<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 22, 1997)
4,000,000 SHARES
[LOGO]
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
8 3/4% CLASS D CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
----------------
The shares of 8 3/4% Class D Cumulative Preferred Stock, par value $.01 per
share (the "Class D Preferred Stock"), are being offered by Apartment Investment
and Management Company ("AIMCO"), a Maryland corporation that has elected to be
taxed for Federal income tax purposes as a real estate investment trust (a
"REIT"). Dividends on the Class D Preferred Stock are cumulative from the date
of original issue and are payable quarterly, commencing on April 15, 1998, at
the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to an
annual dividend rate of $2.1875 per share).
The Class D Preferred Stock is not redeemable prior to February 19, 2003,
except in certain limited circumstances relating to the ownership limitation
necessary to preserve AIMCO's qualification as a REIT. On and after February 19,
2003, the Class D Preferred Stock may be redeemed for cash at the option of
AIMCO, in whole or from time to time in part, at a redemption price of $25 per
share, plus accumulated and unpaid dividends, if any, to the redemption date.
The Class D Preferred Stock has no stated maturity and will not be subject to
any sinking fund or mandatory redemption and will not be convertible into or
exchangeable for any other securities of AIMCO. The Class D Preferred Stock will
rank on a parity with the outstanding shares of Class B Preferred Stock (as
defined herein) and Class C Preferred Stock (as defined herein), and senior to
the Class A Common Stock (as defined herein) and Class B Common Stock (as
defined herein), in each case, with respect to the payment of dividends and the
distribution of amounts upon liquidation, dissolution or winding up of AIMCO.
The Class D Preferred Stock is subject to certain restrictions on ownership and
transfer designed to preserve AIMCO's status as a REIT for federal income tax
purposes.
AIMCO intends to apply to list the Class D Preferred Stock on the New York
Stock Exchange, Inc. (the "NYSE") under the symbol "AIVPrD." If approved for
listing, trading of the Class D Preferred Stock on the NYSE is expected to
commence within the 30-day period after the initial delivery of the Class D
Preferred Stock. While the Underwriters (as defined herein) have advised AIMCO
that they intend to make a market in the Class D Preferred Stock prior to the
commencement of trading on the NYSE, they are under no obligation to do so and
may discontinue market making at any time without notice. No assurance can be
given that a market for the Class D Preferred Stock will exist prior to
commencement of trading on the NYSE or at any other time. See "Underwriting."
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-15 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS D PREFERRED STOCK.
--------------------
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 SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO PUBLIC DISCOUNTS AND PROCEEDS TO
(1) COMMISSIONS (2) AIMCO (3)
<S> <C> <C> <C>
Per Share $25.00 $0.7875 $24.2125
Total (4) $100,000,000 $3,150,000 $96,850,000
</TABLE>
(1) Plus accumulated dividends, if any, from the date of original issuance.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting."
(3) Before deducting estimated expenses of $200,000 payable by AIMCO.
(4) AIMCO has granted the Underwriters a 30-day option to purchase up to 600,000
additional shares of Class D Preferred Stock on the same terms set forth
above, to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to AIMCO will be $115,000,000, $3,622,500 and $111,377,500,
respectively.
--------------------
The shares of Class D Preferred 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
shares of Class D Preferred Stock offered hereby will be available for delivery
on or about February 19, 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
--------------------
SALOMON SMITH BARNEY
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY
February 13, 1998
<PAGE>
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY AIMCO OR BY THE
UNDERWRITERS THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS D PREFERRED STOCK
OFFERED HEREBY 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
AND THE ACCOMPANYING PROSPECTUS ARE REQUIRED BY AIMCO AND THE UNDERWRITERS TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF
THE CLASS D PREFERRED STOCK OFFERED HEREBY AND THE DISTRIBUTION OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS D PREFERRED
STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENTS ENTERING STABILIZING BIDS,
EFFECTING SYNDICATE-COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" ELSEWHERE HEREIN AND "PLAN
OF DISTRIBUTION" IN THE ACCOMPANYING PROSPECTUS.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
statements in the Summary, under the captions "Risk Factors" and elsewhere in
this Prospectus Supplement and the documents incorporated by reference herein
contain or may contain information that is forward looking, including, without
limitation, statements regarding acquisitions, AIMCO's future financial
performance and the effect of government regulations. Actual results may differ
materially from those described in the forward-looking statements and will be
affected by a variety of risks and factors including, without limitation:
national and local economic conditions; the general level of interest rates;
terms of governmental regulations that affect AIMCO and interpretations of those
regulations; the competitive environment in which AIMCO operates; risks related
to integrating acquired businesses with the existing businesses of AIMCO;
financing risks, including the risk that AIMCO's cash flow from operations may
be insufficient to meet required payments of principal and interest on
outstanding indebtedness and required dividends on outstanding preferred stock;
real estate risks, including variations of real estate values and the general
economic climate in local markets and competition for tenants in such markets;
acquisition and development risks, including the failure of acquisitions to
perform in accordance with projections; and possible environmental liabilities,
including costs which may be incurred due to necessary remediation of
contamination of properties owned, acquired or previously owned by AIMCO. In
addition, AIMCO's continued qualification as a REIT involves the application of
highly technical and complex provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). Readers should carefully review AIMCO's financial
statements and the notes thereto, as well as the risk factors described herein
and in the documents incorporated by reference herein.
S-2
<PAGE>
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
GENERAL
Apartment Investment and Management Company (together with its
majority-owned subsidiaries and controlled entities, the "Company") is the
second largest owner and manager of multifamily apartment properties in the
United States, based on apartment unit data compiled by the National Multi
Housing Council as of January 1, 1997, with 192,910 apartment units owned or
under management as of December 31, 1997. As of December 31, 1997, the Company
owned or controlled a total of 39,839 units in 146 apartment properties (the
"Owned Properties"), had an equity interest in 83,484 units in 516 apartment
properties (the "Equity Properties"), and managed 69,587 units in 374 apartment
properties (the "Managed Properties," and, together with the Owned Properties
and the Equity Properties, the "AIMCO Properties"). In addition to the Managed
Properties, the Company manages all of the Owned Properties and a majority of
the Equity Properties. The AIMCO Properties are located in 42 states, the
District of Columbia and Puerto Rico. The Company conducts its operations
primarily through AIMCO Properties, L.P., a Delaware limited partnership (the
"Operating Partnership"), and its subsidiaries. As of December 31, 1997, AIMCO
held approximately an 88% interest in the Operating Partnership. AIMCO has
elected to be taxed as a REIT for Federal income tax purposes.
RECENT DEVELOPMENTS
AMBASSADOR MERGER
On December 23, 1997, AIMCO entered into an Agreement and Plan of Merger
(the "Ambassador Merger Agreement") with Ambassador Apartments, Inc., a Maryland
corporation that has elected to be taxed as a REIT ("Ambassador"), pursuant to
which Ambassador will be merged with and into AIMCO with AIMCO being the
surviving corporation (the "Ambassador Merger"). The Ambassador Merger Agreement
also provides that, unless otherwise agreed by the parties, Ambassador
Apartments, L.P., the operating partnership of Ambassador (the "Ambassador
Operating Partnership"), will be merged with and into the Operating Partnership
(the "OP Reorganization") and all outstanding Ambassador Operating Partnership
interests will be converted into Partnership Common Units of the Operating
Partnership ("OP Units") at the "Conversion Ratio." In the Ambassador Merger
Agreement, the common stock, par value $0.01 per share, of Ambassador (the
"Ambassador Common Stock") is valued at $21.00 per share. Holders of Ambassador
Common Stock will receive for each share an amount of Class A Common Stock, par
value $.01 per share, of AIMCO (the "Class A Common Stock") equal to the
"Conversion Ratio." The "Conversion Ratio" means the quotient determined by
dividing $21.00 by the "AIMCO Index Price," which is the aggregate of the
average of the high and low sales prices for Class A Common Stock on each of the
twenty consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the closing of the Ambassador Merger, divided by 20. If
the AIMCO Index Price is less than $36 (i.e., the Conversion Ratio is greater
than 0.583), then AIMCO may elect to fix the Conversion Ratio at 0.583 and pay
to each holder of Ambassador Common Stock cash sufficient to provide $21.00 in
value for each share of Ambassador Common Stock. Any outstanding options to
purchase Ambassador Common Stock may be converted, at the election of the option
holder, into cash or options to purchase Class A Common Stock at the Conversion
Ratio. The Ambassador Merger Agreement provides that Ambassador's outstanding
preferred stock, par value $0.01 per share (the "Ambassador Preferred Stock"),
shall be redeemed, subject to the right of holders of shares of Ambassador
Preferred Stock to convert such shares into Ambassador Common Stock, immediately
prior to the Ambassador Merger. Assuming a conversion ratio of 0.583, AIMCO will
issue up to an aggregate of 7,205,739 shares of Class A Common Stock in the
Ambassador Merger, based upon the number of shares of
S-3
<PAGE>
Ambassador Common Stock, options to purchase Ambassador Common Stock and other
securities currently convertible into shares of Ambassador Common Stock
outstanding as of December 31, 1997.
Ambassador is a self-administered, self-managed REIT engaged in the
ownership and management of garden-style apartment properties leased primarily
to middle income tenants. As of December 31, 1997, Ambassador owned 52 apartment
communities with a total of 15,728 units located in Arizona, Colorado, Florida,
Georgia, Illinois, Tennessee and Texas.
Consummation of the Ambassador Merger is subject to the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Ambassador
Common Stock, the approval of all appropriate governmental and regulatory
authorities and other customary conditions.
NHP MERGER
On December 8, 1997, AIMCO completed the acquisition by merger (the "NHP
Merger") of NHP Incorporated, a Delaware corporation ("NHP"). AIMCO issued
4,554,873 shares of Class A Common Stock and paid $0.3 million to NHP
stockholders (other than AIMCO's subsidiary, AIMCO/NHP Properties, Inc.
("ANHI")) as consideration in the NHP Merger. NHP stockholders also received a
distribution from NHP of one-third of a share of the common stock, par value
$.01 per share (the "WMF Common Stock"), of The WMF Group, Ltd., a Delaware
corporation and formerly a wholly-owned subsidiary of NHP ("WMF"), for each
share of NHP Common Stock (the "WMF Spin-Off"). Prior to the NHP Merger, AIMCO
and its subsidiaries acquired in a series of transactions approximately 53.4% of
the outstanding NHP Common Stock (the "NHP Stock Purchase" and, together with
the NHP Merger, the "NHP Acquisition"). Prior to the NHP Merger, NHP and its
subsidiaries provided a broad array of real estate services nationwide including
property management and asset management. As of September 30, 1997, NHP's
management portfolio (which is included in the AIMCO Properties) included 732
properties containing 79,208 conventional units and 55,102 "affordable" units
(units benefiting from some form of interest rate or rental subsidy or otherwise
subject to governmental programs aimed at providing low and moderate income
housing) located in 38 states, the District of Columbia and Puerto Rico. In
addition, NHP owned 12 properties containing 2,905 apartment units.
Immediately following the NHP Merger, AIMCO reorganized the assets and
operations of NHP (the "NHP Reorganization"). As a result of the NHP
Reorganization, NHP was liquidated and its subsidiaries were contributed (or
otherwise transferred) to the Operating Partnership or its subsidiaries. As a
result of the NHP Reorganization, most of the former NHP subsidiaries are now
owned by one or more unconsolidated subsidiaries of AIMCO in which certain
officers and/or directors of AIMCO have a controlling interest (with an economic
interest of 5%) (the "Unconsolidated Subsidiaries"). Ownership of the 12
properties referred to above that were owned by NHP prior to the NHP Merger was
transferred to AIMCO/NHP Partners, L.P., a limited partnership in which the
Company has a 99% limited partnership interest and an entity owned by certain
officers of AIMCO has a controlling 1% general partnership interest (the
"Unconsolidated Partnership").
The Company engaged in a reorganization (the "NHP Real Estate
Reorganization") of its interests in the NHP Real Estate Companies, which
resulted in the vast majority of the NHP Properties being owned by the
Unconsolidated Partnership. As a consequence of the NHP Real Estate
Reorganization, the results of the NHP Properties transferred to the
Unconsolidated Partnership will not be consolidated with AIMCO's results.
NHP REAL ESTATE ACQUISITION
In June 1997, the Company acquired a group of companies (the "NHP Real
Estate Companies") previously owned by NHP that hold general and limited
partnership interests in partnerships that own 534 conventional and affordable
apartment properties (the "NHP Properties") containing 87,659 units, a captive
insurance subsidiary and certain related assets (the "NHP Real Estate
Acquisition"). The Company paid aggregate consideration of $54.8 million in cash
and warrants to purchase 399,999 shares of Class A Common Stock at an exercise
price of $36 per share.
S-4
<PAGE>
WINTHROP PORTFOLIO ACQUISITION
In October 1997, the Operating Partnership acquired a portfolio of 35
residential apartment properties (collectively, the "Winthrop Portfolio"). The
35 garden-style apartment communities comprising the Winthrop Portfolio are
located in seven states, have an average age of 17 years and contain a total of
8,175 apartment units. Fifteen of the apartment communities are located in
Arizona, with 2,602 units in Phoenix and 816 units in Tucson; eleven apartment
communities with 2,075 units are located throughout Texas; two apartment
communities with 1,223 units are located in Florida; two apartment communities
with 494 units are located in Michigan; three apartment communities with 536
units are located in Georgia; one apartment community with 293 units is located
in Illinois; and one apartment community with 136 units is located in North
Carolina.
The aggregate purchase price for the Winthrop Portfolio, including estimated
transaction costs, was approximately $263.5 million. AIMCO paid aggregate
consideration of $116.1 million in cash to the sellers, assumed $8.3 million in
mortgage indebtedness and incurred $139.1 million of new indebtedness secured by
the properties, to complete the purchase. The Company has also budgeted an
additional $16 million in initial capital expenditures related to the Winthrop
Portfolio.
OTHER RECENT ACQUISITIONS
FOXCHASE. In December 1997, the Company purchased Foxchase Apartments
("Foxchase"), a 2,113 unit apartment complex located in Alexandria, Virginia,
for approximately $110.3 million, consisting of approximately $70.0 million in
assumed mortgage obligations and the remainder (after deducting closing costs
and a 10% sales commission payable to the general partner) in OP Units. The
Company purchased Foxchase from a limited partnership for which the Company
serves as general partner and majority limited partner.
FISHERMAN'S LANDING. In December 1997, the Company acquired Fisherman's
Landing, a 256 unit apartment complex in Tampa, Florida, for approximately $8.5
million, including the assumption of outstanding indebtedness.
WINDWARD AT THE VILLAGES. In October 1997, the Company purchased Windward
at the Villages Apartments ("Windward"), a 196-unit apartment community built in
1988, located in West Palm Beach, Florida, for approximately $10.8 million.
Windward is adjacent to the Bear Lakes Country Club and Golf Course in the
Villages of Palm Beach Lakes, a master planned golf course community.
MORTON TOWERS. In September 1997, the Company, through two subsidiary
limited partnerships in which the Company is the sole general partner and has an
aggregate interest of approximately 77%, acquired the Morton Towers apartments,
a 1,277-unit, twin tower high rise apartment complex built in 1960, located in
Miami Beach, Florida, for $63 million, including approximately 1.4 million OP
Units valued at $42 million. The Company expects to undertake a major renovation
of the complex at an estimated total cost of $35 million.
LOS ARBOLES. In September 1997, the Company acquired Los Arboles
Apartments, a 232-unit apartment community built in 1985, located in Chandler,
Arizona, for approximately $11.3 million. Los Arboles is adjacent to Vista del
Lagos, a 200-unit apartment community in which the Company has an equity
interest.
SAWGRASS. In July 1997, the Company purchased Sawgrass Apartments, a
208-unit apartment community built in 1989, located in Orlando, Florida, for
approximately $9.6 million. Sawgrass was formerly a Managed Property.
TUSTIN EAST VILLAGE/THE CALIFORNIAN. In June 1997, the Company acquired
Tustin East Village and The Californian, two garden-style apartment communities
consisting of 292 units built in 1970, and Red Hill Plaza, an adjacent shopping
plaza built in 1970, located in Tustin, California, for $21.4 million, including
approximately 500,000 OP Units valued at $13.9 million. These properties are
contiguous to Brookside Apartments, another Owned Property, consisting of 336
units, purchased in April 1996 from the same seller, and are operated with
Brookside as one property.
S-5
<PAGE>
THE VININGS. In June 1997, the Company acquired The Vinings at the
Waterways, a 180-unit luxury garden-style apartment community built in 1991,
located in Aventura, Florida, for approximately $16.4 million. The Vinings is
located by a yacht basin and marina directly accessing the Intracoastal Waterway
and is also adjacent to a commercial center.
STONEBROOK. In May 1997, the Company acquired the Stonebrook Apartments, a
244-unit apartment community built in 1991, located in Orlando, Florida, for
approximately $11 million. Stonebrook is less than a mile from the location of a
proposed interchange on a beltway around Orlando and is near a regional airport
being expanded for commercial aviation.
BAY CLUB. In April 1997, the Company acquired The Bay Club at Aventura, a
702-unit luxury high rise apartment complex, consisting of two towers built in
1990, located in Aventura, Florida, for approximately $71 million. The property
includes approximately 3.5 acres of land with permits to construct a third tower
consisting of 225 units. Aventura is a coastal city located near North Miami
Beach.
PROPERTIES SUBJECT TO LETTER OF INTENT OR CONTRACT
In the ordinary course of the Company's business, the Company is engaged in
discussions and negotiations with property owners regarding the purchase of
apartment properties or interests in apartment properties. The Company
frequently enters into letters of intent, which may be binding or nonbinding,
and contracts with respect to the purchase of real property which are subject to
certain conditions and which permit the Company to terminate the contract in its
sole and absolute discretion if it is not satisfied with the results of its due
diligence investigation of the properties under contract. The Company's
management believes that such contracts essentially result in the creation of an
option on the property subject to the contract and give the Company greater
flexibility in seeking to acquire properties. As of February 13, 1998, the
Company had under letter of intent or contract an aggregate of 28 multi-family
apartment properties with a maximum aggregate purchase price of $283 million,
including estimated capital improvements, which, in some cases, may be paid in
the form of assumption of existing debt. All such contracts are subject to
termination by the Company as described above. Due diligence with respect to
these properties is generally not completed and there is no assurance that any
transaction will occur or that they will occur on the terms currently
contemplated.
RECENT CONTRACTS
On January 31, 1998 AIMCO entered into a Contribution Agreement (the
"Contribution Agreement") with CK Services, Inc. ("CK") and the stockholders of
CK to cause certain assets of AIMCO to be contributed to CK. CK is a corporation
wholly-owned by Terry Considine, AIMCO's Chairman and Chief Executive Officer,
and Peter Kompaniez, AIMCO's President and Vice Chairman.
It is AIMCO's intent to use CK as a vehicle for holding property and
performing services that AIMCO is limited or prohibited from holding or
providing due to AIMCO's election to be taxed as a REIT. AIMCO is finalizing
which assets will be contributed to CK. Any transfer of assets or services to CK
will be at market rates approved by the independent members of the Board of
Directors of AIMCO and, if market rates are difficult to ascertain, there can be
no assurance that the pricing will not favor AIMCO.
Pursuant to the Contribution Agreement, the Company will contribute certain
assets to CK in exchange for the stock of CK. Following this initial
contribution, the Company has agreed to contribute additional assets to CK with
the intent of creating a stand-alone entity capable of meeting the requirements
for listing on the NYSE or inclusion in the NASDAQ National Market. If CK
qualifies for listing on the NYSE or inclusion in the NASDAQ National Market,
the stock of CK will be distributed to the stockholders of AIMCO. If CK does not
qualify for listing on the NYSE or inclusion in the NASDAQ National Market, CK
will remain a direct or indirect subsidiary of the Company and the Company will
pay to the former stockholders of CK an amount necessary to compensate the
former CK stockholders for the value of such stock on January 31, 1998.
Consummation of the transactions with CK are subject to the approval of the
independent members of the AIMCO Board.
S-6
<PAGE>
RECENT FINANCINGS
In August 1997, AIMCO sold 750,000 shares of newly issued Class B
Convertible Preferred Stock, par value $.01 per share (the "Class B Preferred
Stock"), to an institutional investor for $75 million in cash in a private
transaction. Holders of the Class B Preferred Stock are entitled to receive,
when, as and if declared by AIMCO's Board of Directors, quarterly cash dividends
per share equal to the greater of (i) $1.78125 or (ii) the cash dividends
declared on the number of shares of Class A Common Stock into which one share of
Class B Preferred Stock is convertible. The Class B Preferred Stock is
convertible at a conversion ratio of 3.28407 shares of Class A Common Stock for
each share of Class B Preferred Stock (subject to anti-dilution adjustments).
The Class B Preferred Stock is senior to Class A Common Stock as to dividends
and upon liquidation. The proceeds from the sale of the Class B Preferred Stock
were used to repay outstanding indebtedness under the Company's previous
revolving credit facility (the "Previous Credit Facility") with Bank of America
National Trust and Savings Association ("Bank of America"), as agent for the
banks parties thereto, and for general business purposes.
In October 1997, AIMCO sold 7,000,000 shares of Class A Common Stock in an
underwritten public offering for net proceeds of $241.5 million. AIMCO used
approximately $23 million of such net proceeds to repay an intercompany loan
from the Operating Partnership, and contributed all of the remaining
approximately $218.5 million of such net proceeds to the Operating Partnership,
which used such proceeds for the repayment of outstanding indebtedness and for
general business purposes. Since August 1997, AIMCO has also issued an aggregate
of 5,052,418 additional shares of Class A Common Stock to institutional
investors for aggregate net proceeds of approximately $157 million. Of the net
proceeds of such offerings, AIMCO used $7.0 million to purchase shares of NHP
Common Stock and used $114.3 million to repay in full outstanding borrowings
(including accrued interest) under a short-term credit facility of one of the
Unconsolidated Subsidiaries. Substantially all of the remaining $35.7 million of
proceeds were transferred to the Operating Partnership in exchange for OP Units.
The Operating Partnership used such proceeds to repay outstanding indebtedness
under the Previous Credit Facility and for general business purposes.
In December 1997, AIMCO sold 2,400,000 shares of 9% Class C Cumulative
Preferred Stock, par value $.01 per share (the "Class C Preferred Stock"), in an
underwritten public offering for net proceeds of approximately $57.9 million
(the "Class C Preferred Stock Offering"). AIMCO contributed the net proceeds to
the Operating Partnership in exchange for a preferred interest in the Operating
Partnership. The Operating Partnership used approximately $47.0 million of such
amount to repay outstanding indebtedness, and the remaining $10.9 million to
settle an outstanding interest rate swap agreement. See "Risk Factors--Risks
Related to Interest Rate Hedging Agreements."
