9,993 $ 6,393
Cash Earned For Shareholders........................... 30,568 21,521 8,729 5,444
PER SHARE DATA:
Funds From Operations.................................. $ 2.35 $ 2.21 $ 0.61 $ 0.56
Cash Earned For Shareholders........................... 2.04 1.88 0.53 0.48
</TABLE>
INCREASED DIVIDEND. On January 23, 1997, the Board of Directors of AIMCO
increased the quarterly cash dividend to $0.4625 per share of Class A Common
Stock for the quarter ended December 31, 1996, payable on February 14, 1997, to
shareholders of record on February 7, 1997. This increased dividend is
equivalent to an annualized dividend of $1.85 per share of Class A Common Stock,
an 8.8% increase from the previous annualized dividend of $1.70 per share of
Class A Common Stock.
ENGLISH PORTFOLIO ACQUISITION. In November 1996, the Company completed the
acquisition (the "English Portfolio Acquisition") of certain partnership
interests, real estate and related assets owned by J.W. English, a Houston,
Texas-based real estate syndicator and developer, and certain affiliated
entities (collectively, the "J.W. English Companies"). The English Portfolio
Acquisition included the purchase of all of the general and limited partnership
interests in 22 limited partnerships which act as the general partner to 31
limited partnerships (the "English Partnerships") that own 22 multifamily
apartment properties, aggregating 5,230 apartment units, and four commercial
properties, primarily in Houston, Texas; title to a 104-unit apartment property
in Houston, Texas; certain assets of J.W. English Management Company which
provided management services to the apartment properties; and other real estate
interests related to the J.W. English Companies' operations. The aggregate
purchase price for the English Portfolio Acquisition was $23.1 million,
consisting of $15.2 million of OP Units and $7.9 million in cash. The Company
assumed management of the properties owned by the English Partnerships on
October 14, 1996. See "Risk Factors-- Acquisition and Development Risks" for a
discussion of certain litigation affecting the Company arising out of the
English Portfolio Acquisition.
The Company also made separate offers (the "English Tender Offers") to the
limited partners of 25 of the English Partnerships to acquire their limited
partnership interests for cash or OP Units. The English Tender Offers expired on
November 7, 1996. The Company has accepted tenders representing, in the
aggregate, approximately 46% of all outstanding limited partnership interests in
the English Partnerships subject to the offers. The Company paid $16.0 million
in cash and $1.6 million in OP Units, at a price of $23 per OP Unit, for the
interests tendered in the English Tender Offers. The remaining limited partners
elected to continue as limited partners in such English Partnerships.
In November 1996, the Company borrowed $12.5 million pursuant to an
unsecured line of credit with Bank One, Colorado, NA. The BankOne Credit Line
bears interest at a variable rate equal to LIBOR plus 175 basis points (7.19%
per annum as of January 31, 1997) and matures in May 1997 (subject to extension
by the Company to November 1997). The proceeds of such indebtedness were used by
the Company to pay for limited partnership interests acquired pursuant to the
English Tender Offers.
In December 1996, the Company borrowed $60.5 million from NationsBank of
Texas, N.A. Such indebtedness bears interest at a variable rate equal to LIBOR
plus 175 basis points (7.19% per annum as of
S-15
<PAGE>
January 31, 1997) and matures in December 1997 (subject to extension by the
Company to December 1998). The indebtedness is secured by deeds of trust on 13
of the properties owned by 12 of the English Partnerships and is guaranteed, at
least in part, by AIMCO and certain of its affiliates. The aggregate amount of
the obligations guaranteed is approximately $28.8 million. This guaranty is
secured by an assignment of the Company's general partnership interests in the
12 English Partnerships. The net proceeds of such indebtedness were used by the
Company to repay indebtedness of certain of the English Partnerships.
DALLAS PORTFOLIO ACQUISITION. In a series of related transactions completed
in December 1996, the Company acquired general partnership interests in 21
limited partnerships which own twelve multifamily apartment properties
(collectively, the "Dallas Acquisition Properties") aggregating 2,839 apartment
units, primarily in the Dallas, Texas metropolitan area, and loans made by the
general partners and their affiliates to such partnerships, for an aggregate
price of $22.0 million in cash (collectively, the "Dallas Portfolio
Acquisition"). The Dallas Acquisition Properties are subject to approximately
$60.7 million of mortgage debt. The existing limited partners retained their
interests in such limited partnerships. The Company borrowed approximately $25.6
million to finance the purchase price, closing costs and initial capital
expenditures for the Dallas Acquisition Properties. Such indebtedness is secured
by second mortgages on twelve of the Dallas Acquisition Properties. Such
indebtedness bears interest at a variable rate equal to LIBOR plus 250 basis
points (7.94% per annum as of January 31, 1997) and matures in January 1998.
PROPERTY ACQUISITIONS. During the year ended December 31, 1996, the Company
acquired the Peachtree Park Apartments, the Villa Ladera Apartments (and an
adjacent parcel of vacant land), the Sycamore Creek Apartments, the Somerset
Village Apartments, the Dolphin's Landing Apartments, the Chesapeake Apartments
and the Bay West Apartments (collectively, the "Acquired Properties"). The
aggregate consideration paid by the Company for the Acquired Properties
consisted of $30.7 million in cash, 569,713 shares of Class A Common Stock with
a total recorded value of $12.5 million, 745,123 OP Units with a total recorded
value of $15.0 million, and the assumption of $31.7 million of indebtedness, as
summarized below (amounts below in thousands except unit data):
<TABLE>
<CAPTION>
TOTAL
NUMBER OF PURCHASE
PROPERTY LOCATION UNITS PRICE ENCUMBRANCES
- --------------------- ------------------------------ ----------- --------- -------------
<S> <C> <C> <C> <C>
Peachtree Park Atlanta, GA 295 $ 14,931 $ 12,980(1)
Villa Ladera Albuquerque, NM 280 12,250 5,940
Sycamore Creek Tustin, CA 336 16,669 --
Somerset Village Salt Lake City, UT 486 22,068 12,812(1)
Dolphin's Landing Corpus Christi, TX 218 7,329 --
Chesapeake Houston, TX 320 8,092 --
Bay West Tampa, FL 376 8,585 --
----------- --------- -------------
2,311 $ 89,924 $ 31,732
----------- --------- -------------
----------- --------- -------------
</TABLE>
- ------------------------
(1) Indebtedness has been repaid with borrowings under the Credit Facility.
PROPERTY DISPOSITIONS. The Company continuously evaluates its portfolio of
Owned Properties and may, from time to time, determine to dispose of certain
Owned Properties. In the third quarter of 1996, the Company sold the Dakota
Apartments, the Sterling Point Apartments, the Ridgmar Park Apartments and the
Woodcreek Apartments (collectively, the "Four Sold Properties"), all of which
are located in the Dallas, Texas metropolitan area, in a single transaction for
net cash proceeds totaling $17.2 million. The net proceeds were used to repay
the balance then outstanding under the Credit Facility of $9.2 million and to
provide funds for working capital and investment purposes. The properties were
acquired as part of a portfolio in conjunction with the Company's Initial
Offering in July 1994. The Company recognized a nominal gain on the sale.
S-16
<PAGE>
REDUCED INTEREST RATE ON CREDIT FACILITY. In December 1996, AIMCO
renegotiated the interest rate charged on its Credit Facility to LIBOR plus 145
basis points, a reduction of 17.5 basis points on the $50.0 million Credit
Facility.
MANAGEMENT STOCK ACQUISITIONS. On October 1, 1996, the Company issued
379,750 shares of Class A Common Stock to certain executive officers (or
entities controlled by them) at $20.75 per share (the closing price on the NYSE
on August 29, 1996, the option award date) pursuant to the exercise of stock
options issued under the Apartment Investment and Management Company 1996 Stock
Award and Incentive Plan. In payment for such shares, the executive officers
executed notes payable to AIMCO bearing interest at 7.25% per annum, payable
quarterly, and due in 2006. These stock purchase notes are secured by the shares
purchased and are recourse as to 25% of the principal owed.
In addition, on August 29, 1996, certain executive officers also agreed to
purchase (or cause entities controlled by them to purchase), prior to January
31, 1997, an additional 515,500 shares of Class A Common Stock at a purchase
price of $20.75 per share (the closing price on the NYSE on such date). These
shares were issued and delivered as of December 31, 1996. In payment for such
shares, the executive officers (or entities controlled by them) executed notes
payable to AIMCO bearing interest at 7.25% per annum, payable quarterly, and due
in 2006. These stock purchase notes are not secured by the shares purchased, but
are recourse as to 100% of the principal amount. As a result of these
transactions, as of December 31, 1996, officers and directors of the Company (or
entities controlled by them) owned approximately 12% of AIMCO's outstanding
Class A Common Stock and OP Units.