In January 1998, the Company replaced the Previous Credit Facility with a
new unsecured $50 million revolving credit facility (the "New Credit Facility")
with Bank of America and BankBoston, N.A. The Operating Partnership is the
borrower under the New Credit Facility, but all obligations thereunder are
guaranteed by AIMCO and certain of its subsidiaries. The interest rate under the
New Credit Facility is based on LIBOR or Bank of America's reference rate at the
election of the Company, plus an applicable margin (the "Margin"). The Margin
ranges between 0.60% and 1.0% in the case of LIBOR based loans and between 0%
and .50% in the case of loans based on Bank of America's reference rate,
depending upon the credit rating of the Operating Partnership's senior
unsubordinated unsecured long term indebtedness. The New Credit Facility expires
on January 26, 2000 unless extended for successive one year periods at the
discretion of the lenders. The New Credit Facility provides for conversion of
the revolving facility into a three year term loan. The financial covenants
contained in the New Credit Facility require the Company to maintain a ratio of
debt to gross asset value of no more than 0.55 to 1, an interest coverage ratio
of 2.25 to 1 and a debt service coverage ratio of at least 2.0 to 1.
Additionally the New Credit Facility limits AIMCO from distributing more than
80% of FFO (as defined) to AIMCO stockholders, imposes minimum net worth
requirements and provides other financial covenants related to certain
unencumbered assets.
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In February 1998, the Operating Partnership, as borrower, along with certain
single asset wholly-owned subsidiaries of the Operating Partnership (the
"Owners") and AIMCO, as guarantors, entered into a five-year secured credit
facility agreement (the "WMF Credit Facility") with Washington Mortgage
Financial Group, Ltd. ("Washington Mortgage"), which provides for a $50 million
revolving credit facility and conversion of all or a portion of such revolving
credit facility to a base loan facility. The WMF Credit Facility provides that
all the rights of Washington Mortgage are assigned to the Federal National
Mortgage Association ("FNMA"), but FNMA does not assume Washington Mortgage's
obligations under the WMF Credit Facility. At the Operating Partnership's
request, the commitment amount may be increased to an amount not to exceed $250
million, subject to consent of Washington Mortgage and FNMA in their sole and
absolute discretion. The Operating Partnership and affiliates have pledged their
ownership interests in the Owners as security for its obligations under the WMF
Credit Facility. The guarantees of the Owners are secured by assets of the
Owners, including four apartment properties and two mortgage notes. Advances to
the Operating Partnership under the WMF Credit Facility are funded with the
proceeds of the sale to investors of FNMA mortgage backed securities that are
secured by the advance and an interest in the collateral. The interest rate on
each advance is determined by investor bids for such mortgage backed securities
plus a fee spread presently equal to 0.50%. The maturity date of each advance
under the revolving portion of the WMF Credit Facility is a date between three
and nine months from the closing date of the advance as selected by the
Operating Partnership. Advances under the base facility mature at a date,
selected by the Operating Partnership between ten and twenty years from the date
of the advance. Subject to certain conditions, the Operating Partnership has the
right to add or substitute collateral. The WMF Credit Facility requires the
Company to maintain a ratio of debt to gross asset value of no more than 0.55 to
1, an interest coverage ratio of at least 2.25 to 1, and a debt service coverage
ratio of at least 2.0 to 1, imposes minimum net worth requirements and also
provides other financial covenants and interest coverage ratios that are
specifically related to the collateral.
FOURTH QUARTER RESULTS
On January 23, 1998, AIMCO announced that funds from operations ("FFO") for
the quarter ended December 31, 1997 equaled $31.5 million, compared to $10.0
million for the quarter ended December 31, 1996. For the year ended December 31,
1997, AIMCO announced that FFO equaled $81.2 million, compared to $35.2 million,
for the year ended December 31, 1996. For more information about FFO see note
(f) to the "Summary Pro Forma and Historical Financial Information". On January
22, 1998, the Board of Directors of AIMCO voted to increase the annual dividend
rate from $1.85 to $2.25 per share, a 21.6% increase.
BUSINESS AND GROWTH STRATEGIES
OPERATING AND FINANCIAL STRATEGIES
The Company's operating and financing strategies to attempt to meet its
objective of providing long-term, predictable FFO per share of Common Stock
include the following:
- ACQUISITION OF PROPERTIES AT LESS THAN REPLACEMENT COST. The Company
attempts to acquire properties at a significant discount to their
replacement cost.
- GEOGRAPHIC DIVERSIFICATION. The Company operates in 42 states, the
District of Columbia and Puerto Rico. This geographic diversification
insulates the Company, to some degree, from inevitable downturns in any
one market.
- MARKET GROWTH. The Company seeks to operate in markets where population
and employment growth are expected to exceed the national average and
where it believes it can become a regionally significant owner or manager
of properties. For the 1996 to 1999 period, annual population and
employment growth rates in the Company's five largest regional markets are
forecasted to be 2.2% and 3.6%, respectively.
- PRODUCT DIVERSIFICATION. The Company's portfolio of apartment properties
spans a wide range of apartment community types, both within and among
markets.
S-8
<PAGE>
- CAPITAL REPLACEMENT. The Company believes that the physical condition and
amenities of its apartment communities are important factors in its
ability to maintain and increase rental rates. The Company allocates
approximately $300 annually per owned apartment unit for capital
replacements ("Capital Replacements") and reserves unexpended amounts for
future capital replacements.
- DEBT FINANCING. The Company's strategy is generally to incur debt to
increase its return on equity while maintaining acceptable interest
coverage ratios. The Company uses predominantly long-term, fixed-rate and
self-amortizing debt in order to avoid the refunding or repricing risks of
short-term borrowings. The Company also uses short-term debt financing to
fund acquisitions and generally expects to refinance such borrowings with
proceeds from equity offerings or long-term debt financings. As of
December 31, 1997, approximately 7% of the Company's outstanding debt was
short-term debt and 93% was long-term debt.
- DISPOSITIONS. From time to time, the Company sells properties that do not
meet its return on investment criteria or that are located in areas where
the Company does not believe that the long-term neighborhood values
justify the continued investment in the properties.
- DIVIDEND POLICY. AIMCO pays dividends to share its profitability with its
stockholders. For the years ended December 31, 1997, 1996 and 1995, AIMCO
distributed 66.5%, 72.3% and 75.1%, respectively, of FFO to its
stockholders. It is the present policy of AIMCO's Board of Directors to
increase the dividend annually in an amount equal to one-half of the
projected increase in FFO, adjusted for Capital Replacements.
GROWTH STRATEGIES
The Company seeks growth through two primary sources--acquisitions and
internal expansion.
ACQUISITION STRATEGIES. The Company believes its acquisition strategies will
increase profitability and predictability of earnings by increasing its
geographic diversification, economies of scale and opportunities to provide
ancillary services to tenants at the AIMCO Properties. From AIMCO's initial
public offering in July 1994 (the "IPO") through December 31, 1997, the Company
has completed 28 acquisition transactions involving a total of 105 properties
for an aggregate purchase price of approximately $1.0 billion, including the
assumption and incurrence of $544 million of indebtedness. The Company acquires
additional properties primarily in three ways:
- DIRECT ACQUISITIONS. The Company may directly acquire individual
properties or portfolios and controlling interests in entities that own or
control such properties or portfolios. During the year ended December 31,
1997, the Company has directly acquired 44 apartment properties for a
total consideration of $467 million, consisting of $191 million in cash,
approximately 1.9 million OP Units valued at $56 million, and the
assumption or incurrence of $220 million of indebtedness.
- ACQUISITION OF MANAGED PROPERTIES. The Company believes that its property
management operations support its acquisition activities. Since the IPO,
the Company has acquired from its managed portfolio 12 properties
comprising 3,530 units for total consideration of $129 million.
- INCREASING ITS INTEREST IN PARTNERSHIPS. For properties where the Company
owns a general partnership interest in the property-owning partnership,
the Company may seek to acquire, subject to its fiduciary duties, the
interests in the partnership held by third parties for cash or, in some
cases, in exchange for OP Units. The Company has completed tender offers
with respect to 25 partnerships and has purchased additional interests in
such partnerships for cash and for OP Units.
INTERNAL GROWTH STRATEGIES. The Company pursues internal growth primarily
through the following strategies:
- REVENUE INCREASES. The Company increases rents where feasible and seeks to
improve occupancy rates. AIMCO's "same store" revenues from the Owned
Properties (based on properties owned from period to
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<PAGE>
period) have grown by 3.3% from the fiscal year ended December 31, 1995 to
the fiscal year ended December 31, 1996, and by 2.1% from the fiscal year
ended December 31, 1996 to the fiscal year ended December 31, 1997.
- REDEVELOPMENT OF PROPERTIES. The Company believes redevelopment of
selected properties in superior locations provides advantages over
development of new properties, because, compared with new development,
redevelopment generally can be accomplished with relatively lower
financial risk, in less time and with reduced delays attributable to
governmental regulation.
- EXPANSION OF PROPERTIES. The Company believes that expansion within or
adjacent to existing AIMCO Properties also provides growth opportunities
at lower risk than new development. Such expansion can offer cost
advantages to the extent common area amenities and on-site management
personnel can service the property expansions.
- CONVERSION OF AFFORDABLE PROPERTIES; IMPROVEMENT OF PERFORMANCE. The
Company believes that it may be able to significantly increase its return
from its portfolio of affordable properties by improving operations at
some of its properties or by converting some of these properties to
conventional properties.
- ANCILLARY SERVICES. The Company management believes that its ownership and
management of the AIMCO Properties provides it with unique access to a
customer base for the sale of additional services which generate
incremental revenues. The Company currently provides cable television,
telephone services, appliance rental, renters' insurance and carport,
garage and storage space rental at certain AIMCO Properties.
- CONTROLLING EXPENSES. Cost reductions are accomplished by exploiting
economies of scale. As a result of the size of its portfolio and its
creation of regional concentrations of properties, the Company has the
ability to leverage fixed costs for general and administrative
expenditures and certain operating functions, such as insurance,
information technology and training, over a larger property base.
PROPERTY MANAGEMENT STRATEGIES
AIMCO seeks to improve the operating results from its property management
business by, among other methods, combining centralized financial control and
uniform operating procedures with localized property management decision-making
and market knowledge. AIMCO's management operations are organized into 13
regional hubs, each supervised by a Regional Vice President, who has, on
average, 17 years of experience in apartment management.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.... 4,000,000 shares of Class D Preferred Stock (the "Offering").
Dividends............. Dividends on the Class D Preferred Stock are cumulative from the
date of original issue and are payable quarterly, when and as
declared, commencing on April 15, 1998, at the rate of 8 3/4% per
annum of the $25 liquidation preference (equivalent to an annual
dividend rate of $2.1875 per share).
Liquidation $25 per share of Class D Preferred Stock, plus an amount equal to
Preference............ accumulated, accrued and unpaid dividends (whether or not earned or
declared).
Redemption............ The Class D Preferred Stock is not redeemable prior to February 19,
2003, except in certain limited circumstances relating to the
ownership limitation necessary to preserve AIMCO's qualification as
a REIT. On and after February 19, 2003, the Class D Preferred Stock
will be redeemable for cash at the option of AIMCO, in whole or from
time to time in part, at a redemption price of $25 per share, plus
accrued and unpaid dividends, if any, to the redemption date. The
redemption price for the Class D Preferred Stock (other than any
portion thereof consisting of
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
accrued and unpaid dividends) shall be payable solely with the
proceeds from the sale by AIMCO or the Operating Partnership of
other capital shares of AIMCO or the Operating Partnership (whether
or not such sale occurs concurrently with such redemption).
Ranking............... The Class D Preferred Stock will rank on a parity with the
outstanding shares of Class B Preferred Stock and Class C Preferred
Stock and senior to the Class A Common Stock and AIMCO's Class B
Common Stock, par value $.01 per share ("Class B Common Stock"), in
each case, with respect to the payment of dividends and the
distribution of amounts upon liquidation, dissolution or winding up.
Voting Rights......... Holders of Class D Preferred Stock will generally have no voting
rights. However, whenever dividends on the shares of Class D
Preferred Stock are in arrears for six or more quarterly periods
(whether or not consecutive), the holders of such shares (voting
together as a single class with all other shares of any class or
series of stock ranking on a parity with the Class D Preferred Stock
which are entitled to similar voting rights) will be entitled to
vote for the election of two additional directors of AIMCO until all
dividends in arrears on outstanding shares of Class D Preferred
Stock have been paid or declared and set apart for payment. In
addition, certain changes to the terms of the Class D Preferred
Stock that would be materially adverse to the rights of holders of
Class D Preferred Stock cannot be made without the affirmative vote
of holders of at least 66 2/3% of the outstanding shares of Class D
Preferred Stock and shares of any class or series of stock ranking
on a parity with the Class D Preferred Stock which are entitled to
similar voting rights, voting as a single class.
Ownership Limit....... Ownership of shares of Class D Preferred Stock by any person is
limited such that the sum of (i) the aggregate value of the Class D
Preferred Stock, and (ii) the aggregate value of all shares of any
other class of capital stock of AIMCO (such other classes of stock,
collectively with the Class D Preferred Stock, the "Equity Stock"),
owned, directly or constructively, by such person, does not, subject
to certain exceptions, exceed 8.7% of the aggregate value of all
outstanding shares of Equity Stock.
Listing............... AIMCO intends to apply to list the Class D Preferred Stock on the
NYSE. If approved for listing, trading of the Class D Preferred
Stock on the NYSE is expected to commence within the 30-day period
after the initial delivery of the Class D Preferred Stock.
Use of Proceeds....... AIMCO intends to contribute the net proceeds from the sale of the
Class D Preferred Stock (estimated to be $96.7 million ($111.2
million if the Underwriters' over-allotment option is exercised in
full)) to the Operating Partnership in exchange for a preferred
interest in the Operating Partnership. The Operating Partnership
intends to use the amounts received from AIMCO to repay outstanding
indebtedness and for general business purposes. See "Use of
Proceeds."
</TABLE>
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<PAGE>
SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
The following table sets forth summary pro forma and historical financial
and operating information for AIMCO for the nine months ended September 30, 1997
and the year ended December 31, 1996. The pro forma financial and operating
information gives effect to the NHP Acquisition, the NHP Real Estate
Acquisition, the WMF Spin-Off, the NHP Real Estate Reorganization, the Class C
Preferred Stock Offering, the Ambassador Merger, the OP Reorganization and
certain related transactions. The pro forma financial and operating information
set forth below also gives effect to certain other transactions completed prior
to the date hereof and should be read in conjunction with, and is qualified in
its entirety by, the historical and pro forma financial statements and notes
thereto of AIMCO, NHP, the NHP Real Estate Companies, NHP Southwest Partners,
L.P., the NHP New LP Entities (as defined in Note 1 of such financial statements
included in AIMCO's Current Report on Form 8-K dated June 3, 1997, as amended),
the NHP Borrower Entities (as defined in Note 1 of such financial statements
included in AIMCO's Current Report on Form 8-K dated June 3, 1997, as amended),
The Bay Club at Aventura, the Morton Towers apartments, the Thirty-five
Acquisition Properties (which represent the Winthrop Portfolio), First
Alexandria Associates Limited Partnership, Country Lakes Associates Two, Point
West Limited Partnership, The Oak Park Partnership, and Ambassador, all of which
are incorporated by reference herein. The summary historical financial
information for the years ended December 31, 1996 and 1995 is based on the
audited financial statements of AIMCO incorporated by reference herein. The
summary historical financial information for AIMCO for the nine months ended
September 30, 1997 and 1996 has been prepared from unaudited historical
financial data incorporated by reference herein. In the opinion of the
management of AIMCO, the operating data for the nine months ended September 30,
1997 and 1996 include all adjustments (consisting only of normally recurring
adjustments) necessary to present fairly the information set forth therein. The
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be obtained for the year ending December 31, 1997.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of AIMCO and notes thereto incorporated by
reference herein.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------- -------------------------------------------
1997 1996
---------------------------- ----------------------------
1996 HISTORICAL PRO FORMA 1995 HISTORICAL PRO FORMA
------------- ----------- --------------- ------------- ----------- ---------------
(RESTATED)(A)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations.......................... $ 27,566 $ 48,154 $ 92,937 $ 27,483 $ 39,814 $ 94,414
Income from service company
business............................ 1,042 2,804 989 1,973 1,717 856
Income (loss) before minority interest
in Operating Partnership,
extraordinary item and gain (loss)
on disposition of property.......... 11,132 19,865 40,254 14,988 15,629 42,385
Net income............................ $ 9,351 $ 16,815 $ 36,023(h) $ 13,375 $ 12,984 $ 37,362(h)
PER SHARE DATA:
Net income per common share and common
share equivalents(i)................ $ 0.77 $ 0.77 $ 0.60(h) $ 0.86 $ 1.04 $ 0.59(h)
Dividends paid per common share....... $ 1.275 $ 1.3875 $ 1.3875 $ 1.66 $ 1.70 $ 1.70
Weighted average number of common
shares and common share equivalents
outstanding(i)...................... 12,127 20,629 46,819 9,579 12,427 45,109
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER FOR THE YEAR ENDED
30, DECEMBER 31,
-------------------------------------- --------------------------
1997 1996
----------------------- ------------------------
1996 HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------- ---------- ----------- 1995 ----------- -----------
-------------
(RESTATED)(A)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation........................ $ 541,933 $1,250,239 $2,114,389 $ 477,162 $ 865,222
Cash and cash equivalents............. 1,115 45,775 78,551 2,379 13,170
Total assets.......................... 531,863 1,608,195 2,599,978 480,361 834,813
Total mortgages and notes payable..... 304,772 661,715 1,041,530 268,692 522,146
Minority interest in other
partnerships........................ -- 19,355 39,709 -- 10,386
Minority interest in Operating
Partnership......................... 42,760 111,632 136,114 30,376 58,777
Stockholders' equity(b)............... 172,298 627,426 1,288,833 169,032 222,889
CASH FLOW DATA:
Cash provided by operating
activities(c)....................... $ 30,865 $ 53,435 $ 100,464 $ 25,911 $ 38,806 $ 113,268
Cash used in investing
activities(d)....................... (11,188) (314,814) (12,177) (60,821) (88,144) (16,236)
Cash provided by (used in) financing
activities(e)....................... (20,941) 293,984 (80,169) 30,145 60,129 (98,932)
OTHER DATA:
Funds from operations(f).............. $ 25,192 $ 49,692 $ 115,500 $ 25,285 $ 35,185 $ 142,377
Weighted average number of common
shares and OP Units
outstanding(g)...................... 14,517 23,824 54,781 11,461 14,994 53,636
Ratio of earnings to combined fixed
charges and preferred stock
dividends........................... 1.6:1 1.5:1 1.6:1 1.5:1 1.6:1 1.4:1
</TABLE>
- -------------
(a) In the second quarter of 1996, AIMCO reorganized the ownership of its
subsidiary service company, whereby the Operating Partnership (i) owns all
of the non-voting preferred stock of the service company, Property Asset
Management Services, Inc., a Delaware corporation ("PAMS Inc."),
representing a 95% economic interest, and (ii) owns the 1% general
partnership interest in Property Asset Management Services, L.P., a Delaware
limited partnership ("PAMS LP"). PAMS Inc. owns the 99% limited partnership
interest in PAMS LP. Substantially all the activity of PAMS Inc. is
conducted by PAMS LP. Because the Operating Partnership owns 95% of the
economic value of PAMS Inc. and also controls the general partnership
interest in PAMS LP, thereby controlling the activity of the partnership,
the service company is consolidated. Prior to the reorganization, AIMCO
reported the service company business on the equity method. The restatement
has no impact on net income, but does increase third party and affiliate
management and other income, management and other expenses, amortization of
management company goodwill and depreciation of non-real estate assets.
AIMCO has restated the balance sheet as of December 31, 1995, and the
statements of income and statements of cash flows for the year ended
December 31, 1995 to reflect the change.
(b) Subsequent to September 30, 1997, AIMCO issued 2,400,000 shares of Class C
Preferred Stock and 7,000,000 shares of Class A Common Stock for aggregate
net proceeds of approximately $299.4 million. See "--Recent Financings."
(c) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
less the non-cash portion of AIMCO's equity in earnings of unconsolidated
subsidiaries. The pro forma amounts do not include adjustments for changes
in working capital resulting from changes in current assets and current
liabilities as there is no historical data available as of both the
beginning and end of each period presented.
(d) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(e) Pro forma cash used in financing activities represents (i) estimated
dividends and distributions to be paid based on AIMCO's historical dividend
rate of $1.70 and $1.3875 per share for the year ended December 31, 1996 and
the nine months ended September 30, 1997, respectively, on outstanding
shares of Class A Common Stock and OP Units, (ii) estimated dividends to be
paid based on the rate of $7.125 and $5.34375 per share for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, and on outstanding shares of Class B Preferred Stock, and
(iii) estimated dividends to be paid based on the rate of $2.25 and $1.6875
per share for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, on outstanding shares of AIMCO Class C
Preferred Stock.
(f) The Company's management believes that the presentation of FFO, when
considered with the financial data determined in accordance with generally
accepted accounting principles ("GAAP"), provides a useful measure of
AIMCO's performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO, nor
should it be considered as an alternative to net income as an indicator of
operating performance. The Board of Governors of the National Association of
Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss),
computed in accordance with GAAP, excluding gains and losses from debt
restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of financing costs), and after
adjustments for unconsolidated partnerships and joint ventures. AIMCO
calculates FFO in manner consistent with the NAREIT definition, which
includes adjustments for minority interest in the Operating Partnership,
plus amortization of management company goodwill, the non-cash deferred
portion of the income tax provision for unconsolidated subsidiaries and less
the payment of dividends on preferred stock. AIMCO's management believes
that presentation of FFO provides investors with an industry accepted
measurement which helps facilitate an understanding of AIMCO's ability to
meet required dividend payments, capital expenditures and principal payments
on its debt. However, there can be no assurance that AIMCO's basis of
computing FFO is comparable with that of other REITs.