The NYSE has a policy that requires an NYSE-listed company to seek
shareholder approval prior to issuing shares to an officer or director of the
Company if the number of shares issued exceeds 1% of the number then
outstanding. The December 31, 1996 issuance of 515,500 shares of Class A Common
Stock to certain AIMCO officers (and entities controlled by them) may have
resulted in an inadvertent violation of this NYSE policy. AIMCO has notified the
NYSE of the share issuance and currently intends to take appropriate action, if
any, as may be required to maintain its continued listing on the NYSE.
On February 4, 1997, the Company issued 4,000 shares of Class A Common Stock
to an executive officer at a price of $26.75 per share pursuant to the exercise
of stock options issued under the Apartment Investment and Management Company
1996 Stock Award and Incentive Plan. The executive officer paid for these shares
with a promissory note payable to AIMCO bearing interest at 7.25% per annum,
payable quarterly, and due in 2007. This stock purchase note is secured by the
shares purchased and is recourse as to 25% of the principal owed.
S-17
<PAGE>
USE OF PROCEEDS
AIMCO will contribute all of the $50.3 million of net proceeds from the
Offering to the Operating Partnership. The Operating Partnership will use $12.5
million of such net proceeds to repay all outstanding borrowings under the
BankOne Credit Line. The remaining $37.8 million of net proceeds (together with
any net proceeds of any exercise of the overallotment option) will be used to
repay outstanding borrowings under the Credit Facility. As a result of the
contribution of the net proceeds from the Offering to the Operating Partnership,
AIMCO will own approximately 86.0% of the Operating Partnership.
The Company's currently outstanding borrowings under the BankOne Credit Line
were incurred to finance the acquisition of limited partnership interests
acquired pursuant to the English Tender Offers. See "Recent Developments --
English Portfolio Acquisition." Borrowings under the BankOne Credit Line bear
interest at a variable rate equal to LIBOR plus 175 basis points (7.19% per
annum as of January 31, 1997). The BankOne Credit Line expires in May 1997 but
may be extended to November 1997.
The Company's currently outstanding borrowings of $44.8 million under the
Credit Facility were incurred to finance the acquisition of general partnership
and related interests in limited partnerships ($20.7 million); for investments
in properties ($19.1 million); for stock repurchases ($4.3 million); and for
development and renovation of properties ($0.7 million). Upon consummation of
the Offering, outstanding borrowings under the Credit Facility will be $7.0
million. Borrowings under the Credit Facility bear interest at a variable rate
equal to LIBOR plus 145 basis points (6.89% per annum as of January 31, 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-18
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at September 30, 1996 on a historical basis and on a pro forma basis to
reflect this Offering, the use of the net proceeds thereof as described under
"Use of Proceeds," and certain other transactions that have occurred subsequent
to September 30, 1996. See "Selected Financial and Operating Information." 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.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------
ACTUAL PRO FORMA(1)
---------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Credit Facility (2).................................................................... $ 26,500 $ --
---------- -------------
Long-term debt:
Secured tax-exempt bond financing.................................................... $ 75,837 $ 75,837
Secured notes payable................................................................ 202,435 384,230
Minority interests in Operating Partnership............................................ 42,760 59,552
Minority interest in other partnerships................................................ -- 10,407
Stockholders' equity:
Class A Common Stock, $.01 par value, 150,000,000 authorized, 12,346,812 issued and
outstanding: 15,805,488 issued and outstanding on a pro forma basis (3)............. 118 153
Class B Common Stock, $.01 par value, 585,000 authorized, 585,000 issued and
outstanding (4)..................................................................... 6 6
Preferred Stock, $.01 par value, 10,000,000 authorized, none issued or outstanding... -- --
Additional paid-in capital........................................................... 184,582 268,874
Retained earnings (accumulated deficit).............................................. (12,408) (12,408)
---------- -------------
Total stockholders' equity............................................................. 172,298 256,625
---------- -------------
Total capitalization................................................................... $ 519,830 $ 786,651
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) See "Selected Financial and Operating Information" and AIMCO's Current
Report on Form 8-K, dated December 19, 1996, which is incorporated by
reference in the accompanying Prospectus, for a description of the
adjustments reflected in the pro forma short-term debt and capitalization.
(2) As of January 31, 1997 outstanding under the Credit Facility was $44.8
million. Upon consummation of the Offering, the borrowings outstanding under
the Credit Facility will be $7.0 million.
(3) Does not include 153,571 shares subject to issuance upon the exercise of
outstanding options and warrants.