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<PAGE>
The following is a reconciliation of Income before minority interest in
Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------
1997 1996
------------------------ ------------------------
1996 HISTORICAL PRO FORMA 1995 HISTORICAL PRO FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(RESTATED) (RESTATED)
OPERATING ACTIVITIES
Income before minority interest in Operating
Partnership.................................. $ 11,196 $ 19,427 $ 40,254 $ 14,988 $ 15,673 $ 42,385
(Gain) loss on disposition of property......... (64) 169 -- -- (44) --
Extraordinary item............................. -- 269 -- -- -- --
Real estate depreciation, net of minority
interest in other partnerships............... 13,716 21,052 48,142 15,038 19,056 62,454
Amortization of management company goodwill.... 344 711 897 428 500 1,256
Equity in earnings of Unconsolidated
Subsidiaries:
Real estate depreciation................... -- 2,781 6,020 -- -- 8,943
Amortization of recoverable amount of
management contracts..................... -- 430 6,321 -- -- 8,430
Deferred income taxes...................... -- 2,164 600 -- -- 3,600
Real estate depreciation from investments in
partnerships................................. -- 2,689 17,316 -- -- 20,709
----------- ----------- ----------- ----------- ----------- -----------
Net funds provided by operating activities..... 25,192 49,692 119,550 30,454 35,185 147,377
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Payment of dividend on Preferred Stock......... -- -- (4,050) (5,169) -- (5,400)
----------- ----------- ----------- ----------- ----------- -----------
Net funds used in financing activities......... -- -- (4,050) (5,169) -- (5,400)
----------- ----------- ----------- ----------- ----------- -----------
Funds from operations.......................... $ 25,192 $ 49,692 $ 115,500 $ 25,285 $ 35,185 $ 142,377
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(g) After a one year holding period, OP Units may be tendered for redemption at
the option of the holder and, upon tender, may be acquired by AIMCO for
shares of Class A Common Stock at an exchange ratio of one share of Class A
Common Stock for each OP Unit (subject to adjustment), or redeemed by the
Operating Partnership for cash.
(h) AIMCO has amortized goodwill associated with the NHP Acquisition using the
straight line method over 20 years. The allocation of the purchase price of
NHP is preliminary; therefore, the amount and life of goodwill are subject
to change as additional information is obtained and the purchase price
allocation is finalized. The expected life of goodwill will depend upon the
final valuation of the various intangible assets, which could range from
five years to 20 years. If the estimated life of goodwill is ultimately
determined to be five years, for the nine months ended September 30, 1997,
the net income attributable to common shareholders and net income per common
share and common share equivalent on a pro forma basis would have been
$18,733 and $0.40, respectively; and for the year ended December 31, 1996,
the net income attributable to common shareholders and net income per common
share and common share equivalent on a pro forma basis would have been
$14,496 and $0.32, respectively. Since AIMCO's policy is to adjust FFO for
amortization of goodwill, the change in life of such goodwill would not have
any material impact on FFO for the periods presented.
(i) In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement
128"). Under the provisions of Statement 128, companies are required to
replace primary and fully diluted earnings per share with basic and diluted
earnings per share. The effect of applying the provisions of Statement 128
did not materially change AIMCO's historical earnings per share.
S-14
<PAGE>
RISK FACTORS
An investment in the Class D Preferred Stock involves various risks. In
addition to general investment risks and those factors set forth elsewhere or
incorporated by reference in this Prospectus Supplement, potential investors
should consider, among other things, the following factors:
RISKS ASSOCIATED WITH INTEGRATING NHP, AMBASSADOR AND OTHER ACQUIRED BUSINESSES.
The NHP Acquisition and the NHP Real Estate Acquisition constitute the
largest acquisition ever undertaken by the Company, involving an aggregate
purchase price in excess of $450 million. In connection with the Ambassador
Merger, the Company will acquire 15,728 units and related assets with an
aggregate book value in excess of $500 million. In addition to the risks
typically associated with acquisitions generally, the integration of NHP's and
Ambassador's respective businesses with the Company's business may place a
significant burden on the Company's management and its systems. See "--Risks of
Acquisition and Development Activities". Such integration is subject to risks
commonly encountered in making such acquisitions, including, among others, loss
of key personnel of NHP or Ambassador, the difficulty associated with
assimilating the personnel and operations of NHP and Ambassador, the disruption
of the Company's ongoing business and acquisition strategy, the difficulty in
maintaining uniform standards, controls, procedures and policies and the
impairment of the Company's reputation. No assurance can be given that the
anticipated benefits from the Ambassador Merger, the NHP Acquisition and the NHP
Real Estate Acquisition will be realized, that the Company will be able to
integrate such businesses successfully or that the Company will not be required
to make expenditures to enhance its systems. Failure of the Company to integrate
such businesses successfully could have a material adverse effect on the
Company's results of operations. Substantial growth in the Company's portfolio
as a result of recent and possible future acquisitions of businesses may involve
similar burdens and risks.
POSSIBLE CONFLICT OF INTERESTS; TRANSACTIONS WITH AFFILIATES
The Company presently manages the Managed Properties through PAMS Inc., PAMS
LP and former subsidiaries of NHP (the "Management Subsidiaries"). In order to
satisfy certain REIT requirements, the ownership of PAMS Inc. and certain other
Management Subsidiaries consists of the Operating Partnership holding non-voting
preferred stock that represents a 95% economic interest, and certain officers
and/or directors of the Company holding, directly or indirectly, all of the
voting common stock, representing a 5% economic interest. In addition, PAMS LP
provides property management services with respect to certain Managed Properties
in which certain officers and/or directors of the Company 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.
Upon completion of the NHP Real Estate Reorganization, certain assets of the
NHP Real Estate Companies will be owned by the Unconsolidated Partnership, in
which certain officers and/or directors of AIMCO will have a controlling
interest (with a 1% economic interest). As a result of the NHP Acquisition and
the NHP Reorganization, the former operations of NHP are now conducted by the
Unconsolidated Subsidiaries, in which certain officers and/or directors of AIMCO
have a controlling interest (with an economic interest of 5%). As a result of
the ownership interest held by certain officers and/or directors of AIMCO in
PAMS Inc., the Unconsolidated Partnership, the Unconsolidated Subsidiaries and
certain other Management Subsidiaries, certain conflicts of interest may arise
with respect to such persons in transactions involving such entities or the
assets held by such entities. For example, in order to acquire an interest in
such entities, such persons were required to contribute assets (including
promissory notes) to such entities in exchange therefor. Although the Company
believes that such contributions, and any additional contributions that have
been made to maintain a particular percentage interest, have been made on terms
that were fair to the Company and such entities, such transactions were not made
at arm's-length, the Company in some instances did not obtain independent
S-15
<PAGE>
valuations of such entities and there can be no assurance that contributions by
such individuals to such entities were made in amounts which reflected the
market value of the associated economic interest. In addition, because AIMCO
does not have voting control over PAMS Inc., the Unconsolidated Partnership, the
Unconsolidated Subsidiaries, or certain other Management Subsidiaries, AIMCO may
not be able to cause such entities to take actions that would be in the interest
of AIMCO and its stockholders or prevent other actions that are not in the
interest of AIMCO and its stockholders.
AIMCO has entered into the Contribution Agreement with CK and the
stockholders of CK to cause certain assets of AIMCO to be contributed to CK. CK
is a corporation wholly-owned by Terry Considine, AIMCO's Chairman and Chief
Executive Officer, and Peter Kompaniez, AIMCO's President and Vice Chairman. It
is AIMCO's intent to use CK as a vehicle for holding property and performing
services that AIMCO is limited or prohibited from holding or providing due to
AIMCO's election to be taxed as a REIT. AIMCO is finalizing which assets will be
contributed to CK. Any transfer of assets or services to CK will be at market
rates and approved by the independent members of the Board of Directors, and if
market rates are difficult to ascertain, the pricing will favor AIMCO.
SIGNIFICANT INDEBTEDNESS; REFINANCING RISKS
The Company has significant amounts of debt outstanding and, accordingly, 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, may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. As
of December 31, 1997, 96% of the Company's Owned Properties and 67% of its total
assets, were encumbered by debt, and the Company had total outstanding
indebtedness of $808.5 million, all of which was secured by Owned Properties and
other assets. AIMCO has recently entered into the New Credit Facility and the
WMF Credit Facility (collectively, the "Credit Facility"). The New Credit
Facility restricts, among other things, AIMCO's ability to effect certain
mergers, business consolidations and asset sales, and to incur indebtedness or
liens, imposes minimum net worth requirements, and requires the Company to
comply with certain financial covenants, including maintaining a ratio of debt
to gross asset value of no more than 0.55 to 1, an interest coverage ratio of at
least 2.25 to 1 and a debt service coverage ratio of at least 2.0 to 1.
Additionally, the New Credit Facility limits AIMCO from distributing more than
80% of funds from operations to AIMCO stockholders, including holders of Class D
Preferred Stock, or from making any distributions to stockholders if an event of
default exists as a result of a breach of financial covenants. The WMF Credit
Facility, contains similar financial covenants to the New Credit Facility.
Failure to comply with these covenants could result in adverse consequences to
holders of Class D Preferred Stock by rendering the Company unable to pay
dividends or make redemptions or resulting in an event of default that may
terminate or accelerate the Credit Facility. Failure by AIMCO to make payments
in respect of certain recourse indebtedness or payments exceeding $15 million
under any other debt agreement (except intracompany agreements), failure to
perform or observe covenants or conditions under an intracompany subordination
agreement entered into in connection with the Credit Facility or under AIMCO's
other credit agreements that results in acceleration or default, among other
events, are considered defaults under the Credit Facility. General Motors
Acceptance Corporation has made 89 loans (the "GMAC Loans"), with an aggregate
outstanding principal balance of $398.6 million at December 31, 1997, to
property owning partnerships of the Company, each of which is secured by the
underlying Owned Property of such partnership. Certain GMAC Loans are
cross-collateralized with certain other GMAC Loans. Other than certain GMAC
Loans, none of the Company's debt is subject to cross-collateralization
provisions. AIMCO's Amended and Restated Articles of Incorporation (the "AIMCO
Charter") does not limit the amount of indebtedness which may be incurred by
AIMCO and its subsidiaries. If the Company does not have sufficient funds to
repay its indebtedness at maturity, it may be necessary to refinance such
indebtedness through additional debt financing, private or public offerings of
debt securities or additional equity offerings. If, at the time of any such
refinancing, prevailing interest rates or other factors result in higher
interest rates on refinancings, increases in interest expense could adversely
affect cash flow, and consequently, cash available for required dividends on
shares of the Class D Preferred Stock. If the Company is unable to refinance its
indebtedness on acceptable
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terms, it might be forced to dispose of properties or other assets on
disadvantageous terms, potentially resulting in losses and adverse effects on
cash flow from operating activities. If the Company is unable to make required
payments of principal and interest on indebtedness secured by Owned Properties,
such properties could be foreclosed upon by the lender with a consequent loss of
income and asset value to the Company.
RISK OF RISING INTEREST RATES
Certain of the Company's borrowings, including borrowings under the Credit
Facility, bear interest at a variable rate. As of December 31, 1997,
approximately 92% of the Company's total indebtedness was subject to fixed
interest rates and 8% (approximately $66.5 million) was subject to variable
interest rates. Although, as described below, the Company has certain hedging
arrangements in place, increases in interest rates could increase the Company's
interest expense and adversely affect cash flow.
RISKS RELATED TO INTEREST RATE HEDGING ARRANGEMENTS
The Company from time to time enters into agreements to reduce the risks
associated with increases in short term interest rates. Although these
agreements provide the Company with some protection against rising interest
rates, these agreements also reduce the benefits to the Company when interest
rates decline. In March 1997, the Company entered into an interest rate hedging
agreement (the "March Hedge") with an investment banking company in anticipation
of refinancing certain indebtedness. The March Hedge had a notional amount of
$100 million and fixed the interest rate of the anticipated refinancing at
7.053%. The indebtedness was refinanced in December 1997, at which time the
Company realized a loss on the March Hedge of approximately $10.9 million, which
will be amortized over the life of the refinanced debt, resulting in an
effective interest rate of 7.8%. In addition, in September 1997, the Company
entered into a second interest rate agreement (the "September Hedge"), with the
same investment banking company, having a notional amount of $75 million, in
anticipation of refinancing certain other indebtedness. The September Hedge
matures on March 19, 1998 and fixes the interest rate of the anticipated
refinancing at 6.211%. Based on the fair value of the September Hedge at
December 31, 1997, the Company has an unrealized loss of approximately $2.6
million. This loss, when amortized, will result in an effective interest rate of
7.0%, over the life of the refinanced debt. There can be no assurance that the
above described indebtedness will be refinanced or that the Company will be able
to enter into other hedging arrangements to replace the September Hedge.
Interest rate hedging arrangements may expose the Company to certain risks.
Interest rate movements during the term of interest rate hedging arrangements
may result in a gain or loss on the Company's investment in the hedging
arrangement. In addition, if a hedging arrangement is not indexed to the same
rate as the indebtedness that is hedged, the Company may be exposed to losses to
the extent that the rate governing the indebtedness and the rate governing the
hedging arrangement change independently of each other. Finally, nonperformance
by the other party to the hedging arrangement may result in credit risks to the
Company. In order to minimize counterparty credit risk, the Company's policy is
to enter into hedging arrangements only with large financial institutions that
maintain an investment grade credit rating.
HOLDING COMPANY STRUCTURE
The Class D Preferred Stock is an obligation exclusively of AIMCO. The
principal asset of AIMCO is its interest in the Operating Partnership and the
operations of AIMCO are conducted almost exclusively through the Operating
Partnership and its subsidiaries. Accordingly, the cash flow and the consequent
ability of AIMCO to satisfy its obligations and to make required dividend
payments on the Class D Preferred Stock is dependent upon the earnings of the
Operating Partnership and its subsidiaries and the ability of the Operating
Partnership and its subsidiaries to distribute those earnings to AIMCO, whether
by distributions, loans or otherwise. The payment of distributions or the making
of loans to AIMCO may be subject to statutory or contractual limitations, are
dependent upon the earnings of such subsidiaries and are subject to various
business considerations. In connection with the Offering, the net proceeds of
the Offering will be contributed to the Operating Partnership in exchange for a
preferred interest in the Operating Partnership in respect of which
distributions will be paid at
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the same rates and at the same times as the dividends on the Class D Preferred
Stock. However, the Credit Facility provides, and any future credit agreement
would be expected to provide, that the Operating Partnership may not make any
distributions to AIMCO if the Operating Partnership is in default under the
Credit Facility with respect to certain financial covenants or, in the case of
the New Credit Facility, if the aggregate distributions exceed certain specified
levels. Any right of AIMCO to receive assets of the Operating Partnership and
its subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of the Class D Preferred Stock to participate in those
assets) will be effectively subordinated to the claims of the Operating
Partnership and its subsidiaries' creditors, except to the extent that AIMCO is
recognized as a creditor of the Operating Partnership or such subsidiaries, in
which case the claims would still be subordinate to any security interest in the
assets of the Operating Partnership or such subsidiaries and to any indebtedness
or other obligations of the Operating Partnership or such subsidiaries that are
senior to the interest held by AIMCO.
RISKS RELATED TO INVESTMENT IN AND MANAGEMENT OF REAL ESTATE
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 and Equity 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 and Equity Properties would also be adversely affected if a
significant number of tenants were unable to meet their rent payment obligations
when due or if apartments could not be rented on favorable terms. Certain
significant expenditures associated with real property investments (such as debt
service, 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 and Equity
Properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, the Company's income, and
AIMCO's ability to pay dividends to holders of Class D Preferred Stock, will be
adversely affected. Many of the factors that could adversely affect the
Company's income from its Owned Properties and Equity Properties could also
adversely affect the Company's income from its Managed Properties by reducing
gross receipts for such properties.
ILLIQUIDITY OF REAL ESTATE. Investments in real estate or partnerships
which own real estate may be illiquid. As a result, the Company may be unable to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, the Code limits the ability of AIMCO, as a REIT, to
sell properties held for fewer than four years.
OPERATING RISKS. The AIMCO Properties are subject to operating risks common
to 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 the AIMCO Properties are located may adversely affect
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 also limit the extent to which rents
may be increased without decreasing occupancy rates.
COMPETITION. There are numerous housing alternatives that compete with the
AIMCO Properties in attracting residents. Such properties compete directly with
other rental apartments and single family homes that are available for rent in
the markets in which such properties are located. Such properties also compete
for residents with new and existing homes and condominiums. The ability of the
Company to lease apartment units and the level of rents charged is determined in
large part by the number of competitive properties in the local market. Numerous
real estate companies compete with the Company in each of its market areas in
acquiring,
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developing and managing apartment properties and seeking tenants to occupy their
properties and the Company's market share is small in each of its market areas.
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, or
limit the ability of the Company to increase, rental revenue or increase
operating costs in particular markets.
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 or management of the AIMCO Properties, the Company
could be potentially liable for environmental liabilities or costs associated
with its properties or properties it may in the future acquire or manage.
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 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 the ownership,
operation or 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 other AIMCO Properties. AIMCO has developed and
implemented operations and maintenance programs, as appropriate, that establish
operating procedures with respect to the ACMs at most of the Owned Properties,
and intends to develop and implement, as appropriate, such programs at AIMCO
Properties that do not have such programs.
Certain of the Owned Properties, and some of the other AIMCO Properties, are
located on or near properties that contain or 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 AIMCO Properties. Such
hazardous substances have been released at certain Owned Properties and, in at
least one case, have migrated from an off-site location onto the Company's
property. 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 City of Austin (the "City"), the former landfill operator, has assumed
responsibility for conducting all investigation and remedial activities to date
associated with the methane and other landfill gas. The remediation of the
landfill gas is now substantially complete, and the Texas Natural Resources
Conservation Commission (the "TNRCC") has 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 contingency plan of passive methane gas
venting may be implemented by the City. The City has also conducted testing on
the Company's Montecito property to determine whether, and to what extent,
groundwater has been impacted. Based on test reports received to date by the
Company, the groundwater does not appear to be contaminated at actionable
levels. The Company has not incurred and does not expect to incur liability for
the landfill investigation and remediation; however, the Company has relocated
some of its tenants and has installed
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a venting system according to the TNRCC's specifications under the building
slabs, in connection with its present raising of four of its buildings, in order
to install stabilizing piers thereunder, at a total cost of approximately
$550,000, which cost is primarily for the restabilization. The restabilization
was substantially completed as of January 1998. The City will be responsible for
monitoring the conditions at the Montecito property.
All of the Owned Properties were subject to Phase I or similar environmental
audits by independent environmental consultants prior to acquisition. The audits
did not reveal, nor is the Company aware of, any environmental liability
relating to such properties that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations.
However, such audits involve a number of judgments and it is possible that such
audits did not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware. In addition, the
Managed Properties may not have been, and certain of the NHP Properties have not
been, subject to Phase I or similar environmental audits by independent
environmental consultants. While the Company is not aware of any environmental
liability that it believes would have a material adverse effect on its business,
financial condition or results of operations relating to either the Managed
Properties or the NHP Properties for which audits are not available, there can
be no assurance that material environmental liabilities of which the Company is
unaware do not exist at such properties.
In October 1997, NHP received a letter (the "EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protection Agency ("EPA") had requested that DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the National
Recycling and Emissions Reduction Program and associated regulations in
connection with the employment of certain unlicensed personnel, maintenance and
disposal of certain refrigerants, and record-keeping practices at two
properties. A settlement in principal between NHP and the EPA has been reached
whereby NHP has agreed to pay a fine of less than $100,000, permit the EPA to
audit 40 NHP properties with respect to their use and disposal of such
refrigerants, and continue to provide training to all maintenance workers with
respect to the disposal of such refrigerants. A formal settlement agreement is
expected to be executed in the near future. It is possible that the future EPA
audits agreed to in the settlement could result in additional allegations by EPA
of violations at such properties; however, based on the terms of the settlement
agreement with DOJ, the Company anticipates that the fines, if any, resulting
from such audits will be nominal.
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 AIMCO 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.
RISK OF LOSS OF REVENUE DUE TO TERMINATION OR OTHER LOSS OF PROPERTY
MANAGEMENT AGREEMENTS. The Company is dependent upon revenue received for
services performed under property management agreements relating to properties
owned by third parties. For the year ended December 31, 1997, the Company
derived approximately 1.0% of its gross revenues from management of properties
owned by third parties. Risks associated with the management of properties owned
by third parties include risks that management contracts will be terminated by
the property owner or will be lost in connection with a sale of the property,
contracts may not be renewed upon expiration or may not be renewed on terms
consistent with current terms, and rental revenues upon which management fees
are based will decline as a result of general real estate market conditions
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or other factors and result in decreases in management fees. If significant
numbers of contracts are terminated or are not renewed, net income from fee
management operations could be adversely affected. Contracts with unaffiliated
third parties are for terms ranging from 30 days to 5 years, with most contracts
being terminable within one year or less. In general, management contracts may
be terminated or otherwise lost as a result of a number of factors, many of
which are beyond the control of the Company, including: (i) disposition of the
property by the owner in the ordinary course or as a result of financial
distress of the property owner; (ii) the property owner's determination that the
Company's management of the property is unsatisfactory; (iii) willful
misconduct, gross negligence or other conduct by the manager that constitutes
grounds for termination under such contracts; and (iv) with respect to certain
affordable properties, termination of such contracts by the U.S. Department of
Housing and Urban Development ("HUD") or state housing finance agencies,
generally at their discretion.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. As of December 31,
1997, the Managed Properties included 68,820 affordable units in 468 properties.
In addition, the NHP Real Estate Companies own interests in 59,072 affordable
units. A substantial portion of the affordable properties, and some conventional
properties in which the NHP Real Estate Companies own interests, were built or
acquired by the owners with the assistance of programs administered by HUD that
provide mortgage insurance, favorable financing terms, or rental assistance
payments to the owners. As a condition to the receipt of assistance under these
and other HUD programs, the properties must comply with various HUD
requirements, which typically include limits on rents to amounts approved by
HUD. HUD approval is required before the Company may be appointed as manager of
additional HUD-assisted properties. There can be no assurance that HUD approval
will be received with respect to any particular action for which it is required.
In addition to the effects of HUD regulation on the Company as a manager of
affordable properties, the business of the Company may be indirectly affected by
regulations generally applicable to the entities owning affordable properties.
In particular, HUD limits the rents that may be charged on certain HUD-assisted
properties to approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
would result in a loss of management fee revenue. As of December 31, 1997, and
in addition to the 422 HUD-assisted properties, the Company managed 52
properties that receive assistance from agencies other than HUD or are subject
to regulation by agencies other than HUD. Such revenues comprise less than 9% of
the Company's revenues.
RISKS RELATED TO HUD ENFORCEMENT AND LIMITED DENIALS. Under its
regulations, HUD has the authority to suspend or deny property owners and
managers from participation in HUD programs with respect to additional
assistance within a geographic region through imposition of a limited denial of
participation ("LDP") by any HUD office or nationwide for violations of HUD
regulatory requirements. In March 1997, HUD announced its intention to step up
enforcement against property owners and managers who violate their agreements
with HUD, and in July 1997, HUD announced the creation of a new department-wide
enforcement division. Three HUD field offices have recently issued LDPs to NHP
as a result of physical inspections and mortgage defaults at four properties
owned by the NHP Real Estate Companies, two of which are managed by the Company.
One LDP was subsequently withdrawn and another was terminated in December 1997
after a reinspection of the property. The one remaining LDP, unless lifted,
suspends the Company's ability to manage or acquire additional HUD-assisted
properties in eastern Missouri until June 24, 1998. In 1996, NHP obtained
approximately $1 million in management revenues from affordable properties in
the affected regions. The Company has requested that HUD terminate the one
remaining LDP, but HUD has so far refused to do so, and the Company cannot
determine whether HUD will reverse that decision with respect to the affected
region. Because an LDP is prospective, existing HUD agreements are not affected,
so an LDP is not expected to result in the loss of management service revenue
from or otherwise to affect properties that the Company currently manages in the
subject regions. If HUD were to disapprove the Company as property manager for
one or more affordable properties, the Company's ability to obtain property
management revenues from new affordable properties may be impaired.
HUD monitors the performance of properties with HUD-insured mortgage loans.
HUD also monitors compliance with applicable regulations, and takes performance
and compliance into account in approving management of HUD-assisted properties.
In this regard, since July 1988, 29 HUD-assisted properties owned or
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managed by the NHP Real Estate Companies or NHP have defaulted on non-recourse
HUD-insured mortgage loans. Eight of these 29 properties are also currently
managed by the Company. An additional six properties owned or managed by the
Company have received unsatisfactory performance ratings. As a result of the
defaults and unsatisfactory ratings, a national HUD office must review any field
office approval of the Company to act as property manager for a HUD-assisted
property. The national HUD office has consistently approved NHP's applications
to manage new properties, and the Company received HUD clearance to acquire its
interests in NHP and the NHP Real Estate Companies. The Company believes that it
enjoys a good working relationship with HUD and that the national office will
continue to apply the clearance process to large management portfolios such as
the Company's, including NHP's, with discretion and flexibility. While there can
be no assurance, the Company believes that the unsatisfactory reviews and the
mortgage defaults will not have a material impact on its results of operations
or financial condition.
In October 1997, NHP received a subpoena from the Inspector General of HUD
requesting documents relating to any arrangement whereby NHP or any of its
affiliates provides or has provided compensation to owners of HUD multifamily
projects in exchange for or in connection with management of a HUD project. The
Company believes that other owners and managers of HUD projects have received
similar subpoenas. Documents relating to certain of the Company's acquisitions
of property management rights for HUD projects, may be responsive to the
subpoena. The Company is in the process of complying with the subpoena and has
provided certain documents to the Inspector General, without conceding that they
are responsive to the subpoena. The Company believes that its operations are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. Although the Inspector
General has not initiated any action against the Company or, to the Company's
knowledge, any owner of a HUD property managed by the Company, if any such
action is taken in the future, it could ultimately affect existing arrangements
with respect to HUD projects or otherwise have a material adverse effect on the
results of operations of the Company.
RISKS RELATING TO UNCERTAINTY REGARDING STATUS OF FEDERAL SUBSIDIES. The
Company owns and/or manages approximately 44,000 units that are subsidized under
Section 8 of the United States Housing Act of 1937, as amended ("Section 8").
These subsidies are generally provided pursuant to project-based contracts,
Housing Assistance Payment Contracts ("HAP Contracts") between HUD and the
owners of the properties or, with respect to a limited number of units managed
by the Company, pursuant to vouchers received by tenants. On October 27, 1997,
the President signed into law the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act,
the mortgage financing and HAP Contracts of certain properties assisted under
Section 8, with rents above market levels and financed with HUD-insured mortgage
loans, will be restructured by reducing subsidized rents to market levels,
thereby reducing rent subsidies, and lowering required debt service costs as
needed to ensure financial viability at the reduced rents and rent subsidies.
The 1997 Housing Act retains project-based subsidies for most properties
(properties in rental markets with limited supply, properties serving the
elderly and certain other properties). The 1997 Housing Act phases out
project-based subsidies on selected properties serving families not located in
rental markets with limited supply, converting such subsidies to a tenant-based
subsidy. Under a tenant-based system, rent vouchers would be issued to qualified
tenants who then could elect to reside at properties of their choice, provided
such tenants have the financial ability to pay the difference between the
selected properties' monthly rent and the value of the vouchers, which would be
established based on HUD's regulated fair market rent for the relevant
geographic areas. The 1997 Housing Act provides that properties will begin the
restructuring process in Federal fiscal year 1999 (beginning October 1, 1998),
and that HUD will issue final regulations implementing the 1997 Housing Act on
or before October 27, 1998. Congress has elected to renew HAP Contracts expiring
before October 1, 1998 for one year terms, generally at existing rents, so long
as the properties remain in compliance with the HAP Contracts. While the Company
does not expect the provisions of the 1997 Housing Act to result in a
significant number of tenants relocating from properties managed by the Company,
there can be no assurance that the provisions would not significantly affect the
Company's management portfolio. Furthermore, there can be no assurance that
other changes in Federal housing subsidy policy
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will not occur. Any such changes could have a material adverse effect on the
Company's property management revenues.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company has engaged in, and intends to continue to engage in, the
selective acquisition, development and expansion of multi-family apartment
properties. In the ordinary course of business, the Company engages in
discussions and negotiations regarding the acquisition of apartment properties
(including interests in entities that own apartment properties). The Company
frequently enters into contracts and nonbinding letters of intent with respect
to the purchase of properties. These contracts are typically subject to certain
conditions and permit the Company to terminate the contract in its sole and
absolute discretion if it is not satisfied with the results of its due diligence
investigation of the properties. The Company believes that such contracts
essentially result in the creation of an option on the subject properties and
give the Company greater flexibility in seeking to acquire properties. As of
February 13, 1998, the Company had under contract or letter of intent an
aggregate of 28 multi-family apartment properties with a maximum aggregate
purchase price of $283 million, including estimated capital improvements, which,
in some cases, may be paid in the form of assumption of existing debt. All such
contracts are subject to termination by the Company as described above. 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, along with integration
related risks. Risks associated with redevelopment and expansion of properties
include the risks that development opportunities may be abandoned; that
construction costs of a property may exceed original estimates, possibly making
the property uneconomical; that occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; that
construction and permanent financing may not be available on favorable terms;
and that construction and lease-up may not be completed on schedule, resulting
in increased debt service expense and construction costs. Development activities
are also subject to risks relating to any inability to obtain, or delays in
obtaining, necessary zoning, land-use, building, occupancy, and other
governmental permits and authorizations. See also "--Risks Associated with
Integrating NHP, Ambassador and Other Acquired Businesses."
The Company also has engaged in, and intends to continue to engage in, the
selective acquisition of, or investment in, companies that own or manage
apartment properties or own general or limited partnership or other interests
therein, including tender offers for limited partnership interests. Risks
associated with the Company's past and future acquisitions of general
partnership interests, and tender offers for outstanding limited partnership
interests, include the risks that the general partner will be subject to
allegations (including legal actions) of, or will be otherwise 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. See "--Risks Relating to
English Litigation."
RISKS RELATING TO ENGLISH LITIGATION
In November 1996, the Company acquired (the "English Acquisition") certain
partnership interests, real estate and related assets from J.W. English, a
Houston, Texas-based real estate syndicator and developer, and certain
affiliated entities (collectively, the "J.W. English Companies"). In the English
Acquisition, the Company purchased all of the general and limited partnership
interests owned by the J.W. English Companies in 22 limited partnerships which
act as the general partner to 31 limited partnerships (the "English
Partnerships") that own 22 multifamily apartment properties and other assets and
interests related to the J.W. English Companies, and assumed management of the
properties owned by the English Partnerships. The Company made separate tender
offers (the "English Tender Offers") to the limited partners of 25 of the
English Partnerships (the "Tender Offer English Partnerships").
S-23
<PAGE>
In November 1996, purported limited partners of certain of the Tender Offer
English Partnerships filed a purported class action lawsuit against the Company
and J.W. English in the U.S. District Court for the Northern District of
California (the "Federal Action"), alleging, among other things, that the
Company conspired with J.W. English to breach his fiduciary duty to the
plaintiffs, and that the offering materials used by the Company in connection
with the English Tender Offers contained misleading statements or omissions. The
Federal Action was voluntarily dismissed, without prejudice, in favor of another
purported class action filed in May 1997 by limited partners of certain of the
Tender Offer English Partnerships and six additional English Partnerships. Two
complaints were filed in Superior Court of the State of California (the
"California Actions") against the Company and the J.W. English Companies,
alleging, among other things, that the consideration the Company offered in the
English Tender Offers was inadequate and designed to benefit the J.W. English
Companies at the expense of the limited partners, that certain
misrepresentations and omissions were made in connection with the English Tender
Offers, that the Company receives excessive fees in connection with its
management of the properties owned by the English Partnerships, that the Company
continues to refuse to liquidate the English Partnerships and that the English
Acquisition violated the partnership agreements governing the English
Partnerships and constituted a breach of fiduciary duty.
In addition to unspecified compensation and exemplary damages, the original
complaints in the California Actions sought an accounting, a constructive trust
on the assets and monies acquired by the English defendants in connection with
the English Acquisition, a court order removing the Company from management of
the English Partnerships and/or ordering disposition of the properties and
attorneys fees, expert fees and other costs. The Company intends to vigorously
defend itself in connection with these actions. The Company believes it is
entitled to indemnity from the J.W. English Companies, subject to certain
exceptions. Failure by the Company to prevail in the California Actions or to
receive indemnification could have a material adverse effect on the Company's
financial condition and results of operations.
On August 4, 1997, the Company filed demurrers to both complaints in the
California Actions. At a hearing on the demurrers on January 9, 1998, the court
granted the Company's demurrers to each of the three causes of action against it
in the two complaints, with leave to amend. Plaintiffs are expected to file a
consolidated amended complaint on February 25, 1998.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although each of Messrs. Terry Considine, Peter K. Kompaniez and Steven D.
Ira, officers and/or directors of the Company, has entered into an employment
agreement with the Company, the loss of any of their services could have an
adverse effect on the operations of the Company.
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. Although AIMCO believes
that it has operated since July 29, 1994, the date of AIMCO's initial public
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 December 1997, AIMCO received an opinion of Skadden, Arps, Slate, Meagher
& 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 the Unconsolidated 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).
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 the holders of Class D Preferred Stock of any subsequent change in the
matters stated, represented or assumed or any subsequent
S-24
<PAGE>
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 paid 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, the Company might
need to borrow funds or liquidate certain investments on terms that may be
disadvantageous to the Company in order to pay the applicable tax and AIMCO
would not be required 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
"--Significant Indebtedness; Refinancing Risks," "--Risks Related to Investment
in and Management of Real Estate" and "Certain Federal Income Tax
Considerations."
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 "Certain Federal Income Tax Considerations."
In addition, if AIMCO fails to qualify as a REIT, the agreement pursuant to
which AIMCO issued its Class B Preferred Stock provides that the original
purchaser may require AIMCO to repurchase such investor's Class B Preferred
Stock, in whole or in part, at a price of $105 per share, plus accrued and
unpaid dividends to the date of repurchase. Such investor acquired and currently
owns 750,000 shares of Class B Preferred Stock.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with Federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the Federal laws and interpretations thereof
could adversely affect the tax consequences of an investment in AIMCO. For
example, a proposal isued by President Clinton on February 2, 1998, if enacted
into law, may adversely affect the ability of AIMCO to expand the present
activities of its Management Subsidiaries. It cannot be predicted whether, when,
in what forms, or with what effective dates, the tax laws applicable to AIMCO or
an investment in AIMCO will be changed.
OWNERSHIP LIMIT
In order for AIMCO to maintain its qualification as a REIT, not more than
50% of the value of its outstanding capital stock may be owned, directly or
constructively, by five or fewer individuals or entities (as set forth in the
Code). The AIMCO Charter limits direct or constructive ownership of shares of
Class D Preferred Stock by any person such that the sum of (i) the aggregate
value of the Class D Preferred Stock, and (ii) the aggregate value of all shares
of any other Equity Stock owned by such person may not exceed 8.7% (or 15% in
the case of certain pension trusts, registered investment companies and Mr.
Considine) of the aggregate value of all outstanding shares of Equity Stock. The
constructive ownership rules are complex and may cause shares of AIMCO's Equity
Stock owned directly or constructively by a group of related individuals or
entities to be constructively owned by one individual or entity. A transfer of
shares to a person who, as a result of the transfer, violates the limit on
ownership described above 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.
S-25
<PAGE>
USE OF PROCEEDS
AIMCO intends to contribute the net proceeds from the sale of the Class D
Preferred Stock (estimated to be $96.7 million ($111.2 million if the
Underwriters' over-allotment option is exercised in full)) to the Operating
Partnership in exchange for a preferred interest in the Operating Partnership.
The terms of such preferred interest will be substantially equivalent to the
economic terms of the Class D Preferred Stock. The Operating Partnership intends
to use the amounts received from AIMCO to repay (i) $32.3 million of
indebtedness outstanding under the New Credit Facility, which indebtedness bears
interest at a rate of LIBOR plus 1.0% (6.6% at February 13, 1998) and matures on
January 26, 2000 (unless otherwise extended) and (ii) $36.9 million of
indebtedness under the WMF Credit Facility which bears interest at a rate
determined by the sale of short term mortgage backed securities plus 0.5%
(6.157% at February 13, 1998) and matures on February 9, 2003. The remaining
$27.5 million will be used for general business purposes.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------------------------------
AIMCO PREDECESSORS
AIMCO (1)
------------------------------------------------------------------- --------------------
FOR THE NINE MONTHS FOR THE YEARS ENDED FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31, FOR THE PERIOD DECEMBER 31,
-------------------- -------------------- JANUARY 10, 1994 --------------------
1997 1996 1996 1995 TO DECEMBER 31, 1994 1993 1992
--------- --------- --------- --------- ----------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges (2)(3)................ 1.6:1 1.6:1 1.6:1 2.1:1 5.8:1 1.2:1 1.0:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends (4)(5)........ 1.5:1 1.6:1 1.6:1 1.5:1 2.0:1 1.2:1 1.0:1
<CAPTION>
PRO FORMA (6)
----------------------------------
FOR THE NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ---------------
<S> <C> <C>
Ratio of earnings to fixed
charges (2)(3)................ 1.9:1 1.7:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends (4)(5)........ 1.6:1 1.4:1
</TABLE>
- ------------
(1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock. On such date, AIMCO and Property Asset
Management, L.L.C., Limited Liability Company and its affiliated companies
and PDI Realty Enterprises, Inc. (collectively, the "AIMCO Predecessors")
engaged in a business combination and consummated a series of related
transactions which enabled AIMCO to continue and to expand the property
management and related businesses of the AIMCO Predecessors.
(2) The ratio of earnings to fixed charges for AIMCO 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 loan costs) and interest which has been
capitalized.
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 loan costs). No preferred stock was issued by the AIMCO
Predecessors.
(3) The earnings of the AIMCO Predecessors for the period from January 1, 1994
to July 28, 1994 were inadequate to cover fixed charges by $1,463,000.
(4) The ratio of earnings to combined fixed charges and preferred stock
dividends for AIMCO 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 loan costs) 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.
(5) The AIMCO Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1992 through July 28, 1994.
(6) On a pro forma, as adjusted basis, the ratio of earnings to fixed charges
was 1.9:1 and 1.7:1 for the nine months ended September 30, 1997 and the
year ended December 31, 1996, respectively. On a pro forma, as adjusted
basis, the ratio of earnings to combined fixed charges and preferred stock
dividends was 1.5:1 and 1.3:1 for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively.
S-26
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
AIMCO at September 30, 1997 (i) on a historical basis; (ii) on a pro forma basis
to reflect the NHP Acquisition (including the NHP Real Estate Reorganization and
the WMF Spin-Off and related transactions), the Class C Preferred Stock
Offering, the Ambassador Merger, OP Reorganization and related transactions; and
(iii) on a pro forma basis, as adjusted to reflect the Offering and the use of
net proceeds therefrom (assuming no exercise of the Underwriters' over-allotment
option). The information set forth in the following table should be read in
connection with the financial statements and notes thereto and the pro forma
financial information and notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA (1) AS ADJUSTED
----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Credit Facility (2)...................................................... $ 73,980 $ -- $ --
Secured short-term financing............................................. 20,317 -- --
Long-term debt:
Secured tax-exempt bond financing...................................... 74,441 385,937 385,937
Secured notes payable.................................................. 492,977 655,593 655,593
Minority interests in other partnerships................................. 19,355 39,709 39,709
Minority interests in Operating Partnership.............................. 111,632 136,114 136,114
Stockholders' equity:
Class A Common Stock, $.01 par value, 150,000,000 authorized,
28,274,739 issued and outstanding on a historical basis; 46,513,566
issued and outstanding on a pro forma basis (4)...................... 283 465 465
Class B Common Stock, $.01 par value, 425,000 authorized, 325,000
issued and outstanding (5)........................................... 3 3 3
Class B Cumulative Convertible Preferred Stock, $.01 par value, 750,000
authorized, 750,000 issued
and outstanding (3).................................................. 75,000 75,000 75,000
Class C Cumulative Preferred Stock, $.01 par value, 2,760,000
authorized, 2,400,000 issued and outstanding......................... -- 60,000 60,000
Class D Cumulative Preferred Stock, $.01 par value, 4,600,000
authorized, none issued or outstanding on a historical or pro forma
basis, 4,000,000 issued and outstanding on a pro forma as adjusted
basis................................................................ -- -- 100,000
Preferred Stock, $.01 par value, 1,890,000 authorized, none issued or
outstanding.......................................................... -- -- --
Additional paid-in capital............................................. 606,799 1,212,252 1,208,902
Notes due on common stock purchases.................................... (30,459) (30,459) (30,459)
Unrealized gain (loss) on investments.................................. 1,175 (56) (56)
Retained earnings (distributions in excess of earnings)................ (25,375) (28,372) (28,372)
----------- ------------- -----------
Total stockholders' equity............................................... 627,426 1,288,833 1,385,483
----------- ------------- -----------
Total capitalization..................................................... $ 1,420,128 $ 2,506,186 $ 2,602,836
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
- ----------
(1) The pro forma capitalization information is presented as if the transactions
detailed above occurred on September 30, 1997.
(2) As of February 13, 1998, the aggregate borrowings under the Credit Facility
were approximately $69.2 million. As of September 30, 1997, on a pro forma
basis, AIMCO had paid off all short term financing and the proceeds from the
Offering would all be applied to cash.
(3) Convertible into 3.28407 shares of Class A Common Stock per share, or a
total of 2,463,053 shares at the option of the holder on or after August 4,
1998, subject to certain anti-dilution adjustments.
(4) Excludes (i) 4,938,710 shares of Class A Common Stock which may be issued in
exchange for 4,938,710 OP Units which may be tendered for redemption; (ii)
325,000 shares of Class A Common Stock issuable upon conversion of 325,000
shares of Class B Common Stock; (iii) 953,645 shares of Class A Common Stock
issuable upon exercise of outstanding options and warrants; and (iv)
2,463,053 shares of Class A Common Stock which may be issued upon conversion
of 750,000 shares of Class B Preferred Stock.
(5) Convertible into 325,000 shares of Class A Common Stock if certain
performance standards are achieved, including 8.5% annual increases in both
AIMCO's FFO per share and the market price of Class A Common Stock. See
"Description of Common Stock--Class B Common Stock" in the accompanying
Prospectus.