(4) Convertible into 585,000 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. Subsequent to September 30, 1996, the relevant
performance standards were satisfied and 130,000 shares of Class B Common
Stock that became eligible for conversion as of December 31, 1995, and
130,000 shares of Class B Common Stock that became eligible for conversion
as of December 31, 1996, were automatically converted into an equal number
of shares of Class A Common Stock. As of December 31, 1996, 325,000 shares
of Class B Common Stock were authorized, issued and outstanding.
S-19
<PAGE>
PRICE RANGE OF AND DIVIDENDS ON COMMON STOCK
The Class A Common Stock has been listed and traded on the NYSE under the
symbol "AIV" since July 22, 1994. The following table sets forth the quarterly
high and low sales prices of the Class A Common Stock as reported on the NYSE
and the dividends declared by AIMCO with respect to the periods indicated.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW (PER SHARE)
- ------------------------------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
September 30, 1994 (since July 22, 1994)............................................ $ 18 5/8 $ 17 $ 0.29 (1)
December 31, 1994................................................................... 18 1/4 16 1/4 0.415
March 31, 1995...................................................................... 18 1/2 17 1/8 0.415
June 30, 1995....................................................................... 20 1/4 17 7/8 0.415
September 30, 1995.................................................................. 21 1/4 19 1/2 0.415
December 31, 1995................................................................... 20 7/8 18 0.425
March 31, 1996...................................................................... 21 1/8 19 3/8 0.425
June 30, 1996....................................................................... 21 18 3/8 0.425
September 30, 1996.................................................................. 22 18 3/8 0.425
December 31, 1996................................................................... 28 3/8 21 1/8 0.4625
March 31, 1997 (through February 5, 1997)........................................... 28 25 1/2
</TABLE>
- ------------------------
(1) AIMCO paid a dividend of $0.29 per share on November 21, 1994 for the period
from July 29, 1994 (the closing date of the Initial Offering) through
September 30, 1994, which is equivalent to a quarterly distribution of
$0.415.
On February 5, 1997, the closing sales price of the Class A Common Stock on
the NYSE was $26 3/4 per share. As of September 30, 1996, there were 328 record
holders of the Common Stock.
AIMCO, as a REIT, is required to distribute annually to holders of Class A
Common Stock at least 95% of its "real estate investment trust taxable income,"
which, as defined by the Code and Treasury regulations, is generally equivalent
to net taxable ordinary income. See "Certain Federal Income Tax Considerations
- -- Taxation of the Company" in the accompanying Prospectus. AIMCO measures its
economic profitability and intends to pay regular quarterly dividends to its
stockholders based on its Cash Earned for Shareholders (as defined by the
Company) during the relevant period. However, the future payment of dividends by
AIMCO will be at the discretion of the Board of Directors and will depend on
numerous factors including AIMCO's financial condition, its capital
requirements, the annual distribution requirements under the provisions of the
Code applicable to REITs and such other factors as the Board of Directors deems
relevant.
S-20
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information
for the Company on a historical, adjusted and pro forma consolidated basis. The
selected historical financial information for the Company for the year ended
December 31, 1995 is based on the audited financial statements of the Company
incorporated by reference in the accompanying Prospectus. The selected
historical financial information for the Company for the nine months ended
September 30, 1996 and 1995 have been prepared from unaudited historical
financial data. In the opinion of management, the operating data for the nine
months ended September 30, 1996 and 1995 include all adjustments (consisting
only of recurring adjustments) necessary to present fairly the information set
forth therein. The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 1996. The following information should be read in conjunction with
the historical, adjusted and pro forma financial statements and notes thereto
incorporated by reference in the accompanying Prospectus. See "Available
Information" in the accompanying Prospectus.
The unaudited pro forma balance sheet data as of September 30, 1996 is based
on the unaudited historical financial data of the Company and has been prepared
as if each of the following transactions had occurred as of September 30, 1996:
(i) the Offering and the application of the net proceeds thereof as described in
this Prospectus Supplement; (ii) the purchase of the Dolphin's Landing
Apartments, the Chesapeake Apartments and the Bay West Apartments and the
incurrence of indebtedness and issuance of 193,676 shares of the Company's Class
A Common Stock to finance such acquisitions; (iii) the sale of 1,265,000 shares
of the Company's Class A Common Stock at $23.428 per share in the fourth quarter
of 1996, and the application of the net proceeds thereof to pay indebtedness
under the Credit Facility; (iv) the English Portfolio Acquisition; (v) the
consummation of the English Tender Offers; (vi) the Dallas Portfolio
Acquisition; (vii) the incurrence of indebtedness to finance the English
Portfolio Acquisition, the English Tender Offer and the Dallas Portfolio
Acquisition; and (viii) the refinancing of certain indebtedness assumed in
connection with the English Portfolio Acquisition.