S-27
<PAGE>
SELECTED PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
The following table sets forth selected pro forma and historical financial
and operating information for AIMCO for the nine months ended September 30, 1997
and the year ended December 31, 1996. The pro forma financial and operating
information gives effect to the NHP Acquisition, the NHP Real Estate
Acquisition, the WMF Spin-Off, the NHP Real Estate Reorganization, the Class C
Preferred Stock Offering, the Ambassador Merger, the OP Reorganization and
certain related transactions. The pro forma financial and operating information
set forth below also gives effect to certain other transactions completed prior
to the date hereof and should be read in conjunction with, and is qualified in
its entirety by, the historical and pro forma financial statements and notes
thereto of AIMCO, NHP, the NHP Real Estate Companies, NHP Southwest Partners,
L.P., the NHP New LP Entities (as defined in Note 1 of such financial statements
included in AIMCO's Current Report on Form 8-K dated June 3, 1997, as amended),
the NHP Borrower Entities (as defined in Note 1 of such financial statements
included in AIMCO's Current Report on Form 8-K dated June 3, 1997, as amended),
The Bay Club at Aventura, the Morton Towers apartments, the Thirty-five
Acquisition Properties (which represent the Winthrop Portfolio), First
Alexandria Associates Limited Partnership, Country Lakes Associates Two, Point
West Limited Partnership, The Oak Park Partnership and Ambassador, all of which
are incorporated by reference herein. The summary historical financial
information for the years ended December 31, 1996 and 1995 is based on the
audited financial statements of AIMCO incorporated by reference herein. The
summary historical financial information for AIMCO for the nine months ended
September 30, 1997 and 1996 has been prepared from unaudited historical
financial data incorporated by reference herein. In the opinion of the
management of AIMCO, the operating data for the nine months ended September 30,
1997 and 1996 include all adjustments (consisting only of normally recurring
adjustments) necessary to present fairly the information set forth therein. The
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be obtained for the year ending December 31, 1997.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of AIMCO and notes thereto incorporated by
reference herein.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997
--------------------------
1996 HISTORICAL PRO FORMA
------------- ---------- --------------
<S> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations...................... $ 27,566 $ 48,154 $ 92,937
Income from service company
business........................ 1,042 2,804 989
General and administrative
expenses........................ (943) (1,408) (841)
Interest expense.................. (16,775) (33,359) (52,156)
Interest income................... 242 4,458 5,356
Income (loss) before minority
interests and equity in losses
of unconsolidated entities...... 11,132 20,649 46,285
Minority interest in other
partnerships.................... -- (777) (332)
Equity in losses of unconsolidated
partnerships.................... -- (463) (12,619)
Equity in earnings of
unconsolidated subsidiaries..... -- 456 6,920
Income (loss) before minority
interest in Operating
Partnership, extraordinary item
and gain (loss) on disposition
of properties................... 11,132 19,865 40,254
Extraordinary item - early
extinguishment of debt.......... -- (269) --
Gain (loss) on disposition of
properties...................... 64 (169) --
Income before minority interest in
Operating Partnership........... 11,196 19,427 40,254
Minority interest in Operating
Partnership..................... (1,845) (2,612) (4,231)
Net income........................ $ 9,351 $ 16,815 $ 36,023(h)
PER SHARE DATA:
Net income per common share and
common share equivalents(i)..... $ 0.77 $ 0.77 $ 0.60(h)
Dividends paid per common share... $ 1.275 $ 1.3875 $ 1.3875
Weighted average number of common
shares and common share
equivalents outstanding(i)...... 12,127 20,629 46,819
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation.................... $ 541,933 $1,250,239 $2,114,389
Cash and cash equivalents......... 1,115 45,775 78,551
Total assets...................... 531,863 1,608,195 2,599,978
Total mortgages and notes
payable......................... 304,772 661,715 1,041,530
Minority Interest in other
partnerships.................... -- 19,355 39,709
Minority interest in Operating
Partnership..................... 42,760 111,632 136,114
Stockholders' equity(b)........... 172,298 627,426 1,288,833
<CAPTION>
-----------------------------------------
1996
-------------------------
1995 HISTORICAL PRO FORMA
------------- ---------- ------------
<S> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations...................... $ 27,483 $ 39,814 $ 94,414
Income from service company
business........................ 1,973 1,717 856
General and administrative
expenses........................ (1,804) (1,512) (756)
Interest expense.................. (13,322) (24,802) (57,487)
Interest income................... 658 523 2,998
Income (loss) before minority
interests and equity in losses
of unconsolidated entities...... 14,988 15,740 40,025
Minority interest in other
partnerships.................... -- (111) 3,603
Equity in losses of unconsolidated
partnerships.................... -- -- (15,357)
Equity in earnings of
unconsolidated subsidiaries..... -- -- 14,114
Income (loss) before minority
interest in Operating
Partnership, extraordinary item
and gain (loss) on disposition
of properties................... 14,988 15,629 42,385
Extraordinary item - early
extinguishment of debt.......... -- -- --
Gain (loss) on disposition of
properties...................... -- 44 --
Income before minority interest in
Operating Partnership........... 14,988 15,673 42,385
Minority interest in Operating
Partnership..................... (1,613) (2,689) (5,023)
Net income........................ $ 13,375 $ 12,984 $ 37,362(h)
PER SHARE DATA:
Net income per common share and
common share equivalents(i)..... $ 0.86 $ 1.04 $ 0.59(h)
Dividends paid per common share... $ 1.66 $ 1.70 $ 1.70
Weighted average number of common
shares and common share
equivalents outstanding(i)...... 9,579 12,427 45,109
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation.................... $477,162 $865,222
Cash and cash equivalents......... 2,379 13,170
Total assets...................... 480,361 834,813
Total mortgages and notes
payable......................... 268,692 522,146
Minority Interest in other
partnerships.................... -- 10,386
Minority interest in Operating
Partnership..................... 30,376 58,777
Stockholders' equity(b)........... 169,032 222,889
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997
--------------------------
1996 HISTORICAL PRO FORMA
------------- ---------- --------------
<S> <C> <C> <C>
CASH FLOW DATA:
Cash provided by operating
activities(c)........................ $ 30,865 $ 53,435 $ 100,464
Cash used in investing activities(d)... (11,188) (314,814 ) (12,177)
Cash provided by (used in) financing
activities(e)........................ (20,941) 293,984 (80,169)
OTHER DATA:
Funds from operations(f)............... $ 25,192 $ 49,692 $ 115,500
Weighted average number of common
shares and OP Units outstanding(h)... 14,517 23,824 54,781
Ratio of earnings to combined fixed
charges and preferred stock
dividends............................ 1.6:1 1.5:1 1.6:1
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1996
-------------------------
1995 HISTORICAL PRO FORMA
------------- ---------- ------------
<S> <C> <C> <C>
(RESTATED)(A)
CASH FLOW DATA:
Cash provided by operating
activities(c)........................ $ 25,911 $ 38,806 $113,268
Cash used in investing activities(d)... (60,821) (88,144) (16,236)
Cash provided by (used in) financing
activities(e)........................ 30,145 60,129 (98,932)
OTHER DATA:
Funds from operations(f)............... $ 25,285 $ 35,185 $142,377
Weighted average number of common
shares and OP Units outstanding(h)... 11,461 14,994 53,636
Ratio of earnings to combined fixed
charges and preferred stock
dividends............................ 1.5:1 1.6:1 1.4:1
</TABLE>
- ------------
(a) In the second quarter of 1996, AIMCO reorganized the ownership of its
subsidiary service company, whereby the Operating Partnership (i) owns all
of the non-voting preferred stock of the service company, PAMS Inc.,
representing a 95% economic interest, and (ii) owns the 1% general
partnership interest in PAMS LP. PAMS Inc. owns the 99% limited partnership
interest in PAMS LP. PAMS, Inc. owns the 99% limited partnership interest in
PAMS LP. Substantially all the activity of PAMS Inc. is conducted by PAMS
LP. Because the Operating Partnership owns 95% of the economic value of PAMS
Inc. and also controls the general partnership interest in PAMS LP, thereby
controlling the activity of the partnership, the service company is
consolidated. Prior to the reorganization, AIMCO reported the service
company business on the equity method. The restatement has no impact on net
income, but does increase third party and affiliate management and other
income, management and other expenses, amortization of management company
goodwill and depreciation of non-real estate assets. AIMCO has restated the
balance sheet as of December 31, 1995, and the statements of income and
statements of cash flows for the year ended December 31, 1995 to reflect the
change.
(b) Subsequent to September 30, 1997, AIMCO issued 2,400,000 shares of Class C
Preferred Stock and 7,000,000 shares of Class A Common Stock for aggregate
net proceeds of approximately $299.4 million. See "Summary--Recent
Financings."
(c) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
less the non-cash portion of AIMCO's equity in earnings of unconsolidated
subsidiaries. The pro forma amounts do not include adjustments for changes
in working capital resulting from changes in current assets and current
liabilities as there is no historical data available as of both the
beginning and end of each period presented.
(d) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(e) Pro forma cash used in financing activities represents (i) estimated
dividends and distributions to be paid based on AIMCO's historical dividend
rate of $1.70 and $1.3875 per share for the year ended December 31, 1996 and
the nine months ended September 30, 1997, respectively, on outstanding
shares of Class A Common Stock and OP Units, (ii) estimated dividends to be
paid based on the rate of $7.125 and $5.34375 per share for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, on outstanding shares of Class B Preferred Stock, and (iii)
estimated dividends to be paid on the rate of $2.25 and $1.6875 per share
for the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively, on outstanding shares of AIMCO Class C Preferred Stock.
(f) The Company's management believes that the presentation of FFO, when
considered with the financial data determined in accordance with GAAP,
provides a useful measure of AIMCO's performance. However, FFO does not
represent cash flow and is not necessarily indicative of cash flow or
liquidity available to AIMCO, nor should it be considered as alternatives to
net income as an indicator of operating performance. The Board of Governors
of NAREIT defines FFO as net income (loss), computed in accordance with
GAAP, excluding gains and losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO calculates FFO in a manner consistent
with the NAREIT definition, which includes adjustments for minority interest
in the Operating Partnership, plus amortization of management company
goodwill, the non-cash deferred portion of the income tax provision for
unconsolidated subsidiaries and less the payment of dividends on preferred
stock. AIMCO's management believes that presentation of FFO provides
investors with an industry accepted measurement which helps facilitate an
understanding of AIMCO's ability to meet required dividend payments, capital
expenditures and principal payments on its debt. However, there can be no
assurance that AIMCO's basis of computing FFO is comparable with that of
other REITs.
S-29
<PAGE>
The following is a reconciliation of Income before minority interest in
Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997
--------------------
PRO
1996 HISTORICAL FORMA
---------- ---------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income before minority interest in
Operating Partnership............... $11,196 $19,427 $42,054
(Gain) loss on disposition of
property............................ (64) 169 --
Extraordinary item.................... -- 269 --
Real estate depreciation, net of
minority interest in other
partnerships........................ 13,716 21,052 48,142
Amortization of management company
goodwill............................ 344 711 897
Equity in earnings of Unconsolidated
Subsidiaries:
Real estate depreciation.......... -- 2,781 6,020
Amortization of recoverable amount
of management contracts......... -- 430 6,321
Deferred income taxes............. -- 2,164 600
Real estate depreciation from
investments in partnerships......... -- 2,689 17,316
---------- ---------- -------
Net funds provided by operating
activities.......................... 25,192 49,692 119,550
---------- ---------- -------
FINANCING ACTIVITIES
Payment of dividend on Preferred
Stock............................... -- -- (4,050)
---------- ---------- -------
Net funds used in financing
activities.......................... -- -- (4,050)
---------- ---------- -------
Funds from operations................. $25,192 $49,692 $115,500
---------- ---------- -------
---------- ---------- -------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1996
--------------------
PRO
1995 HISTORICAL FORMA
---------- ---------- -------
<S> <C> <C> <C>
(RESTATED)
OPERATING ACTIVITIES
Income before minority interest in
Operating Partnership............... $14,988 $15,673 $42,865
(Gain) loss on disposition of
property............................ -- (44) --
Extraordinary item.................... -- -- --
Real estate depreciation, net of
minority interest in other
partnerships........................ 15,038 19,056 62,454
Amortization of management company
goodwill............................ 428 500 1,256
Equity in earnings of Unconsolidated
Subsidiaries:
Real estate depreciation.......... -- -- 8,943
Amortization of recoverable amount
of management contracts......... -- -- 8,430
Deferred income taxes............. -- -- 3,600
Real estate depreciation from
investments in partnerships......... -- -- 20,709
---------- ---------- -------
Net funds provided by operating
activities.......................... 30,454 35,185 147,777
---------- ---------- -------
FINANCING ACTIVITIES
Payment of dividend on Preferred
Stock............................... (5,169) -- (5,400)
---------- ---------- -------
Net funds used in financing
activities.......................... (5,169) -- (5,400)
---------- ---------- -------
Funds from operations................. $25,285 $35,185 $142,377
---------- ---------- -------
---------- ---------- -------
</TABLE>
(g) After a one year holding period, OP Units may be tendered for redemption at
the option of the holder and, upon tender may be acquired by AIMCO for
shares of Class A Common Stock at an exchange ratio of one share of Class A
Common Stock for each OP Unit (subject to adjustment), or redeemed by the
Operating Partnership for cash.
(h) AIMCO has amortized goodwill associated with the NHP Acquisition using the
straight line method over 20 years. The allocation of the purchase price of
NHP is preliminary; therefore, the amount and life of goodwill are subject
to change as additional information is obtained and the purchase price
allocation is finalized. The expected life of goodwill will depend upon the
final valuation of the various intangible assets, which could range from
five years to 20 years. If the estimated life of goodwill is ultimately
determined to be five years, for the nine months ended September 30, 1997,
the net income attributable to common shareholders and net income per common
share and common share equivalent on a pro forma basis would have been
$18,733 and $0.40, respectively; and for the year ended December 31, 1996,
the net income attributable to common shareholders and net income per common
share and common share equivalent on a pro forma basis would have been
$14,496 and $0.32, respectively. Since AIMCO's policy is to adjust FFO for
amortization of goodwill, the change in life of such goodwill would not have
any material impact on FFO for the periods presented.
(i) In February 1997, the Financial Accounting Standards Board issued Statement
128. Under the provisions of Statement 128, companies are required to
replace primary and fully diluted earnings per share with basic and diluted
earnings per share. The effect of applying the provisions of Statement 128
did not materially change AIMCO's historical earnings per share.
S-30
<PAGE>
DESCRIPTION OF CLASS D PREFERRED STOCK
The following summary of the terms and provisions of the Class D Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the AIMCO Charter and the articles
supplementary to the AIMCO Charter (the "Articles Supplementary") establishing
the Class D Preferred Stock, each of which is available from the Company. This
description of the particular terms of the Class D Preferred Stock supplements,
and to the extent inconsistent therewith, replaces, the description of the
general terms and provisions of the Preferred Stock set forth in the
accompanying Prospectus.
GENERAL
AIMCO is authorized to issue shares of Preferred Stock in one or more series
or classes, with such designations, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption, in each case, if any, as are permitted by
Maryland law and as the Board of Directors of AIMCO may determine by resolution.
See "Description of Preferred Stock" in the accompanying Prospectus. The Class D
Preferred Stock is a class of AIMCO's Preferred Stock. Except for the 2,400,000
outstanding shares of Class C Preferred Stock and the 750,000 outstanding shares
of Class B Preferred Stock, there are currently no other classes or series of
outstanding Preferred Stock. The Class D Preferred Stock is not convertible into
or exchangeable for any other securities of AIMCO.
RANKING
The Class D Preferred Stock will, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of AIMCO, rank (a) prior or senior
to any class or series of Common Stock of AIMCO and any other class or series of
capital stock of AIMCO, if the holders of Class D Preferred Stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of shares of such class or series ("Junior Stock"); (b) on a parity with the
Class B Preferred Stock, with the Class C Preferred Stock and with any other
class or series of capital stock of AIMCO if, pursuant to the specific terms of
such class or series of stock, the holders of such class or series of stock and
the Class D Preferred Stock shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in proportion
to their respective amounts of accrued and unpaid dividends per share or
liquidation preferences, without preference or priority one over the other
("Parity Stock"); and (c) junior to any class or series of capital stock of
AIMCO if, pursuant to the specific terms of such class or series of stock, the
holders of such class or series shall be entitled to the receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class D Preferred Stock ("Senior Stock").
DIVIDENDS
Holders of Class D Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of funds of AIMCO legally available for
payment, cash dividends at the rate of 8 3/4% per annum of the $25 liquidation
preference (equivalent to $2.1875 per annum per share). Such dividends shall be
cumulative from the date of original issue, whether or not in any dividend
period or periods such dividends shall be declared, there shall be funds of
AIMCO legally available for the payment of such dividends or any agreement of
AIMCO prohibits payment of such dividends, and shall be payable quarterly on or
before January 15, April 15, July 15 and October 15 of each year (or, if not a
business day, the next succeeding business day, each a "Dividend Payment Date"),
commencing April 15, 1998. The first dividend will be for less than a full
quarter. Any dividend payable on the Class D Preferred Stock for any partial
dividend period will be computed on the basis of twelve 30-day months and a 360
day year. Dividends will be payable in arrears to holders of record as they
appear on the stock records of AIMCO at the close of business on the January 1,
April 1, July 1 or October 1, as the case may be, immediately preceding such
Dividend Payment Date. Holders of Class D Preferred Stock shall not be entitled
to receive any dividends in excess of cumulative dividends on the Class D
Preferred Stock. No interest
S-31
<PAGE>
shall be paid in respect of any dividend payment or payments on the Class D
Preferred Stock that may be in arrears.
When dividends are not paid in full upon the Class D Preferred Stock or any
other class or series of Parity Stock, or a sum sufficient for such payment is
not set apart, all dividends declared upon the Class D Preferred Stock and any
other class or series of Parity Stock shall be declared ratably in proportion to
the respective amounts of dividends accumulated, accrued and unpaid on the Class
D Preferred Stock and accumulated, accrued and unpaid on such Parity Stock.
Except as set forth in the preceding sentence, unless dividends on the Class D
Preferred Stock equal to the full amount of accumulated, accrued and unpaid
dividends have been or contemporaneously are declared and paid, or declared and
a sum sufficient for the payment thereof set apart for such payment for all past
dividend periods, no dividends shall be declared or paid or set aside for
payment by AIMCO with respect to any class or series of Parity Stock. Unless
full cumulative dividends on the Class D Preferred Stock have been paid or
declared and set apart for payment for all past dividend periods, no dividends
(other than dividends paid in shares of Junior Stock or options, warrants or
rights to subscribe for or purchase shares of Junior Stock) shall be declared or
paid or set apart for payment by AIMCO with respect to any shares of Junior
Stock, nor shall any shares of Junior Stock be redeemed, purchased or otherwise
acquired (except for purposes of an employee benefit plan) for any consideration
(except by conversion or exchange for shares of Junior Stock, or options,
warrants or rights to subscribe for or purchase shares of Junior Stock), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of shares of Junior Stock. Notwithstanding the above, AIMCO
shall not be prohibited from (i) declaring or paying or setting apart for
payment any dividend or distribution on any shares of Parity Stock or (ii) or
redeeming, purchasing or otherwise acquiring any Parity Stock, in each case, if
such declaration, payment, redemption, purchase or other acquisition is
necessary to maintain AIMCO's qualification as a REIT.
The Credit Facility contains restrictive covenants which may limit, among
other things, the ability of AIMCO to pay dividends or make other restricted
payments. Such covenants provide that AIMCO may make distributions during any 12
month period in an amount in the aggregate which does exceed the greater of 80%
of FFO for such period or such amount as may be necessary to maintain REIT
status, provided that no event of default exists as a result of a breach of
certain financial ratios and tests that the Company is required to meet. A
failure of the Company to comply with these or other conditions and obligations
contained in the Credit Facility could result in adverse consequences to holders
of the Class D Preferred Stock, could render the Company unable to pay required
dividends or make redemptions, and could result in an event of default under the
Credit Facility. Other indebtedness of the Company that may be incurred in the
future may contain financial or other covenants more restrictive than those
applicable to the existing Credit Facility. See "Risk Factors--Holding Company
Structure."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
AIMCO, before any payment or distribution by AIMCO shall be made to or set apart
for the holders of any shares of Junior Stock, the holders of shares of Class D
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share (the "Liquidation Preference"), plus an amount equal to all accumulated,
accrued and unpaid dividends (whether or not earned or declared) to the date of
final distribution to such holders; but such holders shall not be entitled to
any further payment. Until the holders of the Class D Preferred Stock have been
paid the Liquidation Preference in full, plus an amount equal to all
accumulated, accrued and unpaid dividends (whether or not earned or declared) to
the date of final distribution to such holders, no payment shall be made to any
holder of Junior Stock upon the liquidation, dissolution or winding up of AIMCO.
If upon any liquidation, dissolution or winding up of AIMCO, the assets of
AIMCO, or proceeds thereof, distributable among the holders of Class D Preferred
Stock shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any other shares of any class or series of
Parity Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of Class D Preferred Stock and any such other Parity Stock
ratably in the same proportion as the respective amounts that would be payable
on such Class D Preferred Stock and any such other Parity Stock if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
S-32
<PAGE>
dissolution or winding up of AIMCO shall not include a consolidation or merger
of AIMCO with one or more corporations, a sale or transfer of all or
substantially all of AIMCO's assets, or a statutory share exchange.
Upon any liquidation, dissolution or winding up of AIMCO, after payment
shall have been made in full to the holders of Class D Preferred Stock and any
Parity Stock, any other series or class or classes of Junior Stock shall be
entitled to receive any and all assets remaining to be paid or distributed, and
the holders of the Class D Preferred Stock and any Parity Stock shall not be
entitled to share therein.
REDEMPTION
Shares of Class D Preferred Stock shall not be redeemable by AIMCO prior to
February 19, 2003 (except in certain limited circumstances relating to AIMCO's
maintenance of its ability to qualify as a REIT as described in "--Restrictions
on Ownership and Transfer.") On and after February 19, 2003, AIMCO may redeem
shares of Class D Preferred Stock, in whole or from time to time in part, at a
cash redemption price equal to 100% of the Liquidation Preference plus all
accrued and unpaid dividends to the date fixed for redemption (the "Redemption
Date"). The Redemption Date shall be selected by AIMCO and shall not be less
than 30 days nor more than 60 days after the date notice of redemption is sent
by AIMCO. If full cumulative dividends on all outstanding shares of Class D
Preferred Stock have not been paid or declared and set apart for payment, no
shares of Class D Preferred Stock may be redeemed unless all outstanding shares
of Class D Preferred Stock are simultaneously redeemed. The redemption price for
the Class D Preferred Stock (other than any portion thereof consisting of
accrued and unpaid dividends) shall be payable solely with the proceeds from the
sale by AIMCO or the Operating Partnership of other capital shares of AIMCO or
the Operating Partnership (whether or not such sale occurs concurrently with
such redemption). For purposes of the preceding sentence, "capital shares" means
any common stock, preferred stock, depositary shares, partnership or other
interests, participations or other ownership interests (however designated) and
any rights (other than debt securities convertible into or exchangeable at the
option of the holder for equity securities (unless and to the extent such debt
securities are subsequently converted into capital shares )) or options to
purchase any of the foregoing of or in AIMCO or the Operating Partnership.
Notice of redemption of the Class D Preferred Stock shall be mailed by AIMCO
to each holder of record of the shares to be redeemed by first class mail,
postage prepaid at such holder's address as the same appears on the stock
records of AIMCO. Any notice which was mailed as described above shall be
conclusively presumed to have been duly given on the date mailed whether or not
the holder receives the notice. Each notice shall state: (i) the Redemption
Date; (ii) the number of shares of Class D Preferred Stock to be redeemed; and
(iii) the place or places where certificates for such shares of Class D
Preferred Stock are to be surrendered for cash. From and after the Redemption
Date, dividends on the shares of Class D Preferred Stock to be redeemed will
cease to accrue, such shares shall no longer be deemed to be outstanding and all
rights of the holders thereof shall cease (except the right to receive the cash
payable upon such redemption).
The Class D Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption provisions (except as provided under
"--Restrictions on Ownership and Transfer").
Subject to applicable law and the limitation on purchases when dividends on
the Class D Preferred Stock are in arrears, the Company may, at any time and
from time to time, purchase any shares of Class D Preferred Stock in the open
market, by tender or by private agreement.
VOTING RIGHTS
Holders of shares of Class D Preferred Stock will not have any voting
rights, except as set forth below.
If and whenever distributions on any shares of Class D Preferred Stock or
any series or class of Parity Stock shall be in arrears for six or more
quarterly periods (whether or not consecutive), the number of directors then
constituting the Board of Directors shall be increased by two and the holders of
such shares of Class D Preferred Stock (voting together as a single class with
all other shares of Parity Stock of any other class or series which is entitled
to similar voting rights (the "Voting Preferred Stock")) will be entitled to
vote for the election of the two additional directors of AIMCO at any annual
meeting of stockholders or at a special meeting of the holders of the
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<PAGE>
Class D Preferred Stock and of the Voting Preferred Stock called for that
purpose. AIMCO must call such special meeting upon the request of any holder of
record of shares of Class D Preferred Stock. Whenever dividends in arrears on
outstanding shares of the Class D Preferred Stock and the Voting Preferred Stock
shall have been paid and dividends thereon for the current quarterly dividend
period shall have been paid or declared and set apart for payment, then the
right of the holders of the Class D Preferred Stock to elect such additional two
directors shall cease and the terms of office of such directors shall terminate
and the number of directors constituting the Board of Directors shall be reduced
accordingly.
The affirmative vote or consent of at least 66 2/3% of the votes entitled to
be cast by the holders of the outstanding shares of Class D Preferred Stock and
the holders of all other classes or series of Preferred Stock entitled to vote
on such matters, voting as a single class, will be required to (i) authorize the
creation of, the increase in the authorized amount of, or issuance of any shares
of any class of Senior Stock or any security convertible into shares of any
class of Senior Stock or (ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO Charter, including the Articles Supplementary, or
the By-Laws of AIMCO, if such action would materially adversely affect the
voting powers, rights or preferences of the holders of the Class D Preferred
Stock. The amendment of the AIMCO Charter to authorize, create, or to increase
the authorized amount of Junior Stock or any shares of any class of Parity
Stock, shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Class D Preferred Stock. No such vote of
the holders of Class D Preferred Stock as described above shall be required if
provision is made to redeem all shares of Class D Preferred Stock at or prior to
the time such amendment, alteration or repeal is to take effect, or when the
issuance of any such shares or convertible security is to be made, as the case
may be.
With respect to the exercise of the above described voting rights, each
share of Class D Preferred Stock shall have one (1) vote per share, except that
when any other class or series of Preferred Stock shall have the right to vote
with the Class D Preferred Stock as a single class, then the Class D Preferred
Stock and such other class or series shall have one quarter of one (0.25) vote
per $25 of stated Liquidation Preference.
TRANSFER AGENT
The registrar and transfer agent for the Class D Preferred Stock will be
BankBoston, N.A.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Ownership of shares of Class D Common Stock by any person is limited such
that the sum of the aggregate value of all Equity Stock (including all shares of
Class D Common Stock) owned directly or constructively by such person may not
exceed 8.7% (or 15% in the case of certain pension trusts, registered investment
companies and Mr. Considine) of the aggregate value of all outstanding shares of
Equity Stock (the "Ownership Limit"). The Board of Directors may upon
appropriate evidence waive the Ownership Limit.
Any person who acquires or attempts to acquire beneficial or constructive
ownership of Class D Preferred Stock that will or may violate the Ownership
Limit, or any person who would have owned Class D Preferred Stock except for the
transfer of shares to the Trust as defined below, is required to give notice
immediately to AIMCO and provide AIMCO with such other information as AIMCO may
request in order to determine the effect of such transfer on the Company's
status as a REIT.
If any transfer of Class D Preferred Stock occurs which, if effective, would
result in any person beneficially or constructively owning Class D Preferred
Stock in excess or in violation of the Ownership Limit (a "Prohibited
Transferee"), such shares of Class D Preferred Stock in excess of the Ownership
Limit shall be automatically transferred to a trustee (the "Trustee") in his
capacity as trustee of a trust (the "Trust") for the exclusive benefit of one or
more charitable beneficiaries (the "Charitable Beneficiaries"), and the
Prohibited Transferee shall generally have no rights in such shares, except upon
sale of the shares by the Trustee. Such automatic transfer shall be deemed to be
effective as of the close of business on the business day prior to the date of
such violative transfer. Shares of Class D Preferred Stock held in the Trust
shall be issued and outstanding shares of AIMCO. The Prohibited Transferee shall
not benefit economically from ownership of any shares of Class D Preferred Stock
held in the Trust, shall have no rights to dividends and shall not possess any
rights to vote or other rights attributable to the shares of Class D Preferred
Stock held in the Trust. The Trustee shall have all voting rights
S-34
<PAGE>
and rights to dividends with respect to shares of Class D Preferred Stock held
in the Trust, which rights shall be exercised for the benefit of the Charitable
Beneficiaries. Any dividend or other distribution paid prior to the discovery by
AIMCO that shares of Class D Preferred Stock have been transferred to the
Trustee shall be repaid to AIMCO upon demand, and any dividend or other
distribution declared but unpaid with respect to such shares shall be rescinded
as void. Any dividend or distribution so disgorged or rescinded shall be paid to
the Trustee and held in trust for the Charitable Beneficiaries.
The Trustee may sell the Class D Preferred Stock held in the Trust to a
person, designated by the Trustee, whose ownership of the Class D Preferred
Stock will not violate the Ownership Limit. Upon such sale, the interest of the
Charitable Beneficiaries in the shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Prohibited Transferee and
to the Charitable Beneficiary as described below. The Prohibited Transferee
shall receive the lesser of (i) the price paid by the Prohibited Transferee for
the shares or, if the Prohibited Transferee did not give value for the shares in
connection with the event causing the shares to be held in the Trust (e.g., a
gift, devise or other such transaction), the Market Price (as defined in the
Articles Supplementary) of such shares on the day of the event causing the
shares to be held in the Trust and (ii) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust. Any
proceeds in excess of the amount payable to the Prohibited Transferee shall be
payable to the Charitable Beneficiaries.
In addition, shares of Class D Preferred Stock held in the Trust shall be
deemed to have been offered for sale to AIMCO, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date AIMCO or its designee, accepts such offer.
All certificates representing Class D Preferred Stock will bear a legend
referring to the restrictions described above.
Every owner of more than 5% of the outstanding shares of Class D Preferred
Stock, within 30 days after January 1 of each year, is required to give written
notice to AIMCO stating the name and address of such owner, the number of shares
of Class D Preferred Stock which the owner beneficially owns and a description
of the manner in which such shares are held. Each such owner shall provide to
AIMCO such additional information as AIMCO may request in order to determine the
effect, if any, of such ownership on AIMCO's status as a REIT and to ensure
compliance with the Ownership Limit. In addition, each stockholder shall provide
to AIMCO such information as AIMCO may request, in its sole discretion, in order
to determine AIMCO's status as a REIT and to comply with the requirements of any
taxing authority or governmental agency to determine any such compliance or to
ensure compliance with the Ownership Limit.
CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of Class C Preferred
Stock in an underwritten public offering. The Class C Preferred Stock (a) ranks
prior or senior to any class or series of Common Stock of AIMCO and any Junior
Stock, (b) ranks on parity with the Class D Preferred Stock and the Class B
Preferred Stock and with any other Parity Stock and (c) ranks junior to any
Senior Stock.
Holders of Class C Preferred Stock are entitled to receive cash dividends at
the rate of 9% per annum of the $25 liquidation preference (equivalent to $2.25
per annum per share). Such dividends are cumulative from the date of original
issue, and are payable quarterly on or before January 15, April 15, July 15 and
October 15 of each year, commencing April 15, 1998. Upon any liquidation,
dissolution or winding up of AIMCO, before payment or distribution by AIMCO
shall be made to or set apart for the holders of any shares of Junior Stock, the
holders of Class C Preferred Stock shall be entitled to receive a liquidation
preference of $25 per share, plus an amount equal to all accumulated, accrued
and unpaid dividends to the date of final distribution to such holders; but such
holders shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above on any
liquidating payments on any other shares of any class or series of Parity Stock,
then such proceeds shall be distributed among the holders of Class C Preferred
Stock and any such other Parity Stock ratably in the same proportion as the
respective amounts that would be payable on such Class C Preferred Stock and any
such other Parity Stock if all amounts payable thereon were paid in full.
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<PAGE>
On and after December 23, 2002, AIMCO may redeem shares of Class C Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of their
liquidation preference plus all accrued and unpaid dividends to the date fixed
for redemption. The Class C Preferred Stock has no stated maturity and is not
subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class C Preferred Stock have no voting rights, except
that if distributions on Class C Preferred Stock or any series or class of
Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of Class C Preferred Stock (voting together as a single class
with all other shares of Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class C Preferred Stock called for the purpose.
CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of Class B Preferred Stock to
an institutional investor (the "Preferred Share Investor") for $75 million. The
Class B Preferred Stock ranks prior to Class A Common Stock, and on a parity
with Class C Preferred Stock and Class D Preferred Stock with respect to
dividends, liquidation, dissolution, and winding-up, and has an aggregate
liquidation value of $75 million. Holders of the Class B Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors,
quarterly cash dividends per share equal to the greater of (i) $1.78125 (the
"Base Rate") and (ii) the cash dividends declared on the number of shares of
Class A Common Stock into which one share of Class B Preferred Stock is
convertible. On or after August 4, 1998, each share of Class B Preferred Stock
may be converted at the option of the holder into 3.28407 shares of Class A
Common Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any
or all of the Class B Preferred Stock on or after August 4, 2002, at a
redemption price of $100 per share, plus unpaid dividends accrued on the shares
redeemed.
Holders of Class B Preferred Stock, voting as a class with the holders of
all Parity Stock, will be entitled to elect (i) two directors of AIMCO if six
quarterly dividends (whether or not consecutive) on the Class B Preferred Stock
or any Parity Stock are in arrears, and (ii) one director of AIMCO if for two
consecutive quarterly dividend periods AIMCO fails to pay at least $0.4625 in
dividends on the Class A Common Stock. The affirmative vote of the holders of
two-thirds of the outstanding shares of Class B Preferred Stock will be required
to amend the AIMCO Charter in any manner that would adversely affect the rights
of the holders of Class B Preferred Stock, and to approve the issuance of any
capital stock that ranks senior to the Class B Preferred Stock with respect to
payment of dividends or upon liquidation, dissolution, winding up or otherwise.
If the IRS were to make a final determination that AIMCO does not qualify as a
REIT, the Base Rate for quarterly cash dividends on the Class B Preferred Stock
would be increased to $3.03125 per share.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement") provides that the Preferred Share
Investor may require AIMCO to repurchase such investor's Class B Preferred Stock
in whole or in part at a price of $105 per share, plus accrued and unpaid
dividends on the purchased shares, if (i) AIMCO shall fail to continue to be
taxed as a REIT, or (ii) upon the occurrence of a change of control (as defined
in the Preferred Share Purchase Agreement). The Preferred Share Purchase
Agreement also provides that, so long as the Preferred Share Investor owns Class
B Preferred Stock with an aggregate liquidation preference of at least $18.75
million, neither AIMCO, the Operating Partnership nor any subsidiary of AIMCO
may issue preferred securities or incur indebtedness for borrowed money if
immediately following such issuance and after giving effect thereto and the
application of the net proceeds therefrom, AIMCO's ratio of aggregate
consolidated earnings before income taxes, depreciation and amortization; to
aggregate consolidated fixed charges (earnings before income taxes depreciation
and amortization) for the four fiscal quarters immediately preceding such
issuance would be less than 1.5 to 1.
S-36
<PAGE>
BOARD OF DIRECTORS AND OFFICERS OF AIMCO
The directors and executive officers of AIMCO, their ages, the dates they
were first elected and their positions with AIMCO or on the AIMCO Board are set
forth below.
<TABLE>
<CAPTION>
NAME AGE FIRST ELECTED POSITION
- ------------------------------ --- ------------------ -------------------------------------------------------
<S> <C> <C> <C>
Terry Considine............... 50 July 1994 Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez............ 52 July 1994 Vice Chairman, President and Director
Joel F. Bonder................ 49 December 1997 Executive Vice President and General Counsel
Robert Ty Howard.............. 40 February 1998 Executive Vice President--Ancillary Services
Steven D. Ira................. 47 July 1994 Executive Vice President and Co-Founder
Thomas W. Toomey.............. 37 January 1996 Executive Vice President--Finance and Administration
David L. Williams............. 52 January 1997 Executive Vice President--Property Operations
Harry G. Alcock............... 34 July 1996 Senior Vice President--Acquisitions
Troy D. Butts................. 33 November 1997 Senior Vice President and Chief Financial Officer
Martha Carlin................. 35 September 1997 Senior Vice President--Ancillary Services
Joseph DeTuno................. 52 August 1997 Senior Vice President--Property Redevelopment
Jack W. Marquardt............. 41 September 1997 Senior Vice President--Accounting
Herbert Meistrich............. 55 September 1997 Senior Vice President--Asset Management
Leeann Morein................. 43 July 1994 Senior Vice President--Investor Services and Secretary
David O'Leary................. 43 December 1997 Senior Vice President--Buyers Access
R. Scott Wesson............... 34 July 1997 Senior Vice President--Chief Information Officer
Roberta Ujakovich............. 45 July 1997 Senior Vice President--Asset Management
Richard S. Ellwood............ 65 July 1994 Director; Chairman, Audit Committee
J. Landis Martin.............. 51 July 1994 Director
Thomas L. Rhodes.............. 58 July 1994 Director; Chairman, Compensation Committee
John D. Smith................. 69 November 1994 Director
</TABLE>
The following is a biographical summary of the experience of the current
directors and executive officers of AIMCO for the past five years or more.
TERRY CONSIDINE. Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO since July 1994, and was President until
July 1997. He is the sole owner of Considine Investment Co. and prior to July
1994 was owner of approximately 75% of Property Asset Management, L.L.C.,
Limited Liability Company, a Colorado limited liability company, and its related
entities (collectively, "PAM"), one of the AIMCO Predecessors. On October 1,
1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors
Corp. and Commercial Asset Investors, Inc., two other public real estate
investment trusts, and appointed as a director of Financial Assets Management,
LLC, a real estate investment trust manager. Mr. Considine has been involved as
a principal in a variety of real estate activities, including the acquisition,
renovation, development and disposition of properties. Mr. Considine has also
controlled entities engaged in other businesses such as television broadcasting,
gasoline distribution and environmental laboratories. Mr. Considine received a
B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a
member of the Massachusetts Bar. He served as a Colorado State Senator from
1987-1992 and in 1992 was the Republican nominee for election to the United
States Senate from Colorado.
Mr. Considine has had substantial multifamily real estate experience. 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. 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.
S-37
<PAGE>
PETER K. KOMPANIEZ. Mr. Kompaniez has been Vice Chairman and a director of
AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez
has also served as Chief Operating Officer of NHP and President of NHP Partners
since June 1997. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty
Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors,
and serves as its President and Chief Executive Officer. From 1986 to 1993, he
served as President and Chief Executive Officer of Heron Financial Corporation
("HFC"), a United States holding company for Heron International, N.V.'s real
estate and related assets. While at HFC, Mr. Kompaniez administered the
acquisition, development and disposition of approximately 8,150 apartment units
(including 6,217 units that have been acquired by AIMCO) and 3.1 million square
feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior
partner with the law firm of Loeb and Loeb where he had extensive real estate
and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D.
from the University of California (Boalt Hall).
The downturn in the real estate markets in the late 1980s and early 1990s
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 "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, 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 public
offering of AIMCO Common Stock, Mr. Kompaniez was appointed Vice Chairman of
AIMCO and substantially all of the property management assets of PDI were
transferred or assigned to AIMCO.
JOEL F. BONDER. Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO effective with the NHP Merger. Prior to joining AIMCO,
Mr. Bonder served as Senior Vice President and General Counsel of NHP from April
1994 until December 1997. Mr. Bonder served as Vice President and Deputy General
Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of
NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington,
D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with
the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the
University of Rochester and a J.D. from Washington University School of Law.
ROBERT TY HOWARD. Mr. Howard was appointed Executive Vice
President--Ancillary Services in February 1998. Prior to joining AIMCO, Mr.
Howard served as an officer and director of four affiliated companies, Hecco
Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr.
Howard was responsible for financing, mergers and acquisitions activities,
investments in commercial real estate, both nationally and internationally,
cinema development and interest rate risk management. From 1983 to 1988, he was
employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College,
a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate
School of Business.
STEVEN D. IRA. Mr. Ira has served as Executive Vice President of AIMCO
since July 1994. From 1987 until July 1994, he served as President of PAM. Prior
to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in
property management. Between 1977 and 1981 he supervised the property management
of over 3,000 apartment and mobile home units in Colorado, Michigan,
Pennsylvania and Florida, and in 1981 he joined with others to form the property
management firm of McDermott, Stein and Ira. Mr. Ira served for several years on
the National Apartment Manager Accreditation Board and is a former president of
both the National Apartment Association and the Colorado Apartment Association.
Mr. Ira is the sixth individual elected to the Hall of Fame of the National
Apartment Association in its 54-year history. He holds a Certified Apartment
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<PAGE>
Property Supervisor (CAPS) and a Certified Apartment Manager designation from
the National Apartment Association, a Certified Property Manager (CPM)
designation from the National Institute of Real Estate Management (IREM) and he
is a member of the Boards of Directors of the National Multi-Housing Council,
the National Apartment Association and the Apartment Association of Metro
Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
Although Mr. Ira has had substantial multifamily real estate experience, 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 payments, 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.
THOMAS W. TOOMEY. Mr. Toomey has served as Senior Vice President--Finance
and Administration of AIMCO since January 1996 and was promoted to Executive
Vice President--Finance and Administration in March 1997. From 1990 until 1995,
Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as
Vice President/Senior Controller and Director of Administrative Services of
Lincoln Property Services where he was responsible for LPC's computer systems,
accounting, tax, treasury services and benefits administration. From 1984 to
1990, he was an audit manager with Arthur Andersen & Co. where he served real
estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff
of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business
Administration/Finance from Oregon State University and is a Certified Public
Accountant.
DAVID L. WILLIAMS. Mr. Williams has been Executive Vice
President--Operations of AIMCO since January 1997. Prior to joining AIMCO, Mr.
Williams was Senior Vice President of Operations at Evans Withycombe
Residential, Inc. from January 1996 to January 1997. Previously, he was
Executive Vice President at Equity Residential Properties Trust from October
1989 to December 1995. He has served on National Multi-Housing Council Boards
and NAREIT committees. Mr. Williams also served as Senior Vice President of
Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr.
Williams has been involved in the property management, development and
acquisition of real estate properties since 1973. Mr. Williams received his B.A.
in education and administration from the University of Washington in 1967.
HARRY G. ALCOCK. Mr. Alcock has served as a Vice President since July 1996,
and was promoted to Senior Vice President--Acquisitions in October 1997, with
responsibility for acquisition and financing activities since July 1994. From
June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI
and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a
Los Angeles based real estate developer, with responsibility for raising debt
and joint venture equity to fund land acquisitions and development. From 1987 to
1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San
Jose State University.
TROY D. BUTTS. Mr. Butts has served as Senior Vice President and Chief
Financial Officer of AIMCO since November 1997. Prior to joining AIMCO, Mr.
Butts served as a Senior Manager in the audit practice of the Real Estate
Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed
by Arthur Andersen LLP for ten years and his clients were primarily
publicly-held real estate companies, including office and multi-family real
estate investment trusts. Mr. Butts holds a Bachelor of Business Administration
degree in Accounting from Angelo State University and is a Certified Public
Accountant.
MARTHA CARLIN. Ms. Carlin has served as Vice President since September 1996
and was promoted to Senior Vice President--Ancillary Services in December 1997.
From December 1995 until September 1996, Ms. Carlin served as Chief Financial
Officer for Wentwood Investment Partners. Ms. Carlin was employed by Arthur
Andersen LLP for six years, with a primary focus in real estate. Ms. Carlin was
also employed by MCI Communications and Lincoln Property Company. Ms. Carlin
received a B.S. from the University of Kentucky and is a Certified Public
Accountant.
JOSEPH DETUNO. Mr. DeTuno has been Senior Vice President--Property
Redevelopment of AIMCO since September 1997. Mr. DeTuno was president and
founder of JD Associates, his own full service real estate
S-39
<PAGE>
consulting, advisory and project management company which he founded in 1990. JD
Associates provided development management, financial analysis, business plan
preparation and implementation services. Previously, Mr. DeTuno served as
President/Partner of Gulfstream Commercial Properties, President and Co-managing
Partner of Criswell Development Company, Vice President of Crow Hotel and
Company and Project Director with Perkins & Will Architects and Planners. Mr.
DeTuno received his B.A. in architecture and is a registered architect in
Illinois and Texas.
JACK W. MARQUARDT. Mr. Marquardt has been Senior Vice President--Accounting
of AIMCO since September 1997. Mr. Marquardt brings over 17 years of real estate
accounting experience to AIMCO. From October 1992 through August 1997, Mr.
Marquardt served as Vice President/Corporate Controller and Manager of Data
Processing for Transwestern Property Company, where he was responsible for
corporate accounting, tax, treasury services and computer systems. From August
1986 through September 1992, Mr. Marquardt worked in the real estate accounting
area of Aetna Realty Investors, Inc. serving as Regional Controller from April
1990 through September 1992. Mr. Marquardt received a B.S. in Business
Administration/Finance from Ohio State University.
HERBERT MEISTRICH. Mr. Meistrich has served as a Regional Vice President of
AIMCO since March 1995 and was promoted to Senior Vice President in September
1997, with responsibility for acquisitions and conversions of properties. Mr.
Meistrich has been involved in property management, development and acquisition
of all types of real estate properties since 1972. From 1982 to 1993, Mr.
Meistrich was President of Continental American Capital Corp., an affiliate of
ConAm Properties, Ltd., and was responsible for acquisition and financing of
apartments and hotels. From 1966 to 1982, Mr. Meistrich practiced law,
specializing in real estate development and management. He was an Adjunct
Assistant Professor at NYU and has taught advanced real estate courses at NYU,
as well as at other professional seminars. He has authored articles in various
real estate publications. Mr. Meistrich received a B.A. from Rutgers University
and a J.D. from Columbia University Law School.
LEEANN MOREIN. Ms. Morein has served as Senior Vice President Investor
Services AIMCO since November 1997. Ms. Morein has served as Secretary since
July 1994. From July 1994 until October 1997 Ms. Morein also served as Chief
Financial Officer. From September 1990 to March 1994, Ms. Morein served as Chief
Financial Officer of the real estate subsidiaries of California Federal Bank,
including the general partner of CF Income Partners, L.P., a publicly-traded
master limited partnership. Ms. Morein joined California Federal in September
1988 as Director of Real Estate Syndications Accounting and became Vice
President--Financial Administration in January 1990. From 1983 to 1988, Ms.
Morein was Controller of Storage Equities, Inc., a real estate investment trust,
and from 1981 to 1983, she was Director of Corporate Accounting for Angeles
Corporation, a real estate syndication firm. Ms. Morein worked on the audit
staff of Price Waterhouse from 1979 to 1981. Ms. Morein received a B.A. from
Pomona College and is a Certified Public Accountant.