The unaudited adjusted operating data and other information for the nine
months ended September 30, 1996 is based on the unaudited historical financial
data of the Company and has been prepared as if each of the following
transactions had occurred on January 1, 1996: (i) the sale of 1,265,000 shares
of the Company's Class A Common Stock at $23.428 per share in the fourth quarter
of 1996, and the application of the net proceeds thereof to pay indebtedness
under the Credit Facility; (ii) the English Portfolio Acquisition; (iii) the
consummation of the English Tender Offers; (iv) the Dallas Portfolio
Acquisition; (v) the incurrence of indebtedness to finance the English Portfolio
Acquisition, the English Tender Offers and the Dallas Portfolio Acquisition;
(vi) the refinancing of certain indebtedness assumed in connection with the
English Portfolio Acquisition; (vii) the acquisition of the 15 properties
acquired by the Company in 1995 and 1996 (the "1995 and 1996 Acquisitions"), to
the extent such acquisitions occurred during the year ended December 31, 1996,
and the assumption of indebtedness in connection with such acquisitions; (viii)
the disposition of the Four Sold Properties; (ix) the repayment of certain
indebtedness with borrowings under the Credit Facility and the issuance of OP
Units; and (x) the purchase of a management company.
The unaudited adjusted operating data and other information for the year
ended December 31, 1995 and the nine months ended September 30, 1995 are based
on the audited and unaudited, respectively, historical financial data of the
Company and have been prepared as if each of the following transactions had
occurred on January 1, 1995: (i) the sale of 1,265,000 shares of the Company's
Class A Common Stock at $23.428 per share in the fourth quarter of 1996, and the
application of the net proceeds thereof to pay indebtedness under the Credit
Facility; (ii) the English Portfolio Acquisition; (iii) the consummation of the
English Tender Offers; (iv) the Dallas Portfolio Acquisition; (v) the incurrence
of indebtedness to finance the English Portfolio Acquisition, the English Tender
Offers and the Dallas Portfolio Acquisition; (vi) the refinancing of certain
indebtedness assumed in connection with the English Portfolio Acquisition; (vii)
the 1995 and 1996 Acquisitions and the assumption of indebtedness in connection
with such acquisitions; (viii) the disposition of the Four Sold Properties; (ix)
the repayment of certain indebtedness with borrowings under the Credit Facility
and the issuance of OP Units; (x) the purchase of a management company; and (xi)
the sale of 2,706,423 shares of Class A Common Stock at $19.125 per share in the
fourth quarter of 1995, and the application of the net proceeds thereof.
S-21
<PAGE>
The unaudited pro forma operating data and other information for the year
ended December 31, 1995 and for the nine months ended September 30, 1996 include
all of the adjustments made for the unaudited adjusted operating data and other
information for the same periods and, in each case, assume the completion of the
Offering and the application of the net proceeds thereof as described in this
Prospectus Supplement.
The pro forma and adjusted information is not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the described transactions at the beginning of the
periods indicated, nor does it purport to project the Company's financial
position or results of operations at any future date or for any future period.