DAVID O'LEARY. Mr. O'Leary has been President of Property Services Group,
Inc., an AIMCO subsidiary since December 1997. Property Services Group, Inc.
administers the Buyers Access program. From 1993 until 1997, Mr. O'Leary served
as Regional Vice President and Senior Vice President for Property Services
Group, Inc., with responsibility for program marketing and sales. From 1981 to
1993 Mr. O'Leary served as Vice President and Executive Vice President for
Commonwealth Pacific Inc., a privately held real estate investment and
management firm based in Seattle, Washington. During his tenure with
Commonwealth Pacific, Inc., Mr. O'Leary was responsible for acquisitions,
dispositions, development, and asset management from offices located in Houston
and Dallas, Texas, Atlanta, Georgia and Seattle, Washington. Mr. O'Leary also
served as Vice President for Johnstown American Companies, directing acquisition
activities for the Northeast United States. Mr. O'Leary received his B.A. Degree
from the University of Utah in 1979.
R. SCOTT WESSON. Mr. Wesson has been Senior Vice President--Chief
Information Officer of AIMCO since July 1997. From 1994 until 1997, Mr. Wesson
served as Vice President of Information Services at Lincoln Property Company,
where he was responsible for information systems infrastructure, technology
planning and business process re-engineering. From 1992 to 1994, Mr. Wesson
served in the role of Director of Network Services for Lincoln Property Company,
where he was responsible for the design and deployment of the
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<PAGE>
company's Wide Area Network and Local Area Networks, comprising over 2,500
workstations in over 40 locations nationwide. From 1988 to 1992, he was a
systems consultant with Automatic Data Processing involved in design, planning
and deployment of financial and human resources systems for several major,
multi-national organizations. From 1984 to 1987, he was a Senior Analyst with
Federated Department Stores, Inc. involved in planning and distribution. Mr.
Wesson received his B.S. from the University of Texas in 1984.
ROBERTA UJAKOVICH. Ms. Ujakovich has served as Senior Vice President since
July, 1997. She is responsible for transactions in the portfolio of over 380
AIMCO and NHP properties. Prior to joining AIMCO, Ms. Ujakovich was Vice
President of NHP serving as the Director of Transactions in NHP's Asset
Management Department. Previously, Ms. Ujakovich worked as a developer for three
successive, affiliated real estate development companies: The Cafritz/Freeman
Group, The Investment Group and Rosenberg, Freeman and Associates. She holds a
B.A. from Allegheny College and a Master in Public Policy from the John F.
Kennedy School of Government at Harvard University.
RICHARD S. ELLWOOD. Mr. Ellwood was appointed a director of AIMCO in July
1994 and is currently Chairman of the Audit Committee. Mr. Ellwood is the
founder and President of R.S. Ellwood & Co., Incorporated, a real estate
investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in
1987, Mr. Ellwood had 31 years experience as an investment banker, serving as:
Managing Director and senior banker at Merrill Lynch Capital Markets from 1984
to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general
partner and then Senior Vice President and a director at White, Weld & Co. from
1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968.
Mr. Ellwood currently serves as a director of Corporate Realty Income Trust and
FelCor Suite Hotels, Inc. He is a registered investment advisor.
J. LANDIS MARTIN. Mr. Martin was appointed a director of AIMCO in July
1994. Mr. Martin has served as President, Chief Executive Officer and a director
of NL Industries, Inc., a manufacturer of specialty chemicals, since 1987. Since
1988, he has served as the President and Chief Executive Officer of Tremont
Corporation, an integrated producer of titanium metals. Mr. Martin has also
served as a director and the Chairman of the Board of Directors of Tremont
Corporation since August 1990. From December 1988 until January 1994, he served
as Chairman of the Board of Directors of Baroid Corporation, an oilfield
services company. In January 1994, Baroid Corporation became a wholly owned
subsidiary of Dresser Industries, Inc. and Mr. Martin currently serves as a
director of Dresser Industries, Inc. Mr. Martin also serves as Chairman of the
Board and Chief Executive Officer of Titanium Metals Corporation, an integrated
producer of titanium.
THOMAS L. RHODES. Mr. Rhodes was appointed a director of AIMCO in July 1994
and is currently Chairman of the Compensation Committee. Mr. Rhodes has served
as the President and a director of NATIONAL REVIEW since 1992. From 1976 to
1992, he held various positions at Goldman, Sachs & Co. and was elected a
General Partner in 1986. He also served as a director of Underwriters
Reinsurance Company from 1987 to 1993 and was a member of the Advisory Board of
TransTerra Co. during 1993. He currently serves as Co-Chairman and director of
Financial Assets Management, LLC and its subsidiaries, and as a director of
Delphi Financial Group, Inc. and The Lynde and Harry Bradley Foundation. Mr.
Rhodes is Chairman of the Empire Foundation for Policy Research, a Trustee of
The Heritage Foundation, a Trustee of The Manhattan Institute and a Member of
the Council on Foreign Relations.
JOHN D. SMITH. Mr. Smith was appointed a director of AIMCO in November
1994. Mr. Smith is Principal and President of John D. Smith Developments. Mr.
Smith has been a shopping center developer, owner and consultant for over 8.6
million square feet of shopping center projects including Lenox Square in
Atlanta, Georgia. Mr. Smith is a Trustee and former President of the
International Council of Shopping Centers and was selected to be a member of the
American Society of Real Estate Counselors. Mr. Smith served as a director for
Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly
known as Continental Illinois Properties. He also serves as a director of
American Fidelity Assurance Companies and is retained as an advisor by Shop
System Study Society, Tokyo, Japan.
S-41
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the underwriting
agreement, dated the date hereof (the "Underwriting Agreement"), each of the
Underwriters named below (each, an "Underwriter" and together, the
"Underwriters"), has severally agreed to purchase, and AIMCO has agreed to sell
to each Underwriter, the number of shares of Class D Preferred Stock set forth
opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------- ----------
<S> <C>
Smith Barney Inc. .......................................................................... 666,670
BancAmerica Robertson Stephens.............................................................. 666,666
Lehman Brothers Inc. ....................................................................... 666,666
PaineWebber Incorporated.................................................................... 666,666
Raymond James & Associates, Inc............................................................. 666,666
The Robinson-Humphrey Company, LLC.......................................................... 666,666
----------
Total..................................................................................... 4,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class D Preferred
Stock is subject to approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
shares of Class D Preferred Stock offered hereby (other than those covered by
the over-allotment option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of Class D
Preferred Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and part of the shares to certain
dealers at a price which represents a concession not in excess of $.50 per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $.35 per share to certain other
dealers. After the initial offering of the shares of Class D Preferred Stock 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 600,000
additional shares of Class D Preferred 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 of Class D Preferred Stock 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 such
Underwriter's name in the preceding table bears to the total number of shares
listed in such table.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Class D Preferred Stock
than the total amount shown on the list of Underwriters and participations which
appears above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the Class D Preferred Stock at levels above
those which might otherwise prevail in the open market. Such transactions may
include placing bids for the Class D Preferred Stock or effecting purchases of
the shares of Class D Preferred Stock for the purpose of pegging, fixing or
maintaining the price of the securities or for the purpose of reducing a
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. The Underwriters are not required to
engage in any of these activities and any such activities, if commenced, may be
discontinued at any time.
AIMCO and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
AIMCO intends to apply to list the Class D Preferred Stock on the NYSE under
the symbol "AIVPrD." Prior to this Offering, there has been no public market for
the Class D Preferred Stock. Trading of the Class D Preferred Stock on the NYSE
is expected to commence within 30 days after the initial delivery of the Class D
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<PAGE>
Preferred Stock. The Underwriters have advised AIMCO that they intend to make a
market in the Class D Preferred Stock prior to the commencement of trading on
the NYSE, but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given that a market for the Class D
Preferred Stock will exist prior to commencement of trading on the NYSE or at
any other time.
Smith Barney Inc. and its affiliates have acted as financial advisor and
lender to the Company and may in the future from time to time in the ordinary
course of business act as financial advisor or lender to the Company. A portion
of the net proceeds from the Offering will be used by the Operating Partnership
to repay outstanding indebtedness under the New Credit Facility. BancAmerica
Robertson Stephens is an affiliate of Bank of America, a lender under the New
Credit Facility.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAXATION OF FOREIGN SHAREHOLDERS
The following discussion of recently enacted legislation, affecting the
ownership and disposition of the Class D Preferred 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, partnership, or other entity organized in or
under the laws of the United States or any state thereof, or the District of
Columbia, (iii) an estate whose income is includable in gross income for U.S.
Federal income tax purposes regardless of its source, or (iv) a trust if a
United States court is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. This discussion is
based on current law and is for general information only.
Unless the Class D Preferred 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 D
Preferred Stock constitutes a USRPI, such distribution will be subject to 10
percent withholding and may also be subject to tax under FIRPTA. The Class D
Preferred 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. Because AIMCO's Class A Common Stock and Class C Preferred Stock are, and
Class D Preferred Stock will be, publicly traded, however, no assurance can be
given that AIMCO will continue to be a domestically controlled REIT.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Recently adopted United States Treasury Department regulations (the
"Regulations") require AIMCO to follow certain procedures in complying with
United States Federal withholding, backup withholding and information reporting
rules. Under the Regulations (and under current law), Holders are required to
provide certain information to AIMCO to avoid the imposition of backup
withholding and, for non-U.S. Holders, to claim the benefits of an income tax
treaty. The Regulations are effective for payments made after December 31, 1998.
Holders are urged to consult their tax advisors regarding the tax consequences
of the Regulations, on the purchase, ownership and sale of the Class D Preferred
Stock.
RECENT LEGISLATION APPLICABLE TO REITS
The Taxpayer Relief Act of 1997 (the "Act") made several changes to the
Code, including to the provisions that govern the Federal income tax treatment
of REITs. The changes to the REIT provisions are generally
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effective for taxable years beginning after the date of the enactment of the
Act. For AIMCO, the changes are effective beginning on January 1, 1998. The
discussion of the Federal income tax treatment of a REIT in the Prospectus under
the heading "Certain Federal Income Tax Considerations" does not reflect the
changes made by the Act to the REIT provisions of the Code.
The Act makes a number of changes relating to the qualification and taxation
of REITs including the following. First, a REIT will be able to provide certain
non-customary services directly to a property without disqualifying all of the
rent from the property if the payment for such services does not exceed 1% of
the gross income from the property. Second, a REIT's wholly-owned subsidiary
will be treated as a "qualified REIT subsidiary" even when the subsidiary was
not wholly-owned by the REIT at all times during its existence. Third, the Act
repeals the requirement that a REIT must derive less than 30% of its gross
income from the sale of stock or securities held for less than one year, real
property held less than four years, and property sold or disposed of in a
"prohibited transaction." Finally, a REIT will be able to elect to retain and
pay income tax on net long-term capital gains. In such a case, REIT shareholders
would include in income their share of the long-term capital gains retained by
the REIT and would receive a credit for their share of the taxes paid by the
REIT.
As a result of other changes made by the Act to the Code, gains of
individuals derived in respect of capital assets held for at least one year are
eligible for reduced rates of taxation depending upon the holding period of such
capital assets. Each prospective investor should consult his own tax advisor
regarding the tax consequences to him of the changes made by the Act.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with Federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the Federal laws and interpretations thereof
could adversely affect the tax consequences of an investment in AIMCO. For
example, a proposal isued by President Clinton on February 2, 1998, if enacted
into law, may adversely affect the ability of AIMCO to expand the present
activities of its Management Subsidiaries. It cannot be predicted whether, when,
in what forms, or with what effective dates, the tax laws applicable to AIMCO or
an investment in AIMCO will be changed.
EXPERTS
The consolidated financial statements of AIMCO and the combined financial
statements of the AIMCO Predecessors appearing in AIMCO's Annual Report on Form
10-K for the year ended December 31, 1996 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and combined financial statements are incorporated herein 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
Morton Towers for the year ended December 31, 1996 appearing in AIMCO's Current
Report on Form 8-K, dated September 19, 1997, has been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such Historical Summary is incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The Historical Summary of Gross Income and Certain Expenses of The Bay Club
at Aventura for the year ended December 31, 1996 appearing in Amendment No. 1 to
AIMCO's Current Report on Form 8-K, dated June 3, 1997, has been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such Historical Summary
is incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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The Historical Summary of Gross Income and Direct Operating Expenses of
Villa Ladera Apartments for the year ended December 31, 1995 appearing in
AIMCO'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 herein by reference. Such Historical Summary
is incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of NHP for the years ended December
31, 1996, 1995 and 1994 included in Amendment No. 3 to AIMCO's Current Report on
Form 8-K, dated April 16, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
As noted in their report, Arthur Andersen LLP did not audit the 1994
financial statements of certain real estate partnerships whose operating results
are included in "income (loss) from discontinued real estate operations, net of
income taxes" in the 1994 consolidated financial statements of NHP. The
financial statements of these real estate partnerships were audited by other
auditors, whose reports are incorporated herein by reference to Amendments No. 1
and 2 to AIMCO's Current Report on Form 8-K, dated April 16, 1997, and Arthur
Andersen LLP's opinion, insofar as it relates to the amounts included in the
consolidated financial statements for these real estate partnerships, is based
solely on the reports of those auditors included therein and incorporated herein
by reference. The auditors on whose reports Arthur Andersen LLP relied are:
Anders, Minkler & Diehl LLP; Dauby O'Connor & Zaleski, LLC; Deloitte & Touche
LLP; Edwards Leap & Sauer; George A. Hieronymous & Company, LLC; Goldenberg
Rosenthal Friedlander, LLP; Hansen, Hunter & Kibbee, P.C.; J.H. Cohn LLP; J.A.
Plumer & Co., P.A.; Marks Shron & Company, LLP; Reznick Fedder & Silverman; and
Russell Thompson Butler & Houston. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing. All of the foregoing firms are
independent auditors.
The combined financial statements of the NHP Real Estate Companies (as
defined in Note 1 of such financial statements) for the years ended December 31,
1996, 1995 and 1994 included in Amendment No. 5 to AIMCO's Current Report on
Form 8-K, dated June 3, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such combined financial statements
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
As noted in their report, Arthur Andersen LLP did not audit the 1996, 1995
and 1994 financial statements of certain real estate partnerships accounted for
under the equity method by the NHP Real Estate Companies. The financial
statements of these real estate partnerships were audited by other auditors,
whose reports are filed as exhibits to Amendments No. 1 and 3 to AIMCO's Current
Report on Form 8-K, dated June 3, 1997, and Arthur Andersen LLP's opinion,
insofar as it relates to the amounts included in the combined financial
statements for these real estate partnerships, is based solely on the reports of
those auditors included therein and incorporated herein by reference. The
auditors on whose reports Arthur Andersen LLP relied are: Anders, Minkler &
Diehl LLP; Dauby O'Connor & Zaleski, LLC; Deloitte & Touche LLP; Edwards Leap &
Sauer; Fishbein & Company, P.C.; Freeman and Vessillo; Friduss, Lukee, Schiff &
Co., PC; George A. Heironymous & Company, LLC; Goldenberg Rosenthal Friedlander,
LLP; Hansen, Hunter & Kibbee, P.C.; J.H. Cohn LLP; J.A. Plumer & Co., P.A.;
Prague & Company, P.C.; Robert Ercolini & Company; Marks Shron & Company, LLP;
Reznick Fedder & Silverman; Russell Thompson Butler & Houston; Sciarabba Walker
& Co., LLP; Wallace Sanders & Company; Warady & Davis LLP; Ziner and Company,
PC; and Zinner & Co. Such financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing. All of the foregoing firms are
independent auditors.
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The financial statements of NHP Southwest Partners, LP for the year ended
December 31, 1996 and for the period from January 20, 1995 through December 31,
1995 included in Amendment No. 5 to AIMCO's Current Report on Form 8-K, dated
June 3, 1997, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The combined financial statements of NHP New LP Entities (as defined in Note
1 of such financial statements) for the year ended December 31, 1996 and for the
period from January 20, 1995 through December 31, 1995 included in Amendment No.
1 to AIMCO's Current Report on Form 8-K, dated June 3, 1997, have been audited
by Arthur Andersen LLP, independent public accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
combined financial statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of NHP Borrower Entities (as defined in
Note 1 of such financial statements) for the year ended December 31, 1996 and
for the period from January 20, 1995 through December 31, 1995 included in
Amendment No. 1 to AIMCO's Current Report on Form 8-K, dated June 3, 1997, have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report thereon included therein and incorporated herein by
reference. Such combined financial statements are 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 Thirty-five
Acquisition Properties (as defined in Note 1 of such financial statements (which
represents the Winthrop Portfolio) for the year ended December 31, 1996 included
in AIMCO's Current Report on Form 8-K, dated October 15, 1997, have been audited
by Deloitte & Touche LLP, independent public accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
combined financial statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The statements of revenues and certain expenses of First Alexandria
Associates, A Limited Partnership, for the years ended December 31, 1996, 1995
and 1994 included in AIMCO's Current Report on Form 8-K, dated December 1, 1997,
have been audited by Reznick Fedder & Silverman, a Professional Corporation, as
set forth in their report thereon included therein and incorporated herein by
reference. Such statements of revenues and certain expenses are incorporated
herein by reference in reliance upon such report given upon the authority of the
firm as experts in accounting and auditing.
The statements of revenues and certain expenses of Country Lakes Associates
Two, A Limited Partnership, for the years ended December 31, 1996, 1995, and
1994 included in AIMCO's Current Report on Form 8-K, dated December 1, 1997,
have been audited by Reznick Fedder & Silverman, a Professional Corporation, as
set forth in their report thereon included therein and incorporated herein by
reference. Such statements of revenues and certain expenses are incorporated
herein by reference in reliance upon such report given upon the authority of the
firm as experts in accounting and auditing.
The statements of revenues and certain expenses of Point West Limited
Partnership, A Limited Partnership, for the years ended December 31, 1996, 1995
and 1994 included in AIMCO's Current Report on Form 8-K, dated December 1, 1997,
have been audited by Deloitte & Touche LLP, independent public accountants, as
set forth in their report thereon included therein and incorporated herein by
reference. Such statements of revenues and certain expenses are incorporated
herein by reference in reliance upon such report given upon the authority of the
firm as experts in accounting and auditing.
The statements of revenues and certain expenses of The Oak Park Partnership,
A Limited Partnership, for the years ended December 31, 1996, 1995 and 1994
included in AIMCO's Current Report on Form 8-K, dated
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December 1, 1997, have been audited by Warady & Davis LLP, as set forth in their
report thereon included therein and incorporated herein by reference. Such
statements of revenues and certain expenses are incorporated herein by reference
in reliance upon such report given upon the authority of the firm as experts in
accounting and auditing.
The consolidated and combined financial statements of Ambassador Apartments,
Inc. and Prime Properties (the Predecessor to Ambassador Apartments, Inc.)
appearing in Ambassador's Annual Report (Form 10-K) for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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 Battle
Fowler LLP, New York, New York. The legality of the shares of Class D Preferred
Stock offered hereby will be passed upon for AIMCO by Piper & Marbury L.L.P.,
Baltimore, Maryland. Skadden, Arps, Slate, Meagher & Flom LLP and Battle Fowler
LLP will rely on Piper & Marbury L.L.P. as to certain matters of Maryland law.
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<PAGE>
PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$1,000,000,000
DEBT SECURITIES
PREFERRED STOCK
CLASS A COMMON STOCK
WARRANTS
Apartment Investment and Management Company (the "Company") may offer from
time to time (i) senior, senior subordinated or subordinated 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 $1,000,000,000. 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, and the terms of such
Securities, including without limitation, 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
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
May 22, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY OR BY ANY PROSPECTUS SUPPLEMENT OR OTHER SECURITIES OF THE
COMPANY. SUCH TRANSACTIONS MAY BE EFFECTED THROUGH THE NEW YORK STOCK EXCHANGE
OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION"
INCLUDED ELSEWHERE HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
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 Commission also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
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, 1996;
(ii) Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1996, and Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(iii) Current Reports on Form 8-K dated December 19, 1996, February 19,
1997, April 16, 1997 and May 5, 1997 (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 (File No. 1-13232) 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.
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<PAGE>
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. Requests for such
copies should be directed to Apartment Investment and Management Company, 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222, Attention: Corporate
Secretary, telephone number (303) 757-8101.
------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus or
any Prospectus Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or any underwriter or agent. This Prospectus and any Prospectus Supplement do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction where, or to any person to whom,
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that the
information herein or therein is correct as of any time subsequent to their
respective dates.
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<PAGE>
THE COMPANY
Apartment Investment and Management Company, a Maryland corporation
(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 the Company. As of March 31, 1997, the
Company held approximately an 86.0% interest in the Operating Partnership.
Through its controlling interests in the Operating Partnership and other limited
partnerships and limited liability companies (collectively, the "Subsidiary
Partnerships"), the Company owns or controls multifamily apartment properties
(the "Owned Properties") and manages other multifamily apartment properties (the
"Managed Properties").
As of March 31, 1997, the Company had 94 Owned Properties containing 23,764
units and 131 Managed Properties, including 17,731 apartment units managed for
third parties and affiliates. The Company's third-party property and asset
management business is principally conducted by Property Asset Management
Services, L.P., a Delaware limited partnership ("PAMS LP"). The Operating
Partnership owns a 1% interest in, and is the general partner of, PAMS LP. The
sole limited partner of PAMS LP is Property Asset Management Services, Inc., a
Delaware corporation ("PAMS Inc." and, together with PAMS LP, the "Management
Subsidiaries"), which owns a 99% interest in PAMS LP.
The Owned Properties are located in the Sunbelt regions of the United
States. The distribution of the Owned Properties reflects the Company's focus on
growth markets and its belief that geographic diversification will help to
insulate the portfolio from regional and economic fluctuations. The Company also
seeks to create concentrations of properties within each of its markets in order
to achieve economies of scale in management and operation.
In April 1997, the Company entered into agreements to acquire NHP
Incorporated, a Delaware corporation ("NHP"). NHP provides a broad array of real
estate services nationwide including property management, and asset management,
as well as a group of related services including equity investments, purchasing,
risk management and home health care. According to 1995 year-end data published
by the National Multi Housing Council and April 1994 data published by the
United States Department of Housing and Urban Development, NHP is the nation's
second largest property manager of multifamily properties, based on the number
of units managed. As of December 31, 1996, NHP's management portfolio includes
457 affordable properties and 260 conventional properties containing 58,504
affordable units and 74,540 conventional units located in 38 states, the
District of Columbia and Puerto Rico.