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE NINE MONTHS ENDED
FOR THE NINE MONTHS ENDED ENDED DECEMBER 31,
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 1995
------------------------------------- ---------------------- -------------
PRO FORMA(1) ADJUSTED(1) ACTUAL ADJUSTED(1) ACTUAL PRO FORMA(1)
------------- ----------- --------- ----------- --------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND REAL ESTATE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
RENTAL PROPERTY OPERATIONS
Rental and other income............................. $ 110,195 $ 110,195 $ 70,392 $ 103,115 $ 55,653 $ 138,810
Property operating expenses......................... (49,974) (49,974) (27,111) (48,637) (22,609) (65,808)
Owned property management expense................... (3,723) (3,723) (1,999) (3,612) (1,707) (4,971)
------------- ----------- --------- ----------- --------- -------------
56,498 56,498 41,282 50,866 31,337 68,031
Depreciation and amortization....................... (20,330) (20,330) (13,716) (19,940) (11,067) (26,929)
------------- ----------- --------- ----------- --------- -------------
36,168 36,168 27,566 30,926 20,270 41,102
PROPERTY MANAGEMENT BUSINESS
Income from consolidated management subsidiaries.... 1,204 1,204 1,042 2,117 2,021 2,239
GENERAL AND ADMINISTRATIVE EXPENSES................. (943) (943) (943) (1,709) (1,709) (1,804)
INTEREST INCOME..................................... 242 242 242 497 497 658
INTEREST EXPENSE.................................... (24,820) (27,537) (16,775) (20,421) (8,391) (26,946)
MINORITY INTEREST IN OTHER PARTNERSHIPS............. 2,939 2,939 -- 3,682 -- 4,997
------------- ----------- --------- ----------- --------- -------------
INCOME BEFORE MINORITY INTEREST IN OPERATING
PARTNERSHIP AND GAIN ON DISPOSITION OF PROPERTY.... 14,790 12,073 11,132 15,092 12,688 20,246
GAIN ON DISPOSITION OF PROPERTY..................... -- -- 64 -- -- --
Minority interest in Operating Partnership.......... (2,684) (2,445) (1,845) (3,040) (1,228) (3,693)
------------- ----------- --------- ----------- --------- -------------
NET INCOME.......................................... $ 12,106 $ 9,628 $ 9,351 $ 12,052 $ 11,460 $ 16,553
------------- ----------- --------- ----------- --------- -------------
------------- ----------- --------- ----------- --------- -------------
NET INCOME ALLOCABLE TO PREFERRED STOCKHOLDER (2)... $ -- $ -- $ -- $ 5,169 $ 5,169 $ 5,169
------------- ----------- --------- ----------- --------- -------------
------------- ----------- --------- ----------- --------- -------------
NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS......... $ 12,106 $ 9,628 $ 9,351 $ 6,883 $ 6,291 $ 11,384
------------- ----------- --------- ----------- --------- -------------
------------- ----------- --------- ----------- --------- -------------
NET INCOME PER COMMON SHARE......................... $ 0.77 $ 0.70 $ 0.77 $ 0.49 $ 0.65 $ 0.71
Dividends paid per common share..................... 1.275 1.275 1.275 1.245 1.245 1.66
Weighted average common shares and common share
equivalents outstanding (in thousands) (3)......... 15,791 13,791 12,127 14,160 9,622 16,032
OTHER INFORMATION
Income before minority interest in Operating
Partnership and gain on disposition of property.... $ 14,790 $ 12,073 $ 11,132 $ 15,092 $ 12,688 $ 20,246
Owned properties depreciation....................... 17,812 17,812 13,716 17,676 11,067 23,911
Amortization of management company goodwill......... 457 457 344 428 307 589
Payment of dividend on preferred stock.............. -- -- -- (5,169) (5,169) (5,169)
------------- ----------- --------- ----------- --------- -------------
FUNDS FROM OPERATIONS (4)(5)........................ 33,059 30,342 25,192 28,027 18,893 39,577
Capital Replacements................................ (4,635) (4,635) (3,353) (4,635) (2,815) (6,180)
------------- ----------- --------- ----------- --------- -------------
CASH EARNED FOR SHAREHOLDERS (5)(6)................. $ 28,424 $ 25,707 $ 21,839 $ 23,392 $ 16,078 $ 33,397
------------- ----------- --------- ----------- --------- -------------
------------- ----------- --------- ----------- --------- -------------
Weighted average common shares and common share
equivalents and OP Units outstanding (in
thousands)......................................... 19,292 17,292 14,517 17,731 11,493 19,609
Owned Properties (end of period).................... 94 56 48 94
Owned apartment units (end of period)............... 23,764 14,585 12,513 23,764
Average physical occupancy (end of period).......... 94.9% 93.9%
Average monthly rent per occupied unit (end of
period)............................................ $ 566 $ 515
<CAPTION>
ADJUSTED(1) ACTUAL
----------- ---------
<S> <C> <C>
OPERATING DATA
RENTAL PROPERTY OPERATIONS
Rental and other income............................. $ 138,810 $ 74,947
Property operating expenses......................... (65,808) (30,150)
Owned property management expense................... (4,971) (2,276)
----------- ---------
68,031 42,521
Depreciation and amortization....................... (26,929) (15,038)
----------- ---------
41,102 27,483
PROPERTY MANAGEMENT BUSINESS
Income from consolidated management subsidiaries.... 2,239 1,973
GENERAL AND ADMINISTRATIVE EXPENSES................. (1,804) (1,804)
INTEREST INCOME..................................... 658 658
INTEREST EXPENSE.................................... (30,835) (13,322)
MINORITY INTEREST IN OTHER PARTNERSHIPS............. 4,997 --
----------- ---------
INCOME BEFORE MINORITY INTEREST IN OPERATING
PARTNERSHIP AND GAIN ON DISPOSITION OF PROPERTY.... 16,357 14,988
GAIN ON DISPOSITION OF PROPERTY..................... -- --
Minority interest in Operating Partnership.......... (3,322) (1,613)
----------- ---------
NET INCOME.......................................... $ 13,035 $ 13,375
----------- ---------
----------- ---------
NET INCOME ALLOCABLE TO PREFERRED STOCKHOLDER (2)... $ 5,169 $ 5,169
----------- ---------
----------- ---------
NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS......... $ 7,866 $ 8,206
----------- ---------
----------- ---------
NET INCOME PER COMMON SHARE......................... $ 0.56 $ 0.86
Dividends paid per common share..................... 1.66 1.66
Weighted average common shares and common share
equivalents outstanding (in thousands) (3)......... 14,032 9,579
OTHER INFORMATION
Income before minority interest in Operating
Partnership and gain on disposition of property.... $ 16,357 $ 14,988
Owned properties depreciation....................... 23,911 15,038
Amortization of management company goodwill......... 589 428
Payment of dividend on preferred stock.............. (5,169) (5,169)
----------- ---------
FUNDS FROM OPERATIONS (4)(5)........................ 35,688 25,285
Capital Replacements................................ (6,180) (3,764)
----------- ---------
CASH EARNED FOR SHAREHOLDERS (5)(6)................. $ 29,508 $ 21,521
----------- ---------
----------- ---------
Weighted average common shares and common share
equivalents and OP Units outstanding (in
thousands)......................................... 17,609 11,461
Owned Properties (end of period).................... 56
Owned apartment units (end of period)............... 14,453
Average physical occupancy (end of period).......... 93.9%
Average monthly rent per occupied unit (end of
period)............................................ $ 516
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
PRO FORMA(1) ACTUAL
------------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Real estate--net of accumulated
depreciation (7)..................... $734,532 $ 500,889
Total assets.......................... 807,598 531,863
Total mortgages and notes payable..... 460,067 304,772
Minority interest in other
partnerships......................... 10,407 --
Minority interest in Operating
Partnership.......................... 59,552 42,760
Stockholders' Equity.................. 256,625 172,298
</TABLE>
- ------------------------------
(1) See AIMCO's Current Report on Form 8-K, dated December 19, 1996, which is
incorporated by reference in the accompanying Prospectus, for a description
of the adjustments reflected in the adjusted and pro forma financial and
operating information.
(2) In September 1995, the Company repurchased all 966,000 outstanding shares of
Convertible Preferred Stock.
(3) Excludes shares of Class A Common Stock which may be issued in exchange for
an equal number of outstanding OP Units which may be tendered for
redemption. The number of OP Units outstanding as of September 30, 1995,
December 31, 1995 and September 30, 1996 was 1,896,130, 1,985,197, and
2,646,688, respectively. Subsequent to September 30, 1996, 5,183,620 shares
of Class A Common Stock and 214,316 OP Units were issued, including
2,000,000 shares issued in the Offering and 899,250 shares issued to certain
executive officers of the Company (or entities controlled by them). See
"Recent Developments -- Management Stock Acquisitions."
(4) "Funds From Operations" ("FFO") means income (loss) before minority
interest, computed in accordance with generally accepted accounting
principles, excluding gains (or losses) from debt restructuring and sales of
property, plus real estate depreciation and amortization of management
company goodwill, less any preferred stock dividend payments, and after
adjustments for unconsolidated partnerships and joint ventures. Non-cash
charges to amortize costs related to borrowings are not added back to
determine FFO, but are deducted over the life of the related borrowing as
interest expense. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
should not be considered as an alternative to net income as an indication of
the Company's financial performance or as cash flows from operating
activities as a measure of liquidity.
(5) The Company has realized cash flows from operating, investing and financing
activities as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER SEPTEMBER
30, 1996 30, 1995
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Provided by (used in):
Operating activities.................. $30,865 $ 17,842
Investing activities.................. (11,188) (6,971)
Financing activities.................. (20,941) (14,575)
</TABLE>
(6) "Cash Earned For Shareholders" ("CEFS") means FFO less a minimum annual
provision for capital replacements of $300 per apartment unit. The Company
measures its economic profitability and intends to pay regular quarterly
dividends to its stockholders based on CEFS during the relevant period. CEFS
does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and should not be considered
as an alternative to net income as an indication of the Company's financial
performance or to cash flows from operating activities as a measure of
liquidity.
(7) Real estate is presented net of accumulated depreciation of $112,399 and
$41,044 as of September 30, 1996 on a pro forma and actual basis,
respectively.