The Company is also continuing to negotiate the terms of a definitive
agreement with Demeter Holdings Corporation, a Massachusetts corporation, and
Capricorn Investors, L.P., a Delaware limited partnership, Phemus Corporation, a
Massachusetts corporation and an affiliate of Demeter, and J. Roderick Heller,
III, relating to the acquisition of certain entities formerly owned by NHP that
own direct and indirect interests in partnerships that own conventional and
affordable multifamily apartment properties managed primarily by NHP, along with
a captive insurance subsidiary and certain related assets (collectively, the
"NHP Real Estate Companies"). The proposed acquisitions of NHP and the NHP Real
Estate Companies are subject to a number of contingencies, including, in some
cases, obtaining approvals of governmental authorities (including HUD),
shareholders of the Company and NHP, and other third parties. Accordingly, there
can be no assurance that either of such transactions will be completed. If
completed, the NHP Acquisition is subject to a number of risks.
The Company's headquarters are located at 1873 South Bellaire Street, 17th
Floor, Denver, Colorado 80222 and its telephone number is (303) 757-8101.
4
<PAGE>
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 quarters ended
March 31, 1997 and March 31, 1996 was 1.5:1 and 1.5:1 respectively and for the
years ended December 31, 1996 and December 31, 1995 and the period from January
10, 1994 (the date of formation) to December 31, 1994 was 1.6:1, 2.1:1 and
5.8:1, respectively. Prior to the completion of the initial public offering (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 were inadequate to cover fixed charges by $1,463,000.
The Company's ratio of earnings to combined fixed charges and preferred
stock dividends for the quarters ended March 31, 1997 and March 31, 1996 was
1.5:1 and 1.5:1 respectively and for the years ended December 31, 1996 and
December 31, 1995 and the period from January 10, 1994 to December 31, 1994 was
1.6:1, 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, 1992
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 loan costs) 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 loan costs) 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 loan costs). No preferred stock was issued by the AIMCO
Predecessors.
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.
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The Debt Securities may be issued, from time to time, in one or more series,
and will constitute either senior Debt Securities ("Senior Debt Securities"),
senior subordinated Debt Securities ("Senior Subordinated Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). Senior Debt
Securities may be issued under an Indenture (the "Senior Debt Securities
Indenture") to be entered into between the Company and a trustee to be named in
the applicable Prospectus Supplement (the "Senior Debt Securities Trustee"). The
Senior Subordinated Debt Securities may be issued from time to time under an
Indenture (the "Senior Subordinated Debt Securities Indenture") to be entered
into between the Company and a trustee to be named in the applicable Prospectus
Supplement (the "Senior Subordinated Debt Securities Trustee"). The Subordinated
Debt Securities may be issued from time to time under an Indenture (the
"Subordinated Debt Securities Indenture") to be entered into between the Company
and a trustee to be named in the applicable Prospectus Supplement (the
"Subordinated Debt Securities Trustee").
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 is 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 Senior Subordinated Debt Securities or 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 Debt Securities would be senior to
such 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 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
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Debt Security in temporary or permanent global form, and if so, the initial
Depositary with respect to such temporary or permanent global Debt Security and
whether and the circumstances under which beneficial owners of interests in any
such temporary or permanent global Debt Security may exchange such interests for
Debt Securities of such series and of like tenor of any authorized form and
denomination; (iv) the price or prices at which the Offered Debt Securities will
be issued; (v) the date or dates on which the principal of the Offered Debt
Securities is payable or the method of determination thereof; (vi) the place or
places where and the manner in which the principal of and premium, if any, and
interest, if any, on such Offered Debt Securities will be payable and the place
or places where such Offered Debt Securities may be presented for transfer and,
if applicable, conversion or exchange; (vii) the rate or rates at which the
Offered Debt Securities will bear interest, or the method of calculating such
rate or rates, if any, and the date or dates from which such interest, if any,
will accrue; (viii) the dates (the "Interest Payment Dates"), if any, on which
any interest on the Offered Debt Securities will be payable, and the regular
record date (the "Regular Record Date") for any interest payable on any Offered
Debt Securities; (ix) the right or 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
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participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The Debt Securities of a series may be issued solely as registered Debt
Securities. Debt Securities of a series may be issuable in whole or in part in
the form of one or more global Debt Securities, as described below under "Global
Debt Securities." Unless otherwise indicated in an applicable Prospectus
Supplement, Debt Securities will be issuable in denominations of $1,000 and
integral multiples thereof. Debt Securities of any series will be exchangeable
for other Debt Securities of the same series of any authorized denominations and
of a like aggregate principal amount and tenor.
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.
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All moneys paid by the Company to a paying agent for the payment of
principal of, or interest, if any, on, any Debt Security which remains unclaimed
at the end of two years after such principal or interest shall have become due
and payable will be repaid to the Company, and the holder of such Debt Security
or any coupon will thereafter look only to the Company for payment thereof.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in global
form. A Debt Security in global form will be deposited with, or on behalf of, a
depositary, which will be identified in the applicable Prospectus Supplement. A
global Debt Security may be issued only in registered form and in either
temporary or permanent form. A Debt Security in global form may not be
transferred except as a whole to the depositary for such Debt Security or to a
nominee or successor of such depositary. If any Debt 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 given 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 with respect to the
Debt Securities of such series.
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The Trustee shall give notice to holders of the Debt Securities of any
continuing default known to the Trustee within 90 days after the occurrence
thereof; PROVIDED, that the Trustee may withhold such notice, as to any default
other than a payment default, if it determines in good faith that withholding
the notice is in the interests of the holders.
The holders of a majority in principal amount of the outstanding Debt
Securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Debt Securities of such
series; PROVIDED that such direction shall not be in conflict with any law or
the Indenture and subject to certain other limitations. Before proceeding to
exercise any right or power under the Indenture at the direction of such
holders, the Trustee shall be entitled to receive from such holders reasonable
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with 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 such 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 to receive payment of the principal of and interest in respect of
such Debt Securities on the date specified in such Debt Securities 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 (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
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entitled to the benefit of such provision or (b) modify the rights of the holder
of any such Debt Securities with respect to such provision; (vii) to secure the
Debt Securities; or (viii) to make any other change that does not adversely
affect the rights of any holder of Debt Securities.
Each Indenture provides that, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding Debt Securities
of the series affected by such supplemental indenture, the Company and the
Trustee may also execute a supplemental indenture to add provisions to, or
change in any manner or eliminate any provisions of, the Indenture with respect
to such series of Debt Securities or modify in any manner the rights of the
holders of the Debt Securities of such series; PROVIDED that no such
supplemental indenture will, without the consent of the holder of each such
outstanding Debt Security affected thereby (i) change the stated maturity of the
principal of, or any installment of principal or interest on, any such Debt
Security or any premium payable upon redemption or repurchase 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.
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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 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 Charter (the "Charter") 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 Charter, the Company has the authority to issue up to 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 not
inconsistent with the Charter and the MGCL.
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.
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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 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, which will set forth the terms and conditions upon which such
conversion or exchange may be effected, including the initial conversion or
exchange rate and any adjustments thereto, the conversion or exchange period and
any other conversion or exchange provisions.
REDEMPTION AND SINKING FUND
No series of Preferred Stock will be redeemable or be entitled to receive
the benefit of a sinking fund except as set forth in the applicable Prospectus
Supplement, which will set forth the terms and conditions therof, including the
dates and redemption prices of any such redemption, any conditions thereto, and
any other redemption or sinking fund provisions.
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
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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 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 Charter 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
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<PAGE>
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, and the redemption or repurchase of, any series of Preferred Stock
may be restricted by loan agreements, indentures and other agreements entered
into by the Company. The accompanying Prospectus Supplement will describe any
material contractual restrictions on such 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
Charter or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Preferred Stock will be
designated in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Charter authorizes the issuance of up to 150,000,000 shares of Class A
Common Stock with a par value of $.01 per share. As of March 31, 1997, there
were 17,587,036 shares of Class A Common Stock issued and outstanding.
Subsequent to that date, the Company issued an aggregate of 2,300,000 shares of
Class A Common Stock in separate public offerings. In addition, at such date,
the Company had entered into agreements to acquire NHP which, if completed,
would result in the issuance of up to 7,570,000 additional shares of Class A
Common Stock. In addition, up to 150,000, 500,000 and 500,000 shares of Class A
Common Stock have been reserved for issuance under the Company's 1994 Stock
Option Plan (the "1994 Plan"), the 1996 Stock Award and Incentive Plan (the
"1996 Plan") and the Non-Qualified Employee Stock Option Plan (the
"Non-Qualified Plan"), respectively. The 1997 Stock Award and Incentive Plan
(the "1997 Plan") covers 10% of the shares of the Company's Common Stock
outstanding as of the first day of the fisal year during which any award is made
but in no event more than 20,000,000 shares of Common Stock. The Class A Common
Stock is traded on the NYSE under the symbol "AIV." ChaseMellon Shareholder
Services, L.L.C. serves as transfer agent and registrar of the Class A Common
Stock. In addition, the Charter originally authorized 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
March 31, 1997, 325,000 shares of Class B Common Stock had been so converted,
leaving a total of 425,000 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.
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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 Charter restricting the acquisition of
shares of Common Stock.
Subject to certain exceptions specified in the Company's Charter, no holder
may own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Code and Rule 13d-3 under the Exchange Act, more
than 8.7% (or 15% in the case of certain pension trusts described in the Code,
investment companies registered under the Investment Company Act of 1940 and Mr.
Considine) of the outstanding shares of Common Stock (the "Ownership Limit").
The Board of Directors may waive the Ownership Limit if evidence satisfactory to
the Board of Directors and the Company's tax counsel is presented that such
ownership will not then or in the future jeopardize the Company's status as a
REIT. However, in no event may such holder's direct or indirect ownership of
Common Stock exceed 9.8% of the total outstanding shares of Common Stock. As a
condition of such waiver, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of the Company. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT and a resolution terminating
the Company's status as a REIT and amending the Company's Charter 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 Charter within 30
days after January 1 of each year. In addition, each stockholder shall upon
demand
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<PAGE>
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 certain third parties 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
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 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, 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
December 31, 1996 remain outstanding until converted into shares of Class A
Common Stock.
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
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Company's Charter). 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.
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
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<PAGE>
determined for purposes of the appraisal rights may not be less than the highest
price per share paid in the control share acquisition, and certain limitations
and restrictions otherwise applicable to the exercise of dissenters' rights do
not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. The
control share acquisition statute could have the effect of discouraging offers
to acquire the Company and of increasing the difficulty of consummating any such
offer.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue, together with other Securities or separately,
warrants for the purchase of Debt Securities, Preferred Stock or Class A Common
Stock (the "Warrants"). The Warrants may be issued under a Warrant Agreement
(each, a "Warrant Agreement") to be entered into between the Company and a bank
or trust company, as warrant agent (the "Warrant Agent"), as set forth in the
applicable Prospectus Supplement relating to any or all Warrants in respect of
which this Prospectus is being delivered. The Warrant Agent will act solely as
an agent of the Company in connection with the Warrants of a particular series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of Warrants. The Warrant Agreement for
each Warrant, including the forms of certificates representing the Warrants
("Warrant Certificates"), will be filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus forms a part
at or prior to the time of the issuance of such Warrants.
The following description sets forth certain general terms and provisions of
the Warrants to which any Prospectus Supplement may relate. The particular terms
of the Warrants to which any Prospectus Supplement may relate and the extent, if
any, to which such general provisions may apply to the Warrants so offered will
be described in the applicable Prospectus Supplement. Capitalized terms used in
this section which are not otherwise defined in this Prospectus shall have the
meanings set forth in the Warrant Agreement and Warrant Certificate. The
following summary of certain provisions of the Warrants, Warrant Agreement and
Warrant Certificate does not purport to be complete and is subject to, and is
qualified in its entirety by express reference to, all the provisions of the
Warrant Agreement and Warrant Certificate, including the definitions therein of
certain terms.
Reference is made to the applicable Prospectus Supplement for the terms of
Warrants in respect of which this Prospectus is being delivered, the Warrant
Agreement relating to such Warrants and the Warrant Certificates representing
such Warrants, including the following: (i) the designation, aggregate principal
amount and terms of the Debt Securities or the designation and terms of the
Preferred Stock, if any, purchasable upon exercise of such Warrants; (ii) the
procedures and conditions relating to the exercise of such Warrants; (iii) the
designation and terms of any related Securities with which such Warrants are
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, or the method of
determining such number and price; (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 ownership or 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.
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<PAGE>
Warrant Certificates will be exchangeable for new Warrant Certificates of
different denominations and Warrants may be exercised at the corporate trust
office of the Warrant Agent or any other office indicated in the applicable
Prospectus Supplement. Prior to the exercise of their Warrants, holders of
Warrants will not have any of the rights of holders of the Securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the Debt Securities purchasable
upon such exercise or to any dividend payments or voting rights that holders of
the Preferred Stock or Common Stock purchasable upon such exercise may be
entitled to.
Each Warrant will entitle the holder to purchase for cash such principal
amount of Debt Securities, or such number of shares of Preferred Stock or Class
A Common Stock, at such exercise price as shall, in each case, be set forth in,
or be determinable as set forth in, the applicable Prospectus Supplement
relating to the Warrants offered thereby. Unless otherwise specified in the
applicable Prospectus Supplement, Warrants may be exercised at any time up to
5:00 p.m. New York City time on the expiration date set forth in the applicable
Prospectus Supplement. After 5:00 p.m. New York City time on the expiration
date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the applicable Prospectus
Supplement relating to the Warrants. Upon receipt of payment and the Warrant
Certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent on any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, forward the Securities
purchasable upon such exercise. If less than all of the Warrants represented by
such Warrant Certificate are exercised, a new Warrant Certificate will be issued
for the remaining amount of Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents or dealers. Any such underwriter, agent or dealer involved in the
offer and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to the prevailing market prices at the time of
sale or at negotiated prices. The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Securities
upon the terms and conditions set forth in the applicable Prospectus Supplement.
In connection with the sale of Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Securities for
whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions (which may be changed from time to time) from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to 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.
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<PAGE>
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to such
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall not be less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but will, in all cases, be subject to the
approval of the Company. The terms and conditions of any Contracts will be set
forth in any Prospectus Supplement relating to the Securities being offered.
Agents and underwriters will have no responsibility in respect of the delivery
or performance of Contracts.
Until the distribution of the Securities offered pursuant to any Prospectus
Supplement is completed, the Commission's rules may limit the ability of any
underwriter participating in such distribution to bid for and purchase the
Securities offered thereby and other securities of the Company. As an exception
to these rules, the underwriters are permitted to engage in certain transactions
that stabilize or maintain the price of such securities. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of such securities. If any such underwriter creates a short position
in such securities in connection with the offering, such underwriter may reduce
such short position by purchasing securities.
In general, bids for or purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might otherwise be in the absence of such bids or
purchases.
Neither the Company nor any underwriter participating in any distribution
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
offered Securities or other securities of the Company. In addition, neither the
Company nor any such underwriter makes any representation that such underwriter
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
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.
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.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER 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 stockholders. 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 LLP, commencing with the Company's taxable year ending December 31, 1994,
the Company was organized in conformity with the requirements for qualification
as a REIT, and its proposed method of operation and its actual method of
operation since formation, 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 (including
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 LLP 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 LLP. 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 stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to Federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference. Third, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will 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
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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 conditions (1) through (4) 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 Charter provides 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 stockholder 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 is 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 Subsidiary Partnerships will be treated as assets, liabilities and
items of income of the Company for purposes of applying the REIT requirements
described herein. A summary of the rules governing the Federal income taxation
of partnerships and their partners is provided below in "Tax Aspects of the
Company's Investments in Partnerships."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from "prohibited
transactions," i.e., certain sales of property held primarily for sale to
customers in the ordinary course of business) for each taxable year must be
derived directly or indirectly from investments 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
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disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must, in the
aggregate, represent less than 30% of the Company's gross income for each
taxable year.
Rents received by the Company through the Subsidiary Partnerships will
qualify as "rents from real property" in satisfying the gross income
requirements described above, only if several conditions are met. 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 interest in PAMS LP. Such fee and other income generally
will not qualify under the 95% gross income test. The Company also expects to
receive distributions indirectly from the Management Subsidiaries through PAMS
Inc. that will be classified as dividend income to the extent of the earnings
and profits of PAMS Inc. 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 the
Subsidiary Partnerships), 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.
The Company indirectly owns 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 interest in PAMS Inc. qualifies under these rules. Skadden,
Arps, Slate, Meagher & Flom LLP, in rendering its opinion as to the
qualification of the Company as a REIT, has relied on representations of the
Company as to the value of the Operating Partnership's total assets and the
value of the Operating Partnership's interest in PAMS Inc. No independent
appraisals have been obtained to support the Company's conclusions as to the
values of the Operating Partnership's interest in PAMS Inc., and this value is
subject to change in
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the future. Accordingly, there can be no assurance that the Service will not
contend that the Operating Partnership's ownership interests in the PAMS Inc.
disqualifies the Company from treatment as a REIT.
The Company's indirect interests in the Operating Partnership and other
Subsidiary 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 distributions of property.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement 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.
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 stockholders 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.
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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 Subsidiary 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 LLP, 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
Subsidiary 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 LLP has no obligation to advise holders of Securities of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in the applicable law. An opinion of counsel, however, is not
binding on the Service, and no assurance can be given that the Service will not
challenge the status of these entities as partnerships for Federal income tax
purposes.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to the Code and
the regulations thereunder, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the book 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.
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In general, certain holders of 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 stockholders is
expected to come from the Management Subsidiaries, through dividends paid on the
non-voting preferred stock of PAMS Inc. held by the Operating Partnership,
distributions paid to the Operating Partnership as the general partner of PAMS
LP and interest paid by PAMS Inc. on certain installment notes held by the
Operating Partnership. PAMS Inc. will not qualify as a REIT 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
PAMS Inc. is 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 stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent that they do not exceed the 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
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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) provided that 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.
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 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).
NON-DIVIDEND DISTRIBUTION. Unless the Class A Common Stock constitutes a
United States Real Property Interest (a "USRPI"), 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 IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and
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accumulated earnings and profits of the Company. If the Class A Common Stock
constitutes a USRPI, such distributions will be subject to 10% withholding and
taxed pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") at a rate of 35% to the extent such distributions exceed a
stockholder's basis in his or her Class A Common Stock.
CAPITAL GAIN DIVIDENDS. Under FIRPTA, a distribution made by AIMCO to a
Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs
such as the properties beneficially owned by AIMCO ("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, AIMCO 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 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
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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.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Service.
These information reporting and backup withholding rules are under review by
the U.S. Treasury and their application to the Securities could be changed by
future regulations. On April 15, 1996, the Service issued proposed Treasury
Regulations concerning the withholding of tax and reporting for certain amounts
paid to non-resident individuals and foreign corporations. The proposed Treasury
Regulations, if adopted in their present form, would be effective for payments
made after December 31, 1997. Prospective purchasers should consult their tax
advisors concerning the potential adoption of such proposed Treasury Regulations
and the potential effect on their ownership of Securities.
OTHER TAX CONSEQUENCES
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective investors in the Securities should recognize that the
present Federal income tax treatment of an investment in the Operating
Partnership or 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 the U.S. 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 Operating Partnership or the Company. For example, a recent
Federal budget proposal contains language which, if enacted in its present form,
would result in the immediate taxation of all gain inherent in a corporation's
assets upon an election by the corporation to become a REIT, and thus would
effectively preclude the Company from re-electing REIT status following a
termination of its REIT qualification.
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 LLP, Los Angeles, California. The validity of the
Securities offered hereby will be passed upon for
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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, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated and combined financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of NHP Incorporated for the years
ended December 31, 1996, 1995 and 1994 included in the Company's Current Report
on Form 8-K dated April 16, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report thereon included
therein and incorporated by reference herein. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
As noted in their report, Arthur Andersen LLP did not audit the 1994
financial statements of certain real estate partnerships whose operating results
are included in "income (loss) from discontinued real estate operations, net of
income taxes" in the 1994 consolidated financial statements. The financial
statements of these real estate partnerships were audited by other auditors,
whose reports are filed as exhibits to the Company's Current Report on Form 8-K,
dated April 16, 1997, and Arthur Andersen LLP's opinion, insofar as it relates
to the amounts included in the consolidated financial statements for these real
estate partnerships, is based solely on the reports of those auditors included
therein and incorporated herein by reference. The auditors on whose reports
Arthur Andersen LLP relied are: Anders, Minkler & Diehl LLP; Dauby O'Connor &
Zaleski, LLC; Deloitte & Touche LLP; Edwards Leap & Sauer; George A. Hieronymous
& Company, LLC; Goldenberg Rosenthal Friedlander, LLP; Hansen, Hunter & Kibbee,
P.C.; J.H. Cohn LLP; J.A. Plumer & Co., P.A.; Marks Shron & Company, LLP;
Reznick Fedder & Silverman; and Russell Thompson Butler & Houston.
The Historical Summary of Gross Income and Direct Operating Expenses of
Villa Ladera Apartments for the year ended December 31, 1995 included in the
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 herein by reference. Such Historical Summary
is incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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 AIMCO 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 AIMCO SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Summary..................................... S- 3
Risk Factors................................ S-15
Use of Proceeds............................. S-26
Ratio of Earnings to Fixed Charges.......... S-26
Capitalization.............................. S-27
Selected Pro Forma and Historical Financial
Information............................... S-28
Description of Class D Preferred Stock...... S-31
Class C Preferred Stock..................... S-35
Class B Preferred Stock..................... S-36
Board of Directors and Officers of AIMCO.... S-37
Underwriting................................ S-42
Certain Federal Income Tax Considerations... S-43
Experts..................................... S-44
Legal Matters............................... S-47
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 2
The Company................................. 4
Use of Proceeds............................. 5
Ratio of Earnings to Fixed Charges.......... 5
Description of Debt Securities.............. 5
Description of Preferred Stock.............. 12
Description of Common Stock................. 15
Description of Warrants..................... 19
Plan of Distribution........................ 20
Certain Federal Income Tax Considerations... 21
Legal Matters............................... 30
Experts..................................... 31
</TABLE>
4,000,000 SHARES
[LOGO]
APARTMENT
INVESTMENT AND
MANAGEMENT COMPANY
8 3/4% CLASS D CUMULATIVE
PREFERRED STOCK
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PROSPECTUS SUPPLEMENT
FEBRUARY 13, 1998
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SALOMON SMITH BARNEY
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY
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