S-23
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement, dated the date hereof, each Underwriter named below has severally
agreed to purchase, and AIMCO has agreed to sell to such Underwriter, the number
of shares of Class A Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc........................................................................... 500,000
Alex. Brown & Sons Incorporated............................................................ 500,000
Robertson, Stephens & Company LLC.......................................................... 500,000
The Robinson-Humphrey Company, Inc......................................................... 500,000
----------
Total.................................................................................... 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares is subject to approval
of certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Alex. Brown & Sons
Incorporated, Robertson, Stephens & Company LLC, and The Robinson-Humphrey
Company, Inc. are acting as representatives (the "Representatives"), propose to
offer part of the shares directly to the public at the public offering price set
forth on the cover of this Prospectus Supplement and part of the shares to
certain dealers at a price which represents a concession not in excess of $0.84
per share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain
other dealers. After the initial offering of the shares to the public, the
public offering price and other selling terms may be changed by the
Underwriters.
AIMCO has granted to the Underwriters an option, exercisable for thirty days
from the date of this Prospectus Supplement, to purchase up to 300,000
additional shares of Class A Common Stock from AIMCO at the price to the public
set forth on the cover page of this Prospectus Supplement minus the underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the offering
of the shares offered hereby. To the extent that such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
AIMCO and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
AIMCO and the Operating Partnership have agreed that, subject to certain
exceptions (including the issuance of shares of Class A Common Stock under any
employee stock plan, director stock plan or dividend reinvestment and stock
purchase plan of AIMCO, the issuance of shares of Class A Common Stock or OP
Units in connection with the acquisition of real estate assets (or interests in
entities owning real estate assets) and the issuance of Class A Common Stock in
exchange for OP Units) for a period of 90 days after the date of this Prospectus
Supplement, AIMCO will not, directly or indirectly, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, grant any option or
warrant to purchase or sell, or otherwise dispose of, Class A Common Stock or OP
Units or securities or interests convertible into, or exercisable or
exchangeable for, Class A Common Stock or OP Units. Certain of AIMCO's executive
officers and directors have also agreed that for a period of 90 days after the
date of the Prospectus Supplement, each will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, grant an option or
warrant to purchase, pledge, assign, hypothecate or otherwise dispose of, Class
A Common Stock or OP Units or securities or interests convertible into, or
exercisable or exchangeable for, Class A Common Stock or OP Units, except that
such officers may pledge Class A Common Stock or OP Units to secure certain
indebtedness.
S-24
<PAGE>
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, 1995 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 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,
S-25
<PAGE>
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, 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 and for the Underwriters by Winstead
Sechrest & Minick P.C., Dallas, Texas. 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 and Winstead
Sechrest & Minick P.C. will rely on Piper & Marbury L.L.P. as to certain matters
of Maryland law.
S-26
<PAGE>
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
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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 charge to any person
to whom this Prospectus has been delivered, upon request.
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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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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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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
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<PAGE>
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").
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
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<PAGE>
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 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
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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.
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
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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 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
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might be incurred by it in complying with 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
10
<PAGE>
of, or any installment of principal or 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.
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
11
<PAGE>
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 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
12
<PAGE>
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 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
13
<PAGE>
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 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.
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<PAGE>
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 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.
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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.
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
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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
YEAR-END TESTING B ANNUAL FFO PER PER SHARE AVERAGE MARKET
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.
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.
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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
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
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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
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.
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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 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,
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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
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than foreclosure property), such income will 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
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indirectly from investments 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
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tax purposes and do not affect the book 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
dividends received deduction for corporations. Distributions that are designated
as
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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 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
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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.
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
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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 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.
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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 UNDERWRITERS. 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
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.................. S-3
Risk Factors................................... S-6
The Company.................................... S-13
Recent Developments............................ S-15
Use of Proceeds................................ S-18
Capitalization................................. S-19
Price Range of and Dividends on Common Stock... S-20
Selected Financial and Operating Information... S-21
Underwriting................................... S-24
Certain Federal Income Tax Considerations...... S-25
Experts........................................ S-25
Legal Matters.................................. S-26
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................. 11
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>
2,000,000 SHARES
[LOGO]
APARTMENT
INVESTMENT AND
MANAGEMENT COMPANY
CLASS A COMMON STOCK
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PROSPECTUS SUPPLEMENT
FEBRUARY 5, 1997
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SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
ROBERTSON, STEPHENS & COMPANY
THE ROBINSON-HUMPHREY
COMPANY, INC.
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